MHD EQUITY FUND LLC
c/o MHD Capital LLC
401 Wilshire Blvd 12th Fl, Office 34 Santa Monica, California 90401
Re: MHD Equity Fund LLC Dear Prospective Investor,
Thank you for your interest in the MHD Equity Fund LLC offering. Attached please find the following offering documents for your review and approval.
1. Private Placement Memorandum. Please review this document carefully as it outlines the details of the offering along with the various risks associated with your investment. There is no signature required on the Private Placement Memorandum.
2. Operating Agreement. Please review and execute the Operating Agreement. Please execute the appropriate signature page depending on whether you are investing as an individual, entity, self-directed IRA or trust. In the event that you are investing through your self-directed IRA, please sign and date on the margins next to the signature line and forward the Company Agreement to your custodian who will execute the document on behalf of the IRA.
3. Prospective Purchaser Questionnaire. Please complete and sign in your individual capacity, even if you are investing through an entity, IRA, or trust.
4. Subscription Agreement. Please complete and execute the Subscription Agreement. Please complete and execute the appropriate signature page depending on whether you are investing as an individual, entity, self-directed IRA or trust. In the event that you are investing through your self-directed IRA, please sign and date on the margins next to the signature lines and forward the Subscription Agreement to your custodian who will execute the document on behalf of the IRA.
5. Business Plan. Please review the business plan carefully even if you have previously received and reviewed it as we may have made some important updates from the last time you read it.
Following closing, we will forward you a fully executed copy of all the agreements.
Should you have any questions, please do not hesitate to contact us.
Regards,
Moses Hershko
MHD EQUITY FUND LLC CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
THE INTERESTS REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
THE INTERESTS ARE BEING OFFERED AND SOLD UNDER THE EXEMPTION PROVIDED BY SECTION 4(A)(2) OF THE SECURITIES ACT AND/OR PURSUANT TO RULE 506(C) THEREUNDER.
THERE IS NO OBLIGATION ON THE ISSUER TO REGISTER THE INTERESTS UNDER THE SECURITIES ACT. A PURCHASER OF ANY INTEREST MUST BE PREPARED TO BEAR THE ECONOMIC RISK OF THE INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE INTERESTS REPRESENTED HEREBY HAVE NOT BEEN REVIEWED OR APPROVED BY THE SECURITIES ADMINISTRATORS OF CERTAIN STATES OR OTHER JURISDICTIONS NOR HAVE THEY BEEN QUALIFIED OR REGISTERED UNDER THE APPLICABLE SECURITIES LAWS OF CERTAIN STATES OR OTHER JURISDICTIONS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE QUALIFICATION OR REGISTRATION REQUIREMENTS OF SUCH LAWS. THEREFORE, A PURCHASER OF ANY INTEREST WILL NOT BE ABLE TO RESELL IT UNLESS THE INTEREST IS QUALIFIED OR REGISTERED UNDER THE APPLICABLE STATE SECURITIES LAWS OR LAWS OF OTHER JURISDICTIONS OR UNLESS AN EXEMPTION FROM SUCH QUALIFICATION OR REGISTRATION IS AVAILABLE.
THIS PRIVATE PLACEMENT MEMORANDUM HAS BEEN PREPARED FOR SUBMITTAL TO A LIMITED NUMBER OF POTENTIAL INVESTORS FOR CONSIDERATION OF THE PURCHASE OF AN INTEREST IN THE COMPANY AND IS FOR USE ONLY BY THE INTENDED RECIPIENT. IT IS NOT AUTHORIZED FOR ANY OTHER PURPOSE OR ANY UNINTENDED RECIPIENT. IF YOU ARE AN UNINTENDED RECIPIENT OR IF YOU ACCEPT DELIVERY OF THIS MEMORANDUM AND DO NOT PURCHASE AN INTEREST WITHIN THE TIME ALLOWED, YOU AGREE TO DISCARD IT AND ALL ENCLOSED DOCUMENTS TO THE COMPANY. THIS MEMORANDUM MAY NOT BE REPRODUCED IN WHOLE OR IN PART OR FORWARDED TO OTHER POTENTIAL INVESTORS. IT MAY ONLY BE DISTRIBUTED AND DISCLOSED TO THE PROSPECTIVE INVESTORS TO WHOM IT IS PROVIDED DIRECTLY BY THE MANAGER.
PRIVATE PLACEMENT MEMORANDUM MHD EQUITY FUND LLC
$200,000,0001
LIMITED LIABILITY COMPANY MEMBERSHIP INTERESTS OFFERED AT $1,000 PER UNIT
MHD Equity Fund LLC, a Delaware limited liability company (the “Company”), via its Sponsor,
MHD Capital LLC, hereby Offers to only Accredited Investors 200,000 Class A Membership Units in the Company. MHD Capital LLC will also act as the Manager of the Company. The securities referenced in this Offering are being sold on a Best Efforts basis pursuant to the federal securities exemption provided by Section 4(A)(2) of the Securities Act and/or pursuant to Rule 506(c) promulgated thereunder. Proceeds from the Offering will primarily be used to purchase improved and/or unimproved land, residential real estate, and commercial real estate for development, redevelopment, and/or repositioning in select geographical markets throughout the United States and throughout the world. In addition to real estate, the Company intends to use a portion of the funds raised by this Offering to purchase Bitcoin (“Bitcoin” or “BTC”), which it intends to hold as a hedge on the ongoing value of the Company.
Class A Members Price to Investors Number of Units Total Proceeds to Company
Minimum Offering $1,000 200 $200,000
Target Offering $1,000 200,000 $200,000,000
DATE OF THIS PRIVATE PLACEMENT MEMORANDUM: October 3, 2025
1 Sponsor, in its sole discretion, reserves the right to raise up to $350,000,000 through the sale of Class A Membership Units in the Company.
IMPORTANT NOTICES TO INVESTORS
INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK, POTENTIAL CONFLICTS OF INTEREST, AND PAYMENT OF FEES TO THE MANAGER AND ITS AFFILIATES. PROSPECTIVE INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE FAMILIAR WITH AND UNDERSTAND THE TERMS OF THE OFFERING. (SEE "RISK FACTORS," "CONFLICTS OF INTEREST" AND "COMPENSATION AND FEES TO THE MANAGER AND AFFILIATES.")
INVESTMENT IS NOT PERMITTED FOR PROSPECTIVE INVESTORS WHO LACK SUBSTANTIAL NET WORTH (SEE "QUALIFICATION OF INVESTORS"). ALTHOUGH THE MANAGER IS OF THE OPINION THAT THE COMPANY WILL BE CLASSIFIED AS A "LIMITED LIABILITY COMPANY" FOR FEDERAL INCOME TAX PURPOSES, THE INTERNAL REVENUE SERVICE ("IRS") HAS NOT BEEN REQUESTED TO ISSUE A RULING ON THE FEDERAL INCOME TAX STATUS OF THE COMPANY OR OTHER TAX ASPECTS OF THE INVESTMENT AND THE OPINION OF THE MANAGER IS NOT BINDING ON THE IRS.
THE UNITS HAVE NOT BEEN REGISTERED WITH NOR APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (“COMMISSION”) NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS OFFERING HAS NOT BEEN APPROVED OR DISAPPROVED UNDER APPLICABLE STATE SECURITIES LAWS, BY THE STATE DEPARTMENT OF CORPORATIONS, SECURITIES REGULATION DIVISION (“DIVISION”), NOR HAS ANY DIVISION REVIEWED OR PASSED UPON THE ACCURACY OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL TO OR A SOLICITATION OF AN OFFER TO BUY FROM ANYONE IN ANY STATE OR IN ANY OTHER JURISDICTION WITHIN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED.
DURING THE COURSE OF THE OFFERING AND PRIOR TO SALE, EACH OFFEREE OF THE UNITS AND THE OFFEREES ADVISOR(S) ARE INVITED TO ASK QUESTIONS OF AND OBTAIN ADDITIONAL INFORMATION FROM THE MANAGER CONCERNING THE TERMS AND CONDITIONS OF THE OFFERING, THE COMPANY, THE DEBT TO BE OWED BY THE COMPANY AND ANY OTHER RELEVANT MATTERS (INCLUDING, BUT NOT LIMITED TO, ADDITIONAL INFORMATION TO VERIFY THE ACCURACY OF THE INFORMATION SET FORTH HEREIN), TO THE EXTENT THE MANAGER POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORT OR EXPENSE. OFFEREES OR ADVISORS HAVING QUESTIONS OR DESIRING ADDITIONAL INFORMATION SHOULD CONTACT THE MANAGER.
THIS MEMORANDUM DOES NOT CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS
MADE, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS OF DOCUMENTS PURPORTED TO BE SUMMARIZED HEREIN. THIS MEMORANDUM CONTAINS SUMMARIES OF CERTAIN DOCUMENTS, THAT ARE BELIEVED TO BE ACCURATE BUT REFERENCE IS HEREBY MADE TO THE ACTUAL DOCUMENTS, COPIES OF WHICH ARE ATTACHED HERETO OR ARE AVAILABLE AT THE REQUEST OF THE MANAGER, FOR COMPLETE INFORMATION CONCERNING THE RIGHTS AND OBLIGATIONS OF THE PARTIES HERETO. ALL SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE, AND NOTHING IN THIS MEMORANDUM SHALL EXTEND THE LIABILITY UNDER ANY SUCH DOCUMENTS OF ANY OF THE PARTIES HERETO. ALL DOCUMENTS RELATING TO THE OFFERING WILL BE MADE AVAILABLE TO THE OFFEREE NAMED BELOW AND/OR HIS ADVISOR(S) UPON REQUEST.
ANY ADDITIONAL INFORMATION OR REPRESENTATIONS GIVEN OR MADE BY THE COMPANY OR THE MANAGER IN CONNECTION WITH THIS OFFERING, WHETHER ORAL OR WRITTEN, ARE SUPERSEDED IN THEIR ENTIRETY BY THE INFORMATION SET FORTH IN THIS MEMORANDUM AND ITS EXHIBITS (ALL OF WHICH ARE INCORPORATED HEREIN BY REFERENCE), INCLUDING, BUT NOT LIMITED TO, THE RISK FACTORS DESCRIBED HEREIN.
THE OFFERING CAN BE WITHDRAWN AT ANY TIME BEFORE CONSUMMATION AND IS SPECIFICALLY MADE SUBJECT TO THE CONDITIONS DESCRIBED IN THIS MEMORANDUM. IN CONNECTION WITH THE OFFERING AND SALE OF THE UNITS, THE MANAGER RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO REJECT ANY SUBSCRIPTION IN WHOLE OR IN PART OR TO ALLOT TO ANY PROSPECTIVE INVESTOR LESS THAN THE UNITS SUBSCRIBED FOR BY SUCH PROSPECTIVE INVESTOR.
SINCE THERE ARE SUBSTANTIAL RESTRICTIONS ON THE TRANSFERABILITY OF THE UNITS, EACH OFFEREE MUST ASSUME THAT THE OFFEREE WILL BEAR THE ECONOMIC RISK OF THE OFFEREE’S INVESTMENT FOR AN INDEFINITE PERIOD. THE UNITS MAY NOT BE TRANSFERRED WITHOUT THE PRIOR WRITTEN CONSENT OF THE MANAGER. IN ADDITION, UNITS ARE NOT REGISTERED FOR SALE TO THE PUBLIC UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND THE UNITS MAY BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF BY AN INVESTOR ONLY IF, AMONG OTHER THINGS, THE UNITS ARE REGISTERED OR, IN THE OPINION OF COUNSEL TO THE COMPANY, REGISTRATION IS NOT REQUIRED UNDER SUCH LAWS.
THIS MEMORANDUM HAS BEEN PREPARED SOLELY FOR THE USE OF PERSONS WHO MAY WANT TO PURCHASE UNITS AND DELIVERY THEREOF CONSTITUTES AN OFFER ONLY IF THIS MEMORANDUM WAS SENT TO PERSONS DIRECTLY FROM THE ISSUER OR ITS MANAGER AND IF THE PERSON SO NAMED MEETS THE SUITABILITY STANDARDS SET FORTH UNDER "QUALIFICATION OF INVESTORS." ANY DISTRIBUTION OF THIS MEMORANDUM TO ANY PERSON OTHER THAN THE INTENDED OFFEREE (OR TO THOSE INDIVIDUALS WHOM THE OFFEREE RETAINS TO ADVISE THE OFFEREE WITH RESPECT THERETO) IS UNAUTHORIZED AND ANY REPRODUCTION OF THIS MEMORANDUM IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF ITS
CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE MANAGER, IS PROHIBITED.
NO REPRESENTATIONS OR WARRANTIES OF ANY KIND ARE INTENDED TO BE MADE IN THIS MEMORANDUM OR SHOULD BE INFERRED THEREFROM WITH RESPECT TO THE ECONOMIC RETURN OR THE TAX TREATMENT WHICH MAY ACCRUE TO THE INVESTOR. NO ASSURANCE CAN BE GIVEN THAT EXISTING TAX LAWS WILL NOT BE CHANGED OR INTERPRETED ADVERSELY, EITHER OF WHICH MAY DENY THE PROSPECTIVE INVESTORS ALL OR A PORTION OF THE TAX TREATMENT CONSIDERED HEREIN. PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM AS LEGAL, TAX OR INVESTMENT ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT PROSPECTIVE INVESTOR’S OWN ATTORNEY, ACCOUNTANT AND OTHER ADVISORS AS TO LEGAL, TAX AND RELATED MATTERS CONCERNING A PURCHASE BY PROSPECTIVE INVESTOR OF A UNIT.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS, OR GIVE ANY INFORMATION, WITH RESPECT TO THE UNITS, EXCEPT FOR INFORMATION CONTAINED OR REFERRED TO HEREIN.
FORWARD LOOKING STATEMENTS
This Memorandum contains certain statements that are forward-looking statements within the meaning of the United States federal securities laws. These are statements about the Company’s or Manager’s, or Sponsor’s expectations, beliefs, intentions or strategies for the future. Prospective Investors will be able to identify these types of statements since they are indicated by words or phrases such as “anticipate,” “expect,” “intend,” “plan,” “will,” “Company believes,” “Manager believes” and similar language. In addition, these statements may be qualified by certain risks, uncertainties and assumptions which are explained more fully in each particular case. The Company has based forward- looking statements on the expectations of information currently available to the Manager. The Company’s actual results may differ materially from the results anticipated in the statements.
These forward-looking statements are made only as of the date hereof, and the Company undertakes no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurances that such expectations will prove to be accurate. All phases of the Company's operations are subject to a number of uncertainties, risks and other influences, many of which are outside the control of the Company and cannot be predicted with any degree of accuracy.
In light of the significant uncertainties inherent in the forward-looking statements made in this Memorandum, the inclusion of such statements should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be ac hieved.
CONFIDENTIALITY OF INFORMATION
This Memorandum and information concerning the Company, the Company’s business plan, and the proposed operations included in or incorporated by reference into this Memorandum, or otherwise disclosed to the Prospective Investor in connection with this Offering, is confidential information (the “Confidential Information”). The Prospective Investor shall consider all information concerning the Company received by the Prospective Investor to be Confidential Information.
By accepting this Memorandum, the Prospective Investor agrees to maintain the confidentiality of the Confidential Information and agrees to promptly discard this Memorandum and any other documents or information furnished if the Prospective Investor does not purchase any of the Units offered hereby. Any reproduction or distribution of this Memorandum, in whole or in part, or the disclosure of its contents without Manager’s prior written consent, is prohibited. Any person acting contrary to the foregoing restrictions may place himself or herself, and the Company, in violation of federal or state securities laws.
The Prospective Investor hereby confirms that any information provided by, or any discussions held with the Company prior to the date of this Memorandum shall be subject to the terms set forth in this section of the Memorandum and in the Subscription Agreement (see Exhibit C).
TABLE OF CONTENTS
GLOSSARY OF TERMS 1
SUMMARY OF OFFERING 6
QUALIFICATION AND SUITABILITY OF INVESTORS 8
THE COMPANY 12
THE OFFERING 11
BUSINESS DESCRIPTION 16
MANAGER 14
COMPENSATION AND FEES TO THE MANAGER AND AFFILIATES 18
SELLING AGENT 15
MANAGEMENT OF PROPERTIES 15
RISK FACTORS 15
PROJECTED SOURCES AND USES OF CASH 43
DISTRIBUTIONS TO MEMBERS 43
NO TAX RULING 44
OPERATING AGREEMENT 44
CONFLICTS OF INTEREST 44
STANDARD OF CARE; INDEMNIFICATION 46
RESTRICTIONS ON TRANSFER 47
FURTHER INVESTIGATION 48
HOW TO SUBSCRIBE FOR CLASS A MEMBERSHIP UNITS 48
GLOSSARY OF TERMS
“Accredited Investor” shall have the definition as computed under Rule 501(a) of Regulation D promulgated under the Act, which means any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:
1. Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000 at the time of the purchase, excluding the value of the primary residence of such person;
2. Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
3. Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
4. Any entity in which all of the equity owners are accredited investors;
5. Any bank as defined in section 3(a)(2) of the Act or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; insurance company as defined in Section 2(13) of the Act; investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; employee benefit plan within the meaning of Title I of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000; or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
6. Any private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
7. Any organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000; and
8. Any trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D promulgated under the Act.
9. A natural person holding, in good standing, one or more professional certifications, designations or other credentials issued by an accredited educational institution, which the Securities and Exchange Commission may designate from time to time, as qualifying. Presently holders in good standing of the Series 7, Series 65, and Series 82 licenses will qualify as an accredited investor.
10. Natural persons who are "knowledgeable employees" as defined in Rule 3c– 5(a)(4) under the Investment Company Act of 1940, of the private-fund issuer of the securities being offered or sold.
11. Entities, including, but not limited to, limited liability companies, of a type not listed in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) of Regulation D promulgated under the Act, not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5 million.
12. Securities and Exchange Commission and state-registered investment advisers, exempt reporting advisers, and rural business investment companies.
13. Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered.
14. Family offices (as defined in Rule 202(a)(11)(G)-1 under the Advisers Act with (i) assets under management in excess of $5 million, (ii) that are not formed for the specific purpose of acquiring the securities offered and (iii) whose prospective investments are 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.
15. "Spousal equivalent" (cohabitant occupying a relationship generally equivalent to that of a spouse) may pool their finances for the purpose of qualifying as accredited investors.
“Acquisition Fee” means a one-time acquisition fee of up to 3% of the purchase price of each Property, which shall be paid to Manager at closing of each Property.
“Act” or “Securities Act” means The Securities Act of 1933, as amended.
“Affiliate” of a Member or Manager means any person, entity, or trust, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Member or a Manager, as applicable. The term “control,” as used in the immediately preceding sentence, means with respect to a corporation, limited liability company, limited life company or limited duration company (collectively, “Limited Liability Company”), the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the controlled corporation or Limited Liability Company and, with respect to any individual, partnership, trust, estate, association or other entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.
“Agreement” or “Operating Agreement” means the Company Operating Agreement, attached hereto as Exhibit A, or as hereafter amended.
“Asset Management Fee” means an asset management fee of 1% of the aggregate Unrecovered Capital Contributions in the Company paid to Manager on a monthly basis. The Manager may defer or waive Management Fees at its discretion.
“Best Efforts” means the type of securities offering Sponsor intends to conduct. Sponsor shall do the best it can to sell as much of the securities targets as possible but will commence operations as soon as the first Prospective Investor is accepted. Immediately upon accepting the first investor, Sponsor may use the proceeds to conduct operations including, but not limited to, paying 3rd party vendors, such as architects, SEC attorneys, real estate attorneys, etc.
“Call Option” means the right of the Manager to redeem the Class A Membership Units. The Manager, in its sole discretion, shall have the right to redeem some or all of the Class A Membership Units. See the ‘THE OFFERING’ on page 13 for additional terms.
“Capital Contributions” means the contributions made by the Members to the Company pursuant to Sections 6.1 or 6.4 of the Operating Agreement and, in the case of all the Members, the aggregate of all such Capital Contributions.
“Capital Transaction Event” means the sale or refinance of a Property, or sale of substantially all of the assets of the Company.
“Capital Transaction Fee” means a fee paid to Manager at the sale or re-finance of a Property of up to 3% of the sales price of a Property and/or 3% of the new loan amount, in the case of a refinance.
“Class A Member(s)” means the Person(s) executing the Operating Agreement as Class A Member(s), as amended from time to time, and as shown on Exhibit ‘1’ to the Operating Agreement.
“Class A Membership Unit(s)” means the Membership Unit(s) owned by the Class A Member(s).
“Class B Member(s)” means the holders of Class B Membership Units. The Class B Member is Amihai Moshe Hershko, an Affiliate of Sponsor.
“Class B Membership Unit(s)” means the Membership Unit(s) owned by the Class B Member(s). “Company” means MHD Equity Fund LLC.
“Developer Fee” means a fee paid to the Manager, or an Affiliate entity, for services related to overseeing, managing, and executing construction-related activities on behalf of the Company equal to 10% of total Hard Costs and Soft Costs. This fee shall only apply when the Company hires a third-party general contractor that is not an Affiliate of the Sponsor.
“General Contracting Fee” means a fee payable to an Affiliate of the Sponsor that provides general contracting services for a particular Project. The amount of the General Contracting Fee shall be at or below prevailing market rates for general contracting services in the geographic region where the Property is located, as determined by the Manager in good faith. No General Contracting Fee shall be paid to an Affiliate if the Company retains an unaffiliated third-party general contractor to construct a Company project.
“Hard Costs” means the direct, tangible expenses incurred in the physical construction of the Properties. These costs encompass materials, labor, equipment, and other necessary expenses directly related to the construction of the Properties including, but not limited to, costs for concrete, steel, wood,
glass, construction wages, machinery like cranes and bulldozers, site preparation, foundation laying, structural elements, mechanical, electrical, plumbing systems, interior and exterior finishes, and site improvements.
“Initial Closing” means the initial closing the Manager will have the discretion to conduct during the Offering when Prospective Investors who have executed all the necessary offering documents and whose Capital Contributions have been received by the Company may be accepted as Class A Members of the Company, at which time the securities will be considered sold.
“IRA” means an individual retirement account.
“IRR” means internal rate of return, meaning the percentage rate earned on each dollar invested for each period it is invested. The Company will calculate the internal rate of return using the Excel IRR function, or similar function and/or software.
“Loan Guarantor Fee” means a fee equal to 1% of the total loan amount paid to the loan guarantors at the inception of each loan on a Property.
“Manager” means MHD Capital LLC, the Sponsor. “Memorandum” means this Private Placement Memorandum.
“Member(s)” means the holder of Class A and Class B Membership Units.
“Membership Unit” or “Unit” means the interest of a Class A or Class B Member and the rights to receive profits or other compensation by way of income, and the return of contributions as set forth in the Agreement, and the rights, powers and privileges appurtenant thereto.
“Net Capital Proceeds” means the excess of sale or re-finance revenue, over sales or re-finance costs and fees, including but not limited to repayment of debt, sales commissions, sales fees, including the Capital Transaction Fee, establishment of necessary Reserves, cash expenditures incurred incident to the sales process, re-finance/origination fees, broker fees, and any other cash expenditures incurred in the re-finance of the Properties. Any reserves returned to the Company by any lending institution or any other source may be considered a Capital Transaction Event and part of Net Capital Proceeds in the Manager’s sole discretion.
“Net Cash Flow” means the excess of all cash revenues of the Company relating to the direct or indirect ownership and operations of the Properties other than revenue attributable to a Capital Transaction Event, over operating expenses and other expenditures for such fiscal period, including but not limited to principal and interest payments on indebtedness of the Company, other sums paid to lenders, and cash expenditures incurred incident to the normal operation of the Company’s business, decreased by (i) any amounts added to Reserves during such fiscal period,
(ii) the Asset Management Fee, (iii) the Developer Fee, and (iv) the Property Management Fee, and increased by (i) the amount (if any) of all allowances for cost recovery, amortization or depreciation with respect to property of the Company for such fiscal period, and (ii) any amounts withdrawn from Reserves during such fiscal period.
“Offer” or “Offering” means the offer to sell Class A Membership Units in the Company.
“Percentage Interest” means the allocable interest of each Member in the income, gain, loss, deduction or credit of the Company, as set forth in the Operating Agreement.
“Person(s)” means a natural person or any partnership (whether general or limited and whether domestic or foreign), limited liability company, foreign limited liability company, limited life company, limited duration company, trust, estate, association, corporation, custodian, nominee or any other individual or entity in its own or any representative capacity or any other entity.
“Preferred Return” means a non-compounded per annum return hurdle of 8% for Class A Members and based on their respective Unrecovered Capital Contribution. See ‘THE OFFERING’ on page 13 for additional terms.
“Property” or “Properties” means one or more real estate assets, whether improved or unimproved, which the Company intends to acquire, develop, or redevelop using the proceeds of this Offering. Such assets may include, without limitation, residential and commercial land, high-rise condominium developments, single-family luxury homes, apartment buildings, and mixed-use projects, located in one or more markets as determined by the Manager in its sole discretion.
“Property Management Fee” means a market rate property management fee on each Property paid to Property Manager(s) on a monthly basis.
“Property Manager(s)” means an Affiliate of Sponsor or a third-party property management company subject to the geographical location of each Property.
“Prospective Investor(s)” means Accredited Investor(s) interested in the purchase of Class A Membership Units.
“Reserves” means all reserves established by the Manager in its sole discretion for Company purposes, including, but not limited to, operating expenses and other working capital needs, liabilities, and taxes.
“Sanctioned Country” or “Sanctioned Countries” means a country or countries identified by the
U.S. Department of Treasury’s Office of Foreign Assets Control that is subject to a sanction.
“Soft Costs” means the indirect, non-physical expenses incurred in connection with the development, design, and entitlement of the Properties, which are not classified as Hard Costs. These costs may include, without limitation, architectural and engineering fees, design and consulting fees, permitting and entitlement costs, legal and accounting fees, insurance, surveying, zoning and planning fees, environmental and geotechnical studies, impact fees, utility connection fees, and other administrative or professional services necessary to facilitate the development and construction of the Properties.
“Sponsor” means MHD Capital LLC (through its principals, Amihai Moshe Hershko and Victoria Hershko Belany). Sponsor is also the Manager.
“Subsequent Closings” means the subsequent closings following the Initial Closing that the Manager will have the discretion to conduct during the Offering when Prospective Investors who have executed all the necessary offering documents and whose Capital Contributions have been received by
the Company may be accepted as Class A Members of the Company, at which time the securities will be considered sold.
“Unrecovered Capital Contribution” means a Class A Member’s Capital Contributions minus any return of capital. Distributions of Net Cash Flow shall be treated as a return on investment and returns from Net Capital Proceeds shall be treated as a return of capital.
SUMMARY OF THE OFFERING
This summary of certain provisions of the Memorandum is intended only for a quick reference and is not intended to be complete. This Memorandum describes in detail numerous aspects of the transaction which are material to Prospective Investors, including those summarized below, and this Memorandum and the accompanying Exhibits must be read in their entirety by reference to the full text of this Memorandum and the underlying documents.
The Offering MHD Equity Fund LLC seeks to raise an aggregate target of 200,000
Class A Membership Units at a purchase price of $1,000 per Unit. The minimum investment is $200,000.
Purpose of the Offering The purpose of this Offering is to purchase improved and/or
unimproved land, residential real estate, and commercial real estate in select geographical markets throughout the United States and throughout the world; develop, construct, and/or operate the Properties; and ultimately sell them for a profit.
The Properties Improved and/or unimproved land, residential real estate, and
commercial real estate in select geographical markets throughout the United States and throughout the world. Such assets may include, without limitation, residential and commercial land, high-rise condominium developments, single-family luxury homes, apartment buildings, and mixed-use projects, located in one or more markets throughout the world as determined by the Manager in its sole discretion. The Company may also invest in distressed properties, including but not limited to REO’s, foreclosures, and off-market real estate.
Bitcoin In addition to acquiring the Properties, the Company intends to deploy a portion of the Capital Contributions from this Offering towards the purchase of BTC, which is intended to act as a value hedge to diversify the risks to the Company’s overall value. Each investor’s Capital Contributions may be invested in both the Properties and BTC. In addition, the Company may reinvest certain distributions which would otherwise be payable as Net Cash Flow or Net Capital Proceeds into BTC assets. The Company may implement a dollar-cost averaging strategy and acquire BTC, or other digital assets, at periodic intervals although the amount, timing and frequency of such investments will be subject to the Manager’s sole and absolute discretion.
Minimum Investment $200,000
Manager MHD Capital LLC
Property Manager An Affiliate of Sponsor or a third-party property management
company, subject to the geographical location of the Properties.
Eligible Investors The Company will accept only Accredited Investors. Investors may be
individuals, entities, trusts, IRAs and other retirement plans.
Fees Manager or its Affiliates shall collect the following fees:
(a) The Acquisition Fee.
(b) The Asset Management Fee
(c) The Capital Transaction Fee
(d) The Developer Fee
(e) The General Contracting Fee2
(f) The Loan Guarantor Fee
(g) The Property Management Fee
In its sole and absolute discretion, if the Manager determines it is in the best interest of the Company to replace a current third-party vendor with the Manager or its Affiliate, then Manager or its Affiliate may assume the third-party compensation at the same or lower rates.
Allocation of Benefits Net Cash Flow From Operations:
Subject to the Call Option,
(a) First, all Net Cash Flow shall be paid to the Class A Members until they receive the Preferred Return.
(b) Second, any remaining Net Cash Flow shall be paid 50% to the Class A Members and 50% to the Class B Member.
* The Manager does not intend to operate the Properties once developed, redeveloped, and/or constructed; thus, does not
2 This fee will only be charged if an Affiliate of the Sponsor performs general contracting services on a Company project.
intend to generate any Net Cash Flow. However, the Manager reserves the right to operate one or more Properties for cash-flow following the completion of construction.
Net Capital Proceeds From a Capital Transaction Event:
Subject to the Call Option,
(a) First, all Net Capital Proceeds shall be paid to the Class A Members until they receive any accrued but unpaid Preferred Return.
(b) Second, any remaining Net Capital Proceeds shall be paid to the Class A Members until their respective Unrecovered Capital Contribution has been reduced to zero.
(c) Finally, any remaining Net Capital Proceeds shall be paid 50% to the Class A Members and 50% to the Class B Member.
Risk Factors The purchase of the Membership Units involves a high degree of
risk to the Prospective Investor including certain risks relating to regulatory, operating, tax and investment matters. (See “RISK FACTORS.”) A decision to invest in the Units should be reached only after carefully reading this entire Memorandum, including its Exhibits.
Operating Agreement Each Prospective Investor will be admitted as a Class A Member of the
Company pursuant to the terms of the Operating Agreement upon admission to the Company by the Class B Members.
QUALIFICATION AND SUITABILITY OF INVESTORS
Prospective Investors Must Be Accredited Investors
This Offering is limited to Accredited Investors only. Due to federal securities laws, Sponsor is required to take “reasonable steps to verify” accreditation status of each Prospective Investor prior to accepting the Prospective Investor into the Company. On many occasions, this may be satisfied by obtaining a verification letter from the Prospective Investor’s certified public accountant. (Please use the template provided to you by Sponsor). If a Prospective Investor is unable to obtain such verification, then they may retain the services of a third-party licensed verification company to ensure that any sensitive financial information is not shared with Sponsor.
Principles-Based Method and High Minimum Investment Thresholds
In accordance with SEC guidance, if a Prospective Investor meets a high minimum investment threshold, it may be reasonable for the Company to take fewer steps to verify Accredited Investor status, provided there are no facts indicating otherwise. Accordingly, the Company may rely on the following minimum investment thresholds and related representations as reasonable steps to verify Accredited Investor status, without requiring further verification documentation:
• For natural persons: a minimum investment of at least $200,000, accompanied by a written representation that the Prospective Investor is an Accredited Investor and that the investment is not financed by any third party;
• For legal entities: a minimum investment of at least $1,000,000, accompanied by a similar written representation;
• For entities qualifying based solely on all equity owners being Accredited Investors: a minimum investment of at least $1,000,000 in total, or at least $200,000 per equity owner if there are fewer than five natural person equity owners, accompanied by similar written representations.
No Actual Knowledge of Contrary Facts
In all cases, the Company must not have actual knowledge of facts indicating that a purchaser is not an Accredited Investor or that the investment is financed by a third party for the purpose of making the investment. If any such facts are known to the Company, additional steps will be taken to verify the purchaser’s status.
Alternative Verification Methods
If a Prospective Investor does not meet the applicable minimum investment thresholds above or if further verification is deemed necessary, the Company may require the Prospective Investor to provide one or more of the following as applicable:
(1) Accredited Investors who wish to qualify based on the income test may be required to submit an Internal Revenue Service form that reports the purchaser’s income for the two most recent years (including, but not limited to, Form W-2, Form 1099, Schedule K-1 to Form 1065, and Form 1040) and provide a written representation that he or she has a reasonable expectation of reaching the income level necessary to qualify as an accredited investor during the current year;
(2) Accredited Investors who wish to qualify based on the net worth test may be required to submit one or more of the following types of documentation dated within the prior three months and obtain a written representation from the purchaser that all liabilities necessary to make a determination of net worth have been disclosed:
(A) With respect to assets: bank statements, brokerage statements and other statements of securities holdings, certificates of deposit, tax assessments, and appraisal reports issued by independent third parties; and
(B) With respect to liabilities: a consumer report from at least one of the nationwide consumer reporting agencies;
In order to comply with the net worth verification method provided under Rule 506, the relevant documentation must be dated within the prior three months of the sale of securities. If the documentation is older than three months, the Company may not rely on the net worth verification method, but may instead determine whether it has taken reasonable steps to verify the purchaser’s Accredited Investor status under a principles-based method of verification.
(3) The Company may also consider and request written confirmation from one of the following persons, within the prior three months, that has determined that such Prospective Investor is an Accredited Investor:
(A) A registered broker-dealer;
(B) An investment adviser registered with the Securities and Exchange Commission (“SEC”);
(C) A licensed attorney who is in good standing under the laws of the jurisdictions in which he or she is admitted to practice law; or
(D) A certified public accountant who is duly registered and in good standing under the laws of the place of his or her residence or principal office.
Prospective Investor May Not Be a Bad Actor
Prospective Investors may be subject to additional information requests and certifications based on the SEC’s “bad actor” rules that would disqualify securities offerings from the Rule 506 exemption if an issuer or other relevant persons have been convicted of, or are subject to court or administrative sanctions for, securities fraud or other violations of specified laws. Relevant persons includes “any affiliated issuer; any director, executive officer, other officer participating in the offering, general partner or managing member of the issuer; any beneficial owner of 20% or more of the issuer’s outstanding voting equity securities, calculated on the basis of voting power; any promoter connected with the issuer in any capacity at the time of such sale; any investment manager of an issuer that is a pooled investment fund; any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with such sale of securities; any general partner or managing member of any such investment manager or solicitor; or any director, executive officer or other officer participating in the offering of any such investment manager or solicitor or general partner or managing member of such investment manager or solicitor.”
Types of Investors
Prospective Investors may be individuals, entities, trusts, IRAs, or other retirement plans. Although the Employment Retirement Income Security Act of 1974 (“ERISA”) generally states that benefit plans that own, in the aggregate, more than twenty five percent (25%) or more of the Percentage Interest in the Company, may be subject to the “Plan Asset Rules” (which could subject the Company to additional fiduciary responsibilities and reporting requirements). Sponsors believe that the Company is
not subject to the “Plan Asset Rules” or is exempt from them since the Company, among other things, is primarily engaged in the business of real estate investing.
1031 Tax-Deferred Exchange
Prospective Investors who are looking to exchange current real estate for Membership Units are not eligible for this Offering if they intend to use 1031 tax-deferred exchange proceeds as it is likely that the IRS will not consider the Membership Units a “like-kind exchange” as required under the Internal Revenue Code. However, if significant 1031 tax-deferred exchange proceeds are available from a Prospective Investor, Manager may elect to restructure the Offering in order to accommodate 1031 investors, subject to any limitations imposed by the Internal Revenue Service.
International Investors
The United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) keeps a list of “Specially Designated Nationals” or “Blocked Persons.” The Company may not and will not sell to any Prospective Investors found on these lists and will prohibit any resales or transfers to such designated individuals.
In addition, no Membership Units shall be offered or sold to any Prospective Investor who (i) is a person residing in a Sanctioned Country, (ii) is an organization controlled by a Sanctioned Country,
(iii) is an agency of a Sanctioned Country, (iv) has fifteen percent (15%) of its assets in the aggregate in a Sanctioned Country, and/or (v) derives more than fifteen percent (15%) of its operating income from investments in, or transactions with Sanctioned Countries or “Specially Designated Nationals” or “Blocked Persons.”
AML- USA PATRIOT ACT
Federal law requires Manager to obtain, verify, and record information that identifies each Person who subscribes to the Offering. (See Exhibit “B”: Prospective Purchaser Questionnaire). This information will assist the Manager in ensuring that Prospective Investor in not engaging in any money laundering activities and assist the government in fighting the funding of terrorism.
Representations and Warranties
Investment in the Units involves substantial risk and is suitable only for persons of financial means who have provided for liquidity in their other investments. The representations made by, and the information provided by, each Prospective Investor will be reviewed to determine his, her or its suitability and eligibility, and the Company will have the unfettered right to refuse a subscription for Units if, in its sole discretion, it believes that the Prospective Investor does not meet the applicable suitability requirements or the Units are otherwise an unsuitable investment for the Prospective Investor.
Each Prospective Investor must also satisfy the Manager that the Prospective Investor can bear a total loss of investment. Manager will also require the Prospective Investors to represent that the Prospective Investors are acquiring the Units for investment and for their own account, and not with a view to resale or distribution. Prospective Investors are purchasing restricted securities and the resale of the Units is subject to extensive restrictions (see “RESTRICTIONS ON TRANSFER”). It is not expected that any public market for the resale of the Units will develop.
THE COMPANY
MHD Equity Fund LLC (the "Company"), was formed when its Certificate of Formation was filed with the Delaware Secretary of State's Office pursuant to the Delaware Limited Liability Company Act, as amended. The Company has yet to commence operations. The address of the Company shall be located at c/o MHD Capital LLC, 401 Wilshire Blvd 12th Fl, Office 34, Santa Monica, California 90401.
THE OFFERING
General
This Private Placement Memorandum describes an Offering to Prospective Investors of Membership Units in MHD Equity Fund LLC, a limited liability company formed under the State laws of Delaware. A target of 200,000 Class A Membership Units are being offered for a purchase price of $1,000 per Unit. If for whatever reason one or more Properties is not purchased after one
(1) year from the time of a Class A Member’s subscription, then such Class A Member will receive a return of their Capital Contribution without interest.
The day-to-day operations of the Company will be run by MHD Capital LLC, the Sponsor, and therefore the Prospective Investors will have no or extremely limited input in the Company. This is truly a passive investment for Class A Members.
The Units are offered on a Best Efforts basis and is scheduled to close once 200,000 Class A Membership Units have been sold, unless terminated sooner or extended by the Manager. Sponsor reserves the right to sell up to 350,000 Class A Membership Units. The minimum subscription that will be accepted by the Company will be for 200 Class A Membership Units (i.e., a minimum total purchase price of $200,000) and additional investment may be made in increments of one (1) Unit or $1,000. The Manager retains sole discretion to allow a lower initial investment. The securities shall be considered sold to the Prospective Investors at the Initial Closing or Subsequent Closings, at which time the Manager may accept a Prospective Investor and countersign the Subscription Agreement attached hereto after their respective funds are received by the Company.
The purpose of this Offering is to raise monies to enable the Company to purchase the Properties and subsequently operate, increase the value, and sell or re-finance the Properties for a profit. (See Exhibit D, Business Plan). There is no assurance these objectives can be obtained.
The Prospective Investors’ initial cash contributions will be deposited into a segregated checking account. Upon execution of the Subscription Agreement by the Manager and receipt of the investment funds, the Class A Members will be admitted to this Company. All fees and compensation to the Manager and its Affiliates will be paid from the account, as well as reimbursable expenses relating to the Offering, including legal, accounting and printing costs.
This Offering is a ‘blind pool’ Offering which seeks to raise monies to enable the Company to purchase multiple Properties (via single-purpose entities) throughout the United States and subsequently purchase, develop, construct, eventually sell them for a profit. The Properties that the Company will invest in will be selected at the sole discretion of the Manager (See Exhibit D, Business Plan). There is no assurance these objectives can be obtained.
Distributions From Operations
Subject to the Call Option, distributions made to Class A Members will be subject to Net Cash Flow as determined by the Manager in its sole discretion.
First, all Net Cash Flow shall be paid to the Class A Members until they receive the Preferred Return.
Second, any remaining Net Cash Flow shall be paid 50% to the Class A Members and 50% to the Class B Member.
.
* The Manager does not intend to operate the Properties once developed, redeveloped, and/or constructed; thus, does not intend to generate any Net Cash Flow. However, the Manager reserves the right to operate one or more Properties for cash-flow following the completion of construction.
Distributions From Capital Transaction Event
Subject to the Call Option, Net Capital Proceeds from a Capital Transaction Event shall be allocated and distributed as follows:
First, all Net Capital Proceeds shall be paid to the Class A Members until they receive any accrued but unpaid Preferred Return.
Second, any remaining Net Capital Proceeds shall be paid to the Class A Members until their respective Unrecovered Capital Contribution has been reduced to zero.
Finally, any remaining Net Capital Proceeds shall be paid 50% to the Class A Members and 50% to the Class B Member.
Preferred Return
The Preferred Return is a non-compounded per annum return of 8% to Class A Members based on their respective Unrecovered Capital Contribution. The Preferred Return shall accrue or be paid from Net Cash Flow as determined by the Manager. It is not guaranteed, meaning that the Preferred Return will not be paid if the Company does not have sufficient capital available to pay it, as determined by the Manager in its sole discretion. Any Preferred Return deficiencies shall accrue on a non-compounded basis and may be paid by Manager from future distributions of Net Cash Flow and/or Net Capital Proceeds.
Call Option
The Call Option is the right of the Manager to redeem some or all of the Class A Membership Units in its sole discretion, at any time, subject to the following terms:
The Manager shall have the right to exercise the Call Option to redeem all or any portion of the Class A Membership Units in the Company. The redemption price for each Class A
Membership Unit shall be equal to the Class A Member's Unrecovered Capital Contribution plus any accrued but unpaid portion of the Preferred Return. The Preferred Return is defined as an 8% annualized, non-compounded return on a Class A Member’s Unrecovered Capital Contribution. Upon payment of this amount, the Class A Membership Units shall be fully redeemed, and the Class A Member shall have no further interest in the Company.
Depreciation
To the extent appropriate, the Company may accelerate depreciation and elect to use the cost segregation method of depreciation for land improvements and/or personal property associated with the Properties. This will allow the Company to use a shorter depreciation schedule on some of the improvements and personal property.
In addition, to the extent possible, after consultation with the Company’s certified public accountant, Sponsors intend to allocate losses (including, but not limited to depreciation) to the Class A Members and Class B Members in proportions to be decided by the Manager at its sole discretion.
Exempt Offering
While this Offering is made to various parties, it is not a registered offering under federal securities laws. This Offering is being made pursuant to the private offering exemption of Section 4(a)(2) of the Act and/or Rule 506(c) of Regulation D promulgated under the Act. This Offering is also being made in strict compliance with the applicable state securities laws. Each Prospective Investor must represent that the Prospective Investor is acquiring the Membership Units for investment purposes only and not with a view to resale or distribution. All Units are offered subject to prior sale, when, as and if issued, and subject to the right of the Manager to reject any subscription in whole or in part. The Company will only sell Units to persons meeting its suitability standards, which the Company’s Manager may determine in its sole and absolute discretion.
Side-by-Side Investments by Manager-Affiliated Entities
The Company may co-invest in one or more Properties alongside other investment vehicles sponsored or managed by the Manager, or its Affiliates. These Affiliate investment vehicles may include, but are not limited to, single-asset entities, commingled funds, private joint ventures, or separately managed accounts that pursue similar or complementary investment objectives. Such side-by-side investments may occur in varying proportions and capital structures, as determined by the Manager in its sole discretion. Each Affiliate vehicle may have its own distinct investment terms, objectives, risk profile, tax treatment, and fee arrangements. The Company may acquire or develop Properties jointly with these affiliated entities, either through direct co-ownership or through a joint venture structure. In such arrangements, the Manager will seek to allocate opportunities and manage potential conflicts in a
manner it deems fair and reasonable to all parties, although no assurance can be given that such allocations will be free from conflicts of interest. (See “Conflicts of Interest.”)
Bitcoin (BTC)
Bitcoin and other crypto or digital assets are a fast evolving, relatively new technology. Bitcoin is a decentralized digital currency that enables instant transfers to anyone, anywhere in the world. Managing transactions in Bitcoin occurs via an open source, cryptographic protocol platform known as the Bitcoin Network, which uses peer-to-peer technology to operate with no central authority. The Bitcoin Network is an online, end-user-to-end-user network that hosts the public transaction ledger, known as the Bitcoin Blockchain, and the source code that comprises the basis for the cryptographic and algorithmic protocols governing the Bitcoin Network. No single entity owns or operates the Bitcoin Network, the infrastructure of which is collectively maintained by a decentralized user base. As the Bitcoin Network is decentralized, it does not rely on either governmental authorities or financial institutions to create, transmit or determine the value of Bitcoins. Rather, the value of Bitcoins is determined by the supply of and demand for Bitcoins. Bitcoins can be used to pay for goods and services or can be converted to fiat currencies, such as the USD, at rates determined by the Bitcoin Exchanges, although BTC has not yet been widely adopted as generally accepted payment method in commercial transactions.
To prevent the possibility of double-spending a single Bitcoin, each transaction is recorded, time stamped and publicly displayed in a “block” in the publicly available Bitcoin Blockchain. Thus, the Bitcoin Network provides confirmation against double-spending by memorializing every transaction in the Bitcoin Blockchain, which is publicly accessible and downloaded in part or in whole by many Bitcoin Network users’ software programs.
Prior to engaging in Bitcoin transactions, a user must first obtain a digital bitcoin “wallet” (analogous to a bitcoin account) in which to store Bitcoins. A “wallet” is an open-source software program that generates Bitcoin addresses and enables users to engage in the transfer of bitcoins with other users. A user may install a Bitcoin software program on its computer or mobile device that will generate a Bitcoin wallet or, alternatively, a user may retain a third party to create a digital wallet to be used for the same purpose. There is no limit on the number of digital wallets a user can have, and each such wallet includes one or more unique addresses and a verification system for each address consisting of a “public key” and a “private key,” which are mathematically related.
The process by which Bitcoins are created and Bitcoin transactions are verified is called mining. To begin mining, a user, or “miner,” can download and run a mining client, which, like regular Bitcoin Network software programs, turns the user’s computer into a “node” on the Bitcoin Network that validates blocks. Sets of bitcoin transactions are combined in new blocks that need to be added to the Bitcoin Blockchain. Miners, through the use of the Bitcoin software program, engage in a set of prescribed complex mathematical calculations in order to add a block to the Bitcoin Blockchain and thereby confirm Bitcoin transactions included in that block’s data. A miner who is the first to complete the calculations adds a new block to the Bitcoin Blockchain and is rewarded with newly issued bitcoins.
Bitcoin is an open source project with no official developer or group of developers that controls the Bitcoin Network. However, the Bitcoin Network’s development is overseen by a core group of developers who are able to access and can alter the Bitcoin Network source code and, as a result, they
are responsible for quasi-official releases of updates and other changes to the Bitcoin Network’s source code. The release of updates to the Bitcoin Network’s source code does not guarantee that the update will be automatically adopted. Users and miners must accept any changes made to the Bitcoin source code by downloading the proposed modification of the Bitcoin Network’s source code. A modification of the Bitcoin Network’s source code is only effective with respect to the bitcoin users and miners that download it. If a modification is accepted only by a percentage of users and miners, a division in the Bitcoin Network will occur such that one network will run the pre-modification source code and the other network will run the modified source code; such a division is known as a “fork” in the Bitcoin Network.
An increasing number of companies worldwide are using Bitcoin and other crypto and digital assets for a host of investment, operational, and transactional purposes. Many see Bitcoin as a reliable store of value, similar to the traditional role of real estate, that is easier to access and cheaper to store and maintain. Some predict that these benefits, while filling a similar role to real estate as an inflationary hedge, may eventually diminish the monetary premium that real estate has historically enjoyed, especially as it gains acceptance as a collateral by the traditional banking system.
The Company, therefore, believes it may be beneficial to integrate Bitcoin into the Company’s investment objectives, with the goal of ensuring that Class A Members may be better positioned to capitalize on Bitcoin’s anticipated growing role in the financial landscape and its impact on real estate’s valuation. Bitcoin can play a crucial role as a disinflationary currency, meaning its inflation rate decreases over time, providing an appreciating capital base that can help mitigate the risks associated with decreases in the value of the U.S. dollar. The Company’s general creditworthiness may be enhanced because Bitcoin diversifies its investment holdings beyond the real estate sector. In other words, the Company intends to use Bitcoin as a partial hedge on any decrease in value of the Properties that may occur, either as a result of changing interest rates, cyclical volatility or otherwise. This way, the Company seeks to capture any monetary premium that flows from real estate into Bitcoin, hedge against monetary inflation, and build resilience and creditworthiness over time, allowing the Company to leverage the benefits of both asset classes: Bitcoin's potential price appreciation and real estate’s cash flow. The exact amount of proceeds from this Offering that will be used for the purchase of Bitcoin will be determined in the discretion of the Manager, in part depending on the total amount of funds raised in this Offering. At this time, the Company does not intend to invest in digital assets other than Bitcoin. Even though the Company may invest in BTC, the Manager anticipates that, initially, the majority of the Company’s assets will be concentrated in real estate.
PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY INVESTMENT IN BTC IS HIGHLY SPECULATIVE, MAY RESULT IN A PARTIAL OR TOTAL LOSS AND RETURNS ON ANY INVESTMENT IN BTC MAY NOT BE CORRELATED WITH RETURNS ON INVESTMENT IN MORE TRADITIONAL SECURITIES AND REAL ESTATE. ANY PROSPECTIVE INVESTOR CONTEMPLATING AN INVESTMENT IN THE COMPANY SHOULD CAREFULLY REVIEW RISKS RELATED TO BTC AND DIGITAL ASSETS BELOW.
BUSINESS DESCRIPTION
This Offering is intended for Accredited Investors seeking exposure to luxury real estate development through a professionally managed, institutionally structured vehicle. The Company has been formed to acquire, entitle, develop, reposition, and ultimately dispose of residential and commercial
real estate assets in select domestic and international markets. The Company is structured as a real estate development fund with a target raise of $200,000,000 through the sale of Class A Membership Units, offered exclusively to Accredited Investors pursuant to Rule 506(c) of Regulation D under the Securities Act of 1933, as amended. The minimum investment is $200,000.
The Company’s investment strategy is focused on ground-up construction and value-add redevelopment across a diverse mix of asset classes, including ultra-luxury single-family homes, high- rise condominium towers, mixed-use projects, and boutique hospitality developments. While the Company is structured as a “blind pool,” assets are expected to be acquired opportunistically based on prevailing market dynamics, with geographic flexibility that includes both U.S. markets and select international markets. The Company may invest in both improved and unimproved land parcels and may pursue rezoning and entitlement where appropriate to unlock additional value.
The Manager is responsible for all day-to-day operations of the Company, including property identification, due diligence, development oversight, and ultimate disposition. The Manager is led by real estate developer Amihai Moshe Hershko, who has extensive experience in luxury construction and entitlement execution. The Manager or its Affiliates will receive customary development-related compensation, including but not limited to an Acquisition Fee, Asset Management Fee, Capital Transaction Fee, Developer Fee, and Loan Guarantor Fee. Where applicable, the Manager may elect to self-perform various business activities in lieu of third-party vendors for a reasonable, market rate compensation. While the Company is not expected to generate cash flow during development phases, the Manager reserves discretion to hold and operate select stabilized assets where appropriate to enhance value.
The Company anticipates a general investment horizon of three (3) to six (6) years per asset, with single-family projects targeting a 3-year cycle and vertical developments potentially extending between five (5) and ten (10) years depending on market conditions. The Manager may utilize special purpose entities for individual project acquisitions to isolate liability and streamline financing and entitlement processes. Financing for development may include both institutional debt and private equity, with the Manager or its principals serving as guarantors and receiving the Loan Guarantor Fee.
The Company intends to make distributions on a quarterly basis, subject to available proceeds and in accordance with the distribution structure for Net Capital Proceeds (and Net Cash Flow, where applicable). All investment returns and distributions are subject to the availability of Net Cash Flow and Net Capital Proceeds, as determined by the Manager in its sole discretion. The term of the Company may be up to ten (10) years from its Initial Closing, and such term may be extended in the sole discretion of the Manager.
In addition to the Properties, the Company intends to use a portion of the funds raised by this Offering to purchase Bitcoin (“Bitcoin” or “BTC”), which it intends to hold as a hedge on the ongoing value of the Company. As described in greater detail below, BTC is a type of digital currency in which a record of transactions is maintained and new units of currency are generated by the computational solution of mathematical problems, and which operates independently of a central bank. The exact amount of proceeds from this Offering that will be used for the purchase of BTC will be determined in the Manager’s sole and absolute discretion, in part depending on the ultimate amount of funds raised in this Offering. At this time, the Company does not intend to invest in digital assets other than BTC. Even
though Mr. Hershko has extensive experience in the real estate development sector, the Company is the first investment offering undertaken by Mr. Hershko involving BTC.
MANAGER
The Class B Members may appoint the Manager of the Company to supervise day-to-day operations of the Company. In no instance shall there be less than one Manager. The Class B Members have chosen MHD Capital LLC, the Sponsor, to be the Manager of the Company. As such, the Manager has the power and authority, on the Company’s behalf and in its name, to manage, administer, and operate the Company’s day-to-day business affairs, and to do or cause to be done on behalf of the Company anything necessary or appropriate for the same, including but not limited to the powers and authority set forth in the Operating Agreement. The Manager’s power and authority is subject to the limitations set forth in the Operating Agreement. The Manager shall serve as Manager until resignation or its successors are appointed by the Members as provided in the Operating Agreement.
COMPENSATION AND FEES TO THE MANAGER AND AFFILIATES
The Company shall reimburse the Manager for any direct funds or expenses advanced by it prior to or after formation of the Company to the extent that such expenses are incurred or paid directly on behalf of the Company.
The Manager and its Affiliates shall be entitled to collect the following fees:
(a) The Acquisition Fee
(b) The Asset Management Fee
(c) The Capital Transaction Fee
(d) The Developer Fee
(e) The General Contracting Fee3
(f) The Loan Guarantor Fee
(g) The Property Management Fee.
In its sole and absolute discretion, if the Manager determines it is in the best interest of the Company to replace a current third-party vendor with the Manager or its Affiliate, then Manager or its Affiliate may assume the third-party compensation at the same or lower rates.
As noted in the Offerings section above, Class B Members and Affiliates of Manager and Sponsors will also participate in the Net Cash Flow and Net Capital Proceeds.
3 This fee will only be charged if an Affiliate of the Sponsor performs general contracting services on a Company project.
SELLING AGENT
Units are being offered directly through the Company. No commissions of any kind will be paid to selling agents or brokers.
MANAGEMENT OF THE PROPERTIES
The Manager, an Affiliate, and/or a third-party property manager will receive the Property Management Fee for management of a Properties owned by the Company at market rate calculated on the monthly gross income from each Property, paid as an expense of such Properties. Compensation to one or more Property Manager(s) will be commensurate with market rates,
RISK FACTORS
The purchase of the Membership Units involves a high degree of risk to the Prospective Investor including certain risks relating to regulatory, operating, tax and investment matters. Prospective investors for Membership Interests in the Company should give careful consideration to the following risk factors contained herein. An investment in the Company for a Membership Interest involves risk and is suitable only for persons of financial means who have no need for liquidity in investments and who can afford the possible loss of their entire investment. Prospective Investors should consult with their own professional advisor(s) to consider carefully the following factors, the Operating Agreement, and the Company.
Risks Related to Worldwide Pandemic
On March 11, 2020, the World Health Organization declared the COVID-19 coronavirus outbreak a worldwide pandemic (the “Pandemic”). As a result, the Pandemic and the reactions of various governments and citizens caused (and any future outbreaks of the coronavirus disease may cause) massive disruptions in economies, financial markets, supply chains, businesses and daily life on a worldwide scale never seen in recent history. Such disruption from a potential future outbreak may, for an extended period or indefinitely, lead to a recession or depression in the United States and/or globally, and may adversely impact the Company. Many businesses may temporarily suspend operations and/or lay off employees. While the Company may prepare a business continuity plan, it could be materially affected by a future pandemic. A future pandemic and reactions by governments and citizens, and the impact of a pandemic and such reactions on businesses and the economy, could create various issues for the economy that are impossible to fully predict or list here but all or many could be material, with such likelihood of materiality increasing the longer the duration of a pandemic. A pandemic could worsen substantially before it improves, and the entirety of the United States could be impacted. In addition to the potential severe impact of a pandemic on financial markets and economies, other things that may impact the Company in connection with a pandemic include the closure of courts and state governments. The closure of certain businesses or limitations in the ability of certain businesses to function, as well as declarations of states of emergency, and “shelter at home” measures in certain areas, could affect the ability of the staff of the Manager, and/or applicable property managers to function properly. A reduction in liquidity and increase in volatility in financial markets could affect the valuation of real estate, the health of the Company’s financing partners or other persons necessary for the Company to implement its strategy and the ability to find third party financing. Also, key
executives and staff members of the Manager and/or Sponsors could become infected with COVID-19 in the future, develop symptoms, and not be able to work, or not be able to work effectively.
Real Estate Risks
Risks of Real Estate in General
The risks and benefits of investment in real estate depend upon many factors over which the Company has little or no control, including, without limitation, (i) changes in the economic conditions in the country in general, and in the areas in which the Company’s Properties are located, which changes could give rise to a decrease in local demand, an increase in local supply of land, an increase in unemployment, a change in the characteristics of the area in which the properties are located, and restrictive governmental regulation. This risk includes the risk of a severe economic downturn, similar to the last downturn in 2008, which could affect real estate values in general (and the Properties specifically) significantly to the downside, (ii) various uninsurable risks, (iii) increases in the costs in excess of the budgeted costs, and (iv) the continuing advance of certain provisions of the federal, tax laws, (iv) government zoning or regulatory changes that could limit the Company’s expansion plans, and (v) on-site utility failures that could cause the Company to close certain facilities.
Inflation, Interest Rate, and Deflationary Risks
Inflation can adversely affect the Company by increasing costs of materials, labor, and interest rates. All of these factors can have a negative impact on real estate. In a highly inflationary environment, the Company may be unable to raise the price of its real estate at or above the rate of inflation, which could reduce profit margins. In addition, the Company’s cost of capital, labor and materials could increase, which could have an adverse impact on the Company’s business or financial results. For example, the current and continued macro-economic conditions of high inflation and rising interest rates, especially the steep increases in mortgage rates during 2022, is one of the primary drivers behind the overall decrease in demand for certain types of real estate. Conversely, deflation could cause an overall decrease in spending and borrowing capacity, which could lead to deterioration in economic conditions and employment levels. Deflation could also cause the value of the Company’s real estate to decline. These, or other factors that increase the risk of significant deflation, could have a negative impact on the Company’s business or financial results.
Multi-Family Real Estate Risks
The Company intends to invest in a multi-family real estate. In addition to the risks related to real estate in general, there are additional risks involved in investing in multi-family specifically. Apartments are particularly vulnerable to risk that the population levels, economic conditions, or employment conditions may decline in the surrounding geographic area. Any of these developments would have an adverse impact on the occupancy rates, rent levels, and property values of the apartments in the area. Unlike many other types of real estate investments, apartments do not have tenants occupying large portions of the properties whose lease payments provide
reliable sources of income for extended lease terms. Instead, apartments typically have individual residential tenants with very limited net worth and with lease terms that are typically one year or less. Apartments generally experience frequent tenant turnover due to factors such as transient populations, new competition in the area, and changes in the tenants’ economic status. In addition to continuously needing to replace vacating tenants, tenant turnover at apartment complexes causes the property owner to incur significant rehabilitation and maintenance costs in order to prepare units for new tenants.
Additional factors that may adversely affect the operation of the Properties include, but are not limited to, (i) inability to increase rents as expenses increase, (ii) unanticipated expenses or expense increases, (iii) necessity to make more capital improvements than projected, (iv) inability to obtain and maintain projected occupancy levels, and (v) the inability to sell the Properties for the projected sale price.
Vacancy and Tenant Defaults
The Company will depend on revenue generated from the rental income of the Properties to pay the operating expenses for the Company and the debt service payments (as well as distributions to the Members). Vacant units and/or defaults by tenants could reduce the amount of distributions that might otherwise be available for payment of its expenses and/or distribution to the Members.
A vacancy or tenant’s default of its rent will cause the Company to lose the revenue from that unit and if enough effective vacancies occur, the Company may be required to find an alternative source of revenue to meet its debt service payments and other operating expenses for the Properties. In the event of a tenant default, the Company may experience delays in enforcing its rights as a landlord and may incur substantial costs in evicting the tenant and re-renting the unit.
Appeal of the Properties
A major risk of owning real estate in general, and the Properties specifically, is its appeal. The appeal to prospective tenants and/or buyers of any given Property depends, among other things upon unpredictable public tastes and such appeal cannot be predicted in advance with any degree of certainty. Tenant and buyer trends can often change making a particular geographical area, more or less desired than before. While the experience and talent of the persons involved with a Property generally improve the chances of any given development project achieving success there can be no assurance that any particular Property will appeal to prospective buyers.
Competition
The Company will compete with other owners and operators of similar properties in the same markets in which the Properties are located. The number of competitive properties in a particular area could have a material adverse effect on the ability to lease sites and increase rents charged at the Properties. In addition, other forms of multi-family residential properties, such as private and federally funded or assisted multi-family housing projects and single-family housing, provide housing alternatives to potential tenants of the Properties. If competitors offer rental rates
below current market rates or below the rental rates currently charged to tenants of the Properties, the Company may lose potential tenants and may be pressured to reduce its rental rates below those currently charged in order to retain tenants when their leases expire. As a result, the Company’s financial condition, cash flow, cash available for distribution, and ability to satisfy the Company’s debt service obligations could be materially adversely affected.
Economic Uncertainties
The success of the Company will depend upon certain factors, which are beyond the control of the Manager and cannot be predicted accurately at this time. Such factors include general and local economic conditions, increased competition, increased construction costs, changes in demand, and limitations, which may be imposed by government regulation. Prospective Investors should also be aware that if the Company experiences liquidity constraints, the Members may find it prudent or necessary to fund deficits that are not funded from Company receipts and therefore made available to the Company to provide any required funds to meet such deficits in order to protect their investment in the Company. The Members, however, would not be under any legal obligation to pay such additional funds.
Environmental Hazards
If the Properties contain or becomes contaminated with, toxic or hazardous substances, the value and the marketability of the Properties will decrease and your investment will decrease. While the Manager will make reasonable investigations into whether the Properties contain toxic or hazardous substances, these investigations will not guarantee that the Properties are free of toxic or hazardous substances, nor can the Manager ensure that the Properties will not become contaminated with toxic or hazardous substances subsequent to our investment.
We may not be able to integrate or finance our acquisitions and our acquisitions may not perform as expected.
We acquire and intend to continue to acquire Properties on a select basis. Our acquisition activities and their success are subject to the following risks, (i) we may be unable to acquire a desired Properties because of competition from other well capitalized real estate investors, including both publicly traded REITs and institutional investment funds, (ii) even if we enter into an acquisition agreement for a Property, it is usually subject to customary conditions for closing, including completion of due diligence investigations to our satisfaction, which may not be satisfied, (iii) even if we are able to acquire a desired property, competition from other real estate investors may significantly increase the purchase price, (iv) we may be unable to finance acquisitions on favorable terms, (v) acquired properties may fail to perform as expected, (vi) acquired properties may be located in new markets where we face risks associated with a lack of market knowledge or understanding of the local economy, lack of business relationships in the area and unfamiliarity with local governmental and permitting procedures; and (vii) we may be unable to quickly and efficiently integrate new acquisitions, particularly acquisitions of portfolios of properties, into our existing operations.
If any of the above were to occur, our business and results of operations could be adversely affected. In addition, we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities. As a result, if a liability were to be asserted against us based on ownership of those properties, we might have to pay substantial sums to settle it, which could adversely affect our cash flow.
A Change in the United States Government Lending Policy
Fannie Mae and Freddie Mac are a major source of financing for the residential real estate sector. In February 2011, the Obama Administration released a report to Congress that included options, among others, to gradually shrink and eventually shut down Fannie Mae and Freddie Mac. We do not know whether the current administration of future administrations would continue with this restriction. We do not know when or if Fannie Mae or Freddie Mac will restrict their support of lending to the real estate sector or to the Company in particular. A final decision by the government to eliminate Fannie Mae or Freddie Mac, or reduce their acquisitions or guarantees of our mortgage loans, may adversely affect interest rates, capital availability and the ability to refinance any existing mortgage obligations as they come due and obtain additional long-term financing for the acquisition of additional communities on favorable terms or at all.
Natural Disasters
The occurrence of one or more natural disasters, such as tornadoes, hurricanes, fires, floods, hailstorms, outbreaks, earthquakes, unusual weather conditions, epidemic outbreaks such as Ebola, Zika, Covid-19 virus or measles, terrorist attacks or disruptive political events in certain regions where the Properties are located could adversely affect the Properties and result in lower revenues. Natural disasters including tornadoes, hurricanes, floods, hailstorms and earthquakes may damage our operations, which may materially adversely affect our consolidated financial results. Any of these events could have a material adverse effect on the Company’s financial condition and the results of operations.
Land Development Risks
Exposure To Development Risks
Our development activities expose us to risks such as:
(a) inability to obtain financing for the development of the Properties;
(b) increased costs for a Property that exceeded our original estimates which could make completion of a Property less profitable because land values may not increase sufficiently to compensate for the increased costs;
(c) delays, which may increase development costs;
(d) claims for defects after a Property has been developed;
(e) poor performance or nonperformance by any of our vendors or other third parties on whom we rely;
(f) health and safety incidents and site accidents;
(g) easement restrictions which may impact our development costs and timing; and
(h) compliance with building codes and other local regulations.
If any of the aforementioned risks were to occur during the development of a Property, it could have a substantial negative impact on the Project’s success and result in a material adverse effect on our financial condition or results of operations.
Land Entitlement Process
Approval to develop real property sometimes requires political support and generally entails an extensive entitlement process involving multiple and overlapping regulatory jurisdictions and often requires discretionary action by local governments. Real estate projects must generally comply with local land development regulations and may need to comply with state and federal regulations. The Company may incur substantial costs to comply with legal and regulatory requirements. An increase in legal and regulatory requirements may cause us to incur substantial additional costs, or in some cases cause us to determine that a Property is not feasible for development. In addition, our competitors and local residents may challenge our efforts to obtain entitlements and permits for the development of a Property. The process to comply with these regulations is usually lengthy and costly, may not result in the approvals we seek, and can be expected to materially affect our development activities.
Government Regulations
Various local, state and federal statutes, ordinances, rules and regulations concerning building, health and safety, site and building design, environment, zoning, sales and similar matters apply to and/or affect the real estate development industry. In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained depends on factors beyond our control, such as changes in federal, state and local policies, rules and regulations and their interpretations and application.
Municipalities may restrict or place moratoriums on the availability of utilities, such as water and sewer taps. If the municipality in which the Properties are located takes such actions, it could have an adverse effect on our business by causing delays, increasing our costs or limiting our ability to operate in those municipalities.
In addition, there is a variety of legislation being enacted, or considered for enactment, at the federal, state and local level relating to energy and climate change. This legislation relates to items such as carbon dioxide emissions control and building codes that impose energy efficiency standards. New building code requirements that impose stricter energy efficiency standards could significantly increase our cost to construct buildings. Such environmental laws may affect, for example, how we manage storm water runoff, wastewater discharges and dust; how we develop or operate on a Property; how we manage resources such as wetlands, endangered species, cultural resources, or areas subject to preservation laws; and how we address contamination. As climate change concerns continue to grow, legislation and regulations of this nature are expected to continue and become more costly to comply with. In addition, it is possible that some form of expanded energy efficiency legislation may be passed by the U.S. Congress or federal agencies and certain state legislatures, which may, despite being phased in over time, significantly increase
our costs of building and the sale price to our buyers and adversely affect our sales. We may be required to apply for additional approvals or modify our existing approvals because of changes in local circumstances or applicable law.
Energy-related initiatives affect a wide variety of companies throughout the United States and the world and, because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel and concrete, they could have an indirect adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade and similar energy related taxes and regulations. Our noncompliance with environmental laws could result in fines and penalties, obligations to remediate, permit revocations and other sanctions.
Governmental regulation affects not only construction activities but also sales activities, mortgage lending activities and other dealings with consumers. Further, government agencies routinely initiate audits, reviews or investigations of our business practices to ensure compliance with applicable laws and regulations, which can cause us to incur costs or create other disruptions in our business that can be significant. Further, we may experience delays and increased expenses as a result of legal challenges to our proposed communities, whether brought by governmental authorities or private parties.
Development Liabilities
We may hire and supervise third-party contractors to provide development services, engineering and various other services for the Company. The Company may assume liabilities in the course of the Project and be subjected to, or become liable for, claims for construction defects, negligent performance of work or other similar actions by third parties we have engaged. Adverse outcomes of disputes or litigation could negatively impact our operations and financial condition, particularly if we have not limited the extent of the damages to which we may be liable, or if our liabilities exceed the amounts of the insurance that we carry. Moreover, parties may seek to hold us accountable for the actions of contractors because of our role even if we have technically disclaimed liability as a legal matter, in which case we may determine it necessary to participate in a financial settlement to protect the Company. Acting as a principal may also mean that we pay a contractor before we have been reimbursed. This exposes us to additional risks of collection in the event of a bankruptcy or insolvency. The reverse can occur as well, where a contractor we have paid files for bankruptcy protection or commits fraud with the funds before completing a service which we have funded in part or in full.
Hospitality Industry Risks
Risks of Hospitality in General
The risks and benefits of investment in the hospitality business depends upon many factors, any of which could reduce revenues and limit opportunities for growth, over which the Company has little or no control, including, without limitation:
(a) significant competition from multiple hospitality providers in the markets the Properties are located in;
(b) changes in operating costs, including energy, food, compensation, benefits, and insurance;
(c) increases in costs due to inflation that may not be fully offset by price and fee increases in our business;
(d) changes in tax and governmental regulations that influence or set wages, prices, interest rates or construction and maintenance procedures and costs;
(e) the costs and administrative burdens associated with complying with applicable laws and regulations;
(f) the costs or desirability of complying with local practices and customs;
(g) significant increases in cost for health care coverage for employees and potential government regulation with respect to health care coverage;
(h) shortages of labor or labor disruptions;
(i) the availability and cost of capital necessary for us to fund investments, capital expenditures and service debt obligations;
(j) changes in desirability of geographic regions where the Properties are located, including changes in the economic conditions of the market in general, and in the specific areas in which the Properties are located, which changes could give rise to a decrease in local demand, an increase in local supply of land, an increase in unemployment, a change in the characteristics of the area in which the Properties are located, and restrictive governmental regulation; this risk includes the risk of a severe economic downturn, similar to the last downturn in 2008, which could affect real estate values, including hotels, significantly to the downside, various uninsurable risks, increases in the costs in excess of the budgeted costs, and the continuing advance of certain provisions of the federal tax laws;
(k) changes in the supply and demand for hotel services (including rooms, food and beverage, and other products and services);
(l) the ability of third-party internet and other travel intermediaries to attract and retain customers; and
(m) decreases that may result in the frequency of business travel as a result of alternatives to in-person meetings, including virtual meetings hosted on-line or over private teleconferencing networks.
Several factors may adversely affect the economic performance and value of the Properties. These factors include changes in the international, national, regional, and local economic climate, local conditions such as an oversupply of hotel properties or a reduction in demand for such properties, competition from other available real estate properties, interest rate fluctuations, and changes in the surrounding commercial and hotel industry. As the Company borrows capital from lenders to operate or renovate the Properties, the Company will be subject to borrowing costs and loan payments. Lenders could foreclose on any mortgage or trust deed securing a Property. In addition, interest rate levels, the availability of financing, changes in laws and governmental regulations (including those governing usage, zoning, and taxes) and the possibility of bankruptcies of third parties may adversely affect the Company, its development activities and its operating performance and financial success.
Seasonal and Cyclical Volatility
The hospitality industry is seasonal in nature. The periods during which the Properties may experience higher revenues depend principally upon location and the customer base served. In addition, the hospitality industry is cyclical, and demand generally follows, on a lagged basis, the general economy. The seasonality and cyclicality of the industry may contribute to fluctuations in the results of operations and financial condition.
Effects of Pandemics
The Covid-19 global pandemic has had a severe negative impact on the hospitality industry. There are no assurances that future pandemics will not emerge. Customer behavior based on the current pandemic may affect revenues.
Competition with Other Operators
The hotel industry is subject to intense competition. The Company will compete with other owners and operators of similar properties in the same market in which the Properties are located. Competition in the hotel business is based on many factors. Increased competition could result in less favorable investment opportunities, which could adversely impact the Company’s success and performance. The Company cannot predict the extent to which competition from existing competitors or new companies could reduce investment opportunities and favorable market conditions.
Principal competitors are other operators of full-service hotels, including other major hospitality chains with well-established and recognized brands; as well as smaller hotel chains, independent and local hotel owners, and vacation rentals by owner. If the Company is unable to compete successfully, revenues from the Properties or profits may decline. Furthermore, the investment in competing assets may have been materially lower than the Company’s anticipated costs, thus permitting the owners to charge lower rates than those anticipated to be sought by the Company.
Competition For Hotel Guests
The Company will likely face competition for individual guests, group reservations and conference business. Competition for these customers is based primarily on brand name recognition and reputation, as well as location, room rates, property size and availability of rooms, conference space, quality of the accommodations, customer satisfaction, amenities, and the ability to earn and redeem loyalty program points. Competitors may have greater financial and marketing resources and more efficient technology platforms, which could allow them to improve their properties and expand and improve their marketing efforts in ways that could affect the Company’s ability to compete for guests effectively.
Risks and Costs Associated with Protecting the Integrity and Security of Guests’ Personal Information
The Company is subject to various risks associated with the collection, handling, storage, and transmission of sensitive information, including risks related to compliance with data collection and privacy laws and other contractual obligations, as well as the risk that the systems of collecting such information could be compromised. In the course of doing business, the Company will collect large volumes of internal and customer data, including credit card numbers and other personally identifiable information for various business purposes, including managing our workforce, providing requested products and services, and maintaining guest preferences to enhance customer service and for marketing and promotion purposes. The Company’s various information technology systems enter, process, summarize and report such data. If the Company fails to maintain compliance with the various data collection and privacy laws or with credit card industry standards or other applicable data security standards, the Company could be exposed to fines, penalties, restrictions, litigation or other expenses, and our business could be adversely impacted.
In addition, even if the Company is fully compliant with legal standards and contractual requirements, it still may not be able to prevent security breaches involving sensitive data. The sophistication of efforts by hackers to gain unauthorized access to information systems has increased in recent years. Any breach, theft, loss, or fraudulent use of customer, employee or Company data could cause consumers to lose confidence in the security of our websites, mobile applications and other information technology systems and choose not to purchase from us. Any such security breach could expose the Company to risks of data loss, business disruption, litigation, and other liability, any of which could adversely affect our business.
In addition, U.S. states and the federal government have recently enacted additional laws and regulations to protect consumers against identity theft. These laws have increased the costs of doing business and, if the Company fails to implement appropriate safeguards or if it fails to detect and provide prompt notice of unauthorized access as required by some of these laws, the Company could be subject to potential claims for damages and other remedies. If the Company were required to pay any significant amounts in satisfaction of claims under these laws, or if it were forced to cease its business operations for any length of time as a result of its inability to comply fully with any such law, the business, operating results, and financial condition could be adversely affected.
Risks Associated with the Growth of Internet Reservation Channels
A significant percentage of hotel rooms for individual guests is booked through internet travel intermediaries. The Company may contract with such intermediaries and pay them various commissions and transaction fees for sales of rooms through their systems. If such bookings increase, these intermediaries may be able to obtain higher commissions, reduced room rates or require other significant concessions from the Company. Although the Manager or an Affiliate may establish agreements with many of these intermediaries that limit transaction fees for hotels, there can be no assurance that they will be able to renegotiate these agreements upon their expiration with terms as favorable as the provisions that existed before the expiration, replacement,
or renegotiation. Moreover, hospitality intermediaries generally employ aggressive marketing strategies, including expending significant resources for online and television advertising campaigns to drive consumers to their websites. As a result, consumers may develop brand loyalties to the intermediaries’ offered brands, websites, and reservations systems rather than to the hotel’s brands and systems. If this happens, business and profitability may be significantly impacted as shifting customer loyalties divert bookings away from the hotel’s websites.
In addition, in general, internet travel intermediaries have traditionally competed to attract individual consumers or “transient” business rather than group and convention business. However, hospitality intermediaries have recently grown their business to include marketing to large groups and convention business. If that growth continues, it could both divert group and convention business away from the Properties, and it could also increase the cost of sales for group business. A hotel’s reservation system is an important component of the business operations of the hotel and a disruption to its functioning could have an adverse effect on performance and results.
Compliance with the Americans with Disabilities Act
The Company will be subject to the Americans with Disabilities Act (“ADA”) as it related to its hotels in the United States. Under the ADA all public accommodations are required to meet certain federal requirements related to access and use by disabled persons. These regulations apply to accommodations first occupied after January 26, 1993, and older structures that undergo material renovations. The regulations also mandate certain operational requirements that hotel operators must observe. The failure of a property to comply with the ADA could result in injunctive relief, fines, an award of damages to private litigants or mandated capital expenditures to remedy such noncompliance. Similar laws may exist in the countries where the Company acquires hotel properties.
Bitcoin and Digital Asset Risks
Capital Loss
Investment in Bitcoin is highly speculative. Because the Company investment strategy entails buying and holding Bitcoin, there is an increased risk that Prospective Investors suffer a partial or total loss of capital.
Risks Relating to Digital Assets
The BTC network was first launched in 2009, and BTCs were the first cryptographic digital assets created to gain global adoption and critical mass. Although the BTC network is the most established digital asset network, other cryptographic and algorithmic protocols governing the issuance of digital assets continue to emerge. Developments on the BTC network, as well as these other new protocols, represent a new and rapidly evolving industry that is subject to a variety of factors that are difficult to evaluate. For example, the realization of one or more of the following risks (all of which are beyond the control of the Manager) could materially adversely affect the value of an investment in the Company:
• BTCs have only recently become selectively accepted as a means of payment by retail and commercial outlets, and the use of BTCs by consumers to pay such retail and commercial outlets remains limited. Banks and other established financial institutions may refuse to process funds for BTC transactions; process wire transfers to or from digital asset platforms, BTC-related companies or service providers; or maintain accounts for persons or entities transacting in BTC. As a result, contributing to price volatility that makes retailers less likely to accept it as a form of payment in the future;
• Banks may not provide banking services, or may cut off banking services, to businesses that provide digital asset-related services or that accept digital assets as payment, which could dampen liquidity in the market and damage the public perception of digital assets. This could decrease the price of digital assets generally or individually. Further, the lack of availability of banking services could prevent the Company from being able to timely liquidate any BTC holdings and impose material delays on distributions to investors;
• Certain privacy-preserving features have been or are expected to be introduced to digital asset networks, such as the BTC network. Platforms or businesses that facilitate transactions in BTC may be at an increased risk of criminal or civil lawsuits, or of having banking services cut off if there is a concern that these features interfere with the performance of anti-money laundering duties and economic sanctions checks or facilitate illicit financing or crime; and
• Users, developers and miners may otherwise switch to or adopt certain digital assets at the expense of their engagement with other digital asset networks, which may negatively impact those networks, including the BTC network. Any such switch or adoption could have a material adverse effect on any investment in the Company.
Uncertain Global Market Demand
The growth and use of virtual currencies generally is subject to a high degree of uncertainty. Indeed, the future of the industry likely depends on several factors, including, but not limited to:
(a) economic and regulatory conditions relating to both fiat currencies and virtual currencies; (b) government regulation of the use of and access to virtual currencies; (c) government regulation of virtual currency service providers, administrators or exchanges; and (d) the domestic and global market demand for—and availability of—other forms of virtual currency or payment methods. Any slowing or stopping of the development or acceptance of BTC may adversely affect an investment in the Company.
BTC Price Volatility
A principal risk in trading any digital asset, including BTC, is the rapid fluctuation of their market price. Extreme price volatility continues to hinder BTC’s adoption as role as a medium of exchange. These price fluctuations, which may or not mirror general stock market or interest rate trends, will impact the value of Company assets and may negatively impact investors. Sharp decreases in BTC’s value, which the Manager likely will not be able to anticipate, may limit the Company’s ability to borrow money on commercially reasonable terms or inhibit the Manager
from devoting substantial attention to other management duties. There is no guarantee that the BTC will generate any investment return whatsoever, including any return equal or exceeding general money market interest rates on cash deposits. The Manager has wide discretion in determining when to purchase BTC, and investors have no assurance that the Manager will be able to anticipate the market so as to generate returns for investors.
Among the myriad factors (all of which are beyond the Manager’s control) which may impact any future value of BTC are: (1) other digital assets supplanting BTC’s position as preferred digital asset; (2) rewards and transaction fees for the recording of transactions on the blockchain;
(3) availability and access to virtual currency service providers (such as payment processors), exchanges, miners or other digital asset users and market participants; (4) perceived or actual BTC network security vulnerability; (5) inflation levels; (6) fiscal policy, interest rates; and (7) political, natural and economic events. Additionally, any material negative news about other digital assets (e.g., scams or financial irregularities involving meme tokens or initial coin offerings) could have substantial negative price and regulatory implications for BTC and other more established cryptocurrencies.
To the extent the public demand for BTC were to decrease rapidly, including especially at a time when the Company was in liquidation, the Manager may be unable to sell any BTC comprising Company assets requiring the Manager to transfer BTC directly to investors. Therefore, Members may be subject to the risk of price fluctuations of BTC even after dissolution of the Company.
Loss or Destruction of BTC
Digital assets, including BTC, are intended to be controllable only by the possessor of both the unique public and private keys relating to the local or online digital wallet in which such digital assets are held. To the extent private keys relating to the BTC held by the Company are lost, destroyed or otherwise compromised, the Manager may be unable to access or liquidate any BTC held by the Company. Any loss of private keys relating to digital wallets used to store the Company’s BTC would materially adversely affect an investment in the Company. Further, bitcoins are typically transferred digitally, through electronic media not controlled or regulated by any entity. To the extent the Manager inadvertently and erroneously transfers a digital asset transfers to the wrong destination, the Company may be unable to recover such BTC, resulting in a material loss to investors.
BTC Transactions Irrevocable
Just as the BTC blockchain (or similar technologies) creates a permanent, public record of BTC transactions, it also creates an irrevocable one. Transactions that have been verified, and thus recorded as a block on the blockchain (or similar technologies), generally cannot be undone. Even if the transaction turns out to have been in error or as a result theft, the transaction is not reversible. Further, at this time, the Manager is not aware of any U.S. or foreign governmental, regulatory, investigative or prosecutorial authority or mechanism through which to bring an action or complaint regarding missing or stolen BTC. Consequently, the Company may be unable to replace missing BTC or seek reimbursement for any erroneous transfer or theft. Furthermore, to the extent
the Company could avail itself of U.S. or international law enforcement agencies, such organizations may lack the technical skills and subject matter expertise to effectively recover any stolen digital assets. If the Company is unable to seek redress for such action, error or theft, such loss could adversely affect an investment in the Company, including materially reducing the value of any future distributions to investors.
Third Party Wallet Providers
The Manager may, in its sole and absolute discretion, use third party wallet providers/custodians to hold BTC. Any such third party provider may have a high concentration of any digital assets in one location or with one third party wallet provider, which may be prone to losses arising out of hacking, loss of passwords, compromised access credentials, malware, or cyber-attacks. The Manager is not required to maintain a minimum number of wallet providers to hold any BTC. Certain third party wallet providers may not indemnify against any losses. Digital assets held by third parties could be transferred into “cold storage” or “deep storage” (sometimes without the Manager’s consent), and the resulting delay in access to the Company’s BTC may inhibit the Manager from taking advantage of favorable market conditions. Prospective Investors should note that any expenses incurred by the Company or the Manager with respect to third party wallet providers/custodians are Company expenses and will reduce amounts available to distribution to Class A Members. Given the type and extent of the security measures necessary to adequately secure BTC and other digital assets, neither the Manager nor the investors will have a complete understanding or be able to effectively evaluate the security measures established by any third party wallet providers/custodians.
Security
There exists the possibility that while acquiring or disposing of BTC, the Manager unknowingly engages in transactions with bad actors who are under the scrutiny of government investigative agencies. As such, the Company’s systems or a portion thereof may be taken off-line pursuant to legal process such as the service of a search and/or seizure warrant. Such action could result in the loss of BTC previously under the Company’s control. The core developers of the BTC network could propose amendments to the BTC network’s protocols and software that, if accepted and authorized, or not accepted, by the wider BTC network community, could adversely affect the supply, security, value, or market share of BTC, and thus an investment in the Company. Neither the Manager nor the Company anticipate having any involvement in the BTC network development community.
Hackers
Hackers or malicious actors may launch attacks to steal, compromise or secure BTC and other digital assets, such as by attacking network source code, exchange servers, third-party platforms, cold and hot storage locations or by other means. For example, in February 2014, Mt. Gox, a cryptocurrency exchange, suspended withdrawals because it discovered hackers were able to obtain control over the exchange’s BTCs by changing the unique identification number of a BTC transaction before it was confirmed by the BTC network. Further, Flexcoin, a so-called BTC bank, was hacked in March 2014 when attackers exploited a flaw in the code governing transfers
between users by flooding the system with requests before the account balances could update— resulting in the theft of BTC. As the Company’s holdings of BTC increase, either the Company or any third party wallet provider/custodian may become a more appealing target of hackers, malware, cyber-attacks or other security threats. The Company may be required to undertake material efforts to secure and safeguard BTC from theft, loss, damage, destruction, malware, hackers or cyber-attacks, which may add significant expenses to Company operations and reduce amounts available for distribution to investors. There can be no assurance that such securities measures will be effective or can be implemented at commercially reasonable costs.
Reliance on Virtual Currency Service Providers
Due to audit and operational needs, there will be individuals who have access to information regarding the Company’s security measures. Additionally, the Manager has limited investment experience with BTC. Further, several companies and financial institutions (including banks) may provide support to the Manager or the Company related to the buying selling, and storage of BTC. To the extent service providers are no longer willing or able to provide support for the Company or the Manager or cannot be replaced, an investment in the Company may be adversely affected.
Malicious Actor or Botnet
If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains control of more than 50% of the processing power dedicated to mining on the BTC network, it may be able to alter the BTC blockchain. The malicious actor or botnet could then construct fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. Moreover, the malicious actor or botnet could also control, exclude or modify the ordering of transactions. Although the malicious actor or botnet would not be able to generate new tokens or transactions using such control, it could “double-spend” its own tokens (i.e., spend the same tokens in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintained control. To the extent that such malicious actor or botnet did not yield its control of the processing power on the BTC network or the BTC community did not reject the fraudulent blocks as malicious, reversing any changes made to the BTC blockchain may not be possible.
Further, a malicious actor or botnet could create a flood of transactions in order to slow down the BTC network. Digital assets, including Ethereum Classic and BTC cash have been subject to such attacks. While there are no known reports of malicious activity on, or control of, the BTC network, the risk of certain mining pools exceeding 50% of available mining power has been reported. Any actual or rumored control of the BTC network by any malicious actor could have material adverse effects on any investment in the Company.
Digital Assets are not Subject to FDIC Protections
Unlike many cash deposits maintained by the Company at banking institutions, the Company’s holdings of BTC will not receive the protections enjoyed by depositors with FDIC member institutions.
Uncertain Regulatory Status of Cryptocurrencies and other Digital Assets
In both the United States and other jurisdictions, there is a lack of consensus regarding the regulation of digital assets, including BTC, and their markets. As a result of the growth in the size of the digital asset market the U.S. Congress and a number of U.S. federal and state agencies (including the SEC), Department of Treasury, the Consumer Financial Protection Bureau, the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, the Internal Revenue Service and a host of state regulators) have been examining the operations of digital asset networks, digital asset users and the digital asset markets. Many of these state and federal agencies have brought enforcement actions or issued consumer advisories regarding the risks posed by digital assets to investors. Ongoing and future regulatory actions with respect to digital assets generally or BTC in particular may alter, perhaps to a materially adverse extent, the nature of an investment in the Company or its ability to generate any return for investors.
It is not possible to predict whether, or when, any of these developments will lead to Congress granting additional authorities to the SEC or other regulators. Further, it is not clear what the nature of such additional authorities might be, how additional legislation and/or regulatory oversight might impact the ability of digital asset markets to function or how any new regulations or changes to existing regulations might impact the value of digital assets generally and BTC held by the Company specifically. The consequences of increased federal or state regulation of digital assets and digital asset activities could have a material adverse effect on the Company or its ability to generate any return for investors.
Depending on its characteristics, a digital asset may be considered a “security” under the federal securities laws. The test for determining whether a particular digital asset is a “security” is complex and difficult to apply, and the outcome is difficult to predict. Public, though non-binding, statements made in the past by senior officials at the SEC and endorsed by its previous chairman in a letter to a member of Congress appeared to indicate that the SEC did not consider BTC to be a security, at least currently, and the staff has provided informal assurances to a handful of promoters that their digital assets are not securities. On the other hand, the SEC has brought enforcement actions against the promoters of several other digital assets on the basis that the digital assets in question are securities, and there is no final statutory determination whether BTC is considered a “security” under U.S. law. Should Congress or the SEC alter this interpretation, the value of BTC (and thus the value of any investment in the Company) would be adversely affected.
Additionally, various foreign jurisdictions have, and may continue to adopt laws, regulations or directives that affect digital asset networks (including the BTC network), the digital asset markets (including the BTC market), and their users, particularly digital asset platforms and service providers that fall within such jurisdictions’ regulatory scope. For example, if China or other foreign jurisdictions were to ban or otherwise restrict manufacturers’ ability to produce or sell semiconductors or hard drives in connection with BTC mining, it would have a material adverse effect on digital asset networks (including the BTC network), the digital asset market, and as a result, impact the value of any investment in the Company.
Operating Risk
Profitability
The Company is a newly formed entity, which had no operation prior to this Offering. There can be no assurance that the Company will operate profitably in the future.
Property Demand
The Sponsor’s financial projections are based on analysis of current demand and economic conditions. There is no guarantee that the same demand or economic conditions will exist at the time operations of the Properties begin or when the Sponsor plans to refinance or sell the Properties.
Distributions
The Company does not promise distributions of specific amounts to the Members. The availability of cash for distributions will depend on market factors too specific to the actual performance of the Properties acquired to identify at the time of organization.
Likelihood of Success-Business Risks
The likelihood of success of the Company must be considered in the light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the acquisition, operation, improvement and sale of real estate in general, and the Properties specifically. There can be no assurance the Company will be able to operate, improve or sell the Properties, or that the Company will be able to achieve profitability.
Risk of Interpretation of Real Estate Documents and Agreements
There are certain risks in connection with any real estate acquisition and financing resulting from the drafting and subsequent interpretation of mortgages, deeds, leases, purchase agreements, management contracts, franchisee agreements, etc. Any documents describing the Properties or the legal relations thereto could be subject to various interpretations and potential disputes. While legal counsel will review certain legal documents, it is impossible to prevent and be secured against such various differing interpretations.
Risks of Real Estate Ownership
Real estate is not readily marketable. It is fixed in location and is subject to adverse social and economic changes and uses, rising operating costs, construction-related deficiencies, vacancies and collection difficulties. Operating expenses may increase beyond the rent levels obtainable by the
Company or rental income may decline due to vacancies, which can be the result of improper management or a change in the social patterns in the area.
Results of Operations - Possible Operating Deficits.
Pursuant to this Offering, the Company is raising capital a target of $200,000,000 payable in full upon subscription, but reserves the right to raise up to $350,000,000. It is not anticipated that the Company or the project will require additional capital beyond that mentioned above, however, there is no assurance that these funds will be adequate. This Offering is based upon projected results, which may be greater than results obtained from actual operations. Actual results may differ adversely for a number of reasons; following the purchase, the Company may be subject to rising operating costs, fluctuating vacancy levels, rent collection difficulties, possible rent controls imposed by the government and adverse economic and social events. These factors could also affect the operation of the Company. If operating income is substantially less than projected, and additional cash requirements are necessary and such funds are not provided by the Members or by outside financing, a Property could go into default and be foreclosed. (See "USES OF FUNDS".)
If additional capital is needed, the Manager may seek additional Capital Contributions from the Company, and the other Members, and then, if they fail to contribute sufficiently, the Manager expects to sell interests in the Company to new Prospective Investors or other investors, which would result in dilution of the interest of the existing Members. The Class B Members may loan funds to the Company from time to time on an interest only basis with principal payments deferred. Any such loans will bear interest at the rate of 10% per annum with interest accrued monthly in arrears. The Manager may also procure additional funds through loans from an affiliate or outside sources.
Risk of Financing and Potential Foreclosure on Mortgage Loan
Mortgage loans will likely secure the Properties. The risk of foreclosure can arise from, among other things: (i) the failure of the Properties at any time to maintain revenue levels sufficient to meet expenses and mortgage amortization (specially, but not limited to, during an economic downturn), and
(ii) the failure by the Company to meet any of the other various conditions existing in the mortgage loan documents. Payment of principal and interest on the mortgage loan will be due on a monthly basis. It is anticipated that these payments will be met from income generated by the Properties. No assurance can be given that the Properties will generate sufficient income to meet the monthly payments.
Dependence Upon Issuer
The Manager has full discretion in the management and control of the affairs of the Company, including the authority to sell less than all or substantially all of the Company’s assets for whatever consideration it deems appropriate. Except upon the sale of all or substantially all of the Company’s assets, the sale of such assets will not result in the dissolution of the Company. The sale of all or substantially all of the Company’s interests will result in the dissolution of the Company. The success
of the operations of the Company will be dependent in large measure on the judgment and ability of the Manager.
Reliance on Manager for the Management of the Properties
The Manager is vested with the exclusive authority as to the management and conduct of the business and affairs of the Company. The success of the Company depends, to a large extent, upon the management decisions made by the Manager. The Company will be dependent upon the experience and expertise of the Manager in the Company’s business activities. In the event the Manager cannot serve as manager for the Company for any reason, experienced management may not be readily available, and the Company may be negatively affected. The Company does not expect to obtain a "key man" life insurance policy for the principals of the Manager.
Uninsured Losses; Cost of Insurance
Although the Manager may arrange for certain insurance coverage to the extent that doing so is reasonable, costs of insurance may escalate beyond those anticipated, or certain kinds of losses may be uninsurable or may exceed available coverage. In the event of an uninsured loss, Members may recognize a loss of all or a portion of their investment. Manager may also obtain errors and omissions insurance that the Company may proportionally pay for to cover any errors and omissions by the Manager in connection with the Properties.
Financing Requirements
The Company’s investment in the Properties will depend, in part, upon the successful acquisition and/or assumption of debt financing secured by the specific Properties. There can be no assurance that such financing can be obtained or that the current loan terms obtained by the Company will be guaranteed before the close of escrow. There is always a risk that the lender may ultimately lend at a higher interest rate or at a lower amount, which would increase the amount of money that the Company would need to raise and therefore could affect returns.
Construction Cost Increase
The estimated total cost for property improvements may increase due to unforeseen circumstances including but not limited to labor shortages and productivity issues, health and safety hazards, subcontractor default and change orders, and subcontractor supplies and equipment price increases. In such an event Company may not obtain its forecasted Net Cash Flow and Prospective Investors would not receive their targeted returns.
Side Letter Agreements
The Manager may have side agreements with one or more Members not available to all Members. In accordance with common industry practice, the Manager may enter into one or more “side letters” or similar agreements with certain Members pursuant to which the Manager grants to such Members specific rights, benefits or privileges that are not made available to all Members generally. Side letters may provide for higher profit splits, lower minimum investments, and other terms. Except to the extent permitted by the Operating Agreement, the Manager will have no
authority to enter into side letters or similar agreements that are materially detrimental to the Company.
Risks Related to Tariffs and Trade Policy
Increases in tariffs or other restrictions on foreign imports could result in higher costs for property maintenance, repairs, and capital expenditures, which could adversely affect our financial performance and investor returns. The Company may rely on various materials, fixtures, appliances, and construction-related products that are often sourced from or contain components manufactured outside the United States. Recent or future changes in U.S. trade policy, including the imposition of new tariffs or duties on imported goods and materials—particularly under actions taken by the current federal administration—may increase the cost of goods imported from foreign countries, including those frequently used in property repairs, renovations, and other capital expenditures. If the Company is unable to offset such increased costs, this could negatively impact operating expenses, reduce cash available for distributions, and lower the overall returns to investors. In addition, prolonged uncertainty around trade policies may delay vendor procurement timelines, increase pricing volatility, and adversely affect our ability to effectively budget for ongoing or planned improvements. There can be no assurance that future changes in trade policy will not have a material adverse effect on our operations, particularly in connection with the Properties.
Securities Risks
This Offering has not been registered and relies on an exemption to registration
This Offering has not been registered under the Securities Act of 1933, as amended, in reliance on the exceptive provisions of section 4(a)(2) of the 1933 Act and Regulation D promulgated thereunder. Similar reliance has been placed on exemptions from securities registration requirements under various state securities laws. There is no assurance that the offering presently qualifies or will continue to qualify under such exceptive provisions due to, among other things, the adequacy of disclosure, the manner of distribution of the offering, the existence of similar offerings conducted by the Company, or the retroactive change of any securities or regulations. If suits for rescission are brought against the Company under the Act or laws, both capital and assets of the Company could be adversely affected. Further expenditure of Company time and capital in defending an action by investors, the Securities Exchange Commission, or state regulators, even if the Company is ultimately exonerated, could adversely affect the Company's ability to profitably develop the Properties.
Limited Transferability
As a consequence of the restrictions on subsequent transfer imposed by the exemptions to registration that the Company is relying on, the Units may not be subsequently sold, assigned, conveyed, pledged, hypothecated or otherwise transferred by the holder thereof, whether or not for consideration, except in compliance with the Act and applicable state securities laws. The Prospective Investor will receive restricted securities that, generally, will require a minimum hold period of twelve (12) months.
There will be no public market for the Units following termination of this Offering and it is not expected that a public market for the Units will ever develop.
In addition, the Operating Agreement places restrictions on the transfer or assignment of the Units. Any Member who desires to transfer a Unit in the Company in accordance with the terms of the Operating Agreement will nevertheless be prohibited from transferring said Unit except in compliance with all applicable federal and state securities laws. Accordingly, Investors in the Company should be prepared to remain Members until the termination of the Company.
Lack of Liquidity
There is no present market for the Units, and no such market is anticipated. Further, there can be no assurance that a market for the Units will develop or, if such market develops that it will continue. Further, there are restrictions on transfer of the Unit in the event that a market develops for the Company’s Units. Accordingly, an investment in the Units will not be liquid and there can be no assurance that the Units offered hereby can be resold at or near the Offering price and, in fact, purchasers of the Units may be unable to resell them for an indeterminate period of time.
Purchase of Units by Sponsor
In the event all Class A Units are not sold by closing of a Property, Sponsor or its Affiliates may, but is not obligated to, purchase any unsold Class A Units, as a placeholder, which will then be continued to be offered by the Company after the close of the Property. These purchases, if they occur, will be on the same terms and conditions as any other investor for investment and not for resale. As unsold Class A Units are sold, Sponsor or its Affiliates shall have the right to redeem the purchased units for the same purchase price.
Special Risks of the Company Form and Membership Units
Liability for Return of Capital Contribution
Under Federal and/or State law, a Member who receives a return of any portion of the capital contribution to the Company may be liable to Company for the amount of the returned portion of the capital contribution, plus interest only to the extent necessary to discharge the Company's liabilities to creditors who extended credit to the Company or whose claims arose during the period the returned portion or capital contribution was held by the Company.
No Right to Manage
A Member is not permitted to take any part in management or control of the business or affairs of the Company except as specifically provided for in the Operating Agreement. The Operating Agreement vests exclusive control and management of the Company in the Manager as a result of which, the Members have no right to participate in the management of the Company except for only those matters which are specifically reserved in the Operating Agreement to require a vote of the Members. Accordingly, the Company will be totally dependent on the Manager and its Affiliates to manage the business of the Company. Accordingly, the success of the Company's
business will depend in large part upon the expertise of the Manager. Removal of the Manager is permitted only under certain limited conditions as set forth in the Operating Agreement.
Limitation of Manager’s Liability
The Manager, its Affiliates, officers, shareholders, directors, employees, and agents will not be liable to any Member, and the Company will indemnify the foregoing against any and all liabilities, or damages, including attorney fees incurred by them in the performance of their duties in connection with Company's business, so long as such person acted within the scope of its, his, or her authority and in good faith on behalf of the Company, but only if such course of conduct does not constitute gross negligence, fraud, and/or willful or intentional misconduct. Under the terms of the Operating Agreement, the Manager, its Affiliates, and their officers, shareholders, directors, employees and agents will not be liable for any loss or damage to Company property caused by any occurrence beyond the control of the Manager. A Member may have a limited right of action against the Manager than would be available absent indemnification provisions contained in the Operating Agreement.
No Business Appraisal of the Units
The Offering price per Unit was unilaterally and arbitrarily determined by the Manager based upon acquisition costs, estimated operating expenses, estimated fees to be paid and estimated offering expenses. However, the Manager believes the purchase price to be on competitive terms.
No Assurance of Return of Invested Capital
Any return to the Members on their capital contribution will be dependent upon the ability of the Manager. Such ability will be determined in part, upon economic factors and conditions beyond the control of the Manager.
Adequacy of Capital and Reserves
An adequate amount of capital is necessary for success of the Company. In the event there are cost overruns or delays, further capital may be necessary.
Tax Risks
General
There is no general explanation of the federal income tax aspects of investment in the Company contained in this Memorandum. No representation or warranty of any kind is made by the Manager, the Company, counsel to the Manager or the Company with respect to any tax consequences relating to the Company, or the allocation of taxable income or loss set forth in this Memorandum or the Operating Agreement and each Prospective Investor should seek his own tax advice concerning the purchase of a Membership Unit.
Suitability of the Investment to the Investor
It is expected that the Company will produce taxable income to its Prospective Investors. Because of the 1986 Reform Act, in the event a taxable loss is produced by the Company in any year, such loss will be available to a Prospective Investor only to the extent of the Prospective Investor’s passive income from other sources. Unutilized tax losses may be carried forward into subsequent years to offset future passive income or offset taxable gain upon disposition of the Company’s assets.
Federal Income Tax Risks
i Necessity of Obtaining Professional Advice. THERE IS NO GENERAL EXPLANATION OF THE FEDERAL INCOME TAX ASPECTS OF INVESTMENT IN THE COMPANY CONTAINED IN THIS MEMORANDUM, AND ACCORDINGLY, EACH INVESTOR IS URGED TO CONSULT SUCH INVESTOR’S OWN TAX INVESTMENT AND LEGAL ADVISORS WITH RESPECT TO SUCH MATTERS AND WITH RESPECT TO THE ADVISABILITY OF INVESTING IN THE COMPANY. The
income tax consequences of an investment in the Company are complex, subject to varying interpretations, and may vary significantly between Prospective Investors depending upon such personal factors such as sources of income, investment portfolios and other tax considerations. A Prospective Investor should consider with Prospective Investor’s professional advisors the tax effects of Prospective Investor becoming a Class A or Class B Member. Each Prospective Investor should, at Prospective Investor’s own expense, retain, consult with and rely on Prospective Investor’s own advisors with respect to the tax effects of Prospective Investor’s investment in the Company. In addition to considering the federal income tax consequences, each Prospective Investor should also consider with Prospective Investor's own advisors the state and local tax consequences of an investment in the Company.
No representation or warranty of any kind is made by the Manager, the Company, counsel to the Manager or the Company with respect to any federal, state or local tax consequences resulting from an investment in the Company, and no assurances are given that any deduction or other federal income tax benefits will be available to Members in the Company in the current or future years relating to the Company, or the allocation of taxable income or loss set forth in this Memorandum or the Operating Agreement.
ii Tax Law Changes. The existence and amount of particular credits and deductions, if any, claimed by the Company may depend upon various determinations and allocations, characterizations of payments, and other matters which are subject to potential controversy on factual as well as legal grounds. Changes in the tax code and official interpretations thereof after the date of this Memorandum may eliminate or reduce any perceived tax benefits from an investment in the Units. There can be no assurance that regulations having an adverse effect on the Members will not be issued in the future and enforced by the courts. Any modification or change in the tax code or the regulations promulgated thereunder, or any judicial decision, could be applied retroactively to any investment in the Company. In view of this uncertainty, Prospective Investors are urged to consider ongoing developments in this area and consult their advisors concerning the effects of such developments on an investment in the Company in light of their own personal tax situations.
iii Absence of Ruling or Opinion. The Company will not seek a ruling from the IRS or an opinion of counsel with respect to any tax matters described in this Memorandum.
iv Risk of Audit. Information returns filed by the Company are subject to audit by the IRS. An audit of the Company's returns may lead to adjustments of a Member's return with respect to items other than those relating to the Member's investment in the Company, the costs of which would be borne by the affected Members. The tax treatment of items of partnership income, loss, deductions, and credits is determined at the partnership level in a unified partnership proceeding, and MHD Capital LLC as the "Partnership Representative" of the Company, may, under certain circumstances, represent and bind all of the Members. Any adjustment made to the Company's or a Member's return could result in the affected Members being subject to an imposition of interest, additional taxes and penalties.
Investment by Tax-Exempt Entities
Tax-exempt entities, such as pension funds and individual retirement accounts, generally are exempt from taxation except to the extent that “unrelated business taxable income” (“UBTI”) and “unrelated debt financed income” (“UDFI”) (determined in accordance with Sections 511- 514 of the Code) exceeds $1,000 during any tax year. A tax-exempt entity may have UBTI and/or UDFI from businesses in which it owns an interest. In addition, it may have UBTI and/or UDFI if a partnership in which it has an interest (i) owns “debt-financed property”, that is, the property in which there is “acquisition indebtedness” (in accordance with Section 514(d) of the Code), and the partnership earns interest income from the debt-financed property or realizes gains or losses from the sale, exchange or other disposition of the debt-financed property, or (ii) regularly carries on a trade or business. In addition, UBTI and/or UDFI may be generated when an IRA holds an interest in real estate which obtained financing (such is the case with the Company). The portion of the profit realized through the debt financing may be subject to UBTI and/or UDFI tax. The Company expects that all or substantially all of the Company’s income will constitute UBTI and/or UDFI with respect to a tax-exempt entity. The Code does not impose restrictions on the acquisition of interests in partnerships, such as the Company, by tax-exempt entities. However, the acquisition of such an interest may result in a tax- exempt entity being subject to UBTI and/or UDFI. If you are investing through an IRA, please consult your accountant and financial consultant for an evaluation of UBTI and/or UDFI as applied to your investment.
Delayed Schedule K-1
The Company may not be able to provide final Schedules K-1 to Members for any given fiscal year until significantly after April 15 of the following year. The Company will use its commercially reasonable efforts to provide Schedules K-1 within 90 days after the close of the fiscal year, but Members should be prepared to obtain extensions of the filing date for their income tax returns at the U.S. federal, state and local level.
Virtual Currency
The IRS issued Notice 2014-21, which concludes that virtual currency, including Bitcoin, is rerated as property for U.S. federal Tax purposes (rather than foreign currency). Notice 2014-21 further
concludes that general tax principles that apply to property transactions apply to transactions using virtual currency.
Business Plan Disclosures
General
The business plan attached as “Exhibit D” contains numerous forward-looking statements and financial projections and forecasts. These estimated projections are based on numerous assumptions and hypothetical scenarios and Sponsor explicitly makes no representation or warranty of any kind with respect to any financial projection or forecast delivered in connection with the Offering or any of the assumptions underlying them.
Past Performance is No Indication of Future Success
In many instances, Sponsor has addressed in its Business Plan (attached as Exhibit D) prior performance of assets, markets, population growth and/or experience, including Sponsor’s successful prior track record. Although important for purposes of evaluating the Sponsor and market, past performance is not an indication of future success and there are no assurances that this investment will mirror any past performance.
In the Business Plan, the Sponsor discusses several projections, including cash-on-cash returns and return on investment. These projections are simply targets that the Sponsor will pursue and there are no assurances that these targets will be met. These future projections are based, in large part, on past performances and past experiences of the Sponsor in various real estate asset classes. Past performance is no assurance of future results and Prospective Investors should not rely on the Sponsor’s targets in formulating their decision to invest in this Offering.
CONSULT YOUR OWN ATTORNEY, ACCOUNTANT AND/OR FINANCIAL CONSULTANT FOR AN EVALUATION OF THE MERIT OF AND THE RISK INHERENT IN THIS INVESTMENT. EACH PROSPECTIVE INVESTOR IS RESPONSIBLE FOR ANY FEES OR CHARGES INCURRED IN CONNECTION WITH SUCH AN EVALUATION.
PROJECTED SOURCES AND USES OF CASH
Please review the projected sources and uses of the proceeds raised from this Offering as described in the Business Plan (Exhibit ‘D’).
DISTRIBUTIONS TO MEMBERS
This Memorandum contains estimates which have been prepared on the basis of assumptions and hypotheses favorable to Prospective Investors solely for the purpose of illustration and which have not been passed on by counsel or other professional advisors to the Company. (See “RISK FACTORS.”)
No representation or warranty of any kind is or can be made with respect to the accuracy or completeness of, and no representation or warranty should be inferred from, these estimates or the assumptions underlying them.
Each Prospective Investor should consult their own tax counsel, accountants and other advisors as to the tax matters and economic benefits set forth herein. No part of this Memorandum or the attachments hereto is, or should be interpreted as legal, tax or investment advice.
Limitations on Cash Distributions.
The Manager is authorized to retain funds necessary to cover the Company's reasonable business needs, which may include reserves against possible losses and expenditures as may be necessary.
Allocations of Taxable Income, Gains and Losses from Operations, and Net Cash Flow, Etc. To the extent advantageous to the Members and permitted by applicable law and regulations, the
Company and Manager intend to seek the most favorable tax treatment for all expenditures of the Company. The Manager will cause the Company’s tax returns to be prepared and filed on such basis as utilized in preparing the financial projections; provided, however, that such methods are, in the opinion of the Manager, in accordance with generally accepted accounting principles and/or current Internal Revenue Service Rules and Regulations and, if conflicting, whichever the Manager deems applicable.
In the event of a transfer of a Unit permitted by the Operating Agreement, such transferee, when admitted to the Company as a Member, shall be allocated income, gains, losses, deductions, credits and cash distributions in accordance with his Unit.
For specific distributions and allocations, please see OFFERING section above.
NO TAX RULING
The Company will not seek a ruling from the Internal Revenue Service (the "IRS") as to any aspects of the Offering and will rely on the opinion of the Manager and its legal counsel with respect to its classification as a limited liability company for federal income tax purposes. (See "RISK FACTORS
- TAX RISKS.")
OPERATING AGREEMENT
Each Prospective Investor will be admitted as a Class A Member of the Company pursuant to the terms of the Operating Agreement upon admission to the Company by the Manager(s). Various references to the Operating Agreement are contained in this Memorandum, but such references do not purport to be complete descriptions of the provisions of the Operating Agreement. Prospective Investors and their advisor(s) should read the entire Operating Agreement.
CONFLICTS OF INTEREST
The Company is subject to various substantial existing and/or potential conflicts of interest arising out of its relationship with the Manager and/or its Affiliates. These conflicts may involve:
Allocation of Manager’s Activities
(a) The Manager and/or its Affiliates are not required to devote themselves exclusively to the affairs of the Company. Further, the Manager and its Affiliates may own real estate in the same asset
class or market as the Properties. The Manager and/or its Affiliates may have a conflict of interest in the ownership of these other properties and in allocating management, services and functions between this Company and their other present and future interests. The Manager and/or its Affiliates believe that they have sufficient time and staff to be fully capable of discharging their responsibilities to the Company and to any other present or future activities.
(b) The Manager and/or its Affiliates serve and may serve in such capacity in other limited partnerships, limited liability companies, corporations or entities which will compete with the activities of the Company. These capacities include, but are not limited to, entities that are owned by other passive investors like the Prospective Investor(s). The Manager and/or its Affiliates may have conflicts of interest in allocating management, time, services and functions between other limited partnerships or ventures and this Company as well as any future limited partnerships or limited liability companies. The Manager believes that, together with its Affiliates and any employees or agents which may be retained in the future, it has sufficient staff to be fully capable of discharging its responsibilities to this Company and any other present or future limited partnerships, limited liability companies, corporations or entities.
(c) The Manager and/or its Affiliates has and may in the future, raise capital for other entities that include investors who are not Prospective Investors.
Compensation to Manager
This Offering involves compensation or benefits to the Manager and Affiliates and for-profit participation. The compensation was not selected by arm’s length methods, but Manager believes that the fees that the Company intends to pay are reasonable, in light of the tasks and risks undertaken, and will result in substantial benefits to the Class A Members. The Manager and/or its Affiliates may have conflicts of interest as decisions may be influenced by the desire to earn the compensation.
Lack of Independent Counsel
The prospective Class A Members, Class B Members, Manager, and the Company have not had separate legal counsel in connection with the formation of the Company, the acquisition of the Properties and the offering of the Units; nor have the Class A Members been represented in preparation of the Operating Agreement. Therefore, the terms of such arrangements have not been determined on an arms- length basis. Class A Members should seek the advice of their own counsel.
Liability of Members and Manager
Applicable state law and the Operating Agreement provide that the debts, obligations and liabilities of the Company, however or wherever arisen or derived, shall be solely those of the Company, and no Member of the Company shall be personally liable for the same to third parties solely by reason of his or her status as a Member, and that the failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs shall not be grounds for imposing personal liability on Members for liabilities or obligations of the Company.
The Operating Agreement provides that no contract, action or transaction is void or voidable with respect to the Company because it is between or affects the Company and one or more of its Members, managers, or officers or because it is between or affects the Company and any other person in which one
or more of its Members, managers or officers are Members, managers, directors, trustees, or officers or have financial or personal interest, or because one or more interested Members, managers or officers participate in or vote at the meeting that authorizes the contracts, action, or transaction, provided certain circumstances apply.
Side-by-Side Investments with Affiliate Entities
In addition to the potential conflicts described above, the Manager and/or its Affiliates may organize and manage other investment vehicles with similar or complementary objectives, which may invest in real estate opportunities alongside the Company. These Affiliate investment vehicles may include, without limitation, single-asset syndications, pooled investment funds, or separately managed accounts.
Any such side-by-side investments may occur on terms that differ from those offered to the Class A Members, including with respect to management fees, promote structures, tax treatment, reporting rights, and duration. Although the Manager will use commercially reasonable efforts to allocate investment opportunities among the Company and such affiliated vehicles in a fair and equitable manner, inherent conflicts of interest may arise in connection with such arrangements, including decisions regarding property acquisition, financing, operation, and exit strategy. There can be no assurance that these conflicts will be resolved in favor of the Company or its Members.
Affiliate Property Sales
The Company may, from time to time, acquire real property or interests in real property from entities that are Affiliates of the Manager or the Sponsor (collectively, “Affiliate Sellers”). Such acquisitions may occur at a purchase price at or below the then-current fair market value of the subject property, as determined in good faith by the Manager, including by reference to one or more third-party broker price opinions, appraisals, or similar valuation methods commonly accepted in the real estate industry. The Manager shall not be obligated to obtain a third-party appraisal in connection with such transactions but will seek to ensure that any such acquisitions are consistent with the investment objectives and best interests of the Company.
Affiliate Sellers may realize a profit in connection with the sale of such property to the Company. These transactions present an inherent conflict of interest, as the Sponsor and its Affiliates may be incentivized to dispose of assets for the benefit of their own account. The Company shall not be entitled to any profits realized by an Affiliate Seller from such transactions. The Manager will endeavor in good faith to mitigate these conflicts through fair dealing and reasonable transparency, but there is no assurance that the terms of any such related-party transaction will be as favorable to the Company as those that may be obtained from an unaffiliated third party.
STANDARD OF CARE; INDEMNIFICATION
Standard of Care of Manager. Fiduciary rules provide that managers of a limited liability company shall perform their duties as managers in good faith, in a manner they reasonably believe to be in or not opposed to the best interests of the Company, and with the care that an ordinarily prudent person in a similar position would use under similar circumstances. This is in addition to the Manager’s duty of
disclosure and duty of loyalty and several duties and obligations of and limitations on the Manager as set forth in the Operating Agreement.
To impose liability on a manager, however, it must be shown by clear and convincing evidence that the standard of care was not met by the Manager. It should be noted that the cost of litigation against any Manager for enforcement of the standard of care may be prohibitively high and that any judgment obtained may not be collectible since the Manager is not bonded and any judgment exceeding their net worth or errors and omissions insurance may not be collectible. An investment decision should be based on the judgment of a Prospective Investor as to the investment factors described in this Memorandum rather than reliance upon the value of the right to bring legal actions against or to control the activities of the Manager.
Notwithstanding the standards of care obligations, the Manager has broad discretionary power under the terms of the Operating Agreement and under applicable state law to manage the affairs of the Company with the assistance, if desirable, of consultants or others retained for the account of the Company or the Manager. Generally, actions taken by the Manager is not subject to vote or review by the Members, except to the limited extent provided in the Operating Agreement.
Indemnification. The Operating Agreement provides that the Company may, to the fullest extent not prohibited by the Company's Operating Agreement or any provisions of applicable law indemnify the Manager against any and all costs and expenses (including amounts paid in settlement, and other disbursements) actually and reasonably incurred by or imposed upon such person in connection with any action, suit, investigation or proceeding (or any claim or other matter therein), whether civil, criminal, administrative or otherwise in nature, including any settlements thereof or any appeal therein, with respect to which the Manager is named or otherwise becomes or is threatened to be made a party by reason of being or at any time having been a Manager of the Company or, at the direction or request of the Company, a manager, director, trustee, officer, employee, or agent of or fiduciary for any other limited liability company, corporation, partnership, trust, venture, or other entity or enterprise.
Because there are provisions in the Operating Agreement for indemnification of the Manager, purchasers of Class A Units may have a more limited right of action than they would have absent such provision in the Operating Agreement. Insofar as indemnification for liabilities arising out of the Securities Act of 1933, as amended, may not be provided to directors, officers and controlling persons pursuant to the foregoing, or otherwise, the Manager has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is contrary to public policy and is, therefore, unenforceable.
RESTRICTIONS ON TRANSFER
The Units have not been registered under the Act. The Units are being offered and will be sold in the absence of any registration under the Act, by reason of an exemption under Section 4(a)(2) and/or Regulation D promulgated under the Act. The availability of such exemption is dependent, in part, upon the "investment intent" of each Investor and will not be available if any Prospective Investor purchases a Unit with a view toward its distribution. Accordingly, each Prospective Investor will be required to acknowledge that his purchase is being made for investment, for his own record and beneficial account, and without any view to the distribution thereof. A Unit may not be resold by a Member unless and until
it is subsequently registered under the Act and applicable state securities laws or unless appropriate exemptions from registration are available.
Prospective Investors have not been, and will not be, granted the right to require the registration of the Units under the Act and applicable state securities laws. Moreover, the Company has no intention to register the Units under federal securities laws (or to take any action to make exemptions from registration on resale or transfer available to the Prospective Investor(s) and, in view of the nature of the transaction, it is highly unlikely that there will be any such registration (or such action taken) at any time in the future. Accordingly, an investor must bear the economic risk of an investment in a Unit for an indefinite period of time.
If a Member wishes to dispose of his Units in a transaction not requiring registration under the Act and applicable state securities laws, such disposition is governed by, among other things, the terms of the Operating Agreement.
Finally, no sale, exchange or other transfer or assignment of the whole or any portion of a Unit will be permitted without the prior written consent of the Manager, which consent will be withheld if (a) all applicable federal and state securities laws and regulations with respect to transfers of securities, including but not limited to the Act and the Securities and Exchange Act of 1934, as amended, are not complied with to the satisfaction of the Manager, or (b) in the sole opinion of counsel to the Company there will be adverse consequences to the Company or any of the non-transferring Members under any applicable federal, state or local income tax laws or regulations, or (c) for any other reason in the sole discretion of the Manager.
FURTHER INVESTIGATION
Statements contained in this Private Placement Memorandum as to the contents of the Operating Agreement, or other documents, are not necessarily complete and each such statement is deemed to be qualified and amplified in all respects by the provisions of such agreements and documents, copies of which are either attached hereto or are available upon reasonable notice for examination by offerees, or their duly authorized representatives, at the office of MHD Capital LLC, 401 Wilshire Blvd 12th Fl, Office 34, Santa Monica, California 90401. The Operating Agreement is set forth in its entirety as Exhibit A to this Private Placement Memorandum, and each offeree is urged to review this document carefully. Each offeree and his business and/or tax advisors are urged to examine all agreements and documents.
HOW TO SUBSCRIBE FOR CLASS A MEMBERSHIP UNITS
Prospective Investor has received Offering Documents containing the following documents which the Subscriber should complete, date, execute, acknowledge (where required) and deliver to the Manager:
1. An Operating Agreement, Prospective Purchaser Questionnaire and Subscription Agreement (attached hereto as Exhibits A, B and C, respectively); and
2. A check or wire transfer made in accordance with the instructions to be provided by Sponsor.
The Manager, in its sole discretion, may accept subscriptions for Class A Membership Units in amounts that are less than the minimum. Subscriptions may be accepted or rejected by the Manager in its sole discretion. If a Prospective Investor's subscription is rejected, his or her subscription payment will promptly be returned.
Prospective Investors may not withdraw subscriptions tendered to the Company other than as provided in the Subscription Agreement.
EXHIBIT A
OPERATING AGREEMENT OF THE COMPANY
FIRST AMENDED AND RESTATED OPERATING AGREEMENT
of
MHD EQUITY FUND LLC
A Delaware Limited Liability Company
This First Amended and Restated Operating Agreement of MHD Equity Fund LLC is intended to replace, in its entirety, the original Operating Agreement that became effective on the date the Certificate of Formation was filed with the Delaware Secretary of State. This First Amended and Restated Operating Agreement is made and entered into effective as of October 3, 2025 by and among the Manager and the several persons whose names and addresses are set forth in Exhibit “1” attached hereto and incorporated herein by reference, and whose signatures appear on the counterpart signature pages attached hereto, and any other Person who shall hereafter execute this Agreement as a Member of MHD Equity Fund LLC, pursuant to and in accordance with the Delaware Limited Liability Company Act, as amended from time to time.
W I T N E S S E T H
WHEREAS the parties hereto, wishing to form and become members of a limited liability company called MHD Equity Fund LLC under and pursuant to the laws of the State of Delaware, have caused the initial Certificate of Formation of the Company to be executed and filed with the Delaware Secretary of State; and
WHEREAS the parties agree that their respective rights, powers, duties and obligations as members of the Company, and the management, operations and activities of the Company, shall be governed by this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants and conditions contained herein, the parties hereby agree as follows:
ARTICLE 1 DEFINITIONS
Section 1.1 Certain Definitions. Capitalized terms used in this Agreement without other definition shall, unless expressly stated otherwise, have the meanings specified in this Section 1:
1.1.1 “Act” means the Delaware Limited Liability Company Act, as from time to time in effect in the State of Delaware, or any corresponding provision(s) of any succeeding or successor law of such State; provided, however, that in the event that any amendment to the Act, or any succeeding or successor law, is applicable to the Company only if the Company has elected to be governed by the Act as so amended or by such succeeding or successor law, as the case may be, the term “Act” shall refer to the Act as so amended or to such succeeding or successor law only after the appropriate election by the Company, if made, has become effective.
1.1.2 “Acquisition Fee” means a one-time acquisition fee of up to 3% of the purchase price of each Property, which shall be paid to Manager at closing of each Property.
1.1.3 “Affiliate” of a Member or Manager means any Person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Member or a Manager, as applicable. The term “control,” as used in the immediately preceding sentence, means with respect to a corporation, limited liability company, limited life company or limited duration company (collectively, “Limited Liability Company”), the right to exercise, directly or indirectly, more than fifty percent (50%) of the voting rights attributable to the controlled corporation or Limited Liability Company and, with respect to any individual, partnership, trust, estate, association or other entity, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.
1.1.4 “Agreement” or “Operating Agreement” means this First Amended and Restated Operating Agreement, as originally executed and as amended, modified or supplemented from time to time. Words such as “herein,” “hereinafter,” “hereof,” “hereto,” “hereby” and “hereunder,” when used with reference to this Agreement, refer to this Agreement as a whole, unless the context otherwise requires.
1.1.5 “Asset Management Fee” means an asset management fee of 1% of the aggregate Unrecovered Capital Contributions in the Company paid to Manager on a monthly basis. The Manager may defer or waive Management Fees at its discretion.
1.1.6 “Assignee” means any transferee of a Member’s Interest who has not been admitted as a Member of the Company in accordance with Section 9.4.
1.1.7 “Bankruptcy” means, with respect to a Member: (i) such Member makes an assignment for the benefit of creditors; (ii) such Member files a voluntary petition in bankruptcy; (iii) such Member is adjudged as bankrupt or insolvent, or has entered against him or it an order for relief, in any bankruptcy or insolvency proceeding; (iv) such Member files a petition or answer seeking for himself or itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation; (v) such Member files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against him or it in any proceeding of a nature described in this subsection 1.1.7; (vi) such Member seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the Member or of all or any substantial part of his or its properties; or (vii) 120 days after the commencement of any proceeding against the Member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, if the proceeding has not been dismissed, or if within 90 days after the appointment without the Member’s consent or acquiescence of a trustee, receiver or liquidator of the Member or of all or any substantial part of his or its properties, the appointment is not vacated or stayed, or within 90 days after the expiration of any such stay, the appointment is not vacated.
1.1.8 “Call Option” means the right of the Manager to redeem the Class A Membership Units. The Manager, in its sole discretion, shall have the right to redeem some or all of the Class A Membership Units. See Exhibit ‘4’ for additional terms.
1.1.9 “Capital Account” means an account established and maintained (in accordance with, and intended to comply with, Income Tax Regulations Section 1.704-1(b) for each Member pursuant to Section 5.2 hereof.
1.1.10 “Capital Contributions” means the contributions made by the Members to the Company pursuant to Sections 6.1 or 6.4 hereof and, in the case of all the Members, the aggregate of all such Capital Contributions.
1.1.11 “Capital Transaction Event” means the sale or refinance of a Property, or sale of substantially all of the assets of the Company.
1.1.12 “Capital Transaction Fee” means a fee paid to Manager at the sale or re- finance of a Property of up to 3% of the sales price of a Property and/or 3% of the new loan amount, in the case of a refinance.
1.1.13 “Certificate of Formation” means the Certificate of Formation of the Company, as originally filed with the Delaware Secretary of State and as amended, modified or supplemented from time to time.
1.1.14 “Class A Member(s)” means the holder(s) of Class A Membership Units.
1.1.15 “Class A Membership Unit(s)” means the Membership Unit(s) owned by the Class A Member(s).
1.1.16 “Class B Member(s)” means the holder(s) of Class B Membership Units.
1.1.17 “Class B Membership Unit(s)” means the Membership Unit(s) owned by the Class B Member(s).
1.1.18 “Code” means the United States Internal Revenue Code of 1986, as amended, or any corresponding provision or provisions of any succeeding law and, to the extent applicable, the Income Tax Regulations.
1.1.19 “Company” means MHD Equity Fund LLC, a Delaware limited liability company.
1.1.20 “Developer Fee” means a fee paid to the Manager, or an Affiliate entity, for services related to overseeing, managing, and executing construction-related activities on behalf of the Company equal to 10% of total Hard Costs and Soft Costs. This fee shall only apply when the Company hires a third-party general contractor that is not an Affiliate of the Sponsor.
1.1.21 “General Contracting Fee” means a fee payable to an Affiliate of the Sponsor that provides general contracting services for a particular Project. The amount of
the General Contracting Fee shall be at or below prevailing market rates for general contracting services in the geographic region where the Property is located, as determined by the Manager in good faith. No General Contracting Fee shall be paid to an Affiliate if the Company retains an unaffiliated third-party general contractor to construct a Company project.
1.1.22 “Hard Costs” means the direct, tangible expenses incurred in the physical construction of the Properties. These costs encompass materials, labor, equipment, and other necessary expenses directly related to the construction of the Properties including, but not limited to, costs for concrete, steel, wood, glass, construction wages, machinery like cranes and bulldozers, site preparation, foundation laying, structural elements, mechanical, electrical, plumbing systems, interior and exterior finishes, and site improvements.
1.1.23 “Income Tax Regulations” means, unless the context clearly indicates otherwise, the regulations in force as final or temporary that have been issued by the U.S. Department of the Treasury pursuant to its authority under the Code, and any successor regulations.
1.1.24 “Interest” or “Percentage Interest” means the allocable interest of each Member in the income, gain, loss, deduction or credit of the Company, as set forth in Exhibit “2” attached hereto and incorporated herein by reference, subject to the Preferred Allocation schedule contained in Exhibit “4.”
1.1.25 “Loan Guarantor Fee” means a fee equal to 1% of the total loan amount paid to the loan guarantors at the inception of each loan on a Property.
1.1.26 “Manager” means the Persons who is elected as Manager of the Company pursuant to Section 4.6 of this Agreement. The initial Manager shall be MHD Capital LLC, a Delaware limited liability company.
1.1.27 “Member” means any Person who (i) is one of the original Members of the Company which are parties to this Agreement and listed as such in Exhibit “1”, or (ii) has been admitted to the Company as a Member in accordance with the Act and this Agreement, and (iii) has not ceased to be a Member for any reason.
1.1.28 “Net Capital Proceeds” means the excess of sale or re-finance revenue, over sales or re-finance costs and fees, including but not limited to repayment of debt, sales commissions, sales fees, including the Capital Transaction Fee, establishment of necessary Reserves, cash expenditures incurred incident to the sales process, re-finance/origination fees, broker fees, and any other cash expenditures incurred in the re-finance of the Properties. Any reserves returned to the Company by any lending institution or any other source may be considered a Capital Transaction Event and part of Net Capital Proceeds in the Manager’s sole discretion.
1.1.29 “Net Cash Flow” means the excess of all cash revenues of the Company relating to the direct or indirect ownership and operations of the Properties other than revenue attributable to a Capital Transaction Event, over operating expenses and other
expenditures for such fiscal period, including but not limited to principal and interest payments on indebtedness of the Company, other sums paid to lenders, and cash expenditures incurred incident to the normal operation of the Company’s business, decreased by (i) any amounts added to Reserves during such fiscal period, (ii) the Asset Management Fee, (iii) the Developer Fee, and (iv) the Property Management Fee, and increased by (i) the amount (if any) of all allowances for cost recovery, amortization or depreciation with respect to property of the Company for such fiscal period, and (ii) any amounts withdrawn from Reserves during such fiscal period.
1.1.30 “Offering” means the exempt securities offering that the Company is offering to Class A Members to purchase the Property.
1.1.31 “Person” means a natural person or any partnership (whether general or limited and whether domestic or foreign), limited liability company, foreign limited liability company, limited life company, limited duration company, trust, estate, association, corporation, custodian, nominee or any other individual or entity in its own or any representative capacity or any other entity.
1.1.32 “Preferred Allocation” means the preferred allocation provided to the Members as outlined in Exhibit “4.”
1.1.33 “Preferred Return” means a non-compounded per annum return of 8% for Class A Members and based on their respective Unrecovered Capital Contribution. See Exhibit ‘4’ for additional terms.
1.1.34 “Property” or “Properties” means one or more real estate assets, whether improved or unimproved, which the Company intends to acquire, develop, or redevelop using the proceeds of this Offering. Such assets may include, without limitation, residential and commercial land, high-rise condominium developments, single-family luxury homes, apartment buildings, and mixed-use projects, located in one or more markets as determined by the Manager in its sole discretion.
1.1.35 “Property Management Fee” means a market rate property management fee on each Property paid to Property Manager(s) on a monthly basis.
1.1.36 “Property Manager(s)” means an Affiliate of Manager or a third-party property management company subject to the geographical location of each Property.
1.1.37 “Reserves” means the reasonable reserves established and maintained from time to time by the Manager, in amounts reasonably considered adequate and sufficient from time to time by the Manager to pay Prospective Investor distributions, taxes, fees, insurances or other costs and expenses incident to the Company’s business.
1.1.38 “Soft Costs” means the indirect, non-physical expenses incurred in connection with the development, design, and entitlement of the Properties, which are not classified as Hard Costs. These costs may include, without limitation, architectural and engineering fees, design and consulting fees, permitting and entitlement costs, legal and accounting fees, insurance, surveying, zoning and planning fees, environmental and
geotechnical studies, impact fees, utility connection fees, and other administrative or professional services necessary to facilitate the development and construction of the Properties.
1.1.39 “Tax Matters Member” has the meaning set forth in subsection 7.4.4 hereof.
1.1.40 “Unrecovered Capital Contribution” means a Class A Member’s Capital Contributions minus any return of capital. Distributions of Net Cash Flow shall be treated as a return on investment and returns from Net Capital Proceeds shall be treated as a return of capital.
1.1.41 “Vote” means one vote for every Percentage Interest and includes written consent.
Section 1.2 Forms of Pronouns; Number; Construction. Unless the context otherwise requires, as used in this Agreement, the singular number includes the plural and the plural number may include the singular. The use of any gender shall be applicable to all genders. Unless otherwise specified, references to Articles, Sections or subsections are to the Articles, Sections and subsections in this Agreement. Unless the context otherwise requires, the term “including” shall mean “including, without limitation.”
ARTICLE 2 ORGANIZATION
Section 2.1 Formation. The Members have formed the Company as a limited liability company under and pursuant to the provisions of the Act. The Members hereby agree that the Company shall be governed by the terms and conditions of this Agreement.
Section 2.2 Name and Office. The name of the Company shall be MHD Equity Fund LLC. All business of the Company shall be conducted under such name and title, and all property, real, personal, or mixed, owned by or leased by the Company shall be held in such name or in the name of a wholly owned subsidiary, which may be created at the request of the lender or for asset protection purposes to protect investor funds. The principal mailing address of the Company shall be 401 Wilshire Blvd 12th Fl, Office 34, Santa Monica, California 90401. The Company may have offices and places of business as the Manager may from time to time designate.
Section 2.3 Registered Agent. The Company may have such offices and places of business as the Manager may from time to time designate. The name and address of the Company’s registered agent shall be as set forth in the Company’s Certificate of Formation until such time as the registered office is changed by the Manager in accordance with the Act.
Section 2.4 Purpose of the Company. The Company is organized for the following objects and purposes:
“raise monies to enable the Company to purchase the Properties and subsequently develop, redevelop, construct, and/or ultimately sell the
Properties for a profit.”
It is understood that the foregoing statement of purposes shall not serve as a limitation on the powers or abilities of the Company, which shall be permitted to engage in any and all lawful business activities as shall be permitted under the laws of the State of Delaware and any other State the Manager deems in the best interest of the Company.
Section 2.5 Filings. The Manager has caused, or shall promptly cause, the execution and delivery of such documents and performance of such acts consistent with the terms of this Agreement as may be necessary to comply with the requirements of law for the formation, qualification and operation of a limited liability company under the laws of each jurisdiction in which the Company shall conduct business.
Section 2.6 Effective Date; Term. This Agreement shall be effective as of the date set forth in the preamble of this Agreement. The term of the Company commenced, and the Company commenced its business, on the date on which the Certificate of Formation was filed with the Delaware Secretary of State and shall continue in perpetuity, unless sooner terminated pursuant to the provisions hereof. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation.
ARTICLE 3
MEMBERS; LIMITED LIABILITY OF MEMBERS
Section 3.1 Members. Each of the parties to this Agreement (other than the initial Manager), and each Person admitted as a Member of the Company pursuant to the Act and Section
9.4 of this Agreement, shall be Members of the Company until they cease to be Members in accordance with the provisions of the Act, the Certificate of Formation, or this Agreement. Upon the admission of any new Member, Exhibit “1” attached hereto shall be amended accordingly.
Section 3.2 Limited Liability. Except as expressly set forth in this Agreement or required by law, no Member shall be personally liable for any debt, obligation or liability of the Company, whether arising in contract, tort or otherwise, solely by reason of being a Member of the Company.
Section 3.3 Certificates Evidencing Interests. The Company may issue to every Member of the Company a certificate signed by any Manager of the Company specifying the Interest of such Member, which signature may be a facsimile. If a certificate for registered interests is worn out or lost it may be renewed on production of the worn-out certificate or on satisfactory proof of its loss together with such indemnity as may be required by a resolution of the Manager.
Section 3.4 Classes of Members.
The Company shall have two (2) classes of Members: Class A Members and Class B Members. Each such class of members shall have the rights, powers, duties, obligations, preferences and privileges set forth in this Agreement. The names of the Members shall be set forth in Exhibit “1” attached hereto and incorporated herein by reference, as amended from time to time. Any person may simultaneously hold more than one class of membership.
Section 3.5 Voting Rights.
3.5.1 Except as may otherwise be provided in this Agreement or the Act or the Certificate of Formation, each of the Class A Members hereby waives his, her, or its right to vote on any matters, other than those set in Section 3.5.2 and Section 3.5.3 below. All other decisions will rest with the Manager, as outlined in Section 4.1 below.
3.5.2 Subject to the Act and the Certificate of Formation, the affirmative vote of Members holding not less than a majority of the Percentage Interests of each class voting as a class represented and voting at a duly held meeting at which a quorum of each class is present (which Members voting affirmatively shall constitute at least a majority of the required quorum) shall be required to:
(a) approve any loan to any Manager or any guarantee of a Manager's obligations;
(b) amend this Agreement in such a way that would result in a negative change to the Preferred Allocation as outlined in the private placement memorandum found in Company’s Offering documents and Exhibit “4” of this Agreement or adversely affect the rights, or the interest in the capital, distributions, profits, or losses of any Class A Member as outlined in the Company’s Offering documents, reviewed and executed contemporaneously with this Agreement. A vote of the Class A Members is not required when the Manager, in its sole discretion, determines that (i) the creation of a new class of Members and/or change to the Preferred Allocation is necessary to raise additional capital subject to Section
6.4 or, (ii) raising capital via a new securities offering is in the best interest of the Company and its Members.
3.5.3. Subject to the Act and the Certificate of Formation, the affirmative vote of Members holding not less than a three-quarters majority of the Percentage Interests of the Company as a whole voting at a duly held meeting at which a quorum of each class is present shall be required to remove the Manager for cause pursuant to Section 4.6.2. below;
3.5.4 Unless a record date for voting purposes has been fixed as provided in Section 3.11 of this Agreement, only Persons whose names are listed as Members on the records of the Company at the close of business on the business day immediately preceding the day on which notice of the meeting is given or, if such notice is waived, at the close of business on the business day immediately preceding the day on which the meeting of Members is held (except that the record date for Members entitled to give consent to action without a meeting shall be determined in accordance with Section 3.11) shall be entitled to receive notice of and to vote at such meeting, and such day shall be the record date for such meeting. Any Member entitled to vote on any matter may cast part of the votes in favor of the proposal and refrain from exercising the remaining votes or vote against the proposal (other than for election or removal of a Manager), but if the Member fails to specify the Interests such Member is voting affirmatively, it will be conclusively presumed that the Member's approving vote is with respect to all votes such Member is entitled to cast. Such vote may be a voice vote or by ballot; provided, however, that all votes for election or
removal of a Manager must be by ballot upon demand made by a Member at any meeting at which such election or removal is to be considered and before the voting begins.
3.5.5 Without limiting the preceding provisions of this Section 3.5, no Person shall be entitled to exercise any voting rights as a Member until such Person (i) shall have been admitted as a Member pursuant to Section 9.4, and (ii) shall have paid the Capital Contribution of such Person in accordance with Section 6.1.
Section 3.6 Place of Meetings. All meetings of the Members shall be held at any place within or without the State of Delaware that may be designated by the Manager. In the absence of such designation, Members’ meetings shall be held at the principal executive office of the Company.
Section 3.7 Meetings of Members. Annual meeting of Members shall not be required. Meetings of the Members for the purpose of taking any action permitted to be taken by the Members may be called by the Manager, or by Members entitled to cast not less than seventy percent (70%) of the votes at the meeting. Upon request in writing that a meeting of Members be called for any proper purpose, the Manager forthwith shall cause notice to be given to the Members entitled to vote that a meeting will be held at a time requested by the person or persons calling the meeting, not less than ten (10) nor more than sixty (60) days after receipt of the request. Except in special cases where other express provision is made by statute, written notice of such meetings shall be given to each Member entitled to vote not less than ten (10) nor more than sixty (60) days before the meeting. Such notices shall state:
3.7.1 The place, date and hour of the meeting; and
3.7.2 Those matters which the Manager, at the time of the mailing of the notice, intends to present for action by the Members.
Section 3.8 Quorum. The presence at any meeting in person or by proxy of Members holding not less than a majority of the Interests of the class or classes entitled to vote at such meeting shall constitute a quorum for the transaction of business. The Members present at a duly called or held meeting at which a quorum is present may continue to transact business until adjournment, notwithstanding the withdrawal of enough Members to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the votes required to constitute a quorum.
Section 3.9 Waiver of Notice. The actions of any meeting of Members, however called and noticed, and wherever held, shall be as valid as if taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting, or an approval of the minutes thereof. The waiver of notice, consent or approval need not specify either the business to be transacted or the purpose of any regular or special meeting of Members, except that if action is taken or proposed to be taken for approval of any of those matters specified in subsections 3.5.2 – 3.5.3 of this Agreement, the waiver of notice, consent or approval shall state the general nature of such proposal. All such waivers, consents or approvals shall be filed with the Company’s records and made a part of the minutes of the meeting. Attendance of a Member at a meeting shall also
constitute a waiver of notice of and presence at such meeting, except when the Member objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required to be included in the notice but not so included, if such objection is expressly made at the meeting.
Section 3.10 Action by Members Without a Meeting. The Manager may be elected or removed without a meeting by a consent in writing, setting forth the action so taken, signed by Members having not less than the minimum number of votes that would be necessary to elect or remove such Manager in accordance with Section 4.6; in addition, a Manager may be elected at any time to fill a vacancy by a written consent signed by Class B Member having not less than the minimum number of votes that would be necessary to elect such Manager in accordance with Section 4.6. Notice of such election shall be promptly given to non-consenting Members.
Any other action which, under any provision of the Act or the Certificate of Formation or this Agreement, may be taken at a meeting of the Members, may be taken without a meeting, and without notice except as hereinafter set forth, if a consent in writing, setting forth the action so taken, is signed by Members having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the Company and shall be maintained in the Company’s records. Unless the consents of all Members entitled to vote have been solicited in writing, then (i) notice of any proposed Member approval of any of the matters set forth in subsection 3.5.2 without a meeting by less than unanimous written consent shall be given to those Members entitled to vote who have not consented in writing at least five
(5) days before the consummation of the action authorized by such approval, and (ii) prompt notice shall be given of the taking of any other action approved by Members without a meeting by less than unanimous written consent to those Members entitled to vote who have not consented in writing.
Any Member giving a written consent, or the Member’s proxy-holders, or a personal representative of the Member or their respective proxy-holders, may revoke the consent by a writing received by the secretary prior to the time that written consents of the number of votes required to authorize the proposed action have been filed with the secretary, but may not do so thereafter. Such revocation is effective upon its receipt by the secretary or, if there shall be no person then holding such office, upon its receipt by any other officer or Manager of the Company.
Section 3.11 Record Date. The Manager or, if there is no Manager then in office, the Members may fix a time in the future as a record date for the determination of the Members entitled to notice of and to vote at any meeting of Members or entitled to give consent to action by the Company in writing without a meeting, to receive any report, to receive any dividend or distribution, or any allotment of rights, or to exercise rights with respect to any change, conversion or exchange of interests. The record date so fixed shall be not more than sixty (60) days nor less than ten (10) days prior to the date of any meeting, nor more than sixty (60) days prior to any other event for the purposes of which it is fixed. When a record date is so fixed, only Members of record at the close of business on that date are entitled to notice of and to vote at any such meeting, to give consent without a meeting, to receive any report, to receive a dividend, distribution, or allotment of rights, or to exercise the rights, as the case may be, notwithstanding any transfer of
any interests on the books of the Company after the record date, except as otherwise provided by statute or in the Certificate of Formation or this Agreement.
If the Manager or the Members, as the case may be, do not so fix a record date, then (i) the record date for determining Members entitled to notice of or to vote at a meeting of Members shall be at the close of business on the business day immediately preceding the day on which notice is given or, if notice is waived, at the close of business on the business day immediately preceding the day on which the meeting is held, and (ii) the record date for determining Members entitled to give consent to Company action in writing without a meeting shall be the day on which the first written consent is given
Section 3.12 Members May Participate in Other Activities. Each Member of the Company, either individually or with others, shall have the right to participate in other business ventures of every kind, whether or not such other business ventures compete with the Company. No Member, acting in the capacity of a Member, shall be obligated to offer to the Company or to the other Members any opportunity to participate in any such other business venture. Neither the Company nor the other Members shall have any right to any income or profit derived from any such other business venture of a Member or affiliate entity.
Section 3.13 Members Are Not Agents. Pursuant to Section 4.1 of this Agreement, the management of the Company is vested in the Manager. The Members shall have no power to participate in the management of the Company except as expressly authorized by the Act, this Agreement or the Certificate of Formation. No Member, acting solely in the capacity of a Member, is an agent of the Company nor does any Member, unless expressly and duly authorized in writing to do so by the Manager, have any power or authority to bind or act on behalf of the Company in any way, to pledge its credit, to execute any instrument on its behalf or to render it liable for any purpose.
Section 3.14 Transactions of Members with the Company. Subject to any limitations set forth in this Agreement and with the prior approval of the Manager, a Member may lend money to and transact other business with the Company. Subject to other applicable law, such Member has the same rights and obligations with respect thereto as a Person who is not a Member.
ARTICLE 4 MANAGEMENT OF THE COMPANY
Section 4.1 Management and Operations. Subject to the provisions of the Act and any limitations in the Certificate of Formation and this Agreement as to action required to be authorized or approved by the Members, the business and affairs of the Company shall be managed and all its powers shall be exercised by or under the direction of the Manager which shall run the day-to day operations and conduct, manage and control the business and affairs of the Company and to make such rules and regulations therefor not inconsistent with law or with the Certificate of Formation or with this Agreement, and to make all other arrangements and do all things which are necessary or convenient to the conduct, promotion or attainment of the business, purposes or activities of the Company.
Section 4.2 Duties and Conflicts.
(a) The Manager shall devote such time to the Company’s business as it, in its sole discretion, may deem to be necessary or desirable in connection with the Manager’s responsibilities and duties hereunder.
(b) The Manager shall not be liable to the Company or any Member for action or inaction taken in good faith for a purpose that was reasonably believed to be in the best interests of the Company; for losses due to such action or inaction; or for the negligence, dishonesty or bad faith of any employee, broker or other agent of the Company, provided that such employee, broker or agent was selected, engaged or retained with reasonable care. The Manager may consult with counsel and accountants on matters relating to the Company and shall be fully protected and justified in acting in accordance with the advice of counsel or accountants, provided that such counsel or accountants shall have been selected with reasonable care. Notwithstanding any of the foregoing to the contrary, the provisions of this Section 4.2 shall not be construed so as to relieve (or attempt to relieve) any person of any liability incurred (a) as a result of recklessness or intentional wrongdoing, or (b) to the extent that such liability may not be waived, modified or limited under applicable law.
(c) Except as otherwise provided herein, the Manager shall have no duty or obligation to consult with or seek the advice of the Members.
Section 4.3 Agency Authority of Manager. If more than one Manager holds office, then any of them shall be authorized to sign checks, contracts and obligations on behalf of the Company. Any Manager, acting alone, is authorized to endorse checks, drafts and other evidences of indebtedness made payable to the order of the Company, but only for the purpose of deposit into the Company’s accounts.
Section 4.4 Limited Liability. Except as expressly set forth in this Agreement or required by law, no Manager shall be personally liable for any debt, obligation, or liability of the Company, whether arising in contract, tort or otherwise, solely by reason of being a Manager of the Company.
Section 4.5 Number and Qualifications of Managers. The authorized number of managers that shall constitute the managers shall be not less than one (1) nor more than three (3). Subject to the provisions of the Act, any limitations set forth in this Agreement (including the terms of Section 2.4 hereof) and any limitations in the Certificate of Formation, the authorized number of managers may be changed from time to time by the Manager. The exact number of managers shall be fixed from time to time, within the limits specified in this Section 4.5, by the managers then in office. The number of managers comprising the managers shall initially be one
(1). A Manager may, but need not, be Members of the Company.
Section 4.6 Election and Removal of Manager.
4.6.1 The Manager shall be elected by the vote of Members holding not less than a majority of the Class B Membership Units pursuant to Section 3.10 of this Agreement. Except as otherwise provided by the Act or the Certificate of Formation, each Manager,
including a Manager elected to fill a vacancy, shall hold office until such Manager’s death, Bankruptcy, mental incompetence, resignation or removal.
4.6.2 Any Manager may be removed for Cause upon the vote of not less than a three-quarters majority of the Percentage Interests of the Company as a whole. In the event of removal for Cause, the removal shall be effective sixty (60) days following the vote. For purposes of removal of a Manager, “for Cause” shall mean any of the following:
(a) A Manager is declared insolvent or bankrupt, or makes an assignment for the benefit of creditors, or a receiver is appointed or any proceeding is demanded by, for or against the other under any provision of the Federal Bankruptcy Act or any amendment thereof which is not removed within sixty (60) days after notice from the Company;
(b) The willful and continued failure of a Manager to substantially perform that party’s customary duties (other than due to such party’s death or incapacity due to physical or mental illness), the reckless disregard of the performance of such party’s duties, or the willful engaging by the breaching party in gross misconduct which is materially injurious to the other party, monetarily or otherwise;
(c) If an individual, the inability of a Manager to perform his duties hereunder by reason of illness, or physical or mental incapacity of any kind, for a period of more than sixty (60) days. If disputed by the Manager, the Manager shall submit to a medical examination by a qualified medical doctor selected by the Company to determine the Manager’s ability to perform his duties; or
(d) Any actions by a Manager causing or resulting in either of the following:
(1) Conviction, whether as a result of a guilty plea, a plea of nolo contendere or a verdict of guilty, of a felony, or of any criminal offense involving moral turpitude such as rape, statutory rape, fraud, embezzlement, gross sexual imposition, theft or offenses of similar import; or
(2) Misrepresentation or false, misleading, inaccurate statements of material facts in connection with the rendering of services as a Manager.
Section 4.7 Vacancies; Resignations.
4.7.1 A vacancy shall be deemed to exist in case of the death, Bankruptcy, mental incompetence, resignation or removal of any Manager, if the authorized number of managers be increased, or if the Members fail, at any meeting of the Members at which any manager or managers are to be elected, to elect the full authorized number of managers to be voted for at that meeting.
4.7.2 All Manager vacancies shall be filled by majority Class B Member Vote.
4.7.3 Any Manager may resign effective upon giving thirty (30) days’ written notice to the Members of the Company, unless the notice specifies a later time for the effectiveness of such resignation. A majority of the other managers then in office, or failing such action the Members, shall have power to elect a successor to take office when the resignation is to become effective.
Section 4.8 Initial Manager. The name of the initial Manager to hold office from and after the date of this Agreement, is MHD Capital LLC.
Section 4.9 Managers May Engage in Other Activities. The Manager shall have the right to participate in other business ventures of every kind, whether or not such other business ventures compete with the Company. The Manager shall not be obligated to offer to the Company or to Members any opportunity to participate in any such other business venture, nor shall the Manager be obligated to obtain permission of the Members in order to engage in other activities. Neither the Company nor the Members shall have any right to any income or profit derived from any such other business venture of Manager.
Section 4.10 Transactions of Managers with the Company. Subject to any limitations set forth in this Agreement, Manager may lend money to and transact other business with the Company. Subject to other applicable law, such Manager has the same rights and obligations with respect thereto as a Person who is not a Member or Manager.
Section 4.11 Compensation of Manager. The Manager shall be reimbursed for any direct funds or expenses advanced by it prior to or after formation of the Company to the extent that such expenses are incurred or paid directly on behalf of the Company.
The Manager and its Affiliates shall be entitled to collect the following fees:
(a) The Acquisition Fee
(b) The Asset Management Fee
(c) The Capital Transaction Fee
(d) The Developer Fee
(e) The General Contracting Fee1
(f) The Loan Guarantor Fee
(g) The Property Management Fee
In its sole and absolute discretion, if the Manager determines it is in the best interest of the Company to replace a current third-party vendor with the Manager or its Affiliate, then Manager or its Affiliate may assume the third-party compensation at the same or lower rates.
1 This fee will only be charged if an Affiliate of the Sponsor performs general contracting services on a Company project.
ARTICLE 5 INTERESTS
Section 5.1 Interests. The Interest of each Member in the Company shall be as set forth in Exhibit “2” hereto, subject to the Preferred Allocation schedule contained in Exhibit “4.”
Section 5.2 Capital Accounts. A Capital Account shall be maintained for each Member on the books of the Company. Each Member’s Capital Account shall be credited with the amount of any capital contribution made by such Member pursuant to Sections 6.1 and 6.4, and shall be adjusted appropriately to take into account all items of income, gain, loss or deduction allocated to each Member pursuant to Article 7 hereof and all distributions to each Member pursuant to Article 8 hereof. A single Capital Account shall be maintained for each Member (regardless of the class of Interests owned by such Member and regardless of the time or manner in which such Interests were acquired) in accordance with the capital accounting rules of Section 704(b) of the Code and the regulations thereunder (including without limitation Section 1.704- 1(b)(2)(iv) of the Income Tax Regulations). In general, under such rules, a Member’s Capital Account shall be:
(a) increased by (i) the amount of money contributed by the Member to the Company (including the amount of any Company liabilities that are assumed by such Member other than in connection with distribution of Company property),
(ii) the fair market value of property contributed by the Member to the Company (net of liabilities secured by such contributed property that under Section 752 of the Code the Company is considered to assume or take subject to), and (iii) allocations to the Member of Company income and gain (or item thereof), including income and gain exempt from tax; and
(b) decreased by (i) the amount of money distributed to the Member by the Company (including the amount of such Member’s individual liabilities that are assumed by the Company other than in connection with contribution of property to the Company), (ii) the fair market value of property distributed to the Member by the Company (net of liabilities secured by such distributed property that under Section 752 of the Code such Member is considered to assume or take subject to),
(iii) allocations to the Member of expenditures of the Company not deductible in computing its taxable income and not properly chargeable to capital account, and
(iv) allocations to the Member of Company loss and deduction (or item thereof).
(c) Where Section 704(c) of the Code applies to Company property or where Company property is revalued pursuant to paragraph (b)(2)(iv)(t) of Section 1.704-1 of the Income Tax Regulations, each Member’s Capital Account shall be adjusted in accordance with paragraph (b)(2)(iv)(g) of Section 1.704-1 of the Income Tax Regulations as to allocations to the Members of depreciation, depletion, amortization and gain or loss, as computed for book purposes with respect to such property.
(d) When Company property is distributed in kind (whether in connection with liquidation and dissolution or otherwise), the Capital Accounts of the Members shall first be adjusted to reflect the manner in which the unrealized income, gain, loss and deduction inherent in such property (that has not been reflected in the Capital Account previously) would be allocated among the Members if there were a taxable disposition of such property for the fair market value of such property (taking into account Section 7701(g) of the Code) on the date of distribution.
(e) The Manager shall direct the Company’s accountants to make all necessary adjustments in each Member’s Capital Account as required by the capital accounting rules of Section 704(b) of the Code and the regulations thereunder.
Section 5.3 Return of Capital. No Member shall be liable for the return of the capital contributions (or any portion thereof) of any other Member, it being expressly understood that any such return shall be made solely from the assets of the Company. No Member shall be entitled to withdraw any part of such Member’s Capital Contributions or Capital Account, to receive interest on such Member’s Capital Contributions or Capital Account or to receive any distributions from the Company, except as expressly provided for in this Agreement or under the Act as then in effect.
Section 5.4 Liability. Except as otherwise provided by the Act or this Agreement, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company and no Member shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member. Except as otherwise expressly required by law, a Member, in such Member’s capacity, shall have no liability in excess of (i) such Member’s Capital Account and share of any undistributed profits of the Company, (ii) such Member’s obligations to make other payments pursuant to the obligation to make capital contributions to the Company hereunder which shall be an obligation strictly among and enforceable by the Members, and no third party shall be a third- party beneficiary thereof, and (iii) the amount of any distributions wrongfully distributed to such Member.
ARTICLE 6
CAPITAL CONTRIBUTIONS, WITHDRAWALS AND LOANS
Section 6.1 Initial Capital Contributions. Each Member shall make the initial capital contributions to the Company (each, an “Initial Capital Contribution”), in accordance with the amounts set forth on Exhibit “1” hereto, as amended from time to time. Upon the making of such contributions, such amounts shall be credited to the Members’ respective Capital Accounts. Each Member understands and assumes the risk of investing in the Company and shall be without recourse, including against the Company’s assets, should he lose his investment. The Manager shall have discretion as to the date at which the subscriptions for Class A Membership Units shall be closed.
Section 6.2 Non-Member Loans to the Company. The Company may obtain such further funds as it requires for its operations from sources and on terms, which are acceptable to the Manager, subject to the restrictions herein contained. Neither the Company nor any Member
shall have any personal liability as a result of any such borrowing unless any of the Members shall agree in writing to be personally liable. Notwithstanding the foregoing, the Company shall not acquire funds pursuant to this Section 6.2 as long as any obligations under the Loan (as defined in that certain Loan Agreement by and between the Company and the lender) remain outstanding.
Section 6.3 Member Loans to the Company. In the event that the Company shall require funds in order to carry out the purposes of the Company and such funds shall not be available from either prior capital contributions of the Members or the proceeds of a third-party loan to the Company, then with consent of the Manager and subject to the restrictions hereof, any Member may, but shall not be required to, loan to the Company such required funds. In the event such a loan is made, the same shall not be considered an increase in the Member’s Capital Account or an increase in such Member’s share of the profits. Each such loan shall be without recourse and shall be upon such terms as shall be agreed to by the lending Member and shall be evidenced by a promissory note duly executed by the Manager on behalf of the Company and delivered to the lending Member.
Section 6.4 Additional Capital Contributions.
6.4.1 If the Manager at any time or from time to time determines that the Company requires additional Capital Contributions, then the Manager shall give notice to each Member of (i) the total amount of additional Capital Contributions required, (ii) the reason the additional Capital Contribution is required, (iii) each Member's proportionate share of the total additional Capital Contribution (determined in accordance with this Section), and (iv) the date each Member's additional Capital Contribution is due and payable, which date shall be no less than ten (10) days after the notice has been given. A Member's share of the total additional Capital Contribution shall be equal to the product obtained by multiplying the Member's Percentage Interest and the total additional Capital Contribution required. Each Member's share of the additional Capital Contribution shall be payable in cash or by certified check, or wire transfer.
6.4.2 Notwithstanding anything herein to the contrary, no Member shall be required to make any Additional Capital Contribution to the Company.
6.4.3 If a Member fails to pay when due all or any portion of any additional Capital Contribution required under Section 6.4.1 (each, a “Non-Contributing Member”), then each Member other than any Non-Contributing Member (each, a “Contributing Member”) shall have the right, but not the obligation, to contribute to the Company (in addition to its initial pro rata share of the additional Capital Contribution) its pro rata portion of those amounts that the Non-Contributing Member fails to contribute (the “Remaining Contribution”), and the Manager shall have the right to re-allocate the Percentage Interests based on the then Capital Contributions made by the Contributing Members and Non-Contributing Members.
6.4.4 Each Member shall receive a credit to his/her/its Capital Account in the amount of any additional Capital Contribution which he/she/it makes to the Company and shall receive such other rights as have been approved by the Manager in connection with such additional Capital Contribution in accordance with the terms of this Agreement.
6.4.5 Immediately following any additional Capital Contribution, the Percentage Interests of the Members may be adjusted if the Manager determines that the Percentage Interests of the Members are to be altered as a result of the additional Capital Contribution, and Exhibit “1” shall be revised to reflect any such additional Capital Contribution and any such adjustment of the Percentage Interests of the Members. Any revision of Exhibit “1” in accordance with the preceding sentence shall require only the consent of the Manager (and not any consent of the Members).
6.4.6 In the event any Remaining Contribution is not fully satisfied by additional Capital Contributions of the Contributing Members, the Manager may, but shall not be required to, contribute to the Company the amount required to satisfy the Remaining Contribution as a loan (a “Contribution Loan”) to the Non-Contributing Member. The Manager shall have the option of obtaining a third-party loan or using its own funds to fund the proceeds for any such Contribution Loan. Such Contribution Loan shall not be treated as a Capital Contribution by the Manager or entitle the Manager to a Percentage Interest. The Contribution Loan (or Contribution Loans if more than one), shall each be deemed a loan owing by the Non-Contributing Member to the Manager, as applicable. The Contribution Loan shall be repayable only out of the Net Cash Flow and/or Net Capital Proceeds otherwise distributable to the Non-Contributing Member which shall be paid directly to the Manager, as the case may be and, if more than one, then in proportion to the amounts of their Contribution Loans, until such Manager’s Contribution Loan or Contribution Loans, as the case may be, and accrued and unpaid interest thereon have been paid in full. The Contribution Loan shall bear interest at lower of 15% per annum or the maximum rate permitted by law.
ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES; TAX AND ACCOUNTING MATTERS
Section 7.1 Allocations. Each Member’s distributive share of income, gain, loss, deduction or credit (or items thereof) of the Company as shown on the annual federal income tax return prepared by the Company’s accountants or as finally determined by the United States Internal Revenue Service or the courts, and as modified by the capital accounting rules of Section 704(b) of the Code and the Income Tax Regulations thereunder, as applicable, shall be determined as follows:
7.1.1 Allocations. Except as otherwise provided in this Section 7.1:
(a) items of income, loss, deduction or credit (or items thereof) shall be first allocated among the Members in accordance with the Preferred Allocation outlined in Exhibit “4”. Except that items of loss or deduction allocated to any Member pursuant to this Section 7.1 with respect to any taxable year shall not exceed the maximum amount of such items that can be so allocated without causing such Member to have a deficit balance in his or its Capital Account at the end of such year, computed in accordance with the rules of paragraph (b)(2)(ii)( d) of Section 1.704-1 of the Income Tax Regulations. Any such items of loss or deduction in excess of the limitation set forth in the preceding sentence shall be allocated as follows and in the following order of priority:
(1) first, to those Members who would not be subject to such limitation, in proportion to their Percentage Interests; and
(2) second, any remaining amount to the Members in the manner required by the Code and Income Tax Regulations.
(b) items of income and gain (or items thereof) shall be first allocated to the Class A Members in the same manner that losses were allocated pursuant to Section 7.1.1 (a) in order to reverse any loss allocations.
Subject to the provisions of subsections 7.1.2 – 7.1.11, inclusive, of this Agreement, the items specified in this Section 7.1 shall be allocated to the Members as necessary to eliminate any deficit Capital Account balances and thereafter to bring the relationship among the Members’ positive Capital Account balances in accord with their pro rata interests.
7.1.2 Allocations With Respect to Property. Solely for tax purposes, in determining each Member’s allocable share of the taxable income or loss of the Company, depreciation, depletion, amortization and gain or loss with respect to any contributed property, or with respect to revalued property where the Company’s property is revalued pursuant to paragraph (b)(2)(iv)(f) of Section 1.704-1 of the Income Tax Regulations, shall be allocated to the Members in the manner (as to revaluations, in the same manner as) provided in Section 704(c) of the Code. The allocation shall take into account, to the full extent required or permitted by the Code, the difference between the adjusted basis of the property to the Member contributing it (or, with respect to property which has been revalued, the adjusted basis of the property to the Company) and the fair market value of the property determined by the Members at the time of its contribution or revaluation, as the case may be.
7.1.3 Minimum Gain Chargeback. Notwithstanding anything to the contrary in this Section 7.1, if there is a net decrease in Company Minimum Gain or Company Nonrecourse Debt Minimum Gain (as such terms are defined in Sections 1.704-2(b) and 1.704-2(i)(2) of the Income Tax Regulations, but substituting the term “Company” for the term “Partnership” as the context requires) during a Company taxable year, then each Member shall be allocated items of Company income and gain for such year (and, if necessary, for subsequent years) in the manner provided in Section 1.704-2 of the Income Tax Regulations. This provision is intended to be a “minimum gain chargeback” within the meaning of Sections 1.704-2(f) and 1.704-2(i)(4) of the Income Tax Regulations and shall be interpreted and implemented as therein provided.
7.1.4 Qualified Income Offset. In the event any Member unexpectedly receives any adjustments, allocations, or distributions described in Sections 1.704-1(b)(2)(ii)(d)(4),
(5) or (6) of the Treasury Regulations, items of Company income and gain shall be specially allocated to such Member in an amount and manner sufficient to eliminate the deficit balance in his Capital Account created by such adjustments, allocations or distributions as promptly as possible; provided that an allocation pursuant to this Section 7.1.4 shall be made only if and to the extent that a Member would have such a deficit balance after all
other allocations provided for in this Article have been tentatively made as if this Section
7.1.4 were not in the Agreement.
7.1.5 Gross Income Allocation. In the event any Member has a deficit Capital Account at the end of any taxable year which is in excess of the sum of (i) the amount such Member is obligated to restore, if any, pursuant to any provision of this Agreement, and
(ii) the amount such Member is deemed to be obligated to restore pursuant to the penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury Regulations, each such Member shall be specially allocated items of partnership income and gain in the amount of such excess as quickly as possible; provided that an allocation pursuant to this Section 7.1.5 shall be made only if and to the extent that a Member would have a deficit Capital Account in excess of such sum after all other allocations provided for in this Article have been tentatively made as if Section 7.1.4 and this Section 7.1.5 were not in this Agreement.
7.1.6 Depreciation Recapture. Subject to the provisions of Section 704(c) of the Code and subsections 7.1.2 – 7.1.4, inclusive of this Agreement, gain recognized (or deemed recognized under the provisions hereof) upon the sale or other disposition of Company property, which is subject to depreciation recapture, shall be allocated to the Member who was entitled to deduct such depreciation.
7.1.7 Loans. If and to the extent any Member is deemed to recognize income as a result of any loans pursuant to the rules of Sections 1272, 1273, 1274, 7872 or 482 of the Code, or any similar provision now or hereafter in effect, any corresponding resulting deduction of the Company shall be allocated to the Member who is charged with the income. Subject to the provisions of Section 704(c) of the Code and subsections 7.1.2 – 7.1.4, inclusive, of this Agreement, if and to the extent the Company is deemed to recognize income as a result of any loans pursuant to the rules of Sections 1272, 1273, 1274, 7872 or 482 of the Code, or any similar provision now or hereafter in effect, such income shall be allocated to the Member who is entitled to any corresponding resulting deduction.
7.1.8 Tax Credits. Tax credits shall generally be allocated according to Section 1.704-1(b)(4)(ii) of the Income Tax Regulations or as otherwise provided by law. Investment tax credits with respect to any property shall be allocated to the Members pro rata in accordance with the manner in which Company profits are allocated to the Members under subsection 7.1.1 hereof, as of the time such property is placed in service. Recapture of any investment tax credit required by Section 47 of the Code shall be allocated to the Members in the same proportion in which such investment tax credit was allocated.
7.1.9 Change of Pro Rata Interests. Except as provided in subsections 7.1.6 and
7.1.7 hereof or as otherwise required by law, if the proportionate interests of the Members in the Company are changed during any taxable year, all items to be allocated to the Members for such entire taxable year shall be prorated on the basis of the portion of such taxable year which precedes each such change and the portion of such taxable year on and after each such change according to the number of days in each such portion, and the items so allocated for each such portion shall be allocated to the Members in the manner in which
such items are allocated as provided in section 7.1.1 during each such portion of the taxable year in question.
7.1.10 Effect of Special Allocations on Subsequent Allocations. Any special allocation of income or gain pursuant to subsections 7.1.3 or 7.1.4 hereof shall be taken into account in computing subsequent allocations of income and gain pursuant to this Section 7.1 so that the net amount of all such allocations to each Member shall, to the extent possible, be equal to the net amount that would have been allocated to each such Member pursuant to the provisions of this Section 7.1 if such special allocations of income or gain under subsection 7.1.3 or 7.1.4 hereof had not occurred.
7.1.11 Nonrecourse and Recourse Debt. Items of deduction and loss attributable to Member nonrecourse debt within the meaning of Section 1.704-2(b)(4) of the Income Tax Regulations shall be allocated to the Members bearing the economic risk of loss with respect to such debt in accordance with Section 1.704-2(i)(l) of the Income Tax Regulations. Items of deduction and loss attributable to recourse liabilities of the Company, within the meaning of Section 1.752-2 of the Income Tax Regulations, shall be allocated among the Members in accordance with the ratio in which the Members share the economic risk of loss for such liabilities.
7.1.12 State and Local Items. Items of income, gain, loss, deduction, credit and tax preference for state and local income tax purposes shall be allocated to and among the Members in a manner consistent with the allocation of such items for federal income tax purposes in accordance with the foregoing provisions of this Section 7.1.
Section 7.2 Accounting Matters. The Manager shall cause to be maintained complete books and records accurately reflecting the accounts, business and transactions of the Company on a calendar-year basis and using such cash, accrual, or hybrid method of accounting as in the judgment of the Manager is most appropriate; provided, however, that books and records with respect to the Company’s Capital Accounts and allocations of income, gain, loss, deduction or credit (or item thereof) shall be kept under U.S. federal income tax accounting principles as applied to partnerships.
Section 7.3 Fiscal Year. The Company’s fiscal year shall begin on January 1st and end on December 31st. The Manager may at any time elect a different fiscal year if permitted by the Code and applicable regulations of the United States Treasury.
Section 7.4 Tax Status and Returns.
7.4.1 The Company shall file as a partnership for Federal income tax purposes. Any provision hereof to the contrary notwithstanding, solely for United States federal income tax purposes, each of the Members hereby recognizes that the Company may be subject to the provisions of Subchapter K of Chapter 1 of Subtitle A of the Code; provided, however, the filing of U.S. Partnership Returns of Income shall not be construed to extend the purposes of the Company or expand the obligations or liabilities of the Members.
7.4.2 The Manager shall prepare or cause to be prepared all tax returns and statements, if any, that must be filed on behalf of the Company with any taxing authority,
and shall make timely filing thereof. Within ninety (90) days after the end of each calendar year, the Manager shall prepare or cause to be prepared and delivered to each Member a report setting forth in reasonable detail the information with respect to the Company during such calendar year reasonably required to enable each Member to prepare such Member’s federal, state and local income tax returns in accordance with applicable law then prevailing.
7.4.3 Quarterly financial statements (including a “Balance Sheet” and “Income Statement”) shall be provided to all Members within 30 days from the end of the reporting quarter. Distribution of quarterly reports by the Manager will begin at the end of the month after 90 days following the close of an acquisition of the property to which the reports pertain. The Manager is not required to have the financial statements audited, reviewed or compiled. The financial statements are not required to use GAAP accounting.
7.4.4 Unless otherwise provided by the Code or the Income Tax Regulations thereunder, MHD Capital LLC shall be the “Partnership Representative,” as such term is used in Code Section 6223 (the “Partnership Representative”). MHD Capital LLC shall make all decisions for the Company relating to tax matters including, without limitation, whether to make any tax elections (including the election under Section 754 of the Code), the positions to be taken on the Company’s tax returns and the settlement, further contest or litigation of any audit matters raised by the Internal Revenue Service or any other taxing authority.
7.4.5 The Tax Matters Member shall be the “Partnership Representative” for U.S. federal income tax purposes.
(a) The Partnership Representative shall have all of the authority, duties and responsibilities as set forth in Code §§ 6221 – 6241 and the regulations thereunder (the “Partnership Audit Rules”) including but not limited to elections related to an audit; matters arising from the audit; the audit proceedings, including receiving notices of the commencement of an audit and requests for information; providing information to the IRS with regards to the audit; meeting with IRS personnel to discuss and settle the audit; extending the statute of limitations for the Members and the Company; binding the Company and the Members to a settlement with respect to the audit matters; electing not to contest the notice of final Company adjustments in court or to contest all or any portion of the matter in court and to choose the court forum; filing an election out; making decisions regarding the payment of the imputed underpayment; making a push-out election; entering into a closing agreement with the IRS; requesting multiple imputed underpayments; filing an Administrative Adjustment Request (AAR); and deciding whether to settle with IRS appeals or to settle litigation and whether to appeal an adverse court decision.
(b) The Partnership Representative must accept such appointment in writing if desired by the Manager and provide a written confirmation to the partnership that it satisfies the substantial presence requirement of Code § 6223(a) and the regulations thereunder. A Partnership Representative shall serve until his, her, or its death, resignation, incapacity, bankruptcy,
revocation/removal, or a determination by the Internal Revenue Service that the designation is not effective.
(c) The Partnership Representative, may with the consent of the Manager, timely file such election forms, statements and other information required by the Partnership Audit Rule to make the push-out election, as provided in Code Section 6226.
(d) Resignation. A Partnership Representative may resign at any time by giving written notice to the Manager. The resignation of the Partnership Representative shall take effect upon the appointment of a successor Partnership Representative or at such other time agreed upon by the Manager. The resigning Partnership Representative shall follow the directions of the Manager in connection with the appointment of a successor Partnership Representative and the filing of such statements, forms and other documents with the IRS as required by the Partnership Audit Rules. Notwithstanding the foregoing, in the event such resignation is not effective for purposes of the Partnership Audit Rules, the resigning Partnership Representative shall take any and all actions and sign and deliver any and all documents, instruments, elections and agreements as directed by the Manager until such resignation is effective for purposes of the Partnership Audit Rules.
(e) Revocation of Designation. The designation of Partnership Representative may be revoked with or without cause by a written notice from the Manager. The Partnership Representative whose designation has been revoked shall follow the directions of the Manager in connection with the appointment of a successor Partnership Representative and the filing of such statements, forms and other document with the IRS as required by the Partnership Audit Rules. Notwithstanding the foregoing, in the event such revocation is not effective for purposes of the Partnership Audit Rules and in any event prior to the effective appointment of a successor, the Partnership Representative whose designation has been revoked shall take any and all actions and sign and deliver any and all documents, instruments, elections and agreement as directed by the Manager until such revocation is effective for purposes of the Partnership Audit Rules.
(f) Vacancies. If there is a vacancy in the position of Partnership Representative, a successor Partnership Representative shall be designated by the Manager.
(g) Compensation. The Partnership Representative may receive reasonable compensation for the services rendered, to be determined by the Manager.
(h) Costs, Expenses and Professional Fees. The Company shall reimburse the Partnership Representative for all costs and expenses reasonably incurred in connection with his/her/its actions under the Partnership Audit Rules. The Partnership Representative is hereby authorized to engage professionals,
experts and advisors in connection with its performance of its duties under the Partnership Audit Rules and incur costs, expenses, professional and other fees on behalf of the Company. The Partnership Representative shall obtain approval of the Manager in advance of incurring any expense in excess of $10,000 in connection with the engaging professionals, experts, advisors, audits, appeal, and litigation through all appeals.
(i) Standard of Care. The Partnership Representative shall act in good faith and shall use commercially reasonable best efforts to carry out the duties, authority and responsibilities set forth in this Agreement and the Partnership Audit Rules. The Partnership Representative does not, in any way, guarantee the results of any Companyaudit. The Partnership Representative shall have no conflict of interest that would violate his/her/its fiduciary duties to the Company. The Partnership Representative shall be subject to a confidentiality requirement.
(j) Partnership Representative Has No Exclusive Duty to Company. The Partnership Representative shall not be required to act in such capacity as his/ her/its sole and exclusive function. The Partnership Representative shall devote such time to this position as is commercially reasonable to fulfill her obligations, responsibilities and duties.
(k) Correction of Economic Distortions. The Members intend that the economic consequences of an imputed underpayment for any reviewed year shall be borne by the Members in the same manner as if the adjustments had been correctly reported on the reviewed year Membership return. Therefore, notwithstanding anything to the contrary herein, the Partnership Representative shall cause the Company to make such offsetting special allocations of Company income, gain, loss or deduction in whatever manner it determines appropriate so that, after such offsetting allocations are made, each Member’s capital account balance at the end of the adjustment year is to the extent possible, equal to the capital balance such Members would have had if all Company items in the reviewed year had been allocated to the Members in accordance with the adjustments as determined by the notice of final Membership adjustments, any settlement with the IRS, the Justice Department or the final court decision, whichever is applicable. In addition, the Manager shall have the authority to require reviewed year Members who have transferred their Interests to reimburse the Company for the imputed underpayment.
(l) Limitation on Authority of Partnership Representative. Notwithstanding anything to the contrary herein, the Partnership Representative shall not make any material agreements with the Internal Revenue Service (IRS) (including waivers of statute of limitations), election, settlement or take any actions to settle or to litigate any adjustments set forth in the notice of final partnership adjustment under the Partnership Audit Rules without the written consent of the Manager. The Partnership Representative must receive the prior approval of the Manager prior to filing all protests, court filings, settlements, etc., and other written communications with the IRS.
(m) Duties Owed by the Members to the Partnership Representative. Each Member hereby covenants and agrees to promptly provide the Partnership Representative with all information regarding the Member’s tax returns and tax liabilities as requested from time to time, including but not limited to proof that the Member has filed an amended return and paid any resulting tax, the Member’s address, taxpayer identification number and current contact information, the Member’s status as a tax- exempt Member, the tax rate applicable to the Member and the Member’s status as an eligible Member. The Member’s obligations hereunder shall continue notwithstanding the Member ceasing to be a Member whether resulting from a transfer, sale, withdrawal or other disposition of his/her/its Interests. Each Member shall notify the Partnership Representative of any inconsistent treatment of any Membership item on the Member’s return and of any settlement with the IRS regarding any Membership items.
(n) Reliance on Advice. The Partnership Representative may rely on the services and advice of attorneys, accountants and other professional advisors or experts. The Partnership Representative shall not be liable to the Company or to any Member for damages, losses, or costs, any loss of value or any liability arising from such reliance.
(o) Binding Effect of Actions by Partnership Representative. The Company and the Members hereby agree and acknowledge that (a) the actions of the Partnership Representative in connection with the Partnership Audit Rules shall be binding on the Company and the Members; and (b) neither the Company nor the Members have any right to contact the IRS or participate in an audit or proceedings under the Partnership Audit Rules.
(p) Communications to Members. The Partnership Representative shall provide reports to the Members on a reasonable basis to keep them reasonably informed of the status, issues and resolution of any Company income tax audit. The Partnership Representative shall provide the Manager and all Members with copies of all notices from the IRS within 7 calendar days of receipt. The Partnership Representative is required to inform the Manager, within 72 hours of setting any/all meetings with the IRS. The Partnership Representative shall regularly update the Manager of the progress of the audit and any court proceeding. The Partnership Representative shall submit periodic written reports to the Manager concerning the status of the Company audit.
(q) Election. If and when every Member qualifies as eligible member under the Partnership Audit Rules, the Partnership Representative shall make the “Opt-Out” election for the Company, as appropriate, for any year that Members remain qualified as eligible Members.
ARTICLE 8 DISTRIBUTIONS
Section 8.1 Distributions.
8.1.1 Subject to the reasonably anticipated business needs and opportunities of the Company, taking into account all debts, liabilities and obligations of the Company then due, working capital and other amounts which the Manager deems necessary for the Company’s business or to place into reserves for customary and usual claims with respect to such business, and subject also to any restrictions under applicable law (including, without limitation, any obligation to withhold and remit any amounts to any governmental authority), the Manager shall distribute the Net Cash Flow and Net Capital Proceeds to the Members not less often than quarterly in accordance with the Preferred Allocation outlined in Exhibit “4”.
8.1.2 Without limiting the generality of subsection 8.1.1, if and to the extent that the Company is earning income which will result in the Members being subject to income tax on their distributive share of the Company’s income, minimum distributions shall be made to the Members in such amounts and at such times (but in no event later than March
31st each year) as shall be sufficient to enable the Members to meet United States income tax liability arising or incurred as a result of their participation in the Company. For the purposes of such distributions, it shall be assumed that the Members are taxable at combined U.S. federal individual, state and local rates of forty percent (40%). Any such distribution shall be made on a nondiscriminatory basis to all Members pro rata in accordance with their respective Percentage Interests. It is specifically recognized that in making a forty percent (40%) assumption regarding tax distributions, some Members may receive a distribution that is in excess of their actual tax liabilities, and some Members may receive a distribution that is less.
Section 8.2 Form of Distributions. No Member, regardless of the nature of the Member’s Capital Contribution, has any right to demand and receive any distribution from the Company in any form other than money. No Member may be compelled to accept from the Company a distribution of any asset in kind.
Section 8.3 Withholding from Distributions. To the extent that the Company is required by law to withhold or to make tax or other payments on behalf of or with respect to any Member, the Company may withhold such amounts from any distribution and make such payments as so required. For purposes of this Agreement, any such payments or withholdings shall be treated as a distribution to the Member on behalf of whom the withholding or payment was made.
Section 8.4 754 Election. In the event of a distribution of property to a Member, the death of an individual Member or a transfer of any interest in the Company permitted under the Act or this Agreement, the Company may, in the discretion of the Manager upon the written request of the transferor or transferee, file a timely election under Section 754 of the Code and the Income Tax Regulations thereunder to adjust the basis of the Company’s assets under Section 734(b) or 743(b) of the Code and a corresponding election under the applicable provisions of state and local
law, and the person making such request shall pay all costs incurred by the Company in connection therewith, including reasonable attorneys’ and accountants’ fees.
ARTICLE 9
TRANSFER OF COMPANY INTERESTS
Section 9.1 No Transfer. No Member, shareholder (direct or indirect) of a corporate Member, partner (whether general or limited) of a Member which is a partnership (general or limited), member of a Member which is a limited liability company or owner of all or any portion of any other entity which is a Member or which has a beneficial interest, either direct or indirect, in a Member, may sell, assign, transfer, give, hypothecate or otherwise encumber (any such sale, assignment, transfer, gift, hypothecation or encumbrance being hereinafter referred to as a “Transfer”), directly or indirectly, or by operation of law or otherwise, any interest in the Company or in such corporation, partnership or other entity (each an “Intermediary”), except as hereinafter set forth in this Article 9 or otherwise with the consent of the Manager. Any Transfer of any interest in the Company or an Intermediary in contravention of this Article 9 shall be null and void. No Member, without the prior written consent of the Manager (other than the retiring or withdrawing Member), shall retire or withdraw from the Company, except as a result of such Member’s death, disability, insanity, incompetency or the final adjudication of such Member as a Bankrupt. Notwithstanding anything contained in this Article 9, no Transfer shall be permissible if such transfer contravenes and/or violates the terms of the “Mortgage Loan” (as defined in the Property mortgage documents).
Section 9.2 Permitted Transfers.
9.2.1 Any Member may, from time to time and in its sole discretion, Transfer its Interest, in whole or in part, to (i) any Affiliate of such Member, or (ii) a living or revocable trust for the benefit of the Member or such Member’s Immediate Family (as hereinafter defined) (a “Family Trust”) so long as the transferring Member is the sole trustee of such Family Trust. As used in this Article 9, the term “Immediate Family” shall mean any spouse, parents, children, including those adopted, siblings and direct descendants and spouses of any of the foregoing, of an individual. Notwithstanding the foregoing, no Member shall make any Transfer of any of its Interest, or permit any indirect Transfer of any of its Interest, that would result in the Company being in breach of its obligations set forth in Section 2.4. All Transfers requested by any Member shall be at the expense of the Transferring Member who shall pay for all costs associated with the transfer, including, but not limited to attorney fees.
9.2.2 Any transferee referred to in clause 9.2.1 above shall become a Member of the Company.
9.2.3 In the event that (i) a Member Transfers its Interest, pursuant to this Section 9.2, to a limited liability company controlled by such Member or to a Family Trust, and
(ii) at any time thereafter, such Member ceases to control the transferee limited liability company, or such Member ceases to be the sole trustee of the transferee Family Trust (each, a “Triggering Event”), the Company shall have the option to purchase such transferee’s Interest for the fair market value of such Interest determined as of the date of the Triggering
Event. The Company shall provide written notice to the transferee of its election to exercise its option to purchase the Interest within sixty (60) days after the Triggering Event, on which date such option shall expire. The fair market value of the Interest shall be determined in accordance with the fair market valuation procedure discussed in Section 9.7 hereto.
Section 9.3 Succession by Operation of Law. In the event of the death or incapacity of an individual Member or in the event of the involuntary merger, consolidation, dissolution or liquidation of any Member not an individual, all of such Member’s rights hereunder, including such Member’s Interest, shall, subject to the remaining provisions of this Article 9, pass to such Member’s personal representative, heir or distributee, in the case of an individual Member, or to such Member’s legal successor, in the case of any Member not an individual. Upon and contemporaneously with any such transfer of a Member’s Interest by operation of law, the Company shall purchase from the transferee of such Interest, and the transferee shall sell to the Company for a purchase price of $1 for each percentage of the Interest transferred, all rights and interests of the transferee in the Company, other than the right to its share of the Company’s distributions and allocations, including such transferee’s right, if any, to vote and participate in the management of the Company, except those rights that cannot be waived by an assignee of an economic interest in the Company pursuant to the Act.
Section 9.4 New Members. Notwithstanding Section 9.2 hereof, no person or entity, not then a Member, shall become a Member hereunder under any of the provisions hereof unless such person or entity shall expressly assume and agree to be bound by all of the terms and conditions of this Agreement. Each such person or entity shall also cause to be delivered to the Company, at his or its sole cost and expense, a favorable opinion of legal counsel reasonably acceptable to the Manager, to the effect that (a) the contemplated Transfer of such Company Interest to such person or entity does not violate any applicable securities law, (b) that such person or entity has the legal right, power and capacity to own the Interest, and (c) that the contemplated Transfer will not cause a termination of the Company within the meaning of Section 708 of the Code or that such termination would not have material adverse tax consequences for the non- transferring Members. All reasonable costs and expenses incurred by the Company in connection with any Transfer of an Interest and, if applicable, the admission of a person or entity as a Member hereunder, shall be paid by the transferor. Upon compliance with all provisions hereof applicable to such person or entity becoming a Member, all other Members agree to execute and deliver such amendments hereto as are necessary to constitute such person or entity a Member of the Company.
Section 9.5 Rights of New Members. Notwithstanding anything to the contrary in this Agreement, (a) a transferee of a Member’s Interest in the Company pursuant to a Transfer under this Article 9 (other than pursuant to Section 9.2 hereof) shall be admitted to the Company as a Member with respect to such Member’s Interest only with the written consent of the Manager, it being understood that the giving or withholding of such consent shall be within the sole and absolute discretion of the Manager, (b) until and unless such transferee is admitted as a Member, such transferee shall be entitled to its share of the Company’s distributions and allocations but shall not have any other rights or privileges of a Member, except as otherwise required by this Agreement or the Act, and (c) until and unless such transferee is admitted as a Member, the transferor shall not cease to be a Member of the Company and shall continue to be a Member until such time as the transferee is admitted as a Member under this Agreement.
Section 9.6 Right of First Refusal. Except for Transfers permitted by Section 9.2, each time a Member proposes to Transfer all or any part of its, his or her Interest, such Member shall first offer such Interest to the Manager:
(a) Such Member shall deliver a written notice to the Manager stating (i) such Member’s bona fide intention to Transfer such Interest, (ii) the name and address of the proposed transferee, (iii) the Interest to be Transferred, and (iv) the purchase price and terms of payment for which the Member proposes to Transfer such Interest.
(b) Within ten (10) days after receipt of the notice described in Section (a), the Manager shall notify the transferring Member in writing of Manager’s desire to purchase a portion of the Interest being so Transferred. The purchase price and terms shall be on the same terms as outlined in the written notice made pursuant to Section 9.6 (a). The failure of the Manager to submit a notice within the applicable period shall constitute an election on the part of the Manager not to purchase any of the Interest which may be so Transferred.
(c) If the Manager elects not to purchase all of the Interest designated in such notice, then the transferring Member may Transfer the Interest described in the notice to the proposed transferee, providing such Transfer (i) is completed within thirty (30) days after the expiration of the Manager’s right to purchase such Interest, (ii) is made at the price and terms designated in such notice, and (iii) the requirements hereof relating to consent of Members, securities and tax requirements are met. If such Interest is not so Transferred, the transferring Member must give notice in accordance with this Section prior to any other or subsequent Transfer of such Interest.
Section 9.7 Fair Market Value Procedures. The fair market value of the Interest shall be determined by either:
(a) the Interest’s fair market value as agreed upon by the transferring and acquiring Party; or
(b) if the transferring and acquiring Party cannot agree on the fair market value, each party, at their own expense, shall select a business valuation appraiser and the average valuation shall be used, subject to Section 9.7 (c).
(c) in the event that either Party is not satisfied with the average valuation obtained pursuant to Section 9.7 (b), then the two selected business valuation appraisers shall select a third independent business valuation appraiser who shall determine the fair market value of the Interest. The appraisal cost of the third independent business valuation appraiser shall be paid equally by the Parties.
ARTICLE 10
BOOKS AND RECORDS; RESERVES
Section 10.1 On reasonable notice, a member may inspect and copy during regular business hours, at a reasonable location specified by the Company, any record maintained by the Company regarding the Company’s activities, financial condition and other circumstances, to the extent the information is material to the member’s rights and duties under the operating agreement or this chapter;
Section 10.2. The Company shall furnish to each member:
(a) On reasonable notice, any information concerning the Company’s activities, financial condition and other circumstances which the Company knows and is material to the proper exercise of the member’s rights and duties under the operating agreement or this chapter, except to the extent the Company can establish that it reasonably believes the member already knows the information;
(b) On reasonable notice, any other information concerning the Company’s activities, financial condition and other circumstances, except to the extent the demand or information demanded is unreasonable or otherwise improper under the circumstances.
Section 10.3 During regular business hours and at a reasonable location specified by the Company, a member may obtain from the Company and inspect and copy full information regarding the activities, financial condition and other circumstances of the company as is just and reasonable if:
(a) The member seeks the information for a purpose material to the member’s interest as a member;
(b) The member makes a demand in a record received by the company, describing with reasonable particularity the information sought and the purpose for seeking the information; and
(c) The information sought is directly connected to the member’s purpose.
Section 10.4 Reserves. The Managers shall establish reserves by deducting from income such amounts as it shall deem advisable.
Section 10.5 Filings. The Manager, at the Company’s expense, shall cause the income tax returns for the Company to be prepared and timely filed with the appropriate authorities. The Manager, at the Company’s expense, shall also cause to be prepared and timely filed, with appropriate federal and state regulatory and administrative bodies, amendments to or restatements of, the Certificate of Formation and all reports required to be filed by the Company with those entities under the Act or other then-current applicable laws, rules and regulations. If a Manager is required by the Act to execute or file any document fails, after demand, to do so within a reasonable period of time or refuses to do so, any other Manager or Member may prepare, execute and file that document with the Delaware Secretary of State.
Section 10.6 Bank Accounts. The Managers shall maintain the funds of the Company in one or more separate bank accounts in the name of the Company, and shall not permit the funds of the Company to be commingled in any fashion with the funds of any other Person.
ARTICLE 11 TERMINATION
Section 11.1 Dissolution. Subject to the provisions of the Act, this Agreement (including the limitations set forth in Section 2.4) or the Certificate of Formation, the Company shall be dissolved, and its affairs wound up upon the first to occur of the following:
11.1.1 Upon the sale of all or substantially all of the assets of the Company and the receipt of all consideration therefore; or
11.1.2 The entry of a decree of judicial dissolution.
Section 11.2 Distributions Upon Liquidation.
11.2.1 Upon the occurrence of any event specified in Section 11.1, the Members will take full account of the Company’s liabilities and assets, and the Company’s assets will be liquidated as promptly as is consistent with obtaining the fair value thereof. The proceeds from the liquidation of the Company’s assets will be applied and distributed in the following order:
(i) First, to creditors in the payment and discharge of all of the Company’s Debts and other Liabilities (whether by payment or the making of reasonable provision for payment thereof to the extent required by Section 18- 804 of the Act), including any Member loans, other than liabilities for distributions to Members under the Act;
(ii) Second, in accordance to the profit and loss Allocations as found in Section 7.1.1
ARTICLE 12 INDEMNIFICATION AND INSURANCE
Section 12.1 Indemnification. Neither the Manager, nor their shareholders, officers, directors, employees or agents, shall have any liability whatsoever to the Company or to any Member for any loss suffered by the Company or any Member which arises out of any action or inaction of the Manager or any of their shareholders, officers, directors, employees or agents, so long as the Manager or such other Persons, in good faith, determined that such course of conduct was in the best interests of the Company and did not constitute fraud, bad faith or willful misconduct. The Manager and its shareholders, officers, directors, employees and agents and the employees and agents of the Company shall be entitled to be indemnified and held harmless by the Company, at the expense of the Company, against any loss, expense, claim or liability (including reasonable attorneys’ fees, which shall be paid as incurred) resulting from the assertion of any claim or legal proceeding relating to the performance or nonperformance of any act concerning the activities of the Company, including claims or legal proceedings brought by a third- party or by Members, on their own behalf or as a Company derivative suit, so long as the party to be indemnified determined in good faith that such course was in the best interests of the Company
and did not constitute fraud, bad faith or willful misconduct; provided, that any such indemnity shall be paid solely from the assets of the Company.
Section 12.2 Insurance. Nothing herein shall prohibit the Company from paying in whole or in part the premiums or other charge for any type of indemnity insurance in which the Manager or other agents or employees of the Manager or the Company are indemnified or insured against liability or loss arising out of their actual or asserted misfeasance or nonfeasance in the performance of their duties or out of any actual or asserted wrongful act against, or by, the Company including, but not limited to, judgments, fines, settlements and expenses incurred in the defense of actions, proceedings and appeals therefrom.
ARTICLE 13
INVESTMENT REPRESENTATIONS; PRIVATE OFFERING EXEMPTION
Each Member, by such Member’s execution of this Agreement, hereby represents and warrants to, and agrees with, the Manager, the other Members and the Company as follows:
Section 13.1 Investment Intent. Such Member is acquiring the Interest in investment purposes for such Member’s own account only and not with a view to or for sale in connection with any distribution of all or any part of the Interest.
Section 13.2 Economic Risk. Such Member is financially able to bear the economic risk of such Member’s investment in the Company, including the total loss thereof.
Section 13.3 No Registration of Units. Such Member acknowledges that the Interests have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or qualified under any state securities law or under the laws of any other jurisdiction, in reliance, in part, on such Member’s representations, warranties and agreements herein.
Section 13.4 No Obligation to Register. Such Member represents, warrants and agrees that the Company and the Manager is under no obligation to register or qualify the Interests under the Securities Act or under any state securities law or under the laws of any other jurisdiction, or to assist such Member in complying with any exemption from registration and qualification.
Section 13.5 No Disposition in Violation of Law. Without limiting the representations set forth above, and without limiting Article 9 of this Agreement, such Member will not make any disposition of all or any part of the Interests which will result in the violation by such Member or by the Company of the Securities Act or any other applicable securities laws. Without limiting the foregoing, each Member agrees not to make any disposition of all or any part of the Interests unless and until:
13.5.1 there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement and any applicable requirements of state securities laws; or
13.5.2 such Member has notified the Company of the proposed disposition and has furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and if reasonably requested by the Manager, such Member has
furnished the Company with a written opinion of legal counsel, reasonably satisfactory to the Company, that such disposition will not require registration of any securities under the Securities Act or the consent of or a permit from appropriate authorities under any applicable state securities law or under the laws of any other jurisdiction.
Section 13.6 Financial Estimate and Projections. That it understands that all projections and financial or other materials which it may have been furnished are not based on historical operating results, because no reliable results exist, and are based only upon estimates and assumptions which are subject to future conditions and events which are unpredictable and which may not be relied upon in making an investment decision.
ARTICLE 14 DEFAULTS AND REMEDIES
Section 14.1 Defaults. If a Member materially defaults in the performance of his or its obligations under this Agreement, and such default is not cured within ten (10) business days after written notice of such default is given by a Manager to the defaulting Member for a default that can be cured by the payment of money, or within thirty (30) calendar days after written notice of such default is given by a Manager to the defaulting Member for any other default, then the non- defaulting Members shall have the rights and remedies described in Section 14.2 hereunder in respect of the default.
Section 14.2 Remedies. If a Member fails to perform his or its obligations under this Agreement, the Company and the non-defaulting Members shall have the right, in addition to all other rights and remedies provided herein, on behalf of himself or itself, the Company or the Members, to bring the matter to arbitration pursuant to Section 15.7. The award of the arbitrator in such a proceeding may include, without limitation, an order for specific performance by the defaulting Member of his or its obligations under this Agreement, or an award for damages for payment of sums due to the Company or to a Member.
ARTICLE 15 MISCELLANEOUS
Section 15.1 Entire Agreement. This Agreement, and the exhibits hereto, constitute the entire agreement among the Manager, in its capacity as Manager only, and the Members with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, representations, and understandings of the parties. No party hereto shall be liable or bound to the other in any manner by any warranties, representations or covenants with respect to the subject matter hereof except as specifically set forth herein.
Section 15.2 Further Assurances. Each Manager and Member agrees to execute, acknowledge, deliver, file, record and publish such further certificates, amendments to certificates, instruments and documents, and do all such other acts and things as may be required by law, or as may be required to carry out the intent and purposes of this Agreement.
Section 15.3 No Waiver. No consent or waiver, express or implied, by the Company or a Member to or of any breach or default by the Manager or any Member in the performance by the Manager or such Member of his, her or its obligations under this Agreement shall constitute a
consent to or waiver of any similar breach or default by that or any other Manager or Member. Failure by the Company or a Member to complain of any act or omission to act by the Manager or any Member, or to declare such Manager or Member in default, irrespective of how long such failure continues, shall not constitute a waiver by the Company or such Member of his, her or its rights under this Agreement.
Section 15.4 Third Parties. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and permitted assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
Section 15.5 Severability. If one or more provisions of this Agreement are held by a proper court to be unenforceable under applicable law, portions of such provisions, or such provisions in their entirety, to the extent necessary and permitted by law, shall be severed herefrom, and the balance of this Agreement shall be enforceable in accordance with its terms.
Section 15.6 Governing Law. This Agreement shall be governed by and construed under the substantive laws of the State of Delaware, and in particular, to the extent applicable, Kent County. This Agreement, however, may alter or reduce the rights a Member would have under the Act. In all instances in which such is lawful, the provisions of this agreement will control.
Section 15.7 Dispute Resolution. In the event of any dispute or disagreement between the parties hereto as to the interpretation of any provision of this Agreement (or the performance of obligations hereunder), the matter, upon written request of any party, shall be referred to representatives of the parties for decision. The representatives shall promptly meet, in good faith, with the assistance of a third-party mediator who has previously practiced law as a litigator. If the representatives do not agree upon a decision within thirty (30) calendar days after reference of the matter to the mediator, any controversy, dispute or claim arising out of or relating in any way to this Agreement or the transactions arising hereunder shall be settled exclusively by arbitration in Santa Monica, California. Such arbitration shall be administered by JAMS in accordance with its then prevailing expedited rules, by one independent and impartial arbitrator selected in accordance with such rules. The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. § 1 et seq. The fees and expenses of JAMS and the arbitrator shall be shared equally by the parties to the dispute and advanced by them from time to time as required; provided that at the conclusion of the arbitration, the arbitrator shall award costs and expenses (including the costs of the arbitration previously advanced and the reasonable fees and expenses of attorneys, accountants and other experts) to the prevailing party, so long as the prevailing party had previously engaged in good faith mediation. Failure of a party to act in good faith during the mediation process shall prohibit the prevailing party to recover any cost of the arbitration and attorney and accounting fees. No pre-arbitration discovery shall be permitted, except that the arbitrator shall have the power in his sole discretion, on application by any party, to order pre-arbitration examination solely of those witnesses and documents that any other party intends to introduce in its case-in-chief at the arbitration hearing. The parties shall instruct the arbitrator to render such arbitrator’s award within thirty (30) calendar days following the conclusion of the arbitration hearing. The arbitrator shall not be empowered to award to any party any damages of the type not permitted to be recovered under this Agreement in connection with any dispute between or among the parties arising out of or relating in any way to this Agreement or the transactions arising hereunder, and each party
hereby irrevocably waives any right to recover such damages. Notwithstanding anything to the contrary provided in this Section 15.7 and without prejudice to the above procedures, any party may apply to any court of competent jurisdiction for temporary injunctive or other provisional judicial relief if such action is necessary to avoid irreparable damage or to preserve the status quo until such time as the arbitrator is selected and available to hear such party’s request for temporary relief. The award rendered by the arbitrator shall be final and not subject to judicial review and judgment thereon may be entered in any court of competent jurisdiction. The decision of the arbitrator shall be in writing and shall set forth findings of fact and conclusions of law.
Section 15.8 Notices. Unless otherwise provided in this Agreement, any notice or other communication herein required or permitted to be given shall be in writing and shall be given by electronic communication, hand delivery, registered or certified mail, with proper postage prepaid, return receipt requested, or courier service regularly providing proof of delivery, addressed to the party hereto as provided as follows:
15.8.1 all communications intended for the Company shall be sent to its principal executive office to the attention of the Manager;
15.8.2 all communications intended for a Member shall be sent to the address of such Member set forth in Exhibit “1” to this Agreement, or such other address as such Member shall have provided to the Company for such purpose by notice served in accordance with this Section 15.8; and
15.8.3 all communications intended for the Manager shall be sent to the address of the Manager set forth in Exhibit “3” to this Agreement, or such other address as the Manager shall have provided to the Members for such purpose by notice served in accordance with this Section 15.8.
All notices shall be sent as aforesaid or at any other address of which any of the foregoing shall have notified the others in any manner prescribed in this Section 15.8. For all purposes of this Agreement, a notice or communication will be deemed effective:
(a) if delivered by hand or sent by courier, on the day it is delivered unless that day is not a day upon which commercial banks are open for business in the city specified (a “Local Business Day”) in the address for notice provided by the recipient, or if delivered after the close of business on a Local Business Day, then on the next succeeding Local Business Day;
(b) if sent by facsimile transmission, on the date transmitted, provided oral or written confirmation of receipt is obtained by the sender, unless the transmission and confirmation date is not a Local Business Day, in which case on the next succeeding Local Business Day; and
(c) if sent by registered or certified mail, on the fifth (5th) Local Business Day after the date of mailing.
Section 15.9 Titles and Subtitles. The titles of the sections and paragraphs of this Agreement are for convenience only and are not to be considered in construing this Agreement.
Section 15.10 Currency. Unless otherwise specified, all currency amounts in this Agreement refer to the lawful currency of the United States of America.
Section 15.11 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument, and facsimile signatures shall be deemed originals.
Section 15.12 Preparation of Agreement. This Agreement has been prepared by Premier Law Group (the “Law Firm”), counsel for the Company and the Manager in the course of its representation, and:
i. The Members have been advised by the Law Firm that a conflict of interest exists among the Members’ individual interests; and
ii. The Members have been advised by the Law Firm to seek the advice of independent counsel; and
iii. The Members have been represented by independent counsel or have had the opportunity to seek such representation; and
iv. The Law Firm has not given any advice or made any representations to the members with respect to the tax consequences of this agreement; and
v. The Members have been advised that the terms and provisions of this Agreement may have tax consequences and the Members have been advised by the Law Firm to seek independent counsel with respect thereto; and
vi. The Members have been represented by independent counsel or have had the opportunity to seek such representation with respect to the tax consequences of this Agreement.
[SIGNATURE PAGES FOLLOW]
[SIGNATURE PAGE FOR INDIVIDUALS ONLY]
IN WITNESS WHEREOF, the Company’s Manager and the Member hereby execute this Operating Agreement as of the date first above written.
CLASS A MEMBER
Name:
{Member Signature Page(s) continue on following page}
[SIGNATURE PAGE FOR ENTITIES ONLY]
IN WITNESS WHEREOF, the Company’s Manager and the Member hereby execute this Operating Agreement as of the date first above written.
CLASS A MEMBER
Entity:
By:
Its:
Signature:
{Member Signature Page(s) continue on following page}
[SIGNATURE PAGE FOR IRAs ONLY]
IN WITNESS WHEREOF, the Company’s Manager and the Member hereby execute this Operating Agreement as of the date first above written.
CLASS A MEMBER
IRA: FBO
By:
Its: Custodian
Signature:
{Member Signature Page(s) continue on following page}
[SIGNATURE PAGE FOR TRUSTS ONLY]
IN WITNESS WHEREOF, the Company’s Manager and the Member hereby execute this Operating Agreement as of the date first above written.
CLASS A MEMBER
Trust:
By:
By:
Its: Trustee(s)
Signature:
Signature:
{Manager Affiliate Signature Page(s) continue on following page}
[SIGNATURE PAGE FOR CLASS B MEMBERS ONLY]
IN WITNESS WHEREOF, the Company’s Manager and the Member(s) hereby execute this Operating Agreement as of the date first above written
CLASS B MEMBER
Amihai Moshe Hershko
[SIGNATURE PAGE FOR MANAGER(S) ONLY]
IN WITNESS WHEREOF, the Company’s Manager and the Member hereby execute this Operating Agreement as of the date first above written.
MANAGER
MHD Capital LLC
a Delaware limited liability company
By: Amihai Moshe Hershko, Co-Manager
By: Victoria Hershko Belany, Co-Manager
EXHIBIT “1”
Names, Addresses and Capital Contributions of Members
Class A Members
Name
Address Capital Contribution Class A Ownership Percentage
Class B Member
Name
Address Capital Contribution Class B Ownership Percentage
Amihai Moshe Hershko 401 Wilshire Blvd 12th Fl Office 34
Santa Monica, California 90401 Services 100%
EXHIBIT “2”
Percentage Interests
Name of Member Percentage Interest
Class A Members The Percentage Interest of the Class A Members shall be 50%
Class B Members The Percentage Interest of the Class B Members shall be 50%
EXHIBIT “3”
Initial Manager
Name Address
MHD Capital LLC 401 Wilshire Blvd 12th Fl, Office 34 Santa Monica, California 90401
EXHIBIT “4”
Preferred Allocations
Distributions From Operations
Subject to the Call Option, distributions made to Class A Members will be subject to Net Cash Flow as determined by the Manager in its sole discretion.
First, all Net Cash Flow shall be paid to the Class A Members until they receive the Preferred Return.
Second, any remaining Net Cash Flow shall be paid 50% to the Class A Members and 50% to the Class B Member.
.
* The Manager does not intend to operate the Properties once developed, redeveloped, and/or constructed; thus, does not intend to generate any Net Cash Flow. However, the Manager reserves the right to operate one or more Properties for cash-flow following the completion of construction.
Distributions From Capital Transaction Event
Net Capital Proceeds from a Capital Transaction Event shall be allocated and distributed as follows:
First, all Net Capital Proceeds shall be paid to the Class A Members until they receive any accrued but unpaid Preferred Return.
Second, any remaining Net Capital Proceeds shall be paid to the Class A Members until their respective Unrecovered Capital Contribution has been reduced to zero.
Finally, any remaining Net Capital Proceeds shall be paid 50% to the Class A Members and 50% to the Class B Member.
Preferred Return
The Preferred Return is a non-compounded per annum return of 8% to Class A Members based on their respective Unrecovered Capital Contribution. The Preferred Return shall accrue or be paid from Net Cash Flow as determined by the Manager. It is not guaranteed, meaning that the Preferred Return will not be paid if the Company does not have sufficient capital available to pay it, as determined by the Manager in its sole discretion. Any Preferred Return deficiencies shall accrue on a non-compounded basis and may be paid by Manager from future distributions of Net Cash Flow and/or Net Capital Proceeds.
Call Option
The Call Option is the right of the Manager to redeem some or all of the Class A Membership Units in its sole discretion, at any time, subject to the following terms:
The Manager shall have the right to exercise the Call Option to redeem all or any portion of the Class A Membership Units in the Company. The redemption price for each Class A Membership Unit shall be equal to the Class A Member's Unrecovered Capital Contribution plus any accrued but unpaid portion of the Preferred Return. The Preferred Return is defined as an 8% annualized, non-compounded return on a Class A Member’s Unrecovered Capital Contribution. Upon payment of this amount, the Class A Membership Units shall be fully redeemed, and the Class A Member shall have no further interest in the Company.
Depreciation
To the extent appropriate, the Company may accelerate depreciation and elect to use the cost segregation method of depreciation for land improvements and/or personal property associated with the Properties. This will allow the Company to use a shorter depreciation schedule on some of the improvements and personal property.
In addition, to the extent possible, after consultation with the Company’s certified public accountant, Manager intends to allocate losses (including, but not limited to depreciation) to the Class A Members and Class B Members in proportions to be decided by the Manager at its sole discretion.
EXHIBIT B
PROSPECTIVE PURCHASER QUESTIONNAIRE
Name of Prospective Purchaser:
(Please Print)
State of Domicile:
MHD EQUITY FUND LLC
ACCREDITED INVESTOR QUESTIONNAIRE RULE 506C
INSTRUCTIONS: IN ORDER TO INVEST IN UNITS OF MHD EQUITY FUND LLC YOU MUST COMPLETE THIS ACCREDITED INVESTOR QUESTIONNAIRE AND REPRESENTATION LETTER BY FILLING IN THE INFORMATION CALLED FOR, CHECKING THE APPROPRIATE BOXES, AND PROVIDING THE NECESSARY VERIFICATION DOCUMENTS. THEN, YOU MUST COMPLETE THE SUBSCRIPTION AGREEMENT BY DESIGNATING THE NUMBER OF UNITS TO BE PURCHASED, PROVIDING THE INFORMATION REQUIRED AND SIGNING. NO SUBSCRIPTION IS EFFECTIVE UNTIL ACCEPTED BY THE COMPANY.
CONFIDENTIALITY: THE INFORMATION THAT YOU PROVIDE WILL BE USED SOLELY FOR PURPOSES OF MAKING VARIOUS DETERMINATIONS IN CONNECTION WITH THE COMPANY'S COMPLIANCE WITH APPLICABLE SECURITIES LAWS. NO FINANCIAL INFORMATION DISCLOSED HEREIN WILL BE DISCLOSED TO THIRD PARTIES OR USED FOR ANY PURPOSES OTHER THAN SUCH LEGAL DETERMINATIONS BY THE COMPANY AND ITS LEGAL COUNSEL.
MHD EQUITY FUND LLC
Requirement to Submit an Accredited Investor Representation Letter
The sale of membership units in MHD Equity Fund LLC (the "Securities”) are being sold only to "accredited investors" as defined in Rule 501(a) of Regulation D of the Securities Act of 1933, as amended (the "Accredited Investors").
The purpose of the attached Accredited Investor Representation Letter (the "Letter") is to collect information from you to determine whether you are an Accredited Investor and otherwise meet the suitability criteria established by the Company for investing in the Securities.
As part of verifying your status as an Accredited Investor, you will have four options to provide supporting documentation:
[ ] Option (1) Signed Letter from a Licensed Professional
You may have a certified public account, licensed lawyer, SEC-registered investment adviser, or registered broker-dealer send us a signed letter verifying that you or your entity is an accredited investor. Email us if they need a sample letter for this purpose.
[ ] Option (2) 3rd Party Verification Service
VerifyInvestor.com, parallelmarkets.com, and investready.com are all third-party verification services which can assist you in obtaining your signed verification letter. At a nominal cost to you, this service usually takes 2-3 business days to complete once you submit the required documentation. If you choose this option, we will submit your contact information to the third-party verification service and they will send you an email with instructions on how to complete the verification. Once you have been verified, they will send us your verification letter directly.
[ ] Option (3) I Already Have a Valid 3rd Party Certification Letter
If you already have a verification letter from a third-party that has been completed within the last 90 days, then you are an accredited investor and can email us your verification document to avoid going through the verification process again.
[ ] Option (4) Minimum Investment & Written Representation
No additional documentation is required if you are making a minimum investment of at least
$200,000 (natural person) or $1,000,000 (legal entity) and providing written representations that: (i) you are an accredited investor under Rule 501(a); and (ii) your minimum investment amount is not financed in whole or in part by a third party for the specific purpose of making the investment. If you meet all the associated conditions above, no additional documentation is required.
It is possible that you were not required to submit this type of information in past offerings in which you have participated. However, the nature of this offering, together with changes made to
Regulation D in September 2013, impose additional obligations on the Company to take reasonable steps to verify that each investor is in fact an Accredited Investor.
Accordingly, you must fully complete and sign the Letter and deliver the required supporting documentation, unless you select Option 4 and meet all the associated conditions, before the Company will consider your proposed investment.
By submitting the Letter, you agree to provide all required supporting documentation within 10 days after the date that you submit the Letter.
All of your statements in the Letter and all required supporting documentation delivered by you or on your behalf in connection with the Letter (collectively, the "Investor Information") will be treated confidentially. You understand that the Company will rely on your representations and other statements and documents included in the Investor Information in determining your status as an Accredited Investor, your suitability for investing in the Securities and whether to accept your subscription for the Securities. The Company reserves the right, in its sole discretion, to verify your status as an Accredited Investor using any other methods that it may deem acceptable from time to time. However, you should not expect that the Company will accept any other such method. The Company may refuse to accept your request for investment in the Securities for any reason or for no reason.
TO: MHD Equity Fund LLC c/o MHD Capital LLC
401 Wilshire Blvd 12th Fl, Office 34 Santa Monica, California 90401
Dear Sponsor,
I am submitting this Accredited Investor Representation Letter (the "Letter") in connection
with the offering of membership units in MHD Equity Fund LLC (the "Securities"). I understand that the Securities are being sold only to accredited investors ("Accredited Investors") as defined in Rule 501(a) of Regulation D of the Securities Act of 1933, as amended (the "Securities Act").
I hereby represent and warrant to MHD Equity Fund LLC (the “Company”) that I qualify as an Accredited Investor on the basis that:
(You must choose Part A or B below and check the applicable boxes.)
A. I am a NATURAL PERSON and:
(An investor using this Part A must check box (1), (2), or (3).)
[ ] (1) Income Test: My individual income exceeded $200,000 in each of the two most recent years or my joint income together with my spouse exceeded $300,000 in each of those years;
AND
I reasonably expect to earn individual income of at least $200,000 this year or joint income with my spouse of at least $300,000 this year.
To support the representation in A(1) above: (You must check box (a) or (b).)
[ ] (a) My salary or my joint salary with my spouse is publicly available information that has been reported in a document made available by the U.S. government or any state or political subdivision thereof (for example, reported in a filing with the Securities and Exchange Commission) and I will deliver to the Company copies of such publicly available materials identifying me or me and my spouse by name and disclosing the relevant salary information for each of the two most recent years.
OR
[ ] (b) I have chosen Option above to support my verification.
(If you selected Option 4, please ensure you meet the minimum investment threshold and have made the necessary representations about your investment and its financing).
[ ] (2) Net Worth Test: My individual net worth, or my joint net worth together with my spouse, exceeds $1,000,000;
• For these purposes, "net worth" means the excess of: total assets at fair market value (including all personal and real property, but excluding the estimated fair market value of my primary residence)
minus
• total liabilities.
For these purposes, "liabilities":
• exclude any mortgage or other debt secured by my primary residence in an amount of up to the estimated fair market value of that residence; but
• include any mortgage or other debt secured by my primary residence in an amount in excess of the estimated fair market value of that residence.
I agree to promptly notify the Company if, between the date of this Letter and the date of the closing for the sale of the Securities, I incur any incremental mortgage or other debt secured by my primary residence. (NOTE: If the representation in the first sentence of this paragraph is untrue or becomes untrue prior to the date of the closing for the sale of the Securities, you may still be able to invest in the Securities. However, you must first contact the Company for additional instructions on how to calculate your net worth for purposes of this offering.)
To support the representations in A(2) above:
I have chosen Option above to support my verification.
(If you selected Option 4, please ensure you meet the minimum investment threshold and have made the necessary representations about your investment and its financing).
[ ] (3) Company Insider: I am an executive officer, or manager of the Company.
B. I am a LEGAL ENTITY that is
(An investor using this Part B must check at least one box below. NOTE: An investor that checks any of boxes B(1) through B(12) must contact the Company for additional instructions.)
[ ] (1) A bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity.
[ ] (2) A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended.
[ ] (3) An insurance company as defined in the Securities Act.
[ ] (4) An investment company registered under the Investment Company Act of 1940
(the "Investment Company Act").
[ ] (5) A business development company as defined in Section 2(a)(48) of the Investment Company Act.
[ ] (6) A private business development company as defined in the Investment Advisors Act of 1940.
[ ] (7) A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or 301(d) of the Small Business Investment Act of 1958.
[ ] (8) An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000.
[ ] (9) A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of
$5,000,000.
[ ] (10) An employee benefit plan within the meaning of Title I of the Employment Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in such Act, which is either a bank, savings and loan association, insurance company, or
registered investment advisor, or if the employee benefit plan has total assets in excess of $5,000,000, or if a self- directed plan, the investment decisions are made solely by persons that are accredited investors.
[ ] (11) A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a "sophisticated" person.
[ ] (12) An entity in which all of the equity owners are Accredited Investors.
(NOTE: If box (12) is checked, each equity owner of the entity must individually complete and submit to the Company its own copy of this Letter.)
Date: Name: Signature:
SUPPORTING DOCUMENTATION
Within 10 days after the date that I submit this Letter to the Company (unless I have selected Option 4 and complied with its requirements), but prior to being accepted into the Company, I will deliver to the Company or arrange to have delivered to Company on my behalf, the required supporting documentation.
The supporting documentation must be submitted to the Company either electronically, in PDF form, to victoria@moseshershkodev.com or by mail or overnight service to MHD Equity Fund LLC, at c/o MHD Capital LLC, 401 Wilshire Blvd 12th Fl, Office 34, Santa Monica, California 90401.
I understand that the Company may request additional supporting documentation from me in order to verify my status as an Accredited Investor and I hereby agree to promptly provide any such additional supporting documentation.
I further understand that, even if I complete and execute this Letter and provide all additional supporting documentation requested by the Company, the Company may in its sole discretion refuse to accept my subscription for the Securities for any reason or for no reason.
RELIANCE ON REPRESENTATIONS; INDEMNITY
I understand that the Company and its counsel are relying upon my representations in the Letter and upon the supporting documentation to be delivered by me or on my behalf in connection with the Letter (collectively, the "Investor Information"). I agree to indemnify and hold harmless the Company, managers directors, officers, representatives and agents, and any person who controls any of the foregoing, against any and all loss, liability, claim, damage and expense (including [reasonable] attorneys' fees) arising out of or based upon any misstatement or omission in the Investor Information or any failure by me to comply with any covenant or agreement made by me in the Investor Information.
INVESTOR'S SIGNATURE AND CONTACT INFORMATION
Date: Name: Signature: Email address: Mailing address:
Telephone number:
SPOUSE'S SIGNATURE AND CONTACT INFORMATION
(NOTE: The investor’s spouse need only sign this letter if the investor is a natural person proving its accredited investor status based on joint income or joint net worth with the spouse under Part A(1)(a) or Part A(2)(a). A spouse who signs this letter makes all representations set out in this letter, including those relating to joint income or joint net worth, as applicable.)
Date: Name: Signature: Email address:
EXHIBIT C
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT FOR
MHD EQUITY FUND LLC
A Delaware Limited Liability Company
THIS SUBSCRIPTION AGREEMENT (the "Agreement") is made by and among MHD EQUITY FUND LLC, a Delaware limited liability company (the "Company"), and the individuals and/or entities purchasing Units hereunder (individually, a "Subscriber" and collectively, the "Subscribers").
WHEREAS, the Company desires to issue a target of 200,000 Class A Membership Units in the Company, reserving a sale of up to 350,000 Class A Membership Units (the “Offering) at a price of $1,000 per Unit to certain accredited investors (“Accredited Investor(s)”), as that term is defined in Rule 501 of Regulation D as promulgated under the Securities Act of 1933, as amended (the “Act”);
WHEREAS, the Subscriber has been furnished with a copy of the offering documents, including this Agreement, the Private Placement Memorandum, the Company’s Operating Agreement, Business Plan, and the Prospective Purchaser Questionnaire, as the same may have been amended or supplemented from time to time (collectively, the “Offering Documents”); and
WHEREAS, the Subscriber desires to purchase that value of Class A Membership Units of the Company set forth on the signature page hereof on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual representations and covenants set forth herein, the parties agree as follows:
1. Purchase and Sale of Units.
1.1 Purchase of Units. Subject to the terms and conditions of this Agreement, the Subscribers agree to purchase at the Closings (as defined below) and the Company agrees to sell and issue to the Subscribers at the Closings an aggregate target of 200,000 Class A Membership Units. The Units issued to the Subscribers pursuant to this Agreement shall be referred to herein as the “Units.”
1.2 Company Reservation of Rights to Terminate or Deny. The Company reserves the right to refuse all or part of any or all subscriptions. Furthermore, no Subscription Agreement shall be effective until accepted and executed by the Company and the Company shall have the right, in its sole discretion, for any reason or for no reason, to refuse any potential Subscribers.
2. Closing and Delivery. The purchase price for the Units is payable by check or wire transfer payable to the Company or its designee in an amount equal to the applicable purchase price per unit multiplied by the number of Units being purchased by such Subscriber.
3. Representations and Warranties of the Company. The Company hereby represents and warrants to the Subscribers that:
3.1 Organization, Good Standing and Qualification. The Company is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties.
3.2 Authorization. All action on the part of the Company, its members and managers, necessary for the authorization, execution and delivery of this Agreement and the issuance of the Units, the performance of all obligations of the Company hereunder and thereunder has been taken or will be taken prior to the Closing, and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms.
3.3 Valid Issuance of Units. The Units, when issued, sold and delivered in accordance with the terms hereof for the consideration expressed herein or therein, will be duly and validly issued and fully-paid and non-assessable. Based in part upon the representations of the Subscribers in this Agreement and subject to the completion of the filings referenced in Section 3.4 below, the Units will be issued in compliance with all applicable federal and state securities laws.
3.4 Governmental Consents. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except for the federal and state securities law filings to be made by the Company as necessary.
3.5 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company that questions the validity of this Agreement, or the right of the Company to enter into this Agreement, or to consummate the transactions contemplated hereby, or that might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate.
3.6 Compliance with Other Instruments. The Company is not in violation or default of any provisions of its Certificate of Formation or Operating Agreement or of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is
bound or, to its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company.
3.7 Disclosure. The forward-looking statements, including financial projections, contained in the Offering Documents were prepared in good faith; however, the Company does not warrant that such statements will ultimately become true. In addition to the foregoing, the Company restates as if rewritten herein the risk factors set forth in Private Placement Memorandum.
4. Representations and Warranties of the Subscribers. Each Subscriber hereby severally and not jointly represents and warrants to the Company that:
4.1 Risk. The Subscriber recognizes that the purchase of Units involves a high degree of risk in that (i) the Company has no operating history; (ii) an investment in the Company is highly speculative, and only investors who can afford the loss of their entire investment should consider investing in the Company and the Units; (iii) the Subscriber may not be able to liquidate his, her or its investment; (iv) transferability of the Units is extremely limited; and (v) in the event of a disposition, the Subscriber could sustain the loss of his, her or its entire investment.
4.2 Investment Experience. The Subscriber hereby acknowledges and represents that the Subscriber has prior investment experience, including investment in non-listed and unregistered securities, or the Subscriber has employed the services of an investment advisor, attorney and/or accountant to read all of the documents furnished or made available by the Company both to the Subscriber and to all other prospective investors in the Units and to evaluate the merits and risks of such an investment on the Subscriber's behalf.
4.3 Due Diligence. The Subscriber hereby acknowledges receipt and careful review of the Offering Documents, as supplemented and amended, and the attachments and exhibits thereto all of which constitute an integral part of the Offering Documents, and hereby represents that the Subscriber has been furnished by the Company during the course of this transaction with all information regarding the Company which the Subscriber has requested or desired to know, has been afforded the opportunity to ask questions of and receive answers from duly authorized managers, officers or other representatives of the Company concerning the terms and conditions of the offering and has received any additional information which Subscriber has requested. The Subscriber acknowledges that the Subscriber is relying upon the Offering Documents and not relying upon any prior documents prepared by the Company.
4.4 Protection of Interests; Exempt Offering. The Subscriber hereby represents that the Subscriber either by reason of the Subscriber's business or financial experience or the business or financial experience of the Subscriber's professional advisors (who are
unaffiliated with and who are not compensated by the Company or any affiliate of the Company, directly or indirectly) has the capacity to protect the Subscriber's own interests in connection with the transaction contemplated hereby. The Subscriber hereby acknowledges that the offering has not been reviewed by the United States Securities and Exchange Commission (the “SEC”) because of the Company's representations that this is intended to be exempt from the registration requirements of Section 5 of the Act. The Subscriber agrees that the Subscriber will not sell or otherwise transfer the Units unless they are registered under the Act or unless an exemption from such registration is available.
4.5 Investment Intent. The Subscriber understands that the Units have not been registered under the Act by reason of a claimed exemption under the provisions of the Act, which depends, in part, upon the Subscriber's investment intention. In this connection, the Subscriber hereby represents that the Subscriber is purchasing the Units for the Subscriber's own account for investment and not with a view toward the resale or distribution to others. The Subscriber, if an entity, was not formed for the purpose of purchasing the Units.
4.6 Restricted Units. The Subscriber understands that there currently is no public market for any of the Units and that even if there were, Rule 144 promulgated under the Act requires, among other conditions, a one-year holding period prior to the resale (in limited amounts) of securities acquired in a non-public offering without having to satisfy the registration requirements under the Act. The Subscriber understands and hereby acknowledges that the Company is under no obligation to register the Units under the Act or any state securities or "blue sky" laws. The Subscriber consents that the Company may, if it desires, permit the transfer of the Units out of the Subscriber's name only when the Subscriber's request for transfer is accompanied by an opinion of counsel reasonably satisfactory to the Company that neither the sale nor the proposed transfer results in a violation of the Act or any applicable state “blue sky” laws (collectively, the "Securities Laws"). The Subscriber agrees to hold the Company and its members, managers, officers, employees, controlling persons and agents and their respective heirs, representatives, successors and assigns harmless and to indemnify them against all liabilities, costs and expenses incurred by them as a result of any misrepresentation made by the Subscriber contained in this Agreement or any sale or distribution by the Subscriber in violation of the Securities Laws. The Subscriber understands and agrees that in addition to restrictions on transfer imposed by applicable Securities Laws, the transfer of the Units will be restricted by the terms of the Offering Documents.
4.7 Legends. The Subscriber consents to the placement of a legend on any certificate or other document evidencing the Units that such Units have not been registered under the Act or any state securities or "blue sky" laws and setting forth or referring to the restrictions on transferability and sale thereof contained in this Agreement. The Subscriber is aware that the Company will make a notation in its appropriate records with respect to the restrictions on the transferability of such Units and may place additional legends to such effect on Subscriber's unit certificate(s).
4.8 Rejection. The Subscriber understands that the Company will review this Agreement and that the Company reserves the unrestricted right to reject or limit any subscription and to close the offering to the Subscriber at any time.
4.9 Address. The Subscriber hereby represents that the address of the Subscriber furnished by the Subscriber on the signature page hereof is the Subscriber's principal residence if the Subscriber is an individual or its principal business address if it is a corporation or other entity.
4.10 Authority. The Subscriber represents that he, she or it has full power and authority (corporate, statutory and otherwise) to execute and deliver this Agreement and to purchase the Units. This Agreement constitutes the legal, valid and binding obligation of the Subscriber, enforceable against the Subscriber in accordance with its terms.
4.11 Entity. If the Subscriber is a corporation, company, trust, employee benefit plan, individual retirement account, Keogh Plan, or other tax-exempt entity, it is authorized and qualified to become an investor in the Company and the person signing this Agreement on behalf of such entity has been duly authorized by such entity to do so.
4.12 Foreign Investors. If the Subscriber is not a United States citizen, such Subscriber hereby represents that he/she/it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Units or any use of this Agreement, including (i) the legal requirements within its jurisdiction for the purchase of the Units; (ii) any foreign exchange restrictions applicable to such purchase; (iii) any governmental or other consents that may need to be obtained; and (iv) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of the Units. Such Subscriber's subscription and payment for, and his, her or its continued beneficial ownership of the Units, will not violate any applicable securities or other laws of the Subscriber's jurisdiction.
4.13 High Minimum Investment Representation. This provision applies solely in the event the Company is conducting the Offering pursuant to Rule 506(c) of the Act and the Subscriber is participating as an Accredited Investor with a high minimum investment. In such case, the Subscriber represents and warrants to the Company that (i) the Subscriber is an Accredited Investor within the meaning of Rule 501(a); (ii) the Subscriber is making a minimum investment of at least $200,000 if a natural person, or at least $1,000,000 if a legal entity; (iii) the Subscriber’s investment is not financed, in whole or in part, by any third party for the specific purpose of making this investment; and (iv) the Company has no actual knowledge of any facts that would indicate that the Subscriber is not an Accredited Investor or that the Subscriber’s minimum investment is being financed in whole or in part by any third party for such purpose.
5. Limitations on Transfer.
5.1 The Units are restricted as to transfer by the terms of the Operating Agreement and as set forth in this Agreement.
6. Miscellaneous.
6.1 Survival of Representations and Warranties. The warranties, representations and covenants of the Company contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the Closing for a period of one (1) year following the last Closing.
6.2 Governing Law. NOTWITHSTANDING THE PLACE WHERE THIS AGREEMENT MAY BE EXECUTED BY ANY OF THE PARTIES HERETO, THE PARTIES EXPRESSLY AGREE THAT ALL THE TERMS AND PROVISIONS HEREOF SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
6.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
6.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.
6.5 Notices.
(a) All notices, requests, demands and other communications under this Agreement or in connection herewith shall be given to or made upon the respective parties as follows: if to the Subscribers, to the addresses set forth on the signature page hereto, or, if to the Company, c/o MHD Capital LLC, 401 Wilshire Blvd 12th Fl, Office 34, Santa Monica, California 90401.
(b) All notices, requests, demands and other communications given or made in accordance with the provisions of this Agreement shall be in writing, and shall be sent by certified or registered mail, return receipt requested, or by overnight courier, and shall be deemed to be given or made when receipt is so confirmed.
(c) Any party may, by written notice to the other, alter its address or respondent, and such notice shall be considered to have been given ten (10) days after the airmailing, telexing or telecopying thereof.
6.6 Brokers.
(a) Each Subscriber severally represents and warrants that it has not engaged, consented to or authorized any broker, finder or intermediary to act on its behalf, directly or indirectly, as a broker, finder or intermediary in connection with the transactions contemplated by this Agreement. Each Subscriber hereby severally agrees to indemnify and hold harmless the Company from and against all fees, commissions or other payments owing to any such person or firm acting on behalf of such Subscriber hereunder. The Company will pay finder’s fees only in compliance with applicable law.
(b) The Company agrees to indemnify and hold harmless the Subscribers from and against all fees, commissions or other payment owing by the
Company to any other person or firm acting on behalf of the Company hereunder.
6.7 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.
6.8 Third Parties. Nothing in this Agreement shall create or be deemed to create any rights in any person or entity not a party to this Agreement.
6.9 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and Subscribers holding a majority in interest of the Units purchased in the offering.
6.10 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.
6.11 Entire Agreement. This Agreement, the Offering Documents and the Prospective Investor Questionnaire constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof, and any and all other written or oral agreements existing between the parties hereto are expressly canceled.
SIGNATURE PAGE FOLLOWS
[SUBSCRIBER PAGE FOR INDIVIDUALS]
I hereby agree to make a cash contribution in the sum of $ (minimum purchase is $200,000) as my initial capital contribution to the Company, which represents funds needed for the operations of the Company.
SUBSCRIBER:
(Print or Type Name of Subscriber)
(Signature) (Second Signature, if subscribing jointly)
Address:
Telephone: Email: Social Security#:
All the information that I consider necessary and appropriate for deciding whether to purchase the interest hereunder has been provided to me, and, I have had an opportunity to ask questions and receive answers from the Company to verify the accuracy of the information supplied or to which I had access. I acknowledge that I am solely responsible for my own “due diligence” investigation of the Company, for my own analysis of the merits and risks of my own investment made pursuant to this purchase and for my own analysis of the fairness and desirability of the terms of this investment. I hereby acknowledge that the investment is a speculative investment. I represent that I have such knowledge and experience in financial business matters and that I am capable of evaluating the merits and risks of the investment contemplated hereunder and that I have the ability to risk losing my entire investment.
[SUBSCRIBER PAGE FOR ENTITIES/TRUSTS]
The subscriber below hereby agrees to make a cash contribution in the sum of
$ (minimum purchase is $200,000) as subscriber’s initial capital contribution to the Company, which represents funds needed for the operations of the Company.
SUBSCRIBER:
(Print or Type Name of Subscriber)
(Print or Type Name of Signatory) (Print or Type Name of Second Signatory, if
applicable)
(Signature) (Second Signature, if applicable)
(Title of Signatory) (Title of Second Signatory, if applicable) Address:
Telephone: Facsimile: Tax I.D.#:
All the information that I consider necessary and appropriate for deciding whether to purchase the interest hereunder has been provided to me, and, I have had an opportunity to ask questions and receive answers from the Company to verify the accuracy of the information supplied or to which I had access. I acknowledge that I am solely responsible for my own “due diligence” investigation of the Company, for my own analysis of the merits and risks of my own investment made pursuant to this purchase and for my own analysis of the fairness and desirability of the terms of this investment. I hereby acknowledge that the investment is a speculative investment. I represent that I have such knowledge and experience in financial business matters and that I am capable of evaluating the merits and risks of the investment contemplated hereunder and that I have the ability to risk losing my entire investment.
[SUBSCRIBER PAGE FOR IRAs]
The subscriber below hereby agrees to make a cash contribution in the sum of
$ (minimum purchase is $200,000) as subscriber’s initial capital contribution to the Company, which represents funds needed for the operations of the Company.
SUBSCRIBER:
(Print or Type Name of Subscriber)
(Print or Type Name of Signatory) (Print or Type Name of Second Signatory, if
applicable)
(Signature) (Second Signature, if applicable) IRA CUSTODIAN
(Title of Signatory)
Address:
Telephone: Facsimile: Tax I.D.#:
All the information that I consider necessary and appropriate for deciding whether to purchase the interest hereunder has been provided to me, and, I have had an opportunity to ask questions and receive answers from the Company to verify the accuracy of the information supplied or to which I had access. I acknowledge that I am solely responsible for my own “due diligence” investigation of the Company, for my own analysis of the merits and risks of my own investment made pursuant to this purchase and for my own analysis of the fairness and desirability of the terms of this investment. I hereby acknowledge that the investment is a speculative investment. I represent that I have such knowledge and experience in financial business matters and that I am capable of evaluating the merits and risks of the investment contemplated hereunder and that I have the ability to risk losing my entire investment.
This Subscription Agreement is agreed to and accepted as of .
MHD EQUITY FUND LLC
a Delaware limited liability company
By: MHD Capital LLC
a Delaware limited liability company Its: Manager
By: Amihai Moshe Hershko, Co-Manager
By: Victoria Hershko Belany, Co-Manager
EXHIBIT D
BUSINESS PLAN
Submit Data Failed