PART II- OFFERING CIRCULAR
Madyson Equity Group, LP
(the "Company")
Preliminary Prospectus dated_______________________________
The Company is hereby providing the information required by Part I of Form S-11 (17 9 CFR 239.18 and are following the requirements for a smaller reporting company as it meets the definition of that term in Rule 405 (17 CFR 230.405).
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 there 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. The Company may elect to satisfy its obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.
We are offering 50,000 Limited Partnership Interests ("Limited Partnership Interests" or "Interests") at $1,000 per Interests through our General Partner (the "Offering.") The Limited Partnership Interests shall bear a cumulative, non-compounding Preferred Return ("Preferred Return") of six percent (6%) on invested capital. Funds will be made immediately available to the Company once the Company raise a minimum of $1,000,000 ("Minimum Offering") in a designated escrow account for the purposes of acquiring assets or working capital. This Offering terminates in 365 days after commencement of this Offering. There are no provisions for the return of funds once the minimum of 1,000 Interests are sold. No commissions will be paid for the sale of the Interests offered by the Company.
No public market currently exists for our Interests. The Company will be managed by Madyson Capital Management, LLC which is managed by Joseph D. Ryan and Brandon J. Herbst (the "General Partner.") The Company has set a minimum investment requirement of $5,000, but may accept subscriptions for less at the discretion of the General Partner. We do intend to place the funds into a segregated account up to $1,000,000 that will be held in escrow by our intended transfer and escrow agent, FundAmerica. Therefore, purchasers of our Interests qualified hereunder may be unable to sell their securities, because there may not be a public market for our securities. Any purchaser of our securities should be in a financial position to bear the risks of losing their entire investment.
The transfer of Interests is limited. A Limited Partner may assign, his, her or its Interests only if only if certain conditions set forth in the Partnership Agreement are satisfied. Please see those conditions on page 39 under "SUMMARY OF PARTNERSHIP AGREEMENT-Withdrawal, Redemption Policy and Other Events of Dissociation."
The Company has been formed to acquire various real estate related assets such senior living facilities and multifamily properties throughout United States.
The Company is considered an "emerging growth company" under Section 101(a) of the Jumpstart Our Business Startups Act as it is an issuer that had total annual gross revenues of less than $1 billion during its most recently completed fiscal year.
Our independent auditors included an explanatory paragraph in the report on our 2016 financial statements related to the uncertainty in our ability to continue as a going concern.
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Some of our Risk Factors include:
· We are an emerging growth company with a limited operating history. · Subscribers will have limited control in our company with limited voting rights. The Managing Limited Partners will manage the day to day operations of the Company. · We may require additional financing, such as bank loans, outside of this offering in order for our operations to be successful. · We have not conducted any revenue-generating activities and as such have not generated any revenue since inception. · Our offering price is arbitrary and does not reflect the book value of our Limited Partnership Interests. · Investments in real estate and real estate related assets are speculative and we will be highly dependent on the performance of the real estate market. · Our independent auditors have expressed substantial doubt about our ability to continue as a going concern in the independent auditors' report to the financial statements included in the Offering. · The Company does not currently own any assets.
See the section entitled "RISK FACTORS" beginning on page 7 for a more comprehensive discussion of risks to consider before purchasing our Limited Partnership Interests.
INVESTMENT IN SMALL BUSINESSES INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE THE SECTION ENTITLED "RISK FACTORS."
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED OR APPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THESE AUTHORITIES HAVE NOT PASSED UPON THE ACCURACY OR ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE U.S. SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR SELLING LITERATURE. THESE SECURITIES ARE OFFERED UNDER AN EXEMPTION FROM REGISTRATION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THESE SECURITIES ARE EXEMPT FROM REGISTRATION.
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.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY |
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EXEMPTIONS UNDER JUMPSTART OUR BUSINESS STARTUPS ACT |
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RISK FACTORS |
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DETERMINATION OF OFFERING PRICE |
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PLAN OF DISTRIBUTION |
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USE OF PROCEEDS |
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SELECTED FINANCIAL DATA |
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION |
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INVESTMENT POLICIES OF COMPANY |
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DESCRIPTION OF BUSINESS |
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TAX TREATMENT OF COMPANY AND ITS SUBSIDIARIES |
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SUMMARY OF PARTNERSHIP AGREEMENT |
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LEGAL PROCEEDINGS |
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OFFERING PRICE FACTORS |
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS |
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SELECTION, MANAGEMENT AND CUSTODY OF COMPANY'S INVESTMENTS |
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LIMITATIONS OF LIABILITY |
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INTERESTS OF NAMED EXPERTS AND COUNSEL |
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FINANCIAL STATEMENTS |
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PART III - EXHIBITS |
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PROSPECTUS SUMMARY
This summary contains basic information about us and the Offering. Because it is a summary, it does not contain all the information that you should consider before investing. You should read the entire Prospectus carefully, including the risk factors and our financial statements and the related notes to those statements included in this prospectus. Except as otherwise required by the context, references in this prospectus to "we," "our," "us," "the Company," "Madyson Equity Group," and "Madyson," refer to Madyson Equity Group, LP
We were formed on February 26, 2016 and have not yet commenced operations.
We are not a blank check company and do not consider ourselves to be a blank check company as we:
| · | Have a specific business plan. We have provided a detailed plan for the next twelve (12) months throughout our Prospectus. | |
| · | Have no intention of entering into a reverse merger with any entity in an unrelated industry in the future. |
Since our inception through February 27, 2016, we have not generated any revenues and have incurred a net loss of $0. We anticipate the commencement of generating revenues in the next twelve months. The capital raised in this offering has been budgeted to cover the costs associated with beginning to operate our company, marketing expense, and acquisition related costs. We intend on using the majority of the proceeds from this Offering for the acquisition of properties. However, closing and other acquisition related costs such as title insurance, professional, fees and taxes will likely require cash. We do not have the ability to quantify any of the expenses as they will all depend on size of deal, price, and place versus procuring new financing, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc. There is no way to predict or otherwise detail expenses.
We intend on engaging in the following activities:
Purchase multifamily properties and senior living care facilities that have potential to be or are cash flow positive, meaning properties that have a positive monthly income after all expenses (mortgages, operating expenses, taxes) and maintenance reserves are paid. In order to determine if a property is "cash flow positive" our Manager will review the total gross rent, income, or receipts from the property and subtract any and all expenses including utilities, taxes, maintenance, and other reserve expenses. If this number is a positive number, the Company will deem the property "cash flow positive." Depending on how positive the cash flow is will determine whether the management will purchase the property or not on behalf of the Company: there must be a comfortable cash flow potential which our officer is comfortable with. Invest in any opportunity our General Partner sees fit within the confines of the market, marketplace and economy so long as those investments are real estate related and within the investment objectives of the Company. To this end, at some time in the future, but not within the first 12 months of the Company, the Company may also purchase additional properties or make other real estate investments that relate to varying property types including office, retail and industrial properties. Such property types may include operating properties, properties under development, and undeveloped properties such as land. It is expected that the Company will only use the proceeds in this Offering to purchase multifamily properties and senior living care facilities.
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In all cases, the debt on any given property must be such that it fits with the Investment Policies of the Company. We intend on leveraging our equity capital on a 3 to 1 basis meaning that for every $1 of equity capital raised, we intend to borrow $3 to leverage our purchasing power.
The Company does not currently own any assets. Please see our "DESCRIPTION " on page 25. We believe we will need at least $100,000 to provide working capital and $25,000 for professional fees for the next 12 months.
As of the date of this Offering, we have three principals of our General Partner who we anticipate will be devoting half of their working hours to the Company going forward if we are not able to raise a sufficient amount of capital. Joseph D. Ryan and Brandon J. Herbst through our General Partner, will be in charge of our day to day operations until such time we are able to hire other personnel. If we are sufficiently financed, the members of the General Partner intend to devote approximately 50% of his working hours to the Company which we believe to be approximately 20 hours, but may be less. Even if we sell all the securities offered, the majority of the proceeds of the offering will be spent for ongoing operational and property acquisition costs. Investors should realize that following this Offering we will be required to raise additional capital to cover the costs associated with our plans of operation.
Some of our Risk Factors include:
| · | We are an emerging growth company with a limited operating history. |
| · | Subscribers will have limited control in our company with limited voting rights. The Managing Limited Partners will manage the day to day operations of the Company. |
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| · | We may require additional financing, such as bank loans, outside of this offering in order for our operations to be successful. |
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| · | We have not conducted any revenue-generating activities and as such have not generated any revenue since inception. |
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| · | Our offering price is arbitrary and does not reflect the book value of our Limited Partnership Interests. |
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| · | Investments in real estate and real estate related assets are speculative and we will be highly dependent on the performance of the real estate market. |
| · | Our independent auditors have expressed substantial doubt about our ability to continue as a going concern in the independent auditors' report to the financial statements included in the Offering. |
| · | The Company does not currently own any assets. |
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We are an emerging growth company. An emerging growth company is one that had total annual gross revenues of less than $1,000,000,000 (as such amount is indexed for inflation every 5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) during its most recently completed fiscal year. We would lose our emerging growth status if we were to exceed $1,000,000,000 in gross revenues. We are not sure this will ever take place.
Because we are an emerging growth company, we have the exemption from Section 404(b) of Sarbanes-Oxley Act of 2002 and Section 14A(a) and (b) of the Securities Exchange Act of 1934. Under Section 404(b), we are now exempt from the internal control assessment required by subsection (a) that requires each independent auditor that prepares or issues the audit report for the issuer shall attest to, and report on, the assessment made by the management of the issuer. We are also not required to receive a separate resolution regarding either executive compensation or for any golden parachutes for our executives so long as we continue to operate as an emerging growth company.
We hereby elect to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1).
We will lose our status as an emerging growth company in the following circumstances:
| · | The end of the fiscal year in which our annual revenues exceed $1 billion. |
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| · | The end of the fiscal year in which the fifth anniversary of our IPO occurred. |
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| · | The date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt. |
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| · | The date on which we qualify as a large accelerated filer. |
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RISK FACTORS
Investors in the Company should be particularly aware of the inherent risks associated with our business. As of the date of this filing our management is aware of the following material risks.
General Risks Related to Our Business
We are an emerging growth company organized in February 2016 and have recently commenced operations, which makes an evaluation of us extremely difficult. At this stage of our business operations, even with our good faith efforts, we may never become profitable or generate any significant amount of revenues, thus potential investors have a high probability of losing their investment.
We were organized in February 2016 and have not yet started operations. As a result of our start-up operations we have; (i) generated no revenues, (ii) will accumulate deficits due to organizational and start-up activities, business plan development, and professional fees since we organized. There is nothing at this time on which to base an assumption that our business operations will prove to be successful or that we will ever be able to operate profitably. Our future operating results will depend on many factors, including our ability to raise adequate working capital, availability of properties for purchase, the level of our competition and our ability to attract and maintain key management and employees.
We are significantly dependent on Joseph D. Ryan and Brandon J. Herbst. The loss or unavailability of his services would have an adverse effect on our business, operations and prospects in that we may not be able to obtain new management under the same financial arrangements, which could result in a loss of your investment.
Our business plan is significantly dependent upon the abilities and continued participation of Joseph D. Ryan, and Brandon J. Herbst. It would be difficult to replace Joseph D. Ryan and Brandon J. Herbst at such an early stage of development of the Company. The loss by or unavailability of their services would have an adverse effect on our business, operations and prospects, in that our inability to replace Joseph D. Ryan and Brandon J. Herbst could result in the loss of one's investment. There can be no assurance that we would be able to locate or employ personnel to replace Mr. Ryan and Mr. Herbst should their services be discontinued. In the event that we are unable to locate or employ personnel to replace Mr. Ryan and Mr. Herbstwe would be required to cease pursuing our business opportunity, which could result in a loss of your investment
Our independent auditors have expressed in their report substantial doubt about our ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they become due.
You may not have the opportunity to evaluate our investments before we make them, which makes your investment more speculative.
You will be unable to evaluate the economic merit of our note investments before we invest in them and will be entirely relying on the ability of Madyson Capital Management, LLC, our General Partner, to select our investments. Furthermore, our General Partner will have broad discretion in implementing policies regarding tenant or mortgagor creditworthiness, and you will not have the opportunity to evaluate potential tenants, managers or borrowers. These factors increase the risk that your investment may not generate returns comparable to our competitors.
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Our General Partner will have complete control over the Company and will therefore make all decisions of which Limited Partners will have no control.
Madyson Capital Management, LLC, our General Partner, shall make certain decisions without input by the Limited Partners. Such decisions may pertain to employment decisions, including our General Partner's compensation arrangements, the appointment of other officers and managers, and whether to enter into material transactions with related parties.
An investment in the Interests is highly illiquid. You may never be able to sell or otherwise dispose of your Interests.
Since there is no public trading market for our Interests, you may never be able to liquidate your investment or otherwise dispose of your Interests. The Company does currently have a redemption program, but there is no guarantee that the Company will ever redeem or "buy back" your Interests. Further, no one is allowed to redeem their Interests until twelve (12) months after the Interests were purchased. The Company will only redeem Interests up to 12.5% of the value of the assets in any giving quarter.
Risks Related to the Real Estate Business in General
The profitability of attempted acquisitions is uncertain.
We intend to acquire properties selectively. Acquisition of properties entails risks that investments will fail to perform in accordance with expectations. In undertaking these acquisitions, we will incur certain risks, including the expenditure of funds on, and the devotion of management's time to, transactions that may not come to fruition. Additional risks inherent in acquisitions include risks that the properties will not achieve anticipated occupancy levels and that estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate. Expenses may be greater than anticipated.
Real estate investments are illiquid.
Because real estate investments are relatively illiquid, our ability to vary our portfolio promptly in response to economic or other conditions will be limited. The foregoing and any other factor or event that would impede our ability to respond to adverse changes in the performance of our investments could have an adverse effect on our financial condition and results of operations.
Rising expenses could reduce cash flow and funds available for future acquisitions.
Our properties will be subject to increases in tax rates, utility costs, operating expenses, insurance costs, repairs and maintenance, administrative and other expenses. If we are unable to lease properties on a basis requiring the tenants to pay all or some of the expenses, we would be required to pay those costs, which could adversely affect funds available for future acquisitions or cash available for distributions.
If we purchase assets at a time when the multifamily real estate market is experiencing substantial influxes of capital investment and competition for properties, the real estate we purchase may not appreciate or may decrease in value.
The multifamily real estate markets are currently experiencing a substantial influx of capital from investors worldwide. This substantial flow of capital, combined with significant competition for real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future as it is currently attracting, or if the number of companies seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.
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A multifamily property's income and value may be adversely affected by national and regional economic conditions, local real estate conditions such as an oversupply of properties or a reduction in demand for properties, availability of "for sale" properties, competition from other similar properties, our ability to provide adequate maintenance, insurance and management services, increased operating costs (including real estate taxes), the attractiveness and location of the property and changes in market rental rates. Our income will be adversely affected if a significant number of tenants are unable to pay rent or if our properties cannot be rented on favorable terms. Our performance is linked to economic conditions in the regions where our properties will be located and in the market for multifamily space generally. Therefore, to the extent that there are adverse economic conditions in those regions, and in these markets generally, that impact the applicable market rents, such conditions could result in a reduction of our income and cash available for distributions and thus affect the amount of distributions we can make to you.
We may depend on multifamily tenants or senior living facility residents or both for some of our revenue and therefore our revenue may depend on the success and economic viability of our multifamily tenants.
We will be highly dependent on income from either tenants of a multifamily building, residents at a senior living care facility or both. Our financial results will depend in part on leasing space in the properties we acquire to tenants on economically favorable terms.
In the event of a tenant default prior to stabilization, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. A default, of a substantial tenant or number of tenants at any one time, on lease payments to us would cause us to lose the revenue associated with such lease(s) and cause us to have to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. Therefore, lease payment defaults by tenant(s) could cause us to lose our investment or reduce the amount of distributions to Limited Partners.
A lessee or operator of our senior living care facilities may not obtain or maintain the applicable licenses and permits and otherwise may fail to comply with applicable law, and in such case the lessee or operator may be subject to fines or be unable to operate, which might result in the lessee or operator failing to pay rent. The lessee or operator's failure to pay rent would materially and adversely affect us and your investment.
We may elect to operate a senior care living facility ourselves or rent the facility to an experienced operator. As a provider of residential care services licensed by the Department of Social Services, the lessee or operator will be required to comply with the federal and state laws and regulations governing health care providers as a Residential Care Facility for the Elderly. If the lessee or operator fails to obtain or maintain the appropriate licenses and permits, it will be unable to operate, which would materially and adversely affect its ability to pay rent and therefore materially and adversely affect us. Further, if lessee or operator fails to otherwise comply with applicable law, it may be subject to fines and other punishment, which would also materially and adversely affect us.
The current laws concerning health care may increase our costs of compliance or affect our ability to charge our intended rates.
Changes in regulation of healthcare, and in particular regulation of health insurance providers, or a transition to a government insured health system, could adversely impact the ability of healthcare institutions and professionals to continue to realize current revenue levels as a result of, among other causes, government restrictions on amounts charged, increased operating costs as a result of compliance or delays in reimbursement to our residents. While operation of these types of properties does not rely directly on government programs for income, any changes in government health care programs may affect the ability of these properties to charge the fees contemplated or to collect fees from residents of the properties. Were such circumstances to become a reality, operations of the lessee or operator could be affected adversely both administratively and financially. In such an event the ability to recognize appreciation on any acquired properties which we may acquire may be adversely affected, or a diminution of value could occur, as a result of rental market rates for senior living care facilities decline on a broader scale
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Healthcare operations are subject to litigation risks and increasing insurance costs, and if such anticipated costs arise, our ability to pay distributions to Limited Partners will be adversely affected.
In several well publicized instances, private litigation by residents of senior living communities for negligence or alleged abuses has resulted in large damage awards against some operating companies in the senior living industry. The effect of this litigation and potential litigation has been to dramatically increase the costs of monitoring and reporting quality of care compliance incurred by companies operating senior living care facilities. Workers compensation and employee health insurance costs have also increased in recent years. Medical liability insurance reform has become a topic of political debate and some states have enacted legislation to limit future liability awards. However, if such reforms are not generally adopted, insurance costs may continue to increase. If insurance costs increase faster than projected it will likely adversely affect the operating cash flow of the lessee or operator and its ability to pay rent to us, and therefore adversely affect our ability to pay distributions to Limited Partners.
We may not make a profit if we sell a property.
The prices that we can obtain when we determine to sell a property will depend on many factors that are presently unknown, including the operating history, tax treatment of real estate investments, demographic trends in the area and available financing. There is a risk that we will not realize any significant appreciation on our investment in a property. Accordingly, your ability to recover all or any portion of your investment under such circumstances will depend on the amount of funds so realized and claims to be satisfied therefrom.
This offering is a blind pool offering, and therefore, Limited Partners will not have the opportunity to evaluate some of our investments before we make them, which makes investments more speculative.
We will seek to invest substantially all of the net offering proceeds from this Offering, after the payment of fees and expenses, in the acquisition of or investment in interests in assets. However, because, as of the date of this prospectus, we have not identified the assets we expect to acquire and because our Limited Partners will be unable to evaluate the economic merit of assets before we invest in them, they will have to rely on the ability of our Manager to select suitable and successful investment opportunities. These factors increase the risk that our Limited Partners' investment may not generate returns comparable to our competitors.
Our properties may not be diversified.
Our potential profitability and our ability to diversify our investments may be limited, both geographically and by type of properties purchased. We will be able to purchase additional properties only as additional funds are raised and only if owners of real estate accept our Preferred Interests in exchange for an interest in the target property or title to the property. Our properties may not be well diversified and their economic performance could be affected by changes in local economic conditions.
Our performance is therefore linked to economic conditions in the regions in which we will acquire properties and in the market for real estate properties generally. Therefore, to the extent that there are adverse economic conditions in the regions in which our properties are located and in the market for real estate properties, such conditions could result in a reduction of our income and cash to return capital and thus affect the amount of distributions we can make to you.
Competition with third parties in acquiring and operating properties may reduce our profitability and the return on your investment.
We compete with many other entities engaged in real estate investment activities, many of which have greater resources than we do. Specifically, there are numerous commercial developers, real estate companies, and foreign investors that operate in the markets in which we may operate, that will compete with us in acquiring residential, commercial, and other properties that will be seeking investments and tenants for these properties.
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Many of these entities have significant financial and other resources, including operating experience, allowing them to compete effectively with us. Competitors with substantially greater financial resources than us may generally be able to accept more risk than we can prudently manage, including risks with respect to the creditworthiness of entities in which investments may be made or risks attendant to a geographic concentration of investments. Demand from third parties for properties that meet our investment objectives could result in an increase of the price of such properties. If we pay higher prices for properties, our profitability may be reduced and you may experience a lower return on your investment. In addition, our properties may be located in close proximity to other properties that will compete against our properties for tenants. Many of these competing properties may be better located and/or appointed than the properties that we will acquire, giving these properties a competitive advantage over our properties, and we may, in the future, face additional competition from properties not yet constructed or even planned. This competition could adversely affect our business. The number of competitive properties could have a material effect on our ability to rent space at our properties and the amount of rents charged. We could be adversely affected if additional competitive properties are built in locations competitive with our properties, causing increased competition for residential renters. In addition, our ability to charge premium rental rates to tenants may be negatively impacted. This increased competition may increase our costs of acquisitions or lower the occupancies and the rent we may charge tenants. This could result in decreased cash flow from tenants and may require us to make capital improvements to properties which we would not have otherwise made, thus affecting cash available for distributions to you.
We may not have control over costs arising from rehabilitation or ground up construction of properties.
We may elect to acquire properties which may require rehabilitation or even be from the "ground up," meaning that we purchase the land and implement a plan to construct a multifamily building on the land. In particular, we may acquire affordable properties that we will rehabilitate and convert to market rate properties. We may also purchase land, entitle the land for a multifamily building or senior living facility (if that is not already provided), architect a multifamily building or senior living facility, and build a brand new multifamily building or senior care facility. Consequently, we intend to retain independent general contractors to perform the actual physical rehabilitation and/or construction work and will be subject to risks in connection with a contractor's ability to control rehabilitation and/or construction costs, the timing of completion of rehabilitation and/or construction, and a contractor's ability to build in conformity with plans and specification.
Inventory or available properties might not be sufficient to real our investment goals.
We may not be successful in identifying suitable real estate properties or other assets that meet our acquisition criteria, or consummating acquisitions or investments on satisfactory terms. Failures in identifying or consummating acquisitions would impair the pursuit of our business plan. Limited Partners ultimately may not like the location, lease terms or other relevant economic and financial data of any real properties, other assets or other companies that we may acquire in the future. Moreover, our acquisition strategy could involve significant risks that could inhibit our growth and negatively impact our operating results, including the following: increases in asking prices by acquisition candidates to levels beyond our financial capability or to levels that would not result in the returns required by our acquisition criteria; diversion of management's attention to expansion efforts; unanticipated costs and contingent or undisclosed liabilities associated with acquisitions; failure of acquired businesses to achieve expected results; and difficulties entering markets in which we have no or limited experience.
The consideration paid for our target acquisition may exceed fair market value, which may harm our financial condition and operating results.
The consideration that we pay will be based upon numerous factors, and the target acquisition may be purchased in a negotiated transaction rather than through a competitive bidding process. We cannot assure anyone that the purchase price that we pay for a target acquisition or its appraised value will be a fair price, that we will be able to generate an acceptable return on such target acquisition, or that the location, lease terms or other relevant economic and financial data of any properties that we acquire will meet acceptable risk profiles. We may also be unable to lease vacant space or renegotiate existing leases at market rates, which would adversely affect our returns on a target acquisition. As a result, our investments in our target acquisition may fail to perform in accordance with our expectations, which may substantially harm our operating results and financial condition.
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The failure of our properties to generate positive cash flow or to appreciate in value would most likely preclude our Limited Partners from realizing a return on their Interest ownership.
There is no assurance that our real estate investments will appreci-ate in value or will ever be sold at a profit. The marketability and value of the properties will depend upon many factors beyond the control of our management. There is no assurance that there will be a ready market for the properties, since investments in real property are generally non-liquid. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any property for the price or on the terms set by it, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. Moreover, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure any person that we will have funds available to correct those defects or to make those improvements. In acquiring a property, we may agree to lockout provisions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that property. These lockout provisions would restrict our ability to sell a property. These factors and any others that would impede our ability to respond to adverse changes in the performance of our properties could significantly harm our financial condition and operating results.
Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and harm our financial condition.
Because real estate investments are relatively illiquid, our ability to promptly sell one or more properties or investments in our portfolio in response to changing economic, financial and investment conditions may be limited. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions, and changes in laws, regulations or fiscal policies of jurisdictions in which the property is located. We may be unable to realize our investment objectives by sale, other disposition or refinance at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. An exit event is not guaranteed and is subject to the Manager's discretion.
Risks Related to Financing
We might obtain lines of credit and other borrowings, which increases our risk of loss due to potential foreclosure.
We may obtain lines of credit and long-term financing that may be secured by our assets. As with any liability, there is a risk that we may be unable to repay our obligations from the cash flow of our assets. Therefore, when borrowing and securing such borrowing with our assets, we risk losing such assets in the event we are unable to repay such obligations or meet such demands.
We have broad authority to incur debt and high debt levels could hinder our ability to make distributions and decrease the value of our investors' investments.
Our policies do not limit us from incurring debt until our total liabilities would be at 300% of the total equity capitalization of the Company. We intend to borrow as much as 60% of the value of our properties. We do not currently own any properties. High debt levels would cause us to incur higher interest charges and higher debt service payments and may also be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and could result in a decline in the value of our investors' investments.
| 12 |
Risks Related to Our Corporate Structure
We do not set aside funds in a sinking fund to pay distributions or redeem the Interests, so you must rely on our revenues from operations and other sources of funding for distributions and withdrawal requests. These sources may not be sufficient to meet these obligations.
We do not contribute funds on a regular basis to a separate account, commonly known as a sinking fund, to pay distributions on or redeem the Interests at the end of the applicable non-withdrawal period. Accordingly, you will have to rely on our cash from operations and other sources of liquidity, such as borrowed funds and proceeds from future offerings of securities, for distributions payments and payments upon withdrawal. Our ability to generate revenues from operations in the future is subject to general economic, financial, competitive, legislative, statutory and other factors that are beyond our control. Moreover, we cannot assure you that we will have access to additional sources of liquidity if our cash from operations are not sufficient to fund distributions to you. Our need for such additional sources may come at undesirable times, such as during poor market or credit conditions when the costs of funds are high and/or other terms are not as favorable as they would be during good market or credit conditions. The cost of financing will directly impact our results of operations, and financing on less than favorable terms may hinder our ability to make a profit. Your right to receive distributions on your Interests is junior to the right of our general creditors to receive payments from us. If we do not have sufficient funds to meet our anticipated future operating expenditures and debt repayment obligations as they become due, then you could lose all or part of your investment. We currently do not have any revenues.
You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a Limited Partner.
Our General Partner determines our major policies, including our policies regarding financing, growth and debt capitalization. Our General Partner may amend or revise these and other policies without a vote of the Limited Partners. Our General Partner's broad discretion in setting policies and our Limited Partners' inability to exert control over those policies increases the uncertainty and risks you face as a Limited Partner. In addition, our General Partner may change our investment objectives without seeking Limited Partner approval. Although our board has fiduciary duties to our Limited Partners and intends only to change our investment objectives when the board determines that a change is in the best interests of our Limited Partners, a change in our investment objectives could cause a decline in the value of your investment in our company.
Our ability to make distributions to our Limited Partners is subject to fluctuations in our financial performance, operating results and capital improvement requirements.
Currently, our strategy includes paying a preferred return to investors under this Offering that would result in a return of approximately 6% annualized return on investment, of which there is no guarantee. In the event of downturns in our operating results, unanticipated capital improvements to our properties, or other factors, we may be unable to declare or pay distributions to our Limited Partners. The timing and amount of distributions are the sole discretion of our General Partner who will consider, among other factors, our financial performance, any debt service obligations, any debt covenants, our taxable income and capital expenditure requirements. We cannot assure you that we will generate sufficient cash in order to fund distributions.
| 13 |
Investors will not receive the benefit of the regulations provided to real estate investment trusts or investment companies.
We are not a real estate investment trust and enjoy a broader range of permissible activities. Under the Investment Company Act of 1940, an "investment company" is defined as an issuer which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities; is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or 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 per centum of the value of such issuer's total assets (exclusive of Government securities and cash items) on an unconsolidated basis.
We intend to operate in such manner as not to be classified as an "investment company" within the meaning of the Investment Company Act of 1940 as we intend on primarily holding real estate. The management and the investment practices and policies of ours are not supervised or regulated by any federal or state authority. As a result, investors will be exposed to certain risks that would not be present if we were subjected to a more restrictive regulatory situation.
If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements and our activities may be restricted
If we are ever deemed to be an investment company under the Investment Company Act of 1940, we may be subject to certain restrictions including:
| · | restrictions on the nature of our investments; and |
| · | restrictions on the issuance of securities. |
In addition, we may have imposed upon us certain burdensome requirements, including:
| · | registration as an investment company; |
| · | adoption of a specific form of corporate structure; and |
| · | reporting, record keeping, voting, proxy, compliance policies and procedures and disclosure requirements and other rules and regulations. |
The exemption from the Investment Company Act of 1940 may restrict our operating flexibility. Failure to maintain this exemption may adversely affect our profitability.
We do not believe that at any time we will be deemed an "investment company" under the Investment Company Act of 1940 as we do not intend on trading or selling securities. Rather, we intend to hold and manage real estate. However, if at any time we may be deemed an "investment company," we believe we will be afforded an exemption under Section 3(c)(5)(C) of the Investment Company Act of 1940, as amended (referred to in this Offering as the "1940 Act"). (If you are going to abbreviate this, this comment should go where the first mention of the Act is which is the first paragraph of this page) Section 3(c)(5)(C) of the 1940 Act excludes from regulation as an "investment company" any entity that is primarily engaged in the business of purchasing or otherwise acquiring "mortgages and other liens on and interests in real estate". To qualify for this exemption, we must ensure our asset composition meets certain criteria. Generally, 55% of our assets must consist of qualifying mortgages and other liens on and interests in real estate and the remaining 45% must consist of other qualifying real estate-type interests. Maintaining this exemption may adversely impact our ability to acquire or hold investments, to engage in future business activities that we believe could be profitable, or could require us to dispose of investments that we might prefer to retain. If we are required to register as an "investment company" under the 1940 Act, then the additional expenses and operational requirements associated with such registration may materially and adversely impact our financial condition and results of operations in future periods.
| 14 |
Insurance Risks
We may suffer losses that are not covered by insurance.
The geographic areas in which we invest in notes may be at risk for damage to property due to certain weather-related and environmental events, including such things as severe thunderstorms, hurricanes, flooding, tornadoes, snowstorm, sinkholes, and earthquakes. To the extent possible, the General Partner may but is not required to attempt to acquire insurance against fire or environmental hazards. However, such insurance may not be available in all areas, nor are all hazards insurable as some may be deemed acts of God or be subject to other policy exclusions.
The General Partner expects to obtain a lender's title insurance policy and will require that owners of property securing its notes maintain hazard insurance naming the Company as the beneficiary. All decisions relating to the type, quality and amount of insurance to be placed on property securing its notes will be made exclusively by the General Partner. Certain types of losses that may impact the security for the note could be of a catastrophic nature (due to such things as ice storms, tornadoes, wind damage, hurricanes, earthquakes, landslides, sinkholes, and floods), some of which may be uninsurable, not fully insured or not economically insurable. This may result in insurance coverage that, in the event of a substantial loss, would not be sufficient to pay the full prevailing market value or prevailing replacement cost of the underlying property. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it unfeasible to use insurance proceeds to replace the underlying property once it has been damaged or destroyed. Under such circumstances, the insurance proceeds received might not be adequate to restore the property, leaving the Company without security for its notes.
Furthermore, an insurance company may deny coverage for certain claims, and/or determine that the value of the claim is less than the cost to restore the property, and a lawsuit could have to be initiated to force them to provide coverage, resulting in further losses in income to the Company. Additionally, properties securing the notes may now contain or come to contain mold, which may not be covered by insurance and has been linked to health issues.
Further, when a borrower defaults on a Note, it is likely they will allow their hazard insurance to lapse. The General Partner will attempt to obtain its own insurance policies on such properties, to the extent such lender's policies are available, but it is possible that some of the properties securing the notes may be uninsured for a period of time or uninsurable. If damage occurred during a time when a property was uninsured, the Company may suffer a loss of its security for a loan.
Federal Income Tax Risks
The Internal Revenue Service may challenge our characterization of material tax aspects of your investment in the Interests.
An investment in Interests involves material income tax risks which are discussed in detail in the section of this offering entitled "TAX TREATMENT OF COMPANY AND ITS SUBSIDIARIES" starting on page 28. You are urged to consult with your own tax advisor with respect to the federal, state, local and foreign tax considerations of an investment in our Interests. We may or may not seek any rulings from the Internal Revenue Service regarding any of the tax issues discussed herein. Accordingly, we cannot assure you that the tax conclusions discussed in this offering, if contested, would be sustained by the IRS or any court. In addition, our legal counsel is unable to form an opinion as to the probable outcome of the contest of certain material tax aspects of the transactions described in this offering, including whether we will be characterized as a "dealer" so that sales of our assets would give rise to ordinary income rather than capital gain and whether we are required to qualify as a tax shelter under the Internal Revenue Code. Our counsel also gives no opinion as to the tax considerations to you of tax issues that have an impact at the individual or partner level.
| 15 |
You may realize taxable income without cash distributions, and you may have to use funds from other sources to fund tax liabilities.
As a Limited Partner of the Company, you will be required to report your allocable share of our taxable income on your personal income tax return regardless of whether you have received any cash distributions from us. It is possible that your Interests will be allocated taxable income in excess of your cash distributions. We cannot assure you that cash flow will be available for distribution in any year. As a result, you may have to use funds from other sources to pay your tax liability.
You may not be able to benefit from any tax losses that are allocated to your Interests.
Interests may be allocated their share of tax losses should any arise. Section 469 of the Internal Revenue Code limits the allowance of deductions for losses attributable to passive activities, which are defined generally as activities in which the taxpayer does not materially participate. Any tax losses allocated to investors will be characterized as passive losses, and, accordingly, the deductibility of such losses will be subject to these limitations. Losses from passive activities are generally deductible only to the extent of a taxpayer's income or gains from passive activities and will not be allowed as an offset against other income, including salary or other compensation for personal services, active business income or "portfolio income", which includes non-business income derived from dividends, interest, royalties, annuities and gains from the sale of property held for investment. Accordingly, you may receive no benefit from your share of tax losses unless you are concurrently being allocated passive income from other sources.
We may be audited which could subject you to additional tax, interest and penalties.
Our federal income tax returns may be audited by the Internal Revenue Service. Any audit of the Company could result in an audit of your tax return. The results of any such audit may require adjustments of items unrelated to your investment, in addition to adjustments to various Company items. In the event of any such audit or adjustments, you might incur attorneys' fees, court costs and other expenses in contesting deficiencies asserted by the Internal Revenue Service. You may also be liable for interest on any underpayment and penalties from the date your tax was originally due. The tax treatment of all Company items will generally be determined at the Company level in a single proceeding rather than in separate proceedings with each partner, and our General Partner is primarily responsible for contesting federal income tax adjustments proposed by the Internal Revenue Service. In such a contest, our Manger may choose to extend the statute of limitations as to all partners and, in certain circumstances, may bind the partners to a settlement with the Internal Revenue Service. Further, our General Partner may cause us to elect to be treated as an electing large Company. If it does, we could take advantage of simplified flow-through reporting of Company items. Adjustments to Company items would continue to be determined at the Company level however, and any such adjustments would be accounted for in the year they take effect, rather than in the year to which such adjustments relate. Our General Partner will have the discretion in such circumstances either to pass along any such adjustments to the partners or to bear such adjustments at the Company level.
State and local taxes and a requirement to withhold state taxes may apply, and if so, the amount of net cash from open payable to you would be reduced.
The state in which you reside may impose an income tax upon your share of our taxable income. Further, states in which we will own properties acquired through foreclosure may impose income taxes upon your share of our taxable income allocable to any Company property located in that state. Many states have implemented or are implementing programs to require companies to withhold and pay state income taxes owed by non-resident partners relating to income-producing properties located in their states, and we may be required to withhold state taxes from cash distributions otherwise payable to you. You may also be required to file income tax returns in some states and report your share of income attributable to ownership and operation by the Company of properties in those states. In the event we are required to withhold state taxes from your cash distributions, the amount of the net cash from operations otherwise payable to you would be reduced. In addition, such collection and filing requirements at the state level may result in increases in our administrative expenses that would have the effect of reducing cash available for distribution to you. You are urged to consult with your own tax advisors with respect to the impact of applicable state and local taxes and state tax withholding requirements on an investment in our Interests.
Legislative or regulatory action could adversely affect investors.
In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of the federal income tax laws applicable to investments similar to an investment in our Interests. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect your taxation as a Limited Partner. Any such changes could have an adverse effect on an investment in our Interests or on the market value or the resale potential of our properties. You are urged to consult with your own tax advisor with respect to the impact of recent legislation on your investment in Interests and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our Interests.
| 16 |
DETERMINATION OF OFFERING PRICE
Our Offering Price is arbitrary with no relation to value of the company. This Offering is a self-underwritten offering, which means that it does not involve the participation of an underwriter to market, distribute or sell the Limited Partnership Interests offered under this offering.
If the maximum amount of Limited Partnership Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Limited Partnership Interests outstanding.
If the minimum amount of Limited Partnership Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Limited Partnership Interests outstanding.
The General Partner believes that if the maximum amount of the Limited Partnership Interests are sold under this Offering, the price per Interests value will be $1,000 per Interests for a total of $50,000,000.
The General Partner believes that if the minimum amount of the Limited Partnership Interests are sold under this Offering, the price per Interests value will be $1,000 per Interests for a total of $1,000,000.
PLAN OF DISTRIBUTION
This Offering shall remain open for one year following the Qualification Date of this Offering.
The Limited Partnership Interests (Interests) are self-underwritten and are being offered and sold by the Company on a minimum/maximum basis. No compensation will be paid to any principal, the General Partner, or any affiliated company or party with respect to the sale of the Limited Partnership Interests. This means that no compensation will be paid with respect to the sale of the Limited Partnership Interests to Mr. Ryan and Mr. Herbst or affiliated companies. We are relying on Rule 3a4-1 of the Securities Exchange Act of 1934, Associated Persons of an Issuer Deemed not to be Brokers. The applicable portions of the rule state that associated persons (including companies) of an issuer shall not be deemed brokers if they a) perform substantial duties at the end of the offering for the issuer; b) are not broker dealers; and c) do not participate in selling securities more than once every 12 months, except for any of the following activities: i) preparing written communication, but no oral solicitation; or ii) responding to inquiries provided that the content is contained in the applicable registration statement; or iii) performing clerical work in effecting any transaction. Neither the Company, its General Partner, nor any affiliates conduct any activities that fall outside of Rule 3a4-1 and are therefore not brokers nor are they dealers. All subscription funds which are accepted will be deposited directly into the Company's escrow account with FundAmerica. Subscription funds placed in the escrow account may only be released if the Minimum Offering Amount is raised within the Offering Period, in accordance with the Escrow Agreement between FundAmerica and the Company (see Exhibit 6). The purchase price for the Limited Partnership Interests is $1,000, with a minimum purchase of five (5) Interests. The Company will raise a minimum of $1,000,000 prior to funds being released to the Company. If the Company does not raise the Offering Amount within the Offering Period, all proceeds raised to that point will be promptly returned to subscribers of Limited Partnership Interests pro-rata, with interest, if any. Subscription Agreements are irrevocable.
| 17 |
The Company plans to primarily use the Madyson Capital Management, LLC's current network of real estate investors of which he already has a pre-existing relationship to solicit investments. The Company, subject to Rule 255 of the 33 Act and corresponding state regulations, is permitted to generally solicit investors by using advertising mediums, such as print, radio, TV, and the Internet. We will offer the securities as permitted by Rule 251 (d)(1)(iii) whereby offers may be made after this Offering has been qualified, but any written offers must be accompanied with or preceded by the most recent offering circular filed with the Commission for the Offering. The Company plans to solicit investors using the Internet through a variety of existing internet advertising mechanisms, such as search based advertising, search engine optimization, and the Company website. The Company website has not yet been developed and may never be.
Please note that the Company will not communicate any information to prospective investors without providing access to the Offering. The Offering may be delivered through the website that is not yet developed, through email, or by hard paper copy.
However received or communicated, all of our communications will be Rule 256 compliant and not amount to a free writing prospectus. We will not orally solicit investors and no sales will be made prior to this offering statement being declared qualified and a final Offering is available.
Prior to the acceptance of any investment dollars or Subscription Agreements, the Company will determine which state the prospective investor resides. Investments will be processed on a first come, first served basis, up to the Offering Amount of $50,000,000.
The Offering Period will commence upon the Offering Statement being declared qualified.
No sale will be made to a prospective investor if the aggregate purchase price payable is more than 10% of the greater of the prospective investor's annual income or net worth. Different rules apply to accredited investors and non-natural persons.
Quarterly, the General Partner will report to the Limited Partners and will supplement this Offering with material and/or fundamental changes to our operations. We will also provide updated financial statements to all Limited Partners and prospective Limited Partners.
In compliance with Rule 253(e) of Regulation A, the General Partner shall revise this Offering Statement during the course of the Offering whenever information herein has become false or misleading in light of existing circumstances, material developments have occurred, or there has been a fundamental change in the information initially presented. Such updates will not only correct such misleading information but shall also provide update financial statements and shall be filed as an exhibit to the Offering Statement and be requalified under Rule 252.
USE OF PROCEEDS
The net proceeds to us from the sale of up to 50,000 Limited Partnership Interests offered at an offering price of $1,000 per Interest will vary depending upon the total number of Limited Partnership Interests sold. Regardless of the number of Limited Partnership Interests sold, we expect to incur Offering expenses estimated at approximately $60,000 for legal, accounting, and other costs in connection with this offering. The table below shows the intended net proceeds from this offering, indicating scenarios where we sell various amounts of the Limited Partnership Interests. There is no guarantee that we will be successful at selling any of the securities being offered in this Offering. Accordingly, the actual amount of proceeds we will raise in this offering, if any, may differ.
| 18 |
The offering scenarios presented below are for illustrative purposes only and the actual amounts of proceeds, if any, may differ.
|
| Minimum |
|
| 25% |
|
| 50% |
|
| 75% |
|
| 100% |
| |||||
Interests Sold |
|
| 1,000 |
|
|
| 12,500 |
|
|
| 25,000 |
|
|
| 37,500 |
|
|
| 50,000 |
|
Gross Proceeds |
| $ | 1,000,000 |
|
| $ | 12,500,000 |
|
| $ | 25,000,000 |
|
| $ | 37,500,000 |
|
| $ | 50,000,000 |
|
Offering Expenses 1 |
| $ | 60,000 |
|
| $ | 60,000 |
|
| $ | 60,000 |
|
| $ | 60,000 |
|
| $ | 60,000 |
|
Selling Commissions & Fees 2 |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
Net Proceeds |
| $ | 940,000 |
|
| $ | 12,440,000 |
|
| $ | 24,940,000 |
|
| $ | 37,440,000 |
|
| $ | 49,940,000 |
|
Acquisition Fee 3 |
| $ | 8,516 |
|
| $ | 121,590 |
|
| $ | 245,385 |
|
| $ | 369,180 |
|
| $ | 493,080 |
|
Acquisitions 4 |
| $ | 811,000 |
|
| $ | 11,580,000 |
|
| $ | 23,370,000 |
|
| $ | 35,160,000 |
|
| $ | 46,960,000 |
|
Related Acquisition Costs 5 |
| $ | 35,485 |
|
| $ | 515,310 |
|
| $ | 1,039,965 |
|
| $ | 1,564,620 |
|
| $ | 2,091,920 |
|
Working Capital 6 |
| $ | 60,000 |
|
| $ | 198,100 |
|
| $ | 254,650 |
|
| $ | 316,200 |
|
| $ | 360,000 |
|
Legal and Accounting7 |
| $ | 25,000 |
|
| $ | 25,000 |
|
| $ | 30,000 |
|
| $ | 30,000 |
|
| $ | 35,000 |
|
Total Use of Proceeds |
| $ | 1,000,000 |
|
| $ | 12,500,000 |
|
| $ | 25,000,000 |
|
| $ | 37,500,000 |
|
| $ | 50,000,000 |
|
_________________
| (1) | These costs assume the costs related with completing this Form 1-A as well as those costs related to the services of a transfer agent, listing fees, our interim financial statements, and our legal costs ($60,000). To date, our General Partner's contributions have been used to purchase the General Partner Interests of the Company. It is the intent of General Partner to provide for these offering expenses in exchange for General Partner Interests in the Company. |
| (2) | The Company does not intend on paying selling commissions or fees. In the event that the Company enters into an agreement with a licensed broker dealer, this Offering and Use of Proceeds table will be amended accordingly. |
(3) | The Manager may receive a 1.05% annualized asset management fee paid monthly to the Manager for its services related to asset management. |
|
|
| (4) | We plan to purchase multifamily properties and senior living care facilities with the proceeds from this Offering. |
| (5) | We believe acquisition related and closing costs could be between 3% and 8% of the value of the acquisition, with an average of 5.5%. These costs could include travel to states in which we purchase multifamily properties and senior living care facilities, research costs, closing costs, and other costs. Our ability to quantify any of the expenses is difficult as they will all depend on size of deal, price, due diligence performed (such as appraisal, environmental, property condition reports), legal and accounting, etc. We expect the related acquisition costs to be correlated with the price of the note. |
| (6) | Costs associated with our web development, marketing and working capital for the next 12 months. |
| (7) | Costs for accounting and legal fees associated with being a public company for the next 12 months. |
| 19 |
The Use of Proceeds sets forth how we intend to use the funds under the various percentages of the related offering. All amounts listed are estimates.
The net proceeds will be used for ongoing legal and accounting professional fees (estimated to be between $25,000 and $35,000 depending on our money raise and acquisitions for the next 12 months), working capital for the creation of a website and due diligence costs incurred in locating suitable acquisitions for the Company for the next 12 months, and for the costs associated with acquiring properties, such as broker price opinions, closing costs, title reports, recording fees, accounting costs and legal fees. We determined estimates for ongoing professional fees based upon consultations with our accountants and lawyers, and operating expenses and due diligence costs based upon the General Partner's real estate industry experience.
As of April 1, 2016, the General Partner has paid $27,500 to the Company for offering expenses and the balance will be paid by the General Partner regardless of the number of Interests sold. Our Offering expenses are comprised of legal and accounting expenses, SEC and EDGAR filing fees, printing and transfer agent fees. Our General Partner will not receive any compensation for their efforts in selling our Limited Partnership Interests.
We will pay the offering expenses of $60,000 regardless of the amount of Limited Partnership Interests we sell. If we sell at least 1,000 Limited Partnership Interests, we believe that we will have sufficient funds to continue our filing obligations as a reporting company for the next 12 months. We intend to use the proceeds of this offering in the manner and in order of priority set forth above. We do not intend to use the proceeds to acquire assets or finance the acquisition of other businesses. At present, no material changes are contemplated. Should there be any material changes in the projected use of proceeds in connection with this Offering, we will issue an amended Offering reflecting the new uses.
In all instances, after the qualification of this Form 1-A, the Company will need some amount of working capital to maintain its general existence and comply with its reporting obligations. In addition to changing allocations because of the amount of proceeds received, we may change the use of proceeds because of required changes in our business plan. Investors should understand that we have wide discretion over the use of proceeds. Therefore, management decisions may not be in line with the initial objectives of investors who will have little ability to influence these decisions.
SELECTED FINANCIAL DATA
The following summary financial data should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION" and the Financial Statements and Notes thereto, included elsewhere in this Offering. The statement of operations and balance sheet data from inception through the period ended February 27, 2016 are derived from our audited financial statements.
|
| At February 27, 2016 |
| |
|
|
|
| |
TOTAL ASSETS |
| $ | - |
|
|
|
|
|
|
LIABILITIES AND LIMITED PARTNERS' EQUITY |
|
| - |
|
|
|
|
|
|
LIABILITIES |
|
| - |
|
|
|
|
|
|
Current Liabilities |
|
| - |
|
|
|
|
|
|
TOTAL LIABILITIES |
|
| - |
|
|
|
|
|
|
TOTAL LIMITED PARTNERS' EQUITY |
|
| - |
|
|
|
|
|
|
TOTAL LIABILITIES AND LIMITED PARTNERS' EQUITY |
| $ | - |
|
| 20 |
|
| Inception (February 26,2016) to February 27, |
| |
|
|
|
| |
Revenues |
| $ | 0 |
|
|
|
|
|
|
Expenses |
| $ | 0 |
|
|
|
|
|
|
Net Income (Loss) |
| $ | 0 |
|
|
|
|
|
|
Earnings per Interest |
| $ | .00 |
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
The following discussion and analysis should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this filing.
Critical Accounting Policies
Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies. We have elected to take advantage of this extended transition period, and thus, our financial statements may not be comparable to those of other reporting companies. Accordingly, until the date we are no longer an "emerging growth company" or affirmatively opt out of the exemption, upon the issuance of a new or revised accounting standard that applies to our financial statements and has a different effective date for public and private companies, we will disclose the date on which adoption is required for non-emerging growth companies and the date on which we will adopt the recently issued accounting standard.
Cautionary Statement Regarding Forward-Looking Statements
With the exception of historical matters, the matters discussed herein are forward-looking statements that involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements concerning anticipated trends in revenues and net income, projections concerning operations and available cash flow. Our actual results could differ materially from the results discussed in such forward-looking statements. The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes thereto appearing elsewhere herein.
Background Overview
Madyson Equity Group, LP was formed in the State of Colorado in February of 2016. We have no plans to change our business activities or to combine with another business, and we are not aware of any events or circumstances that might cause our plans to change. The General Partner of the Company do not have any plans or arrangements to enter into a change of control, business combination or similar transaction or to change management.
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The Company's overall strategy is to purchase multifamily properties and senior living care facilities that have potential to be or are cash flow positive, meaning properties that have a positive monthly income after all expenses (mortgages, operating expenses, taxes) and maintenance reserves are paid. In order to determine if a property is "cash flow positive" our Manager will review the total gross rent, income, or receipts from the property and subtract any and all expenses including utilities, taxes, maintenance, and other reserve expenses. If this number is a positive number, the Company will deem the property "cash flow positive." Depending on how positive the cash flow is will determine whether the management will purchase the property or not on behalf of the Company: there must be a comfortable cash flow potential which our officer is comfortable with.
The Company will be owned by the General Partner and have a Limited Partnership which may include, but is not limited to: individuals, individual retirement accounts, banks and other financial institutions, endowments, and pension funds.
The Company hopes to offer its Limited Partners the opportunity to earn a preferred annualized 6% return plus 65% of the Company's realized profits which shall be distributed to the Limited Partners in proportion to each Limited Partner's respective Capital Contribution. The General Partner, Madyson Capital Management, LLC, will exclusively manage the Company.
Although we are currently searching for properties, we expect that we will finish our Form 1-A Offering Statement this spring and will not be aggressive in our acquisition efforts until after we raise the capital from this Offering. We expect that we will be finished with the process of qualification by the end of the spring and commence our fundraising by the summer. Thereafter, we will aggressively search for properties. We hope that by winter of 2017, we will have acquired our first property. Acquisition will depend highly on our funding, the availability of those funds, the availability of properties that meet or investment criteria and the size of such notes to be acquired. As we search for properties, we intend to expend capital in accordance with our Use of Proceeds. If we raise the minimum amount of $1,000,000, we will incur expenses related with the operation of the Company and the continuing expenses related to being a reporting company under the requirements of Tier 2, Regulation A. To finish this Form 1-A, we believe we will need a minimum of $25,000. Thereafter, we believe we will need an additional $125,000 for ongoing working capital and professional fees. Our General Partner is committed to providing the $25,000 for the completion of this Form 1-A, however, unless we are able to raise a minimal amount through this Offering. This commitment is not in writing. When the General Partner provides such capital, it will most likely be in the form of purchasing Interests in the Company. Such terms and conditions have not been agreed to yet.
Results of Operations
For the period ended February 27, 2016
We generated no revenues for the period ended February 27, 2016. We do not have any current activities. We have generated expenses of $0 from inception (February 26, 2016) to February 27, 2016.
Total expenses
From inception (February 26, 2016) to February 27, 2016, we have not generated any expenses.
Assets
We currently have no assets.
Liabilities
We currently have no liabilities.
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Liquidity and Capital Resources
As of February 27, 2016, the Company had $0 in cash and total liabilities of $0. The Company hopes to raise $50,000,000 in this Offering with a minimum of $1,000,000 in funds raised. If we are successful at raising the minimum amount of this Offering, we believe that such funds will be sufficient to fund our expenses over the next twelve months which we currently estimate to be $125,000. Although we intend on identifying multifamily properties and senior living care facilities for acquisition with our proceeds, there is no guarantee that we will acquire any such investments. Acquisition will depend highly on our funding, the availability of those funds, the availability of multifamily properties and senior living care facilities that meet or investment criteria and the size of such liens to be acquired. Upon the qualification of the Form 1-A, the Company plans to pursue its investment strategy of multifamily properties and senior living care facilities acquisition. There can be no assurance of the Company's ability to do so or that additional capital will be available to the Company. If so, the Company's investment objective of acquiring multifamily properties and senior living care facilities will be adversely affected and the Company may not be able to pursue an acquisition opportunity if it is unable to finance such acquisitions. The Company currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company.
Related Party Transactions
Since our formation, we have raised capital from our General Partner. The General Partner has provided cash for Company startup expenses of which, $0 has already been expensed as of the date of the financial statements of the Company (February 27, 2016.) In exchange for the costs associated with this Offering, the General Partner received General Partner Interests which are subordinated to our Limited Partnership Interests.
Going Concern Consideration
Our independent auditors included an explanatory paragraph in their report on the accompanying financial statements regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Changes In And Disagreements With Accountants On Accounting And Financial Disclosure
None.
Employees
Currently, Joseph Ryan, and Brandon Herbst are the principals of our General Partner and devote a minor portion of his working hours to our Company without a salary. For more information on our personnel, please see " REF _Ref448225802 \h DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS." Initially Mr. Ryan, and Mr. Herbst will coordinate all of our business operations. Mr. Ryan, and Mr. Herbst have provided the working capital to cover our initial expense. We plan to use consultants, attorneys, accountants, and other personnel, as necessary and do not plan to engage any additional full-time employees in the near future. We believe the use of non-salaried personnel allows us to expend our capital resources as a variable cost as opposed to a fixed cost of operations. In other words, if we have insufficient revenues or cash available, we are in a better position to only utilize those services required to generate revenues as opposed to having salaried employees.
Our General Partner is spending the time allocated to our business in handling the general business affairs of our Company such as accounting issues, including review of materials presented to our auditors, working with our counsel in preparation of filing our Form 1-A, developing our business plan and researching investment opportunities and possible multifamily properties and senior living care facilities acquisitions. Upon effectiveness and successful raise, the principals of the General Partner will devote additional working hours to Madyson.
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INVESTMENT POLICIES OF COMPANY
In all types of investment, our policies may be changed by our General Partner without a vote by Limited Partners.
We will seek out multifamily properties and senior living care facilities for purchase throughout the United States, specifically the western and southwestern United States. We believe 100% of our portfolio will consist of real estate properties.
We intend to evaluate each property in the following manner:
| 1. | Obtain current rental information including tenant, space description, respective rent, lease terms and expense details, | |
| 2. | Using historical rental rates and vacancy rates if such information is available and useful, | |
| 3. | Obtain similar available information of comparable properties in the area; analyzing rental values, vacancy rates and operating expenses and | |
| 4. | Using the above information, perform analysis with hypothetical scenarios to determine expected profit | |
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| 5. | We do not intend to invest more than 25% of Company assets into any single real estate asset upon full capitalization of the Company. |
Further, potential investors should be advised:
| a) | We may issue senior securities at some time in the future. | |
| b) | We may borrow money collateralized by our properties with up to a 60% value of our real estate assets and up to 300% of the total raised in this Offering. | |
| c) | We have no intention of initiating personal loans to other persons. | |
| d) | We have no intention of investing in the securities of other issuers for the purpose of exercising control. | |
| e) | We have no intention to underwrite securities of other issuers. | |
| f) | We may engage in the purchase and sale (or turnover) of investments that are not real estate related at some time in the future. | |
| g) | We may offer our securities in exchange for property. | |
| h) | We may acquire other securities of other funds so long as those funds are real estate related. | |
| i) | We intend to make annual or other reports to security holders including 1-Ks, 1-SAs, 1-Us, and exit reports on Form 1-Z as deemed necessary. Such reports will include the required financial statements. |
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As market conditions change, our policies for both investments and borrowing will be evaluated and updated as necessary to safeguard Limited Partner equity and increase Limited Partner returns. We will update our Limited Partners via 1-Us within a few business days, 1-SAs semi-annually, and other Limited Partner reports if there are any changes in our investment policy or our borrowing policies.
POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS
Our policy with respect to our General Partner concerning certain transactions is as follows:
We do not intend on issuing senior securities. We have no interest, currently, in underwriting securities of others or purchasing securities or assets other than real property assets and securities. In the event that we foreclose on a property, which we hope to be rare, we may encumber our properties that we acquire with bank financing but we intend that such financing will generally not exceed 80% of the value of the property. The purpose of such financing would be for rehabilitation of the underlying property and for other sales costs so that we may successfully and profitably dispose of a property.
Conflicts of Interest
There are currently no conflicts of interest between the Company, our General Partner, our General Partner's Principals, or affiliates. However, if it is in the best interest of the Company and its Limited Partners, the following conflicts may arise. The Manager is currently managing other investments outside of this offering. The Manager is currently in the process of winding down those other investment vehicles. It is the intention of the Manager to focus all of its investment efforts within the Offering contemplated herein upon qualification.
| i) | Our Manager does have the authority to invest the Company's funds in other entities in which our Manager or an affiliate has an interest. | |
| ii) | Company may purchase properties from or sell to our Manager or its known affiliates if such purchase is below, and never exceeding market value as determined by an independent broker or appraiser or if it cash flows positively within the guidelines provided herein. |
The Company will maintain the following policies to avoid certain conflicts of interest:
| i) | Our General Partner and its affiliates do not own or have an interest in properties adjacent to those to be purchased that may directly compete with such purchased property. | |
| ii) | No affiliate of the Company places mortgages for the Company or otherwise acts as a finance broker or as insurance agent or broker receiving commissions for such services. | |
| iii) | No affiliate of the Company acts (a) as an underwriter for the offering, or (b) as a principal underwriter for the offering thereby creating conflicts in performance of the underwriter's due diligence inquiries under the Securities Act. | |
| iv) | The compensation plan for the General Partner currently does not create a conflict between the interests of the General Partner' and that of the Company. |
DESCRIPTION OF BUSINESS
We currently do not have any real properties. We do not lease or own any real property. We are currently developing our website. We do not pay rent for our corporate headquarters which is leased by our parent company because the amount of the space we use at such office is de minimis. We believe that this space will be sufficient for the long term.
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OVERVIEW
Madyson Equity Group, LP is an emerging growth company which was formed on February 26, 2016. We have commenced only limited operations, primarily focused on organizational matters in connection with this offering. We intend on generating revenues in two ways: from quick turnaround assets and long term hold investments.
We have no plans to change our business activities or to combine with another business, and we are not aware of any events or circumstances that might cause our plans to change. Neither management of the Company, nor the majority Limited Partner of the Company, have any plans or arrangements to enter into a change of control, business combination or similar transaction or to change management.
We are offering the Limited Partnership Interests herein on a "minimum/maximum" basis. The Company will raise a minimum of $1,000,000 prior to using proceeds from this Offering to acquire multifamily properties and senior living care facilities. We expect to use the net proceeds from this Offering to pay for our operating costs as a qualified company, including on-going legal and accounting fees, and to finance costs associated with acquiring multifamily properties and senior living care facilities, such as broker price opinions, title reports, recording fees, accounting costs and legal fees
There is an opportunity in the domestic marketplace to create and further, operate a successful real estate investment corporation. The General Partner has recognized this opportunity and has decided to create and go forward with the creation of the Company. The Company intends to provides real estate investment opportunities and property management services for investors interested in achieving financial success by taking advantage of the real estate market across the country, but specifically in the western and southwestern United States. They also recognized the gaps in the real estate business and turned them into opportunities.
The Company looks to serve its investors by working to maximize their income while at the same time controlling expenses. The funds required for organizing the Company and this Offering have been provided by the General Partner of the Company.
This business plan is based on two vital components:
| 1. | Implementing a sound investment platform begins with a mastery of choosing the right property to fill the needs of the real estate marketplace at the right time. This requires an in-depth knowledge of the market and how to keep gaining a greater share of that market; and | |
| 2. | Providing a superior service to the tenants to maximize the Company's return on investment. |
Objectives
The Company has definite objectives in order to fulfill its strategy. These include:
| · | Penetrate the market of providing real estate opportunities for qualified individuals and/or business entities interested in achieving financial success by taking advantage of real estate investment and management opportunities in the western and southwestern United States and potentially across the contiguous United States; and |
| · | Increasing profits as allowed by market conditions. |
The Company will look to buy value-added properties, specifically multifamily properties and senior living care facilities, in growth areas for the best possible price, thereby giving its property holding Company an instant competitive advantage before they even begin to implement its management expertise. A potential investor should note that the above criteria is subject to change according to market conditions.
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Mission Statement
The Company is committed to working in partnership with qualified institutions and/or individuals to provide the best real estate investment opportunities as well as sound property management services, to help both equity investors and tenants achieve their goals.
To accomplish this mission, the Company focuses its activities in the following three areas:
Acquisition: the Company seeks to establish equity relationships with investors who desire a relatively large return on investment with minimal risk. The first step is to uncover and identify an opportunity through detailed analyses of market competition, economic forecasts and the ability to negotiate terms.
Development: the Company aims at maximizing their investor's return on investment by securing appropriate financing and ensuring efficient use of properties. The Company intends to analyze the highest and most suitable use of a particular property and, when necessary, adapts the property to its market.
Management: With decades of combined experience in all aspects of business, finance, and real estate, we believe investors can take comfort that the principals of the Company have an in-depth understanding of business cycles. In addition, the Company has built its own management structure which enables the Company to grow intelligently and, if conditions warrant, rapidly.
Keys to Success
The Company intends to identify multifamily buildings and senior housing facilities for investment. The Company is confident of the following attributes that it demonstrates as keys to its success:
| · | Their ability to recognize and define the best course of action; |
| · | The consistent raising the bar of productivity; |
| · | Diligent effort to regularly lower overall expenses; |
| · | Recruitment and retention of experienced, talented, and dedicated employees; and |
| · | Ability to effectively market the highest quality of services the Company provides to its shareholder base. |
The General Partner of the Company is staffed with highly educated and experienced professionals that provide personalized and courteous service to their tenants, investors, loan officers, realtors, brokers, financial advisors, and other vendors. The following outlines the competitive strategy of the Company:
| · | Identify a worthwhile projects that fits in line with its criteria and will fill market needs; |
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| · | Negotiate price and terms. Secure a contract to purchase; |
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| · | Analyze the risk/reward scenario through careful analysis and a thorough due diligence procedure; |
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| · | Secure financing; |
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| · | Form a new business structure which takes ownership of said project; |
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| · | After closing, immediately implement a strong management team to shepherd the project and achieve the specific goal(s) intended (i.e. tenant relations, property maintenance, rehabilitation, enhancement, development or condominium conversion) |
Investment Strategy
The Company is seeking to invest in a diversified portfolio of income producing real estate assets and real estate related assets throughout the United States, specifically in the western and southwestern United States. Initially, the Company intends to target Senior Care and Multifamily properties, but may acquire other property types that meet its investment objectives.
The Company may also purchase additional properties or make other real estate investments that relate to varying property types including office, retail and industrial properties. Such property types may include operating properties, properties under development, and undeveloped properties such as land. It is expected that the proceeds from this Offering will initially be used to purchase multifamily properties and senior care facilities.
We believe that there is an opportunity to create attractive total returns by employing a strategy of investing in a diversified portfolio of such investments which are well-selected, well-managed and disposed of at an optimal time. Our principal targeted assets are investments in properties, and other real estate investments that relate to properties, that have quality construction and desirable locations which can attract quality tenants. These types of investments are, or relate to, properties generally located in central business districts or suburban markets of primary and secondary metropolitan cities, primarily located in the western and southwestern United States. We intend to invest in a geographically diverse portfolio in order to reduce the risk of reliance on a particular market, a particular property and/or a particular tenant.
Due Diligence & Financing
When the Company identifies a location or a potential property, it will secure the necessary financing, sign a contract and place an escrow deposit to be held with the designated escrow agent. The Company will take the minimum time necessary to complete all its due diligence to the property including: site inspection, reviewing all leases, income and expenses, as well as securing a first mortgage on the property. After the due diligence process has been completed, the Company will determine whether the property is suitable or not.
If property is not suitable, the Company will cancel the contract and look for the next opportunity.
Refinancing
During the initial 12-36 months of owning and managing the property, the Company will analyze the market conditions in the area where the project is located. Simultaneously, they will investigate current interest rates. the Company will then decide whether the property should be maintained, refinanced, restructured (i.e. condominium conversion), or sold (disposition).
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Special Purpose Entities
When the Company does acquire real estate assets, it intends to hold title to the properties through separate LLCs or through special purpose entities ("SPE's") holding several similar asset types. Each separate LLC or SPE will be a 100% wholly-owned subsidiary of the Company. If a joint venture is undertaken, the Company will record a first position deed instead of holding actual title.
| · | Each property acquired is its own entity and is structured as its own business structure while Madyson Equity Group, LP. serves as the parent Company that bundles all the ownership interests into a single corporation. |
| · | Each property is managed by Madyson Equity Group, LP. or its authorized agents. |
Leverage
Leverage represents an important vehicle for maximizing returns; however, the Company will evaluate the appropriate amount of debt based on market conditions, feasibility of the project, and determined risk. The Company may borrow up to 300% of the capital raised in this offering or up to 60% of the value of the underlying assets of the Company. We may incur indebtedness in the form of bank borrowings, purchase money obligations to the sellers of properties and publicly or privately placed debt instruments or financing from institutional investors or other lenders. The indebtedness may be secured or unsecured. Security may be in the form of mortgages or other interests in our properties; equity interests in entities which own our properties or investments; cash or cash equivalents; securities; letters of credit; guarantees or a security interest in one or more of our other assets.
The Company may use borrowing proceeds to finance acquisitions of new properties, make other real estate investments, make payments to the General Partner, pay for capital improvements, repairs or tenant buildouts, refinance existing indebtedness, pay distributions or provide working capital. The form of our indebtedness may be long-term or short-term debt or in the form of a revolving credit facility.
Financing Strategy
Once the proceeds of this Offering have been fully invested, the Company expects our debt financing will be in the range of approximately 40% to 60% of the aggregate value of our real estate investments and other assets. Financing for acquisitions and investments may be obtained at the time an asset is acquired or an investment is made or at such later time as we determine to be appropriate.
In addition, debt financing may be used from time to time for property improvements, lease inducements, tenant improvements and other working capital needs, including the payment of distributions. Additionally, the amount of debt placed on an individual property or related to a particular investment, including our pro rata share of the amount of debt incurred by an individual entity in which we invest, may be less than 40% or more than 60% of the value of such property/investment or the value of the assets owned by such entity, depending on market conditions and other factors.
We will limit our borrowing to 300% of our equity investment.
Notwithstanding the above, depending on market conditions and other factors, we may choose not to place debt on our portfolio or our assets and may choose not to borrow to finance our operations or to acquire properties. Our financing strategy and policies do not eliminate or reduce the risks inherent in using leverage to purchase properties.
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Real Estate Investment Life Cycle
As shown below, the life cycle of a commercial real estate property varies on an individual property basis, but generally all properties experience periods of development, stabilization, and decline. The art of real estate investment is determining at what cycle to invest and ultimately when to exit. A large part of being an effective real estate investor is knowing when to leave and not holding on to the property too long. It is the view of the Company that understanding and capitalizing on each period will maximize returns to investors.

The Company intends to purchase properties which the General Partner believes will generate income from rents, as well as, growth from subsequent improved valuations. The Company will concentrate its investments on properties that:
| n | Produce increasing streams of relatively stable income; and | |
| n | Will grow in value. |
The Company intends to concentrate its investments on real estate properties that:
| n | Tend to be at or below prevailing geographical market values; and | |
| n | Provide reasonably anticipated returns to investors. |
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The General Partner may elect and to expand or contract the Company's capitalization as needed to prudently meet the demands for the investment market and to further assure that the rates of return for investors are met or exceeded. The General Partner believes that now is the time to position itself with purchasing a diverse portfolio real estate properties and real estate-related assets with good market value and proven histories of producing income.
| - | The General Partner's goal is to purchase these properties, as well as others, as the market continues upward and that produce significant income. | |
| - | Initially, the General intends to focus its investments to take advantage of the expanding need for senior living facilities throughout the U.S. |
The Aging U.S. Population Will Continue to Drives the Demand for Senior Housing:
The baby boomer generation, generally those individuals born between 1946 and 1964, continue to enter their early to mid-60s, more than one in every eight Americans, roughly 14% of the population, is 65 or older. Since 1900, the percentage of Americans 65+ has more than tripled (from 4.1% in 1900 to 14.1% in 2013), and the number has increased over thirteen times (from 3.1 million to 44.7 million). Further, as noted in the graph below, the U.S. Census Bureau projects that by 2056 people 65 plus will outnumber those younger than 18 for the first time in history, and that by 2060 there will be 92 million Americans, 20% of the population, 65 and older, with more than 18 million over the age of 851.

A recent U.S. Department of Health and Human Services report notes that the percentage of the aged 65 and older plus population living in assisted living properties "increases dramatically with age," with 44% of those over age 85 needing long-term care or assistance with daily living activities, and that's just the very old. Millions of others between 65 and 84 also choose, or require, either independent senior living or a facility offering one of the different levels of increasing care. The U.S. Centers for Disease Control and Prevention have found that over 65% of Americans age 65 or older have multiple chronic illnesses, which often limit their ability to perform basic tasks such as eating and bathing. Demand will only continue to increase.
The Company's targeted acquisitions will be independent living and assisted living facilities. These assets typically comprise a mix of private pay and Medicaid eligible residents.
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1"Facts for Features: Older Americans Month: May 2014," U.S. Census Bureau, Release No.CB12-FF.07, March 25, 2014 (available at: http://www.census.gov/content/dam/Census/newsroom/facts-for-features/2014/cb14-ff07_older_americans.pdf).
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Independent Living Facilities:
Independent Living Facilities are designated for seniors seeking a convenient monthly rental package that may include transportation, laundry, meals, and housekeeping, but require little assistance with activities of daily living. Qualification for an independent living property includes a common dining facility that provides at least one daily meal as part of the monthly fee.
Currently, the typical resident is a widowed female, aged 80+ years, in relatively good health who lived in a nearby private home before choosing an independent living community. Across the U.S, there are approximately than 4,500 investment grade independent living properties, providing over 880,000 units. As the population has aged, the number of independent living properties has increased. Roughly two-thirds of the existing properties in the country's 99 largest metropolitan areas have been developed since 19852.
Assisted Living Facilities:
Seniors who have no acute medical problems, but who need help with different aspects of their daily lives often choose assisted living properties, where they can enjoy both the amenities and the sense of community of an independent living community, but where they are also offered supportive care with walking, dressing, eating, bathing, toileting and supervision of medications. The move to assisted living is often need and/or event-driven, perhaps by a fall, declining memory, or poor eating habits and the typical new resident needs assistance with two of the activities of daily living: walking, dressing, eating, etc.
Currently, there are over 6,000 assisted living properties in the country providing nearly 550,000 separate units3. Since 2000, the assisted living sector has been in an expansion phase, driven primarily by the aging population. More than half of the current inventory in the largest metropolitan areas in the U.S. has been developed since 1995. This growth is expected to be ongoing.
Recovering US Economy & Prime Renters Living at Home
The recovering US economy is driving a recent improvement in multi-family fundamentals. For example, national unemployment peaked in 2009, and then steadily marched downward. It currently sits at a four year low though it is still well above the historical average. A continued regression to the historical average would be very beneficial to multi-family investors as more renters would move out on their own. The improvement in unemployment will play an integral role in driving housing demand. With most consumers unable to qualify for mortgages despite lower home prices, consumer interest turned to rental housing.
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Source: Bureau of Labor Statistics
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2 National Investment Center for Seniors Housing and Care, NIC Investment Guide, 3rd ed., p. 20.
3 Total shown do not include facilities with fewer than 25 units.
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Source: US Census Bureau
Source: US Census Bureau
Echo Boomers Entering Rental Market
Rental demand is expected to grow rapidly through 2020 as the echo boomers enter prime renter age. By 2017, the echo boomer population is projected to reach 67 million prime renters. Immigration is bringing millions of additional renters into the market as well.
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Source: US Census Bureau
Declining Home Ownership and More Stringent Lending Standards
Homeownership percentages are at their lowest rate in 19 years. This is primarily due to high unemployment, uncertainty in employment, and more stringent lending guidelines. With 114 million households in the US, for every 1% decline in homeownership rate, it's equal to 1.14 million additional units of rental demand.
Source: US Census Bureau.
Lagging New Supply
From 1970 through 2007, the last year of the housing boom, an average of 1.5m housing units received permits annually. Since 2008, the national average of new housing units permitted has been less than half of the prior average. The Manager believes this combination of improving economic conditions, pent up household formation, and lack of new supply provide an excellent investment opportunity in multi-family housing.
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Source: US Census Bureau
Increasing Occupancy Rates
The imbalance in supply and demand for housing is most easily observed in vacancy rates, which have performed in line with dropping unemployment as expected. Since peaking in 2009, vacancy rates have steadily declined down towards their norms. Metropolitan areas with low vacancies have benefited from the tight rental market with consistent and sometimes aggressive rent increases since the recovery. Economic improvement should drive the unemployment rate and thus vacancies closer to their historical norms.
Source: US Census Bureau
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Geographic Scope
The Company will not limit itself geographically, however it intends to invest primarily in metropolitan areas in the western and southwestern United States. The Company will search multifamily buildings and senior care facilities that it may purchase at a discount. The Company believes it can successfully identify such a potential target acquisition based upon the depth and the breadth of the industry experience, contacts and industry knowledge of the Company's General Partner. See "DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS" for a discussion of the General Partner's real estate experience.
Milestones
We hope to reach the following milestones in the next 12 months:
| · | Summer 2016 - Complete our Form 1-A qualification statement. |
| · | Fall 2016 - Begin fundraising. |
| · | Early 2017 - Reach minimum raise requirement of $1,000,000; break escrow and search for properties to purchase. |
| · | March 2017 - Purchase first property. Acquisition will depend highly on our funds, the availability of those funds, availability of assets that meet or investment criteria and the size of the assets to be acquired. |
Acquisition will depend highly on our funds, the availability of those funds, availability of assets that meet or investment criteria and the size of the assets to be acquired.
Competition
We will face competition from other owners, investors and developers that are looking to acquire similar properties and who may implement or are already implementing a similar business plan to ours. Further, we may be at a disadvantage to our competition who may have greater capital resources than we do, specifically cash. It has become increasingly difficult to obtain lending on many properties and those developers that are able to close without financing and pay the full purchase price of a property in cash may be able to close on more properties or will be able to negotiate better purchasing terms.
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TAX TREATMENT OF COMPANY AND ITS SUBSIDIARIES
The following is a summary of certain relevant federal income tax considerations resulting from an investment in the Company, but does not purport to cover all of the potential tax considerations applicable to any specific purchaser. Prospective investors are urged to consult with and rely upon their own tax advisors for advice on these and other tax matters with specific reference to their own tax situation and potential changes in applicable law.
Taxation of Undistributed Fund Income (Individual Investors)
Under the laws pertaining to federal income taxation of limited partnerships, no federal income tax is paid by the Company as an entity. Each individual Limited Partner reports on his federal income tax return his distributive share of Fund income, gains, losses, deductions and credits, whether or not any actual distribution is made to such Limited Partner during a taxable year. Each individual Limited Partner may deduct his distributive share of Fund losses, if any, to the extent of the tax basis of his Interests at the end of the Company year in which the losses occurred. The characterization of an item of profit or loss will usually be the same for the Limited Partner as it was for the Company. Since individual Limited Partners will be required to include Fund income in their personal income without regard to whether there are distributions of Fund income, such investors may become liable for federal and state income taxes on Fund income even though they have received no cash distributions from the Company with which to pay such taxes.
Tax Returns
Annually, the Company will provide the Limited Partners sufficient information from the Company's informational tax return for such persons to prepare their individual federal, state and local tax returns. The Company's informational tax returns will be prepared by certified public accountants selected by the General Partner.
Unrelated Business Taxable Income
Interests may be offered and sold to certain tax exempt entities (such as qualified pension or profit sharing plans) that otherwise meet the investor suitability standards described elsewhere in this Offering Circular. (See "Investor Suitability Standards.") Such tax exempt entities generally do not pay federal income taxes on their income unless they are engaged in a business which generates "unrelated business taxable income," as that term is defined by Section 512(a)(1) of the Code. Under the Code, tax exempt purchasers of Interests may be deemed to be engaged in an unrelated trade or business by reason of rental or capital gains income earned by the Company. Although rental and capital gains income (which will constitute the primary sources of Fund income) ordinarily do not constitute unrelated business taxable income, this exclusion does not apply to the extent interest income is derived from "debt-financed property." To increase Fund profits or increase Fund liquidity, the General Partner may borrow funds in order to invest in properties. This "leveraging" of the Company's property portfolio will constitute an investment in "debt-financed property" will be unrelated business income taxable to ERISA plans. Unrelated business income is taxable only to the extent such income from all sources exceeds $1,000 per year. The resulting tax, known as "UBIT" or "Unrelated Business Income Tax", is imposed based on the income tax brackets that apply to trusts. Such brackets are high, and can quickly approach 40% (before taking state & local income taxes into account) on fairly small amounts of income (i.e. –net income over $12,400). The remainder of a tax exempt investor's income will continue to be exempt from federal income taxes to the extent it complies with other applicable provisions of law, and the mere receipt of unrelated business income will not otherwise affect the qualification of an IRA or ERISA plan under the Code. The General Partner does anticipate that the Company would earn income, based on its acquisition of leveraged rental properties, that would be treated as UBTI and therefore subject to UBIT.
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The trustee of any trust that purchases Interests in the Company should consult with his tax advisors regarding the requirements for exemption from federal income taxation and the consequences of failing to meet such requirements, in addition to carefully considering his fiduciary responsibilities with respect to such matters as investment diversification and the prudence of particular investments.
SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership Agreement, in the form attached hereto as Exhibit 6. is the governing instrument establishing the terms and conditions pursuant to which the Partnership will conduct business and the rights and obligations between and among the Limited Partners and the General Partner, as well as other important terms and provisions relating to investment in the Partnership. A prospective Limited Partner is expected to read and fully understand the Partnership Agreement in its entirety prior to making a decision to purchase Interests. The following is a brief and incomplete summary of the terms of the Partnership Agreement and is qualified in its entirety by reference to the Partnership Agreement.
Profits and Losses
Losses for any fiscal year shall be allocated among the Partners in proportion to their positive Capital Account balances, until the balance of each Capital Account equals zero. Thereafter, all losses shall be allocated in accordance to each Partner's respective Percentage Interest in the Company. Profits will first be allocated pro rata to the Partners in accordance with the amount of Losses previously allocated if such previous Losses were not offset by Profits. Thereafter, Profits shall be allocated in accordance with actual distributions of Preferred Returns, and then Profits shall be allocated 65% to the Limited Partners (in proportion to their respective Percentage Interests) and 35% to the General Partner.
Operating Cash Distributions
Except as provided elsewhere in this Limited Partnership Agreement, Operating Cash Flow of the Partnership shall be distributed to the Partners monthly, so long as the General Partner determines it is available for distribution, in the following order:
First, to the Limited Partners, pro rata in accordance with their percentage interests in the Partnership (as defined in the Partnership Agreement - "Percentage Interest"), until all Limited Partners have received a cumulative, non-compounded preferred return of 6% per annum on their Capital Contributions.
Second, sixty-five percent (65%) to the Limited Partners in proportion to their respective Percentage Interests, and thirty-five percent (35%) to the General Partner.
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Voting Rights of the Partners
The Limited Partners will have no right to participate in the management of the Partnership and will have limited voting rights. Limited Partners shall have the right to vote only on the following matters:
Admission of Additional Partners: Upon the Partnership obtaining Capital Contributions of $50,000,000.00, the General Partner shall not admit any person as a Limited Partner, other than as a substituted Limited Partner, without the consent of the General Partner and the Limited Partners holding all of the Interests.
Removal for Cause: The Limited Partners, by an affirmative vote of more than 75% of the Investor Interests entitled to vote, shall have the right to remove the General Partner at any time solely "for cause." For purposes of this Limited Partnership Agreement, removal of the General Partner "for cause" shall mean removal due to the:
| (i) | conviction or civil judgment for gross negligence or fraud of the General Partner, | |
| (ii) | conviction or civil judgment for willful misconduct or willful breach of this Limited Partnership Agreement by the General Partner, | |
| (iii) | bankruptcy or insolvency of the General Partner, or | |
| (iv) | a conviction of a financial or corporate felony by Brandon Herbstor Joseph Ryan. |
If the General Partner or an Affiliate owns any Investor Interests, the General Partner or the Affiliate, as the case may be, shall not participate in any vote to remove the General Partner.
Vacancy of General Partner: Any vacancy caused by the removal of any General Partner shall be filled by the affirmative vote of the Limited Partners holding a majority of the Interests at a special meeting called for that purpose.
Dissolution of the Partnership: The Limited Partners holding 75% of the Interests can vote to dissolve the Partnership. However, the Partnership can be dissolved as a result of other actions that do not require the vote of the Limited Partners, as set forth in the Partnership Agreement.
Change To Limited Partner Distribution Structure: Any proposed change to the Limited Partner distribution structure will require approval by Limited Partners holding 100% of the Partnership. A non-response by a Limited Partner shall be deemed a vote that is consistent with the General Partner's recommendation with respect to any proposal.
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Amendment of Partnership Agreement: The Partnership Agreement may be amended or modified from time to time only by a written instrument adopted by the General Partner and executed and agreed to by the Limited Partners holding a majority of the interests; provided, however, that: (i) an amendment or modification reducing a Limited Partner's allocations or share of distributions (other than to reflect changes otherwise provided by the Partnership Agreement) is effective only with that Limited Partner's consent; (ii) an amendment or modification reducing the required allocations or share of distributions or other measure for any consent or vote in the Partnership Agreement is effective only with the consent or vote specified in the Partnership Agreement prior to such amendment or modification; and (iii) an amendment that would modify the limited liability of a Limited Partner is effective only with that Limited Partner's consent. The Partnership Agreement may be amended by the General Partners without the consent of the Partners: (i) to correct any errors or omissions, to cure any ambiguity or to cure any provision that may be inconsistent with any other provision hereof or with any subscription document; or (ii) to delete, add or modify any provision required to be so deleted, added or modified by the staff of the Securities Exchange Commission or similar official, when the deletion, addition or modification is for the benefit or protection of any of the General Partner and/or Limited Partners.
Tax Matters Partner: If the General Partner shall fail or refuse to serve, the "tax matters partner" shall be a Limited Partner who is designated as such by the Limited Partners holding a majority of the Interests.
Consent of Limited Partners
In any circumstances requiring the approval or consent of the Limited Partners as specified in the Limited Partnership Agreement, such approval or consent shall, except as expressly provided to the contrary in the Limited Partnership Agreement, be given or withheld in the sole and absolute discretion of the Limited Partners and conveyed in writing to the General Partner not later than 20 days after such approval or consent was requested by the General Partner. The General Partner may require a response within a shorter time, but not less than 5 Business Days. A failure to respond in any such time period shall constitute a vote that is consistent with the General Partner's recommendation with respect to the proposal. If the General Partner receives the necessary approval or consent of the Limited Partners to such action, the General Partner shall be authorized and empowered to implement such action without further authorization by the Limited Partners.
Death, Disability, Incompetency or Bankruptcy of a Limited Partner
In the event of the death, disability, incapacity or adjudicated incompetency of a Limited Partner or if a Limited Partner becomes bankrupt, his, her or its rights as a Limited Partner to share in the Partnership's distributions and allocations and to assign his, her or its interest or cause the substitution of a substituted Limited Partner will transfer to his, her or its personal representative, administrator, guardian. conservator, trustee in bankruptcy or other legal representative ("Successor"). In the event Interests are held in joint tenancy, such Interests will pass to the surviving joint tenant. The Successor will be liable for all the obligations as a Limited Partner and may become a substitute Limited Partner with respect to the Interests.
Limits on General Partner's Liability; Indemnification
The General Partner will be fully protected and indemnified by the Partnership against all liabilities and losses suffered by the General Partner (including attorneys' fees, costs of investigation, fines, judgments and amounts paid in settlement, actually and reasonably incurred by the General Partner in connection with such action, suit or proceeding) by virtue of its status as General Partner with respect to any acts or omissions, except that expenses incurred by the General Partner with respect to claims for fraud, breach of fiduciary duty, gross negligence, bad faith or a material violation of the Partnership Agreement shall not be advanced to the General Partner unless it is adjudicated in its favor. The provisions of this indemnification will also extend to all managers, Limited Partners, affiliates, employees, attorneys, consultants and agents of the General Partner for any action taken by it on behalf of the General Partner pursuant to the Partnership Agreement.
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Other Activities of General Partner: Affiliates
The General Partner need not devote its full time to the Partnership's business, but shall devote such time as the General Partner in its discretion, deems necessary to manage the Partnership's affairs in an efficient manner. Subject to the other express provisions of the Partnership Agreement, the General Partner, at any time and from time to time may engage in and possess interests in other business ventures of any and every type and description, independently or with others, including ventures in competition with the Partnership, with no obligation to offer to the Partnership or any Limited Partner the right to participate therein, The Partnership may transact business with any General Partner, Limited Partner, officer, agent or affiliate thereof provided the terms of those transactions are no less favorable than those the Partnership could obtain from unrelated third parties.
Transfers of Interests
A Limited Partner may assign, his, her or its Interests only if only if certain conditions set forth in the Partnership Agreement are satisfied. Except as otherwise consented to by the General Partner, the assignee must meet all suitability standards and other requirements applicable to other original subscribers and must consent in writing to be bound by all the terms of the Partnership Agreement. In addition, the Partnership must receive written evidence of the assignment in a form approved by the General Partner and the General Partner must have consented in writing to the assignment. The General Partner may withhold this consent in its sole and absolute discretion. Prior to the General Partner's consenting to any assignment, the Limited Partner must pay all reasonable expenses, including accounting and attorneys' fees, incurred by the Partnership in connection with the assignment.
Withdrawal, Redemption Policy and Other Events of Dissociation
No Limited Partner may withdraw within the first 12 months a Limited Partner's admission to the Partnership. Thereafter, the Partnership will use its best efforts to honor requests for a return of capital subject to, among other things, the Partnership's then available cash flow, financial condition, and approval by the General Partner. The maximum aggregate amount of capital that the Partnership will return to the Limited Partners each calendar year is limited to 12.5% of the total outstanding capital of the Partnership as of December 31 of the prior year. Notwithstanding the foregoing, the General Partner may, in its sole discretion, waive such withdrawal requirements if a Limited Partner is experiencing undue hardship.
Limited Partners may submit a written request for withdrawal as a Limited Partner of the Partnership and may receive a 100% return of capital provided that the following conditions have been met: (a) the Limited Partner has been a Limited Partner of the Partnership for a period of at least twelve (12) months; and (b) the Limited Partner provides the Partnership with a written request for a return of capital at least ninety (90) days prior to such withdrawal ("Withdrawal Request").
The Partnership will not establish a reserve from which to fund withdrawals of Limited Partners' capital accounts and such withdrawals are subject to the availability of cash in any calendar quarter to make withdrawal distributions ("Cash Available for Withdrawals") only after: (i) all current Partnership expenses have been paid (including compensation to the General Partner, Manager and its affiliates as described in this Offering Circular); (ii) adequate reserves have been established for anticipated Partnership operating costs and other expenses and advances to protect and preserve the Partnership's investments in Properties; and (iii) adequate provision has been made for the payment of all monthly cash distributions owing to Limited Partners.
If at any time the Partnership does not have sufficient Cash Available for Withdrawals to distribute the quarterly amounts due to all Limited Partners that have outstanding withdrawal requests, the Partnership is not required to liquidate any Properties for the purpose of liquidating the capital account of withdrawing Limited Partners. In such circumstances, the Partnership is merely required to distribute that portion of the Cash Available for Withdrawals remaining in such quarter to all withdrawing Limited Partners pro rata based upon the relative amounts being withdrawn as set forth in the Withdrawal Request.
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Notwithstanding the foregoing, the General Partner reserves the right to utilize all Cash Available for Withdrawals to liquidate the capital accounts of deceased Limited Partners or ERISA plan investors in whole or in part, before satisfying outstanding withdrawal requests from any other Limited Partners. The General Partner also reserves the right, at any time, to liquidate the capital accounts of ERISA plan investors to the extent the General Partner determines, in its sole discretion, that any such liquidation is necessary in order to remain exempt from the Department of Labor's "plan asset" regulations. Additionally, the General Partner has the discretion to limit aggregate withdrawals during any single calendar year to not more than 10% of the total Partnership capital accounts of all Limited Partners that were outstanding at the beginning of such calendar year.
Exit Strategies
The General Partner does not have an exit strategy currently as it intends to operate the Partnership in perpetuity. Limited Partners should view investing in the Partnership as a long term investment with the ability to withdraw only within the policies outlined above in "Withdrawal, Redemption Policy and Other Events of Dissociation."
Dissolution of the Partnership, Liquidation and Distribution of Assets
The Partnership shall be dissolved upon the first to occur of the following events: (i) the happening of any other event that makes it unlawful, impossible or impractical to carry on the business of the Partnership, (ii) the vote of the Limited Partners holding an aggregate Percentage Interest of more than 75%, or (iii) the General Partner ceases to be a general partner of the Partnership and a Majority of Interest of the Limited Partners elect not to continue the business of the Partnership.
Power of Attorney
By becoming a party to the Partnership Agreement, each Limited Partner will appoint the General Partner as his or her attorney-in-fact and empower and authorize the General Partner to make, execute, acknowledge, publish and file on behalf of the Limited Partner in all necessary or appropriate places, such documents as may be necessary or appropriate to carry out the intent and purposes of the Partnership Agreement.
Accounting Records and Reports
The Partnership shall engage an independent certified public accountant or accounting firm, in the discretion of the General Partner, to act as the accountant for the Partnership and to audit the Partnership's books and accounts as of the end of each fiscal year. As soon as practicable after the end of such fiscal year, but in no event later than 120 days after the end of such fiscal year, the General Partner shall provide to each Limited Partner and to each former Limited Partner who withdrew during such fiscal year, (i) audited financial statements of the Partnership as of the end of and for such fiscal year, including a balance sheet and statement of income, together with the report thereon of the Partnership's independent certified public accountant or accounting firm, (ii) a statement of Properties of the Partnership, including the cost of such Properties, (iii) a Schedule K-1 for such Partner with respect to such fiscal year, prepared in accordance with the Code, together with corresponding forms for state income tax purposes, setting forth such Partner's distributive share of Partnership items of Profit or Loss for such fiscal year and the amount of such Partner's Capital Account at the end of such fiscal year, and (iv) such other financial information and documents respecting the Partnership and its business as the General Partner deems appropriate, or as a Limited Partner may reasonably require and request in writing, to enable such Limited Partner to prepare its federal and state income tax returns.
As soon as practicable after the end of each of the first three quarters of each fiscal year, but in no event later than 45 days following the end of each such quarter, the General Partner shall prepare and e-mail, mail or make available on its secure website, to each Limited Partner (i) the Partnership's unaudited financial statements as of the end of such fiscal quarter and for the portion of the fiscal year then ended, (ii) a statement of the Properties of the Partnership, including the cost of all Properties, and (iii) a report reviewing the Partnership's activities and business strategies for such quarter and an update of such Limited Partner's capital account. The General Partner shall cause the Partnership quarterly reports to be prepared in accordance with GAAP.
On a bi-annual basis, to be determined in the discretion of the General Partner, the General Partner shall provide the Limited Partners with a valuation of all Properties held by the Partnership (the "GP Valuation"). This annual GP Valuation will be provided by either an independent, third-party valuation firm, to be hired at the sole discretion of the General Partner, or another methodology as deemed appropriate by the General Partner.
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LEGAL PROCEEDINGS
We may from time to time be involved in routine legal matters incidental to our business; however, at this point in time we are currently not involved in any litigation, nor are we aware of any threatened or impending litigation.
OFFERING PRICE FACTORS
Our offering price is arbitrary with no relation to value of the company. This offering is a self-underwritten offering, which means that it does not involve the participation of an underwriter to market, distribute or sell the shares offered under this offering.
If the maximum amount of Limited Partnership Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Limited Partnership Interests outstanding.
If the minimum amount of Limited Partnership Interests are sold under this Offering, the purchasers under this Offering will own 100% of the Limited Partnership Interests outstanding.
The General Partner believes that if the maximum amount of the Limited Partnership Interests the price per Interests value will be $1,000 per Interests for a total of $50,000,000.
The General Partner believes that if the minimum amount of the Limited Partnership Interests the price per Interests value will be $1,000 per Interests for a total of $1,000,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information as of the date of this Offering.
Name of Beneficial Owner |
| General Partnership Interests |
|
| Percent Before Offering |
|
| Percent After Offering |
| |||
|
|
|
|
|
|
|
|
|
| |||
Madyson Capital Management, LLC |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
TOTAL |
|
| 100 | % |
|
| 100 | % |
|
| 100 | % |
"Beneficial ownership" means the sole or shared power to vote or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., thepower to dispose of or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days from the date of this Offering.
DIRECTOR, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The Principals of the General Partner of the Company are as follows:
Name | Age | Title | ||
Joseph D. Ryan | 56 | Chief Executive Officer and Chief Financial Officer | ||
Brandon J. Herbst | 37 | Chief Marketing Officer | ||
Dorene M. Thompson | 40 | Vice President of Operations | ||
Kristi R. Carver | 39 | Director of Strategic Relations |
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Duties, Responsibilities and Experience
The following individuals are the decision makers of Madyson Capital Management, LLC which is the General Partner of the Company. All business and affairs of the Company shall be managed by the General Partner. The General Partner shall direct, manage, and control the Company to the best of its ability and shall have full and complete authority, power, and discretion to make any and all decisions and to do any and all things that the General Partner shall deem to be reasonably required to accomplish the business and objectives of the Company. The rights and duties of the General Partner is described in the Partnership Agreement.
The principals of the General Partner are as follows:
JOSEPH D. RYAN - CHIEF EXECUTIVE OFFICER
Joseph Ryan has over 30 years' experience in the finance and real estate industries, including accounting and investment management for commercial & residential construction enterprises. Additionally, he has lengthy experience managing portfolios of equity investments for investors in focused in traded and non-traded real estate programs.
Prior to founding Madyson Capital Holdings, Inc., Mr. Ryan founded Madyson Capital Management in 2014 for the purposes of real estate investment and management and Ryan ABT, Inc., an accounting and management company. Through these enterprises, he has been involved in the investment and management of more than $50 million in single and multifamily properties. In his role as CEO of Madyson, Mr. Ryan oversees a team of real estate and investment professionals and is actively involved in sourcing investment opportunities and maintaining strong relationships with the Company's lenders
BRANDON J. HERBST - CHIEF MARKETING OFFICER
Brandon Herbst has nearly 20 years' experience in sales and marketing. In his role as Chief Marketing Officer, he is responsible for overseeing the planning, development, and execution of the Company's adverting and marketing initiatives. His primary responsibilities include sales management, new business development, product development, and managing the Company's distribution channels.
Prior to joining the Company, Mr. Herbst served as the General Manager Farrah Tax Advisory Group & Retirement Planning between 2007 and 2013 where he was directly involved in over $500 million in product sales. Prior, his career started at Bankers Life and Casualty as a broker/agent where his duties centered around the senior living market and retirees. Mr. Herbst graduated from Rocky Mountain College with a Bachelor's in Business Administration with Minors in Finance and Marketing. He currently holds an active insurance licenses and has held a FINRA Series 6 license.
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DORENE M. THOMPSON - VICE PRESIDENT OF OPERATIONS
In her role as Vice President of Operations, Ms. Thompson oversees all property management and investor relations for the Company. She is a graduate of Northwestern College with a Bachelor's Degree in Business Administration.
Ms. Thompson began her career at Midland National Life and rose to senior level positions in their Variable Marketing and Underwriting Departments. She then relocated to Colorado and became the Director of Operations between 2009 and 2015 for Senior Planning Services with annual average sales exceeded $40 million. While working for the private investment firm, she managed all aspects of the firms' client relations, marketing and human resources. Ms. Thompson's passion for finance and business has also led her to become an entrepreneur in her own right as she has opened up her own small dog spa/grooming business which she manages.
Dorene Thompson is a Registered Representative with TCM Securities, Inc. Member FINRA / SIPC. FINRA CRD# 4161412
KRISTI R. CRAVER - DIRECTOR OF STRATEGIC RELATIONS & SECRETARY
Kristi R. Craver has over 20 years' administrative experience in both the public and non-public sectors. In her role as Director of Strategic Relations and Secretary with Madyson Capital Management since 2015, Ms. Craver is responsible developing strategic relationships that benefit the Company's investment offerings, establishing and maintaining relationships with new investors and the Company's growing shareholder base and involvement in special projects. Between 2010 and 2014, Ms. Carver served as Administrative Assistant for Ryan ABT, Inc.
Ms. Craver attended Arizona State University and Pikes Peak Community College where she studied international business and accounting. She comes from a military family and has worked extensively with military families and veterans throughout her career. She has additionally worked as an administrator for nonprofit organizations assisting both children and seniors. These included the Family Readiness Group, local school districts, and the Girl Scouts of America. Ms. Craver holds an active insurance licenses and an assisted living administration certification.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation of General Partner:
Name and Principal Position |
| Year |
| Salary |
|
| Bonus |
|
| Option Awards |
|
| All Other | ||||
Madyson Capital Management, LLC, General Partner |
| 2016 |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
| 100% of the General Partner Interests | |
For organizing the Company, business plan development, putting together this Offering, initial capitalization, and other related services, the General Partner of our Company has been awarded 100% of the General Partner Interests in our Company.
The General Partner shall receive reimbursement for expenses incurred on behalf of the Company. The General Partner will also receive 35% of distributions available after the Limited Partners have received their Preferred Return, annualized and paid quarterly.
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Employment Agreements
There are no current employment agreements or current intentions to enter into any employment agreements.
Future Compensation
The principals of our General Partner have agreed to provide services to us without compensation until such time that we have sufficient earnings from our revenue. The General Partner has received the Limited Partnership Interests in exchange for cash.
Transfer Agent
We intend to enlist the services of FundAmerica as both our transfer agent and escrow agent.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company utilizes office space provided at no cost from our General Partner. Office services are provided without charge by the Company's General Partner. Such costs are immaterial to the financial statements and, accordingly, have not been reflected.
We have issued 100% of the General Partner Interests to our General Partner. The General Partner shall receive the following fees and compensation:
Phase of Operation | Basis for Fee | Amount of Fee | ||
| ||||
Asset Management Fee | Fees charged to the Company for management of its investments | 1/12th of 1.05% of the total amount the Company invests. The total amount of fees that the General Partner may receive cannot be determined at this time. This could be as little as $8,515 (annually) or as much as $493,080 (annually.) This fee may be paid monthly. | ||
Property Management Fee | Fees charged to the Company on an ongoing basis for the management of specific properties. | 3% of the total gross revenues of an individual property. The total amount of fees that the General Partner may receive cannot be determined at this time. | ||
Disposition Fee | Fees charged to the Company as properties are disposed of | 1.5% of the sales price of the individual property. The total amount of fees that the General Partner may receive cannot be determined at this time. | ||
Company Management Fee | Fees charged to the Company for management of the Company | Profit sharing of 35% of the Distributable Cash that is available after the Limited Partners have received their stated Preferred Return. |
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PRIOR PERFORMANCE TABLE
Joseph Ryan is the CEO of Madyson Holdings, Inc. Madyson Holdings, Inc. has been in operations since January, 2015. The table below summarizes the transactions in Madyson Holdings, Inc . This portfolio consisted of residential properties.
Name and Description of Investment |
| Fiduciary Role |
| Total Equity |
|
| Profit/(Loss) |
|
| IRR |
| |||
Majestic Drive - Residential Property |
| Offering Sponsor |
|
| 338,950 |
|
|
| 17,950 |
|
|
| 5.60 | % |
Alicia Point - Residential Property |
| Offering Sponsor |
|
| 121,050 |
|
|
| 7,050 |
|
|
| 6.20 | % |
Denton Grove - Residential Property |
| Offering Sponsor |
|
| 169,700 |
|
|
| 9,700 |
|
|
| 6.10 | % |
Julynn Road - Residential Property |
| Offering Sponsor |
|
| 348,750 |
|
|
| 38,750 |
|
|
| 12.50 | % |
Property |
|
| Sponsor |
| Bedrooms/Baths |
| Square |
|
|
|
|
| Profit/Loss |
|
| Internal Rate of Return |
| |||
Real Estate Holdings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Majestic Drive | Single Family |
| MCM |
| 3 bed, 2 Bath |
|
| 3029 |
|
| $321,920 (Purchase) $338,950 (Sale) |
|
| $ | 17,950.00 |
|
|
| 5.60 | % |
Alicia Point | Town Home |
| MCM |
| 1 bed, 1 Bath |
|
| 900 |
|
| $116,000.00 |
|
| $ | 7,050.00 |
|
|
| 6.20 | % |
Denton Grove | Town Home |
| M CM |
| 2 Bed, 2 Bath |
|
| 1125 |
|
| $160,000.00 |
|
| $ | 9,700.00 |
|
|
| 6.10 | % |
Julynn Road | Multi Family |
| M CM |
| 4 Bed, 4 Bath |
|
| 3074 |
|
| $310,000.00 |
|
| $ | 38,750.00 |
|
|
| 12.50 | % |
The table above represents the offerings that the Company's Manager has been involved in in recent history.
Majestic Drive was a property in Colorado Springs that was purchased for the purposes of rehab, rent, and hold. Because the Offering Sponsor received a higher than expected offer price, the property was sold one year and four months from purchase date. It was rented for $1,895 per month for the duration of the hold period.
Alicia Point and Denton Grove in Colorado Springs were two condominium homes that were purchased for the purposes of rental income in October 2015. The Offering Sponsor still holds these properties and rents them for $895 and $1200 respectively.
Julynn Road in Colorado Springs was a two unit dwelling that the Offering Sponsor elected to rehab in to a single family unit in July 2015. The property currently rents for $2,500 per month.
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Investment History and Background
The philosophy of Madyson Capital Management (MCM) is to purchase income producing Real Estate utilizing a disciplined long term approach. The goal of MCM is to pay solid steady yields to investors in the form of Dividends while offering an attractive alternative to the volatility of other asset classes for investors.
Started in 2011, Joseph Ryan, CEO/CFO, has been investing in income producing Real Estate with an offering for investors. Mr. Ryan and his team at MCM, apply a consistent disciplined approach to their process and have made several refinements along the way.
MCM, looks for sold value utilizing a set of criteria they have developed internally. Factors include, but are not limited to, location, purchase price, comparable properties in the area, risk assessment, Tax information, Demand in the area, Cap Rates, Net Operating Income and Financing considerations.
If a property meets the investment committee criteria, it will be considered for offering and acquisition. Mr. Ryan has an extensive and well versed background in Real Estate. He started his career in Real Estate 1985 working in Property Maintenance and his daily duties involved many facets including visually inspecting, maintaining, and responding to tenants for upkeep and repair, handling tenant issues and complaints. Mr. Ryan worked alongside licensed contractors, handled most repair and upgrades for properties and developed a strong understanding of the cost and labor involved in being a landlord. This approach allowed him to learn best practices of the day to day operation of Real Estate ownership.
Starting in 1989 to today, Mr. Ryan has worked in Real Estate Management for various firms and including his own. Mr. Ryan has managed real estate off and on for the last 27 years in different capacities. In 2011, he started his own Real Estate offering and has a staff of professionals working alongside of him at Madyson.
As an accountant for several years, Mr. Ryan has also seen the potential tax breaks and passive income possibilities real estate ownership can provide. It is for these reasons he believed in starting his offering as a diversification tool and alternative to investors.
Mr. Ryan also uses his acumen from Real Estate to identify and find value in Real Estate utilizing REIT offerings available to investors. Mr. Ryan looks for solid steady dividend returns, track record of dividends, low share price volatility, and utilizes share price risk mitigation by Dollar Cost Averaging and Investing over time to spread out volatility.
Utilizing this approach, Mr. Ryan and Madyson has maintained solid yields to investors over the last 5 years.
| 48 |
SELECTION, MANAGEMENT AND CUSTODY OF COMPANY'S INVESTMENTS
The Company will typically engage a 3rd party property managers to manage properties. Generally, management costs will be a percentage of gross revenues not to exceed 10%.
LIMITATIONS OF LIABILITY
As permitted by Colorado law, our Partnership Agreement provides:
| · | we will indemnify our General Partner to the fullest extent permitted by law; |
| · | we may indemnify our other employees and other agents to the same extent that we indemnify our General Partner; and |
| · | we will advance expenses to our General Partner in connection with a legal proceeding, and may advance expenses to any employee or agent; provided, however, that such advancement of expenses shall be made only upon receipt of an undertaking by the person to repay all amounts advanced if it should be ultimately determined that the person was not entitled to be indemnified. |
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this Offering as having prepared or certified any part of this Offering or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Limited Partnership Interests was employed on a contingency basis, or had, or is to receive, in connection with the Offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
The financial statements included in this Offering and the registration statement have been audited by Artesian CPA to the extent and for the period set forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
Trowbridge Sidoti LLP is providing legal services relating to this Form 1-A.
| 49 |
FINANCIAL STATEMENTS
MADYSON EQUITY GROUP, LP
Table of Contents
Independent Auditor's Report | F-1 | ||
Financial statements as of February 27, 2016 and for the period from February 26, 2016 (inception) to February 27, 2016: | |||
Balance Sheet | F-2 | ||
Statement of Operations | F-3 | ||
Statement of Changes in Partner's Equity | F-4 | ||
Statement of Cash Flows | F-5 | ||
Notes to Financial Statements | F-6 |
| 50 |
To the Partners of
Madyson Equity Group, LP
Colorado Springs, CO
INDEPENDENT AUDITOR'S REPORT
Report on the Financial Statements
We have audited the accompanying financial statements of Madyson Equity Group, LP (a limited partnership), which comprise the balance sheet as of February 27, 2016, and the related statements of operations, changes in partners' capital, and cash flows for the period from February 26, 2016 (inception) to February 27, 2016, 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 of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of 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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatements.
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 Madyson Equity Group, LP as of February 27, 2016, and the results of its operations and its cash flows for the period from February 26, 2016 (inception) to February 27, 2016, in accordance with accounting principles generally accepted in the United States of America.
Emphasis of Matter Regarding Going Concern
The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As described in Note 3 to the financial statements, the Partnership is newly formed and has not yet commenced planned principal operations nor generated revenues or profits since inception. These factors, among others, raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
/s/ Artesian CPA, LLC
Denver, Colorado
March 21, 2016
Artesian CPA, LLC
1624 Market Street, Suite 202 | Denver, CO 80202
p: 877.968.3330 f: 720.634.0905
info@ArtesianCPA.com | www.ArtesianCPA.com
| F-1 |
MADYSON EQUITY GROUP, LP
BALANCE SHEET
As of February 27, 2016ASSETS |
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Current Assets: |
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TOTAL ASSETS |
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LIABILITIES AND PARTNERS' CAPITAL |
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TOTAL LIABILITIES AND PARTNERS' CAPITAL |
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See Independent Auditor's Report and accompanying notes, which are an integral part of these financial statements.
| F-2 |
MADYSON EQUITY GROUP, LP
STATEMENT OF OPERATIONS
For the period from February 26, 2016 (inception) to February 27, 2016
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See Independent Auditor's Report and accompanying notes, which are an integral part of these financial statements.
| F-3 |
MADYSON EQUITY GROUP, LP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
For the period from February 26, 2016 (inception) to February 27, 2016
Partners' Capital at February 26, 2016 (inception) |
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Partners' Capital at February 27, 2016 |
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See Independent Auditor's Report and accompanying notes, which are an integral part of these financial statements.
| F-4 |
MADYSON EQUITY GROUP, LP
STATEMENT OF CASH FLOWS
For the period from February 26, 2016 (inception) to February 27, 2016
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See Independent Auditor's Report and accompanying notes, which are an integral part of these financial statements.
| F-5 |
NOTE 1: NATURE OF OPERATIONS
Madyson Equity Group, LP (the "Partnership"), is a limited partnership organized February 26, 2016 under the laws of Colorado. The Partnership was organized to make real estate investments in multifamily, senior living, and commercial offices/retail.
As of February 27, 2016, the Partnership has not commenced planned principal operations nor generated revenue. The Partnership's activities since inception have consisted of formation activities and preparations to raise capital. Once the Partnership commences its planned principal operations, it will incur significant additional expenses. The Partnership is dependent upon additional capital resources for the commencement of its planned principal operations and is subject to significant risks and uncertainties; including failing to secure funding to operationalize the Partnership's planned operations or failing to profitably operate the business.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accounting and reporting policies of the Partnership conform to accounting principles generally accepted 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 Partnership has elected to adopt early application of Accounting Standards Update No. 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements; the Partnership does not present or disclose inception-to-date information and other remaining disclosure requirements of Topic 915.
The Partnership adopted the calendar year as its basis of reporting.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
| F-6 |
Cash equivalents and Concentration of Cash Balance
The Partnership considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Partnership's cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits.
Fair Value of Financial Instruments
Financial Accounting Standards Board ("FASB") guidance specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement)
and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active).
Level 3 - Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable.
The carrying amounts reported in the balance sheets approximate their fair value.
Revenue Recognition
The Partnership recognizes revenue when: (1) persuasive evidence exists of an arrangement with the customer reflecting the terms and conditions under which products or services will be provided; (2) delivery has occurred or services have been provided; (3) the fee is fixed or determinable; and (4) collection is reasonably assured. No revenue has been earned or recognized as of February 27, 2016.
Organizational Costs
In accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 720, organizational costs, including accounting fees, legal fees, and costs of incorporation, are expensed as incurred.
| F-7 |
Deferred Offering Costs
The Partnership complies with the requirements of FASB ASC 340-10-S99-1. Deferred offering costs consist principally of legal fees incurred in connection with an offering the Partnership intends to commence during 2016 under Regulation A. Prior to the completion of the offering, these costs are capitalized as deferred offering costs on the balance sheet. The deferred offering costs will be charged to members' equity upon the completion of the offering or to expense if the offering is not completed.
Income Taxes
The Partnership is a limited partnership. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its partners. Therefore, no provision for income tax has been recorded in the statements. Income from the Partnership is reported and taxed to the partners on their individual tax returns.
The Partnership complies with FASB ASC 740 for accounting for uncertainty in income taxes recognized in a Partnership's financial statements, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Partnership's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Partnership's financial statements. The Partnership 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.
The Partnership may in the future become subject to federal, state and local income taxation though it has not been since its inception. The Partnership is not presently subject to any income tax audit in any taxing jurisdiction.
NOTE 3: GOING CONCERN
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Partnership is a business that was recently formed and has not commenced planned principal operations, plans to incur significant costs in pursuit of its capital financing plans, and has not generated any revenues since inception. The Partnership's ability to continue as a going concern in the next twelve months is dependent upon its ability to obtain capital financing from investors sufficient to meet current and future obligations and deploy such capital to produce profitable operating results. No assurance can be given that the Partnership will be successful in these efforts. These factors, among others, raise substantial doubt about the ability of the Partnership to continue as a going concern for a reasonable period of time.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Partnership be unable to continue as a going concern.
| F-8 |
NOTE 4: RECENT ACCOUNTING PRONOUNCEMENTS
In June 2014, the FASB issued Accounting Standards Update (ASU) 2014-10 which eliminated the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows, and stockholders' equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose in the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage. This ASU is effective for annual reporting periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. Early application is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued. Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Partnership has early adopted the new standard effective immediately.
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 Partnership 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 financial statements. As new accounting pronouncements are issued, the Partnership will adopt those that are applicable under the circumstances.
NOTE 5: SUBSEQUENT EVENTS
Subsequent to February 27, 2016, the Company received capital contributions totaling $50,100.
Management has evaluated subsequent events through March 21, 2016, the date the financial statements were available to be issued. Based on this evaluation, no additional material events were identified which require adjustment or disclosure in these financial statements.
| F-9 |
Item 1. Index to Exhibits
| 1. | Articles of Organization | |
| 2. | Partnership Agreement | |
| 3. | Subscription Agreement | |
| 4. | Material Contracts | |
| 5. | Sample Escrow Agreement | |
| 6. | Consent | |
| 7. | Opinion re: Legality | |
| 8. | Tax Opinion |
| 50 |
SIGNATURE
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 offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Colorado Springs, State of Colorado, on August 18, 2016
| Madyson Equity Group, LP |
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| /s/ Joseph Ryan | |
Joseph Ryan, Manager of Madyson Capital Management, LLC | |
General Partner | |
Madyson Equity Group, LP | |
| /s/ Brandon Herbst | |
Brandon Herbst, Manager of Madyson Capital Management, LLC | |
General Partner |
This offering statement has been signed by the following persons in the capacities and on the dates indicated.
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| Madyson Equity Group, LP |
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| /s/ Joseph Ryan | |
| Joseph Ryan, Manager of Madyson Capital Management, LLC |
General Partner | |
Madyson Equity Group, LP | |
| /s/ Brandon Herbst | |
Brandon Herbst, Manager of Madyson Capital Management, LLC | |
General Partner |
51
EXHIBIT 2A



EXHIBIT 4
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (the "Subscription Agreement") made as of this day of , 2016, by and between Madyson Equity Group, a Colorado limited partnership (the "Issuer"), with offices at 3204 N. Academy Blvd., Suite 120, Colorado Springs, CO 80917, and the undersigned (the "Subscriber").
WHEREAS, pursuant to an Offering Circular dated , 2016 (the "Offering Circular"), the Issuer is offering in a Regulation A offering (the "Offering") to investors up to 50,000 Limited Partnership Interests ("Interests") Interests at a purchase price of $1,000.00 per Unit for a maximum aggregate purchase price of $50,000,000 (the "Maximum Offering").
WHEREAS, the Subscriber desires to subscribe for the number and class of Interests set forth on the signature page hereof, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows:
I. | SUBSCRIPTION FOR AND REPRESENTATIONS AND COVENANTS OF SUBSCRIBER |
Subject to the terms and conditions hereinafter set forth, the Subscriber hereby subscribes for and agrees to purchase from the Issuer the number of Interests set forth on the signature page hereof, at a price equal to $1,000.00 per Unit, and the Issuer agrees to sell such Interests to the Subscriber for said purchase price, subject to the Issuer's right to sell to the Subscriber such lesser number of (or no) Interests as the Issuer may, in its sole discretion, deem necessary or desirable. The purchase price is payable by wire or by check payable to the Issuer. The Subscriber has full power and authority to enter into and deliver this Subscription Agreement and to perform its/his/her obligations hereunder, and the execution, delivery and performance of this Subscription Agreement has been duly authorized, if applicable, and this Subscription Agreement constitutes a valid and legally binding obligation of the Subscriber. The Subscriber acknowledges receipt of the Offering Circular, all supplements to the Offering Circular, and all other documents furnished in connection with this transaction by the Issuer (collectively, the "Offering Documents").
1.1 1.2 1.3
The Subscriber recognizes that the purchase of the Interests involves a high degree of risk in that (i) an investment in the Issuer is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Issuer and the Interests; (ii) the Interests are being sold pursuant to an exemption under Regulation A issued by the Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as amended (the "Act"), but they are not registered under the Act or any state securities law; (iii) there is only a limited trading market for the Interests, and there is no assurance that a more active one will ever develop, and thus, the Subscriber may not be able to liquidate his, her or its investment; and (iv) an investor could suffer the loss of his, her or its entire investment. The Subscriber is an "accredited investor," as such term is defined in Rule 501 of Regulation D promulgated under the Act, and the Subscriber is able to bear the economic risk of an investment in the Interests ORthe purchase price tendered by Subscriber does not exceed 10% of the greater of the Subscriber's annual income or net worth. The Subscriber is not relying on the Issuer or its affiliates or agents with respect to economic considerations involved in this investment. The Subscriber has relied on the advice of, or has consulted with, only his, her or its Advisors, if any. Each Advisor, if any, is capable of evaluating the merits and risks of an investment in the Interests as such are described in the Offering Circular, and each Advisor, if any, has disclosed to the Subscriber in writing (a copy of which is annexed to this Subscription Agreement) the specific details of any and all past, present or future relationships, actual or contemplated, between the Advisor and the Issuer.
1.4 1.5 1.6
1
The Subscriber has prior investment experience (including investment in non-listed and non-registered securities), has (together with his, her or its Advisors, if any) such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the prospective investment in the Interests and has read and evaluated, or has employed the services of an investment advisor, attorney or accountant to read and evaluate, all of the documents furnished or made available by the Issuer to the Subscriber, including the Offering Circular, as well as the merits and risks of such an investment by the Subscriber. The Subscriber's overall commitment to investments, which are not readily marketable, is not disproportionate to the Subscriber's net worth, and the Subscriber's investment in the Interests will not cause such overall commitment to become excessive. The Subscriber, if an individual, has adequate means of providing for his or her current needs and personal and family contingencies and has no need for liquidity in his or her investment in the Interests. The Subscriber is financially able to bear the economic risk of this investment, including the ability to afford holding the Interests for an indefinite period or a complete loss of this investment. If other than an individual, the Subscriber also represents it has not been organized solely for the purpose of acquiring the Interests. The Subscriber acknowledges that any estimates or forward-looking statements or projections included in the Offering Circular were prepared by the management of the Issuer in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed by the Issuer, its management or its affiliates and should not be relied upon. The Subscriber acknowledges that the purchase of the Interests may involve tax consequences to the Subscriber and that the contents of the Offering Documents do not contain tax advice. The Subscriber acknowledges that the Subscriber must retain his, her or its own professional Advisors to evaluate the tax and other consequences to the Subscriber of an investment in the Interests. The Subscriber acknowledges that it is the responsibility of the Subscriber to determine the appropriateness and the merits of a corporate entity to own the Subscriber's Interests and the corporate structure of such entity. The Subscriber acknowledges that the Offering Circular and this Offering have not been reviewed by the SEC or any state securities commission, and that no federal or state agency has made any finding or determination regarding the fairness or merits of the Offering or confirmed the accuracy or determined the adequacy of the Offering Circular. Any representation to the contrary is a crime. The Subscriber represents, warrants and agrees that the Interests are being purchased for his, her or its own beneficial account and not with a view toward distribution or resale to others. The Subscriber understands that the Issuer is under no obligation to register the Interests on his, her or its behalf or to assist them in complying with any exemption from registration under applicable state securities laws. The Subscriber understands that the Interests have not been registered under the Act by reason of a claimed exemption under the provisions of the Act which depends, in part, upon his, her or its investment intention. The Subscriber realizes that, in the view of the SEC, a purchase with an intent to resell would represent a purchase with an intent inconsistent with his, her or its representation to the Issuer, and the SEC might regard such a sale or disposition as a deferred sale, for which such exemption is not available. The Subscriber does not have any such intentions. The Subscriber agrees to indemnify and hold the Issuer, its directors, officers and controlling persons and their respective heirs, representatives, successors and assigns harmless against all liabilities, costs and expenses incurred by them as a result of any misrepresentation made by the Subscriber herein or as a result of any sale or distribution by the Subscriber in violation of the Act (including, without limitation, the rules promulgated thereunder), any state securities laws, or the Issuer's Restated Certificate of Incorporation and/or Bylaws, as amended from time to time. The Subscriber understands that the Issuer will review and rely on this Subscription Agreement without making any independent investigation; and it is agreed that the Issuer reserves the unrestricted right to reject or limit any subscription and to withdraw the Offering at any time.
1.7 1.8 1.9 1.10 1.11 1.12 1.13 1.14
| 2 |
The Subscriber hereby represents that the address of the Subscriber furnished at the end of this Subscription Agreement is the Subscriber's principal residence, if the Subscriber is an individual, or its principal business address, if it is a corporation or other entity. The Subscriber acknowledges that if the Subscriber is a Registered Representative of a Financial Industry Regulatory Authority ("FINRA") member firm, the Subscriber must give such firm the notice required by FINRA's Conduct Rules, receipt of which must be acknowledged by such firm on the signature page hereof. The Subscriber hereby acknowledges that neither the Issuer nor any persons associated with the Issuer who may provide assistance or advice in connection with the Offering are or are expected to be members or associated persons of members of FINRA or registered broker-dealers under any federal or state securities laws. The Subscriber hereby represents that, except as expressly set forth in the Offering Documents, no representations or warranties have been made to the Subscriber by the Issuer or by any agent, sub-agent, officer, employee or affiliate of the Issuer and, in entering into this transaction, the Subscriber is not relying on any information other than that contained in the Offering Documents and the results of independent investigation by the Subscriber. No oral or written representations have been made, or oral or written information furnished, to the Subscriber or his, her or its Advisors, if any, in connection with the offering of the Interests which are in any way inconsistent with the information contained in the Offering Documents. All information provided by the Subscriber in the Investor Questionnaire attached to this Subscription Agreement is true and accurate in all respects, and the Subscriber acknowledges that the Issuer will be relying on such information to its possible detriment in deciding whether the Issuer can sell these securities to the Subscriber without giving rise to the loss of the exemption from registration under applicable securities laws. The Subscriber is unaware of, is in no way relying on, and did not become aware of the offering of the Interests through or as a result of, any form of general solicitation or general advertising including, without limitation, any article, notice, advertisement or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or electronic mail over the Internet, in connection with the offering and sale of the Interests and is not subscribing for Interests and did not become aware of the offering of the Interests through or as a result of any seminar or meeting to which the Subscriber was invited by, or any solicitation of a subscription by, a person not previously known to the Subscriber in connection with investments in securities generally. The Subscriber has taken no action which would give rise to any claim by any person for brokerage commissions, finders, fees or the like relating to this Subscription Agreement or the transactions contemplated hereby. The Subscriber is not relying on the Issuer, or any of its employees, agents or sub-agents with respect to the legal, tax, economic and related considerations of an investment in the Interests, and the Subscriber has relied on the advice of, or has consulted with, only his, her or its own Advisors, if any. (For ERISA plans only) The fiduciary of the ERISA plan (the "Plan") represents that such fiduciary has been informed of and understands the Issuer's business objectives, policies and strategies, and that the decision to invest "plan assets" (as such term is defined in ERISA) in the Issuer is consistent with the provisions of ERISA that require diversification of plan assets and impose other fiduciary responsibilities. The subscriber or Plan fiduciary (a) is responsible for the decision to invest in the Issuer; (b) is independent of the Issuer and any of its affiliates; (c) is qualified to make such investment decision; and (d) in making such decision, the subscriber or Plan fiduciary has not relied primarily on any advice or recommendation of the Issuer or any of its affiliates or its agents. The foregoing representations, warranties and agreements shall survive the Closing.
1.15 1.16 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.24 1.25
3
II. | REPRESENTATIONS BY THE ISSUER |
The Issuer represents and warrants to the Subscriber that as of the date of the closing of this Offering (the "Closing Date"):
The Issuer is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Colorado, authorized to do business in the State of Colorado and has the corporate power to conduct the business which it conducts and proposes to conduct. The execution, delivery and performance of this Subscription Agreement by the Issuer have been duly authorized by the Issuer and all other corporate action required to authorize and consummate the offer and sale of the Interests has been duly taken and approved. This Subscription Agreement is valid, binding and enforceable against the Issuer in accordance with its terms; except as enforcement may be limited by bankruptcy, insolvency, moratorium or similar laws or by legal or equitable principles relating to or limiting creditors' rights generally, the availability of equity remedies, or public policy as to the enforcement of certain provisions, such as indemnification provisions. The Interests have been duly and validly authorized and issued. The Issuer knows of no pending or threatened legal or governmental proceedings to which the Issuer is a party which would materially adversely affect the business, financial condition or operations of the Issuer.
2.1 2.2 2.3 2.4
III. | TERMS OF SUBSCRIPTION |
Subject to Section 3.2 hereof, the subscription period will begin as of the date of the Offering Circular and will terminate at 11:59 PM Eastern Time, on the earlier of the date on which the Maximum Offering is sold or one (1) year from the commencement date or the date the Offering is terminated by the Issuer (the "Termination Date"). The Subscriber has effected a wire transfer in the full amount of the purchase price for the Interests to the Issuer or has delivered a check in payment of the purchase price for the Interests. The Subscriber hereby authorizes and directs the Issuer to deliver or cause the delivery of any certificates or other written instruments representing the Interests to be issued to such Subscriber pursuant to this Subscription Agreement to the address indicated on the signature page hereof. If the Subscriber is not a United States person, such Subscriber shall immediately notify the Issuer, and the Subscriber hereby represents that the Subscriber is satisfied as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Interests or any use of this Subscription Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Interests, (ii) any foreign exchange restrictions applicable to such purchase, (iii) any governmental or other consents that may need to be obtained, and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the Interests. Such Subscriber's subscription and payment for, and continued beneficial ownership of, the Interests will not violate any applicable securities or other laws of the Subscriber's jurisdiction.
3.1 3.2 3.3 3.4
4
IV. | NOTICE TO SUBSCRIBERS |
THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. FOR CALIFORNIA RESIDENTS ONLY: THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS OFFERING HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION FOR SUCH SECURITIES PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF THE SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25000, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT. FOR FLORIDA RESIDENTS ONLY: THE UNITS REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE HOLDER IN A TRANSACTION EXEMPT UNDER § 517.061 OF THE FLORIDA SECURITIES ACT. THE UNITS HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE STATE OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER. FOR NON-U.S. RESIDENTS ONLY: NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES OF AMERICA THAT WOULD PERMIT AN OFFERING OF THESE SECURITIES, OR POSSESSION OR DISTRIBUTION OF OFFERING MATERIAL IN CONNECTION WITH THE ISSUE OF THESE SECURITIES, IN ANY COUNTRY OR JURISDICTION WHERE ACTION FOR THAT PURPOSE IS REQUIRED. IT IS THE RESPONSIBILITY OF ANY PERSON WISHING TO PURCHASE THESE SECURITIES TO SATISFY HIMSELF AS TO FULL OBSERVANCE OF THE LAWS OF ANY RELEVANT TERRITORY OUTSIDE THE UNTIED STATES OF AMERICA IN CONNECTION WITH ANY SUCH PURCHASE, INCLUDING OBTAINING ANY REQUIRED GOVERNMENTAL OR OTHER CONSENTS OR OBSERVING ANY OTHER APPLICABLE FORMALITIES.
4.1 4.2 4.4 4.5
V. | MISCELLANEOUS |
Any notice or other communication given hereunder shall be deemed sufficient if in writing and sent by reputable overnight courier, facsimile (with receipt of confirmation) or registered or certified mail, return receipt requested, addressed to the Issuer, at the address set forth in the first paragraph hereof, Attention: Managing Member, and to the Subscriber at the address or facsimile number indicated on the signature page hereof. Notices shall be deemed to have been given on the date when mailed or sent by facsimile transmission or overnight courier, except notices of change of address, which shall be deemed to have been given when received. This Subscription Agreement shall not be changed, modified or amended except by a writing signed by the parties against whom such modification or amendment is to be charged, and this Subscription Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged. This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns. This Subscription Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.
5.1 5.2 5.3
5
Notwithstanding the place where this Subscription Agreement may be executed by any of the parties hereto, the parties expressly agree that all the terms and provisions hereof shall be construed in accordance with and governed by the laws of the State of Colorado. The parties hereby agree that any dispute which may arise between them arising out of or in connection with this Subscription Agreement shall be adjudicated only before a Federal court located in Denver, CO, and they hereby submit to the exclusive jurisdiction of the federal courts located in Denver, CO with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any such action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum, relating to or arising out of this Subscription Agreement or any acts or omissions relating to the sale of the securities hereunder, and consent to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth below or such other address as the Subscriber shall furnish in writing to the other. The parties further agree that in the event of any dispute, action, suit or other proceeding arising out of or in connection with this Subscription Agreement, the Offering Circular or other matters related to this subscription brought by a Subscriber (or transferee), the Issuer (and each other defendant) shall recover all of such party's attorneys' fees and costs incurred in each and every action, suit or other proceeding, including any and all appeals or petitions therefrom. As used herein, attorney's fees shall be deemed to mean the full and actual costs of any investigation and of legal services actually performed in connection with the matters involved, calculated on the basis of the usual fee charged by the attorneys performing such services. This Subscription Agreement may be executed in counterparts. Upon the execution and delivery of this Subscription Agreement by the Subscriber, this Subscription Agreement shall become a binding obligation of the Subscriber with respect to the purchase of Interests as herein provided; subject, however, to the right hereby reserved by the Issuer to (i) enter into the same agreements with other subscribers, (ii) add and/or delete other persons as subscribers and (iii) reduce the amount of or reject any subscription. The holding of any provision of this Subscription Agreement to be invalid or unenforceable by a court of competent jurisdiction shall not affect any other provision of this Subscription Agreement, which shall remain in full force and effect. It is agreed that a waiver by either party of a breach of any provision of this Subscription Agreement shall not operate or be construed as a waiver of any subsequent breach by that same party. The parties agree to execute and deliver all such further documents, agreements and instruments and take such other and further actions as may be necessary or appropriate to carry out the purposes and intent of this Subscription Agreement.
5.4 5.5 5.6 5.7 5.8
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties have executed this Subscription Agreement as of the day and year first written above.
x $________for each Unit | = $______. | |||
Number of Interests subscribed for | Aggregate Purchase Price |
Manner in which Title is to be held (Please Check One):
1. | Individual | 7. | Trust/Estate/Pension or Profit Sharing Plan Date Opened: | ||||||
2. | Joint Tenants with Right of Survivorship | 8. | As a Custodian for | ||||||
Under the Uniform Gift to Minors Act of the State of | |||||||||
3. | Community Property | 9. | Married with Separate Property | ||||||
4. | Tenants in Common | 10. | Keogh | ||||||
5. | Corporation/Partnership/ Limited Liability Company | 11. | Tenants by the Entirety | ||||||
6. | IRA | 12. | Foundation described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. |
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IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN
EXECUTION BY NATURAL PERSONS
Exact Name in Which Title is to be Held | ||
Name (Please Print) | Name of Additional Subscriber | |
Residence: Number and Street | Address of Additional Subscriber | |
City, State and Zip Code | City, State and Zip Code | |
Social Security Number | Social Security Number | |
Telephone Number | Telephone Number | |
Fax Number (if available) | Fax Number (if available) | |
E-Mail (if available) | E-Mail (if available) | |
(Signature) | (Signature of Additional Subscriber) | |
ACCEPTED this day of 2016, on behalf of Madyson Equity Group, LP. | |||
By: | |||
Name: | |||
Title: | |||
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EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, Etc.)
| |
Name of Entity (Please Print) | |
Date of Incorporation or Organization: | |
State of Principal Office: | |
Federal Taxpayer Identification Number: ____________________________________________________ | |
Office Address | |
City, State and Zip Code | |
Telephone Number | |
Fax Number (if available) | |
E-Mail (if available) | |
[seal] | By: | ||||
Attest: _____________________ | Name: | ||||
(If Entity is a Corporation) | Title: | ||||
* If Subscriber is a Registered Representative with a FINRA member firm, have the following acknowledgement signed by the appropriate party: | |||||
The undersigned FINRA member firm acknowledges receipt of the notice required by Rule 3050 of the FINRA Conduct Rules | |||||
| ACCEPTED this day of 2016, on behalf of Madyson Equity Group, LP. | ||||
Name of FINRA Firm | |||||
By: | By: | ||||
Name: | Name: | ||||
Title: | Title: | ||||
| 9 |
INVESTOR QUESTIONNAIRE
Instructions: Check all boxes below which correctly describe you.
¨ | You are (i) a bank, as defined in Section 3(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"), (ii) a savings and loan association or other institution, as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in an individual or fiduciary capacity, (iii) a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iv) an insurance company as defined in Section 2(13) of the Securities Act, (v) an investment company registered under the Investment Company Act of 1940, as amended (the "Investment Company Act"), (vi) a business development company as defined in Section 2(a)(48) of the Investment Company Act, (vii) a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301 (c) or (d) of the Small Business Investment Act of 1958, as amended, (viii) a plan established and maintained by a state, its political subdivisions, or an agency or instrumentality of a state or its political subdivisions, for the benefit of its employees and you have total assets in excess of $5,000,000, or (ix) an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and (1) the decision that you shall subscribe for and purchase Interests (the "Interests") of Madyson Equity Group, LP. 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 adviser, (2) you have total assets in excess of $5,000,000 and the decision that you shall subscribe for and purchase the Interests is made solely by persons or entities that are accredited investors, as defined in Rule 501 of Regulation D promulgated under the Securities Act ("Regulation D") or (3) you are a self-directed plan and the decision that you shall subscribe for and purchase the Interests is made solely by persons or entities that are accredited investors. |
¨ | You are a private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940, as amended. |
¨ | You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), a corporation, Massachusetts or similar business trust or a partnership, in each case not formed for the specific purpose of making an investment in the Interests and with total assets in excess of $5,000,000. |
¨ | You are a director or executive officer of Madyson Equity Group, LP |
¨ | You are a natural person whose individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time of your subscription for and purchase of the Interests, excluding your primary residence as an asset and any indebtedness that is secured by your primary residence, up to the estimated fair market value of the primary residence at this time, as a liability (except that if the amount of the indebtedness secured by your primary residence at this time exceeds the amount of such indebtedness outstanding 60 days earlier, other than as a result of the purchase of the primary residence, the amount of the excess must be included as a |
liability) and any indebtedness that is secured by your primary residence which is more than the estimated fair market value of your primary residence at this time must also be included as a liability. |
¨ | You are a natural person who had an 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 the two most recent years, and who has a reasonable expectation of reaching the same income level in the current year. |
¨ | You are a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Interests, whose subscription for and purchase of the Interests is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D. |
¨ | You are an entity in which all of the equity owners are persons or entities described in one of the preceding paragraphs. |
| ¨ | None of the above describes you. Your net worth is $_______________________________ |
Are you associated with a FINRA Member Firm? ¨ Yes ¨ No
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Your initials (purchaser and co-purchaser, if applicable) are required for each item below:
I/We understand that this investment is not guaranteed. | ||||
I/We are aware that this investment is not liquid. | ||||
I/We are sophisticated in financial and business affairs and are able to evaluate the risks and merits of an investment in this offering. | ||||
I/We confirm that this investment is considered "high risk." (This type of investment is considered high risk due to the inherent risks including lack of liquidity and lack of diversification. Success or failure of private placements such as this is dependent on the issuer of these securities and is outside the control of the investors. While potential loss is limited to the amount invested, such loss is possible.) |
The Subscriber hereby represents and warrants that all of its answers to this Investor Questionnaire are true as of the date of its execution of the Subscription Agreement pursuant to which it purchased Interests of the Issuer.
Name of Purchaser [please print] | Name of Co-Purchaser [please print] | |
Signature of Purchaser (Entities please provide signature of Purchaser's duly authorized signatory.) | Signature of Co-Purchaser | |
Name of Signatory (Entities only) | ||
Title of Signatory (Entities only) |
11
EXHIBIT 6
EXHIBIT A
LIMITED PARTNERSHIP AGREEMENT
MADYSON EQUITY GROUP, L.P.
A COLORADO LIMITED PARTNERSHIP
THIS AGREEMENT OF LIMITED PARTNERSHIP (this "Agreement") of MADYSON EQUITY GROUP, L.P., a Colorado limited partnership ("Partnership"), as of April 1, 2016 (the "Effective Date"), by and among Madyson Capital Management, LLC, a Colorado limited liability company, as the "General Partner," and those Persons admitted from time to time as limited partners of the Partnership upon execution of a Subscription Agreement for Interests whose names are set forth and recorded in the books and records of the Partnership, as the "Limited Partners."
All capitalized terms used herein are defined in the Glossary attached hereto and incorporated herein by this reference.
ARTICLE I
FORMATION, NAME AND CERTIFICATE
1.01 Formation. The Partnership has been formed as a limited partnership pursuant to the provisions of the Act and this Agreement sets forth the rights, duties and obligations of the General Partner, the limit of liabilities of the Limited Partners, and the rights of the Partners with respect to the assets of the Partnership and the profits and losses which the Partners shall receive from the Partnership by reason of their being Partners.
1.02 Name of Partnership. The Partners hereby agree that the Partnership shall conduct its business under the name of "Madyson Equity Group, L.P."
1.03 Certificate of Limited Partnership. The General Partner has executed a Certificate of Limited Partnership pursuant to the relevant provisions of the Act, which has been duly filed in the Office of the Secretary of State of Colorado.
1.04 Registered Agent. The registered agent for service of process for the Partnership shall be Joseph Ryan, or any successor as appointed by the General Partner in accordance with the Act. The registered office of the Partnership is located 3204 N. Academy Blvd., Suite 120, Colorado Springs, CO 80917.
ARTICLE II
PRINCIPAL PLACE OF BUSINESS
The principal place of business of the Partnership shall be 3204 N. Academy Blvd., Suite 120, Colorado Springs, CO 80917, or at such other place or places as the General Partner may from time to time elect upon notice to the Limited Partners.
ARTICLE III
TERM OF THE PARTNERSHIP
The term of the Partnership commenced as of the date the Certificate of Limited Partnership was filed in the Office of the Secretary of State of Colorado, and shall continue until terminated by the winding up and liquidation of the Partnership and its business following a Dissolution Event, as provided in Article XI hereof.
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ARTICLE IV
BUSINESS PURPOSE AND POWERS
The principal business of the Partnership is to acquire and manage senior living facilities and multifamily properties, located in the United States. The Partnership shall have the power to do and perform all things necessary for, incident to and connected with or arising out of such purpose, as determined by the General Partner, and shall take such actions as may be conducive to the accomplishment of such purpose.
ARTICLE V
CAPITAL AND LOANS
5.01 Partners' Capital Contributions. Each Partner shall contribute the amount set forth for such Partner on the books and records of the Partnership as his, her or its Capital Contribution. Said amount shall be credited to the Partners' respective Capital Accounts upon the date of contribution. No Limited Partner shall be deemed admitted into the Partnership, unless such Limited Partner has fully funded such Limited Partner's Capital Contribution.
5.02 Capital Contributions in General. Except as otherwise expressly provided in this Agreement, (a) no part of the contributions of any Partner to the capital of the Partnership may be withdrawn by such Partner, (b) no Partner shall be entitled to receive interest on his, her or its contributions to the capital of the Partnership, (c) no Partner shall have the right to demand or receive property other than cash in return for his, her or its contributions to the Partnership, and (d) no loan made by any Partner to the Partnership shall increase such Partner's Percentage Interest. All Capital Contributions made by a Partner shall establish the number of Interests held by each Limited Partner, and be credited to his, her or its Capital Account in the amount of such contribution, and the Percentage Interests of the Partners will be adjusted to reflect the new relative proportions of the Capital Accounts of the Partners.
5.03 Obligations of the Limited Partners. Except as set forth in Section 5.01 above, in no event shall the Limited Partners have any obligation or duty to contribute capital or make a loan or loans to the Partnership. In no event shall the Limited Partners be liable or accountable in damages or otherwise to the Partnership or to any third party for any debts or liabilities of the Partnership.
ARTICLE VI
ALLOCATION OF PROFITS AND LOSSES
6.01 Net Losses. Net Losses of the Partnership for each fiscal year shall be charged to the Partners at the end of such fiscal year as follows:
Reduction of Capital. First, to those Partners with a positive Capital Account balance in the ratio that each such Partner's Capital Account bears to the Capital Accounts of all such Partners until and to the extent required to reduce the positive balance of such Partners' Capital Accounts to zero; General Partner. Thereafter, to the General Partner.
(a) (b)
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6.02 Net Profits. Net Profits for each fiscal year shall be allocated to the Partners at the end of each fiscal year in the following order of priority:
| (a) | Excess General Partner Losses. First, to the General Partner to the extent the Net Losses charged to the General Partner for the current and all prior Fiscal Years under Section 6.01(c) above exceeds the Net Profits allocated to the General Partner for the current and all prior Fiscal Years pursuant to this Section 6.02(a); | |
| (b) | Chargeback for Capital Reduction. Next, to the Partners, to the extent of and in proportion to the amount by which Net Losses charged to each such Partner for the current and all prior Fiscal Years of the Partnership under Section 6.01(a) above exceeds the Net Profits allocated to each such Partner for the current and all prior Fiscal Years of the Partnership pursuant to this Section 6.02 (b); | |
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| (c) | Preferred Returns. Next, pro-rata among the Limited Partners in amounts equal to the actual distributions of Preferred Returns to such Limited Partners pursuant to Section 7.01(a) and/or Section 7.02(b) below; and | |
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| (d) | Remainder. Thereafter, Sixty Five Percent (65%) to the Limited Partners and Thirty Five percent (35%) to the General Partner. |
6.03 Differing Tax Basis; Tax Allocation. The Partners shall cause depreciation or cost recovery deductions and gain or loss with respect to each item of property to be allocated among the Partners for federal income tax purposes in accordance with the principles of Section 704(c) of the Code and the Regulations promulgated thereunder, and for state income tax purposes in accordance with the principles of comparable state provisions, as amended, and the regulations promulgated thereunder, so as to take into account the variation, if any, between the adjusted tax basis of such property and its gross asset value. Any elections or other decisions relating to such allocations shall be made by the General Partner in any manner that reasonably reflects the purpose and intention of this Agreement.
6.04 Minimum Gain. Notwithstanding the foregoing provisions of this Article VI, if there is a net decrease in Partnership minimum gain (as defined in Regulation Section 1.704-2(d)(1)) during any Fiscal Year, each Partner shall be allocated items of income and gain for such period equal to that Partner's Share of the net decrease in Partnership minimum gain in accordance with the principles set forth in Regulation Section 1.704-2(f)(1).
6.05 Depreciation Recapture. Each Partner's allocable Share of Partnership Net Profits which is characterized as ordinary income pursuant to Sections 1245 or 1250 of the Code or the applicable state sections, as amended, with respect to the disposition of an item of Partnership property, shall bear the same ratio to the total Net Profits so characterized of the Partnership as such Partner's Share of the past depreciation and/or cost recovery deductions taken with respect to the item of property bears to all the Partners' past depreciation and/or cost recovery deductions with respect to that property.
6.06 Qualified Income Offset. Notwithstanding anything to the contrary contained herein, it is the intention of the Partners that allocations of Net Profits and Net Losses to the Partners shall be made in compliance with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d). In furtherance thereof, the following provision shall apply:
Deficit Balance. Net Losses shall not be allocated to the Limited Partners if such allocation would, together with any decrease (and increase) of the Limited Partner's Capital Account pursuant to the provisions of the Regulations Sections 1.704-1, (5) and (6), cause or increase a deficit balance. Each Limited Partner's Capital Account adjusted as provided by this Section 6.06(a) shall be referred to as the "Adjusted Capital Account." Other Losses. Any Net Losses not allocable to the Limited Partners pursuant to Section 6.06(a) shall be allocated to the General Partner. Unexpected Allocation. If the Limited Partners unexpectedly receive an adjustment, allocation or distribution described in Regulations Sections 1.704-1(b)(2)(ii)(d)(4), (5) and/or (6), then the Limited Partners will be allocated items of income and gain in an amount and manner sufficient to eliminate any deficit balance in the Limited Partners' Adjusted Capital Accounts as quickly as possible.
(a) (b) (c)
6.07 Interpretation. The provisions of this Article VI are intended to comply with Regulation Sections 1.704-1(b) and 1.704-2, as amended from time to time, and shall be interpreted in accordance therewith.
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ARTICLE VII
DISTRIBUTION OF CASH FLOW
7.01 Operating Cash Flow. Except as provided elsewhere in this Agreement, Operating Cash Flow of the Partnership shall be distributed to the Partners monthly, so long as the General Partner determines it is available for distribution, in the following order of priority:
First, to the Limited Partners in proportion to their unpaid cumulative, non-compounded Preferred Returns until all unpaid Preferred Returns have been paid in accordance with their Percentage Interests until all Limited Partners have received a cumulative, non-compounded Preferred Return of six percent (6%) per annum on their Capital Contributions. Second, sixty-five percent (65%) to the Limited Partners in proportion to their respective Percentage Interests, and thirty-five percent (35%) to the General Partner.
(a) (b)
7.02 Capital Transaction Cash Flow.In the event of a Capital Transaction, the proceeds from such a Capital Transaction will first go to pay any indebtedness on the Property involved in the Capital Transaction and any other debts and liabilities owed by the Partnership and reserves necessary for future liabilities as determined by the General Partner, and then will be distributed as follows:
| (a) | First, to the Limited Partners, in an amount equal to 100% of that portion of each Limited Partner's Capital Account allocated to the Property involved in the Capital Transaction, based upon the cost of that Property as a percentage of the cost of all Properties purchased by the Partnership. | |
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| (b) | Second, to the Limited Partners, in accordance with their Percentage Interests, until the Limited Partners have received any unpaid cumulative Preferred Returns equal to the cumulative, non-compounded Preferred Returns of six percent (6%) per annum on their Capital Contributions. |
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| (c) | Third, sixty-five percent (65%) of the remaining cash available, if any, for distribution to the Limited Partners in proportion to their respective Percentage Interests, and thirty-five percent (35%) of the remaining cash available for distribution to the General Partner. |
ARTICLE VIII
MANAGEMENT
8.01 Power and Authority of the General Partner. Except as otherwise expressly provided in this Agreement, the General Partner alone shall have the sole and exclusive power and authority to manage all facets of the business of the Partnership. Without limiting the generality of the foregoing, the General Partner is expressly authorized on behalf of, and at the expense of, the Partnership to take any of the following actions without the consent of the Limited Partners:
| (a) | Contracts. Execute agreements, contracts, documents, affidavits, assignments, bills of sale, certifications and other instruments necessary or convenient in connection with the acquisition, disposition, encumbrance, development, management, maintenance and operation of Property, or in connection with managing the affairs of the Partnership. | |
| (b) | Acquisitions, Financing, Sales and Other Transactions. Acquire, operate, maintain, finance, entitle, improve, construct, sell or otherwise convey, assign, and/or enter into lease agreements or options for any real or personal property as may be necessary, convenient or incidental to the accomplishment of the purposes of the Partnership. |
| 4 |
| (c) | Loans. Incur debt on behalf of the Partnership on such terms and conditions as determined appropriate by the General Partner, provided that loans on individual Properties shall not exceed a 75% loan-to-value ("LTV") ratio, and loans on the portfolio of Properties shall not exceed a 65% LTV; | |
| (d) | Contractors. Retain, determine the level of compensation, supervise and coordinate any independent contractors engaged by the Partnership and other persons and entities rendering services to the Partnership, including, without limitation, causing the Partnership to enter into management agreements for the management of the any investment made by the Partnership, the business of the Partnership or any portion thereof. | |
| (e) | Licenses. Obtain any and all licenses including, without limitation, business licenses, and any other licenses or permits which may be required in connection with the business operations of the Partnership. | |
| (f) | Insurance. Obtain and keep in force insurance for the protection of the Partners and the Partnership and all insurance coverage it elects to obtain. | |
| (g) | Payment of Bills. Promptly paying, when due, all Partnership costs and expenses. | |
| (h) | General Administrative. Perform all other functions of a general and administrative nature. | |
| (i) | Compliance. Using diligent efforts to cause the Partnership to comply with obligations imposed upon it pursuant to any and all laws and regulations applicable to the Partnership. | |
| (j) | Accounting and Reports. Keep the books, records and accounts of the Partnership, and prepare and deliver such financial information and reports required to be delivered to the Partners pursuant to and in compliance with the terms of this Agreement. | |
| (k) | Extension of Credit. Cause or permit the Partnership to extend credit or to make any loans or become a surety, guarantor, endorser or accommodation endorser. | |
| (l) | Releases. Release, compromise, assign or transfer any claims, rights or benefits of the Partnership. | |
| (m) | Confess Judgment. Confess a judgment against the Partnership or submitting a claim of any of the Partnership to arbitration. | |
| (n) | Distributions. Distribute any cash or property of the Partnership to the Partners in accordance with the terms of this Agreement. | |
| (o) | Establish Reserves. Establish any reserve in such amount as is determined appropriate by the General Partner. | |
| (p) | Tax Returns and Elections. File on behalf of the Partnership any federal or state income tax or information returns, elections or choices of methods of reporting income or loss for federal or state income tax purposes. |
| 5 |
| (q) | Admission of Partner. Admit any person or entity as an additional Partner to the Partnership. | |
| (r) | General Partner or Affiliate Contracts. Enter into, modify or rescind any contract with the General Partner or an Affiliate of the General Partner; declaring a default thereunder; instituting, settling or compromising a claim with respect thereto; waive any rights of the Partnership against the other party thereto; or consent to the assignment of any rights or the delegation of any duties by the other party thereto, it being agreed and understood that the General Partner, acting alone, shall have all such rights and powers of the Partnership with respect to such decisions. | |
| (s) | Co-Investments, Joint Ventures and Participations. Negotiate and enter into co-investments, joint ventures and participations between the Partnership and other investors on certain investments made by the Partnership, which may include separate promote structures between the General Partner and the co-investor, joint venture or participant, which may directly benefit the General Partner or an Affiliate of the General Partner, separate from any compensation the General Partner may earn as General Partner of the Partnership. | |
| (t) | Affiliate Transactions. The Partnership may acquire Properties or other real estate related investments from, or invest, co-invest, joint venture or participate with, the General Partner and affiliates of the General Partner, as determined by the General Partner in its sole discretion. The purchase price of any Property or real estate related investment acquired from or sold to an affiliated party will be based upon the fair market value of the asset established by third party appraisal or fairness opinion that is dated within the last 120 days prior to the transaction. |
8.02 Compensation, Expenses and Partnership Loans.
Compensation. In consideration of its performance of services on behalf of the Partnership, the General Partner shall receive the following fees:
(a)
(i) Asset Management Fee. The General Partner shall be entitled to an annual asset management fee, payable monthly in advance, of 1.05% per annum based on the gross asset value of the Partnership.
(ii) Debt/Financing Fee. The General Partner shall receive a fee equal to fifty (50) basis points (0.50%) of any debt procured in connection with the obtaining of any loan secured by Partnership Assets.
(iii) Property Management Fee. The General Partner shall receive a property management fee of three (3%) percent of gross revenue for all real property assets being actively managed by the Partnership. The General Partner reserves the right to subcontract property management services, as may be necessary, and pay all fees due third-party contractors from this amount.
(iv) Disposition Fee. The Partnership shall pay to the General Partner or its designated affiliate, as compensation for its efforts to sell the Partnership's Properties or real estate related investments, or any portion thereof, of (i) in the case of the sale of any real estate asset other than real estate-related investments (meaning notes, mortgages, deeds of trust or other debt secured by real estate,) one and a half percent (1.5%) of the contract sales price of such real estate-related investments.
Expenses.
(b)
(i) Organizational Expenses. All organizational expenses of the Partnership will be paid by the Partnership, including, without limitation, reimbursement to the General Partner for out-of-pocket expenses of organizing the Partnership and marketing Interests to prospective Limited Partners. Collectively called "Organizational Expenses", these General Partner reimbursables include but are not limited to the following: legal, accounting, and travel and entertainment expenses, administration, filing, and printing, and production of marketing materials.
(ii) Generally. The Partnership will pay, or reimburse the General Partner for, all costs and expenses arising from the Partnership's operations, including, without limitation, legal, tax, accounting, auditing, administration and other professional advice and the advice of other consultants and experts on behalf of the Partnership, expenses related to the potential acquisition, holding, servicing and sale of Properties, and expenses related to sourcing, underwriting, conducting due diligence, bidding on and completing investment transactions, including fees and commission, travel expenses, and brokers' fees and commissions related thereto, together with Asset Management Fees ("Partnership Expenses.") The General Partner will not, however, be entitled to special fees with respect to underwriting or other services performed with respect to Properties, other than the Fees disclosed herein.
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Partnership Loans.
(c)
(i) Loans to the Partnership. The General Partner (or an affiliate) may make loans to the Partnership or a co-investment, joint venture or participation entity, which will accrue interest at the greater of the General Partner's (or its affiliate's) actual cost of funds or the prime rate as reported in the Wall Street Journal plus 200 bps, adjusted monthly.
8.03 Rights of Limited Partners.
On 10 days' demand, made in a written record received by the Partnership, a Limited Partner may inspect and copy any information required to be maintained pursuant to Section 15901.1 of the Act during regular business hours in the Limited Partnership's designated office. During regular business hours and at a reasonable location specified by the Limited Partnership, a Limited Partner may inspect and copy, at the expense of the Limited Partner, true and full information regarding the state of the activities and financial condition of the Limited Partnership and other information regarding the activities of the Limited Partnership in accordance to Section 15903.04 of the Act.
(a) (b)
8.04 Liability of the General Partner and Other Persons; Indemnity. The Partnership does hereby agree to protect, defend, indemnify and hold the General Partner, its officers, directors, shareholders and authorized agents, and any Person serving at the request of the Partnership as a manager, managing member, employee or agent of any other entity (each a "Indemnified Party"), harmless from and against any liability, cost, loss, expense (including, without limitation, attorney's fees) or damage (or collectively, "Losses") suffered by such Indemnified Party by reason of anything that they, or any of them, may do or refrain from doing hereafter for and on behalf of the Partnership or otherwise in their designated capacities, and in furtherance of the interests of the Partnership; provided, however, that the Partnership shall not be required to indemnify such Indemnified Party from Losses as a result of the fraud, bad faith or willful misconduct of the General Partner or such Indemnified Party. Moreover, the General Partner shall not be liable to the Partnership or the Limited Partners because any taxing authorities disallow or adjust any deductions or credits in the Partnership's income tax returns.
The General Partner shall indemnify and hold harmless the Partnership from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys' fees, to the extent that (i) such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and (ii) are incurred by reason of the General Partner's bad faith, fraud, misfeasance, misconduct, negligence or reckless disregard of its duties.
The Partnership shall pay or reimburse in advance of the final disposition of a proceeding any reasonable expenses incurred by any Indemnified Party who was, is or is threatened to be, made a named defendant or respondent in such a proceeding after the Partnership receives a written affirmation by such Indemnified Party of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification as set forth herein, and a written undertaking by such Indemnified Party to repay the amount paid or reimbursed if it is ultimately determined that he has not met those requirements.
The termination of a proceeding by judgment, order, settlement, or conviction, or on a plea of nolo contendere or its equivalent is not of itself determinative that the Person did not meet the requirements set forth herein. A Person shall be deemed to have been found liable in respect of any claim, issue or matter only after the Person shall have been finally so adjudged by a court of competent jurisdiction and no opportunity for appeal then exists. The protection and indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which such Person may be entitled, under any agreement, insurance policy or vote of the Partners, or otherwise.
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8.05 Limitations Upon Powers and Liability of the Limited Partners. Except as otherwise set forth in this Agreement, the Limited Partners shall have no right, power or authority to act for or bind the Partnership. Except as otherwise set forth in this Agreement, the Limited Partners shall take no part in the conduct or control of the Partnership business, except that the Limited Partners shall have the right to vote upon the following matters:
The Partnership Agreement may be amended or modified from time to time only by a written instrument adopted by the General Partner and executed and agreed to by the Limited Partners holding a Majority of the Interests; provided, however, that: (i) an amendment or modification reducing a Limited Partner's allocations or share of distributions (other than to reflect changes otherwise provided by the Partnership Agreement) is effective only with that Limited Partner's consent; (ii) an amendment or modification reducing the required allocations or share of distributions or other measure for any consent or vote in the Partnership Agreement is effective only with the consent or vote specified in the Partnership Agreement prior to such amendment or modification; and (iii) an amendment that would modify the limited liability of a Limited Partner is effective only with that Limited Partner's consent. The Partnership Agreement may be amended by the General Partner without the consent of the Partners: (i) to correct any errors or omissions, to cure any ambiguity or to cure any provision that may be inconsistent with any other provision hereof or with any subscription document; or (ii) to delete, add or modify any provision required to be so deleted, added or modified by the staff of the Securities and Exchange Commission or similar official, when the deletion, addition or modification is for the benefit or protection of any of the General Partner and/or Limited Partners.
(a) (b) The Limited Partners holding 75% of the Interests can vote to dissolve the Partnership. However, the Partnership can be dissolved as a result of other actions that do not require the vote of the Limited Partners, as set forth in the Partnership Agreement. (c) Removal for Cause. The Limited Partners, by an affirmative vote of more than 25% of the Investor Interests entitled to vote, shall have the right to remove the General Partner at any time solely "for cause." For purposes of this Limited Partnership Agreement, removal of the General Partner "for cause" shall mean removal due to the:
(i) conviction or judgment for gross negligence or fraud of the General Partner,
(ii) conviction or judgment for willful misconduct or willful breach of this Limited Partnership Agreement by the General Partner,
(iii) bankruptcy or insolvency of the General Partner, or
(iv) a conviction of a financial or corporate felony by Joseph D. Ryan.
If the General Partner or an Affiliate owns any Investor Interests, the General Partner or the Affiliate, as the case may be, shall not participate in any vote to remove the General Partner.
Any vacancy caused by the removal of any General Partner shall be filled by the affirmative vote of the Limited Partners holding a majority of the Interests at a special meeting called for that purpose. Upon the Partnership obtaining Capital Contributions of $50,000,000.00, the General Partner shall not admit any person as a Limited Partner, other than as a substituted Limited Partner, without the consent of the General Partner and the Limited Partners holding all of the Interests. If the General Partner shall fail or refuse to serve, the "tax matters partner" shall be a Limited Partner who is designated as such by the Limited Partners holding a majority of the Interests. The Limited Partners holding 75% of the Interests can vote to dissolve the Partnership. However, the Partnership can be dissolved as a result of other actions that do not require the vote of the Limited Partners, as set forth in Section 11.01 herein.
(d) (e) (f) (g)
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In any circumstances requiring the approval or consent of the Limited Partners as specified in this Agreement, such approval or consent shall, except as expressly provided to the contrary in this Agreement, be given or withheld in the sole and absolute discretion of the Limited Partners and conveyed in writing to the General Partner not later than twenty (20) days after such approval or consent was requested by the General Partner. The General Partner may require a response within a shorter time, but not less than five (5) Business Days. A failure to respond in any such time period shall constitute a vote that is consistent with the General Partner's recommendation with respect to the proposal. If the General Partner receives the necessary approval or consent of the Limited Partners to such action, the General Partner shall be authorized and empowered to implement such action without further authorization by the Limited Partners.
ARTICLE IX
ACCOUNTING
9.01 Books and Records. The Partnership shall maintain true and accurate books and financial records in such a manner as to clearly separate all income and expenses. For financial and income tax purposes, the Partnership shall elect to use those accounting principles which the General Partner determines will be most beneficial to the Partnership and the Partners.
9.02 Location and Availability of Records. All books and records of the Partnership shall be kept and maintained at the principal office of the Partnership or such other place as designated by the General Partner, and shall during regular business hours, be available for inspection and duplication by the Partners and their designated representatives, including attorneys, auditors and accountants.
9.03 Annual Statements and Tax Returns. Within ninety (90) days after the close of each fiscal year, the General Partner shall cause to be prepared, at the expense of the Partnership, financial statements by the Partnership accountants, which shall be audited by an independent certified public accountant, as selected by the General Partner in its sole discretion. Such financial statements shall include a balance sheet of the Partnership as of the last day of such fiscal year, an income or loss statement of the Partnership for such fiscal year, a statement of each Partner's Capital Account as of the last day of such fiscal year, and all other information customarily shown on financial statements. Further, the General Partner, at the expense of the Partnership, shall cause to be prepared and distributed to the Partners, all required federal and state partnership tax returns, including information returns reflecting each Partner's distributive Share of tax items.
9.04 Quarterly Reports. As soon as practicable after the end of each of the first three quarters of each fiscal year, but in no event later than forty-five (45) days following the end of each such quarter, the General Partner shall prepare and email, mail or make available on its secure website to each Limited Partner (i) the Partnership's unaudited financial statements as of the end of such fiscal quarter and for the portion of the fiscal year then ended, (ii) a statement of the Properties of the Partnership, including the cost of all Properties, and (iii) a report reviewing the Partnership's activities and business strategies for such quarter and an update of such Limited Partner's Capital Account. The General Partner shall cause the Partnership's quarterly reports to be prepared in accordance with GAAP.
9.05 Annual Valuation. On an annual basis to be determined in the discretion of the General Partner, the General Partner shall provide the Limited Partners with a valuation of all Properties held by the Partnership prepared either by an independent, third-party valuation firm to be hired at the sole discretion of the General Partner or another methodology as deemed appropriate by the General Partner.
9.06 Fiscal Year. The fiscal year of the Partnership shall be the calendar year unless otherwise determined by the General Partner.
9.07 Bank Accounts. All receipts, funds and income of the Partnership shall be deposited in an account with such bank or banks selected by the General Partner. Disbursements from such account may be made on the signature of the General Partner.
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ARTICLE X
TRANSFERS OF PARTNERSHIP INTERESTS
10.01 General Restriction. Except as permitted in Section 10.06 below, no Partner may transfer, sell, convey, assign, pledge, hypothecate or encumber in any manner his, her or its respective Partnership Interest without the prior written approval of the General Partner, which approval may be withheld in the General Partner's sole and absolute discretion. No Partner shall make any disposition of all or any part of their respective Partnership Interest which will result in the violation by such Partner or by the Partnership of any federal or applicable state securities laws. In the discretion of the General Partner, no Partnership Interest may be transferred unless an opinion of counsel is given, satisfactory to the General Partner and its counsel, that registration is not required. Any such transfer must otherwise be in compliance with the terms and provisions of this Article X.
10.02 Admission of Substituted Partner. If a Partner transfers all or any portion of his, her or its Partnership Interest as permitted by Section 10.01above and such transferee is designated by the transferor Partner as a substituted Partner, such transferee shall be entitled to be admitted to the Partnership as a "Substituted Partner", and this Agreement shall be amended to reflect such admission, provided that the following conditions are complied with:
| (a) | The General Partner shall approve the form and content of the instrument of assignment; | |
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| (b) | The transferor Partner and his, her or its Substituted Partner execute and acknowledge such other instrument or instruments as the General Partner deems necessary to effectuate such admission; |
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| (c) | The Substituted Partner in writing accepts and adopts all of the terms and conditions of this Agreement, as the same may have been amended and is a resident of Colorado; and |
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| (d) | Such transferor Partner or the Substituted Partner pays, (i) a fee not to exceed Fifteen Hundred Dollars ($1,500.00) to the Partnership for administrative costs associated with the sale, assignment or transfer of such Partnership Interest, and (ii) such other expenses, as the General Partner may determine is necessary to effectuate such admission, including, without limitation, legal fees and costs. |
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| (e) | In the event of the death, disability, incapacity or adjudicated incompetency of a Limited Partner or if a Limited Partner becomes bankrupt, his, her or its rights as a Limited Partner to share in the Partnership's distributions and allocations and to assign his, her or its interest or cause the substitution of a substituted Limited Partner will transfer to his, her or its personal representative, administrator, guardian. conservator, trustee in bankruptcy or other legal representative ("Successor"). In the event Interests are held in joint tenancy, such Interests will pass to the surviving joint tenant. The Successor will be liable for all the obligations as a Limited Partner and may become a substitute Limited Partner with respect to the Interests. |
An assignee of a Partnership Interest, or portion thereof, who does not become a Substituted Partner shall have no right to require any information or account of the Partnership's transactions, to inspect the Partnership books, or to vote on any of the matters as to which a Partner would be entitled to vote under this Agreement.
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10.03 Partition; Bankruptcy; Dissolution. No Partner shall have the right to make application or proceeding for a dissolution and accounting unless such dissolution arises by reason of the events described in Section 11.01 below, and, upon any breach of the provisions of this Section by any Partner, the other Partners (in addition to all rights and remedies afforded by law or equity) shall be entitled to a decree or order restraining or enjoining such application, action or proceeding. No bankruptcy or insolvency of a Limited Partner shall cause a dissolution of the Partnership.
10.04 Tax Elections. In the event of the transfer of an interest in the Partnership, the death of a Partner, or the distribution of any property of the Partnership to a Partner, the Partnership shall, at the request of the party acquiring such interest or property, elect pursuant to Section 734 of the Code, and any like state provision or any corresponding provision of succeeding law, to adjust the basis of the Partnership property. Each Partner agrees to provide the Partnership with all information necessary to give effect to such election. Subject to the provisions of Regulation Section 1.704-1(b), adjustments to the adjusted tax basis of Partnership property under Sections 743 and 732(d) of the Code shall not be reflected in the Capital Account of the transferee Partner or on the books of the Partnership, and subsequent Capital Account adjustments for distributions, depreciation, amortization, and gain or loss with respect to such property shall disregard the effect of such basis adjustment.
10.05 Tax Controversies. For the purposes of receiving notice from the Internal Revenue Service on behalf of the Partnership, keeping each Partner informed of all administrative and judicial proceedings relating to tax matters at the Partnership level, and for all other relevant purposes concerning the Partnership's tax matters, the General Partner is hereby designated the "Tax Matters Partner" of the Partnership with all of the rights, duties, powers and obligations provided for in Section 6221 of the Code.
10.06 Permitted Transfers. Notwithstanding the provision of Section 10.01 above to the contrary, the following transfers by the Partners shall not require the prior consent of the Limited Partners:
With the written consent of the General Partner, any Partner who is a person may transfer his or her Partnership Interest or any portion thereof to a trust established for the exclusive benefit of such Partner, his or her spouse and/or lineal descendants, provided such Partner acting alone may bind the trust; Any Partner who is a person may transfer his or her Partnership Interest to his or her spouse and/or lineal descendants by will upon the death of such Partner; Any Successor to a Limited Partner pursuant to Section 10.02(e); and With the written consent of the General Partner, any Partner may transfer such Partner's Partnership Interest to any other Partner. Subject to transfer restrictions imposed on the Interests, transfers shall be permitted without a transfer fee for Partners holding Interests through a qualified plan (i.e. any pension, profit sharing or stock bonus plan that is qualified under Code Section 401(a)), tax exempt entities, including individual retirement accounts (i.e. IRA and Roth IRA).
(a) (b) (c) (d) (e)
Any such permitted transferee shall receive and hold such Partnership Interest or portion thereof subject to the terms of this Agreement and to the obligations hereunder of the transferor Partner and there shall be no further transfers of such Partnership Interest or portion thereof except to a person or entity to whom such Partnership Interest could have been transferred in accordance with the provisions of this Article X. No transfer of a Partnership Interest shall relieve the liability of the transferor Partner of his, her or its obligations under this Agreement without the prior written consent of all of the Partners.
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10.07 Withdrawal Policy of the Partnership. No Limited Partner may withdraw within the first 12 months a Limited Partner's admission to the Partnership. Thereafter, the Partnership will use its best efforts to honor requests for a return of capital subject to, among other things, the Partnership's then available cash flow, financial condition, and approval by the General Partner. The maximum aggregate amount of capital that the Partnership will return to the Limited Partners each calendar year is limited to 12.5% of the total outstanding capital of the Partnership as of December 31 of the prior year. Notwithstanding the foregoing, the General Partner may, in its sole discretion, waive such withdrawal requirements if a Limited Partner is experiencing undue hardship.
Withdrawal Requests. Limited Partners may submit a written request for withdrawal as a Limited Partner of the Partnership and may receive a 100% return of capital provided that the following conditions have been met:
(a)
(i) the Limited Partner has been a Limited Partner of the Partnership for a period of at least twelve (12) months; and
(ii) the Limited Partner provides the Partnership with a written request for a return of capital at least ninety (90) days prior to such withdrawal ("Withdrawal Request").
Fulfilling Requests. The Partnership will not establish a reserve from which to fund withdrawals of Limited Partners' capital accounts and such withdrawals are subject to the availability of cash and at the discretion of the General Partner ("Cash Available for Withdrawals") andonly after:
(b)
(i) all current Partnership expenses have been paid (including compensation to the General Partner, Manager and its affiliates as described in this Offering Circular);
(ii) adequate reserves have been established for anticipated Partnership operating costs and other expenses and advances to protect and preserve the Partnership's investments in Properties; and
(iii) adequate provision has been made for the payment of all monthly cash distributions owing to Limited Partners.
No Requirement to Liquidate. If at any time the Partnership does not have sufficient Cash Available for Withdrawals to distribute the quarterly amounts due to all Limited Partners that have outstanding withdrawal requests, the Partnership is not required to liquidate any Properties for the purpose of liquidating the capital account of withdrawing Limited Partners. In such circumstances, the Partnership is merely required to distribute that portion of the Cash Available for Withdrawals remaining in such quarter to all withdrawing Limited Partners pro rata based upon the relative amounts being withdrawn as set forth in the Withdrawal Request. ERISA Plan Investors. Notwithstanding the foregoing, the General Partner reserves the right to utilize all Cash Available for Withdrawals to liquidate the capital accounts of deceased Limited Partners or ERISA plan investors in whole or in part, before satisfying outstanding withdrawal requests from any other Limited Partners. The General Partner also reserves the right, at any time, to liquidate the capital accounts of ERISA plan investors to the extent the General Partner determines, in its sole discretion, that any such liquidation is necessary in order to remain exempt from the Department of Labor's "plan asset" regulations.
(c) (d)
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ARTICLE XI
DISSOLUTION OF THE PARTNERSHIP
11.01 Events of Dissolution. The Partnership shall be dissolved upon the first to occur of the following events ("Dissolution Event"):
the happening of any other event that makes it unlawful, impossible or impractical to carry on the business of the Partnership; the vote of the Limited Partners holding an aggregate Percentage Interest of more than 75%; or the General Partner ceases to be a general partner of the Partnership and a Majority of Interest of the Limited Partners elect not to continue the business of the Partnership.
(a) (b) (c)
11.02 Termination. Upon dissolution of the Partnership by reason of the occurrence of a Dissolution Event as described in Section 11.01 above or by operation of law (except for a technical dissolution pursuant to Section 708 of the Code), the Partners shall proceed to the winding up of the affairs of the Partnership. During such winding up process, the Net Profits, Net Losses and cash flow shall continue to be shared by the Partners in accordance with this Agreement.
11.03 Distribution. Upon the liquidation of the Partnership, other than the termination of the Partnership under Section 708(b)(1)(B) of the Code, the Liquidator shall proceed to the winding up of the affairs of the Partnership in accordance with the provisions of this Article XI. Notwithstanding the provisions of Article VII above, the proceeds from the liquidation of the Partnership shall be applied and distributed in the following order of priority:
First, in accordance with Section 15905.3 of the Act and then, to the payment of debts and liabilities of the Partnership, and the expenses of liquidation; Next, to the setting up of any reserves which the General Partner deems reasonably necessary for any contingent or unforeseen liabilities or obligations of the Partnership; Next, in accordance with Section 7.02 above; Thereafter, to the extent the Capital Accounts of the Partners shall then be more than zero (after taking into account the Capital Account adjustments required by this Agreement for the taxable year of liquidation), any such proceeds shall be distributed to such Partners each in the ratio which the positive balance in such Partner's Capital Account bears to the aggregate positive balances of all such Partners until and to the extent required to cause the balance of each such Partner's Capital Account to equal zero.
(a) (b) (c) (d)
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ARTICLE XII
REPRESENTATIONS AND WARRANTIES
As of the date hereof, each of the Partners hereby makes each of the following representations and warranties applicable to such Partner, and such warranties and representations shall survive the execution of this Agreement:
If such Partner is an individual, such individual is a resident of Colorado. If such Partner is a corporation or a partnership, it is duly organized or duly formed, validly existing and in good standing under the laws of Colorado and has the corporate or partnership power and authority to own its property and carry on its business as owned and carried on at the date hereof and as contemplated hereby. Such Partner has the individual, corporate or partnership power and authority to execute and deliver this Agreement and to perform its obligations hereunder and, if such partner is a corporation or partnership, the execution, delivery and performance of this Agreement has been duly authorized by all necessary corporate or partnership action. This Agreement constitutes the legal, valid and binding obligation of such Partner, and will not result in the creation or imposition of any lien upon any of the material properties or assets of such Partner or any of its Wholly Owned Affiliates. Neither such Partner nor any of its Affiliates is, nor will the Partnership as a result of such Partner holding an interest in the Partnership be, an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended from time to time. Neither such Partner nor any of its Affiliates is, nor will the Partnership as a result of such Partner holding an interest in the Partnership be, a "holding company," "an affiliate of a holding company," or a "subsidiary of a holding company" as defined in, or subject to regulations under, the Public Utility Holding Company Act of 1935, as amended from time to time. Such Limited Partner acknowledges the receipt of written information concerning the Partnership, has thoroughly read the information and understands the nature of the risk involved in the proposed investment; such Limited Partner has been advised that a representative of the General Partner is available to answer questions about the acquisition of such Limited Partner's Interest; and such Limited Partner has asked any questions of the General Partner which such Partner desires to ask and has received answers from the General Partner with respect to all such questions. Such Limited Partner is experienced and knowledgeable in business and financial matters and in real estate investments in general and with respect to investments similar to the investment in this Partnership and such Partner is capable of evaluating the merits and risks of investing in this Partnership, or such Limited Partner has obtained qualified and experienced independent advice with respect to evaluating the merits and risks of such Limited Partner's investments in this Partnership and in such Interest which such Limited Partner has relied upon in making such Limited Partner's investment decision, and such Limited Partner can afford to bear the economic risk of this investment. Such Limited Partner recognizes that the Partnership is being organized through this Agreement and has no history of operations or earnings and is of a speculative nature. Such Limited Partner is making such investment for such Limited Partner's own account and not for the account of others and is not entering into this Agreement with the present intention of selling, transferring or subdividing all or any portion of the Partnership Interest acquired, and presently intends to hold the same until the Partnership is terminated. Such Limited Partner is financially able to comply with such Limited Partner's obligations hereunder; and such Limited Partner has adequate means of providing for such Limited Partner's current financial needs and possible personal contingencies, exclusive of such Limited Partner's investment in the Partnership; Such Limited Partner recognizes that the General Partner and Affiliates of the General Partner may be or engage in businesses which are competitive with that of the Partnership, and such Limited Partner agrees to such activities even though there are conflicts of interest inherent therein.
(a) (b) (c) (d) (e) (f) (g) (h)
Such Limited Partner agrees to notify the General Partner immediately if any representation and warranty should be or become untrue.
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ARTICLE XIII
MISCELLANEOUS
13.01 Notices. All written notices and demands of any kind which any party may be required or may desire to serve on the other in connection with this Agreement may be served by (a) personal service, (b) registered or certified mail with return receipt requested (deposited in the United States mail with postage thereon fully prepaid), (c) a reliable overnight courier such as Federal Express, or (d) facsimile and addressed to the party to be served as follows:
If to the Partnership, to the Partnership at the address set forth in Article II hereof; If to the General Partner, to the address set forth for the General Partner in Exhibit "A" hereof; and If to a Limited Partner, to the address set forth for such Limited Partner in Exhibit "A" attached hereto.
(a) (b) (c)
Such notice or demand shall be deemed received upon the earlier of (A) if personally delivered or via overnight courier, the date of delivery to the address of the person to receive such notice; (B) if mailed, upon the date of receipt as disclosed on the return receipt; or (C) if given by facsimile, when sent, provided that such notice or demand is confirmed within forty-eight (48) hours by letter served in accordance with subsection (a) through (c) of this Section above. Such addresses may be changed by giving written notice to the other parties in the manner set forth in this Section. Service of any such notice or demand so made by mail shall be deemed complete on the date of delivery as shown by the addressee's registry or certification receipt.
13.02 Power of Attorney.Each of the Limited Partners irrevocably constitutes and appoints the General Partner as his, her or its true and lawful attorney-in-fact, with full power of substitution and with full power and authority for him, her or it and in his, her or its name, place and stead, to execute, acknowledge, publish and file:
this Partnership Agreement, the Articles of Organization of the Partnership, and any amendments hereto or thereto or cancellations thereof required under the laws of the State of Colorado; Any other certificates, instruments and documents as may be required by, or may be appropriate under, the laws of any state or other jurisdiction in which the Partnership is doing or intends to do business; and Any documents which may be required to effect the continuation of the Partnership, the admission of an additional or substituted Limited Partner, or the dissolution and termination of the Partnership.
(a) (b) (c)
The power of attorney granted above is a special power of attorney coupled with an interest, is irrevocable, and shall survive the death of a Limited Partner or the delivery of an assignment of Interests by a Limited Partner; provided, that where the assignee thereof has been approved by the General Partner for admission to the Partnership as a substituted Limited Partner, such power of attorney shall survive the delivery of such assignment for the sole purpose of enabling the General Partner to execute, acknowledge, file and record any instrument necessary to effect such substitution.
13.03 Section Headings. The Article and Section headings used in this Agreement are for reference purposes only, and should not be used in construing this Agreement.
13.04 Successors and Assigns. This Agreement shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, personal representatives, successors and assigns.
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13.05 Gender and Number. As used in this Agreement, the masculine, feminine and neuter gender shall each include the neuter, feminine and masculine, as applicable, and singular number shall include the plural, and vice versa.
13.06 Entire Agreement. This Agreement contains the entire understanding between the parties hereto, and supersedes any prior or contemporaneous understanding or agreements between them respecting the within subject matter.
13.07 Time. Time is of the essence of this Agreement.
13.08 Governing Law. The provisions of this Agreement shall be construed and enforced in accordance with the law of the State of Colorado.
13.09 Attorneys' Fees. Should any litigation be commenced between any parties hereto or their representatives concerning any provision of this Agreement or the rights and duties of any person or entity in relation thereto, the party or parties prevailing in such litigation shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for his, her, its or their attorneys' fees in such litigation.
13.10 Cumulative Remedies. No right or remedy herein contained shall be exclusive of any other right or remedy a Partner may have as herein provided or as may be available at law or in equity. Each Partner hereto shall, in addition to all other rights provided herein or as may be provided by law, be entitled to all legal and equitable remedies including those of damages for breach, specific performance and injunction, to enforce his, her or its rights hereunder.
13.11 Severability. If any provision of this Agreement or application to any party or circumstances shall be determined by any court of competent jurisdiction to be invalid and unenforceable to any extent, the remainder of this Agreement or the application of such provision to such person or circumstances, other than as to which it is so determined invalid or unenforceable shall not be affected thereby, and each provision shall be valid and shall be enforced to the fullest extent permitted by law.
13.12 General Partner's Discretion. In every instance in this Agreement where the General Partner is to make a determination, any such determination shall be in the sole and absolute discretion of the General Partner without regard to any standard of reasonableness or good faith implied.
13.13 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which when taken together shall constitute one and the same document.
13.14 References to this Agreement. Numbered or lettered articles, sections and subsections herein contained refer to articles, sections and subsections of this Agreement unless otherwise expressly stated. The words "herein", "hereof", "hereunder" and "hereby" and other similar references shall be construed to mean and include this Agreement and all amendments thereof and supplements hereto unless the context shall clearly indicate or require otherwise. The word "including" means "including, without limitation."
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IN WITNESS WHEREOF, the General Partners have executed this Agreement as of the date first written above and each Limited Partner shall be deemed to execute this Agreement upon execution of a Subscription Agreement.
"General Partner" | Madyson Capital Management, LLC., a Colorado limited liability company | ||
| /s/ Joseph D. Ryan | |||
Joseph D. Ryan | |||
| /s/ Brandon J. Herbst | |||
Brandon J. Herbst |
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GLOSSARY
Unless the context otherwise clearly requires, the defined terms used in this Agreement shall have the meanings specified below:
"Act" means the Colorado Uniform Limited Partnership Act of 1981, as amended from time to time.
"Adjusted Capital Account" is defined in Section 6.07(a) of this Agreement.
"Affiliate" means (i) any person which, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the Person in question, (ii) any officer, director, trustee, employee or beneficial holder of an interest of ten percent (10%) or more in any person referred to in clause (i) above. For purposes of this definition, the term "control" means the ownership of ten percent (10%) or more of the beneficial interest or the voting power of the appropriate person.
"Agreement" means this Agreement of Limited Partnership of Madyson Equity Group, L.P., a Colorado limited partnership, and includes and incorporates each exhibit, if any, attached hereto.
"Capital Account" means with respect to each Partner, an account established on the books of the Partnership for each Partner which shall be credited with: (i) the amount of money contributed by such Partner, (ii) the fair market value of any property contributed by such Partner, and (iii) Net Profits properly allocable to such Partner, including items of income and gain properly allocable to such Partner with respect to any property contributed by such Partner that has a book value different from its adjusted basis at the time of contribution. Each Partner's Capital Account shall be charged with (a) the amount of Cash Flow distributed to such Partner, (b) the fair market value of any property distributed in kind to such Partner, and (c) the amount of Net Losses allocated to such Partner, including items of loss or deduction properly allocable to such Partner with respect to any property contributed by such Partner that has a book value different from its adjusted basis at the time of contribution to the Partnership. Notwithstanding anything to the contrary contained herein, the Capital Accounts of the Partners shall at all times be maintained in accordance with the requirements of the Code and the Regulations promulgated thereunder, including, without limitation, Regulation Section 1.704(b).
"Capital Contribution" with respect to each Partner is set forth in Exhibit "A" to this Agreement.
"Capital Transaction" means the sale or refinancing of one or more Properties of the Partnership.
"Cash Flow" means the cash proceeds realized by the Partnership plus cash interest payments received with respect to such proceeds, decreased by the sum of: (i) the amount of such proceeds applied by the Partnership to pay debts and liabilities of the Partnership; and (ii) any reserve established by the General Partner for anticipated cash disbursements that will have to be made before additional cash receipts from third parties will provide the funds thereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Dissolution Event" is defined in Section 11.01 of this Agreement.
"Effective Date" means the date first set forth in this Agreement.
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"Escrow" means that certain escrow created pursuant to that certain Offering Circular dated XXXXX, as may be amended from time to time, to hold Capital Contributions made by potential investors of the Partnership.
"Fiscal Year" means (i) the period commencing on the effective date of this Agreement and ending on December 31, 2016, (ii) any subsequent twelve (12) month period commencing on January 1 and ending on December 31, or (iii) any portion of the period described in clause (ii) for which the Partnership is required to allocate Profits, Losses and other items of Partnership income, gain, loss or deduction pursuant to Article VI of this Agreement.
"General Partner" means Madyson Capital Management, LLC a Colorado limited liability company.
"Interest Rate" means a sum equal to seven percent (7%) per annum, determined on the basis of a year of 365 or 366 days, as the case may be for the actual number of days in the year for which the interest is being determined, cumulative but not compounded.
"Interests" means units of Partnership Interest, with each Interest representing an investment of $1,000.00 in the Partnership, or such lesser investment as may be approved by the General Partner in its sole and absolute discretion. The number of Interests of each Partner shall be set forth opposite the name of the Partner in Exhibit "A" to this Agreement. Notwithstanding anything to the contrary herein, although a Limited Partner's distributions pursuant to Article VII shall be based on the number of Interests held by such Limited Partner, a Partner's distributions pursuant to Article VII, governing Preferred Return distributions, shall be based on the actual Capital Contribution of such Partner and not the number of Interests held by such Partner.
"Last Closing"means the last day on which subscribers are admitted as Limited Partners.
"Limited Partners" means those Persons identified as "Limited Partners" in Exhibit "A" to this Agreement, as may be amended from time to time pursuant to the terms of this Agreement. "Limited Partner" means any one of the Limited Partners as may be applicable.
"Liquidator" means the General Partner at the time of the dissolution of the Partnership; provided, however, if there is no General Partner at the dissolution of the Partnership and a Trustee is appointed, then the Trustee.
"Majority in Interest of the Limited Partners" means the Limited Partners with an aggregate Percentage Interest, at such time the vote is being made, of more than fifty percent (50%).
"Net Profits" and "Net Losses" mean with respect to each fiscal year or other period, an amount equal to the Partnership's taxable income or loss, as the case may be relative to such fiscal year or period, determined in accordance with Section 703(a) of the Code. For this purpose, all items of income, gain, loss and deduction required to be stated separately pursuant to Section 703(a)(1) of the Code should be included in taxable income or loss.
"Operating Cash Flow" means Cash Flow from operation of Partnership Assets, and does not include any Cash Flow from Capital Transactions.
"Partners" means the Limited Partners and General Partner, collectively. "Partner" means any one of the Partners as may be applicable.
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"Partnership" means the partnership created pursuant to this Agreement.
"Partnership Assets"means those assets and properties procured for the purposes of advancing the objectives of the Partnership. See also "Property(ies.)"
"Partnership Interest" means in respect to any Partner all of such Partner's right, title and interest in and to the Net Profits, Net Losses and Cash Flow of the Partnership or the capital thereof or any interest therein.
"Percentage Interest" of each Partner shall be the percentage that results from multiplying one hundred (100) by the quotient of the number of Interests held by such Partner divided by the total number of Interests held by all of the Partners of the Partnership. The Percentage Interest of each Partner shall be set forth opposite the name of the Partner in Exhibit "A" to this Agreement, as such percentage may be adjusted from time to time pursuant to the terms of the Agreement.
"Person" is defined in Section 15901.02(y) of the Act.
"Preferred Return" means respect to all Capital Contributions, a sum equal to six percent (6%) per annum, determined on the basis of a year of 365 or 366 days, as the case may be, for the actual number of days in the period for which the Preferred Return is being determined, cumulative but not compounded, of the time-weighted average daily balance of the aggregate Adjusted Capital Contributions of the Limited Partners from time to time during the period to which the Preferred Return relates.
"Property(ies)" means any senior living facilities and multifamily properties, located in the United States that the Partnership acquires in order to carry out the purpose of the Partnership as defined in Article IV.
"Regulation" means the regulations currently in force as final or temporary that have been issued by the U.S. Department of Treasury pursuant to its authority under the Code.
"Restoration Amount" is defined in Section 6.04 of this Agreement.
"Share" means, with respect to any Partner, a percentage equal to such Partner's Percentage Interest divided by the aggregate amount of Percentage Interests of all Partners in the group in question.
"Subscription Agreement" means the agreement by which a Limited Partner agrees to purchase Interests and to become a Limited Partner subject to the terms of this Agreement.
"Substituted Partner" is defined in Section 10.02 of this Agreement.
"Tax Matters Partner" is defined in Section 10.05 of this Agreement.
"Temporary Investments" means Capital Contributions not otherwise invested, which have been deposited for the benefit of the Partnership in one or more accounts maintained in the name of the Partnership or any Affiliates in such financial institutions as the General Partner shall determine, short-term liquid securities, or other cash-equivalent assets.
[Balance of Page Intentionally Left Blank]
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EXHIBIT 8
ESCROW SERVICES AGREEMENT
This agreement is made and entered into as of XXXXX by and between FundAmerica Securities, LLC ("FundAmerica Securities", "Trustee" or "Agent") and XXXXX ("Issuer").
RECITALS
The Issuer proposes to offer for sale to investors via the Form 1-A under Regulation A of the Securities Act of 1933, either directly ("issuer-direct") and/or through one or more registered broker-dealers as a selling group ("syndicate"), the equity and/or debt, including any options, warrants and related investment devices (the "Securities") in the amount of $XXXX (the "Target Amount"), subject to any minimum or maximum subscriptions stated in the offering documents, on a best-efforts basis (the "Offering").
The Issuer desires to establish an escrow account in which funds received from prospective investors ("subscribers") will be held during the Offering. FundAmerica Securities agrees to serve as Trustee pursuant to SEC Rule 15c2-4(b) and in accordance with the terms and conditions set forth herein. This includes, without limitation, that the escrow will be held at an FDIC member bank in separate named (as defined below) account. For purposes of communications and directives, the Trustee shall be the sole administrator of the escrow account.
AGREEMENT
Now therefore, in consideration of the foregoing, it is hereby agreed as follows:
Establishment of Escrow Account. Prior to Issuer initiating the Offering, and prior to the receipt or the first investor funds, the Trustee shall establish an account at an FDIC insured US bank entitled "FundAmerica Securities as trustee for Investors in Big Deal offering" (the "escrow account"). Escrow Period. The Escrow Period shall begin with the commencement of the Offering and shall terminate in whole or in part upon the earlier to occur of the following:
1. 2.
| 1. | The date upon which the Trustee has received and cleared in the escrow account gross proceeds of at least $500,000.00 (the "Minimum") or the offering has closed; or | |
| 2. | The expiration of 365 days from the date of commencement of the Offering; or | |
| 3. | The date upon which a determination is made by the Issuer and/or their authorized representatives, including any lead broker or placement agent, to terminate the Offering prior to closing. |
During the escrow period, the Issuer is aware and understands that it is not entitled to any funds received into escrow and no amounts deposited in the escrow account shall become the property of the Issuer or any other entity, nor be subject to any debts, liens or encumbrances of any kind of the Issuer or any other entity. All funds are the property of subscribers until such point as the Minimum is met AND securities are sold to investors in accordance with Regulation A. Furthermore, unless specifically agreed to by all subscribers (100%) the offering term may not be extended. |
| 1 |
Deposits into the Escrow Account. FundAmerica Securities shall promptly deposit all monies received from subscribers for the payment of the Securities into the escrow account, with an accounting of each posted to its ledger, which also sets forth, among other things, each investors name and address, the quantity of securities purchased, and the amount paid. All monies so deposited in the escrow account are hereinafter referred to as the "escrow amount." Issuer shall promptly, concurrent with any new or modified subscription, provide Trustee with a copy of the investors signed subscription agreement and other information as may be reasonably requested by Trustee in the performance of its duties. As required by government regulations pertaining to US Treasury, Homeland Security, Internal Revenue Service and the Securities and Exchange Commission, federal law requires financial institutions to obtain, reasonably verify and record information that identifies each person (natural person or legal entity, including its authorized persons) who funds and executes securities transactions. Information requested of the issuer and investors will be typical information requested in the gathering and verification guidelines and best practices promulgated by anti-money laundering rules and regulations and those regulatory agencies that enforce them. Escrow Agent shall have no duty to make any disbursement of Investor Funds until and unless it has good, cleared and collected funds pursuant to federally permitted recall or rescission periods. Where escrow closes prior to the full extent of the recall period of any funds, Escrow Agent is hereby permitted to retain such funds until the completion of such period plus two (2) business days, after which the affected funds shall be remitted as provided herein. In the event that any checks, wires or ACH funds deposited in the Escrow Account are recalled or prove uncollectible after the funds represented thereby have been forwarded by the Escrow Agent, then the Issuer shall promptly reimburse the Escrow Agent for the amounts thereof and for any and all costs incurred for such so the Escrow Agent may deliver the recalled funds to the subscriber or reimburse its own account, as may be the case. The Escrow Agent shall be under no duty or responsibility to enforce collection of any wire, check, or ACH delivered to it hereunder. The Escrow Agent reserves the right to deny, suspend or terminate participation in the escrow account of any subscriber to the extent the Escrow Agent deems it advisable or necessary to comply with applicable laws or to eliminate practices that are not consistent with securities industry rules or best practices. Escrow Agent may at any time reject or return funds to any subscriber (i) that does not clear background checks (anti-money laundering, USA PATRIOT Act, social security number fraud, etc.) to the satisfaction of Trustee, in its sole and absolute discretion, or, (ii) for which Escrow Agent determines in its sole discretion that it would be improper or unlawful for Escrow Agent to accept or hold the applicable Investor Funds as Escrow Agent (due to the identity of the Investor, the source of the funds or otherwise). Escrow Agent shall promptly inform the issuer of any such return or rejection.
3.
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Disbursements from the Escrow Account. In the event the Trustee does not receive the Minimum prior to the termination of the Escrow Period, the Trustee shall terminate escrow and return funds so that refunds will be sent to each subscriber in the exact amount received from the subscriber, without deduction, penalty, or expense to the subscriber. In the event the Trustee does receive the Minimum prior to termination of the Escrow Period, in no event will the funds be remitted to the Issuer until such amounts are fully cleared by the Trustee as collected funds. For purposes of this Agreement, the term "collected funds" shall mean all funds received by the Trustee which have cleared normal banking channels; specific minimum holding periods are 2 business days for wires, 10 days for checks and 60 days for ACH, which Trustee in all cases may add a "plus 2 business days" period to reasonably confirm funds clearance and make appropriate records updates. Funds, when remitted to the issuer, will be deposited in a non-interest bearing business checking account at BofI Federal Bank established in the name disclosed in the offering documents. Issuer hereby irrevocably authorizes Trustee to deduct broker fees and other funds management and offering selling expenses from gross proceeds of the escrow account prior to remitting such funds, if and when due, to Issuer. Escrow Agent is hereby directed to remit such funds directly to the broker(s) and other parties, if any, to which they are due. Net proceeds (meaning gross proceeds less amounts remitted to brokers and other parties, and interest earned or accumulated in the Escrow Account) will then be remitted to Issuers as described earlier. Furthermore, Issuer directs escrow Trustee to accept instructions regarding fees from any registered securities broker in the syndicate, if any.
4.
Collection Procedure. FundAmerica Securities is hereby authorized, upon receipt of investor funds, to deposit them in the escrow account. Any investor funds which fail to clear or are subsequently reversed, including but not limited to ACH chargeback's and wire recalls, shall be debited to the escrow account, with such debits reflected on the escrow ledger. Any and all fees paid by Issuer for funds receipt and processing are non-refundable, regardless of whether ultimately cleared, failed, rescinded, or recalled. Investment of Escrow Amount. The Trustee may, at its' discretion, invest any or all of the escrow account balance as permitted under SEC Rule 15c2-4. This generally means short-term investments in (1) bank accounts, (2) bank money-market accounts, (3) short time certificates of deposit issued by a bank, and/or (4) short-term securities issued or guaranteed by the U S Government. Interest accumulated on the balances is the property of Escrow Agent as part of its Escrow Administration Fee. Escrow Administration Fees, Compensation of Trustee. The Trustee is entitled to escrow administration fees as detailed on FundAmerica's then in effect fee schedule, which may be paid to FundAmerica by the portal or other party, which Issuer hereby represents they are aware of and accept. All fees are charged immediately upon receipt of this Agreement, are not contingent in any way on the success or failure of the Offering. Furthermore the Trustee is exclusively entitled to retain as part of its compensation any and all investment interest, gains and other income earned pursuant to Section 6 above. No fees, charges or expense reimbursements of the Trustee are reimbursable nor are they subject to pro-rata analysis. All fees and charges, if not paid by a representative of the Issuer (e.g. funding portal, lead syndicate broker, etc.), may be made via either the Issuers credit card or ACH information on file with FundAmerica Securities. It is acknowledged and agreed that no fees, reimbursement for costs and expenses, indemnification for any damages incurred by the Issuer or the Trustee shall be paid out of or chargeable to the investor funds on deposit in the escrow account.
5. 6. 7.
| 3 |
| 8. | Term and Termination. This Agreement will remain in full force during the Escrow Period. Even after this Agreement is terminated, certain provisions will remain in effect, including but not limited to sections 3, 4, 5, 9, 10 and 12 of this Agreement. | |
| 9. | Binding Arbitration, Applicable Law and Venue, Attorneys Fees. This Agreement is governed by, and will be interpreted and enforced in accordance with the laws of the State of New York, without regard to principles of conflict of laws. Any claim or dispute arising under this Agreement may only be brought in arbitration, pursuant to the rules of the American Arbitration Association, with venue in the city of New York in the state of New York. Each of Issuer and FundAmerica Securities consents to this method of dispute resolution, as well as jurisdiction, and consents to this being a convenient forum for any such claim or dispute and waives any right it may have to object to either the method or jurisdiction for such claim or dispute. In the event of any dispute among the parties, the prevailing party shall be entitled to recover damages plus reasonable attorney's fees, and the decision of the arbitrator shall be final, binding and enforceable in any court. | |
| 10. | Indemnity. You agree to indemnify and hold FundAmerica Securities and its respective related entities (including FundAmerica Technologies, LLC), directors, employees, service providers, advertisers, affiliates, officers, agents, and partners and third-party service providers, including BofI Federal Bank, harmless from any loss, liability, claim, or demand, including reasonable attorney's fees, made by any third party due to or arising out of this Agreement and/or arising from a breach of any provision in this Agreement. This defense and indemnification obligation will survive termination of this Agreement. | |
FundAmerica Securities reserves the right to assume, at its sole expense, the exclusive defense and control of any such claim or action and all negotiations for settlement or compromise, and you agree to fully cooperate with FundAmerica Securities in the defense of any such claim, action, settlement or compromise negotiations, as requested by FundAmerica Securities. |
Entire Agreement, Severability and Force Majeure. This Agreement contains the entire agreement between Issuer and FundAmerica Securities regarding the escrow account. If any provision of this Agreement is held invalid, the remainder of this Agreement shall continue in full force and effect. Furthermore, no party shall be responsible for any failure to perform due to unforeseen circumstances. Changes. FundAmerica Securities has the right, at its' sole discretion, to comply with any new, changed, or reinterpreted regulatory or legal rules, laws or regulations, and any interpretations thereof, and without necessity of notice, to modify either this Agreement and/or the escrow account to comply or conform to such changes or interpretations. Furthermore, all parties agree that this Agreement shall continue in full force and be valid, unchanged and binding upon any successors of FundAmerica Securities. Changes to this Agreement will be sent to you via email. If any portion of this Agreement or any change to it are unacceptable to Issuer then it agrees that it will immediately cancel the Offering and have investors refunded, which all parties agree is Issuers sole and exclusive remedy. Notices. Any notice to FundAmerica Securities are to be sent to escrow@fundamericasecurities.com. Any notices to Issuer will be to XXXXXX. Language. It is expressly agreed that it is the will of all parties, including FundAmerica Securities and Issuer that this Agreement and all related pages, forms, emails, alerts and other communications have been drawn up and/or presented in English.
11. 12. 13. 14.
| 4 |
| 15. | Electronic Signature and Communications Notice and Consent. 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 Agreements' 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 Agreement will be available to both Issuer and Trustee, as well as any associated bankers, brokers and portals so they can access and copy it at any time, and it will be stored and accessible on FundAmerica Securities Service. Each of Issuer and Trustee hereby consents and agrees that electronically signing this Agreement constitutes Issuers signature, acceptance and agreement as if actually signed by Issuer 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 Issuer and Trustee. You understand and agree that your e-signature executed in conjunction with the electronic submission of this Agreement shall be legally binding and such transaction shall be considered authorized by you. Issuer agrees that their electronic signature is the legal equivalent of their manual signature on this Agreement consents to be legally bound by this Agreement's terms and conditions. Furthermore, each of Issuer and Trustee hereby agree that all current and future notices, confirmations and other communications regarding this Escrow Services 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 Section 13 above 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 recipients 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 Issuer, 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 Agreement electronically, Issuer explicitly agrees to receive documents electronically including its copy of this signed Agreement as well as ongoing disclosures, communications and notices.
Agreed as of the date set forth above by and between:
5
EXHIBIT 11

CONSENT OF INDEPENDENT AUDITOR
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 March 21, 2016 relating to the balance sheet of Madyson Equity Group, LP as of February 27, 2016, and the related statements of operations, changes in partners' capital, and cash flows for the period from February 26, 2016 (inception) to February 27, 2016, and the related notes to the financial statements.
/s/ Artesian CPA, LLC
Denver, CO
August 1, 2016
Artesian CPA, LLC
1624 Market Street, Suite 202 | Denver, CO 80202
p: 877.968.3330 f: 720.634.0905
info@ArtesianCPA.com | www.ArtesianCPA.com
EXHIBIT 12

July 30, 2016
| Re: | Qualification Statement for Madyson Equity Group, LP on Form 1-A |
To whom it may concern:
I have been retained by Madyson Equity Group, LP (the "Company"), in connection with the Qualification Statement (the "Qualification Statement") on Form 1-A, relating to the offering of 50,000 Limited Partnership Interests to be sold. You have requested that I render my opinion as to whether or not the securities proposed to be issued on terms set forth in the Qualification Statement are validly issued, fully paid, and non-assessable.
In connection with the request, I have examined the following:
| 1. | Articles of Organization of the Company; |
| 2. | Limited Partnership Agreement of the Company; and |
| 3. | The Qualification Statement |
I have examined such other corporate records and documents and have made such other examinations, as I have deemed relevant.
Based on the above examination, I am of the opinion that the securities of the Company to be issued pursuant to the Qualification Statement are validly authorized and will be validly issued, fully paid and non-assessable.
The Limited Partners, upon purchase, will have no obligation to make payments to the Company or its creditors (other than the purchase price for the securities) or contributions to the Company or its creditors solely by reason of the purchasers Limited Partner's ownership of the Limited Partnership Interests.
I hereby consent to the filing of this opinion as an exhibit and to the Qualification Statement and to the reference to our firm under "Experts" in the related Prospectus. In giving the foregoing consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act, or the rules and regulations of the Securities and Exchange Commission.
Sincerely,
/s/
Jillian Ivey Sidoti, Esq.

38730 Sky Canyon Drive, Ste A, Murrieta, CA 92563
EXHIBIT 7
| 666 High Street, Suite 200-A Worthington, OH 43085 Phone (614) 207-2441 Fax (614)750-3001 www.iralawyer.com johnhyre@realestatetaxlaw.com |
Madyson Capital Management, LLC
3204 N. Academy Blvd., Suite 120
Colorado Springs, CO 80917
Re:
Madyson Equity Group, LP
Registration Statement on Form 1-A Tax Opinion
Gentlemen:
This opinion letter is furnished to you pursuant to Item 608(b)(8) of Regulation S-K in connection with a Registration Statement on Form 1-A (the "Registration Statement") filed or to be filed with the Securities and Exchange Commission under the Securities Act of 1933 (the "Securities Act"), as amended, for the registration of 50,000 units, representing limited partnership interests, of Madyson Equity Group, LP (the "Partnership").
I have examined the Registration Statement and Exhibits thereto. I have also examined and relied upon the certificate of limited partnership of the Partnership filed with the state of Colorado, as amended to date, and the partnership agreement of the Partnership, as amended to date, and such other documents, agreements, instruments and certificates of public officials of the State of Colorado and of authorized persons of the Partnership as I have deemed necessary for purposes of rendering the opinions set forth below (the foregoing documents are collectively referred to herein as the "Documents").
In expressing the opinions set forth below, I have assumed, and so far as is known to me there are no facts inconsistent therewith, that all Documents submitted to us as originals are authentic, all Documents submitted to us as certified or photostatic copies conform to the original documents, all signatures on all such Documents are genuine, all public records reviewed or relied upon by us or on our behalf are true and complete, all statements and information contained in the Documents are true and complete, and all signatories to the Documents were legally competent to do so.
| 1 |
I have also assumed and relied upon the truth, accuracy and correctness of (a) the statements contained in the Registration Statement, and (b) the representations, views, beliefs, and intentions of the general partner made or otherwise set forth in the Registration Statement.
Subject to all of the qualifications herein and in reliance upon the representations and assumptions set forth herein, I am of the opinion that the following material income tax issues should, more likely than not, have a favorable outcome on the merits if challenged by the IRS and litigated and decided by a court of law:
The Partnership will be classified as a partnership for federal income tax purposes and not as an association taxable as a corporation; The Partnership will not be classified as a "publicly traded partnership" under Section 7704 of the Code; A Limited Partner's interest in the Partnership will be treated as a passive activity; The activities contemplated by the Partnership will be considered activities entered into for profit by the Partnership; The Partnership is not currently required to register as a tax shelter with the IRS under Section 6111 of the Code prior to the offer and sale of the Unites based upon the General Partner's representation that the "tax shelter ratio" with respect to an investment in the Partnership, as defined in the Code and Regulations, will not exceed 2 to 1 for any investor as of the close of any year in the Partnership's first five calendar years; Partnership items of income, gain, loss, deduction and credit will be allocated between the General Partner and the Limited Partners substantially in accordance with the allocation provisions of the Partnership Agreement, and The Partnership will not be classified as a "tax shelter" under Section 6662(d) of the Code for purposes of determining certain potential exemptions from the application of the accuracy-related penalty provisions.
(1) (2) (3) (4) (5) (6) (7)
The opinions expressed above depend upon, and are qualified by, the Partnership's ability, through its actual operations, to comply with the Qualifying Income Requirements of sections 7704(c)(2) and (d) of the Internal Revenue Code of 1986, as amended (the "Code"), or compliance by the partners of the Partnership with the requirement that Partnership interests not be readily tradable on a secondary market or the functional equivalent thereof as described in Code section 7704(b)(2) and corresponding Regulations.
| 2 |
No opinion is given as to the tax consequences to investors at the individual level with regard to any tax issue that depends upon the specific facts and circumstances of an individual partner. Such tax consequences include, but are not limited to, the application of alternative minimum taxes, investment interest limitations or the application at the partner level or Code Section 183 limitations on losses from activities not entered into for profit.
I am opining only as to the matters expressly set forth herein, and no opinion should be inferred as to any other matters. The opinions expressed above are limited to the federal law of the United States, and I do not express any opinion herein concerning any other law. Such opinions are based on my examinations stated herein, the Code the U.S. Treasury regulations (the "Regulations") thereunder, published rulings of the Internal Revenue Service, and cases or other relevant authority as are pertinent, all as of the date of this letter. Therefore, no assurance can be given that the opinions stated herein may be affected by changes in the Code, the Regulations and other relevant authority, and I disclaim any obligation to advise you of any change in any of these sources of law or subsequent legal or factual developments which might affect any matters or opinions set forth herein.
I hereby consent to the filing of this opinion as Exhibit 8.1 to the Registration Statement. I also hereby consent to the reference to our firm under the heading "Legal Matters" in the prospectus constituting part of the Registration Statement. In giving such consent, I do not thereby admit that I am in the category of persons whose consent is required under Section 7 of the Securities Act.
/s/
John Hyre
Attorney, IRALawyer, LLC
3 |
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