Form 1-A Skid Row AHP LLC
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E-mail1-A LIVE 0001929327 XXXXXXXX Skid Row AHP LLC DE 2022 0001929327 6500 88-2257330 0 3 440 S. LA SALLE STREET SUITE 1110 CHICAGO IL 60605 866-247-8326 Mark Roderick, Esq. Other 0.00 0.00 00.00 0.00 0.00 415.00 0.00 415.00 -415.00 0.00 0.00 415.00 0.00 -415.00 0.00 0.00 Artesian CPA Common Shares 1000000 000000000 None None 0 000000000 None None 0 000000000 None true true Tier2 Audited Equity (common or preferred stock) Y Y N Y N N 15000000 0 10.0000 75000000.00 0.00 0.00 0.00 75000000.00 Artesian CPA 7750.00 Lex Nova Law LLC 50000.00 true AL AK AZ CA CO CT DE FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY DC PR true
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING STATEMENT FILED WITH THE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF ANY SUCH STATE. WE MAY ELECT TO SATISFY OUR OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF OUR SALE TO YOU THAT CONTAINS THE URL WHERE THE FINAL OFFERING CIRCULAR OR THE OFFERING STATEMENT IN WHICH SUCH FINAL OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.
FORM 1-A
Regulation A Offering Statement
Part II – Offering Circular
Skid Row AHP LLC
440 S. LaSalle Street, Suite 1110
Chicago, Illinois 60605
(866) AHP-TEAM
www.skidrowahp.com
July 11, 2022
This Offering Circular Follows the Form 1-A Disclosure Format
Skid Row AHP LLC is a limited liability company organized under the laws of Delaware, which we refer to as the “Company.” The Company is offering to sell up to $75,000,000 of limited liability company interests designated as “Shares” of “Series A Preferred Stock.” The initial price of the Series A Preferred Stock will be $10.00 per Share and the minimum initial investment is $5,000 (500 Shares).
We are selling these securities directly to the public through our websites, www.skidrowahp.com and www.ahpfund.com. Currently, we are not using a placement agent or a broker and we are not paying commissions to anyone.
| Price to Public | Commissions | Proceeds to Issuer | Proceeds to Others | |||||||||
| Each Share of Series A Preferred Stock | $ | 10.00 | Zero | $ | 10.00 | Zero | ||||||
| Total | $ | 75,000,000 | Zero | $ | 75,000,000 | Zero | ||||||
We might change the price of the Series A Preferred Stock in the future. See “Securities Being Offered – Price of Series A Preferred Stock.
We refer to the offering of Series A Preferred Stock pursuant to this Offering Circular as the “Offering.” The Offering will begin as soon as our Offering Statement is “qualified” by the U.S. Securities and Exchange Commission (“SEC”) and will end on the sooner of (i) a date determined by the Company, or (ii) the date the Offering is required to terminate by law (which in no event will be later than three years from the date of Offering Statement qualification).
The purchase of these securities involves a high degree of risk. Before investing, you should read this whole Offering Circular, including “Risks of Investing.”
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING. NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED HEREUNDER 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. FOR MORE INFORMATION, SEE “Limits on How Much Non-Accredited Investors Can Invest.”
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NORTH AMERICAN SECURITIES ADMINISTRATORS ASSOCIATION UNIFORM LEGEND:
YOU SHOULD MAKE YOUR OWN DECISION WHETHER THIS OFFERING MEETS YOUR INVESTMENT OBJECTIVES AND RISK TOLERANCE LEVEL. NO FEDERAL OR STATE SECURITIES COMMISSION HAS APPROVED, DISAPPROVED, ENDORSED, OR RECOMMENDED THIS OFFERING. NO INDEPENDENT PERSON HAS CONFIRMED THE ACCURACY OR TRUTHFULNESS OF THIS DISCLOSURE, NOR WHETHER IT IS COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS ILLEGAL.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. YOU SHOULD BE AWARE THAT YOU WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
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SUMMARY OF OUR BUSINESS AND THE OFFERING
Our business will focus on purchasing non-performing or under-performing mortgage loans (“Mortgage Loans”).
After buying a non-performing or under-performing Mortgage Loan we will contact the borrower to understand the situation (e.g., why the loan is in default) and try to reach a mutually acceptable resolution. One of five things typically happens:
| 1) | The borrower refinances the Mortgage Loan and stays in the house. |
| 2) | We accept a discounted lump sum in full settlement of the Mortgage Loan and the borrower stays in the house. |
| 3) | We modify the terms of the Mortgage Loan and the borrower stays in the house. |
| 4) | The borrower cannot afford to stay in the house or doesn’t want to. In that case, we take ownership of the house (typically through foreclosure or a deed in lieu of foreclosure) and sell it. |
| 5) | From time to time, we sell Mortgage Loans to other investors. |
We will make a profit if:
| ● | The proceeds we receive from the sale or other dispositions of Mortgage Loans or real estate (where we have foreclosed on a Mortgage Loan), plus any payments we receive from borrowers, plus any payments we receive from a government agency (for example, where a government agency has guaranteed all or a portion of a Mortgage Loan); exceeds |
| ● | The price we paid for the Mortgages in the first place, plus all our expenses (e.g., operating costs and legal fees). |
In this Offering, the Company is offering to sell up to $75,000,000 of its Series A Preferred Stock to the public. We refer to anyone who purchases Shares of Series A Preferred Stock in the Offering as an “Investor.”
If the Company has money after paying all of its expenses (and establishing appropriate reserves for future obligations), it intends to distribute that money to its stockholders. Distributions to Investors will be governed by the Authorizing Resolution that establishes the Series A Preferred Stock. Under the terms of the Authorizing Resolution, while any Share of Series A Preferred Stock remains outstanding, any distributions by the Company must be made in the following order of priority:
| ● | First, to Investors until they have received a compounded return of 7% per year on their invested capital. |
| ● | Second, any remaining funds will be distributed to Investors until they have received a return of all their invested capital. |
| ● | Third, any remaining funds after Investors have received their 7% annual return and all of their invested capital will be retained by the Company’s common stockholder(s) (its management). |
NOTE: The foregoing describes only the order in which distributions will be made under the terms of the Authorizing Resolution to the extent there are any distributions – it is not a guaranty that the Company will generate sufficient income to make any distributions. There is no guaranty that we will earn enough profit to distribute a 7% return to Investors, or even to return their capital. The Company has not yet commenced operations, has not generated profits, and may be unable to pay any distributions.
The Company will try to return to Investors all of their capital no later than the fifth anniversary of the purchase date, assuming there is sufficient cash flow. However, Investors might receive their capital sooner, later, or not at all.
THAT WAS ONLY A SUMMARY
PLEASE
READ THE OTHER SECTIONS OF THIS OFFERING CIRCULAR
CAREFULLY FOR MORE INFORMATION
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Buying our Series A Preferred Stock is speculative and involves significant risk, including the risk that you could lose some or all of your money. This section describes some of the most significant factors that make the investment risky. The order in which these factors are discussed is not intended to suggest that some factors are more important than others.
No Guaranty of Distributions: When you buy a certificate of deposit from a bank, the federal government (through the Federal Deposit Insurance Corporation) guaranties you will get your money back. Buying the Series A Preferred Stock of the Company is not like that at all. The ability of the Company to make the distributions you expect, and ultimately to give you your money back, depends on a number of factors, including some beyond its control. Nobody guaranties that you will receive distributions and you might lose some or all of your money.
Our Auditor Has Raised Questions About our Ability To Survive as a Going Concern: In the audited financial statements attached to this Offering Circular, our auditor has noted the Company has not yet commenced planned principal operations and has not generated revenues or profits since inception, and that these factors, among others, raise substantial doubt about the Company’s ability to continue as a “going concern.” As further noted by our auditor, the Company’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 to deploy that capital effectively to produce profits. No assurance can be given that the Company will be successful in these efforts.
We Are a Newly Formed Business With No Operating History: Although our management team is composed of experienced title insurance, mortgage investment, loan servicing, and real estate professionals, the Company itself is a start-up business with no operating history, minimal operating capital, and no significant assets or revenues. Like any start-up, the Company will face a number of challenges, including:
| ● | Developing a reputation and brand identity |
| ● | Hiring and retaining qualified personnel |
| ● | Raising capital |
| ● | Controlling costs |
| ● | Responding effectively to the offerings of existing and future competitors |
| ● | Managing growth and expansion |
| ● | Implementing adequate accounting, financial and other systems and controls |
We Own No Mortgage Loans and Have No Customers: As of the date of this Offering Circular the Company does not own any Mortgage Loans.
Ability to Execute Our Growth Strategy: Our ability to build our business profitably will depend upon our ability to execute on our strategic initiatives and attract, retain and expand new customer relationships. This in turn will depend upon our ability to develop and market new products and services that meet customer demand in the marketplace, and to do so in a manner that is profitable to the Company on a sustainable basis. Our ability to expand will also be affected by broader economic factors and the strength or weakness of the overall housing market, which can impact demand for our services and increase competition.
Competition: We will compete with many companies to acquire Mortgage Loans. The business of purchasing and servicing non-performing loans is fragmented, with many small players, and there is no guaranty that we will be able to compete successfully in this business.
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We Depend On Our Management Team And Will Need To Fill Key Positions: Our success depends substantially upon the talent and abilities of our executive officers and other key members of management. From time to time, there may be changes in our executive management team resulting from the hiring or departure of executives. Such changes in our executive management team may be disruptive to our business. We are also reliant on our relationship with our founders and entities affiliated with our founders. Among other things, we intend to utilize a proprietary pricing model for non-performing loans that was developed by American Homeowner Preservation LLC (“AHP”) and its affiliates We do not have a license or other formal arrangement regarding the use of the proprietary pricing model.
We Rely on a Small Group of Employees: The Company has a very small management team. The loss of any key employees could have a material adverse impact on our operations. Additionally, we expect that we will need to hire additional employees to scale our business and execute our growth strategy. There is no guaranty that we will be successful in identifying, hiring, training, and retaining qualified employees when and as needed.
Our Business is Heavily Regulated: The mortgage investment business is complex and heavily regulated. We expect to devote substantial resources to compliance matters and could incur significant ongoing costs to comply with new and existing laws and governmental regulation. If we fail to operate our business in compliance with applicable laws and regulations, our business, reputation, financial condition and results of operations could be materially and adversely affected. Our failure to comply with all applicable federal, state and local laws could result in, among other things (i) loss of our licenses to engage in our business, (ii) government investigations and enforcement actions against us, (iii) fines, penalties and judgments against us, (iv) civil lawsuits, including class actions, (v) criminal liability, and (vi) breaches of covenants and representations under our servicing agreements, debt agreements or other agreements.
Licensing Requirements Applicable to the Mortgage Loan Business: Many states impose licensing requirements on investors who buy and sell Mortgage Loans secured by 1-4 family residential properties. The Company has elected to acquire loans through a Delaware statutory trust (American Homeowner Preservation Trust, or the “Trust”) with a national bank trustee because, among other reasons, we believe this structure will generally allow us to operate under either a permanent exemption from such licensing requirement in some jurisdictions, or under a temporary exemption in other jurisdictions (during which time we intend to obtain the necessary license(s)). However, one or more jurisdictions could determine that this structure does not exempt us from their licensing requirements, which may result in interruptions to our business operations or might require us to suspend or completely terminate the acquisition of loans in those jurisdictions. Any failure to be appropriately licensed may prevent us from pursuing business opportunities that could be beneficial to the Company, and could expose us to investigations, lawsuits, administrative proceedings, costs (including attorneys’ fees), fines, judgments, penalties or other consequences, which could materially and adversely affect our financial condition.
Speculative Nature of Mortgage Loans: Investments in loans backed by real estate are highly speculative. Among the risks are the following:
| ● | We could be mistaken in our view of the value of the real estate underlying a Mortgage Loan. For example, if we paid $80 for a loan, believing that the value of the underlying real estate is $100, but the actual value is only $70, we could incur a substantial loss. Our assessment of the value of the underlying real estate could be incorrect for any number of reasons, including unknown and unanticipated environmental hazards, or falling real estate prices. |
| ● | A homeowner could tie us up in legal proceedings for a lengthy period of time, as we try to foreclose on the underlying real estate. |
| ● | A homeowner could file for bankruptcy protection, causing further delay, cost, and complication. |
| ● | Local laws we have not taken into account could hinder our ability to foreclose on the underlying real estate. |
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| ● | We could learn after the fact that the original lender or prior mortgage holder had failed to comply with legal or technical requirements in the loan documents, making it more difficult or even impossible for us to collect on the loan and/or foreclose on the property. |
| ● | The homeowner might have lied on the loan application about important information, including the ownership of the underlying real estate or the existence of prior liens. If the underlying real estate securing a loan is encumbered by other liens with a higher priority, it could reduce or even eliminate the value of the loan. |
| ● | The person who sold the loan to the Company might have misrepresented or omitted important information. |
| ● | A homeowner could make claims against the Company based on a theory of “lender liability.” |
Geographic Concentration: A significant portion of the Mortgage Loans that we acquire may be secured by properties concentrated in certain geographic areas of the United States, such as Florida, Illinois, Indiana, Michigan, New Jersey, New York, Ohio, and Pennsylvania. Adverse economic conditions or natural disasters affecting these markets, such as a downturn in real estate values, could disproportionately affect the Company.
Risks Relating to Technology: Our Mortgage Loan business depends on complex and sophisticated technology systems. Technology failures, defects or inadequacies, development delays, installation difficulties or security breaches could hurt our business in a number of ways. For example, a failure of technology could cause us to buy a loan that we shouldn’t have bought or fail to meet the expectations of customers, causing harm, to our reputation, or result in a breach of security and the disclosure of sensitive information.
Risks Relating to Personally Identifiable Information: We will routinely collect, process, store, use and disclose personal information of homeowners and borrowers, including but not limited to names, addresses, social security numbers, bank account numbers, credit card numbers and credit history information. That kind of personal information is subject to various federal, state and other laws regarding data privacy and protection. The regulatory framework for data privacy and protection issues in the United States and internationally is constantly evolving and is likely to remain fluid for the foreseeable future. We may be required to expend significant time, money and other resources towards compliance with such laws, and we may be subject to orders, fines, penalties or other adverse consequences from governmental authorities, as well as lawsuits from consumers, if we fail to comply with such laws. An actual or perceived failure by the Company to properly safeguard and use sensitive personal information could severely damage our reputation and harm our business.
Pricing of Loans: The success of our Mortgage Loan business depends in large part on our ability to gauge the value of loans that are in default. Although the Company and its advisors rely on various objective criteria, ultimately the value of these loans is as much an art as a science, and there is no guaranty that the Company and its advisors will be successful.
Incomplete Due Diligence on Loans: We perform due diligence on the loans we purchase, meaning we review some of the available information about the loans and the underlying collateral. As a practical matter, however, it is simply impossible to review all of the information about a given loan (or about anything) and there is no assurance that all of the information we have reviewed is accurate. For example, sometimes important information is omitted or unavailable, or a third party might have an incentive to conceal information or provide inaccurate information, and we cannot verify all the information we receive independently. It is also possible that we have reached inaccurate conclusions concerning the information we have reviewed.
Reliance on Third Parties: We expect to engage third parties to provide essential services. If a third party we retain performs poorly or becomes unable to fulfill its obligations, the Company’s business could be severely disrupted and our financial condition could be adversely affected. Disputes between us and our third party service providers could disrupt our business and may result in litigation or other forms of legal proceedings (e.g. arbitration), which could require us to expend significant time, money and other Company resources, which could adversely affect the Company’s financial position. We might also be subject to, or become liable for, legal claims relating to work performed by third parties we have contracted with, even if we have sought to limit or disclaim our liability for such claims or have sought to insure the Company and its affiliates against such claims.
Arbitrary Pricing: The initial price of our Series A Preferred Stock was determined arbitrarily by our management, was not determined by an independent appraisal of the Company’s value and bears no relationship to traditional measures of value such as EBITDA (earnings before interest, taxes, depreciation, and amortization), cash flow, revenue, or book value.
Need For Additional Capital: There is no guaranty that the Company will raise sufficient capital in this Offering to cover its operating and other expenses in connection with its planned operations. Even if the Company sells all of the Series A Preferred Stock being offered, the Company may need to raise additional capital in the future through equity offerings, debt financing, strategic partnerships or by other means. Additional funding may not be available on favorable terms, or at all. If the Company is unable to obtain sufficient funding, it may be forced to reduce or terminate its operations, which may adversely affect our business and results of operations. If we issue additional capital stock in the future, this may result in dilution to Investors. If we engage in debt financing, our lenders would generally have priority over our Investors, and we may be required to accept terms that restrict our ability to incur additional indebtedness or otherwise operate our business.
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New Securities Could have Superior Rights: In the future, the Company could issue securities that have rights superior to the rights of the Series A Preferred Stock. For example, the holders of new securities could have the right to receive distributions before any distributions are made to the holders of the Series A Preferred Stock.
Risks Associated with Leverage: The Company might borrow money from banks or other lenders to purchase Mortgage Loans or other assets. Borrowing money to purchase assets is sometimes referred to as “leverage.” While using leverage can increase the total return on the borrower’s equity, it also increases risk because the amount borrowed has to be repaid in accordance with a schedule. To repay its loans, the Company might have to sell assets at a time when values are low, for example.
Competing Objectives: The Company has financial objectives – generating current income and capital appreciation, but has non-financial objectives as well – namely, providing viable solutions for homeowners at risk of foreclosure. Because of its dual objectives, one relating to financial returns and the other related to social betterment, the Company does not try to squeeze the maximum possible financial value from every Mortgage Loan. Similarly, while we expect our socially responsible strategies may be attractive to some mortgage holders, others may opt to contract with investors who are strictly focused on maximizing financial returns. As a result, the ability of the Company to make distributions to Investors could be impaired.
Limitation on Rights in LLC Agreement: The Company’s Limited Liability Company Agreement dated April 15, 2022 (the “LLC Agreement”) limits your rights in several important ways, including these:
| ● | The Company is controlled by a three-person Board of Directors (the “Board”). Investors do not have the right to elect or remove the members of the Board or otherwise vote on or approve actions of the Company. |
| ● | The LLC Agreement does not permit Investors to transfer their shares without the prior written consent of the Board (except for certain transfers to family members or transfers to the Company), which consent may be withheld in the Board’s sole discretion. |
| ● | The LLC Agreement grants the Company a right of first refusal to purchase any shares proposed to be transferred by a stockholder (except for certain transfers to family members). |
| ● | The LLC Agreement contains a “drag-along” provision, permitting the Board to approve a sale of the Company and require each stockholder of the Company to sell his, her or its shares (each stockholder would receive its pro rata share of the net proceeds of the sale). |
| ● | The LLC Agreement significantly curtails your right to bring legal claims against management. Among other things, the LLC Agreement provides that the Company’s directors and officers shall not owe any fiduciary duties to the Company or its stockholders, and grants broad indemnification rights to the Company’s directors and officers to the fullest extent permitted by applicable law. This means that stockholders would generally be barred from bringing claims for breach of fiduciary duty, misappropriation of business opportunities, or similar claims alleging that the directors, officers and/or employees of the Company breached some duty or obligation to stockholders or the Company (but not claims based on a breach of the terms of the LLC Agreement or Authorizing Resolution). The waiver of fiduciary duties does not apply to claims made under the federal securities laws. |
| ● | The LLC Agreement provides that stockholders shall not have appraisal or “dissenter’s” rights in connection with their shares of the Company’s capital stock, and shall waive any such rights they might be deemed to have. |
| ● | The LLC Agreement limits your right to obtain information about the Company and to inspect its books and records. |
| ● | The Board is permitted to amend the LLC Agreement in certain respects without your consent. |
| ● | The LLC Agreement provides that the state or federal courts located in Delaware shall be the exclusive forum for disputes relating to the LLC Agreement. |
| ● | The LLC Agreement requires that you waive the right to a trial by jury in respect of any legal action arising out of or relating to the LLC Agreement. This waiver of the right to a jury trial would not apply to claims made under the federal securities laws, however. |
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Limitation on Rights in Investment Agreement: To purchase Series A Preferred Stock in this Offering, you are required to sign our Investment Agreement. The Investment Agreement limits your rights in several important ways, including these:
| ● | Any claims arising from your purchase of Series A Preferred Stock or the Investment Agreement must be brought in the state or federal courts located in Delaware, which might not be convenient to you. |
| ● | In general, you would not be entitled to recover any lost profits or special, consequential, or punitive damages. This provision would not apply to claims made under the federal securities laws. |
Forum Selection Provision: Our LLC Agreement and Investment Agreement each provide that any dispute arising from such agreement (including, but not limited to, any dispute arising from the purchase of Series A Preferred Stock pursuant to the Investment Agreement) will be handled solely in the state or federal courts located in Delaware. We included this provision primarily because (i) the Company is organized under Delaware law, (ii) Delaware courts have developed significant expertise and experience in corporate and commercial law matters and investment-related disputes (which typically involve very complex legal questions), particularly with respect to alternative entities (such as LLCs), and have developed a reputation for resolving disputes in these areas in an efficient manner, and (iii) Delaware has a large and well-developed body of case law in the areas of corporate and alternative entities law and investment-related disputes, providing predictability and stability for the Company and its Investors. This provision could be unfavorable to an Investor to the extent a court in a different jurisdiction would be more likely to find in favor of an Investor, or be more geographically convenient to an Investor. It is possible that a judge would find this provision unenforceable and allow an Investor to file a lawsuit in a different jurisdiction.
Conflicts of Interest: Our interests could conflict with your interests in a number of important ways, including these:
| ● | Your interests might be better served if our management team devoted its full attention to managing the Company. Instead, they will manage other businesses, and these other entities may compete directly with the Company. In particular, certain directors and executive officers of the Company will manage other investment programs which may compete with the Company for opportunities to purchase non-performing loan pools. These programs are discussed in “Past Performance: Track Record of Affiliate,” and it is possible new such programs will be created in the future. We have not adopted any specific policies or procedures regarding conflicts of interest (including, without limitation, regarding the allocation of investment opportunities, resources, expenses or other items among the entities affiliated with our Board of Directors and executive officers). |
| ● | Members of our management team have business interests wholly unrelated to the Company and its affiliates, all of which require a commitment of time. |
| ● | We might buy loans from our affiliates. Although we will always seek to establish a fair, arm’s-length price for loans, our interests as a seller conflict with your interests as a buyer. |
| ● | The lawyer who prepared the LLC Agreement, the Investment Agreement, and this Offering Circular represents us, not you. You must hire your own lawyer (at your own expense) if you want your interests to be represented. |
Uninsured Losses: We will decide what kind of insurance to purchase, and in what amounts. However, some risks cannot be insured at all, or cannot be insured on an affordable basis, and the Company might not be able to purchase or afford all the insurance it needs. Therefore, the Company could incur an uninsured loss.
No Market for the Series A Preferred Stock; Limits on Transferability: There are several obstacles to selling or otherwise transferring your Series A Preferred Stock:
| ● | There will be no established market for your Series A Preferred Stock, meaning you could have a hard time finding a buyer. |
| ● | By its terms, the Series A Preferred Stock may not be transferred without our Board of Directors’ consent (except for certain transfers to family members or transfers to the Company). |
| ● | Although you have the right to ask us to purchase your Series A Preferred Stock, there is no guaranty that we will be able to do so. |
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Taking all that into account, you should be prepared to own your Series A Preferred Stock indefinitely.
Early Payment: The Company will seek to pay back your capital before the fifth anniversary. Therefore, you should not expect to receive a 7% annual return for the entire five-year period.
Our Track Record Does not Guaranty Future Performance: The section captioned “Past Performance: Track Record of Affiliate” illustrates the performance of certain affiliates of the Company, engaged in business similar to that which the Company plans to engage. However, there is no guaranty that the Company will do as well as its affiliates have done. The economy as a whole and the real estate market in particular have been very favorable to date; as surely as night follows day, economic conditions will change and we might not be able to adapt.
Risk of Failure to Comply with Securities Laws: Affiliates of the Company have previously sold securities relying upon the exemptions under Rule 506(c) of Regulation D and Regulation A issued by the Securities and Exchange Commission (“SEC”). The current Offering by the Company relies on the exemption under Regulation A. In all cases, we have relied on the advice of securities lawyers and believe we qualify for the exemption. If we did not qualify, we could be liable to penalties imposed by the federal government and State regulators, as well as to lawsuits from investors.
Investors Can’t See Our Actual Investments Before Investing: As of the date of this Offering Circular, the Company doesn’t own any loans or other real estate assets. As a result, Investors cannot see or evaluate our assets before making an investment decision. Instead, Investors are asked to invest first, then trust that their money will be used wisely.
The Company Stands On Its Own: The Company will either succeed or fail on its own account. Although certain affiliates of the Company have been successful, there is no guaranty that the Company will be successful. Further, neither the founder nor any other person or entity has committed to provide financial assistance to the Company should such assistance become necessary.
breaches of security: It is possible that our systems would be “hacked,” leading to the theft or disclosure of confidential information you have provided to us. Because techniques used to obtain unauthorized access or to sabotage systems change frequently and generally are not recognized until they are launched, we and our vendors may be unable to anticipate these techniques or to implement adequate defensive measures.
The
Foregoing Are Not Necessarily The Only Risks Of Investing
Please Consult With Your Professional Advisors
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By purchasing Series A Preferred Stock, Investors will acquire an interest in Skid Row AHP LLC, a Delaware limited liability company, which we refer to as the “Company.”
The Company will invest in (buy) Mortgage Loans, meaning loans that are secured by a mortgage on a principal residence (i.e., somebody’s house).
The Mortgage Loans we buy will be “non-performing” or “under-performing,” where the borrower (the homeowner) has failed to make one or more payments. Over the last 10 years, our affiliates, including American Homeowner Preservation 2015A+, LLC and AHP Servicing, LLC have invested in more than 5,500 non-performing Mortgage Loans with an aggregate purchase price of more than $140 million. See “Past Performance: Track Record of Affiliates.” The Company will invest in non-performing Mortgage Loans using the same methods, processes, and personnel that our affiliates have used.
We will have two complementary goals when we invest in non-performing Mortgage Loans: to generate income for the Company and its Investors and to help struggling homeowners through a difficult time.
We typically will buy non-performing Mortgage Loans through an open bidding process and have developed a proprietary model for calculating the amount we will bid. We intend to focus on smaller Mortgage Loans, with unpaid principal balances in the range of $100,000 or less.
After we buy a non-performing Mortgage Loan, we will approach the homeowner, who by definition has been unable to make payments on his or her mortgage. We will not necessarily try to extract the maximum possible value from the Mortgage Loan. Instead, we will work with the homeowner to achieve a quick resolution that is acceptable both to the homeowner and to us. Depending on a number of factors, including the income of the homeowner, the local market, and the value of the house, four outcomes are possible:
Outcome #1: The homeowner is able to refinance the Mortgage Loan – for example, by borrowing money from a bank. In that case we will accept the refinanced amount, which is lower than the face amount of the Mortgage Loan (but still more than we paid for the Mortgage Loan) as payment in full, and the homeowner stays in his or her house.
Outcome #2: Even without refinancing, the homeowner is able to pay us a lump sum that we accept a payment in full for the Mortgage Loan, and the homeowner stays in the house.
Outcome #3: We and the homeowner agree to modify the terms of the Mortgage Loan, i.e., the principal amount and/or the interest rate. After the homeowner has begun to make regular payments under the new terms, we sell the Mortgage Loan to a third party, and again the homeowner stays in his or her house.
Outcome #4: Where the homeowner cannot afford to stay in the house or chooses not to, we take ownership of the house and sell it. Normally, the homeowner signs the house over to us voluntarily in exchange for an incentive payment and being released from personal liability for the Mortgage Loan, without the need for legal action, but sometimes we are required to take legal action (i.e., to foreclose).
In general, our revenues from non-performing Mortgages Loans will come from five sources:
| 1) | The proceeds we receive when a Mortgage Loan is refinanced under Outcome #1; |
| 2) | The lump sum we received under Outcome #2; |
| 3) | The proceeds we receive when a Mortgage Loan is sold under Outcome #3; |
| 4) | The proceeds we receive when a house is sold under Outcome #4; and |
| 5) | Any Mortgage Loan payments we receive from the homeowner along the way. |
We will make a profit if the sum of these revenues exceeds the price we paid for the Mortgage Loans in the first place, after subtracting all our expenses (e.g., management and legal fees).
While affiliates of the Company have been engaged in this business for many years, the Company does not own any Mortgage Loans as of the date of this Offering Circular and has not yet identified any Mortgage Loans to buy.
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The Company is a limited liability company organized in Delaware. Currently, the Company has only one class of securities issued and outstanding: its Common Shares, all of which are owned by American Homeowner Preservation, Inc. a corporation organized in Delaware (the “Parent”). The Parent is controlled by Jorge P. Newbery.
Investment Strategy for Non-Performing Loans
We believe we can buy distressed residential Mortgage Loans at significant discounts to their unpaid principal balances and, more importantly, to their current and future market values.
Even before the COVID-19 pandemic, many depository institutions and other holders of portfolios of sub-performing or non-performing Mortgage Loans in the United States were under financial duress. The current situation is in flux. The pandemic, especially at the outset, has exacerbated the financial duress to both homeowners and the financial institutions and other investors who hold mortgage loans. However, while the serious delinquency rate is had grown in 2020, it somewhat stabilized in 2021, and is anticipated to continue that trend in 2022.
According to the Mortgage Bankers Association (MBA), in an article on delinquencies published November 10, 2021:
For the fifth consecutive quarter, the mortgage delinquency rate declined, commensurate with a decline in the U.S. unemployment rate over the same time period.
The article further noted that the delinquency rate decreased by 238 basis points for conventional loans, decreased 425 basis points for FHA loans, and decreased 235 basis points for VA loans from the previous year. The seriously delinquent rate decreased 49 basis points for conventional loans, decreased 129 basis points for FHA loans, and decreased 54 basis points for VA loans from the previous quarter. Compared to a year ago, the seriously delinquent rate decreased by 156 basis points for conventional loans, decreased 257 basis points for FHA loans, and decreased 129 basis points for VA loans.
Nevertheless, while the impact of COVID-19 pandemic is waning, the foreclosure moratorium on federally-backed loans ended on July 31, 2021. As that relief begins to subside, and its effects ripple through the U.S. economy, it may lead to increases in delinquency rates in the coming months. This situation may further be exacerbated by the currently ongoing increases in COVID-19 cases reaching record highs due to the winter 2021-22 Omicron variant spike.
Further, regional climate related events have increased delinquency rates in some states. For example, the mortgage delinquency rate in Louisiana increased by 118 basis points in the third quarter from the damage and displacement caused by Hurricane Ida's August landfall. Wildfires, droughts, and other climate-related events appear to be occurring more frequently and with less predictability. We believe this will lead to further financial duress for depository institutions and other holders of portfolios of sub-performing or non-performing Mortgage Loans in the United States.
We intend to focus on seriously delinquent FHA, VA, and USDA Mortgage Loans.
We intend to invest primarily in mortgage loans secured by one-to-four-family homes. On occasion, we might also acquire (i) direct interests in real estate, (ii) mortgage loans secured by more than four family homes, and/or (iii) and commercial loans. Nevertheless, we expect mortgage loans secured by one-to-four-family homes will comprise more than 90% of our total portfolio focusing on FHA, VA and USDA loans.
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Bidding on non-performing Mortgage Loans is both an art and a science.
Typically, the process begins when a seller provides potential buyers with a list of loans being offered for sale and requests initial bids. The seller might, or might not, provide such information as:
| ● | A full or partial address |
| ● | The borrower’s name |
| ● | The property type |
| ● | The original loan amount |
| ● | The original appraised value |
| ● | The term of the loan and the maturity date |
| ● | The current and/or original interest rate and principal and interest payment |
| ● | The escrow balance |
| ● | The borrower’s original FICO score |
| ● | Loan modification data |
| ● | Payment history |
| ● | Foreclosure or bankruptcy status |
| ● | Property square footage and lot size |
| ● | Broker’s price opinion |
| ● | The delinquent tax amount |
To help make sense of the data and make accurate bids, we have developed a proprietary pricing model that allows a detailed analysis of portfolio valuation, using different projected resolution outcomes.
If the Company wins the initial bid, we order two documents, a title report and a broker’s price opinion, and dig deeper into the due diligence materials, noting such items as (i) whether the original borrower is still the owner of the property, (ii) whether the loan still holds a first lien position, (iii) whether the property is occupied or vacant, and (iv) the amount of delinquent taxes and other liens. Our original bid may be adjusted upward or downward based on these and other factors. Sometimes a bid is reduced to as low as $1.
Revised bids are then submitted to the seller. The seller may counter with a higher price or drop some mortgages from the sale if the seller feels the bid is too low.
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After we purchase a non-performing Mortgage Loan, we contact the homeowner and try to achieve a consensual, mutually-satisfactory resolution. These are the circumstances that lead to each resolution and what is expected in each case:
| Reinstatement of the Loan | Where the borrower is willing and able, he or she can bring the loan current either in a lump sum or by making payments over time. After the loan is current, we typically sell the loan. |
| Settlement of the Loan | When the borrower (i) has a short sale buyer, (ii) can refinance, or (iii) otherwise has cash on hand, we might accept a payoff of the loan for less than its face amount. |
| Modification of the Loan | When the borrower cannot bring the loan current or pay it off, we might allow a modification that involves lowering the interest rate, extending the term, or reducing the principal. After the modified loan is current, we typically sell the loan. |
| Deed In Lieu of Foreclosure | When the property is vacant or the homeowner no longer wishes to keep the property, we might accept a voluntary deed in lieu of foreclosure, giving us ownership of the home. Depending on the circumstances, we might even pay the homeowner for the deed. In either case we will end up selling the property. |
| Involuntary Foreclosure | As a last resort, we can foreclose on the property and sell it. Sometimes, a homeowner who has been unwilling to speak with us will change his or her mind when we begin foreclosure proceedings. Involuntary foreclosure often yields a lower recovery than consensual solutions and we try to avoid it. |
The Company might borrow money to buy Mortgage Loans or other assets, which is referred to as “leverage.” Where we borrow money to buy Mortgage Loans, the amount of the borrowing typically does not exceed 70% of the price.
Collecting payments on loans is referred to as loan “servicing.” The Company will not service the Mortgage Loans it acquires. Instead, an affiliate of the Company, AHP Servicing LLC (“AHP Servicing”) will service some Mortgage Loans while third-party loan servicers will service other Mortgage Loans. The agreement between the Company and AHP Servicing captioned “Flow Loan Servicing Agreement” is attached as Exhibit 1A-6A. We refer to this agreement as the “Servicing Agreement.”
The principal terms of the Servicing Agreement are as follows:
| ● | AHP Servicing will handle all the tasks typically handled by loan servicers, including collecting payments, managing accounts (principal and interest, escrow, deposit, etc.) gathering and providing complaints from borrowers or regulatory authorities to the Company, and paying real estate taxes and insurance premiums form customer escrow accounts. |
| ● | AHP Servicing will also be responsible for protecting the Company’s interest in each Mortgage Loan by performing inspections, notifying the Company about any change in ownership, and notifying the Company of any lien, bankruptcy, condemnation, or other proceeding affecting the Company’s interest. |
| ● | AHP Servicing may engage third parties in providing services under the loan servicing agreement, but only upon approval by the Company and only if the third party is operating in AHP Servicing’s name. |
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| ● | The Company will pay AHP Servicing an initial client set up fee of $10,000. The Company will also pay AHP Servicing (i) a one-time loan onboarding fee of between $15-$50 per loan depending on whether the loan is in bankruptcy and if the boarding is done manually; (ii) a one-time loan deboarding/loan term fee between $15-$80 per loan; (iii) monthly servicing fees ranging from $15-$225; (iv) a one-time “success fee” of 2.5% or at least $5,000 for completing various loss mitigation strategies as well as other resolution and disposition fees ranging from $250 to $4,000; and (v) various miscellaneous fees ranging from $2.50 to $225, all as set forth in more detail in Exhibit A to the Servicing Agreement. |
| ● | Failure by the Company to comply with any of its obligations under the Servicing Agreement permits AHP Servicing to offset any amounts to be remitted by it to the Company in addition to any other rights and remedies available at law or in equity. |
| ● | The Servicing Agreement may be terminated by either party with written notice to the other. In addition, either party may terminate the Servicing Agreement upon a breach of the agreement by the other. |
The Company has not entered into a contract with a third-party loan servicer. We expect the terms of any such third-party agreement to be substantially similar to the terms of the Servicing Agreement.
The following are the key positions in the operations of the Mortgage Loan business:
Due Diligence Specialists: Due Diligence Specialists run potential loan purchases through a rigorous screening process. Among other things, they seek to determine (i) an accurate value for the underlying real estate, (ii) the outstanding loan amount, (iii) the owner of the property, (iv) the amount of outstanding taxes on the underlying real estate, and (v) any encumbrances on the underlying real estate.
Document Specialists: A Document Specialist verifies that all collateral needed to validate ownership and existence of the mortgage and property are obtained, imaged, recorded, and stored with the custodian. This includes verification on newly purchased assets and the necessary creation of assignments, allonges, and lost document affidavits, as needed.
Asset Managers: The Asset Manager guides the homeowner through loan modification, repayment plans, deed-in-lieu, and other resolution options. Asset Management is a hybrid role that blends homeowner counseling, mortgage servicing, and property management/preservation to meet dual goals of (i) keeping Americans in their homes, and (ii) providing attractive returns to investors.
Litigation Coordinators: Litigation Coordinators manage the Company’s relationship with its attorney-vendor network, represent the Company at hearings and mediations, and handle all servicing-related activity that is required from the attorneys while assets are litigated, including bankruptcy activity, foreclosure complaints, evictions, quiet title actions, and tax sale reviews and challenges.
Resolution Managers: Resolution Managers report directly to Jorge Newbery, the CEO, and are responsible for providing the tools, objectives, and leadership required to meet individual and Company goals. This includes setting initial reconciliation strategies, optimizing user technologies, reviewing control reports for outliers, providing guidance on high-risk scenarios, and coordinating efforts between the separate roles.
All of these roles are filled by employees of AHP Servicing.
The Company has entered into a Management Services Agreement (the “MSA”) with Oak Harbor Capital, LLC (“Oak Harbor”), pursuant to which Oak Harbor will provide certain services to the Company. The MSA is attached as Exhibit 1A-6B.
The principal terms of the MSA are as follows:
| ● | Oak Harbor will direct the collection, administration, and servicing of all accounts with respect to the Company’s Mortgage Loans and other assets and will have full power and authority, to the extent not limited by the MSA, to do or cause to be done any and all things in connection with such servicing, administration, and collection. |
| ● | Oak Harbor will monitor the Company’s service providers in conducting pre-purchase due diligence to analyze the quality of the assets proposed to be acquired by the Company, as well as provide monthly remittance reports as to asset realizations and associated fees and costs. |
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| ● | In return for these services, Oak Harbor is entitled to an annual management fee equal to 1.75% of the aggregate capital raised by the Company, payable on a monthly basis, plus 50% of the amount that would otherwise be distributed by the Company to the holders of the Common Shares. |
| ● | The MSA and Oak Harbor’s right to receive fees may not be terminated by the Company other than for a “Termination Event,” defined to include, among other things, (i) breach of a material covenant after a 15-day opportunity to cure, (ii) breach of a representation or warranty, (iii) insolvency, bankruptcy, liquidation or insolvency or (iii) a voluntary resignation. |
| ● | Oak Harbor may remove two of the Company’s Directors, Joanne Cordero and Adam Henderson, with or without cause, and appoint their replacements. |
The Company and Title Direct will acquire Mortgage Loans through American Homeowner Preservation Trust, a Delaware statutory trust (the “Trust”) with U.S. Bank Trust National Association (“U.S. Bank”) serving as the sole trustee and an affiliate of the Company, AHP Capital Management, LLC, serving as the administrator. The Mortgage Loans will be held in a separate series of the Trust, of which the Company will be the sole beneficiary.
The Company uses this structure to address certain state licensing and registration requirements applicable to the mortgage loan industry.
The following documents related to the Trust are attached as Exhibits:
| Amended and Restated Trust Agreement dated October 29, 2014 | Exhibit 1A-6C |
| Amendment No. 1 to Amended and Restated Trust Agreement | Exhibit 1A-6D |
Our revenue from Mortgage Loans will include:
| ● | Payments we receive from homeowners |
| ● | Rental payments we receive from leased real estate |
| ● | Proceeds we receive from the sale of loans |
| ● | Proceeds we receive from the sale of houses |
| ● | Proceeds we receive when a homeowner pays off a loan |
| ● | Payments we receive from homeowners or other borrowers to accept a deed in lieu of foreclosure |
Our expenses from Mortgage Loans will include:
| ● | The purchase price of Mortgage Loans |
| ● | Commissions |
| ● | Costs incurred in finding, evaluating, and purchasing Mortgage Loans |
| ● | Commissions |
| ● | Settlement charges, including title charges |
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| ● | Custodial, administrative, legal, accounting, auditing, record-keeping, appraisal, tax form preparation, compliance and consulting costs and expenses |
| ● | Loan servicing fees |
| ● | Investor communications |
| ● | Insurance premiums |
| ● | Taxes and fees imposed by governmental entities and regulatory organizations |
| ● | Bank and escrow fees |
Factors Likely to Impact our Mortgage Loan Business
The ability of the Company to conduct its non-performing Mortgage Loan business successfully depends on several factors:
| ● | Availability of Reasonably Priced Loans: For our Mortgage Loan business to succeed, we must be able to purchase distressed Mortgage Loans at a reasonable price. The volume of these loans skyrocketed during the recession of 2008-9, as homeowners were unable to make payments and financial institutions were forced to liquidate their portfolios. As the economy improved over the next 10 years the number of distressed loans declined. The COVID-19 pandemic has reversed that trend, increasing the number of distressed loans. While that trend has stabilized, we believe the number of distressed loans will begin to rise again because of the COVID-19 pandemic spikes, the phasing out of different housing assistance programs, and regional climate-related events but there is no assurance this will be the case. |
| ● | Competition to Purchase Loans: The market for distressed Mortgage Loans has become more crowded. The more competition there is, the more difficult it could become for us to purchase loans at reasonable prices. |
| ● | Availability of Credit to Homeowners: One way we liquidate the loans in our portfolio is when the loans are refinanced by a lender and the loan we hold is paid off, in whole or in part. If credit markets tighten, as they did in 2008-9, homeowners might not be able to refinance loans, or not as easily. |
| ● | Housing Market: Another way we liquidate the loans in our portfolio is to take ownership of the house securing a loan and sell it. If housing prices fall, our profits fall along with them. |
| ● | Interest Rates: Our business is very sensitive to changes in interest rates. If interest rates fall, the value of the loans in our portfolio increases. If interest rates rise, the value of the loans in our portfolio decreases. Today, interest rates in general, and mortgage interest rates in particular, are at historic lows, but market signals are suggesting that interest rates are more likely to go up from this point than to go down. |
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| ● | Changes in Laws: Current law allows us to conduct our business in the manner described in this section. However, the residential housing market in general and the residential mortgage market in particular are highly regulated by both the Federal government and by State governments, with a number of states and the Federal governing offering relief to homeowners during the COVID-19 pandemic. It is possible that laws or regulations could be changed in a way adverse to our business. |
| ● | Performance of Internal Systems: We continue to improve our internal systems and to adopt new systems, including the proprietary pricing model we began to use in June 2015. We rely heavily on these systems and expect we will be required to continually update, improve, and replace them in the future. |
| ● | Ability to Attract Qualified Employees: Like many businesses, we rely on data and computer models and spreadsheets, even more so today than we did just a few years ago. Nevertheless, we are very much a “people business.” Not only do we need human eyes to review (and sometimes modify) the pricing models produced by our computers, but the real key to our success lies in our ability to interact with homeowners, who are people, not machines. As a result, we must continue to attract and retain highly skilled employees. |
The Skid Row Housing Trust is a nonprofit organization with a mission to provide housing to those in the greatest need, including the chronically unhoused and those at risk of losing housing. For over 30 years, the Skid Row Housing Trust has been successfully acquiring, structuring financing for, developing, managing, and operating Permanent Supportive Housing in one of the hardest hit sectors of homelessness in the country, Skid Row, Los Angeles. Through its wholly owned subsidiary, Restorative Neighborhood Resources, LLC, the Skid Row Housing Trust acquires, manages and resolves distressed residential mortgage loans and owned real estate in the service of ensuring housing retention and housing opportunities across diverse communities in the nation.
With these common goals, the Company has entered into a Consulting Services Agreement with Restora, LLC (“Restora”), a majority-owned subsidiary of the Skid Row Housing Trust, whereby Restora will enhance the Company’s access to bidding opportunities for distressed mortgage assets with governmental agencies such a HUD, Fannie Mae, and Freddie Mac, and otherwise make the Skid Row Housing Trust’s resources available in resolving those assets in a manner consistent with the focused outcome goals. In consideration of these services and the use of the “Skid Row” name, the Company will pay the Skid Row Housing Trust a consulting fee equal to 1% of the investment capital raised by the Company.
Under the Consulting Servicing Agreement, Restora is entitled to appoint one Director to the Company’s Board.
The Consulting Services Agreement is attached as Exhibit 1A-6E.
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PAST PERFORMANCE: TRACK RECORD OF AFFILIATES
Summary and Narrative Description
AHP and its affiliates have been investing in non-performing Mortgage Loans for approximately 10 years. Through March 31, 2022, they have purchased approximately 5,512 Mortgage Loans for an aggregate price of more than $140,718,694 in six different offerings of securities, each of which we prefer to as a “Program.” These Programs include Series 2013C, Series 2013D, Series 2014A, and Series 2014B of American Homeowner Preservation, LLC, which we refer to as the “Non-Public Programs,” and offerings under SEC Regulation A by American Homeowner Preservation 2015A+, LLC and AHP Servicing, LLC, which we refer to as the “Public Programs.”
Each of the Programs is similar to the Company in the following respects:
They all involve raising money from investors;
| ● | They all involve investing in and servicing non-performing Mortgage Loans (although these programs do not involve the development or operation of a special loan servicer that services loans for third parties); and |
| ● | Each of the Programs also has investment objectives that are similar to the investment objectives of the Company. |
Further, none of the Programs:
| ● | Have been registered under the Securities Act of 1933; |
| ● | Have been required to report under section 15(d) of the Securities Exchange Act of 1934; |
| ● | Have had a class of equity securities registered under section 12(g) of the Securities Exchange Act of 1934; or |
| ● | Have, or have had, 300 or more security holders (with the exception of 2015A+). |
On the other hand, the Program offered by AHP Servicing, LLC involved not only investing in non-performing Mortgage Loans but also loan servicing.
Investors who are considering purchasing Series A Preferred Stock from the Company might find it useful to review information about the Programs. Of course, prospective investors should bear in mind that prior performance does not guaranty future results. The fact that a prior Program has been successful (or unsuccessful) does not mean the Company will experience the same results.
There have been no major adverse business developments or conditions experienced by any Program that would be material to purchasers of the Company’s Series A Preferred Stock.
The following tables summarize the Programs through March 31, 2022. All figures are unaudited and are presented on a federal income tax basis.
| 2013C | 2013D | 2014A | 2014B | 2015A+ | AHP Servicing | |||||||
| Program | ||||||||||||
| Start Date | 12/18/2013 | 1/2/2014 | 4/16/2014 | 2/27/2015 | 6/10/2016 | 11/5/2018 | ||||||
| Amount Offered | $4,653,970 | $643,089 | $2,283,255 | $4,974,024 | $50,000,000 | $75,000,000 | ||||||
| Raised from Investors | $4,653,970 | $643,089 | $2,283,255 | $4,974,024 | $40,520,828 | $60,159,160 | ||||||
| Length of Offering | 1 Month | 4 Months | 10 Months | 14 Months | 24 Months | 35 Months | ||||||
| Closing | 1/31/2014 | 5/31/2014 | 2/28/2015 | 4/30/2016 | 5/24/2018 | 9/30/2021 | ||||||
| Number of Loans Purchased | 248 | 47 | 377 | 639 | 3089 | 1112 | ||||||
| Total Purchase Price of Loans | $4,633,487 | $661,989 | $2,268,212 | $6,480,307 | $34,277,191 | $92,397,508 | ||||||
| Leverage | 0 | 0 | 0 | 0 | 6.56% | 18.70% | ||||||
| Number of Loans Remaining | 0 | 0 | 0 | 0 | 1,516 | 678 | ||||||
| Targeted Yield to Investors | 9-12 % | 9-12 % | 9-12 % | 9-12 % | 12% | 10% | ||||||
| Amount Distributed to Investors as Percentage of Investor Capital | 100% | 100% | 100% | 100% | 61% | 42% | ||||||
| Remaining Investor Capital | $0 | $0 | $0 | $0 | $15,768,507 | $35,027,154 | ||||||
| Cost Basis of Loans &Real Estate Assets Remaining | $0 | $0 | $0 | $0 | $12,944,825 | $43,534,322 | ||||||
| Outstanding Indebtedness | $0 | $0 | $0 | $0 | $2,250,065 | $17,281,019 |
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We are offering to the public up to $75,000,000 of Series A Preferred Stock, which we refer to as the “Series A Preferred Stock.”
Price of Series A Preferred Stock
We will offer the Series A Preferred Stock at a fixed price. Initially, the fixed price is $10.00 per Share. During the term of this Offering we may increase or decrease the fixed price to reflect changes in the value of our assets and the amount of our liabilities (which will be determined by the Board of Directors in its sole and absolute discretion), but only in compliance with the law and regulations issued by the SEC. For example, SEC regulations do not permit “at the market” offerings.
Changes in the price of the Series A Preferred Stock will be reflected in a supplement or amendment to this Offering Statement filed with the SEC. At this time, the Manager cannot reasonably estimate when or how often it will amend the Offering price. Such amendments will depend upon numerous factors, including, but not limited to, (i) the amount of capital raised in this Offering, (ii) our ability to effectively deploy the capital we raise, (iii) the timing of actual asset acquisitions and dispositions by the Company, and (iv) the value of assets acquired or disposed of by the Company.
Owners of the Series A Preferred Stock – that is, Investors – will have no right to vote or otherwise participate in the management of the Company. Instead, the Company is managed by the Board of Directors exclusively. However, without the consent of a majority of the Investors, measured by the number of shares held, the Board may not amend the Company’s LLC Agreement in a manner that would reasonably be expected to have an adverse effect on the Company or its Stockholders.
If the Company has money after paying all of its expenses (and establishing appropriate reserves for future obligations), it intends to distribute that money to its stockholders. We intend to make distributions on a monthly basis. Distributions to Investors will be governed by the Authorizing Resolution, which (together with the LLC Agreement) contains the terms of the Series A Preferred Stock. The Authorizing Resolution provides that, while any share of Series A Preferred Stock remains outstanding, any distributions by the Company must be made in the following order of priority:
| ● | First to Investors until they have received a compounded annual return of 7% on their invested capital (the “Series A Preferred Return”). Payment of the Series A Preferred Return does not represent a return of an Investor’s capital. |
| ● | Second to Investors until they have received all of their invested capital. It is at this stage that capital is returned to Investors. The Company must try to return all capital within five years. |
| ● | Third, after Investors have received their 7% annual return and all their invested capital, we will keep any remaining profit for ourselves. |
The Authorizing Resolution is attached as Exhibit 1A-2C.
NOTE: By the terms of the Authorizing Resolution, the maximum an Investor can receive is a full return of capital plus a 7% annual return.
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No Guaranty
We can only distribute as much money as we have. There is no guaranty that we will have enough money, after paying expenses, to distribute enough to pay the 7% Series A Preferred Return or return capital to Investors. The Company has not yet commenced operations, has not generated profits, and may be unable to pay distributions. Thus, it is possible that Investors would lose all or a portion of their investment.
Cancellation of Shares
Once an Investor has received his, her, or its full Series A Preferred Return and a full return of his, her, or its capital, the Shares of Series A Preferred Stock owned by such Investor will be canceled and the Investor will have no further right to distributions or other interest in the Company.
Term of Series A Preferred Stock
The Authorizing Resolution provides that the Board must try to return all of the money invested by each Investor no later than the fifth (5th) anniversary following the investment. If the Company doesn’t have enough money, holders of our Series A Preferred Stock might receive a return of their investment later than five years, or not at all. If the Company is profitable, investors could receive a return of their investment sooner than five years.
How We Decide How Much To Distribute
To decide how much to distribute, we start with our revenues and expenses described in “Our Company and Business – Our Mortgage Loan Business – Revenue and Expenses.” We then subtract other cash expenditures and amounts we believe should be held in reserve against future contingencies.
In some situations, we might be required by law to withhold taxes and/or other amounts from distributions made to Investors. The amount we withhold will still be treated as part of the distribution. For example, if we distribute $100 to you and are required to withhold $10 in taxes, for our purposes you will be treated as having received a distribution of $100 even though you received a check for only $90.
For instance, as the Company operates in Illinois, Investors may generate a tax liability to the State of Illinois. The Company can file a consolidated tax return with the State of Illinois for non-Illinois residents and entities, regardless of domicile. To satisfy the Illinois tax liability, the Company may withhold the Illinois tax (equal to 4.35% of Illinois income in 2017, although subject to change) from an Investor’s distribution once per year or upon early redemption. Investors who live in states with their own income tax may be allowed to credit the Illinois tax payment against their own state’s income tax. The Illinois tax can also be claimed as an itemized deduction (for investors who itemize deductions) on Investors’ federal returns.
By filing as part of the consolidated return, investors would generally not be required to file their own State of Illinois tax returns if their only Illinois income is derived from their investment in the Company. Investors who do not want withholding and want to take responsibility for their own Illinois tax liability may choose to execute the Illinois Department of Revenue Form IL-1000-E Certificate of Exemption for Pass-through Withholding Payments. A completed IL-1000-E should be provided to the Company any time prior to December 31st of any tax year, or prior to tendering an early redemption request, in order to opt out of withholding. Once a Form IL-1000-E is received by the Company, this will remain in effect for the life of an Investor’s investment(s), unless new instructions are received from Investor.
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No Investor may sell, transfer, or encumber (place a lien on) his Series A Preferred Stock unless (i) the Board, in its sole and absolute discretion, approves the transfer; or (ii) in the case of an Investor that is a natural person, such Investor dies or a court finds that he or she is legally incompetent, in which case the Series A Preferred Stock shall be transferred automatically to the heirs or personal representative of the Investor. The Company also has a right of first refusal to purchase any shares of the Company a stockholder proposes to transfer.
Certain transfers are exempt from this provision – a transfer of shares to or for the benefit of any spouse, child or grandchild of the Investor, or to a trust for their exclusive benefit, shall be exempt from these provisions, provided that (i) the transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of the LLC Agreement, and (ii) such shares shall not thereafter be transferred in further reliance on this exemption. Transfers pursuant to the Company’s limited right of liquidity (see page 39) are also exempt from this restriction.
Before the Board consents to a transfer of Series A Preferred Stock, it may impose reasonable conditions, including but not limited to written assurance that (i) the transfer is not required to be registered under the Securities Act of 1933, (ii) the transferor or the transferee will reimburse the Company for expenses incurred in connection with the transfer, and (iii) the transfer will not cause the termination of the Company as a partnership under section 708 of the Internal Revenue Code or cause the Company to be treated as a “publicly traded partnership” under section 7704 of the Internal Revenue Code.
The Company may require an Investor to sell all or a portion of his, her or its Series A Preferred Stock back to the Company in the following circumstances:
| ● | If the Company determines that all or any portion of the assets of the Company would, in the absence of such repurchase, more likely than not be treated as “plan assets” or otherwise become subject to the Employee Retirement Income Security Act of 1974; |
| ● | If the Company believes the Investor made a material misrepresentation to the Company; |
| ● | If legal or regulatory proceedings are commenced or threatened against the Company or any of its members arising from or relating to the Investor’s interest in the Company; |
| ● | If the Investor transferred Series A Preferred Stock in violation of the LLC Agreement; |
| ● | If the Company believes that the Investor’s ownership has caused or will cause the Company to violate any law or regulation; |
| ● | If the Investor has violated any of his, her, or its obligations to the Company or to the other Stockholders; or |
| ● | If the Investor is engaged in, or has engaged in, conduct (including but not limited to criminal conduct) that (A) brings the Company, or threatens to bring the Company, into disrepute, or (B) is adverse and fundamentally unfair to the interests of the Company or the other members of the Company. |
The purchase price of the shares of series A Preferred Stock would be equal to the Investor’s capital account associated with such shares, which would be paid by wire transfer or other immediately-available funds at closing, which would be held within sixty (60) days following written notice from the Company of its election to repurchase the shares. If the Company causes an Investor to sell all of the Investor’s Series A Preferred Stock, the Investor will have no further interest in the Company.
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The Authorizing Resolution that establishes the Series A Preferred Stock gives Investors a limited right of liquidity by giving them right to request that the Company purchase, or arrange for the purchase of, all or a portion of their Series A Preferred Stock. To request that the Company purchase or arrange for the purchase shares, Investors must submit a written request to the Company specifying the number of shares the Investor desires to sell. If the request is received by the fifteenth (15th) day of a calendar month, the Company will use commercially reasonable efforts to arrange for the purchase (or notify the Investor that the Company cannot accommodate the request) by the end of such month; if the request is received by the Company after the fifteenth (15th) day of a month, the Company will use commercially reasonable efforts to arrange for the purchase (or notify the Investor that the Company cannot accommodate the request) by the end of the following month.
If the Company is not able to purchase or arrange for the purchase an Investor’s shares and so notifies the Investor within the time limits described above, the Investor may either rescind the request or maintain the request on a month-to-month basis until satisfied or rescinded. Investors have the right to withdraw a purchase request in writing at any time prior to the closing of the sale, provided that if an investor withdraws the request, any subsequent request will be treated as a new request.
This limited right of liquidity is subject to important limitations:
| ● | The Company is not required to purchase or arrange for the purchase of shares if the Company determines, in its sole discretion, that it does not have sufficient cash to do so or that doing so would be adverse to the interests of the Company or its other Stockholders. |
| ● | The Company is not required to borrow money or dispose of assets. |
| ● | During any given calendar year (i) the Company shall not be obligated to purchase or arrange for the purchase of more than 25% of an Investor’s total shares of Series A Preferred Stock (although it may choose to do so in its sole discretion), and (ii) the Company shall not be obligated to purchase or arrange for the purchase of more than 5% of the total number of shares of Series A Preferred Stock issued and outstanding (although it may choose to do so in its sole discretion). |
| ● | The Delaware Limited Liability Company Act may limit the Company’s ability to repurchase shares. Under Section 18-607 of the Delaware Limited Liability Company Act, Delaware limited liability companies are generally prohibited from making distributions that would result in the company’s liabilities exceeding the fair value of its assets. |
The purchase price of Series A Preferred Stock repurchased pursuant to the limited right of liquidity will be equal to the balance of the Investor’s unreturned investment relating to such shares, subject to certain adjustments as follows. If the sale occurs within one year following the date the Investor acquired the shares being sold, the purchase price will be reduced by an amount sufficient to reduce the Investor’s annualized Series A Preferred Return through the date of the repurchase from 7% to 5% (to the extent the Investor has received distributions of the Series A Preferred Return); if the repurchase occurs more than one year but less than two years from date of acquisition, the annualized Series A Preferred Return will be reduced from 7% to 6%. For purposes of this provision, the shares purchased first in time will be treated as being sold first for purposes of calculating the applicable holding period.
If more than one Investor requests that the Company purchase its Series A Preferred Stock, the Company will consider the requests in the order received.
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LIMIT ON AMOUNT A NON-ACCREDITED INVESTOR CAN INVEST
As long as you’re at least 18 years old, you can invest in this Offering. But if you’re not an “accredited” investor, the amount you can invest is limited by law.
Under 17 CFR §230.501, a regulation issued by the Securities and Exchange Commission, the term “accredited investor” means:
| ● | A natural person who has individual net worth, or joint net worth with the person’s spouse or spousal equivalent, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; |
| ● | A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse or spousal equivalent exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; |
| ● | A natural person who holds any of the following licenses from the Financial Industry Regulatory Authority (FINRA): a General Securities Representative license (Series 7), a Private Securities Offerings Representative license (Series 82), or a Licensed Investment Adviser Representative license (Series 65); |
| ● | A natural person who is a “knowledgeable employee” of the issuer, if the issuer would be an “investment company” within the meaning of the Investment Company Act of 1940 (the “ICA”) but for section 3(c)(1) or section 3(c)(7) of the ICA; |
| ● | An investment adviser registered under the Investment Advisers Act of 1940 (the “Advisers Act”) or the laws of any state; |
| ● | Investment advisers described in section 203(l) (venture capital fund advisers) or section 203(m) (exempt reporting advisers) of the Advisers Act; |
| ● | A trust with assets in excess of $5 million, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person; |
| ● | A business in which all the equity owners are accredited investors; |
| ● | An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; |
| ● | A bank, insurance company, registered investment company, business development company, small business investment company, or rural business development company; |
| ● | A charitable organization, corporation, limited liability company, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets exceeding $5 million; |
| ● | A “family office,” as defined in rule 202(a)(11)(G)-1 under the Advisers Act, if the family office (i) has assets under management in excess of $5,000,000, (ii) was not formed for the specific purpose of acquiring the securities offered, and (iii) is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment; |
| ● | Any “family client,” as defined in rule 202(a)(11)(G)-1 under the Advisers Act, of a family office meeting the requirements above, whose investment in the issuer is directed by such family office; |
| ● | Entities, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that were not formed to invest in the securities offered and own investment assets in excess of $5 million; or |
| ● | A director, executive officer, or general partner of the company selling the securities, or any director, executive officer, or general partner of a general partner of that issuer. |
If you fall within any of those categories, then you can invest as much as you want. If you don’t fall within any of those categories, then the most you can invest in this Offering is the greater of:
| ● | 10% of your annual income; or |
| ● | 10% of your net worth. |
These limits are imposed by law, not by us.
When you go to the Site we will ask whether you’re an accredited investor. If you aren’t, then we’ll ask about your annual income and net worth.
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The people who own and operate the Company make money from the Company in (only) three ways:
| ● | They receive fees. |
| ● | They invest alongside Investors and receive the same distributions as Investors. |
| ● | They receive whatever is left, if anything, after Investors have received a full return of their invested capital and their Series A Preferred Return. |
| Type of Fee |
Recipient, Description, and Amount |
| Development Fee |
The Parent will be entitled to a development fee equal to 1% of the amount raised in the Offering.
Estimate: The amount of the development fee depends on the amount the Company raises in the Offering. If the Company raises the maximum of $75,000,000, the total Development fee will be $750,000.
|
| Consulting Fee |
The Trust will be entitled to a consulting fee equal to 1% of the amount raised in the Offering.
Estimate: The amount of the license fee depends on the amount the Company raises in the Offering. If the Company raises the maximum of $75,000,000, the total consulting fee will be $750,000.
|
|
Management Fee
|
Oak Harbor will be entitled to an annual asset management fee equal to 1.75% of the aggregate capital raised by the Company, plus 50% of the amount that would otherwise be distributed to the owners of the Company’s Common Shares.
Estimate: The amount of the management fees depends on how much the Company raises in the Offering and how much is left to distribute to the owners of the Common Shares. If the Company raised $75,000,000 the asset management fee would be $1,312,500.
How much money is left to distribute to the owners of the Common Shares depends on many factors beyond our control. We are unable to provide a useful estimate at this time.
|
Directors and their affiliates might purchase Series A Preferred Stock. If so, they will be entitled to the same distributions as other Investors.
Investors – that is, holders of the Series A Preferred Stock – are entitled to receive a full return of their invested capital and the Series A Preferred Return before the holders of the Common Shares receive anything. But once Investors have received a full return of their invested capital and the full Series A Preferred Return, 50% of any money remaining will be paid to Oak Harbor as a management fee and the balance distributed to the holders of the Common Shares.
How much money the holders of the Common Shares ultimately receive depends on a number of factors, including:
| ● | How much capital is raised in the Offering; |
| ● | The investment returns the Company is able to achieve; |
| ● | When those returns are achieved (the Company might not achieve the same return every year); |
| ● | When the Company distributes money to Investors; and |
| ● | The amount of expenses the Company incurs. |
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No less than once per year, the Company will provide Investors with a detailed statement showing:
| ● | The fees paid to affiliates, including the Trust and Oak Harbor; and |
| ● | Any transactions between the Company and affiliates. |
In each case, the detailed statement will describe the services performed and the amount of compensation paid.
SALE AND DISTRIBUTION OF SECURITIES
In the Offering, we are offering up to $75,000,000 of our Series A Preferred Stock.
The Offering will begin as soon as our Offering Statement is “qualified” by the SEC and will end on the sooner of (i) a date determined by the Company, or (ii) the date the Offering is required to terminate by law.
Only the Company is selling securities in this Offering. None of our existing Stockholders is selling any securities.
There is no “minimum” in this Offering. Although we are trying to raise as much as $75,000,000, we will accept and deploy all the money we raise, no matter how little.
We are not using an underwriter or broker to sell the Series A Preferred Stock. Instead, we are selling Series A Preferred Stock only through our websites, located at www.skidrowahp.com and www.ahpfund.com, which we refer to together as the “Site.” We are not paying commissions to anybody for selling the Series A Preferred Stock.
We reserve the right to reject any subscription in whole or in part for any reason. If we reject your subscription, we will return all your money without interest or deduction.
After the Offering has been “qualified” by the SEC, we intend to advertise the Offering using the Site and through other means, including public advertisements and audio-visual materials, in each case only as we authorize. Although these materials will not contain information that conflicts with the information in this Offering Circular and will be prepared with a view to presenting a balanced discussion of risk and reward with respect to the Series A Preferred Stock, our advertising materials will not give a complete understanding of this Offering, the Company, or the Series A Preferred Stock and are not to be considered part of this Offering Circular. The Offering is made only by means of this Offering Circular and prospective Investors must read and rely on the information provided in this Offering Circular in connection with their decision to invest in the Series A Preferred Stock.
For instructions how to invest, see “How To Invest.”
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To buy Series A Preferred Stock, go to our Site, www.skidrowahp.com or www.ahpfund.com, and follow the instructions. We will ask for certain information about you, including:
| ● | Your name and address; |
| ● | Your social security number (for tax reporting purposes); |
| ● | Whether you are an “accredited investor”; and |
| ● | If you are not an accredited investor, your income and net worth. |
We will also ask you to sign our Investment Agreement, a copy of which is attached as Exhibit 1A-4.
You will pay for your Series A Preferred Stock using one of the options described on the Site.
The information you submit, including your signed Investment Agreement, is called your “subscription.” We will review your subscription and decide whether to accept it. We have the right to accept or reject subscriptions in our sole discretion, for any reason or for no reason. If we decide not to accept your subscription, we will return your money to you.
Once we have accepted your subscription, we will notify you by email and the investment process will be complete. We will also notify you by email if we do not accept your subscription, although we might not explain why.
We will not issue you a paper certificate representing your Series A Preferred Stock.
Anyone can buy our Series A Preferred Stock. We do not intend to limit investment to people with a certain income level or net worth.
The minimum investment is $5,000.
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We expect the Offering itself to cost about $85,000, including legal, accounting, and filing fees.
The following table illustrates how we expect to deploy the capital we raise in the Offering:
| If we Raise $25M | If we Raise $75M | |||||||
| Offering Expenses | $ | 85,000 | $ | 85,000 | ||||
| Purchase of Non-Performing Mortgage Loans | $ | 22,500,000 | $ | 67,500,00 | ||||
| Startup and Operating Expenses | $ | 100,000 | $ | 100,000 | ||||
| Working Capital | $ | 2,315,000 | $ | 7,315,000 | ||||
| $ | 25,000,000 | $ | 75,000,000 | |||||
These represent our best estimates as of the date of this Offering Circular and are subject to change.
We are not paying commissions to underwriters, brokers, or anybody else for selling or distributing the Series A Preferred Stock. Because we are not paying any commissions, more of your money can go to work for you.
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The Company is governed by an agreement captioned “Limited Liability Company Agreement” dated April 15, 2022, which we refer to as the “LLC Agreement.” The following summarizes some of the key provisions of the LLC Agreement. This summary is qualified in its entirety by the LLC Agreement itself, which is included as Exhibit 1A-2B.
The Company was formed in Delaware on December 17, 2021, pursuant to the Delaware Limited Liability Company Act.
As of the date of this Offering Circular, the only owner of the Company is American Homeowner Preservation, Inc., a Delaware corporation (“AHP”). When Investors buy Shares of Series A Preferred Stock in this Offering, they, too, will become owners.
Under Delaware law, the ownership interests in a limited liability company are called “limited liability company interests.” The LLC Agreement creates two kinds of limited liability company interests in the Company:
| ● | Common Shares |
| ● | Investor Shares |
The LLC Agreement authorizes the Company to issue up to 1,000,000 Common Shares and up to 19,000,000 Investor Shares.
The LLC Agreement also authorizes the Company to divide the Investor Shares into classes, by way of an authorizing resolution. Pursuant to the Authorizing Resolution dated April 15, 2022 (a copy of which is attached as Exhibit 1A-2C), the Company’s Board of Directors authorized the issuance of up to 15,000,000 shares of Series A Preferred Stock (the class of shares being offered in this Offering). The Series A Preferred Stock will be owned by Investors who purchase shares of Series A Preferred Stock in the Offering. Our directors, officers and employees (and their affiliates) might also acquire Series A Preferred Stock (on the same terms as other Investors).
The Series A Preferred Stock and the Common Shares have different rights to distributions, as described under “Distributions.” Otherwise, there are no differences between the Series A Preferred Stock and the Common Shares.
The Common Shares of the Company are and will continue to be owned by the Manager and its affiliates.
The LLC Agreement vests exclusive authority over the business and affairs of the Company in a three-person Board of Directors. At this time, the Board is composed of Jorge Newbery, Joanne Cordero, and Adam Henderson.
Mr. Newbery may be removed at any time, with or without cause, by the Parent. Ms. Cordero and Mr. Henderson may be removed at any time, with or without cause, by Oak Harbor. If Mr. Newbery resigns or is removed, the Parent will appoint a replacement. If Ms. Cordero or Mr. Henderson resigns or is removed, Oak Harbor will appoint a replacement.
The LLC Agreement authorizes the Board to appoint officers of the Company from time to time and give them such duties and responsibilities as the Board shall determine.
Investors do not have voting rights, except in connection with certain stockholder approvals required in connection with certain material amendments to the LLC Agreement. Among other things, this means that Investors will not have the right to elect Board members or officers, remove Board members or officers, or generally vote on or otherwise approve or reject any decisions or actions of the Company.
Exculpation, Limitation of Liability and Indemnification of Directors and Officers
The LLC Agreement protects the directors, officers and employees of the Company and their affiliates from lawsuits brought by Investors or other parties. For example, it provides that such persons will not be responsible to Investors or the Company for mistakes, errors in judgment, or other acts or omissions (failures to act) as long as the act or omission was not the result of fraud or willful misconduct by such persons. This limitation of liability is referred to as “exculpation.”
Further, the LLC Agreement provides that the directors, officers and employees of the Company do not owe any fiduciary duties to the Company or its stockholders, and that any fiduciary duties that may be implied by applicable law are expressly waived by the stockholders (including Investors) and the Company. This means that stockholders would generally be barred from bringing claims for breach of fiduciary duty, misappropriation of business opportunities, or similar claims alleging that the directors, officers and/or employees of the Company breached some duty or obligation to stockholders or the Company (but not claims based on a breach of the terms of the LLC Agreement or Authorizing Resolution).
The waiver of fiduciary duties and the exculpation provisions discussed above do not apply to claims made under the federal securities laws.
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The LLC Agreement also requires the Company to indemnify (reimburse) the directors, officers and employees of the Company and their affiliates from losses, liabilities, and expenses they incur in performing their duties, provided that they (i) acted in good faith and in a manner believed to be in, or not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful, and (ii) the challenged conduct did not constitute fraud or willful misconduct, in either case as determined by a final, non-appealable order of a court of competent jurisdiction. For example, if a third party sued the directors and officers of the Company on a matter related to the Company’s business, the Company would be required to indemnify the directors and officers for any losses or expenses they incur in connection with the lawsuit, including attorneys’ fees, judgments, etc. However, this indemnification is not available where a court or other juridical or governmental body determines that the person to be indemnified is not entitled to indemnification under the standard described in the preceding sentence.
Notwithstanding the foregoing, no exculpation or indemnification is permitted to the extent such exculpation or indemnification would be inconsistent with the requirements of federal or state securities laws or other applicable law.
The detailed rules for exculpation and indemnification are set forth in Section 6 of the LLC Agreement.
Obligation to Contribute Capital
Once an Investor pays for his, her, or its Series A Preferred Stock, he, she, or it will not be required to make any further contributions to the Company. However, if an Investor has wrongfully received a distribution, he, she, or it might have to pay back some or all of it.
No Investor will be personally liable for any of the debts or obligations of the Company.
If an Investor should die or become incapacitated, his, her or its successors will continue to own the Series A Preferred Stock.
If the Board wants to sell the business conducted by the Company, it may effect the transaction as a sale of the assets owned by the Company or as a sale of all the equity interests in the Company. In the latter case, Investors will be required to sell their Series A Preferred Stock as directed by the Board, receiving the same amount they would have received had the transaction been structured as a sale of assets.
Each year, the Company will provide Investors with (i) a statement showing in reasonable detail the computation of the amount distributed to the Investors, (ii) a balance sheet of the Company, (iii) a statement of the income and expenses of the Company, and (iv) information for Investors to prepare their tax returns. The balance sheet and statement of income and expenses do not have to be audited, at least for purposes of the LLC Agreement.
By law, the Company also will be required to provide investors with additional information, including annual audited financial statements, annual reports filed on SEC Form 1-K, semiannual reports filed on SEC Form 1-SA, special financial reports filed on SEC Form 1-K, and current reports on SEC Form 1-U. If the Series A Preferred Stock is held “of record” by fewer than 300 persons, these reporting obligations could be terminated.
An Investor’s right to see additional information or inspect the books and records of the Company is limited by the LLC Agreement.
All documents, including all tax-related documents, will be transmitted by the Company to Investors via electronic delivery.
The Board may amend the LLC Agreement unilaterally (that is, without the consent of anyone else) for a variety of purposes, including to:
| ● | Cure typographical errors, ambiguities or inconsistencies in the LLC Agreement; |
| ● | Add to its own obligations or responsibilities; |
| ● | Change the name of the Company; |
| ● | Ensure that the Company satisfies applicable laws, including tax and securities laws; or |
| ● | For other purposes the Board deems advisable. |
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However, the Board may not adopt any amendment that would reasonably be expected to have an adverse effect on the Company or its stockholders, without the consent of stockholders holding a majority of all issued and outstanding shares of the Company’s capital stock.
FEDERAL INCOME TAX CONSEQUENCES
The following summarizes some of the federal income tax consequences of acquiring our Series A Preferred Stock. This summary is based on the Internal Revenue Code (the “Code”), regulations issued by the Internal Revenue Service (“Regulations”), and administrative rulings and court decisions, all as they exist today. The tax laws, and therefore the federal income tax consequences of acquiring Series A Preferred Stock, could change in the future.
This is only a summary, applicable to a generic Investor. Your personal situation could differ. We encourage you to consult with your own tax advisor before investing.
Classification as a Partnership
The Company will be treated as a partnership for federal income tax purposes.
If the Company were treated as a corporation and not as a partnership for federal income tax consequences, any operating profit or gain on sale of assets would generally be subject to two levels of federal income taxation. By making the Company less profitable, this could reduce the economic return to Investors.
Federal Income Taxation of the Company and its Owners
As a partnership, the Company will not itself be subject to federal income taxes. Instead, each Investor will be required to report on his personal federal income tax return his distributive share of income, gains, losses, deductions and credits for the taxable year, whether or not actual distributions of cash or other property are made to him. Each Investor’s distributive share of such items will be determined in accordance with the LLC Agreement.
The Company is not expected to generate significant losses for federal income tax purposes. If it does generate losses, each Investor may deduct his allocable share subject to the basis limitations of Code section 704(d), the “at risk” rules of Code section 465, and the “passive activity loss” rules of Code section 469. Unused losses generally may be carried forward indefinitely. The use of tax losses generated by the Company against other income may not provide a material benefit to Investors who do not have other taxable income from passive activities.
Code section 704(d) limits an Investor’s loss to his tax “basis” in his Series A Preferred Stock. An Investor’s tax basis will initially equal his capital contribution (i.e., the purchase price for his Series A Preferred Stock). Thereafter, his basis generally will be increased by further capital contributions made by the Investor, his allocable share of the taxable and tax-exempt income of the Company, and his share of certain liabilities of the Company. His basis generally will be decreased by the amount of any distributions he receives, his allocable share of the losses and deductions of the Company, and any decrease in his share of liabilities.
20% Deduction for Pass-Through Entities
In general, the owners of a partnership, or an entity (like the Company) that is treated as a partnership for Federal income tax purposes, may deduct up to 20% of the amount of taxable income and gains allocated to them by the partnership, excluding certain items like interest and capital gains. However, the deduction claimed by any owner may not exceed the greater of:
| ● | The owner’s share of 50% of the wages paid by the partnership; or |
| ● | The sum of: |
| o | The owner’s share of 20% of the wages paid by the partnership; plus |
| o | The owner’s share of 2.5% of the cost of certain depreciable assets of the partnership. |
At least initially, the Company will not pay wages or own depreciable assets. Hence, Investors will not be entitled to any deduction under this provision.
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Limitations of Losses to Amounts at Risk
In the case of certain taxpayers, Code section 465 limits the deductibility of losses from certain activities to the amount the taxpayer has “at risk” in the activities. An Investor subject to these rules will not be permitted to deduct his allocable share of the losses of the Company to the extent the losses exceed the amount he is considered to have at risk. If an Investor’s at risk amount should fall below zero, he would generally be required to “recapture” such amount by reporting additional income.
An Investor generally will be considered at risk to the extent of his cash contribution (i.e., the purchase price for his Series A Preferred Stock), his basis in other contributed property, and his personal liability for repayments of borrowed amounts. His amount at risk will generally be increased by further contributions and his allocable share of the income of the Company, and decreased by distributions he receives and his allocable share of the losses of the Company. With respect to amounts borrowed for investment in the Company, an Investor will not be considered to be at risk even if he is personally liable for repayment if the borrowing was from a person who has certain interests in the Company other than an interest as a creditor. In all events, an Investor will not be treated as at risk to the extent his investment is protected against loss through guarantees, stop loss agreements, or other similar arrangements.
Limitations on Losses From Passive Activities
In the case of certain taxpayers, Code section 469 generally provides for a disallowance of any loss attributable to “passive activities” to the extent the aggregate losses from all such passive activities exceed the aggregate income of the taxpayer from such passive activities. Losses that are disallowed under these rules for a given tax year may be carried forward to future years to be offset against passive activity income in such future years. Furthermore, upon the disposition of a taxpayer’s entire interest in any passive activity, if all gain or loss realized on such disposition is recognized, and such disposition is not to a related party, any loss from such activity which was not previously allowed as a deduction and any loss from the activity for the current year is allowable as a deduction in such year, first against income or gain from the passive activity for the taxable year of disposition, including any gain recognized on the disposition, next against net income or gain for the taxable year from all passive activities, and, finally, against any other income or gain.
The Company will be treated as a passive activity to Investors. Hence, Investors generally will not be permitted to deduct their losses from the Company except to the extent they have income from other passive activities. Similarly, tax credits arising from passive activity will be available only to offset tax from passive activity. However, all such losses, to the extent previously disallowed, will generally be deductible in the year an Investor disposes of his entire interest in the Company in a taxable transaction.
An Investor who is an individual may deduct only $3,000 of net capital losses every year (that is, capital losses that exceed capital gains). Net capital losses in excess of $3,000 per year may generally be carried forward indefinitely.
Limitation on Investment Interest
Interest that is characterized as “investment interest” generally may be deducted only against investment income. Investment interests would include, for example, interest paid by an Investor on a loan that was incurred to purchase Series A Preferred Stock and interest paid by the Company to finance investments, while investment income would include dividends and interest but would not generally include long term capital gain. Thus, it is possible that an Investor would not be entitled to deduct all of his or her investment interest. Any investment interest that could not be deducted may generally be carried forward indefinitely.
If the Company borrows money or otherwise incurs indebtedness, the amount of the liability will be allocated among all of the owners of the Company (including Investors) in the manner prescribed by the Regulations. In general (but not for purposes of the “at risk” rules) each owner will be treated as having contributed cash to the Company equal to his allocable share of all such liabilities. Conversely, when an owner’s share of the Company’s liabilities is decreased (for example, if the Company repays loans or an owner disposes of Series A Preferred Stock) then such owner will be treated as having received a distribution of cash equal to the amount of such decrease.
Allocations of Profits and Losses
The profits and losses of the Company will be allocated among all of the owners of the Company (including the Investors) by the Board pursuant to the rules set forth in the LLC Agreement. In general, the Board will seek to allocate such profits and losses in a manner that corresponds with the distributions each owner is entitled to receive, i.e., so that tax allocations follow cash distributions. Such allocations will be respected by the IRS if they have “substantial economic effect” within the meaning of Code section 704(b). If they do not, the IRS could re-allocate items of income and loss among the owners.
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Sale or Exchange of Series A Preferred Stock
In general, the sale of Series A Preferred Stock by an Investor will be treated as a sale of a capital asset. The amount of gain from such a sale will generally be equal to the difference between the selling price and the Investor’s basis. Such gain will generally be eligible for favorable long-term capital gain treatment if the Series A Preferred Stock were held for at least 12 months. However, to the extent any of the sale proceeds are attributable to substantially appreciated inventory items or unrealized receivables, as defined in Code section 751, the Investor will recognize ordinary income.
If, as a result of a sale of Series A Preferred Stock, an Investor’s share of the liabilities of the Company is reduced, such Investor could recognize a tax liability greater than the amount of cash received in the sale.
Code section 6050K requires any Investor who transfers Series A Preferred Stock at a time when the Company has unrealized receivables or substantially appreciated inventory items to report such transfer to the Company. If so notified, the Company must report the identity of the transferor and transferee to the IRS, together with such other information described in the Regulations. Failure by an Investor to report a transfer covered by this provision may result in penalties.
A gift of Series A Preferred Stock will be taxable if the donor-owner’s share of the Company debt is greater than his adjusted basis in the gifted interest. The gift could also give rise to federal gift tax liability. If the gift is made as a charitable contribution, the donor-owner is likely to realize gain greater than would be realized with respect to a non-charitable gift, since in general the owner will not be able to offset the entire amount of his adjusted basis in the donated Series A Preferred Stock against the amount considered to be realized as a result of the gift (i.e., the debt of the Company).
Transfer of Series A Preferred Stock by reason of death would not in general be a taxable event, although it is possible that the IRS would treat such a transfer as taxable where the decedent-owner’s share of debt exceeds the pre-death basis of his interest. The decedent-owner’s transferee will take a basis in the Series A Preferred Stock equal to its fair market value at death (or, in certain circumstances, on the date six (6) months after death), increased by the transferee’s share of debt. For this purpose, the fair market value will not include the decedent’s share of taxable income to the extent attributable to the pre-death portion of the taxable year.
Upon the receipt of any distribution of cash or other property, including a distribution in liquidation of the Company, an Investor generally will recognize income only to the extent that the amount of cash and marketable securities he receives exceed the basis of his Series A Preferred Stock. Any such gain generally will be considered as gain from the sale of his Series A Preferred Stock.
The Code imposes an alternative minimum tax on individuals and corporations. Certain items of the Company’s income and loss may be required to be taken into account in determining the alternative minimum tax liability of Investors.
The Company will report its income and losses using the calendar year. In general, each Investor will report his, her or its share of the Company’s income and losses for the taxable year of such Investor that includes December 31st, i.e., the calendar year for individuals and other owners using the calendar year.
The Company may, but is not required to, make an election under Code section 754 on the sale of Series A Preferred Stock or the death of an Investor. The result of such an election is to increase or decrease the tax basis of the assets of the Company for purposes of allocations made to the buyer or beneficiary which would, in turn, affect depreciation deductions and gain or loss on sale, among other items.
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Unrelated Business Taxable Income for Tax-Exempt Investors
A church, charity, pension fund, or other entity that is otherwise exempt from federal income tax must nevertheless pay tax on “unrelated business taxable income.” In general, interest and gains from the sale of property (other than inventory) are not treated as unrelated business taxable income. However, interest and gains from property that was acquired in whole or in part with the proceeds of indebtedness may be treated as unrelated business taxable income. Because the Company might borrow money to buy loans or other assets, some of the income of the Company could be subject to tax in the hands of tax-exempt entities.
Tax Returns and Tax Information; Audits; Penalties; Interest
The Company will furnish each Investor with the information needed to be included in his federal income tax returns. Each Investor is personally responsible for preparing and filing all personal tax returns that may be required as a result of his purchase of Series A Preferred Stock. The tax returns of the Company will be prepared by accountants selected by the Company.
If the tax returns of the Company are audited, it is possible that substantial legal and accounting fees will have to be paid to substantiate our position and such fees would reduce the cash otherwise distributable to Investors. Such an audit may also result in adjustments to our tax returns, which adjustments, in turn, would require an adjustment to each Investor’s personal tax returns. An audit of our tax returns may also result in an audit of non-Company items on each Investor’s personal tax returns, which in turn could result in adjustments to such items. The Company is not obligated to contest adjustments proposed by the IRS.
Each Investor must either report Company items on his tax return consistent with the treatment on the information return of the Company or file a statement with his tax return identifying and explaining the inconsistency. Otherwise the IRS may treat such inconsistency as a computational error and re-compute and assess the tax without the usual procedural protections applicable to federal income tax deficiency proceedings.
The Board will serve as the “tax matters partner” of the Company and will generally control all proceedings with the IRS.
The Code imposes interest and a variety of potential penalties on underpayments of tax.
The foregoing discussion addresses only selected issues involving federal income taxes, and does not address the impact of other taxes on an investment in the Company, including federal estate, gift, or generation-skipping taxes, or State and local income or inheritance taxes. Prospective Investors should consult their own tax advisors with respect to such matters.
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The Company was created on December 17, 2021. The Company has conducted only limited business activities relating to its formation and therefore has no operating results.
Liquidity and Capital Resources
The Company is seeking to raise up to $75,000,000 of capital in this Offering by selling Series A Preferred Stock to Investors.
To provide more “liquidity” – meaning cash – we might borrow money from banks or other lenders, secured by Mortgage Loans and other property owned by the Company.
The Company does not currently have any capital commitments. We expect to deploy the capital we raise in this Offering as described in “Estimated Use of Proceeds.” Should we need more capital for any reason, we could either sell more Series A Preferred Stock or sell other classes of securities. In selling Series A Preferred Stock or other securities, we might be constrained by the securities laws. For example, we are not allowed to sell more than $75,000,000 of securities using Regulation A during any period of 12 months.
Having raised capital in the Offering, the Company intends to operate in the manner described in “Our Company and Business.”
Whether we raise $75,000,000 in the Offering or less, we believe we have access to sufficient capital resources to begin buying Mortgage Loans. If we raise less than $75,000,000, we will buy fewer Mortgage Loans. In the Company’s opinion, the proceeds of the Offering will satisfy the Company’s cash requirements and the Company does not believe it will be necessary to raise additional funds in the next six months to implement its plan of operations.
Because the Company is a new business, management has not identified any significant recent trends in the Company’s performance. As of the date of this Offering Circular, management is not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the Company’s net sales or revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause the Company’s reported financial information not necessarily to be indicative of future operating results or financial condition, other than the COVID-19 pandemic and other factors described in “Risks of Investing.”
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DIRECTORS, OFFICERS, AND SIGNIFICANT EMPLOYEES
| Name | Age | Positions | Term of Office | Approximate House Per Week if Not Full Time* | ||||||||||
| Jorge P. Newbery | 56 | Director and CEO | Indefinite | Five Hours | ||||||||||
| Joanne Cordero | 54 | Director | Indefinite | One Hour | ||||||||||
| Adam Henderson | 50 | Director | Indefinite | One Hour | ||||||||||
| * | This column represents the individual’s anticipated work schedule solely on behalf of the Company. |
Jorge P. Newbery
Director
Mr. Newbery founded American Homeowner Preservation, LLC, or “AHP,” in 2008 as a nonprofit organization with a mission of keeping families at risk of foreclosure in their homes. In 2009, AHP transitioned to a for-profit entity, but AHP and the Company continue to operate with a dual purpose: to earn returns for Investors while seeking consensual solutions to help struggling homeowners keep their homes.
Mr. Newbery brings a wealth of real estate and mortgage experience to his role. Mr. Newbery was the President of Budget Real Estate Inc. from 1995 to 2008, where he brokered over 1,000 troubled Department of Housing and Urban Development and real estate owned properties and acquired, renovated and operated over 200 distressed multi-family, single-family and commercial properties.
By 2004, Mr. Newbery owned more than 4,000 apartment units nationwide. Then financial disaster struck in the form of an ice storm on Christmas Eve 2004 which devastated Mr. Newbery’s largest holding, the 1,100 unit Woodland Meadows complex in Columbus, Ohio. Mr. Newbery wound up in extended litigation with the insurer. Although the insurer eventually settled for $32 million, the settlement was too little, too late. Mr. Newbery lost everything and emerged $26 million in debt. The lessons learned from this experience formed the foundation for the establishment of AHP.
From 1992 to 1995, Mr. Newbery co-founded and operated Sunset Mortgage, which specialized in obtaining loans for homeowners faced with challenging credit hurdles.
Joanne Cordero
Director
Ms. Cordero is currently the chief of staff for the Skid Row Housing Trust, a position she’s held since 2021. Joanne has over 30 years of experience within financial and real estate services sectors, mortgage lending and financial non-profits. Prior to joining the Skid Row Housing Trust, Joanne served as COO of a non-profit, industry leading financial education and services provider which is also a HUD-approved housing counseling agency. Among her corporate services and operational leadership responsibilities, she also co-led efforts in the execution and ongoing management to develop, deploy and maintain the Central Processing Center California’s Keep Your Home California $2B mortgage assistance program under the U.S. Treasury’s Hardest Hit Program. She has also been a Board member of Laura’s House, a shelter and services organization for victims and families of domestic abuse and the President of a local chapter of the National Charity League, providing community-philanthropic services.
Adam Henderson
Director
Mr. Henderson is an independent professional administrator for certain of the fund vehicles managed by Oak Harbor in the United States, as well as for one fund vehicle formed as an exempted company in the Cayman Islands, all of which are focused on investing in the same asset classes as the Company. Adam has a strong background in technology, software, and program management, including having worked for Microsoft in Seattle, with over 20 years of experience in the technology and software industry. Mr. Henderson holds a Bachelor of Arts degree, cum laude, in International Business from Seattle University.
There are no family relationships among the directors, executive officers, and significant employees of the Company.
Ownership of and Employment by Related Entities
Mr. Newbery controls AHP Servicing. Ms. Cordero is employed by the Skid Row Housing Trust. Mr. Henderson performs services on behalf of, but is not employed by, Oak Harbor.
Within the last five years, no director, executive officer, or significant employee of the Company has been convicted of, or pleaded guilty or no contest to, any criminal matter, excluding traffic violations and other minor offenses.
Within the last five years, no director, executive officer, or significant employee of the Company, no partnership of which a director, executive officer or significant employee was a general partner, and no corporation or other business association of which a director, executive officer or significant employee was an executive officer, has been a debtor in bankruptcy or any similar proceedings.
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COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Directors are not entitled to receive compensation from the Company, nor does the Company have employees to whom it pays compensation. Instead, the individuals who perform services on behalf of the Company are employed mainly by AHP Servicing and by Oak Harbor, and receive compensation from those companies.
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OWNERSHIP OF SECURITIES BY INSIDERS
As of the date of this Offering Circular, the Company has only one class of securities outstanding: Common Shares. The Common Shares are owned as follows:
Common Shares
| Name of Owner | Number of Shares Owned | Percent of Class Owned | ||
| American Homeowner Preservation, Inc. | 1,000,000 | 100% |
NOTE: Holders of the Company’s Common Shares do not have the right to vote. Under the LLC Agreement, management of the Company is vested in the Board of Directors. Directors are not appointed or elected by the holders of the Common Shares as such.
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INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
The Company has entered into the following transactions with related parties:
| ● | The Company has entered into the Servicing Agreement with AHP Servicing. |
| ● | The Company has entered into the MSA with Oak Harbor. |
| ● | The Company has entered into the Consulting Services Agreement with Restora. |
If the Company enters into transactions with related parties in the future, we will file a Supplement to the Offering Circular. Any compensation paid by the Company to a related party shall be (i) fair to the Company, and (ii) consistent with the transaction that would be paid to an unrelated party.
By “related party” we mean:
| ● | Any Director, executive officer, or significant employee of the Company or the Manager; |
| ● | Any person who has been nominated as a Director; |
| ● | Any person who owns more than 10% of the voting power of the Company; and |
| ● | An immediate family member of any of the foregoing. |
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SKID ROW AHP LLC
FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S OPINION
DECEMBER 31, 2021
To the Members of
Skid Row AHP LLC
Newark, Delaware
INDEPENDENT AUDITOR’S REPORT
Opinion
We have audited the accompanying financial statements of Skid Row AHP LLC (the “Company”), which comprise the balance sheet as of December 31, 2021, and the related statements of operations, changes in members’ deficit, and cash flows for the period from December 17, 2021 (inception) to December 31, 2021, and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the period from December 17, 2021 (inception) to December 31, 2021 in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Substantial Doubt About the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the financial statements, the Company has not yet commenced planning principal operations, has not yet generated revenues or profits, and plans to incur significant costs in pursuit of its capital financing plans. These factors, among others, raise substantial doubt about the Company’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.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.
Artesian CPA, LLC
1624 Market Street, Suite 202 | Denver, CO 80202
p: 877.968.3330 f: 720.634.0905
[email protected] | www.ArtesianCPA.com
F-1
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted auditing standards, we:
| · | Exercise professional judgment and maintain professional skepticism throughout the audit. |
| · | Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
| · | Obtain an understanding of internal control relevant to the audit 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 Company’s internal control. Accordingly, no such opinion is expressed. |
| · | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. |
| · | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
/s/ Artesian CPA, LLC
Denver, Colorado
April 12, 2022
Artesian CPA, LLC
1624 Market Street, Suite 202 | Denver, CO 80202
p: 877.968.3330 f: 720.634.0905
[email protected] | www.ArtesianCPA.com
F-2
SKID ROW AHP LLC
BALANCE SHEET
AS OF DECEMBER 31, 2021
| December 31, | ||||
| 2021 | ||||
| ASSETS | ||||
| Current assets: | ||||
| Cash and cash equivalents | $ | - | ||
| Total assets | $ | - | ||
| LIABILITIES AND MEMBERS’ DEIFICIT | ||||
| Current liabilities: | ||||
| Accounts payable | $ | 415 | ||
| Total liabilities | 415 | |||
| Members’ deficit | (415 | ) | ||
| Total liabilities and members’ deficit | $ | - | ||
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
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SKID ROW AHP LLC
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 17, 2021 (INCEPTION) TO DECEMBER 31, 2021
| For the Period | ||||
| December 17, 2021 | ||||
| (date of inception) | ||||
| through | ||||
| December 31, | ||||
| 2021 | ||||
| Revenues | $ | - | ||
| Operating expenses: | ||||
| General and administrative | 415 | |||
| Total operating expenses | 415 | |||
| Net loss | $ | (415 | ) | |
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
F-4
SKID ROW AHP LLC
STATEMENT OF CHANGES IN MEMBERS’ DEFICIT
FOR THE PERIOD FROM DECEMBER 17, 2021 (INCEPTION) TO DECEMBER 31, 2021
Total | ||||
| Balance at December 17, 2021 (inception) | $ | - | ||
| Net loss | (415 | ) | ||
| Balance at December 31, 2021 | $ | (415 | ) | |
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
F-5
SKID ROW AHP LLC
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 17, 2021 (INCEPTION) TO DECEMBER 31, 2021
| For the Period December 17, 2021 (date of inception) through December 31, 2021 | ||||
| Cash flows from operating activities: | ||||
| Net loss | $ | (415 | ) | |
| Changes in operating assets and liabilities: | ||||
| Accounts payable | 415 | |||
| Net cash used in operating activities | - | |||
| Net change in cash and cash equivalents | - | |||
| Cash and cash equivalents at beginning of period | - | |||
| Cash and cash equivalents at end of period | $ | - | ||
| Supplemental disclosure of cash flow information: | ||||
| Cash paid for income taxes | $ | - | ||
| Cash paid for interest | $ | - | ||
See Independent Auditor’s Report and accompanying notes, which are an integral part of these financial statements.
F-6
SKID ROW AHP LLC
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021 AND FOR THE PERIOD FROM DECEMBER 17, 2021 (INCEPTION) TO DECEMBER 31, 2021
NOTE 1: NATURE OF OPERATIONS
Skid Row AHP, LLC (the “Company”) is a Delaware limited liability company formed on December 17, 2021 under the laws of Delaware. The Company will focus on purchasing and selling non-performing or under-performing mortgage loans (“Mortgage Loans”). The Company is headquartered in Chicago, Illinois.
As of December 31, 2021 the Company has not yet commenced operations. Once the Company commences its planned principal operations, it will incur significant additional expenses. The Company 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 commence the Company’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 Company conform to accounting principles generally accepted in the United States of America (GAAP). The Company has adopted a calendar year as its fiscal year.
Use of Estimates
The preparation of the financial statements in conformity with US 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 significantly from those estimates.
Cash Equivalents and Concentration of Cash Balance
The Company considers all highly liquid securities with an original maturity of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits.
Deferred Offering Costs
The Company complies with the requirements of FASB ASC 340-10-S99-1 with regards to offering costs. Prior to the completion of an offering, offering costs are capitalized. The deferred offering costs are charged to members’ deficit upon the completion of an offering or to expense if the offering is not completed.
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.
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SKID ROW AHP LLC
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021 AND FOR THE PERIOD FROM DECEMBER 17, 2021 (INCEPTION) TO DECEMBER 31, 2021
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 sheet approximate their fair value.
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.
Revenue Recognition
The Company adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”) upon inception. The Company determines revenue recognition through the following steps:
| ● | Identification of a contract with a customer; |
| ● | Identification of the performance obligations in the contract; |
| ● | Determination of the transaction price; |
| ● | Allocation of the transaction price to the performance obligations in the contract; and |
| ● | Recognition of revenue when or as the performance obligations are satisfied. |
Revenue is recognized when performance obligations are satisfied through the transfer of control of promised services to the Company’s customers in an amount that reflects the consideration expected to be received in exchange for transferring goods or services to customers. Control transfers once a customer has the ability to direct the use of, and obtain substantially all of the benefits from, the product. This includes the transfer of legal title, physical possession, the risks and rewards of ownership, and customer acceptance. To date, no revenue has been generated.
Income Taxes
The Company is a limited liability company. Accordingly, under the Internal Revenue Code, all taxable income or loss flows through to its members. Therefore, no provision for income tax has been recorded in the financial statements. Income from the Company is reported and taxed to the members on their individual tax returns.
The Company complies with FASB ASC 740 for accounting for uncertainty in income taxes recognized in a company’s financial statement, 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 Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. The Company believes that its income tax positions would be sustained on audit and does not anticipate any adjustments that would result in a material change to its financial position.
The Company may in the future become subject to federal, state and local income taxation though it has not been since its inception. The Company is not presently subject to any income tax audit in any taxing jurisdiction.
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SKID ROW AHP LLC
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021 AND FOR THE PERIOD FROM DECEMBER 17, 2021 (INCEPTION) TO DECEMBER 31, 2021
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 Company is a business that has not commenced planned principal operations, plans to incur significant costs in pursuit of its capital financing plans, and has incurred a net loss of $415 for the period ended December 31, 2021. These factors, among others, raise substantial doubt about the ability of the Company to continue as a going concern for a reasonable period of time. The Company’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 Company will be successful in these efforts. The balance sheet does 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 Company be unable to continue as a going concern.
NOTE 4: MEMBERS’ DEFICIT
The Company is managed by a three member board of directors (the “Manager”). The Manager shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters, to execute any contracts or other instruments on behalf of the Company, and to perform any and all other acts or activities customary or incidental to the management of the Company’s business. The following terms were adopted in 2022, as discussed in Note 6.
The limited liability company interests of the Company are denominated by 20,000,000 shares, consisting of 1,000,000 common shares and 19,000,000 investor shares. American Homeowner Preservation, Inc. (a related party controlled by one of the Company’s directors) owns all of the common shares. Holders of investor shares do not have the right to vote.
The Manager shall not be required to contribute any capital to the Company in its capacity as the owners of common shares. Each investor member will contribute to the capital of the Company the amount specified in his, her, or its investment agreement.
The Manager have the authority to divide the investor shares into one or more classes by adopting one or more authorizing resolutions. The Manager may establish, with respect to each class of investor shares, its voting powers, conversion rights or obligations, redemption rights or obligations, preferences as to distributions, and other matters.
The Board may, in its sole discretion, make and pay distributions of cash or other assets of the Company to the Members from time to time. There is no guarantee that the Company will be able to make any distributions, even to return capital to investors.
Except as otherwise provided in the Company’s operating agreement or in an authorizing resolution establishing a class of investor shares (i) any distributions of the Company not expressly payable to the holders of a class of investor shares shall be payable to the holders of the common shares, (ii) any distributions made to the holders of any class of investor shares as a group shall be divided pro rata among such holders based on their respective ownership of the shares of such class, and (iii) no member shall have any right to distributions except as may be authorized by the Board.
F-9
SKID ROW AHP LLC
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2021 AND FOR THE PERIOD FROM DECEMBER 17, 2021 (INCEPTION) TO DECEMBER 31, 2021
As discussed in Note 6, in 2022 the Company adopted an authorizing resolution designing 15,000,000 investor shares as Series A Preferred Stock. The authorizing resolution establishes a 7% preferred return on Series A Preferred Stock and establishing a distribution priority of: A) 7% preferred return to holders of Series A Preferred Stock, compounded on unreturned investments; B) unreturned investment on Series A Preferred stock; C) all remaining assets distributed to the holder of the Company’s common shares. Holders of Series A Preferred Stock are entitled to certain early redemption options established in the authorizing resolutions, which are subject to the discretion of the Company’s Manager. Series A Preferred Stock do not have voting rights.
The debts, obligations, and liabilities of the Company, whether arising in contract, tort, or otherwise, are solely the debts, obligations, and liabilities of the Company, and no member of the Company is obligated personally for any such debt, obligation, or liability.
NOTE 5: RECENT ACCOUNTING PRONOUNCEMENTS
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU supersedes the previous revenue recognition requirements in ASC Topic 605—Revenue Recognition and most industry-specific guidance throughout the ASC. The core principle within this ASU is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration expected to be received for those goods or services. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers, which deferred the effective date for ASU 2014-09 by one year to fiscal years beginning after December 15, 2017, while providing the option to early adopt for fiscal years beginning after December 15, 2016. Transition methods under ASU 2014-09 must be through either (i) retrospective application to each prior reporting period presented, or (ii) retrospective application with a cumulative effect adjustment at the date of initial application. The Company adopted this new standard effective at its inception date.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires a lessee to recognize a right-of-use asset and a lease liability under most operating leases in its balance sheet. The ASU is effective for annual and interim periods beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. We are continuing to evaluate the impact of this new standard on our financial reporting and disclosures.
Management does not believe that any other recently issued, but not yet effective, accounting standards could have a material effect on the accompanying financial statement. As new accounting pronouncements are issued, we will adopt those that are applicable under the circumstances.
NOTE 6: SUBSEQUENT EVENTS
In 2022, the Company adopted its operating agreement and an authorizing resolution creating and establishing rights and preferences on its Series A Preferred Stock. See discussions of such in Note 4.
In May 2022, the Company entered into a management services agreement with Oak Harbor Capital, LLC (“Oak Harbor”), whereby Oak Harbor will provide management services with respect the Company’s’ mortgage loan assets. The Company will incur a management fee owed to Oak Harbor equaling 1.75% per annum of the capital raised by the Company, payable on a monthly basis, plus 50% of all the residual profits of the Company.
In 2022, the Company entered into an informal agreement with American Homeowner Preservation, Inc., a related party, entitling American Homeowner Preservation, Inc. to a development fee equal to 1% of the amount raised in its equity offering.
Management has evaluated all subsequent events through April 12, 2022, the date the financial statements were available to be issued. There are no additional material events requiring disclosure or adjustment to the financial statements.
F-10
| AHP | American Homeowner Preservation LLC, a Delaware limited liability company. |
| AHP Servicing | AHP Servicing, LLC, a Delaware limited liability company. |
| Authorizing Resolution | The Authorizing Resolution dated April 15, 2022, establishing the Series A Preferred Stock. |
| Code | The Internal Revenue Code of 1986, as amended (i.e., the federal tax code). |
| Common Shares | The Common Shares authorized by the LLC Agreement. |
| Company | Skid Row AHP, LLC a Delaware limited liability company. |
| Consulting Services Agreement | The Consulting Servicing Agreement between the Company and Restora dated April 28, 2022. |
| Investor | Anyone who purchases Series A Preferred Stock in the Offering. |
| LLC Agreement | The agreement by and among the Company and all of its members captioned “Limited Liability Company Agreement” and dated April 15, 2022. |
| Mortgage Loans | Loans secured by a mortgage on residential real estate. |
| MSA | The Management Services Agreement between the Company and Oak Harbor. |
| Non-Public Program | The offerings of securities by Series 2013C, Series 2013D, Series 2014A, and Series 2014B of American Homeowner Preservation, LLC. |
| Offering | The offering of Series A Preferred Stock to the public, pursuant to this Offering Circular. |
| Offering Circular | The Offering Circular you are reading right now, which includes information about the Company, the Company, and the Offering. |
| Oak Harbor | Oak Harbor Capital, LLC. |
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| Preferred Stock | The Company’s Preferred Stock. |
| Program | Offerings conducted by an affiliate of the Company for the purpose of investing in Mortgage Loans. |
| Public Programs | The offering of securities by American Homeowner Preservation 2015A+, LLC, AHP Servicing, LLC, and AHP Title Holdings LLC. |
| Regulations | Regulations issued under the Code by the Internal Revenue Service. |
| Restora | Restora, LLC, a Delaware limited liability company that is majority-owned by the Skid Row Housing Trust. |
| Servicing Agreement | The agreement between the Company and AHP Servicing captioned “Residential Mortgage Special Servicing Agreement.” |
| Series A Preferred Return | A compounded annual return of 7% on the balance of each Investor’s unreturned investment. |
| Series A Preferred Stock | The interests in the Company that are being offered to the public in the Offering. |
| Site | The websites located at www.skidrowahp.com and www.ahpfund.com. |
| Shares | The limited liability company interests of the Company. |
| Trust | American Homeowner Preservation Trust, a Delaware Statutory Trust. |
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FORM 1-A
Regulation A Offering Statement
Part III – Exhibits
Skid Row AHP LLC
440 S. LaSalle Street, Suite 1110
Chicago, Illinois 60605
(866) AHP-TEAM
www.skidrowahp.com
July 11, 2022
The following Exhibits are filed as part of this Offering Statement:
| Exhibit 1A-2A | Certificate of Formation of the Company filed with the Delaware Secretary of State on December 17, 2021. |
| Exhibit 1A-2B | Limited Liability Company. |
| Exhibit 1A-2C | Authorizing Resolution. |
| Exhibit 1A-4 | Form of Investment Agreement. |
| Exhibit 1A-6A | Servicing Agreement. |
| Exhibit 1A-6B | Management Services Agreement. |
| Exhibit 1A-6C | Amended and Restated Trust Agreement dated October 29, 2014. |
| Exhibit 1A-6D | Amendment No. 1 to Amended and Restated Trust Agreement. |
| Exhibit 1A-6E | Consulting Services Agreement. |
| Exhibit 1A-11 | Consent of Independent Auditor. |
| Exhibit 1A-12 | Legal opinion of Lex Nova Law LLC. |
| Exhibit 1A-15.1 | Letter to Commission dated July 11, 2022. |
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SIGNATURES
Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on July 11, 2022.
| SKID ROW AHP LLC | ||
| By | /s/ Jorge P. Newbery | |
| Jorge P. Newbery, CEO | ||
This offering statement has been signed by the following persons in the capacities and on the dates indicated.
| /s/ Jorge P. Newbery | July 11, 2022 | |
| Jorge P. Newbery, Director, CEO, and CFO | ||
| /s/ Adam Henderson | July 11, 2022 | |
| Adam Henderson, Director |
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Exhibit 1a-2a
Exhibit 1a-2b
Skid Row AHP LLC
LIMITED LIABILITY COMPANY AGREEMENT
This is an Agreement, entered into effective on April 15, 2022, by and among Skid Row AHP LLC, a Delaware limited liability company (the “Company”), American Homeowner Preservation, Inc., a Delaware corporation (“AHP”) and the persons who acquire Investor Shares, which may include AHP and its affiliates (“Investor Members”). AHP and the Investor Members are sometimes referred to in this Agreement as the “Members.”
Background
The Members own all of the limited liability company interests of the Company and wish to set forth their understandings concerning the ownership and operation of the Company in this Agreement, which they intend to be the “limited liability company agreement” of the Company within the meaning of 6 Del. C. §18-101(7).
NOW, THEREFORE, acknowledging the receipt of adequate consideration and intending to be legally bound, the parties agree as follows:
1. ARTICLE ONE: CONTINUATION OF LIMITED LIABILITY COMPANY
1.1. Continuation of Limited Liability Company. The Company has been formed in accordance with and pursuant to the Delaware Limited Liability Company Act (the “Act”) for the purpose set for the below. The rights and obligations of the Members to one another and to third parties shall be governed by the Act except that, in accordance with 6 Del. C. 18-1101(b), conflicts between provisions of the Act and provisions in this Agreement shall be resolved in favor of the provisions in this Agreement except where the provisions of the Act may not be varied by contract as a matter of law.
1.2. Name. The name of the Company shall be “Skid Row AHP LLC” and all of its business shall be conducted under that name or such other name(s) as may be designated by the Board.
1.3. Purpose. The purpose of the Company shall be (i) as set forth in the Offering Circular of the Company originally dated April 15, 2022, as amended and supplemented from time to time (the “Offering Circular”), and (ii) to engage in any business in which limited liability companies may lawfully engage under the Act. In carrying on its business, the Company may enter into contracts, incur indebtedness, sell, lease, or encumber any or all of its property, engage the services of others, enter into joint ventures, and take any other actions the Board deems advisable.
1.4. Fiscal Year. The fiscal and taxable year of the Company shall be the calendar year, or such other period as the Board determines.
2. ARTICLE TWO: CONTRIBUTIONS AND LOANS
2.1. Initial Contributions. AHP shall not be required to contribute any capital to the Company in its capacity as the owner of Common Shares. Each Investor Member will contribute to the capital of the Company the amount specified in his, her, or its Investment Agreement. The capital contributions of Members are referred to in this Agreement as “Capital Contributions.”
2.2. Other Required Contributions. No Member shall be obligated to contribute any capital to the Company beyond the Capital Contributions described in section 2.1. Without limitation, no such Member shall, upon dissolution of the Company or otherwise, be required to restore any deficit in such Member’s capital account.
2.3. Loans.
2.3.1. In General. The Directors or their affiliates may, but shall not be required to, lend money to the Company in the Board’s sole discretion. No other Member may lend money to the Company without the prior written consent of the Board. Subject to applicable state laws regarding maximum allowable rates of interest, loans made by any Member or Director to the Company (“Member Loans”) shall bear interest at the higher of (i) the prime rate of interest designated in the Wall Street Journal on any date within ten (10) days of the date of the loan, plus four (4) percentage points; or (ii) the minimum rate necessary to avoid “imputed interest” under section 7872 or other applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”). Such loans shall be payable on demand and shall be evidenced by one or more promissory notes.
2.3.2. Repayment of Loans. After payment of (i) current and past-due debt service on liabilities of the Company other than Member Loans, and (ii) all operating expenses of the Company, the Company shall pay the current and past-due debt service on any outstanding Member Loans before distributing any amount to any Member pursuant to Article Four. Such loans shall be repaid pro rata, paying all past-due interest first, then all past-due principal, then all current interest, and then all current principal.
2.4. Other Provisions on Capital Contributions. Except as otherwise provided in this Agreement or by law:
2.4.1. No Member shall be required to contribute any additional capital to the Company;
2.4.2. No Member may withdraw any part of his, her, or its capital from the Company;
2.4.3. No Member shall be required to make any loans to the Company;
2.4.4. Loans by a Member to the Company shall not be considered a contribution of capital, shall not increase the capital account of the lending Member, and shall not result in the adjustment of the number of Shares owned by a Member, and the repayment of such loans by the Company shall not decrease the capital accounts of the Members making the loans;
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2.4.5. No interest shall be paid on any initial or additional capital contributed to the Company by any Member;
2.4.6. Under any circumstance requiring a return of all or any portion of a capital contribution, no Member shall have the right to receive property other than cash; and
2.4.7. No Member shall be liable to any other Member for the return of his, her, or its capital.
2.5. No Third Party Beneficiaries. Any obligation or right of the Members to contribute capital under the terms of this Agreement does not confer any rights or benefits to or upon any person who is not a party to this Agreement.
3. ARTICLE THREE: SHARES AND CAPITAL ACCOUNTS
3.1. Limited Liability Company Interests. The limited liability company interests of the Company shall be denominated by Twenty Million (20,000,000) “Shares,” consisting of One Million (1,000,000) “Common Shares” and Nineteen Million (19,000,000) “Investor Shares.” AHP owns all of the Common Shares.
3.2. Classes of Investor Shares. The Board may divide the Investor Shares into one or more classes. The number of Shares of each such class of Investor Shares, and the rights and preferences of each such class, shall be as set forth in the resolution or resolutions of the Board creating such class, referencing this section 3.2 (each, an “Authorizing Resolution”). Without limitation, the Board may establish, with respect to each class of Investor Shares, its voting powers, conversion rights or obligations, redemption rights or obligations, preferences as to distributions, and other matters. The Authorizing Resolution providing for issuance of any class of Investor Shares may provide that such class shall be superior or rank equally or be junior to the Investor Shares of any other class except to the extent prohibited by the terms of the Authorizing Resolution establishing another class.
3.3. Share Splits and Consolidations. The Board may at any time increase or decrease the authorized and/or outstanding number of Shares of any class or series, including Common Shares, provided that any increase or decrease in the number of Shares outstanding shall be made pro rata with respect to all Members owning the outstanding Shares of such class or series. The Board shall promptly notify all of the Members of any such transaction.
3.4. Certificates. The Shares of the Company shall not be evidenced by written certificates unless the Board determines otherwise. If the Board determines to issues certificates representing Shares, the certificates shall be subject to such rules and restrictions as the Board may determine.
3.5. Registry of Shares. The Company shall keep or cause to be kept on behalf of the Company a register of the Members of the Company. The Company may, but shall not be required to, appoint a transfer agent registered with the Securities and Exchange Commission.
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3.6. Capital Accounts. A capital account shall be established and maintained for each Member. Each Member’s capital account shall initially be credited with the amount of his, her, or its Capital Contribution. Thereafter, the capital account of a Member shall be increased by the amount of any additional contributions of the Member and the amount of income or gain allocated to the Member, and decreased by the amount of any distributions to the Member and the amount of loss or deduction allocated to the Member, including expenditures of the Company described in section 705(a)(2)(B) of the Code. Unless otherwise specifically provided herein, the capital accounts of the Members shall be adjusted and maintained in accordance with Code section 704 and the regulations thereunder.
4. ARTICLE FOUR: DISTRIBUTIONS
4.1. In General. The Board may, in its sole discretion, make and pay distributions of cash or other assets of the Company to the Members from time to time.
4.2. Special Rules Governing Distributions. Except as otherwise provided in this Agreement or in an Authorizing Resolution establishing a class of Investor Shares (i) any distributions of the Company not expressly payable to the holders of a class of Investor Shares shall be payable to the holders of the Common Shares, (ii) any distributions made to the holders of any class of Investor Shares as a group shall be divided pro rata among such holders based on their respective ownership of the Shares of such class, and (iii) no Member shall have any right to distributions except as may be authorized by the Board.
4.3. Distributions to Fund Tax Liability. In the event that the Company recognizes net gain or income for any taxable year, the Company shall, taking into account its financial condition and other commitments, make a good faith effort to distribute to each Member, no later than April 15th of the following year, an amount equal to the net gain or income allocated to such Member, multiplied by the highest marginal tax rate for individuals then in effect under section 1 of the Code plus the highest rate then in effect under applicable state law, if such amount has not already been distributed to such Member pursuant to this section 4.3. If any Member receives a smaller or larger distribution pursuant to this section than he would have received had the same aggregate amount been distributed pursuant to section 4.3, then subsequent distributions shall be adjusted accordingly.
4.4. Tax Withholding. To the extent the Company is required to pay over any amount to any federal, state, local or foreign governmental authority with respect to distributions or allocations to any Member, the amount withheld shall be deemed to be a distribution in the amount of the withholding to that Member. If the amount paid over was not withheld from an actual distribution (i) the Company shall be entitled to withhold such amounts from subsequent distributions, and (ii) if no such subsequent distributions are anticipated for six (6) months, the Member shall, at the request of the Company, promptly reimburse the Company for the amount paid over.
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4.5. Manner of Distribution. All distributions to the Members will be made as Automated Clearing House (ACH) deposits into an account designated by each Member. If a Member does not authorize the Company to make such ACH distributions into a designated Member account, distributions to such Member will be made by check and mailed to such Member after deduction by the Company from each check of a Fifty Dollar ($50) processing fee.
4.6. Other Rules Governing Distributions. No distribution prohibited by 6 Del. C. §18-607 or not specifically authorized under this Agreement shall be made by the Company to any Member in his or its capacity as a Member. A Member who receives a distribution prohibited by 6 Del. C. §18-607 shall be liable as provided therein.
5. ARTICLE FIVE: MANAGEMENT
5.1. Management by Board of Directors.
5.1.1. In General. The business and affairs of the Company shall be directed, managed, and controlled by managers, who shall be referred to individually as “Directors” and collectively as the “Board of Directors” or “Board.” Directors may, but need not be, a Member. Except for situations in which the approval of the Members is expressly required by agreement or by provisions of the Delaware Limited Liability Company Act (the “Act”) that may not be waived, the Board shall have full and complete authority, power, and discretion to manage and control the business, affairs, and properties of the Company, to make all decisions regarding those matters and to perform any and all other acts or activities customary or incidental to the management of the Company’s business.
5.1.2. Size of Board; Voting. The Board will consist of three (3) Directors: Jorge P. Newbery, Joanne Cordero, and Adam Henderson. Each Director shall be entitled to one (1) vote and all decisions shall be made by simple majority.
5.1.3. Term. Once appointed, each Director shall serve until removed in accordance section 5.1.4.
5.1.4. Resignation; Removal; Replacement. Any Director may resign at any time by giving written notice to the Company. Mr. Newbery may be removed with or without cause at any time by AHP. Ms. Cordero and Mr. Henderson may be removed with or without cause at any time by Oak Harbor Capital LLC (“Oak Harbor”). If Mr. Newbery resigns or is removed his replacement shall be appointed by AHP. If Ms. Cordero or Mr. Henderson resigns or is removed her or his replacement shall be appointed by Oak Harbor.
5.1.5. Powers of the Board. The Board shall have full and complete authority, power and discretion to manage and control the business, affairs and properties of the Company, to make all decisions regarding those matters, to execute any contracts or other instruments on behalf of the Company, and to perform any and all other acts or activities customary or incidental to the management of the Company’s business.
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5.1.6. Examples of the Board’s Authority. Without limiting the grant of authority set forth in section 5.1.5, the Board shall have the power to (i) create classes of Investor Shares with such terms and conditions as the Board may determine in its sole discretion; (ii) issue Shares to any person for such consideration as the Board may determine in its sole discretion, and admit such persons to the Company as Investor Members; (iii) engage the services of third parties to perform services on behalf of the Company; (iv) enter into one or more joint ventures; (v) purchase, lease, sell, or otherwise dispose of real estate and other assets, in the ordinary course of business or otherwise; (vi) enter into leases and any other contracts of any kind; (vii) incur indebtedness on behalf of the Company, whether to banks or other lenders; (viii) determine the amount of the Company’s Available Cash and the timing and amount of distributions to Members; (ix) determine the information to be provided to the Members; (x) grant mortgages, liens, and other encumbrances on the Company’s assets; (xi) make all elections under the Code and the provisions of State and local tax laws; (xiii) file a petition in bankruptcy; (xiv) discontinue the business of the Company; and (xv) dissolve the Company.
5.1.7. Time Commitment. Each Director shall devote such time to the Company’s business and affairs as he or she shall determine in his or her sole discretion.
5.1.8. Delegation to Committees. The Board may, from time to time, delegate to one or more Directors such authority and duties as the Board shall determine. Any such delegation shall be (i) in writing, and (ii) revocable at the will of the Board at any time.
5.1.9. Death of Disability. A Director shall be deemed to have resigned upon the death or disability of such Director.
5.1.10. Time and Place of Meeting. Meetings of the Board shall be held no less than annually at such time or times as may be designated by the Board. In addition, special meetings of the Board may be called at any time for any purpose by any Director. Meetings of the Board shall be held at the principal offices of the Company unless otherwise agreed to by the Directors.
5.1.11. Call of Meetings. Any such meeting of the Board shall be held upon two (2) days’ notice if given orally, either by telephone or in person, or by email, or by five (5) days’ notice if given by depositing the notice in the United States mail, postage prepaid. Such notice shall specify the time and place of the meeting. Any such notice may be waived by a writing signed by the person or persons entitled to such notice either before or after the action with respect to which notice is waived. Any person attending a meeting without protesting, prior to its conclusion, a lack of proper notice shall be deemed to have waived notice of such meeting.
5.1.12. Meetings by Conference Telephone, Etc. Any or all Directors may participate in a meeting by means of conference telephone or any means of communication by which all persons participating in the meeting are able to hear each other.
5.1.13. Action without a Meeting. The Board may act without a meeting, without prior notice, and without a vote if, prior or subsequent to such action, all Directors shall consent in writing to such action.
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5.2. Restrictions on Members. Except as expressly provided otherwise in this Agreement, Members who are not also Directors shall not be entitled to participate in the management or control of the Company, nor shall any such Member hold himself out as having such authority. Unless authorized to do so by the Board, no attorney-in-fact, employee or other agent of the Company shall have any power or authority to bind the Company in any way, to pledge its credit or to render it liable pecuniarily for any purpose. No Member shall have any power or authority to bind the Company unless the Member has been authorized by the Board in writing to act as an agent of the Company in accordance with the previous sentence.
5.3. Officers. The Board may, from time to time, designate one or more persons to serve as officers of the Company, with such titles, responsibilities, compensation, and terms of office as the Directors may designate in writing. Any officer may be removed by the Board with or without cause, provided that such removal shall be without prejudice to the contract rights, if any, of the officer so removed. The appointment of an officer shall not in itself create contract rights.
5.4. Authorizing Resolutions. Notwithstanding the foregoing provisions of this section 5.1, an Authorizing Resolution may limit the authority of the Board and/or confer voting rights on Investor Members.
5.5. Reliance by Third Parties. Anyone dealing with the Company shall be entitled to assume that the Board and any officer authorized by the Board to act on behalf of and in the name of the Company has full power and authority to encumber, sell or otherwise use in any manner any and all assets of the Company and to enter into any contracts on behalf of the Company, and shall be entitled to deal with the Board or any officer as if it were the Company’s sole party in interest, both legally and beneficially. No Member shall assert, vis-à-vis a third party, that such third party should not have relied on the apparent authority of the Board or any officer authorized by the Board to act on behalf of and in the name of the Company, nor shall anyone dealing with the Board or any of its officers or representatives be obligated to investigate the authority of such person in a given instance.
5.6. Standard of Care. The Board shall conduct the Company’s business using its business judgment.
5.7. Time Commitment. Each Director shall devote such time to the business and affairs of the Company as such Director may determine in his, her, or its sole and absolute discretion.
5.8. Compensation of Board and its Affiliates. The Board and its affiliates shall be entitled to the compensation described in the Offering Circular.
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6. ARTICLE SIX: OTHER BUSINESSES; INDEMNIFICATION; CONFIDENTIALITY
6.1. Other Businesses. Each Member and Director may engage in any business whatsoever, including a business that is competitive with the business of the Company, and the other Members shall have no interest in such businesses and no claims on account of such businesses, whether such claims arise under the doctrine of “corporate opportunity,” an alleged fiduciary obligation owed to the Company or its members, or otherwise. Without limiting the preceding sentence, the Members acknowledge that Directors and their affiliates intend to sponsor, manage, invest in, and otherwise be associated with other entities and business investing in the same asset class(es) as the Company, some of which could be competitive with the Company. No Member shall have any claim against the Board, any Director, or its or their affiliates on account of such other entities or businesses.
6.2. Exculpation and Indemnification
6.2.1. Exculpation.
(a) Covered Persons. As used in this section 6.2, the term “Covered Person” means (i) the Directors and their affiliates, and (ii) the officers, employees, and agents of the Company, each acting within the scope of his, her, or its authority.
(b) Standard of Care. No Covered Person shall be liable to the Company for any loss, damage or claim incurred by reason of any action taken or omitted to be taken by such Covered Person, including actions taken or omitted to be taken in the good-faith business judgment of such Covered Person, so long as such action or omission does not constitute fraud or willful misconduct by such Covered Person.
(c) Good Faith Reliance. A Covered Person shall be fully protected in relying in good faith upon the records of the Company and upon such information, opinions, reports, or statements (including financial statements and information) of the following persons: (i) another Covered Person; (ii) any attorney, independent accountant, appraiser, or other expert or professional employed or engaged by or on behalf of the Company; or (iii) any other person selected in good faith by or on behalf of the Company, in each case as to matters that such relying Covered Person reasonably believes to be within such other person’s professional or expert competence. The preceding sentence shall in no way limit any person’s right to rely on information to the extent provided in the Act.
6.2.2. Liabilities and Duties of Covered Persons.
(a) Limitation of Liability. This Agreement is not intended to, and does not, create or impose any fiduciary duty on any Covered Person. Furthermore, each Member and the Company hereby waives any and all fiduciary duties that, absent such waiver, may be implied by applicable law, and in doing so, acknowledges and agrees that the duties and obligation of each Covered Person to each other and to the Company are only as expressly set forth in this Agreement. The provisions of this Agreement, to the extent that they restrict the duties and liabilities of a Covered Person otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of such Covered Person.
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(b) Duties. Whenever a Covered Person is permitted or required to make a decision, the Covered Person shall be entitled to consider only such interests and factors as such Covered Person desires, including its own interests, and shall have no duty or obligation to give any consideration to any interest of or factors affecting the Company or any other person. Whenever in this Agreement a Covered Person is permitted or required to make a decision in such Covered Person’s “good faith,” the Covered Person shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or any other applicable law.
6.2.3. Indemnification.
(a) Indemnification. To the fullest extent permitted by the Act, as the same now exists or may hereafter be amended, substituted or replaced (but, in the case of any such amendment, substitution or replacement only to the extent that such amendment, substitution or replacement permits the Company to provide broader indemnification rights than the Act permitted the Company to provide prior to such amendment, substitution or replacement), the Company shall indemnify, hold harmless, defend, pay and reimburse any Covered Person against any and all losses, claims, damages, judgments, fines or liabilities, including reasonable legal fees or other expenses incurred in investigating or defending against such losses, claims, damages, judgments, fines or liabilities, and any amounts expended in settlement of any claims (collectively, “Losses”) to which such Covered Person may become subject by reason of any act or omission or alleged act or omission performed or omitted to be performed by such Covered Person on behalf of the Company in connection with the business of the Company; provided, that (i) such Covered Person acted in good faith and in a manner believed by such Covered Person to be in, or not opposed to, the best interests of the Company and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful, and (ii) such Covered Person’s conduct did not constitute fraud or willful misconduct, in either case as determined by a final, nonappealable order of a court of competent jurisdiction. In connection with the foregoing, the termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Covered Person did not act in good faith or, with respect to any criminal proceeding, had reasonable cause to believe that such Covered Person’s conduct was unlawful, or that the Covered Person’s conduct constituted fraud or willful misconduct.
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(b) Reimbursement. The Company shall promptly reimburse (and/or advance to the extent reasonably required) each Covered Person for reasonable legal or other expenses (as incurred) of such Covered Person in connection with investigating, preparing to defend or defending any claim, lawsuit or other proceeding relating to any Losses for which such Covered Person may be indemnified pursuant to this section 6.2.3; provided, that if it is finally judicially determined that such Covered Person is not entitled to the indemnification provided by this section 6.2.3, then such Covered Person shall promptly reimburse the Company for any reimbursed or advanced expenses.
(c) Entitlement to Indemnity. The indemnification provided by this section 6.2.3 shall not be deemed exclusive of any other rights to indemnification to which those seeking indemnification may be entitled under any agreement or otherwise. The provisions of this section 6.2.3 shall continue to afford protection to each Covered Person regardless of whether such Covered Person remains in the position or capacity pursuant to which such Covered Person became entitled to indemnification under this section 6.2.3 and shall inure to the benefit of the executors, administrators, and legal representative of such Covered Person.
(d) Insurance. To the extent available on commercially reasonable terms, the Company may purchase, at its expense, insurance to cover Losses covered by the foregoing indemnification provisions and to otherwise cover Losses for any breach or alleged breach by any Covered Person of such Covered Person’s duties in such amount and with such deductibles as the Board may determine; provided, that the failure to obtain such insurance shall not affect the right to indemnification of any Covered Person under the indemnification provisions contained herein, including the right to be reimbursed or advanced expenses or otherwise indemnified for Losses hereunder. If any Covered Person recovers any amounts in respect of any Losses from any insurance coverage, then such Covered Person shall, to the extent that such recovery is duplicative, reimburse the Company for any amounts previously paid to such Covered Person by the Company in respect of such Losses.
(e) Funding of Indemnification Obligation. Any indemnification by the Company pursuant to this section 6.2.3 shall be provided out of and to the extent of Company assets only, and no Member shall have personal liability on account thereof or shall be required to make additional capital contributions to help satisfy such indemnification obligation.
(f) Savings Clause. If this section 6.2.3 or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify and hold harmless each Covered Person pursuant to this section 6.2.3 to the fullest extent permitted by any applicable portion of this section 6.3 that shall not have been invalidated and to the fullest extent permitted by applicable law.
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6.2.4. Amendment. The provisions of this section 6.2 shall be a contract between the Company, on the one hand, and each Covered Person who served in such capacity at any time while this section is in effect, on the other hand, pursuant to which the Company and each such Covered Person intend to be legally bound. No amendment, modification or repeal of this section that adversely affects the rights of a Covered Person to indemnification for Losses incurred or relating to a state of facts existing prior to such amendment, modification or repeal shall apply in such a way as to eliminate or reduce such Covered Person’s entitlement to indemnification for such Losses without the Covered Person’s prior written consent.
6.2.5. Survival. The provisions of this section 6.2 shall survive the dissolution, liquidation, winding up, and termination of the Company.
6.3. Confidentiality. For as long as he, she, or it owns an interest in the Company and at all times thereafter, no Investor Member shall divulge to any person or entity, or use for his or its own benefit or the benefit of any person, any information of the Company of a confidential or proprietary nature, including, but not limited to (i) financial information; (ii) designs, drawings, plans, and specifications; (iii) the business methods, systems, or practices used by the Company; and (iii) the identity of the Company’s Members, customers, or suppliers. The foregoing shall not apply to information that is in the public domain or that an Investor Member is required to disclose by legal process.
7. ARTICLE SEVEN: BANK ACCOUNTS; BOOKS OF ACCOUNT
7.1. Bank Accounts. Funds of the Company may be deposited in accounts at banks or other institutions selected by the Board. Withdrawals from any such account or accounts shall be made in the Company’s name upon the signature of such persons as the Board may designate. Funds in any such account shall not be commingled with the funds of any Member.
7.2. Books and Records of Account. The Company shall keep at its principal offices books and records of account of the Company which shall reflect a full and accurate record of each transaction of the Company.
7.3. Annual Financial Statements and Reports. Within a reasonable period after the close of each fiscal year, the Company shall furnish to each Member with respect to such fiscal year (i) a statement showing in reasonable detail the computation of the amount distributed under section 4.1, and the manner in which it was distributed, (ii) a balance sheet of the Company, (iii) a statement of income and expenses, and (iv) such additional information as may be required by law. The financial statements of the Company need not be audited by an independent certified public accounting firm unless the Board so elects or the law so requires.
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7.4. Right of Inspection.
7.4.1. In General. If a Member wishes additional information or to inspect the books and records of the Company for a bona fide purpose, the following procedure shall be followed: (i) such Member shall notify the Board, setting forth in reasonable detail the information requested and the reason for the request; (ii) within sixty (60) days after such a request, the Board shall respond to the request by either providing the information requested or scheduling a date (not more than 90 days after the initial request) for the Member to inspect the Company’s records; (iii) any inspection of the Company’s records shall be at the sole cost and expense of the requesting Member; and (iv) the requesting Member shall reimburse the Company for any reasonable costs incurred by the Company in responding to the Member’s request and making information available to the Member.
7.4.2. Bona Fide Purpose. The Board shall not be required to respond to a request for information or to inspect the books and records of the Company if the Board believes such request is made to harass the Company or the Board, to seek confidential information about the Company, or for any other purpose other than a bona fide purpose.
7.4.3. Representative. An inspection of the Company’s books and records may be conducted by an authorized representative of a Member, provided such authorized representative is an attorney or a licensed certified public accountant and is reasonably satisfactory to the Board.
7.4.4. Restrictions. The following restrictions shall apply to any request for information or to inspect the books and records of the Company:
(a) No Member shall have a right to a list of the Investor Members or any information regarding the Investor Members.
(b) Before providing additional information or allowing a Member to inspect the Company’s records, the Board may require such Member to execute a confidentiality agreement satisfactory to the Board.
(c) No Member shall have the right to any trade secrets of the Company or any other information the Board deems highly sensitive and confidential.
(d) No Member may review the books and records of the Company more than once during any twelve (12) month period.
(e) Any review of the Company’s books and records shall be scheduled in a manner to minimize disruption to the Company’s business.
(f) A representative of the Company may be present at any inspection of the Company’s books and records.
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(g) If more than one Member has asked to review the Company’s books and records, the Board may require the requesting Members to consolidate their request and appoint a single representative to conduct such review on behalf of all requested Members.
(h) The Board may impose additional reasonable restrictions for the purpose of protecting the Company and the Members.
8. ARTICLE EIGHT: TRANSFERS OF SHARES
8.1. Transfers by Investors.
8.1.1. In General. Subject to the terms of any Authorizing Resolution, an Investor Member (a “Transferor”) may not sell, transfer, dispose of, or encumber (each, a “Transfer”) any of his, her, or its Investor Shares (the “Transferred Shares”), without or without consideration, except as set forth in this Article Eight. Any attempted sale, transfer, or encumbrance not permitted in this Article Eight shall be null and void and of no force or effect.
8.1.2. First Right of Refusal.
(a) In General. In the event an Investor Member (the “Selling Member”) receives an offer from a third party to acquire all or a portion of his, her, or its Investor Shares (the “Transfer Shares”), then he, she, or it shall notify the Board, specifying the Investor Shares to be purchased, the purchase price, the approximate closing date, the form of consideration, and such other terms and conditions of the proposed transaction that have been agreed with the proposed purchaser (the “Sales Notice”). Within thirty (30) days after receipt of the Sales Notice the Board shall notify the Selling Member whether the Company a person designated by the Board elects to purchase the entire Transfer Shares on the terms set forth in the Sales Notice.
(b) Special Rules. The following rules shall apply for purposes of this section:
(1) If the Board on behalf of the Company elects not to purchase the Transfer Shares or fails to respond to the Sales Notice within the thirty (30) day period described above, the Selling Member may proceed with the sale to the proposed purchaser, subject to section 8.1.1.
(2) If the Board on behalf of the Company elects to purchase the Transfer Shares, it shall do so within thirty (30) days.
(3) If the Board on behalf of the Company elects not to purchase the Transfer Shares, or fails to respond to the Sales Notice within the thirty (30) day period described above, and the Selling Member and the purchaser subsequently agree to a reduction of the purchase price, a change in the consideration from cash or readily tradeable securities to deferred payment obligations or nontradeable securities, or any other material change to the terms set forth in the Sales Notice, such agreement between the Selling Member and the purchaser shall be treated as a new offer and shall again be subject to this section.
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(4) If the Board on behalf of the Company elects to purchase the Transfer Shares in accordance with this section, such election shall have the same binding effect as the then-current agreement between the Selling Member and the proposed purchaser. Thus, for example, if the Selling Member and the purchaser have entered into a non-binding letter of intent but have not entered into a binding definitive agreement, the election of the Board shall have the effect of a non-binding letter of intent with the Selling Member. Conversely, if the Selling Member and the purchaser have entered into a binding definitive agreement, the election of the Board shall have the effect of a binding definitive agreement. If the Selling Member and the Manager are deemed by this subsection to have entered into only a non-binding letter of intent, neither shall be bound to consummate a transaction if they are unable to agree to the terms of a binding agreement.
8.1.3. Application to Entities. In the case of an Investor Member that is a Special Purpose Entity, the restrictions set forth in section 8.1.1 and section 8.1.2 shall apply to indirect transfers of interests in the Company by transfers of interests in such entity (whether by transfer of an existing interest or the issuance of new interests), as well as to direct transfers. A “Special Purpose Entity” means (i) an entity formed or availed of principally for the purpose of acquiring or holding an interest in the Company, and (ii) any entity if the purchase price of its interest in the Company represents at least seventy percent (70%) of its capital.
8.1.4. Exempt Transfers. The following transactions shall be exempt from the provisions of section 8.1.1 and section 8.1.2:
(a) A transfer to or for the benefit of any spouse, child or grandchild of a Transferor who is an individual, or to a trust for their exclusive benefit;
(b) Any transfer pursuant to an effective registration statement filed by the Company under the Securities Act of 1933, as amended; and
(c) The sale of all or substantially all of the interests of the Company (including pursuant to a merger or consolidation) to a third party;
provided, however, that in the case of a transfer pursuant to section 8.1.4(a) (i) the Transferred Shares shall remain subject to this Agreement, (ii) the transferee shall, as a condition to such transfer, deliver to the Company a written instrument confirming that such transferee shall be bound by all of the terms and conditions of this Agreement, and (iii) the Transferred Shares shall not thereafter be transferred further in reliance on section 8.1.4(a).
8.1.5. Rights of Assignee. Until and unless a person who is a transferee of Investor Shares is admitted to the Company as an Investor Member pursuant to section 8.1.6 below, such transferee shall be entitled only to the allocations and distributions with respect to the Transferred Shares in accordance with this Agreement and, to the fullest extent permitted by applicable law, including but not limited to 6 Del. C. §18-702(b), shall not have any non-economic rights of a Member of the Company, including, without limitation, the right to require any information on account of the Company’s business, inspect the Company’s books, or vote on Company matters.
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8.1.6. Conditions of Transfer. A transferee of Transferred Shares pursuant to section 8.2 shall have the right to become an Investor Member pursuant to 6 Del. C. §18-704 if and only if all of the following conditions are satisfied:
(a) The transferee has executed a copy of this Agreement, agreeing to be bound by all of its terms and conditions;
(b) A fully executed and acknowledged written transfer agreement between the Transferor and the transferee has been filed with the Company;
(c) All costs and expenses incurred by the Company in connection with the transfer are paid by the transferor to the Company, without regard to whether the proposed transfer is consummated; and
(d) The Board determines, and such determination is confirmed by an opinion of counsel satisfactory to the Board stating, that (i) the transfer does not violate the Securities Act of 1933 or any applicable state securities laws, (ii) the transfer will not require the Company to register as an investment company under the Investment Company Act of 1940, (iii) the transfer would not pose a material risk that (A) all or any portion of the assets of the Company would constitute “plan assets” under ERISA, or (B) the Company would be subject to the provisions of ERISA, section 4975 of the Code or any applicable similar law, or (C) a Director would become a fiduciary pursuant to ERISA or the applicable provisions of any similar law or otherwise, and (iv) the transfer will not violate the applicable laws of any state or the applicable rules and regulations of any governmental authority; provided, that the delivery of such opinion may be waived, in whole or in part, at the sole discretion of the Board.
8.1.7. Admission of Transferee. Any permitted transferee of Investor Shares shall be admitted to the Company as a Member on the date agreed by the transferor, the transferee, and the Board.
8.2. Involuntary Withdrawal by Transferors. Upon the death, bankruptcy, disability, legal incapacity, legal dissolution, or any other voluntary or involuntary act of an Investor Member, neither the Company nor any other Member shall have the obligation to purchase the Investor Shares owned by such Investor Member, nor shall such Investor Member have the obligation to sell his, her, or its Investor Shares. Instead, the legal successor of such Investor Member shall become an assignee of the Investor Member pursuant to section 8.1.5, subject to all of the terms and conditions of this Agreement.
8.3. Mandatory Redemptions.
8.3.1. Based on ERISA Considerations. The Board may, at any time, cause the Company to purchase all or any portion of the Investor Shares owned by a Member whose assets are governed by Title I of the Employee Retirement Income Security Act of 1974, Code section 4975, or any similar Federal, State, or local law, if the Board determines that all or any portion of the assets of the Company would, in the absence of such purchase, more likely than not be treated as “plan assets” or otherwise become subject to such laws.
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8.3.2. Based on Other Bona Fide Business Reasons. The Board may, at any time, cause the Company to purchase all of the Investor Shares owned by a Member if the Board determines that (i) such Member made a material misrepresentation to the Company; (ii) legal or regulatory proceedings are commenced or threatened against the Company or any of its members arising from or relating to the Member’s interest in the Company; (iii) the Board believes that such Member’s ownership has caused or will cause the Company to violate any law or regulation; (iv) such Member has violated any of his, her, or its obligations to the Company or to the other Members; or (ii) such Member is engaged in, or has engaged in conduct (including but not limited to criminal conduct) that (A) brings the Company, or threatens to bring the Company, into disrepute, or (B) is adverse and fundamentally unfair to the interests of the Company or the other Members.
8.3.3. Purchase Price and Payment. In the case of any purchase of Investor Shares described in this section 8.3 (i) the purchase price of the Investor Shares shall be ninety percent (90%) of the amount the Member would receive with respect to such Investor Shares if all of the assets of the Company were sold for their fair market value, all the liabilities of the Company were paid, and the net proceeds were distributed in liquidation of the Company; and (ii) the purchase price shall be paid by wire transfer or other immediately-available funds at closing, which shall be held within sixty (60) days following written notice from the Board.
8.4. Incorporation. If the Board determines that the business of the Company should be conducted in a corporation rather than in a limited liability company, whether for tax or other reasons, each Member shall cooperate in transferring the business to a newly-formed corporation and shall execute such agreements as the Board may reasonably determine are necessary or appropriate, consistent with the terms of this Agreement. In such event each Member shall receive stock in the newly-formed corporation equivalent to his, her, or its Shares.
8.5. Drag-Along Right. In the event the Board approves a sale or other disposition of all of the issued and outstanding Shares of the Company or, alternatively, all of the issued and outstanding Investor Shares, then, upon notice of the sale or other disposition, each Member, or each Investor Member, shall execute such documents or instruments as may be requested by the Board to effectuate such sale or other disposition and shall otherwise cooperate with the Board. The following rules shall apply to any such sale or other disposition: (i) if the sale or other disposition is to the Company or any person related to the Company or any Director, the selling price shall not be less than the selling Members, or Investor Members, would receive if all of the assets of the Company were sold for their fair market value, the liabilities of the Company were satisfied, and the net proceeds were distributed among the Members in liquidation of the Company; (ii) each Member, or Investor Member, shall represent that he, she, or it owns his, her, or its Shares free and clear of all liens and other encumbrances, that he, she, or it has the power to enter into the transaction, and whether he, she, or it is a U.S. person, but shall not be required to make any other representations or warranties; (iii) each Member, or Investor Member, shall grant to the Board a power of attorney to act on behalf of such Investor Member, in connection with such sale or other disposition; and (iv) each Member, or Investor Member, shall receive, as consideration for such sale or other disposition, the same amount he, she, or it would have received had all or substantially all of the assets of the Company been sold, the liabilities of the Company satisfied, and the net proceeds distributed among the Members in liquidation of the Company. For these purposes, a person shall be treated as “related” to the Company or a Director if such person bears a relationship to the Company or Director described in section 267(b) of the Code or in section 707(b) of the Code, determined by substituting the phrase “at least 10%” for the phrase “more than 50%” each place it appears in such sections.
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8.6. Fair Market Value of Assets. For purposes of section 8.3.3 and section 8.5, the fair market value of the Company’s assets shall be as determined by the Board using the methods normally used by the Company to value its assets. In the absence of fraud, the determination of the Board shall be final and not subject to dispute.
8.7. Waiver of Appraisal Rights. Each Member hereby waives any contractual appraisal rights such Member may otherwise have pursuant to 6 Del. C. §18-210 or otherwise, as well as any “dissenter’s rights.”
8.8. Withdrawal. An Investor Member may withdraw from the Company by giving at least ninety (90) days’ notice to the Board. The withdrawing Investor Member shall be entitled to no distributions or payments from Company on account of his, her, or its withdrawal, nor shall he, she, or it be indemnified against liabilities of Company. For purposes of this section, An Investor Member who transfers an Investor Shares pursuant to (i) a transfer permitted under section 9.1, or (ii) an involuntary transfer by operation of law, shall not be treated as thereby withdrawing from Company.
9. ARTICLE NINE: DISSOLUTION AND LIQUIDATION
9.1. Dissolution. The Company shall be dissolved upon the first to occur of (i) the determination of the Board to dissolve, or (ii) the date six (6) months following the sale of all or substantially all of the assets of the Company. The Members hereby waive the right to seek a judicial decree of dissolution pursuant to 6 Del. C. §18-802.
9.2. Liquidation.
9.2.1. Generally. If the Company is dissolved, the Company’s assets shall be liquidated and no further business shall be conducted by the Company except for such action as shall be necessary to wind-up its affairs and distribute its assets to the Members pursuant to the provisions of this Article Nine. Upon such dissolution, the Board shall have full authority to wind-up the affairs of the Company and to make final distribution as provided herein.
9.2.2. Distribution of Assets. After liquidation of the Company, the assets of the Company shall be distributed as set forth in Article Two.
9.2.3. Distributions in Kind. The assets of the Company shall be liquidated as promptly as possible so as to permit distributions in cash, but such liquidation shall be made in an orderly manner so as to avoid undue losses attendant upon liquidation. In the event that in the Board’s opinion complete liquidation of the assets of the Company within a reasonable period of time proves impractical, assets of the Company other than cash may be distributed to the Members in kind but only after all cash and cash-equivalents have first been distributed and after the Pre-Distribution Adjustment.
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9.2.4. Statement of Account. Each Member shall be furnished with a statement prepared by the Company’s accountants, which shall set forth the assets and liabilities of the Company as of the date of complete liquidation, and the capital account of each Member immediately prior to any distribution in liquidation.
10. ARTICLE TEN: POWER OF ATTORNEY
10.1. In General. The Board shall at all times during the term of the Company have a special and limited power of attorney as the attorney-in-fact for each Investor Member, with power and authority to act in the name and on behalf of each such Investor Member, to execute, acknowledge, and swear to in the execution, acknowledgement and filing of documents which are not inconsistent with the provisions of this Agreement and which may include, by way of illustration but not by limitation, the following:
10.1.1. This Agreement and any amendment of this Agreement authorized under section 11.1;
10.1.2. Any other instrument or document that may be required to be filed by the Company under the laws of any state or by any governmental agency or which the Board shall deem it advisable to file;
10.1.3. Any instrument or document that may be required to effect the continuation of the Company, the admission of new Members, or the dissolution and termination of the Company; and
10.1.4. Any and all other instruments as the Board may deem necessary or desirable to effect the purposes of this Agreement and carry out fully its provisions.
10.2. Terms of Power of Attorney. The special and limited power of attorney of the Board (i) is a special power of attorney coupled with the interest of the Board in the Company, and its assets, is irrevocable, shall survive the death, incapacity, termination or dissolution of the granting Investor Member, and is limited to those matters herein set forth; (ii) may be exercised by the Board by and through one or more of the officers of the Board for each of the Investor Members by the signature of a member of the Board acting as attorney-in-fact for all of the Investor Members, together with a list of all Investor Members executing such instrument by their attorney-in-fact or by such other method as may be required or requested in connection with the recording or filing of any instrument or other document so executed; and (iii) shall survive an assignment by an Investor Member of all or any portion of his, her or its Investor Shares except that, where the assignee of the Investor Shares owned by the Investor Member has been approved by the Board for admission to the Company, the special power of attorney shall survive such assignment for the sole purpose of enabling the Board to execute, acknowledge and file any instrument or document necessary to effect such substitution.
10.3. Notice to Investor Members. The Board shall promptly furnish to each Investor Member a copy of any amendment to this Agreement executed by the Board pursuant to a power of attorney from such Investor Member.
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11. ARTICLE ELEVEN: AMENDMENTS
11.1. Amendments Not Requiring Consent. The Board may amend this Agreement without the consent of any Member to effect:
11.1.1. The correction of typographical errors;
11.1.2. A change in the name of the Company, the location of the principal place of business of the Company, the registered agent of the Company or the registered office of the Company;
11.1.3. The admission, substitution, withdrawal, or removal of Members in accordance with this Agreement;
11.1.4. An amendment that cures ambiguities or inconsistencies in this Agreement;
11.1.5. An amendment that adds to its own obligations or responsibilities;
11.1.6. A change in the fiscal year or taxable year of the Company and any other changes that the Board determines to be necessary or appropriate as a result of a change in the fiscal year or taxable year of the Company;
11.1.7. A change the Board determines to be necessary or appropriate to prevent the Company from being treated as an “investment company” within the meaning of the Investment Company Act of 1940;
11.1.8. A change to facilitate the trading of Shares, including changes required by law or by the rules of a securities exchange;
11.1.9. A change the Board determines to be necessary or appropriate to satisfy any requirements or guidelines contained in any opinion, directive, order, ruling, or regulation of any federal or state agency or judicial authority or contained in any Federal or State statute, including but not limited to “no-action letters” issued by the Securities and Exchange Commission;
11.1.10. A change that the Board determines to be necessary or appropriate to prevent the Company from being subject to the Employee Retirement Income Security Act of 1974;
11.1.11. A change the Board determines to be necessary or appropriate to reflect an investment by the Company in any corporation, partnership, joint venture, limited liability company or other entity;
11.1.12. An amendment that conforms to the Offering Circular;
11.1.13. Any amendments expressly permitted in this Agreement to be made by the Board acting alone; or
11.1.14. Any other amendment that does not have, and could not reasonably be expected to have, a material adverse effect on the Investor Members.
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11.2. Amendments Requiring Majority Consent. Any amendment that has, or could reasonably be expected to have, an adverse effect on the Investor Members, other than amendments described in section 11.3, shall require the consent of the Board and Investor Members holding a majority of the Investor Shares or, if an amendment affects only one class of Investor Shares, then the Investor Members holding a majority of the Investor Shares of that Series.
11.3. Amendments Requiring Unanimous Consent. The following amendments shall require the consent of the Board and each affected Member:
11.3.1. An amendment deleting or modifying any of the amendments already listed in this section 11.3;
11.3.2. An amendment that would require any Investor Member to make additional Capital Contributions; and
11.3.3. An amendment that would impose personal liability on any Investor Member.
11.4. Procedure for Obtaining Consent. If the Board proposes to make an amendment to this Agreement that requires the consent of Investor Members, the Board shall notify each affected Investor Member (who may be all Investor Members, or only Investor Members holding a given class of Investor Shares) in writing, specifying the proposed amendment and the reason(s) why the Board believes the amendment is in the best interest of the Company. At the written request of Investor Members holding at least Twenty Percent (20%) of the Investor Shares entitled to vote on the amendment, the Board shall hold an in-person or electronic meeting (e.g., a webinar) to explain and discuss the amendment. Voting may be through paper or electronic ballots. If the Board proposes an amendment that is not approved by the Investor Members within ninety (90) days from proposal, the Board shall not again propose that amendment for at least six (6) months.
12. ARTICLE TWELVE: MISCELLANEOUS
12.1. Notices. Any notice or document required or permitted to be given under this Agreement may be given by a party or by its legal counsel and shall be deemed to be given by electronic mail with transmission acknowledgment, to the principal business address of the Company, if to the Company or the Board, to the email address of an Investor Member provided by such Investor Member, or such other address or addresses as the parties may designate from time to time by notice satisfactory under this section.
12.2. Electronic Delivery. Each Member hereby agrees that all communications with the Company, including all tax forms, shall be via electronic delivery.
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12.3. Governing Law.
12.3.1. In General. This Agreement shall be governed by the internal laws of Delaware without giving effect to the principles of conflicts of laws. Each Member hereby (i) consents to the personal jurisdiction of the Delaware courts or the Federal courts located in or most geographically convenient to Wilmington, Delaware, (ii) agrees that all disputes arising from this Agreement shall be prosecuted in such courts, except as provided in section 5.6.2, (iii) agrees that any such court shall have in personam jurisdiction over such Member, (iv) consents to service of process by notice sent by regular mail to the address on file with the Company and/or by any means authorized by Delaware law, and (v) if such Member is not otherwise subject to service of process in Delaware, agrees to appoint and maintain an agent in Delaware to accept service, and to notify the Company of the name and address of such agent.
12.3.2. Exception. The exclusive forum selection provisions in section 12.3.1 shall not apply to the extent prohibited by the Securities Act of 1933 or the Securities Exchange Act of 1934.
12.4. Waiver of Jury Trial. EACH MEMBER ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH MEMBER IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT. However, the foregoing waiver of trial by jury does not apply to claims arising under the Federal securities laws.
12.5. Signatures. This Agreement may be signed (i) in counterparts, each of which shall be deemed to be a fully executed original; and (ii) electronically, e.g., via DocuSign. An original signature transmitted by facsimile or email shall be deemed to be original for purposes of this Agreement.
12.6. No Third-Party Beneficiaries. Except as otherwise specifically provided in this Agreement, this Agreement is made for the sole benefit of the parties. No other persons shall have any rights or remedies by reason of this Agreement against any of the parties or shall be considered to be third party beneficiaries of this Agreement in any way.
12.7. Binding Effect. This Agreement shall inure to the benefit of the respective heirs, legal representatives and permitted assigns of each party, and shall be binding upon the heirs, legal representatives, successors and assigns of each party.
12.8. Titles and Captions. All article, section and paragraph titles and captions contained in this Agreement are for convenience only and are not deemed a part of the context hereof.
12.9. Pronouns and Plurals. All pronouns and any variations thereof are deemed to refer to the masculine, feminine, neuter, singular or plural as the identity of the person or persons may require.
12.10. Execution by Investor Members. It is anticipated that this Agreement will be executed by Investor Members through the execution of a separate Investment Agreement.
12.11. Legal Representation. The Company has been represented by Lex Nova Law LLC in connection with the preparation of this Agreement. Each Investor Member (i) represents that such Member has not been represented by Lex Nova Law LLC in connection with the preparation of this Agreement, (ii) agrees that Lex Nova Law LLC may represent the Company in the event of a dispute involving such Investor Member, and (iii) acknowledges that such Investor Member has been advised to seek separate counsel in connection with this Agreement.
12.12. Days. Any period of days mandated under this Agreement shall be determined by reference to calendar days, not business days, except that any payments, notices, or other performance falling due on a Saturday, Sunday, or federal government holiday shall be considered timely if paid, given, or performed on the next succeeding business day.
12.13. Relationship to Investment Agreement. In the case of an Investor Member, this Agreement governs such Investor Member’s ownership of Investor Shares and the operation of the Company, while the Investment Agreement governs such Investor Member’s purchase of Investor Shares. In the event of a conflict between the two agreements, this Agreement shall control.
12.14. Entire Agreement. This Agreement constitutes the entire agreement among the parties with respect to its subject matter and supersedes all prior agreements and understandings.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.
| SKID ROW AHP LLC | ||
| By | /s/ Jorge P. Newbery | |
| Jorge P. Newbery, Director | ||
| By | /s/ Joanne Cordero | |
| Joanne Cordero, Director |
| By | /s/ Adam Henderson | |
| Adam Henderson, Director |
| AMERICAN HOMEOWNER PRESERVATION, INC. | ||
| By | /s/ Jorge P. Newbery | |
| Jorge P. Newbery, CEO | ||
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Exhibit 1a-2c
Skid Row AHP LLC
AUTHORIZING RESOLUTION
Series A Preferred Shares
The undersigned, being all of the members of the Board of Directors (the “Board”) of Skid Row AHP LLC, a Delaware limited liability company (the “Company”), hereby adopt the following as an “Authorizing Resolution” pursuant to section 3.2 of the Limited Liability Company Agreement dated April 15, 2022 (the “LLC Agreement”):
1. Definitions. Capitalized terms that are not otherwise defined in this Authorizing Resolution shall have the meanings given to them in the LLC Agreement.
2. Authorization of Class. The Company shall have the authority to issue up to Fifteen Million (15,000,000) Investor Shares designated as “Series A Preferred Stock” having no par value, with the rights, preferences, powers, privileges and restrictions, qualifications, and limitations set forth in this Authorizing Resolution.
3. Distributions.
3.1. In General. While any shares of Series A Preferred Stock (the “Shares”) remain outstanding, all distributions of the Company, whether from ordinary operating income or the sale or other disposition of capital assets, shall be made in the following order of priority, after deduction for all expenses and costs:
3.1.1. First, the Company shall distribute to each Series A Stockholder (an “Investor”) an amount equal to the Series A Preferred Return with respect to the Shares of Series A Preferred Stock owned by such Investor;
3.1.2. Second, the Company shall distribute to each Investor an amount equal to the Unreturned Investment with respect to the Shares of Series A Preferred Stock owned by such Investor; and
3.1.3. Third, the Company shall distribute the balance to the holders of the Company’s Common Shares or a different series of Preferred Stock, authorized by the Board after the date of this Authorizing Resolution.
3.2. Return of Capital Contribution. The Company shall endeavor to return the entire Capital Contribution of each Investor by way of distributions pursuant to section 3.1, no later than the fifth (5th) anniversary of such Capital Contribution.
3.3. Definitions. The following definitions shall apply for purposes of this Authorizing Resolution:
3.3.1. “Affiliated Person” means American Homeowner Preservation LLC, any Director or officer of the Company, and any person who would be treated as related to any such person under section 267(b) or section 707(b) of the Internal Revenue Code of 1986.
3.3.2. “Capital Contributions” means the total amount paid by the original subscriber of such Shares.
3.3.3. “Series A Preferred Return” of an Investor means an amount such that, as of the date of any distribution, the total amount paid with respect to the Shares owned by such Investor, including all amounts paid to any previous owners of such Shares, yields a compounded return of seven percent (7%) with respect to the Unreturned Investment of such Shares since the date such Shares were originally issued by the Company.
3.3.4. “Unreturned Investment” means, with respect to Shares of Series A Preferred Stock, the Capital Contribution of such Shares reduced by previous distributions made with respect to such Shares pursuant to section 3.1.2.
3.4. Calculations. All calculations required by this section 3 shall be made by an accounting firm selected by the Board, and, in the absence of fraud, its calculation shall be final and not subject to dispute.
4. Price. Initially, the Series A Preferred Stock shall be offered to the public for Ten Dollars ($10.00) for each Share of Series A Preferred Stock. The price may be increased or decreased by the Board in its sole discretion.
5. Manner of Offering. Initially, the Shares shall be offered to the public in an offering under Tier 2 of Regulation A issued by the Securities and Exchange Commission. However, Shares may also be offered and sold publicly or privately in other offerings as determined by the Board.
6. Cancellation of Shares. Once distributions have been made pursuant to Section 3.1.2 equal to the entire Unreturned Investment with respect to Shares of Series A Preferred Stock, such Shares shall be cancelled for all purposes. Without limiting the foregoing sentence, (i) no further distributions shall be made with respect to such Shares; and (ii) ownership of such Shares shall not cause any person to be treated as an Investor.
7. Right to Request Purchase of Shares.
7.1. In General. Subject to the provisions of this section 7, by giving notice to the Company, an Investor may request that the Company purchase, or arrange for the purchase of, all or any number of the Shares of Series A Preferred Stock owned by such Investor. If such notice does not otherwise provide, it shall be deemed to be a request for the sale of all, but not less than all, of the Shares owned by such Investor. If such notice is received by the fifteenth (15th) day of a calendar month, the Company shall use commercially reasonable efforts to arrange for such purchase by the end of such month; if such notice is after the fifteenth (15th) day of a month, the Company shall use commercially reasonable efforts to arrange for such purchase by the end of the following month.
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7.2. Limitations. In seeking to accommodate a request made pursuant to section 7.1, the Company shall not be required to (i) purchase the Shares for its own account, (ii) borrow money or dispose of assets to fund such purchase, (iii) purchase or arrange for the purchase of more than twenty-five percent (25%) of an Investor’s Shares, (iv) purchase or arrange for the purchase of more than five percent (5%) of the Investor Shares then issued and outstanding, or (v) take any other action that would, in the sole discretion of the Company, be adverse to the interests of the Company or its other Members.
7.3. Legal Limitation. The Company shall not be obligated to seek to arrange for the purchase of Shares that the Company would not legally be permitted to redeem under Delaware law.
7.4. Priority. The Company shall consider requests made pursuant to section 7.1 in the order in which such requests are received.
7.5. Failure to Purchase. If the Company is unable to purchase or arrange for the purchase of Series A Preferred Stock as provided in this section by the dates specified in section 7.1, the Investor may either rescind his, her, or its request or maintain the request for the following month.
7.6. Price. Unless otherwise agreed in writing between the selling Investor and the buyer, the price of Series A Preferred Stock purchased and sold pursuant to this section 7 shall be equal to the balance of the Investor’s Unreturned Investment relating to such Shares, subject to certain limitations as follows:
7.6.1. If the sale occurs within one (1) year following the date the Investor acquired the Shares being sold, the purchase price shall be reduced by an amount sufficient to reduce the Investor’s annualized Series A Preferred Return through the date of the repurchase from seven percent (7%) to five percent (5%) to the extent the Investor has received distributions of the Series A Preferred Return.
7.6.2. If the sale occurs more than one (1) year but less than two (2) years from date of acquisition, the annualized Series A Preferred Return will be reduced from seven percent (7%) to six percent (6%). For purposes of this provision, the shares purchased first in time will be treated as being sold first for purposes of calculating the applicable holding period.
7.7. Development of Redemption Plan. The Company may, but shall not be required to, develop a written plan for the redemption of Shares containing such rules, requirements, and restrictions as the Company may determine in its sole discretion.
8. Amendment of Rights. Subject to section 9, the Company shall not amend, alter or repeal the preferences, special rights, or other powers of the Series A Preferred Stock so as to affect adversely Series A Preferred Stock vis-à-vis the Common Shares or any other series of Investor Shares, without the consent of the holders of a majority of the then-outstanding Series A Preferred Stock.
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9. Other Classes. The Company may issue one or more series of Investor Shares with rights superior to those of the Series A Preferred Stock provided that shares of such series may not be owned by any Affiliated Person. Without limiting the preceding sentence, the Company may issue a series of Investor Shares whose holders have the right to receive distributions before any distributions are made to the holders of the Series A Preferred Stock.
10. Preemptive Rights. Holders of the Series A Preferred Stock shall have no preemptive rights or other rights to subscribe or purchase additional securities of the Company.
11. Voting Rights. The Series A Preferred Stock shall have no voting rights.
DATED: April 15, 2022
| By | /s/ Jorge P. Newbery | |
| Jorge P. Newbery, Director | ||
| By | /s/ Joanne Cordero | |
| Joanne Cordero, Director | ||
| By | /s/ Adam Henderson | |
| Adam Henderson, Director | ||
Page | 4
Exhibit 1a-4
Skid Row AHP LLC
INVESTMENT AGREEMENT
This is an Investment Agreement, entered into by and between Skid Row AHP LLC, a Delaware limited liability company (the “Company”) and the purchaser identified on the Investment Questionnaire attached (“Purchaser”).
Background
I. The Company is offering limited liability company interests pursuant to an Offering Statement under Regulation A qualified by the Securities and Exchange Commission on ___________, 2022 (the “Disclosure Document”).
II. The Company and its members are parties to an agreement captioned “First Amended and Restated Limited Liability Company Agreement” dated April 15, 2022, which they intend to be the sole “limited liability company agreement” of the Company within the meaning of 6 Del. C. §18-101(7) (the “LLC Agreement”).
NOW, THEREFORE, acknowledging the receipt of adequate consideration and intending to be legally bound, the parties hereby agree as follows:
1. Defined Terms. Capitalized terms that are not otherwise defined in this Investment Agreement have the meanings given to them in the Disclosure Document. The Company is sometimes referred to using words like “we” and “our,” and Purchaser is sometimes referred to using words like “you,” “your,” and “its.”
2. Purchase of Shares.
2.1. In General. Subject to the terms and conditions of this Investment Agreement, the Company hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from the Company, a limited liability company interest (referred to in the Disclosure Document as “Series A Preferred Stock”) for the amount set forth on the Investment Questionnaire (the “Shares”).
2.2. Reduction for Oversubscription. If the Company receives subscriptions from qualified investors for more than the amount we are trying to raise, we may reduce your subscription and therefore the amount of your Shares. We will notify you promptly if this happens.
3. No Right to Cancel. You do not have the right to cancel your subscription or change your mind. Once you sign this Investment Agreement, you are obligated to purchase the Shares, even if the amount is reduced pursuant to section 2.2.
4. Our Right to Reject Investment. In contrast, we have the right to reject your subscription for any reason or for no reason, in our sole discretion. If we reject your subscription, any money you have given us will be returned to you.
5. Your Shares. You will not receive a paper certificate representing your Shares. Instead, your Shares will be available electronically.
6. Your Promises. You promise that:
6.1. Accuracy of Information. All of the information you have given to us, whether in this Investment Agreement or otherwise, is accurate and we may rely on it. If any of the information you have given to us changes before we accept your subscription, you will notify us immediately. If any of the information you have given to us is inaccurate and we are damaged (harmed) as a result, you will indemnify us, meaning you will pay any damages.
6.2. Review of Information. You have read all of the information in the Disclosure Document, including all the exhibits. Without limiting that statement, you have reviewed and understand the LLC Agreement.
6.3. Risks. You understand all the risks of investing, including the risk that you could lose all your money. Without limiting that statement, you have reviewed and understand all the risks listed under “Risks of Investing” in the Disclosure Document.
6.4. Escrow Account. You understand that your money might first be held in an escrow account in one or more FDIC-insured banks. If any of these banks became insolvent and the FDIC insurance is insufficient, your money could be lost.
6.5. No Representations. Nobody has made any promises or representations to you, except the information in the Disclosure Document. Nobody has guaranteed any financial outcome of your investment.
6.6. Opportunity to Ask Questions. You have had the opportunity to ask questions about the Company and the investment. All your questions have been answered to your satisfaction.
6.7. Your Legal Power to Sign and Invest. You have the legal power to sign this Investment Agreement and purchase the Shares.
6.8. No Government Approval. You understand that no state or federal authority has reviewed this Investment Agreement or the Shares or made any finding relating to the value or fairness of the investment.
6.9. No Transfer. You understand that under the terms of the LLC Agreement, the Shares may not be transferred without our consent. Also, securities laws limit transfer of the Shares. Finally, there is currently no market for the Shares, meaning it might be hard to find a buyer. As a result, you should be prepared to hold the Shares indefinitely.
6.10. No Advice. We have not provided you with any investment, financial, or tax advice. Instead, we have advised you to consult with your own legal and financial advisors and tax experts.
6.11. Tax Treatment. We have not promised you any particular tax outcome from buying or holding the Shares.
6.12. Past Performance. You understand that even if we have been successful with other projects, we might not be successful with this project.
6.13. Acting on Your Own Behalf. You are acting on your own behalf in purchasing the Shares, not on behalf of anyone else.
6.14. Investment Purpose. You are purchasing the Shares solely as an investment, not with an intent to re-sell or “distribute” any part of it.
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6.15. Anti-Money Laundering Laws. Your investment will not, by itself, cause the Company to be in violation of any “anti-money laundering” laws, including, without limitation, the United States Bank Secrecy Act, the United States Money Laundering Control Act of 1986, and the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.
6.16. Additional Information. At our request, you will provide further documentation verifying the source of the money used to purchase the Shares.
6.17. Disclosure. You understand that we may release confidential information about you to government authorities if we determine, in our sole discretion after consultation with our lawyer, that releasing such information is in the best interest of the Company or if we are required to do so by such government authorities.
6.18. Additional Documents. You will execute any additional documents we request if we reasonably believe those documents are necessary or appropriate and explain why.
6.19. No Violations. Your purchase of the Shares will not violate any law or conflict with any contract to which you are a party.
6.20. Enforceability. This Investment Agreement is enforceable against you in accordance with its terms.
6.21. No Inconsistent Statements. No person has made any oral or written statements or representations to you that are inconsistent with the information in this Investment Agreement and the Disclosure Document.
6.22. Financial Forecasts. You understand that any financial forecasts or projections are based on estimates and assumptions we believe to be reasonable but are highly speculative. Given the industry, our actual results may vary from any forecasts or projections.
6.23. Notification. If you discover at any time that any of the promises in this section 6 are untrue, you will notify us right away.
6.24. Non-U.S. Purchasers. If you are neither a citizen or a resident (green card) of the United States, then (i) the offer and sale of the Shares is lawful in the country of your residence, and (ii) the Company is not required to register or file any reports or documents with the country of your residence.
6.25. Promises Relating to Cryptocurrency. If Purchaser paid for the Shares in whole or in part with cryptocurrency (the “Tendered Crypto”), then:
6.25.1. Amount of Investment. Purchaser understands that the Tendered Crypto will not be held by the Company, but instead will converted into U.S. dollars by a reputable third party chosen by the Company, with the net proceeds (denominated in U.S. dollars, and after subtracting fees paid to the third party) paid to the Company. The purchase price of the Shares (and, for purposes of the LLC Agreement, Purchaser’s “Capital Contribution”) will be equal to the amount of such net proceeds paid to the Company, denominated in U.S. dollars, and not the nominal value of the Tendered Crypto.
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6.25.2. Tax Basis. Purchaser’s “basis” in the Tendered Crypto, as defined in section 1012 of the Internal Revenue Code of 1986, as amended (the “Code”), is set forth on the Investment Questionnaire. Purchaser will (i) provide any additional information we request to verify Purchaser’s basis, including but not limited to records of Purchaser’s purchase of the Tendered Crypto, (ii) fully cooperate in any audit or examination by the Internal Revenue Service relating to Purchaser’s basis in the Tendered Crypto, and (iii) indemnify us for any damages we incur (including attorneys’ fees) if the stated basis is incorrect.
6.25.3. Special Allocation of Gain. Purchaser understands that when the Tendered Crypto is converted to U.S. dollars, the Company will immediately recognize a taxable gain or loss equal to the difference, if any, between the conversion price and your tax basis. Purchaser further understands that, under section 704(c) of the Code, the Company will allocate this gain or loss to Purchaser, to be reported on Purchaser’s tax return.
6.25.4. Fluctuation in Price. Purchaser understands that while the Company will try to convert the Tendered Crypto into U.S. dollars within two (2) business days after receipt, the conversion could be delayed for reasons beyond our control. Purchaser also understands that the cryptocurrency markets are volatile, unpredictable, and inefficient. Hence, the price at which the Tendered Crypto is converted to U.S. dollars might be lower (or higher) than Purchaser expects when signing this Investment Agreement. We do not have any obligation to maximize the conversion price, whether by delaying (or accelerating) the conversion, using a different currency converter, or otherwise.
6.25.5. Regulatory Issues. Purchaser will provide any information we request concerning the Tendered Crypto to (i) comply with the requirements of the Financial Crimes Enforcement Network within the U.S. Department of the Treasury (FinCEN) or other governmental agencies, or (ii) for other legitimate purposes.
6.26. Additional Promises by Individuals. If you are a natural person (not an entity), you also promise that:
6.26.1. Knowledge. You have enough knowledge, skill, and experience in business, financial, and investment matters to evaluate the merits and risks of the investment.
6.26.2. Financial Wherewithal. You can afford this investment, even if you lose your money. You don’t rely on this money for your current needs, like rent or utilities.
6.26.3. Anti-Terrorism and Money Laundering Laws. None of the money used to purchase the Shares was derived from or related to any activity that is illegal under United States law, and you are not on any list of “Specially Designated Nationals” or known or suspected terrorists that has been generated by the Office of Foreign Assets Control of the United States Department of Treasury (“OFAC”), nor are you a citizen or resident of any country that is subject to embargo or trade sanctions enforced by OFAC.
6.27. Entity Investors. If Purchaser is a legal entity, like a corporation, partnership, or limited liability company, Purchaser also promises that:
6.27.1. Good Standing. Purchaser is validly existing and in good standing under the laws of the jurisdiction where it was organized and has full corporate power and authority to conduct its business as presently conducted and as proposed to be conducted.
6.27.2. Other Jurisdictions. Purchaser is qualified to do business in every other jurisdiction where the failure to qualify would have a material adverse effect on Purchaser.
6.27.3. Authorization. The execution and delivery by Purchaser of this Investment Agreement, Purchaser’s performance of its obligations hereunder, the consummation by Purchaser of the transactions contemplated hereby, and the purchase of the Shares, have been duly authorized by all necessary corporate, partnership or company action.
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6.27.4. Investment Company. Purchaser is not an “investment company” within the meaning of the Investment Company Act of 1940.
6.27.5. Information to Investors. Purchaser has not provided any information concerning the Company or its business to any actual or prospective investor, except the Disclosure Document, this Investment Agreement, and other written information that the Company has approved in writing in advance.
6.27.6. Anti-Terrorism and Money Laundering Laws. To the best of Purchaser’s knowledge based upon appropriate diligence and investigation, none of the money used to purchase the Shares was derived from or related to any activity that is illegal under United States law. Purchaser has received representations from each of its owners such that it has formed a reasonable belief that it knows the true identity of each of the ultimate investors in Purchaser. To the best of Purchaser’s knowledge, none of its ultimate investors is on any list of “Specially Designated Nationals” or known or suspected terrorists that has been generated by the Office of Foreign Assets Control of the United States Department of Treasury (“OFAC”), nor is any such ultimate investor a citizen or resident of any country that is subject to embargo or trade sanctions enforced by OFAC.
7. Confidentiality. The information we have provided to you about the Company, including the information in the Disclosure Document, is confidential. You will not reveal such information to anyone or use such information for your own benefit, except to purchase the Shares.
8. Re-Purchase of Shares. If we decide that you provided us with inaccurate information or have otherwise violated your obligations, or if required by any applicable law or regulation related to terrorism, money laundering, and similar activities, we may (but shall not be required to) repurchase your Shares for an amount equal to the amount you paid for it.
9. Governing Law.
9.1. In General. This Investment Agreement shall be governed by the internal laws of Delaware without giving effect to the principles of conflicts of laws. You hereby (i) consent to the personal jurisdiction of the Delaware courts or the Federal courts located in or most geographically convenient to Wilmington, Delaware, (ii) agree that all disputes arising from this Investment Agreement shall be prosecuted in such courts, (iii) agree that any such court shall have in personam jurisdiction over you, (iv) consent to service of process by notice sent in accordance with section 12 and/or by any means authorized by Delaware law, and (v) if you are not otherwise subject to service of process in Delaware, agree to appoint and maintain an agent in Delaware to accept service, and to notify the Company of the name and address of such agent.
9.2. Exception. The exclusive forum selection provisions in section 9.1 shall not apply to claims arising under the Federal securities laws.
10. Execution of LLC Agreement. If we accept your subscription, then your execution of this Investment Agreement will also serve as your signature on the LLC Agreement, just as if you had signed a paper copy of the LLC Agreement in blue ink.
11. Consent to Electronic Delivery. You agree that we may deliver all notices, tax reports and other documents and information to you by email or another electronic delivery method we choose. You agree to tell us right away if you change your email address or home mailing address so we can send information to the new address.
12. Notices. All notices between us will be electronic. You will contact us by email at ________________. We will contact you by email at the email address you provided on the Investment Questionnaire. Either of us may change our email address by notifying the other (by email). Any notice will be considered to have been received on the day it was sent by email, unless the recipient can demonstrate that a problem occurred with delivery. You should designate our email address as a “safe sender” so our emails do not get trapped in your spam filter.
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13. Limitations on Damages. WE WILL NOT BE LIABLE TO YOU FOR ANY LOST PROFITS OR SPECIAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES, EVEN IF YOU TELL US YOU MIGHT INCUR THOSE DAMAGES. This means that at most, you can sue us for the amount of your investment. You can’t sue us for anything else. However, the foregoing limitation of damages does not apply to claims arising under the Federal securities laws.
14. Waiver of Jury Rights. IN ANY DISPUTE WITH US, YOU AGREE TO WAIVE YOUR RIGHT TO A TRIAL BY JURY. This means that any dispute will be heard by an arbitrator or a judge, not a jury. However, the foregoing waiver of trial by jury does not apply to claims arising under the Federal securities laws.
15. Effect of Acceptance. Even when we accept your subscription by counter-signing below, you will not acquire the Shares until and unless we have closed on the Offering, as described in the Disclosure Document.
16. Miscellaneous Provisions.
16.1. No Transfer. You may not transfer your rights or obligations.
16.2. Headings. The headings used in this Investment Agreement (e.g., the word “Headings” in this paragraph), are used only for convenience and have no legal significance.
16.3. No Other Agreements. This Investment Agreement and the documents it refers to (including the LLC Agreement) are the only agreements between us.
16.4. Relationship with LLC Agreement. This Investment Agreement governs Purchaser’s purchase of the Shares, while the LLC Agreement governs Purchaser’s ownership of the Shares and the operation of the Company. In the event of a conflict between the two agreements, the LLC Agreement shall control.
16.5. Electronic Signature. You will sign this Investment Agreement electronically, rather than physically.
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INVESTMENT QUESTIONNAIRE
| Name of Purchaser | _______________________________ |
| Shares of Series A Preferred Stock | _______________________________ |
| Investment Amount | $______________________________ |
| Social Security Number | |
| (If You Are an Individual) | _______________________________ |
| Or | |
| Employer Identification Number | |
| (If You Are an Entity) | _______________________________ |
| Jurisdiction of Formation | |
| (If You Are an Entity) | _______________________________ |
| Mailing Address | _______________________________ |
| Street 1 | |
| _______________________________ | |
| Street 2 | |
| _______________________________ | |
| City | |
| _______________________________ | |
| State and Zip Code | |
| _______________________________ | |
| Country |
| Email Address | ________________________________ |
| Phone Number | ________________________________ |
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SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this Investment Agreement and the LLC Agreement effective on the date first written above.
| Signature | |
| Name and Title (For Entities Only) |
ACCEPTED:
SKID ROW AHP LLC
| By: | American Homeowner Preservation, Inc. | |
| As Manager |
| By | /s/ Jorge P. Newbery | |
| Jorge P. Newbery, CEO |
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Exhibit 1a-6a
Exhibit 1a-6b
MANAGEMENT SERVICES AGREEMENT
This MANAGEMENT SERVICES AGREEMENT (this “Agreement”) is made as of May __, 2022, by and among SKID ROW AHP LLC, a Delaware limited liability company (the “Company”), and OAK HARBOR CAPITAL, LLC, a Delaware limited liability company (“OHC”).
RECITALS:
WHEREAS, the Company’s business includes acquiring and managing recoveries of portfolios of title defective, title curative and/or defaulted first-lien residential mortgage loan assets (the “Assets”).
WHEREAS, the Company desires that OHC provide management services with respect to the Assets, and OHC is desirous of providing such services on the terms provided for in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Company and OHC (sometimes singularly referred to as a “Party” and collectively referred to as the “Parties”) hereby agree as follows:
ARTICLE I DEFINITIONS
Section 1.1 Defined Terms For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in the preamble and recitals hereto have the meanings therein assigned to them;
(b) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular;
(c) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP;
(d) all accounting terms, unless otherwise specified, shall be deemed to refer to Persons and their subsidiaries on a consolidated basis in accordance with GAAP;
(e) “including” shall mean including but not limited to; “from”, when used with respect to a period of time, shall mean from and including; and “to”, when used with respect to a period of time, shall mean to and including; and
(f) if any action or event is to occur on a day that is not a Business Day, then such action or event shall occur on the first Business Day occurring thereafter.
“ASSET DOCUMENTS” has the meaning set forth in Section 2.2.
“BUSINESS DAY” means any day other than (a) a Saturday or Sunday and (b) a day on which banking institutions in the state of Delaware is authorized or obligated by law, executive order or governmental decree to be closed.
“COLLECTION PERIOD” shall mean a calendar month.
“CONFIDENTIAL INFORMATION” has the meaning set forth in Section 7.12.
“CUSTODIAL AGENT” means the custodial agent or agents, if any, selected by OHC to provide custodial services related to the Assets.
“ENTITY” means any general partnership, limited partnership, limited liability company, corporation, joint venture, trust, business trust, cooperative or association or any other organization that is not a natural person.
“GAAP” means accounting principles generally accepted in the United States of America.
“LEGAL SERVICER” means the law firm or law firms selected by OHC to provide legal services related to the Assets.
“LEGAL SERVICES AGREEMENT” means the legal services agreement with a Legal Servicer.
“Management SERVICES Fee” means 1.75% per annum of the capital raised by the Company payable on a monthly basis, plus 50% of all of the residual profits of the Company.
“MONTHLY REPORT DATE” means, a date between the 15th and 25th Business Day of the month, or as otherwise agreed to between the Company and OHC.
“OBLIGOR” means the customer, obligor, maker, borrower or other party primarily obligated to pay with respect to an Asset.
“PERSON” means any individual or Entity, and the heirs, executors, administrators, legal representatives, successors, and assigns of such “Person” where the context so permits.
“PORTFOLIO” shall mean each pool or grouping of one or more Assets.
“PRE-PURCHASE DUE DILIGENCE” shall have the meaning as described in Section 2.5.
“RECOVERY ACCOUNT” shall mean the bank account established to receive proceeds from Asset recoveries.
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“REMITTANCE REPORT” shall mean, to the extent required, a report submitted monthly by OHC to the Company (i) listing deposits into and disbursements out of the Recovery Account, (ii) calculating all Management Services Fees, Legal Servicer Servicing Fees and Servicing Fees payable for the period covered by such report, and (iii) showing all other amounts payable pursuant to the Company’s limited liability company agreement and authorizing resolutions. The form of the report shall be as agreed to between the Company and OHC.
“SERVICER” means the mortgage loan servicer or servicers selected by OHC to service the Assets.
“SERVICING FEES” means the fees and expenses payable to a Servicer by the Company for services performed by the Servicer pursuant to the terms of the Servicing Agreement.
“SERVICING AGREEMENT” means the servicing agreement in place with a Servicer.
“TERMINATION EVENT” has the meaning set forth in Section 6.1.
ARTICLE II SERVICING
Section 2.1 Appointment of OHC,
OHC shall direct the collection, administration and servicing of all accounts with respect to the Assets in accordance with this Agreement and shall have full power and authority, to the extent not limited hereunder to do or cause to be done any and all things in connection with such servicing, administration and collection.
Section 2.2 Documents Evidencing Assets.
OHC acknowledges and agrees that the Custodial Agent pursuant to the terms of the Custodial Agreement shall retain originals of the mortgage, note and other related mortgage documents that evidence an Asset. OHC will review the Custodial Agreement and agrees to comply with its terms. OHC shall be permitted to (i) maintain and retain copies of all instruments or documents that are in the possession of the Custodial Agent and (ii) maintain and retain originals or copies, as appropriate, of all instruments and documents generated by or coming into the possession of OHC or Legal Servicer (including current and historical computerized data files, whether developed or originated by OHC or others) that are reasonably required to evidence, document, collect or service any Asset. All documents described in this Section 2.2 are referred to collectively herein as the “Asset Documents”. All Asset Documents shall remain the property of Company.
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Section 2.3 Duties of OHC.
OHC shall monitor the activities and actions of the Servicer and the Legal Servicer and shall use commercially reasonable efforts to require, by enforcement of the applicable contract of placement or engagement, that such activities and actions are in compliance with provisions of this Agreement and the Servicing Agreement and the Legal Services Agreement, as applicable. OHC shall use reasonable efforts to ensure that all borrower-facing servicing with respect to any Asset shall be conducted solely by residential mortgage servicers which hold all licenses required by Applicable Law. Notwithstanding the foregoing, OHC does not and will not act in any legal capacity with respect to the Assets and all activities as are conducted in the service of the Assets, will be conducted by the Servicer, Legal Servicer and other engaged providers on behalf of the Company.
Section 2.4 Servicing Standards.
(a) OHC agrees that it shall manage, through its agents and contract parties, the servicing, administration, collection, marketing, legal recovery and sale of the Assets in a commercially reasonable manner.
(b) OHC shall diligently manage and administer the interests of the Company under the Legal Services Agreement and will refer Assets for the performance of the “Legal Services” described therein.
(c) OHC shall diligently manage and administer the interest of the Company under the Servicing Agreement.
(d) Notwithstanding anything herein to the contrary, OHC shall not, without the prior written consent of the Company. acquire any real property secured by an Asset (or permit Legal Servicer or Servicer (or any subservicer to acquire such real property), whether through foreclosure or otherwise; provided, however, that the foregoing limitation shall not prohibit OHC from authorizing the Legal Servicer, Servicer, or its subservicers to commence and/or maintain foreclosure or similar actions with respect to an Asset so long as no real property is acquired by them or on behalf of the Company without the prior written authorization of the Company.
Section 2.5 Pre-purchase Due Diligence.
OHC shall cause to be conducted Pre-purchase Due Diligence which shall include any activity conducted by OHC or its sub-servicers with regards to analyzing the quality of the Assets proposed to be acquired under a proposed asset purchase. All costs and expenses at closing including any due diligence conducted on the Assets purchased by the Company shall be paid by the Company.
Section 2.6 Power and Authority.
OHC is hereby granted the full power and authority to conduct its management of the servicing, administration and collection activities with respect to the Assets for and on behalf of Company in the manner contemplated in this Agreement. Upon request, the Company shall furnish OHC with any powers of attorney or other documents which OHC may reasonably request and which the Company may reasonably approve in order to take such steps as OHC deems necessary, appropriate or expedient to carry out its management of servicing, administration and collection activities with respect to the Assets consistent with the terms of this Agreement.
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Section 2.7 Asset Sales.
OHC may convey, sell, lease or otherwise dispose of the Assets, or any portion of the Assets on the Company’s behalf.
Section 2.8 Legal Compliance.
OHC shall perform all of its obligations under this Agreement in full compliance with all Applicable Law. OHC specifically represents and warrants to the Company that OHC is knowledgeable and experienced in complying with the laws, rules and regulations as they pertain to debt collection practices and procedures.
Section 2.9 Accounting for Fees. If required, OHC shall provide to Company on each Monthly Report Date a detailed accounting of all fees actually incurred and paid to OHC, the Legal Servicer or any subservicer for the immediately preceding Collection Period.
Section 2.10 Insurance.
(a) OHC shall maintain at all times during the term of this Agreement, and shall cause the Legal Servicer to maintain, the following insurance: (i) errors and omission insurance providing coverage in an amount not less than one million dollars (U.S. $1,000,000), including, but not be limited to, defense and alleged/caused by errors and omissions as well as defense and loss related (directly or indirectly) for alleged violation of federal or state laws relating to servicing and collection practices; and (ii) general comprehensive insurance providing coverage in an amount not less than one million dollars (U.S. $1,000,000).
(b) OHC shall maintain at all times during the term of this Agreement and shall cause the Legal Servicer to maintain, employee dishonesty insurance (or a similarly named and purposed insurance policy or bond) providing coverage in an amount not less than one million dollars (U.S. $1,000,000) to insure/bond theft of money by employees or other authorized Persons of OHC and Legal Servicer.
(c) All policies required under this Section 2.10 must (i) name the Company as an additional insured or loss payee, as appropriate; (ii) be in a form and issued by insurance companies reasonably approved by the Company; and (iii) shall require notice to the Company at least thirty (30) calendar days prior to the expiration, cancellation or amendment of the insurance coverage.
(d) OHC shall provide the Company proper evidence of insurance of all insurance required by this Section 2.10. OHC shall promptly upon receipt cause to be delivered to the Company a copy of all renewal and other notices received by such party with respect to the policies and all receipts for paid premiums.
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Section 2.11 Licensing.
OHC agrees that it will maintain any licenses required by Applicable Law to be held by OHC for the performance of OHC’s obligations hereunder and OHC will use good faith efforts to cause subservicers engaged by OHC, including each borrower-facing residential mortgage servicer, to maintain such licenses as are required by Applicable Law.
Section 2.12 Standard of Care. In providing the services described in this Agreement, OHC will exercise that degree of skill and care consistent with the highest degree of skill and care that OHC exercises with respect to similar assets on behalf of other Persons comparable to the Assets administered by OHC.
Section 2.13 Compliance with Company Instructions; Consent Required. OHC shall promptly and in good faith comply with the written instructions and directions of the Company with respect to the business of the Company, including, without limitation, with respect to any decision to sell, transfer or otherwise dispose of some or all of the Assets; provided, however, that such instructions and directions would not cause OHC to violate Applicable Law.
ARTICLE III MANAGEMENT FEES AND
REIMBURSEMENT OF EXPENSES
Section 3.1 Fees.
(a) In consideration for its services hereunder, OHC shall be entitled to receive the Management Services Fee.
(b) In the event of the termination of OHC, OHC shall in all cases be entitled to receive the accrued but unpaid Management Services Fees through the effective date of termination.
Section 3.2 Nonreimbursable Expenses of OHC.
It is understood and agreed that OHC shall not be entitled to payment or reimbursement for any of its general administrative or overhead expenses, including salaries, wages or other compensation of its employees.
ARTICLE IV
NEGATIVE COVENANTS
Section 4.1 Negative Covenants.
Neither Joanne Cordero nor Adam Henderson, nor their replacements, may be removed or replaced as directors of the Company without the written consent of OHC. An amendment of the Company’s limited liability company agreement or issuance of any authorizing resolution, whether related to changing the number of directors or admitting new members or any other matter, may not be made without the written consent of OHC.
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ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.1 Representations and Warranties of OHC.
OHC hereby represents and warrants to Company as follows:
(a) OHC is a limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its formation and is in good standing in each jurisdiction in which such qualification is necessary. OHC has all requisite power and authority to own and operate its properties, carry out its business as presently conducted and as proposed to be conducted and to enter into and discharge its obligations under this Agreement.
(b) The execution and delivery by OHC of this Agreement and performance and compliance by OHC with the terms of this Agreement have been duly authorized by all necessary action on the part of OHC and will not violate OHC’s organizational documents or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which OHC is a party or by which it or its properties may be bound or affected.
(c) This Agreement constitutes the valid, legal and binding obligations of OHC, enforceable against it in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and by general principles of equity (whether considered in a proceeding or action in equity or at law).
(d) No litigation is pending or, to the best of OHC’s knowledge, threatened against OHC, the consequences of which would prohibit its entering into this Agreement or that would materially and adversely affect the condition (financial or otherwise) or operations of OHC or its properties or the consequences of which would materially and adversely affect its performance hereunder.
(e) All actions, approvals, consents, waivers, exemptions, variances, franchises, orders, permits, authorizations, rights and licenses required to be taken, given or obtained, as the case may be, by or from any federal, state or other governmental authority or agency, that are necessary or advisable in connection with the execution and delivery by OHC of this Agreement have been duly taken, given or obtained, as the case may be, are in full force and effect on the date hereof, are not subject to any pending proceedings or appeals (administrative, judicial or otherwise) and either the time within which any appeal therefrom may be taken or review thereof may be obtained has expired or no review thereof may be obtained or appeal therefrom taken, and are adequate to authorize this Agreement and the performance by OHC of its obligations under this Agreement.
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(f) OHC is in compliance with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a material adverse effect on the financial condition, properties or operations of OHC.
Section 5.2 Covenants of OHC.
OHC will comply with the following covenants:
(a) OHC will preserve and maintain its legal existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business and shall conduct its business in an orderly, efficient and regular manner.
(b) OHC will not create, or attempt to create, any pledge, lien, security interest, assignment or transfer upon or in any of the Assets or any proceeds therefrom, or assign or otherwise convey, or attempt to assign or otherwise convey, any right to receive collections or other income with respect thereto, except as contemplated by this Agreement.
(c) Except for the right of OHC to remit amounts received in respect of the Assets net of certain amounts as expressly provided for in this Agreement, OHC shall not assert any claims or set-off rights against any such amounts received in respect of the Assets.
(d) In the fulfillment of OHC’s obligations under this Agreement, OHC shall not, and no person under its direct control or direction shall, (i) engage in any fraudulent activity or (ii) knowingly engage in any other activity which would constitute a violation of law or other governmental requirement.
(e) OHC will use reasonable efforts to maintain systems, personnel and facilities, including back-up and disaster recovery capability that will enable it to perform fully its obligations under this Agreement.
(f) OHC will not accept or receive or agree to accept or receive any rebate, refund, commission, fee, kickback or rakeoff, whether cash or otherwise and whether paid by or originating with an Obligor, or any other party (including but not limited to brokers and agents), as a result of or in any way in connection with collection activities related to any Asset or in connection with the sale, disposition, transfer or servicing of any Asset.
(g) Upon termination of this Agreement for any reason, OHC shall, in addition to the obligations of OHC set forth in Section 6.3 hereof, provide its reasonable cooperation to Company and any successor management services provider in the transfer of the administrative responsibilities contemplated by this Agreement.
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ARTICLE VI
TERMINATION; TRANSFER OF SERVICING; INDEMNITY
Section 6.1 Termination Events.
Any of the following acts or occurrences shall constitute a Termination Event under this Agreement (ea ch, a “Ter mination Event “):
(a) OHC shall fail to observe or perform in any material respect any material covenant or agreement required to be performed thereby under this Agreement and the continuance of such default or breach for a period of fifteen (15) calendar days after there has been given to OHC a written notice specifying the default or breach and requiring it to be remedied;
(b) Any representation, warranty or statement of OHC in this Agreement (i) which is not qualified by materiality or material adverse effect shall prove to be incorrect in any material respect as of the date on which such representation, warranty or statement is made or (ii) which is qualified by materiality or material adverse effect shall provide to have been incorrect as of the date on which such representation, warranty or statement is made;
(c) OHC shall be or become insolvent, or admit in writing its inability to pay its debts as they mature, or make a general assignment for the benefit of creditors; or OHC shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or for all or any substantial part of its property; or such receiver, trustee or similar officer shall be appointed without the application or consent of OHC and shall not be discharged within sixty (60) days of appointment; or OHC shall institute (by petition, application, answer, consent or otherwise) any insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against OHC; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of OHC and such shall remain unstayed or undismissed for sixty (60) days;
(d) A voluntary petition naming OHC, as debtor, is filed under the United States Bankruptcy Code, or an involuntary petition naming OHC, as debtor, is filed under the United States Bankruptcy Code and such involuntary petition shall remain undismissed for sixty (60) days;
(e) OHC shall liquidate, dissolve, terminate or suspend its business operations or otherwise fail to operate its business in the ordinary course;
(f) Any of the following shall occur: (i) entry of a court order which enjoins, restrains or in any way prevents OHC from conducting all or any material part of its business affairs in the ordinary course of business, or (ii) withdrawal or suspension of any license required for the conduct of any material part of the business of OHC; or
(g) OHC terminates its management services hereunder.
Section 6.2 Termination; Removal of OHC.
OHC’s services and right to receive the Management Services Fee hereunder may not be terminated by the Company other than for a Termination Event.
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Immediately upon the occurrence of a Termination Event, the Company, upon written notice to OHC, may terminate this Agreement with respect to any or all of the Assets or Portfolios, whereupon OHC shall be removed from its duties and obligations under this Agreement with respect to such Assets and Portfolios and the Company shall have the right to appoint a replacement management services provider.
Section 6.3 Effect of Termination.
Upon termination of this Agreement pursuant to Section 6.2, except for any accrued and unpaid Management Services Fee with respect to a Collection Period ended before the termination of this Agreement and as otherwise provided for in this Agreement, OHC shall not be entitled to any compensation with respect to any Assets which are no longer being administered by OHC after the date of such termination. Upon termination of this Agreement, OHC shall promptly deliver to the Company all books and records that OHC has maintained with respect to such Assets, including all Asset Documents then in the possession of OHC. Any amounts received by OHC with respect to an Asset no longer administered by OHC hereunder after removal of such responsibilities shall be remitted by OHC directly and immediately to the Recovery Account. OHC shall promptly transfer all right, title and interest in the Recovery Account to the Company or its designated agent.
ARTICLE VII MISCELLANEOUS
Section 7.1 Severability Clause.
Any part, provision, representation or warranty of this Agreement which is prohibited or which is held to be void or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. Any part, provision, representation or warranty of this Agreement which is prohibited or unenforceable or is held to be void or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by Applicable Law, the parties hereto waive any provision of law which prohibits or renders void or unenforceable any provision hereof. If the invalidity of any part, provision, representation or warranty of this Agreement shall deprive any party of the economic benefit intended to be conferred by this Agreement, the parties shall negotiate in good faith to develop a structure the economic effect of which is as nearly as possible the same as the economic effect of this Agreement without regard to such invalidity.
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Section 7.2 Notices.
Any notices, consents, directions, demands or other communications given under this Agreement (unless otherwise specified herein) shall be in writing and shall be deemed to have been duly given when delivered in person or by overnight delivery at, or e-mailed to, the respective addresses or e-mail address, as the case may be, set forth below (or to such other address or e-mail address as either party shall give notice to the other party pursuant to this Section 7.2); provided, however, any notice of a Termination Event given by the Company to OHC shall be delivered either in person or by overnight mail:
If to Company:
Skid Row AHP, LLC
440 S. LaSalle Street, Suite 1110
Chicago, Illinois 60605
Attention: Asset Management Team
Telephone: (866) AHP-TEAM
E-mail:
If to OHC:
Oak Harbor Capital, LLC
2003 Western Avenue, Ste 340
Seattle, WA 98121 Attention: Asset Management Team
Telephone: (206) 267-9992
E-mail: [email protected]
Any such demand, notice or communication hereunder shall be deemed to have been duly given when received by the other party or parties at the addresses described above, or such other address as may hereafter be furnished to the other party or parties by like notice and shall be deemed to have been received on the date delivered to or received at the premises of the addresses.
Section 7.3 Assignment.
The obligations of the parties under this Agreement shall not be assigned without the prior written consent of the other party.
Section 7.4 Counterparts.
For the purpose of facilitating the execution of this Agreement and for other purposes, this Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed to be an original, and together shall constitute and be one and the same instrument.
Section 7.5 Governing Law; Jurisdiction; Waiver of Jury Trial;
(a) Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware.
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(b) Jurisdiction. OHC and the Company hereby irrevocably submit to the non- exclusive jurisdiction of any federal court sitting in Delaware in any action or proceeding arising out of or relating to this Agreement, and OHC and the Company hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such federal court. OHC and the Company hereby irrevocably waive, to the fullest extent they may effectively do so, the defense of an inconvenient forum to the maintenance of such action or proceeding and irrevocably consent to the service of any summons and complaint and any other process by the mailing of copies of such process to them at the addresses specified in Section 7.2. To the extent permitted by Applicable Law, and without limiting any right to appeal, OHC and the Company hereby agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Section 7.5 shall affect the right of any party to serve legal process in any other manner (or in any other jurisdiction) permitted by law or affect the right of any party to bring any action or proceeding under this Agreement in the courts of other jurisdictions.
(c) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENT OR ANY INSTRUMENT OR DOCUMENT DELIVERED THEREUNDER.
Section 7.6 Amendments.
This Agreement may be amended from time to time by a written instrument signed by OHC and the Company and no waiver of any of the terms hereof by any party shall be effective unless it is in writing and signed by the other parties.
Section 7.7 Integration.
This Agreement comprises the final and complete integration of all prior expressions by the parties hereto with respect to the subject matter hereof and shall constitute the entire agreement among the parties hereto with respect to such subject matter along with any prior executed confidentiality and non-disclosure agreements between the Parties, superseding all prior oral or written understandings.
Section 7.8 Agreement Effectiveness.
This Agreement shall become effective upon delivery of fully executed counterparts hereof to each of the parties hereto.
Section 7.9 Headings Descriptive.
The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.
Section 7.10 Advice from Independent Counsel.
The parties hereto understand that this Agreement is a legally binding agreement that may affect such party’s rights. Each party hereto represents to the other that it has received legal advice from counsel of its choice regarding the meaning and legal significance of this Agreement and that it is satisfied with its legal counsel and the advice received from it.
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Section 7.11 Judicial Interpretation.
Should any provision of this Agreement require judicial interpretation, it is agreed that a court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against any person by reason of the rule of construction that a document is to be construed more strictly against the person who itself or through its agent prepared the same, it being agreed that all parties hereto have participated in the preparation of this Agreement.
Section 7.12 Confidentiality
(a) The Company and OHC agree that the terms of the transaction set forth in this Agreement, along with all information regarding the Portfolios and all confidential, proprietary and non-public information regarding OHC and the Company and their respective subsidiaries and affiliates and their business operations, procedures, methods and plans (together with all notes, analysis, compilations, studies and other documents, whether prepared by the Company or OHC and their respective subsidiaries and affiliates, or others, which contain or otherwise reflect such information (collectively, the “Confidential Information”) shall be considered confidential. Therefore, the Company and OHC agree not to disclose any Confidential Information to any Person, nor provide copies of this Agreement, or earlier drafts of this Agreement, to any person, provided, however, that the Company and OHC may disclose any such Confidential Information (i) to any party contemplated in this Agreement for purposes contemplated hereunder (including to any permitted assignee of any such parties’ rights) provided that such party shall be informed of the confidential nature of the Confidential Information and shall agree to maintain its confidentiality in accordance with this Section 7.12; (ii) to the directors, employees, auditors, current or prospective investors, counsel or affiliates of OHC or the Company, each of whom shall be informed of the confidential nature of the Confidential Information; (iii) as may be required by any municipal, state, federal or other regulatory body having or claiming to have jurisdiction over such party; (iv) in order to comply with any law, order, regulation, regulatory request or ruling applicable to such party; (v) in the event any such party is legally compelled (by interrogatories, requests for information or copies, subpoena, civil investigative demand or similar process) to disclose any such Confidential Information; or (vi) to prospective purchasers of the Assets or lenders to the Company, each of whom shall be informed of the confidential nature of the Confidential Information, in connection with any sale, disposition, liquidation, financing or refinancing of the Assets or the Company. This Section 7.12 shall be inoperative as to those portions of the Confidential Information which are or become generally available to the public on a non-confidential basis from a source other than a party having a duty or obligation of confidentiality. The foregoing restrictions shall not prohibit the use of template documents in the form of this Agreement provided that all financial or economic terms, exhibits, appendices, schedules and identifying information with respect to the Parties have been redacted therefrom.
(b) Notwithstanding anything herein to the contrary, each party hereto may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of the transaction contemplated by this Agreement and all materials of any kind (including opinions or other tax analyses) that are provided to such party or such person relating to such tax treatment and tax structure. This authorization is not intended to permit disclosure of any other information including terms or details not relevant to the tax treatment or the tax structure of this transaction.
[Signature page follows]
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IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their respective authorized officers as of the day and year first above written.
| SKID ROW AHP, LLC | ||
| By: | ||
| Name | ||
| Title: | ||
| OAK HARBOR CAPITAL, LLC | ||
| By: | ||
| Name | ||
| Title: | ||
Exhibit 1a-6c
Exhibit 1a-6d
Exhibit 1a-6e
CONSULTING SERVICES AGREEMENT
This CONSULTING SERVICES AGREEMENT (this “Agreement”) is made as of April __, 2022, by and among SKID ROW AHP LLC, a Delaware limited liability company (the “Company”), and RESTORA, LLC, a Delaware limited liability company (“Restora”).
RECITALS:
WHEREAS, the Company’s business includes acquiring and managing recoveries of portfolios of title defective, title curative and/or defaulted first-lien residential mortgage loan assets (the “Assets”);
WHEREAS, Restora is dedicated to the mission of providing permanent supportive housing so that people who have experienced homelessness, prolonged extreme poverty, disabilities, mental illness and/or addiction can lead safe, stable lives in wellness (the “Mission”);
WHEREAS, it is intended that the Assets acquired by the Company may be repurposed to serve the Mission and Restora will provide consulting services and advice to the Company related thereto by drawing on the resources of its parent company, The Skid Row Housing Trust, a 501(c)(3) Non-Profit, Public Benefit Organization, and one of the largest not for profits in the USA dedicated to the Mission.
NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter set forth, the Company and Restora hereby agree as follows:
AGREEMENT:
Restora hereby agrees to provide consulting services and advice as requested from time to time by the Company related to repurposing the Assets for the Mission and in connection therewith will draw upon the resources of its parent organization, the Skid Row Housing Trust.
These services and advice will include but not be limited to:
| ● | Providing board representation to the Company as it relates to the Mission; |
| ● | Enhancing the Company’s access to Asset sale opportunities with governmental agencies seeking qualified not for profit sponsored counterparties, including with HUD, Fannie Mae, and Freddie Mac; |
| ● | Providing workout solutions with homeowners aimed at home retention or transition to affordable rental housing; and |
| ● | Enabling affordable purchase opportunities of vacant properties directly to new homeowners. |
In consideration thereof, the Company will pay a consulting servicing fee to The Skid Row Housing Trust equal to 1% of the investment capital raised by the Company, payable upon the closing of each investment in the Company.
In further consideration thereof, Restora shall at all times have the right to appoint a director of the Company who may not be removed or replaced without the consent of Oak Harbor Capital, LLC.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be executed by their respective authorized officers as of the day and year first above written.
| SKID ROW AHP, LLC |
| By: | ||
| Name: | ||
| Title: |
| RESTORA, LLC |
| By: | ||
| Name: | ||
| Title: |
Exhibit 1A-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 April 12, 2022 relating to the balance sheet of Skid Row AHP LLC as of December 31, 2021 and the related statements of operations, changes in members’ deficit, and cash flows for the period from December 17, 2021 (inception) to December 31, 2021, and the related notes to the financial statements.
/s/ Artesian CPA, LLC
Denver, CO
July 8, 2022
Artesian CPA, LLC
1624 Market Street, Suite 202 | Denver, CO 80202
p: 877.968.3330 f: 720.634.0905
[email protected] | www.ArtesianCPA.com
Exhibit 1a-12
Suite 250 Marlton, NJ 08053 (856) 382-8550 www.lexnovalaw.com |
 |
Markley S. Roderick, Esquire Direct Dial (856) 382-8402 |
LIMITED LIABILITY COMPANY
May 9, 2022
Skid Row AHP, LLC
440 S. LaSalle Street, Suite 1110
Chicago, IL 60605
Ladies and Gentlemen:
We have acted as counsel to Skid Row AHP, LLC, a Delaware limited liability company (the “Company”), in connection with the Offering Statement on Form 1-A (the “Offering Statement”) being filed by the Company with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Securities Act”), and Regulation A thereunder. The Offering Statement relates to the issuance and sale by the Company of up to $150,000,000 of limited liability company interests designated as “Series A Preferred Stock” of the Company (the “Shares”). The $150,000,000 of shares will be sold with no more than $75,000,000 in the first 12 months and no more than $75,000,000 in the second 12 months.
We have examined such documents and such matters of fact and law that we have deemed necessary for the purpose of rendering the opinion set forth herein. As to questions of fact material to this opinion, we have relied on certificates or comparable documents of public officials and of officers and representatives of the Company. In rendering the opinion expressed below, we have assumed without verification the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as originals, the conformity to the originals of all documents submitted to us as copies and the authenticity of the originals of such copies.
Based on the foregoing, and subject to the qualifications, assumptions and limitations stated herein, we are of the opinion that the Shares have been duly authorized and, when the Shares have been duly issued and delivered against payment therefore in accordance with the terms of the Purchase and Investment Agreement, the Shares will be validly issued, and purchasers of the Shares will have no obligation to make payments to the Company or its creditors (other than the purchase price for the Shares) or contributions to the Company or its creditors solely by reason of the purchasers’ ownership of the Shares.
We do not express any opinion herein concerning any law other than Delaware Limited Liability Company Act as in effect on the date of this letter.
Page 2
We hereby consent to the filing of this opinion letter as Exhibit 1A-12 to the Offering Circular included in the Offering Statement. In giving this 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.
| Very truly yours, | ||
| LEX NOVA LAW LLC | ||
| By: | /s/ Markley S. Roderick | |
| Markley S. Roderick | ||
Exhibit 1A-15.1
10 E. Stow Road, Suite 250 Marlton, NJ 08053 (856) 382-8550 www.lexnovalaw.com |
 |
Markley S. Roderick, Esquire Member of the NJ and PA Bar Direct Dial (856) 382-8402 |
LIMITED LIABILITY COMPANY
July 11, 2022
Filed Via EDGAR with copy by email
Division of Corporation Finance
Office of Finance
Securities and Exchange Commission
Washington, D.C. 20549
| Re: | Skid Row AHP LLC( the “Company”) | |
| Draft Offering Statement on Form 1-A | ||
| Submitted May 19, 2022 | ||
| CIK No. 0001929327 |
Dear Sir/Madam:
This is in response to your letter of June 10, 2022. We have copied below the comments from your letter and provided the company’s response below each comment.
Your Comment #1 – Draft Offering Statement on Form 1-A
General
It appears that the aggregate offering price of this offering exceeds $75 million. Please refer to Rule 251(a)(2) of Regulation A and reduce the amount of securities offered herein to not exceed $75 million or tell us how you are complying with Rule 251.
Our Response:
The disclosures have been revised.
Your Comment #2 – Draft Offering Statement of Form 1-A
General
Please include an audit report from your auditor that covers the financial statements for the year ended December 31, 2021, and also provide the auditor’s consent for the audit report included in the amended filing.
Our Response:
The audit report and the auditor consent have been included.
Your Comment #3 – Securities Being Offered
Distributions, page 25
We note your disclosure here that you intend to pay investors a 7% annual return on their invested capital. You also state on page 26 that your board “must try to return all of the money invested by each Investor no later than the fifth (5th) anniversary following the investment.” Please revise to clarify the following disclosure: (1) clarify how paying a 7% return annually would result in a “return of capital” in 5 years, and (2) clarify what you mean by this disclosure because it appears that you may be planning to repurchase the securities from investors.
In addition, to the extent the shares will be cancelled once the initial investment and the 7% interest have been repaid, please revise your disclosure accordingly. Please also explain your statement on page 26 that “if the Company is profitable, as we expect it to be, it is very likely that investors will receive a return of their investment sooner than five years” by providing qualitative and quantitative support for your assertions. Please also balance this disclosure by clarifying, if true, that you may be unable to pay any distributions, resulting in a complete loss of the investment, and the maximum return an investor can achieve is 7%.
Our Response:
The disclosures have been revised.
Please note that while the Company offers investors a limited right of liquidity, the Company is not planning to repurchase securities from investors.
*****
Thank you for your continued attention to this matter. Please let me know if you have further questions or need additional information.
| Very truly yours, | ||
| Lex Nova Law, LLC | ||
| /s/ Markley S. Roderick | ||
| Markley S. Roderick | ||
| MSR/jae | ||
| Enclosure | ||
| cc: Jorge P Newbery, CEO |
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