As filed with
the Securities and Exchange Commission on December 23,
2019.
Registration
No. 333-
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C.
20549
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF 1933
HF ENTERPRISES
INC.
(Exact name of
registrant as specified in its charter)
|
Delaware
|
6799
|
83-1079861
|
|
(State or other
jurisdiction of
incorporation or
organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.R.S.
Employer
Identification
Number)
|
HF Enterprises
Inc.
4800 Montgomery
Lane, Suite 210
Bethesda,
Maryland 20814
(301)
971-3940
(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
Chan Heng
Fai
Chairman and Chief Executive
Officer
HF Enterprises
Inc.
4800 Montgomery
Lane, Suite 210
Bethesda,
Maryland 20814
(301)
971-3940
(Name, address,
including zip code, and telephone number, including area code, of
agent for service)
Copies of all communications to:
|
Spencer G.
Feldman, Esq.
|
Thomas Poletti,
Esq.
|
|
Olshan Frome
Wolosky LLP
|
Katherine J.
Blair, Esq.
|
|
1325 Avenue of
the Americas, 15th Floor
|
Manatt, Phelps
& Phillips, LLP
|
|
New York, New
York 10019
|
695 Town Center
Drive, 14th Floor
|
|
Tel.: (212)
451-2300
|
Costa Mesa,
California 92626
|
|
Fax: (212)
451-2222
|
Tel.: (714)
371-2501
|
|
Email:
sfeldman@olshanlaw.com
|
Fax: (714)
371-2551
|
Approximate date of commencement of
proposed sale to the public: As soon as practicable after the
effective date of this registration statement.
If any of the securities being
registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box.
☒
If this Form is filed to register
additional securities for an offering pursuant to Rule 462(b) under
the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective
registration statement for the same offering.
☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ☐
If this Form is a post-effective
amendment filed pursuant to Rule 462(d) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange
Act.
|
Large Accelerated Filer ☐
|
Accelerated Filer ☐
|
Non-Accelerated Filer ☐
(Do not check if a smaller
reporting company)
|
Smaller Reporting Company ☒
Emerging Growth
Company ☒
|
If an emerging
growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities
Act. ☐
CALCULATION OF
REGISTRATION FEE
Title of each
class of
securities to be
registered
|
|
Proposed maximum
offering price per share
|
Proposed maximum
aggregate
offering price(1)(2)
|
Amount of
registration
fee
|
Common Stock, par value $0.001 per
share (“Common Stock”)
|
2,990,000
|
$8.00
|
$23,920,000
|
$3,104.82
|
|
|
|
$1.00
|
-
|
(3)
|
Common Stock underlying Underwriter
Warrant
|
|
$9.60
|
$2,496,000
|
$323.98
|
|
Total
|
|
|
|
$3,428.80
|
(1) Estimated solely for the purpose of
computing the amount of the registration fee pursuant to Rule
457(0) under the Securities Act of 1933, as
amended.
(2) Includes shares the underwriter has
the option to purchase to cover over-allotments, if
any.
(3) No fee pursuant to Rule 457(g)
under the Securities Act.
The registrant
hereby amends this registration statement on such date or dates as
may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
registration statement shall hereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or
until the registration statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a),
may determine.
|
The information in this preliminary prospectus is not complete and
may be changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities in
any jurisdiction where the offer or sale is not
permitted.
|
Subject to Completion, dated December 23, 2019
PRELIMINARY PROSPECTUS
2,600,000 Shares
HF
ENTERPRISES INC.
Common Stock
This is
the initial public offering of shares of common stock of HF
Enterprises Inc. Prior to this offering, no public market has
existed for our common stock. We are offering 2,600,000 shares. We
currently estimate that the initial public offering price will be
between $6.00 and $8.00 per share. We intend to list our shares of
common stock for trading on the Nasdaq Capital Market under the
symbol HFEN.
Investing
in our common stock involves a high degree of risk. See “Risk
Factors” beginning on page 11.
|
|
|
|
|
Initial public
offering price
|
$
|
$
|
|
Underwriting
discounts and commissions (1)
|
$
|
$
|
|
Proceeds to us,
before expenses
|
$
|
$
|
__________________
(1)
Please see the
section of this prospectus entitled “Underwriting” for
additional information regarding underwriter
compensation.
We have
granted the underwriter the right to purchase up to 390,000
additional shares of common stock from us at the initial public
offering price less underwriting discounts and commissions to cover
over-allotments, if any. The underwriter can exercise this option
within 60 days after the date of this prospectus.
We are
an “emerging growth company” as defined under U.S.
federal securities laws and, as such, may elect to comply with
certain reduced public company reporting requirements after this
offering.
Neither
the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved these securities or determined if
this prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
The
underwriter expects to deliver the shares of our common stock to
purchasers on or about _______, 2020.
WestPark Capital,
Inc.
The
date of this prospectus is ,
2020
|
|
|
Page
|
|
Prospectus
Summary
|
|
1
|
|
Risk
Factors
|
|
10
|
|
Cautionary
Note Regarding Forward-Looking Statements
|
|
26
|
|
Use of
Proceeds
|
|
27
|
|
Dividend
Policy
|
|
27
|
|
Capitalization
|
|
28
|
|
Dilution
|
|
29
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
31
|
|
Business
|
|
49
|
|
Management
|
|
60
|
|
Executive
Compensation
|
|
65
|
|
Certain
Relationships and Related Party Transactions
|
|
66
|
|
Principal
Stockholders
|
|
70
|
|
Description
of Capital Stock
|
|
71
|
|
Shares
Eligible for Future Sale
|
|
74
|
|
Underwriting
|
|
76
|
|
Indemnification
for Securities Act Liabilities
|
|
80
|
|
Legal
Matters
|
|
80
|
|
Experts
|
|
80
|
|
Where
You Can Find More Information
|
|
80
|
|
Index to Consolidated Financial Statements
|
|
F-1
|
About this Prospectus
Neither
we nor the underwriter has authorized anyone to provide you with
information that is different from that contained in this
prospectus or in any free writing prospectus we may authorize to be
delivered or made available to you. We take no responsibility for,
and can provide no assurance as to the reliability of, any other
information that others may give you. We and the underwriter are
offering to sell shares of common stock and seeking offers to buy
shares of common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is
accurate only as of the date on the front of this prospectus,
regardless of the time of delivery of this prospectus or any sale
of shares of our common stock. Our business, financial condition,
results of operations and prospects may have changed since that
date.
For
investors outside the United States: Neither we nor the underwriter
has done anything that would permit this offering, or possession or
distribution of this prospectus, in any jurisdiction where action
for that purpose is required, other than in the United States.
Persons outside the United States who come into possession of this
prospectus must inform themselves about, and observe any
restrictions relating to, the offering of the shares of common
stock and the distribution of this prospectus outside of the United
States. See “Underwriting.”
Unless
otherwise indicated, information in this prospectus concerning
economic conditions, our industry, our markets and our competitive
position is based on a variety of sources, including information
from third-party industry analysts and publications and our own
estimates and research. Some of the industry and market data
contained in this prospectus are based on third-party industry
publications. This information involves a number of assumptions,
estimates and limitations.
The
industry publications, surveys and forecasts and other public
information generally indicate or suggest that their information
has been obtained from sources believed to be reliable. None of the
third-party industry publications used in this prospectus were
prepared on our behalf. The industry in which we operate is subject
to a high degree of uncertainty and risk due to a variety of
factors, including those described in “Risk Factors.”
These and other factors could cause results to differ materially
from those expressed in these publications.
|
|
PROSPECTUS SUMMARY
This summary highlights information contained in this prospectus
and does not contain all of the information that you should
consider in making your investment decision. Before investing in
our common stock, you should carefully read this entire prospectus,
including our consolidated financial statements and the related
notes thereto and the information set forth under the sections
“Risk Factors,” “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations” and our consolidated financial statements and
related notes thereto, in each case included in this prospectus.
Some of the statements in this prospectus constitute
forward-looking statements. See “Cautionary Note Regarding
Forward-Looking Statements.”
Unless the context requires otherwise, the words “we,”
“us,” “our,” “our company” and
“our business” refer to HF Enterprises Inc., a Delaware
corporation, and its consolidated subsidiaries.
Our Company
HF
Enterprises Inc. is a diversified holding company principally
engaged through its subsidiaries in property development, digital
transformation technology and biohealth activities with operations
in the United States, Singapore, Hong Kong and Australia. We manage
our three principal businesses primarily through our 65.4%-owned
subsidiary, Singapore eDevelopment Ltd., a public company traded on
the Singapore Stock Exchange. Through this subsidiary (and
indirectly, through other public and private U.S. and Asian
subsidiaries), we are actively developing two significant real
estate projects near Houston, Texas and in Frederick, Maryland in
our property development segment. We have designed applications for
enterprise messaging and e-commerce software platforms in the
United States and Asia in our digital transformation technology
business unit. Our recent foray into the biohealth segment includes
research to treat neurological and immune-related diseases,
nutritional chemistry to create a natural sugar alternative,
research regarding innovative products to slow the spread of
disease, and natural foods and supplements. We opportunistically
identify global businesses for acquisition, incubation and
corporate advisory services, primarily related to our operating
business segments. We also have ownership interests outside of
Singapore eDevelopment, including an indirect 19.8% equity interest
in Holista CollTech Limited, a public Australian company that
produces natural food ingredients, and an indirect 13.7% equity
interest in Vivacitas Oncology Inc., a U.S.-based biopharmaceutical
company, but neither of which company has material asset value
relative to our principal businesses. Under the guidance of Chan
Heng Fai, our founder, Chairman and Chief Executive Officer, who is
also our largest stockholder, we have positioned ourselves as a
participant in these key markets through a series of strategic
transactions. Our growth strategy is both to pursue acquisition
opportunities that we can leverage on our global network using our
capital and management resources and to accelerate the expansion of
our organic businesses.
We opportunistically identify global businesses
for acquisition, incubation and corporate advisory services,
primarily related to our existing operating business segments. We
also have ownership interests outside of Singapore eDevelopment,
including an indirect 19.8% equity interest in Holista CollTech
Limited, a public Australian company that produces natural food
ingredients, and an indirect 13.7% equity interest in Vivacitas
Oncology Inc., a U.S.-based biopharmaceutical company, but neither
of which company has material asset value relative to our principal
businesses. Under the guidance of Chan Heng Fai, our founder,
Chairman and Chief Executive Officer, who is also our largest
stockholder, we have positioned ourselves as a participant in these
key markets through a series of strategic transactions. Our growth
strategy is both to pursue acquisition opportunities that we can
leverage on our global network using our capital and management
resources and to accelerate the expansion of our organic
businesses. From a geographical perspective, we recognized
100%, 98% and 90% of our total revenue in the first nine months of
2019 and the years ended December 31, 2018 and 2017 in the United
States, respectively, and expect that our future revenue will
continue to be concentrated in the United States.
We
generally acquire majority stakes in innovative and promising
businesses that are expected to appreciate in value over time. We
have historically favored businesses that improve an
individual’s quality of life or that improve the efficiency
of businesses through technology in various industries. Our
involvement in various companies can usually be characterized in
one of three ways: (i) businesses (typically ones that we have
either created or acquired in their early stages) that we directly
manage, while maintaining a majority ownership position; (ii)
businesses where we hold a significant ownership position, and
share management with our partners; and (iii) businesses that we
acquire and hold a minority stake in, and where we do not manage
such entity (although an affiliate of our company may serve on the
board of directors), but where we view the financial stake as
contributing to the strategic goals of our other businesses. For
example, in our real estate business, which makes up the majority
of our assets, our company’s leadership is engaged in all
aspects of the management of our projects, and intends to remain so
engaged in the future. In our biohealth segment, we are more likely
to work with partners who will play a significant role in
management. At the present time, we do not anticipate that passive
investments, where we neither participate in management nor view
the ownership position as adding particular strategic value to
other businesses, will represent a significant portion of our
company’s assets in the future.
Our
focus is on businesses where our engagement will be particularly
significant for that entity’s growth prospects. Our emphasis
is on building businesses in industries where our management team
has in-depth knowledge and experience, or where our management can
provide value by advising on new markets and expansion. We have at
times provided a range of global capital and management services to
these companies in order to gain access to Asian markets. We
believe our capital and management services provide us with a
competitive advantage in the selection of strategic acquisitions
which creates and adds value for our company and our
stockholders.
|
|
|
|
Our Current Operations
Mr.
Chan has led our Singapore
eDevelopment subsidiary since 2014. In March 2018, Mr. Chan formed
our company and subsequently assigned his equity interests in
several companies, including Singapore eDevelopment and its
subsidiaries, to us for further expansion in the United States. Mr.
Chan has more than 40 years of experience serving as a chief
executive officer, director and private equity investor in more
than 35 private and publicly-held early-stage and growth companies
in the United States, Singapore and other countries. We currently
have 17 employees across three countries. We are a global company with our
corporate headquarters located in Bethesda, Maryland and additional
offices in Singapore, Magnolia, Texas, and Hong Kong. Below is a
description of our three principal businesses.
Property
Development Business. We
initially began our real estate business in 2014, when our
65.4%-owned subsidiary Singapore eDevelopment Ltd. started
developing property projects and participating in third-party
property development projects. SeD Intelligent Home Inc., a
99.9%-owned subsidiary of Singapore eDevelopment, owns, operates
and manages real estate development projects with a focus on land
subdivision developments. Development activities are generally
contracted out, including planning, design and construction, as
well as other work with engineers, surveyors, architects and
general contractors. The developed lots are then sold to builders
for the construction of new homes. SeD Intelligent Home’s
main assets are two subdivision development projects, one near
Houston, Texas, known as Black Oak, consisting of 162 acres and
currently projected to have approximately 512 units, and one in
Frederick, Maryland, known as Ballenger Run, consisting of 197
acres where we intend to have 689 units. We consider projects in
diverse regions across the United States and maintain longstanding
relationships with local owners, brokers, attorneys and lenders to
source projects. SeD Intelligent Home will continue to focus on
off-market deals and raise appropriate financing for development
activities. We intend to embark on residential construction
activities in partnership with U.S. homebuilders and have commenced
discussions to acquire smaller U.S. residential construction
projects. These projects may be within both the for-sale and
for-rent markets. We believe these initiatives will provide a set
of solutions to stabilize the long-term revenue associated with
property development in the United States and create ancillary
service opportunities and revenue from this
business.
Digital
Transformation Technology Business. Our digital transformation technology business
unit is committed to enabling enterprises to engage in a digital
transformation by providing consulting, implementation and
development services with various technologies, including instant
messaging, blockchain, e-commerce, social media and payment
solutions. Our digital transformation technology business is
involved in mobile application product development and other
businesses, providing information technology services to end-users,
service providers and other commercial users through multiple
platforms. Our technology platform consists of instant messaging
systems, social media, e-commerce and payment systems, direct
marketing platforms, e-real estate, brand protection and
counterfeit and fraud detection. HotApp Blockchain Inc., a
99.9%-owned subsidiary of Singapore eDevelopment, focuses on
business-to-business solutions such as enterprise messaging and
workflow. Through HotApp, we have successfully implemented several
strategic platform developments for clients, including a mobile
front-end solution for network marketing, a hotel e-commerce
platform for Asia and a real estate agent management platform in
China. We have also enhanced our technological capability from
mobile application development to include blockchain architectural
design, allowing mobile-friendly front-end solutions to integrate
with blockchain platforms.
Biohealth
Business. Our biohealth
business is committed to both funding research and developing and
selling products that promote a healthy lifestyle. Since Singapore
eDevelopment became involved in the biomedical and healthcare
market through its biohealth division – Global BioMedical
Pte. Ltd. – we have successfully formed new ventures with
biomedical companies and made headway with our research. A
subsidiary of Global BioMedical Pte. Ltd. is presently one of three
shareholders in an operating entity named Global BioLife, Inc. The
other shareholders of Global BioLife include Holista CollTech (we
indirectly own 19.8% of Holista CollTech) and an entity owned by
the chief scientist overseeing Global BioLife’s projects.
Global BioLife is a company devoted to research in three main
areas: (i) the “Linebacker” project, which aims to
develop a universal therapeutic drug platform, (ii) a new sugar
substitute called “Laetose,” and (iii) a multi-use
fragrance called “3F” (Functional Fragrance
Formulation). Global BioLife has formed a working collaboration
with Chemia Corporation, a specialty manufacturer specializing in
high quality, cost effective fragrances. Together with Chemia, we
are attempting to license 3F. We have engaged a consulting firm in
the biopharmaceutical and life sciences industry, to assist in our
goal of licensing each of Linebacker, Laetose and
3F.
Through
our indirect 19.8% interest in Holista CollTech, we have
collaborative biotech operations in Australia and Malaysia,
operating in three segments – healthy food ingredients,
dietary supplements and collagen. Holista CollTech researches,
develops, markets and distributes health-oriented products to
address the growing need for natural medicine. It offers a suite of
food ingredients including low-glycemic index baked goods, low
sodium salt, low-fat fried foods and low-calorie and low-GI sugars.
Holista CollTech produces cosmetic-grade sheep (ovine) collagen
using patented extraction methods from Australia. Through Singapore
eDevelopment, we also own 53% of iGalen International Inc., a
distributor of supplements and other health products. The remaining
equity interests in iGalen International Inc. are owned by the
founder of Holista CollTech.
|
|
|
|
Other
Business Activities. While we
have identified certain main areas of focus, we will not be limited
to these three principal businesses. Along with our ownership
stakes, we provide corporate strategy and business development
services. We also provide asset management services and corporate
restructuring and leveraged buy-out expertise. These service
offerings build relationships with promising companies for
potential future collaboration and expansion. We intend at all
times to operate our business in a manner as to not become
inadvertently subject to the regulatory requirements under the
Investment Company Act of 1940 or the Investment Advisers Act of
1940.
Our Market Opportunity
In
each of our businesses, we intend to focus on solid, growing
markets and capitalize on positive demographic and market trends.
In our property development business, we intend to develop
residential real estate properties in strategic markets where we
will be able to subdivide lots for development to meet expanding
needs for housing. In addition, we are exploring the potential to
expand our set of solutions for property development in the United
States, and we may engage in financing, home management, realtor
services, insurance and home title validation. We also intend to
embark on homebuilding activities in partnership with U.S.
homebuilders in the for-sale and for-rent sectors, and have
commenced discussions to acquire small U.S. homebuilding projects
(although no such agreements are currently in place). We believe
these initiatives have the opportunity to provide us with further
revenue streams. In our digital transformation technology business,
in response to the growth of internet technologies, we are being
increasingly called upon to provide software and services to manage
large amounts of personal data, prevent the unauthorized access of
such data and maintain and improve easily accessible and navigable
IT systems for firms and individuals. In the field of biohealth,
advances in neuroscience and molecular biology are resulting in new
generations of pharmaceutical products to treat neurological and
inflammatory-derived diseases. Through our ownership interests in
Global Biomedical Pte. Ltd. and Holista CollTech, we intend to
continue to seek ways to leverage our biomedical
research.
Our Growth Strategy and Competitive Advantages
Our
goal is to develop or acquire ownership interest in companies that
possess high-growth potential, and to provide those companies with
capital markets and management services that will help them grow.
Although we are aware of other, mostly larger companies that have
utilized comparable structures to achieve their business objectives
and will compete with us for not only promising acquisition targets
but also investor capital, we believe our services that extend from
the United States into Asian markets provide us competitive
advantages. We also believe that we can build a brand that is
synonymous with integrity, strong corporate governance and
transparency with an emphasis on social responsibility. Key
elements of our growth strategy and competitive advantages
include:
Accretive
acquisitions and strategic relationships at each level of our
company. We intend to continue
to pursue acquisitions in the United States and internationally
that consolidate market share, expand our geographical footprint
and further our position as a participant in each of our three
principal businesses. In addition, we regularly engage in
negotiations with potential acquisition targets seeking capital and
management services. We seek to identify and partner with companies
with complementary technology and where our management’s
access to business extension opportunities in Asia could be
commercially beneficial to them.
Diverse and
competitive positioning of our companies. Our three principal businesses operate in highly
competitive but diverse markets which we believe balance the risk
profile of our company. We have positioned ourselves over the past
five years as a participant in these markets through a series of
strategic acquisitions, following a business philosophy implemented
by Chan Heng Fai, our founder, Chairman, Chief Executive Officer
and largest stockholder. Our business has historically focused on
property development and digital transformation technology. We have
more recently entered into the biohealth business, a space which we
believe has significant growth potential. We believe the diverse
and competitive positioning in these markets of our companies
serves as a competitive strength.
|
|
|
|
Operations
strategically located in key markets. By maintaining multiple offices in Singapore,
Magnolia, Texas, and Hong Kong, together with our Bethesda,
Maryland corporate headquarters, we are not dependent on a single
economic climate to ensure that our business continues to grow. We
have the financial and organizational resources to support
opportunistic business development on a global scale, and we are
highly experienced in expanding into new geographical regions and
markets. Additionally, we maintain strategic alliances within each
of our businesses affording us additional scalability. We
continually evaluate opportunities to expand our businesses in key
markets.
Aided by an
international distribution network. The strength of our global network provides us
with the unique opportunity to target multiple client sectors
simultaneously, rather than remain constrained to isolated regional
markets. Our management team has extensive global experience and
deep relationships in each of our operating markets, particularly
in Asia. By leveraging the reach of our international distribution
network across each of our three principal businesses, our products
and services reach a broad client base.
Central
capital and management support for all companies.
Our “hands-on” management
team provides centralized capital and management oversight across
our three principal businesses. We believe we can improve the
margins by controlling costs at our businesses as we centralize
business practices in functional areas including financing,
accounting, human resources, back-office administration,
information technology and risk management. These margin
improvements can be accomplished through leveraging our central
capital and management capabilities to allow our businesses to
better focus their efforts on revenue generation and product
enhancement. In addition, we seek to increase revenue for each of
our majority-owned operating subsidiaries by cross-selling the
complementary technical services and distribution network of each
company, particularly utilizing the resources of our digital
transformation technology business unit. Also, capital and
management oversight connect our businesses under a uniform company
culture of fairness, integrity, adaptability and results
orientation.
Strong
alignment of interests through founder’s ownership.
We believe a strong alignment of
interests with stockholders and investors exists through the
ownership of a significant percentage of our outstanding shares by
Chan Heng Fai, our founder, Chairman and Chief Executive Officer.
Mr. Chan has led Singapore eDevelopment Ltd. since 2014 and has led
our company since its inception. By providing structural and
economic alignment with the performance of our company, Mr.
Chan’s continuing controlling interest is directly aligned
with those of our investors. We believe the combination of these
characteristics has promoted long-term planning, an enhanced
culture among all of our group of companies, strategic partners and
employees, and ultimately the creation of value for our company and
our stockholders.
Selected Risks Associated with Our Business
Our
business and prospects may be limited by a number of risks and
uncertainties that we currently face, including the
following:
●
We
operate in the intensely competitive property development, digital
transformation technology and biohealth markets against a number of
large, well-known companies in each of those markets.
●
We and
our majority-owned operating subsidiaries have a limited operating
history and we cannot ensure the long-term successful operation of
all of our businesses.
●
We had a net loss
of $4,534,317 for the nine months ended September 30, 2019 and net
losses of $7,490,568 and $7,085,846 for the years ended December
31, 2018 and 2017, respectively. There can be no assurance we will
have net income in future periods.
●
We are
a holding company and derive all of our operating income from, and
hold substantially all of our assets through, our U.S. and foreign
company ownership interests. The effect of this structure is that
we will depend on the earnings of our subsidiaries, and the payment
or other distributions to us of these earnings, to meet our
obligations and make capital expenditures.
●
There
is no assurance that we will be able to identify appropriate
acquisition targets, successfully acquire identified targets or
successfully develop and integrate the businesses to realize their
full benefits.
|
|
|
|
●
Our business
depends on the availability to us of Chan Heng Fai, our founder,
Chairman and Chief Executive Officer, who has developed and
implemented our business philosophy and who would be extremely
difficult to replace, and our business would be materially and
adversely affected if his services were to become unavailable to
us.
●
We are vulnerable
to adverse changes in the economic environment in the United
States, Singapore, Hong Kong and Australia, particularly with
respect to increases in wages for professionals, fluctuation in the
value of foreign currencies and governmental trade policies between
nations.
In
addition, we face other risks and uncertainties that may materially
affect our business prospects, financial condition and results of
operations. You should consider the risks discussed in “Risk
Factors” and elsewhere in this prospectus before investing in
our common stock.
Implications of Our Being an “Emerging Growth
Company”
As
a company with less than $1.07 billion in revenue during our last
completed fiscal year, we qualify as an “emerging growth
company” under the Jumpstart Our Business Startups Act of
2012, or the JOBS Act. An emerging growth company may take
advantage of specified reduced reporting requirements that are
otherwise generally applicable to public companies. In particular,
as an emerging growth company, we:
●
are not required to
obtain an attestation and report from our auditors on our
management’s assessment of our internal control over
financial reporting pursuant to the Sarbanes-Oxley
Act;
●
are not required to
provide a detailed narrative disclosure discussing our compensation
principles, objectives and elements and analyzing how those
elements fit with our principles and objectives (commonly referred
to as “compensation discussion and
analysis”);
●
are not required to
obtain a non-binding advisory vote from our stockholders on
executive compensation or golden parachute arrangements (commonly
referred to as the “say-on-pay,”
“say-on-frequency” and
“say-on-golden-parachute” votes);
●
are exempt from
certain executive compensation disclosure provisions requiring a
pay-for-performance graph and CEO pay ratio
disclosure;
●
may present only
two years of audited financial statements and only two years of
related Management’s Discussion and Analysis of Financial
Condition and Results of Operations, or MD&A; and
●
are eligible to
claim longer phase-in periods for the adoption of new or revised
financial accounting standards under §107 of the JOBS
Act.
We intend to take advantage of all of these
reduced reporting requirements and exemptions, including the longer
phase-in periods for the adoption of new or revised financial
accounting standards under §107 of the JOBS Act. Our election
to use the phase-in periods may make it difficult to compare our
financial statements to those of non-emerging growth companies and
other emerging growth companies that have opted out of the phase-in
periods under §107 of the JOBS Act. Please see “Risk
Factors” on page 21 (“We are an ‘emerging
growth company’. . . .”).
Certain
of these reduced reporting requirements and exemptions were already
available to us due to the fact that we also qualify as a
“smaller reporting company” under SEC rules. For
instance, smaller reporting companies are not required to obtain an
auditor attestation and report regarding internal control over
financial reporting, are not required to provide a compensation
discussion and analysis, are not required to provide a
pay-for-performance graph or CEO pay ratio disclosure, and may
present only two years of audited financial statements and related
MD&A disclosure.
|
|
|
|
Under
the JOBS Act, we may take advantage of the above-described reduced
reporting requirements and exemptions for up to five years after
our initial sale of common equity pursuant to a registration
statement declared effective under the Securities Act of 1933, or
such earlier time that we no longer meet the definition of an
emerging growth company. The JOBS Act provides that we would cease
to be an “emerging growth company” if we have more than
$1.07 billion in annual revenue, have more than $700 million in
market value of our common stock held by non-affiliates, or issue
more than $1 billion in principal amount of non-convertible
debt over a three-year period. Further, under current SEC rules, we
will continue to qualify as a “smaller reporting
company” for so long as we have a public float (i.e., the
market value of common equity held by non-affiliates) of less than
$250 million as of the last business day of our most recently
completed second fiscal quarter.
Status as a Controlled Company
Upon
the completion of this offering, we expect to be considered a
“controlled company” within the meaning of the listing
standards of Nasdaq. Under these rules, a “controlled
company” may elect not to comply with certain corporate
governance requirements, including the requirement to have a board
that is composed of a majority of independent directors. We intend
to take advantage of these exemptions following the completion of
this offering. These exemptions do not modify the independence
requirements for our audit committee, and we intend to comply with
the applicable requirements of the Sarbanes-Oxley Act and rules
with respect to our audit committee within the applicable time
frame. For more information, please see “Management –
Status as a Controlled Company.”
Organizational Background and Corporate Information
HF
Enterprises Inc. was incorporated in the State of Delaware on March
7, 2018. The following chart illustrates the current corporate
structure of our key operating entities:
The
percentages in the chart above indicate the ownership of such
entities. The indirect ownership omits 100% owned intermediate
holding companies. Our consolidated financial statements include
the financial results of all the entities listed except for Holista
CollTech Limited and Vivacitas Oncology Inc., for which we own only
a minority interest.
This
prospectus gives effect to the following internal restructuring
transactions, completed on October 1, 2018, by which we issued a
total of 10,000,000 shares of our common stock to HFE Holdings
Limited:
|
|
|
|
●
100% of the
ownership interest in Hengfai International Pte. Ltd. was
transferred from Chan Heng Fai (an officer and director of our
company) to HF Enterprises Inc. in exchange for 8,500,000 shares of
our common stock to be held by HFE Holdings Limited. Hengfai
International Pte. Ltd., a Singapore limited company, is the sole
stockholder of Hengfai Business Development Pte. Ltd., which is the
owner of 761,185,294 ordinary shares of Singapore eDevelopment
Limited and warrants to purchase 359,834,471 ordinary shares of
Singapore eDevelopment Limited.
●
100% of the
ownership interest in Global eHealth Limited was transferred from
Chan Heng Fai to HF Enterprises Inc. in exchange for 1,000,000
shares of our common stock to be held by HFE Holdings Limited.
Global eHealth Limited, a Hong Kong company, is the owner of
46,226,673 ordinary shares of Holista CollTech
Limited.
●
100% of the
ownership interest in Heng Fai Enterprises Pte. Ltd. was
transferred from Chan Heng Fai to HF Enterprises Inc. in exchange
for 500,000 shares of our common stock to be held by HFE Holdings
Limited. Heng Fai Enterprises Pte. Ltd., a Singapore limited
company, owns 2,480,000 shares of common stock of Vivacitas
Oncology Inc.
In
addition to the named companies referenced in the chart above, we
own a number of companies that serve only to hold other entities or
are intended to hold businesses that we plan to develop at a later
date.
Our
principal executive offices are located at 4800 Montgomery Lane,
Suite 210, Bethesda, Maryland 20814, telephone (301) 971-3940. We
also maintain offices in Singapore, Magnolia, Texas, and Hong Kong.
We maintain a corporate website at http://www.hfenterp.com.
Information on our website, and any downloadable files found there,
are not part of this prospectus and should not be relied upon with
respect to this offering.
Any
information that we consider to be material to an evaluation of our
company will be included in filings on the SEC website,
http://www.sec.gov, and may also be disseminated using our investor
relations website, http://www.hfenterp.com, and press
releases.
|
|
|
|
THE OFFERING
The
summary below describes the principal terms of this offering. The
“Description of Capital Stock” section of this
prospectus contains a more detailed description of our common
stock.
|
|
|
|
Common
stock offered by us
|
2,600,000
shares
|
|
|
|
|
|
|
|
|
Underwriter’s over-allotment
option
|
We have
granted the underwriter a 60-day option to purchase up to an
additional 390,000 shares of our common stock from us at the
initial public offering price less underwriting discounts and
commissions, to cover over-allotments, if any.
|
|
|
|
|
|
|
|
|
Common stock to be outstanding
after this offering
|
12,601,000
shares.(1)
|
|
|
|
|
|
|
|
|
Use of
proceeds after expenses
|
We
estimate that the net proceeds of the sale of our common stock in
this offering will be approximately $15,239,171 (or approximately
$17,614,271 if the underwriter exercises its option in full to
purchase additional shares of our common stock), based on an
assumed initial public offering price of $7.00 per share, which is
the midpoint of the range set forth on the cover page of this
prospectus, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by
us.
|
|
|
|
|
|
|
|
|
|
We intend to use the net proceeds of this offering (i) to fund possible acquisitions of new
companies and additional properties, and (ii) for working capital
and general corporate purposes. See “Use of Proceeds”
for more information.
|
|
|
|
|
|
|
|
|
Dividend
policy
|
We have never declared or paid any cash dividends on our common
stock. We anticipate that we will retain any earnings to support
operations and to finance the growth and development of our
business. Accordingly, we do not expect to pay cash dividends on
our common stock in the foreseeable future.
|
|
|
|
|
|
|
|
|
Controlled
company
|
Chan Heng Fai, through HFE Holdings Limited, controls a majority of
the combined voting power of all classes of our voting stock. As a
result, we qualify as a “controlled company” within the
meaning of the listing standards of Nasdaq. Under these rules, a
“controlled company” may elect not to comply with
certain corporate governance requirements, including the
requirement to have a board that is composed of a majority of
independent directors. We have elected to take advantage of these
exemptions.
|
|
|
|
|
|
|
|
|
Risk
factors
|
Investing in our common stock involves a high degree of risk. See
“Risk Factors” and other information included in this
prospectus for a discussion of factors you should carefully
consider before deciding to invest in shares of our common
stock.
|
|
|
|
|
|
|
|
|
Proposed Nasdaq
Capital Market symbol
|
HFEN
(2)
|
|
|
|
______________________________
(1)
In this prospectus,
except as otherwise indicated, the number of shares of our common
stock that will be outstanding immediately after this offering and
the other information based thereon:
●
assumes an initial
public offering price of $7.00 per share of common stock, which is
the midpoint of the range set forth on the cover page of this
prospectus;
●
excludes 500,000
shares of our common stock reserved for future issuance under our
2018 Incentive Compensation Plan; and
●
no exercise of the
underwriter’s option to purchase up to 390,000 additional
shares from us in this offering to cover over-allotments, if
any.
(2)
We have reserved
the trading symbol HFEN in connection with our application to have
our common stock listed for trading on the Nasdaq Capital
Market.
|
|
|
|
SUMMARY CONSOLIDATED FINANCIAL DATA
We derived the
summary consolidated statements of operations data for the years
ended December 31, 2018 and 2017 from our audited consolidated
financial statements included elsewhere in this prospectus. The
summary consolidated statements of operations for the nine months
ended September 30, 2019 and 2018 and the summary consolidated
balance sheet data as of September 30, 2019 are derived from our
unaudited condensed consolidated financial statements on the same
basis as the audited consolidated financial statements and include,
in our opinion, all adjustments consisting only of normal recurring
adjustments that we consider necessary for a fair statement of the
financial information set forth in those statements. Our historical
results are not necessarily indicative of the results that may be
expected in the future. This summary of historical financial data
should be read together with the financial statements and the
related notes, as well as “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,”
appearing elsewhere in this prospectus.
|
|
|
|
Nine Months ended
September 30,
|
|
|
Consolidated
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$22,944,498
|
$16,389,892
|
$20,380,940
|
$10,757,093
|
|
Operating
expenses
|
27,802,144
|
19,000,426
|
24,611,252
|
15,658,660
|
|
Loss from
operations
|
(4,857,646)
|
(2,610,534)
|
(4,230,312)
|
(4,901,567)
|
|
Net loss
attributable to common shareholders
|
(3,097,115)
|
(2,996,889)
|
(4,989,870)
|
(4,308,511)
|
|
Loss per share
– basic and diluted
|
(0.31)
|
(0.31)
|
(0.51)
|
(0.45)
|
|
Weighted average
common shares outstanding – basic and diluted
|
10,001,000
|
10,001,000
|
10,001,000
|
10,001,000
|
|
|
The
following table summarizes our consolidated balance sheet data as
of September 30, 2019, on an actual basis and on an as adjusted
basis, to give effect to the net proceeds from the sale of
2,600,000 shares of our common stock in this offering at an assumed
initial public offering price of $7.00 per share, which is the
midpoint of the range set forth on the cover page of this
prospectus, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us and
excluding the exercise of the over-allotment option held by the
underwriter with respect to this offering, as if the offering had
occurred on September 30, 2019.
|
|
|
|
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
Cash and restricted
cash
|
$11,413,896
|
$26,653,067
|
|
Working capital
(deficit)
|
9,415,285
|
24,654,465
|
|
Total
assets
|
38,570,814
|
53,809,985
|
|
Total
indebtedness
|
8,875,375
|
8,875,375
|
|
Total
liabilities
|
14,776,532
|
14,776,532
|
|
Total
stockholders’ equity
|
23,794,282
|
39,033,453
|
|
|
|
|
RISK FACTORS
An investment in our common stock involves a high degree of risk.
In addition to the other information contained in this prospectus,
prospective investors should carefully consider the following risks
before investing in our common stock. If any of the following risks
actually occur, as well as other risks not currently known to us or
that we currently consider immaterial, our business, operating
results and financial condition could be materially adversely
affected. As a result, the trading price of our common stock could
decline, and you may lose all or part of your investment in our
common stock. The risks discussed below also include
forward-looking statements, and our actual results may differ
substantially from those discussed in these forward-looking
statements. See “Cautionary Note Regarding Forward-looking
Statements” in this prospectus. In assessing the risks below,
you should also refer to the other information contained in this
prospectus, including the financial statements and the related
notes, before deciding to purchase any shares of our common
stock.
Risks Relating to Our Business
We have a history of annual net losses which may continue and which
may negatively impact our ability to achieve our business
objectives.
Our
property development and digital transformation technology
businesses were started in 2014 and 2015, respectively, and our
biohealth business was started in 2017. Our limited operating
history makes it difficult to evaluate our current business and
future prospects and may increase the risk of your investment. For
the nine months ended September 30, 2019 and the years ended
December 31, 2018 and 2017, we had revenue of $22,944,498,
$20,380,940 and $10,757,093, and net losses of $4,534,317,
$7,490,568 and $7,085,846, respectively. There can be no assurance
that our future operations will result in net income. Our failure
to increase our revenues or improve our gross margins will harm our
business. We may not be able to achieve, sustain or increase
profitability on a quarterly or annual basis in the future. If our
revenues grow more slowly than we anticipate, our gross margins
fail to improve or our operating expenses exceed our expectations,
our operating results will suffer. The prices we charge for our
properties, products and services may decrease, which would reduce
our revenues and harm our business. If we are unable to sell our
properties, products and services at acceptable prices relative to
our costs, or if we fail to develop and introduce on a timely basis
new products or services from which we can derive additional
revenues, our financial results will suffer.
We and our subsidiaries have limited operating histories and
therefore we cannot ensure the long-term successful operation of
our business or the execution of our growth strategy.
Our
prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by growing companies in new and
rapidly evolving markets. We must meet many challenges
including:
●
establishing and
maintaining broad market acceptance of our products and services
and converting that acceptance into direct and indirect sources of
revenue;
●
establishing and
maintaining adoption of our technology on a wide variety of
platforms and devices;
●
timely and
successfully developing new products and services and increasing
the features of existing products and services;
●
developing products
and services that result in high degrees of customer satisfaction
and high levels of customer usage;
●
successfully
responding to competition, including competition from emerging
technologies and solutions;
●
developing and
maintaining strategic relationships to enhance the distribution,
features, content and utility of our products and services;
and
●
identifying,
attracting and retaining talented technical and sales services
staff at reasonable market compensation rates in the markets in
which we operate.
Our
growth strategy may be unsuccessful and we may be unable to address
the risks we face in a cost-effective manner, if at all. If we are
unable to successfully address these risks our business will be
harmed.
We
have a holding company ownership structure and will depend on
distributions from our majority owned operating subsidiaries to
meet our obligations. Contractual or legal restrictions applicable
to our subsidiaries could limit payments or distributions from
them.
We are
a holding company and derive all of our operating income from, and
hold substantially all of our assets through, our U.S. and foreign
subsidiaries, some of which are publicly held and traded. The
effect of this structure is that we will depend on the earnings of
our subsidiaries, and the payment or other distributions to us of
these earnings, to meet our obligations and make capital
expenditures. Provisions of U.S. and foreign corporate and tax law,
like those requiring that dividends are paid only out of surplus,
and provisions of any future indebtedness, may limit the ability of
our subsidiaries to make payments or other distributions to us.
Certain of our subsidiaries are minority owned and the assets of
these companies are not included in our consolidated balance
sheets. Additionally, in the event of the liquidation, dissolution
or winding up of any of our subsidiaries, creditors of that
subsidiary (including trade creditors) will generally be entitled
to payment from the assets of that subsidiary before those assets
can be distributed to us.
Our significant ownership interests in public companies listed on
limited public trading markets subjects us to risks relating to the
sale of their shares and the fluctuations in their stock
prices.
We own
indirect interests in several publicly traded companies –
most significantly, Singapore eDevelopment Ltd., whose shares are
listed on the Singapore Stock Exchange, and Holista CollTech
Limited, whose shares are listed on the Australian Stock Exchange
(SeD Intelligent Home Inc. and HotApp Blockchain Inc. are not
currently traded on any exchange). Although the publicly traded
shares of Singapore eDevelopment Ltd. and Holista CollTech Limited
are quoted on a trading market, the average trading volume of the
public shares is limited in each case. In view of the limited
public trading markets for these shares, there can be no assurance
that we would succeed in obtaining a price for these shares equal
to the price quoted for such shares in their respective trading
markets at the time of sale or that we would not incur a loss on
our shares should we determine to dispose of them in any of these
companies in the future. Additionally, on an ongoing basis,
fluctuations in the stock prices of these companies are likely to
be reflected in the market price of our common stock. Given the
limited public trading markets of these public companies, stock
price fluctuations in our price may be significant.
General political, social and economic conditions can adversely
affect our business.
Demand
for our products and services depends, to a significant degree, on
general political, social and economic conditions in our markets.
Worsening economic and market conditions, downside shocks, or a
return to recessionary economic conditions could serve to reduce
demand for our products and services and adversely affect our
operating results. In addition, an economic downturn could impact
the valuation and collectability of certain long-term receivables
held by us. We could also be adversely affected by such factors as
changes in foreign currency rates and weak economic and political
conditions in each of the countries in which we
operate.
We have made and expect to continue to make acquisitions as a
primary component of our growth strategy. We may not be able to
identify suitable acquisition candidates or consummate acquisitions
on acceptable terms, which could disrupt our operations and
adversely impact our business and operating results.
A
primary component of our growth strategy has been to acquire
complementary businesses to grow our company. We intend to continue
to pursue acquisitions of complementary technologies, products and
businesses as a primary component of our growth strategy to expand
our operations and customer base and provide access to new markets
and increase benefits of scale. Acquisitions involve certain known
and unknown risks that could cause our actual growth or operating
results to differ from our expectations. For example:
●
we may not be able
to identify suitable acquisition candidates or to consummate
acquisitions on acceptable terms;
●
we may pursue
international acquisitions, which inherently pose more risks than
domestic acquisitions;
●
we compete with
others to acquire complementary products, technologies and
businesses, which may result in decreased availability of, or
increased price for, suitable acquisition candidates;
●
we may not be able
to obtain the necessary financing, on favorable terms or at all, to
finance any or all of our potential acquisitions; and
●
we may ultimately
fail to consummate an acquisition even if we announce that we plan
to acquire a technology, product or business.
We may be unable to successfully integrate acquisitions, which may
adversely impact our operations.
Acquired
technologies, products or businesses may not perform as we expect
and we may fail to realize anticipated revenue and profits. In
addition, our acquisition strategy may divert management’s
attention away from our existing business, resulting in the loss of
key customers or employees, and expose us to unanticipated problems
or legal liabilities, including responsibility as a successor for
undisclosed or contingent liabilities of acquired businesses or
assets.
If we
fail to conduct due diligence on our potential targets effectively,
we may, for example, not identify problems at target companies or
fail to recognize incompatibilities or other obstacles to
successful integration. Our inability to successfully integrate
future acquisitions could impede us from realizing all of the
benefits of those acquisitions and could severely weaken our
business operations. The integration process may disrupt our
business and, if new technologies, products or businesses are not
implemented effectively, may preclude the realization of the full
benefits expected by us and could harm our results of operations.
In addition, the overall integration of new technologies, products
or businesses may result in unanticipated problems, expenses,
liabilities and competitive responses. The difficulties integrating
an acquisition include, among other things:
●
issues in
integrating the target company’s technologies, products or
businesses with ours;
●
incompatibility of
marketing and administration methods;
●
maintaining
employee morale and retaining key employees;
●
integrating the
cultures of our companies;
●
preserving
important strategic customer relationships;
●
consolidating
corporate and administrative infrastructures and eliminating
duplicative operations; and
●
coordinating and
integrating geographically separate organizations.
In
addition, even if the operations of an acquisition are integrated
successfully, we may not realize the full benefits of the
acquisition, including the synergies, cost savings or growth
opportunities that we expect. These benefits may not be achieved
within the anticipated time frame, or at all.
Acquisitions which we complete may have an adverse impact on our
results of operations.
Acquisitions may
cause us to:
●
issue common stock
that would dilute our current stockholders’ ownership
percentage;
●
use a substantial
portion of our cash resources;
●
increase our
interest expense, leverage and debt service requirements if we
incur additional debt to pay for an acquisition;
●
assume liabilities
for which we do not have indemnification from the former owners;
further, indemnification obligations may be subject to dispute or
concerns regarding the creditworthiness of the former
owners;
●
record goodwill and
non-amortizable intangible assets that are subject to impairment
testing and potential impairment charges;
●
experience
volatility in earnings due to changes in contingent consideration
related to acquisition earn-out liability estimates;
●
incur amortization
expenses related to certain intangible assets;
●
lose existing or
potential contracts as a result of conflict of interest
issues;
●
become subject to
adverse tax consequences or deferred compensation
charges;
●
incur large and
immediate write-offs; or
●
become subject to
litigation.
Our resources may not be sufficient to manage our expected growth;
failure to properly manage our potential growth would be
detrimental to our business.
We may
fail to adequately manage our anticipated future growth. Any growth
in our operations will place a significant strain on our
administrative, financial and operational resources and increase
demands on our management and on our operational and administrative
systems, controls and other resources. We cannot assure you that
our existing personnel, systems, procedures or controls will be
adequate to support our operations in the future or that we will be
able to successfully implement appropriate measures consistent with
our growth strategy. As part of this growth, we may have to
implement new operational and financial systems, procedures and
controls to expand, train and manage our employee base, and
maintain close coordination among our technical, accounting,
finance, marketing and sales. We cannot guarantee that we will be
able to do so, or that if we are able to do so, we will be able to
effectively integrate them into our existing staff and systems.
There may be greater strain on our systems as we acquire new
businesses, requiring us to devote significant management time and
expense to the ongoing integration and alignment of management,
systems, controls and marketing. If we are unable to manage growth
effectively, such as if our sales and marketing efforts exceed our
capacity to design and produce our products and services or if new
employees are unable to achieve performance levels, our business,
operating results and financial condition could be materially and
adversely affected.
Our international operations are subject to increased risks which
could harm our business, operating results and financial
condition.
In
addition to uncertainty about our ability to expand our
international market position, there are risks inherent in doing
business internationally, including:
●
trade
barriers, tariffs and changes in trade
regulations;
●
difficulties in
developing, staffing and simultaneously managing a large number of
varying foreign operations as a result of distance, language and
cultural differences;
●
the need to comply
with varied local laws and regulations;
●
possible credit
risk and higher levels of payment fraud;
●
profit repatriation
restrictions and foreign currency exchange
restrictions;
●
political or social
unrest, economic instability or human rights issues;
●
geopolitical
events, including acts of war and terrorism;
●
import or export
regulations;
●
compliance with
U.S. laws (such as the Foreign Corrupt Practices Act), and local
laws prohibiting corrupt payments to government
officials;
●
laws and business
practices that favor local competitors or prohibit foreign
ownership of certain businesses; and
●
different and more
stringent data protection, privacy and other laws.
Our
failure to manage any of these risks successfully could harm our
international operations and our overall business, and results of
our operations.
If we are unable to retain the services of Chan Heng Fai or if we
are unable to successfully recruit qualified personnel, we may not
be able to continue operations.
Our
success depends to a significant extent upon the continued service
of Chan Heng Fai, our founder, Chairman and Chief Executive
Officer. The loss of the services of Mr. Chan could have a material
adverse effect on our growth, revenues and prospective business. If
Mr. Chan was to resign or we are unable to retain his services, the
loss could result in loss of sales, delays in new product
development and diversion of management resources. We could face
high costs and substantial difficulty in hiring a qualified
successor and could experience a loss in productivity while any
such successor obtains the necessary training and
experience. Mr. Chan has
committed that the majority of his time will be devoted to managing
the affairs of our company; however, Mr. Chan may engage in other
business ventures, including other technology-related
businesses.
In
order to successfully implement and manage our businesses, we are
also dependent upon successfully recruiting qualified personnel. In
particular, we must hire and retain experienced management
personnel to help us continue to grow and manage each business, and
skilled engineering, product development, marketing and sales
personnel to further our research and product development efforts.
Competition for qualified personnel is intense. If we do not
succeed in attracting new personnel or in retaining and motivating
our current personnel, our business could be harmed.
If we do not successfully develop new products and services, our
business may be harmed.
Our
business and operating results may be harmed if we fail to expand
our various product and service offerings (either through internal
product or capability development initiatives or through
partnerships and acquisitions) in such a way that achieves
widespread market acceptance or that generates significant revenue
and gross profits to offset our operating and other costs. We may
not successfully identify, develop and market new product and
service offerings in a timely manner. If we introduce new products
and services, they may not attain broad market acceptance or
contribute meaningfully to our revenue or profitability.
Competitive or technological developments may require us to make
substantial, unanticipated capital expenditures in new products and
technologies or in new strategic partnerships, and we may not have
sufficient resources to make these expenditures. Because the
markets for many of our products and services are subject to rapid
change, we may need to expand and/or evolve our product and service
offerings quickly. Delays and cost overruns could affect our
ability to respond to technological changes, evolving industry
standards, competitive developments or customer requirements and
harm our business and operating results.
Your investment return may be reduced if we are required to
register as an investment company under the Investment Company Act;
if we or our majority-owned operating subsidiaries become an
unregistered investment company, then we would need to modify our
business philosophy and/or make other changes to our asset
composition.
Neither
we nor any of our majority-owned subsidiaries intends to register
as an investment company under the Investment Company Act of 1940.
If we or our subsidiaries were obligated to register as investment
companies, then we would have to comply with a variety of
regulatory requirements under the Investment Company Act that
impose, among other things:
●
limitations on
capital structure;
●
restrictions on
specified investments;
●
prohibitions on
transactions with affiliates; and
●
compliance with
reporting, record keeping, voting, proxy disclosure and other rules
and regulations that would significantly increase our operating
expenses.
Under
the relevant provisions of Section 3(a)(1) of the Investment
Company Act, an investment company is any issuer that:
●
pursuant
to Section 3(a)(1)(A), is or holds itself out as being engaged
primarily, or proposes to engage primarily, in the business of
investing, reinvesting or trading in securities (the
“primarily engaged test”); or
●
pursuant
to Section 3(a)(1)(C), is engaged or proposes to engage in the
business of investing, reinvesting, owning, holding or trading in
securities and owns or proposes to acquire “investment
securities” having a value exceeding 40% of the value of such
issuer’s total assets (exclusive of United States government
securities and cash items) on an unconsolidated basis (the
“40% asset test”). “Investment securities”
exclude United States government securities and securities of
majority-owned subsidiaries that are not themselves investment
companies and are not relying on the exception from the definition
of investment company under Section 3(c)(1) or Section 3(c)(7)
(relating to private investment companies).
Neither
we nor any of our majority-owned subsidiaries should be required to
register as an investment company under either of the tests above.
With respect to the 40% asset test, most of the entities through
which we and our majority-owned subsidiaries will own assets will
in turn be majority-owned subsidiaries that will not themselves be
investment companies and will not be relying on the exceptions from
the definition of investment company under Section 3(c)(1) or
Section 3(c)(7) (relating to private investment
companies).
With
respect to the primarily engaged test, we, together with our
majority-owned subsidiaries, are a holding company and do not
intend to invest or trade in securities. Rather, through our
majority-owned subsidiaries, we will be primarily engaged in the
non-investment company businesses of these subsidiaries, namely,
property development, digital transformation technology and
biohealth.
To
maintain compliance with the Investment Company Act, our
majority-owned operating subsidiaries may be unable to sell assets
we would otherwise want them to sell and may need to sell assets we
would otherwise wish them to retain. In addition, our subsidiaries
may have to acquire additional assets that they might not otherwise
have acquired or may have to forego opportunities to buy minority
equity interests that we would otherwise want them to make and
would be important to our business philosophy. Moreover, the SEC or
its staff may issue interpretations with respect to various types
of assets that are contrary to our views and current SEC staff
interpretations are subject to change, which increases the risk of
non-compliance and the risk that we may be forced to make adverse
changes to our asset composition. If we were required to register
as an investment company but failed to do so, we would be
prohibited from engaging in our current business and criminal and
civil actions could be brought against us. In addition, our
contracts would be unenforceable unless a court required
enforcement and a court could appoint a receiver to take control of
our company and liquidate our business.
If we do not adequately protect our intellectual property rights,
we may experience a loss of revenue and our operations may be
materially harmed.
We rely
on and expect to continue to rely on a combination of
confidentiality and license agreements with our employees,
consultants and third parties with whom we have relationships, as
well as patent, trademark, copyright and trade secret protection
laws, to protect our intellectual property and proprietary rights.
We cannot assure you that we can adequately protect our
intellectual property or successfully prosecute potential
infringement of our intellectual property rights. Also, we cannot
assure you that others will not assert rights in, or ownership of,
trademarks and other proprietary rights of ours or that we will be
able to successfully resolve these types of conflicts to our
satisfaction. Our failure to protect our intellectual property
rights may result in a loss of revenue and could materially harm
our operations and financial condition.
New legislation, regulations or rules related to obtaining patents
or enforcing patents could significantly increase our operating
costs and decrease our revenue.
We
spend a significant amount of resources to enforce our patent
assets. If new legislation, regulations or rules are implemented
either by Congress, the U.S. Patent and Trademark Office (the
“USPTO”), any state or the courts that impact the
patent application process, the patent enforcement process or the
rights of patent holders, these changes could negatively affect our
expenses and revenue and any reductions in the funding of the USPTO
could negatively impact the value of our assets.
A
number of states have adopted or are considering legislation to
make the patent enforcement process more difficult for
non-practicing entities, such as allowing such entities to be sued
in state court and setting higher standards of proof for
infringement claims. We cannot predict what, if any, impact these
state initiatives will have on the operation of our enforcement
business. However, such legislation could increase the
uncertainties and costs surrounding the enforcement of our patented
technologies, which could have a material adverse effect on our
business and financial condition.
In
addition, the U.S. Department of Justice has conducted reviews of
the patent system to evaluate the impact of patent assertion
entities on industries in which those patents relate. It is
possible that the findings and recommendations of the Department of
Justice could impact the ability to effectively license and enforce
standards-essential patents and could increase the uncertainties
and costs surrounding the enforcement of any such patented
technologies.
Finally, new rules
regarding the burden of proof in patent enforcement actions could
significantly increase the cost of our enforcement actions, and new
standards or limitations on liability for patent infringement could
negatively impact any revenue we might derive from such enforcement
actions.
Recently enacted tax legislation in the United States may impact
our business.
We are
subject to taxation in the United States, as well as in a number of
foreign jurisdictions. The recently enacted Tax Cuts and Jobs Act
(the “Tax Act”) provided for significant and
wide-ranging changes to the U.S. Internal Revenue Code. The
implications most relevant to our company include (a) a reduction
in the U.S. federal corporate income tax rate from 35% to 21%, with
various “base erosion” rules that may effectively limit
the tax deductibility of certain payments made by U.S. entities to
non-U.S. affiliates and additional limitations on deductions
attributable to interest expense, and (b) adopting elements of a
territorial tax system. To transition into the territorial tax
system, the Tax Act includes a one-time tax on cumulative retained
earnings of U.S.-owned foreign subsidiaries, at a rate of 15.5% for
earnings represented by cash or cash equivalents and 8.0% for the
balance of such earnings. Taxpayers may make an election to pay
this tax over eight years. These tax reforms will give rise to
significant consequences, both immediately in terms of one-off
impacts relating to the transition tax and the measurement of
deferred tax assets and liabilities and going forward in terms of
the company’s taxation expense. An initial review and
estimate have been undertaken by us. The Tax Act could be subject
to potential amendments and technical corrections, any of which
could lessen or increase adverse impacts of the law. The final
transitional impact of the Tax Act may differ from the estimates
provided in this prospectus, due to, among other things, changes in
interpretations of the Tax Act, any legislative action to address
questions that arise because of the Tax Act, any changes in
accounting standards for income taxes or related interpretations in
response to the Tax Act, or any updates or changes to estimates we
utilized to calculate the transitional impacts, including impacts
related to changes to current year earnings estimates and the
amount of the repatriation tax. Given the unpredictability of these
and other tax laws and related regulations, and their potential
interdependency, it is difficult to currently assess the overall
effect of such changes. Nonetheless, any material negative effect
of such changes to our earnings and cash flow could adversely
impact our financial results.
For our property development business, the market for real estate
is subject to fluctuations that may impact the value of the land or
housing inventory that we hold, which may impact the price of our
common stock.
Investors
should be aware that the value of any real estate we own may
fluctuate from time to time in connection with broader market
conditions and regulatory issues, which we cannot predict or
control, including interest rates, the availability of credit, the
tax benefits of homeownership and wage growth, unemployment and
demographic trends in the regions in which we may conduct business.
Should the price of real estate decline in the areas in which we
have purchased land, the price at which we will be able to sell
lots to home builders, or if we build houses, the price at which we
can sell such houses to buyers, will decline.
Zoning and land use regulations impacting the land development and
homebuilding industries may limit our activities and increase our
expenses, which would adversely affect our financial
results.
We
must comply with zoning and land use regulations impacting the land
development and home building industries. We will need to obtain
the approval of various government agencies to expand our
operations into new areas and to commence the building of homes.
Our ability to gain the necessary approvals is not certain, and the
expense and timing of approval processes may increase in ways that
adversely impact our profits.
Health and safety incidents that occur in connection with our
potential expansion into the homebuilding business could be costly
with uninsured losses.
If
we commence operations in the homebuilding business, we will be
exposed to the danger of health and safety risks to our employees
and contractors. Health and safety incidents could result in the
loss of the services of valued employees and contractors and expose
us to significant litigation and fines. Insurance may not cover, or
may be insufficient to cover, such losses, and premiums may
rise.
Adverse weather conditions, natural disasters and man-made
disasters may delay our real estate development projects or cause
additional expenses.
The
land development operations which we currently conduct and the
construction projects which we may become involved in at a later
date may be adversely impacted by unexpected weather and natural
disasters, including storms, hurricanes, tornados, floods,
blizzards, fires and earthquakes. Man-made disasters including
terrorist attacks, electrical outages and cyber-security incidents
may also impact the costs and timing of the completion of our
projects. Cyber-security incidents, including those that result in
the loss of financial or other personal data, could expose us to
litigation and reputational damage. If insurance is unavailable to
us on acceptable terms, or if our insurance is not adequate to
cover business interruptions and losses from the conditions
described above and similar incidents, our results of operations
will be adversely affected. In addition, damage to new homes caused
by these conditions may cause our insurance costs to
increase.
We have a concentration of revenue and credit risk with one
customer.
In our
property development segment, we have been highly dependent on the
sales of residential lots to NVR Inc. (“NVR”), a NYSE
publicly-traded U.S. homebuilding and mortgage company. Pursuant to
agreements between NVR and our subsidiary SeD Maryland Development,
LLC, NVR is the sole purchaser of 479 residential lots at our
Ballenger project. During the nine months ended September 30, 2019
and 2018, we earned $15 million and $14 million in cash from
lot sales to NVR, respectively. During 2018 and 2017, we earned
$12.0 million and $5.5 million in cash from lot sales to NVR,
respectively. Therefore, at the present time, a significant portion
of our business depends largely on NVR’s continued
relationship with us. A decision by NVR to discontinue or limit its
relationship with us could have a material adverse impact on our
property development business and our entire company
overall.
We may face liability for information displayed on or accessible
via our website, and for other content and commerce-related
activities, which could reduce our net worth and working capital
and increase our operating losses.
We
could face claims for errors, defamation, negligence or copyright
or trademark infringement based on the nature and content of
information displayed on or accessible via our website, which could
adversely affect our financial condition. Even to the extent that
claims made against us do not result in liability, we may incur
substantial costs in investigating and defending such
claims.
Our
insurance, if any, may not cover all potential claims to which we
are exposed or may not be adequate to indemnify us for all
liabilities that may be exposed. Any imposition of liability that
is not covered by insurance or is in excess of insurance coverage
would reduce our net worth and working capital and increase our
operating losses.
Any failure of our network could lead to significant disruptions in
our businesses, which could damage our reputation, reduce our
revenues or otherwise harm our businesses.
All of
our businesses and, in particular, our digital transformation
technology business unit, are dependent upon providing our
customers with fast, efficient and reliable services. A reduction
in the performance, reliability or availability of our network
infrastructure may harm our ability to distribute our products and
services to our customers, as well as our reputation and ability to
attract and retain customers and content providers. Our systems and
operations are susceptible to, and could be damaged or interrupted
by outages caused by fire, flood, power loss, telecommunications
failure, Internet or mobile network breakdown, earthquakes and
similar events. Our systems are also subject to human error,
security breaches, power losses, computer viruses, break-ins,
“denial of service” attacks, sabotage, intentional acts
of vandalism and tampering designed to disrupt our computer systems
and network communications, and our systems could be subject to
greater vulnerability in periods of high employee turnover. A
sudden and significant increase in traffic on our customers’
websites or demand from mobile users could strain the capacity of
the software, hardware and telecommunications systems that we
deploy or use. This could lead to slower response times or system
failures. Our failure to protect our network against damage from
any of these events could harm our business.
Public scrutiny of internet privacy and security issues may result
in increased regulation and different industry standards, which
could deter or prevent us from providing our current products and
solutions to our members and customers, thereby harming our
business.
The
regulatory framework for privacy and security issues worldwide is
evolving and is likely to remain in flux for the foreseeable
future. Practices regarding the collection, use, storage, display,
processing, transmission and security of personal information by
companies offering online services have recently come under
increased public scrutiny. The U.S. government, including the White
House, the Federal Trade Commission, the Department of Commerce and
many state governments, are reviewing the need for greater
regulation of the collection, use and storage of information
concerning consumer behavior with respect to online services,
including regulation aimed at restricting certain targeted
advertising practices and collection and use of data from mobile
devices. The Federal Trade Commission in particular has approved
consent decrees resolving complaints and their resulting
investigations into the privacy and security practices of a number
of online, social media companies. Similar actions may also impact
us directly.
Our
business, including our ability to operate and expand
internationally or on new technology platforms, could be adversely
affected if legislation or regulations are adopted, interpreted, or
implemented in a manner that is inconsistent with our current
business practices that may require changes to these practices, the
design of our websites, mobile applications, products, features or
our privacy policy. In particular, the success of our business is
expected to be driven by our ability to responsibly use the data
that our members share with us. Therefore, our business could be
harmed by any significant change to applicable laws, regulations or
industry standards or practices regarding the storage, use or
disclosure of data our members choose to share with us, or
regarding the manner in which the express or implied consent of
consumers for such use and disclosure is obtained. Such changes may
require us to modify our products and features, possibly in a
material manner, and may limit our ability to develop new products
and features that make use of the data that we collect about our
members.
Particularly with regard to our biohealth business, product
reliability, safety and effectiveness concerns can have significant
negative impacts on sales and results of operations, lead to
litigation and cause reputational damage.
Concerns about
product safety, whether raised internally or by litigants,
regulators or consumer advocates, and whether or not based on
scientific evidence, can result in safety alerts, product recalls,
governmental investigations, regulatory action on the part of the
FDA (or its counterpart in other countries), private claims and
lawsuits, payment of fines and settlements, declining sales and
reputational damage. These circumstances can also result in damage
to brand image, brand equity and consumer trust in our products.
Product recalls could in the future prompt government
investigations and inspections, the shutdown of manufacturing
facilities, continued product shortages and related sales declines,
significant remediation costs, reputational damage, possible civil
penalties and criminal prosecution.
Significant challenges or delays in our innovation and development
of new products, technologies and indications could have an adverse
impact on our long-term success.
Our
continued growth and success depend on our ability to innovate and
develop new and differentiated products and services that address
the evolving health care needs of patients, providers and
consumers. Development of successful products and technologies is
also necessary to offset revenue losses when our existing products
lose market share due to various factors such as competition and
loss of patent exclusivity. We cannot be certain when or whether we
will be able to develop, license or otherwise acquire companies,
products and technologies, whether particular product candidates
will be granted regulatory approval, and, if approved, whether the
products will be commercially successful.
We
pursue product development through internal research and
development as well as through collaborations, acquisitions, joint
ventures and licensing or other arrangements with third parties. In
all of these contexts, developing new products, particularly
biotechnology products, requires a significant commitment of
resources over many years. Only a very few biopharmaceutical
research and development programs result in commercially viable
products. The process depends on many factors, including the
ability to discern patients’ and healthcare providers’
future needs; develop new compounds, strategies and technologies;
achieve successful clinical trial results; secure effective
intellectual property protection; obtain regulatory approvals on a
timely basis; and, if and when they reach the market, successfully
differentiate our products from competing products and approaches
to treatment. New products or enhancements to existing products may
not be accepted quickly or significantly in the marketplace for
healthcare providers, and there may be uncertainty over third-party
reimbursement. Even following initial regulatory approval, the
success of a product can be adversely impacted by safety and
efficacy findings in larger real world patient populations, as well
as market entry of competitive products.
Our competitors may have greater financial and other resources than
we do and those advantages could make it difficult for us to
compete with them.
Our
three principal businesses, property development, digital
transformation technology and biohealth activities are each highly
competitive and constantly changing. We expect that competition
will continue to intensify. Increased competition may result in
price reductions, reduced margins, loss of customers, and changes
in our business and marketing strategies, any of which could harm
our business. Current and potential competitors may have longer
operating histories, greater name recognition, more employees and
significantly greater financial, technical, marketing, public
relations and distribution resources than we do. In addition, new
competitors with potentially unique or more desirable products or
services may enter the market at any time. The competitive
environment may require us to make changes in our products,
pricing, licensing, services or marketing to maintain and extend
our current brand and technology. Price concessions or the
emergence of other pricing, licensing and distribution strategies
or technology solutions of competitors may reduce our revenue,
margins or market share, any of which will harm our business. Other
changes we have to make in response to competition could cause us
to expend significant financial and other resources, disrupt our
operations, strain relationships with partners, or release products
and enhancements before they are thoroughly tested, any of which
could harm our operating results and stock price.
Since some members of our board of directors are not residents of
the United States and certain of our assets are located outside of
the United States, you may not be able to enforce a U.S. judgment
for claims you may bring against such directors or
assets.
Several
members of our senior management team, including Chan Heng Fai,
have their primary residences and business offices in Asia, and a
portion of our assets and a substantial portion of the assets of
these directors are located outside the United States. As a result,
it may be more difficult for you to enforce a lawsuit within the
United States against these non-U.S. residents than if they were
residents of the United States. Also, it may be more difficult for
you to enforce any judgment obtained in the United States against
our assets or the assets of our non-U.S. resident management
located outside the United States than if these assets were located
within the United States. We cannot assure you that foreign courts
would enforce liabilities predicated on U.S. federal securities
laws in original actions commenced in such foreign jurisdiction, or
judgments of U.S. courts obtained in actions based upon the civil
liability provisions of U.S. federal securities laws.
We may be required to record a significant charge to earnings if
our real estate property become impaired.
Our
policy is to obtain an independent third-party valuation for each
major project in the United States to test for impairment. Our
management may use a market comparison method to value other
relatively small projects, such as the project in Perth, Australia.
In addition to the annual assessment of potential triggering events
in accordance with ASC 360 – Property Plant and Equipment
(“ASC 360”), we apply a fair value based impairment
test to the net book value assets on an annual basis and on an
interim basis if certain events or circumstances indicate that an
impairment loss may have occurred.
For
example, on October 12, 2018, 150 CCM Black Oak, Ltd. entered into
an Amended and Restated Purchase and Sale Agreement for 124 lots.
Pursuant to the Amended and Restated Purchase and Sale Agreement,
the purchase price remained $6,175,000. 150 CCM Black Oak, Ltd. was
required to meet certain closing conditions and the timing for the
closing was extended. On January 18, 2019, the sale of 124 lots at
our Black Oak project in Magnolia, Texas was completed. After
allocating costs of revenue to this sale, we incurred a loss of
approximately $1.5 million from this sale and recognized a real
estate impairment of approximately $1.5 million for the year ended
December 31, 2018. On June 30, 2019, we applied a fair value-based
impairment test to the net book value of assets and recorded
approximately a $3.9 million impairment on Black Oak’s net
book value. There can be no assurance that we will not record
additional impairment charges in the future.
Fluctuations in foreign currency exchange rates affect our
operating results in U.S. dollar terms.
A
portion of our revenues arises from international operations.
Revenues generated and expenses incurred by our international
subsidiaries are often denominated in the currencies of the local
countries. As a result, our consolidated U.S. dollar financial
statements are subject to fluctuations due to changes in exchange
rates as the financial results of our international subsidiaries
are translated from local currencies into U.S. dollars. In
addition, our financial results are subject to changes in exchange
rates that impact the settlement of transactions in non-local
currencies.
The
effect of foreign exchange rate changes on the intercompany loans
(under ASC 830), which mostly consist of loans from Singapore to
the United States and which were approximately $36.6 million, $41.1
million and $42.8 million on September 30, 2019, December 31, 2018
and 2017, respectively, are the reason for the significant
fluctuation of foreign currency transaction Gain or Loss on the
Consolidated Statements of Operations and Other Comprehensive
Income. Because the intercompany loan balances between Singapore
and United States will remain at approximately $40 million over the
next year, we expect this fluctuation of foreign exchange rates to
still significantly impact the results of operations in 2019 and
2020, especially given that the foreign exchange rate may and is
expected to be volatile. If the amount of intercompany loans is
lowered in the future, the effect will also be reduced. However, at
this moment, we do not expect to repay the intercompany loans in
the short term.
Our international operations expose us to additional legal and
regulatory risks, which could have a material adverse effect on our
business, results of operations and financial
conditions.
At the
present time, the majority of our activities are conducted in the
United States (particularly with regard to our real estate
operations). However, we also have operations worldwide through
employees, contractors and agents, as well as those companies to
which we outsource certain of our business operations. Compliance
with foreign and U.S. laws and regulations that apply to our
international operations increase our cost of doing business. These
numerous and sometimes conflicting laws and regulations include,
among others, labor relations laws, tax laws, anti-competition
regulations, import and trade restrictions, data privacy
requirements, export requirements, and anti-bribery and
anti-corruption laws.
Our
business activities currently are subject to no particular
regulation by governmental agencies in the United States or the
other countries in which we operate other than that routinely
imposed on corporate businesses, and no such regulation is
currently anticipated. As our operations expand, we anticipate that
we will need to comply with laws and regulations in additional
jurisdictions.
There
is a risk that we may inadvertently breach some provisions which
apply to us at the present time or which may apply to us in the
future. Violations of these laws and regulations could result in
fines, criminal sanctions against us, our officers or our
employees, requirements to obtain export licenses, cessation of
business activities in sanctioned countries, implementation of
compliance programs, and prohibitions on the conduct of our
business. Violations of laws and regulations also could result in
prohibitions on our ability to operate in one or more countries and
could materially damage our reputation, our ability to attract and
retain employees, or our business, results of operations and
financial condition.
If tariffs or other restrictions are placed on foreign imports or
any related counter-measures are taken by other countries, our
business and results of operations could be harmed.
At the
present time, we do not sell any products produced in China and
have no plans to commence manufacturing in China; however, this may
change at some point in the future. The Trump administration has
put into place tariffs and other trade restrictions and signaled
that it may additionally alter trade agreements and terms between
the United States and China, among other countries, including
limiting trade and/or imposing tariffs on imports from such
countries. In addition, China, among others, has either threatened
or put into place retaliatory tariffs of their own. Should we
commence manufacturing in China, and if tariffs or other
restrictions are placed on foreign imports, including on any of our
products manufactured overseas for sale in the United States, or
any related counter-measures are taken by other countries, our
business and results of operations may be materially
harmed.
These
tariffs have the potential to significantly raise the cost of any
products we may manufacture in China. In such a case, there can be
no assurance that we will be able to shift manufacturing and supply
agreements to non-impacted countries, including the United States,
to reduce the effects of the tariffs. As a result, we may suffer
margin erosion or be required to raise our prices, which may result
in the loss of customers, negatively impact our results of
operations, or otherwise harm our business. Additionally, the
imposition of tariffs on products that we export to international
markets could make such products more expensive compared to those
of our competitors if we pass related additional costs on to our
customers, which may also result in the loss of customers,
negatively impact our results of operations, or otherwise harm our
business.
We are an “emerging growth company” and our election to
delay adoption of new or revised accounting standards applicable to
public companies may result in our consolidated financial
statements not being comparable to those of some other public
companies. As a result of this and other reduced disclosure
requirements applicable to emerging growth companies, our shares
may be less attractive to investors.
As a
company with less than $1.07 billion in revenue during our last
completed fiscal year, we qualify as an “emerging growth
company” under the JOBS Act. An emerging growth company may
take advantage of specified reduced reporting requirements that are
otherwise generally applicable to public companies. In
particular, as an emerging growth company, we:
●
are not required to
obtain an attestation and report from our auditors on our
management’s assessment of our internal control over
financial reporting pursuant to the Sarbanes-Oxley
Act;
●
are not required to
provide a detailed narrative disclosure discussing our compensation
principles, objectives and elements and analyzing how those
elements fit with our principles and objectives (commonly referred
to as “compensation discussion and
analysis”);
●
are not required to
obtain a non-binding advisory vote from our stockholders on
executive compensation or golden parachute arrangements (commonly
referred to as the “say-on-pay,”
“say-on-frequency” and
“say-on-golden-parachute” votes);
●
are exempt from
certain executive compensation disclosure provisions requiring a
pay-for-performance graph and CEO pay ratio
disclosure;
●
may present only
two years of audited financial statements and only two years of
related Management’s Discussion & Analysis of
Financial Condition and Results of Operations, or MD&A;
and
●
are eligible to
claim longer phase-in periods for the adoption of new or revised
financial accounting standards under §107 of the JOBS
Act.
We
intend to take advantage of all of these reduced reporting
requirements and exemptions, including the longer phase-in periods
for the adoption of new or revised financial accounting standards
under §107 of the JOBS Act. Our election to use the
phase-in periods may make it difficult to compare our consolidated
financial statements to those of non-emerging growth companies and
other emerging growth companies that have opted out of the phase-in
periods under §107 of the JOBS Act.
Certain
of these reduced reporting requirements and exemptions were already
available to us due to the fact that we also qualify as a
“smaller reporting company” under SEC rules. For
instance, smaller reporting companies are not required to obtain an
auditor attestation and report regarding management’s
assessment of internal control over financial reporting, are not
required to provide a compensation discussion and analysis, are not
required to provide a pay-for-performance graph or CEO pay ratio
disclosure, and may present only two years of audited financial
statements and related MD&A disclosure.
Under
the JOBS Act, we may take advantage of the above-described reduced
reporting requirements and exemptions for up to five years after
our initial sale of common equity pursuant to a registration
statement declared effective under the Securities Act, or such
earlier time that we no longer meet the definition of an emerging
growth company. In this regard, the JOBS Act provides that we
would cease to be an “emerging growth company” if we
have more than $1.07 billion in annual revenue, have more than $700
million in market value of our common stock held by non-affiliates,
or issue more than $1.0 billion in principal amount of
non-convertible debt over a three-year period. Under current
SEC rules, however, we will continue to qualify as a “smaller
reporting company” for so long as we have a public float
(i.e., the market value of common equity held by non-affiliates) of
less than $250 million as of the last business day of our most
recently completed second fiscal quarter.
We
cannot predict if investors will find our shares less attractive
due to our reliance on these exemptions. If investors were to
find our shares less attractive as a result of our election, we may
have difficulty raising all of the proceeds we seek in this
offering.
We will incur increased costs as a result of being a U.S. public
company, and our management expects to devote substantial time to
public company compliance programs.
As a
public company, we will incur significant legal, insurance,
accounting and other expenses that we did not incur as a private
company. The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform
and Consumer Protection Act, Nasdaq Capital Market listing
requirements and other applicable securities rules and regulations
impose various requirements on public companies. Our management and
administrative staff will need to devote a substantial amount of
time to comply with these requirements. For example, in
anticipation of becoming a public company, we will need to adopt
additional internal controls and disclosure controls and procedures
and bear all of the internal and external costs of preparing
periodic and current public reports in compliance with our
obligations under the securities laws. We intend to commit
resources to comply with evolving laws, regulations and standards,
and this commitment will result in increased general and
administrative expenses and may divert management’s time and
attention away from product development activities. If for any
reason our efforts to comply with new laws, regulations and
standards differ from the activities intended by regulatory or
governing bodies, regulatory authorities may initiate legal
proceedings against us and our business may be harmed.
Additionally, in
order to comply with the requirements of being a public company, we
may need to undertake various actions, including implementing new
internal controls and procedures and hiring new accounting or
internal audit staff. The Sarbanes-Oxley Act requires that we
maintain effective disclosure controls and procedures and internal
control over financial reporting. We are continuing to develop and
refine our disclosure controls and other procedures that are
designed to ensure that information required to be disclosed by us
in the reports that we file with the SEC is recorded, processed,
summarized and reported within the time periods specified in the
SEC’s rules and forms, and that information required to be
disclosed in reports under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), is accumulated and
communicated to our principal executive and financial officers. Any
failure to develop or maintain effective controls could adversely
affect the results of our periodic management evaluations. In the
event that we are not able to demonstrate compliance with the
Sarbanes-Oxley Act, that our internal control over financial
reporting is perceived as inadequate, or that we are unable to
produce timely or accurate consolidated financial statements,
investors may lose confidence in our operating results and the
price of our common stock could decline. In addition, if we are
unable to continue to meet these requirements, we could be subject
to sanctions or investigations by Nasdaq, the SEC or other
regulatory authorities, and we may not be able to remain listed on
the Nasdaq Capital Market.
We are
not currently required to comply with the SEC’s rules that
implement Section 404 of the Sarbanes-Oxley Act, and are therefore
not yet required to make a formal assessment of the effectiveness
of our internal control over financial reporting for that purpose.
Upon becoming a public company, we will be required to comply with
certain of these rules, which will require management to certify
financial and other information in our quarterly and annual reports
and provide an annual management report on the effectiveness of our
internal control over financial reporting commencing with our
second annual report. This assessment will need to include the
disclosure of any material weaknesses in our internal control over
financial reporting identified by our management or our independent
registered public accounting firm. To achieve compliance with
Section 404 within the prescribed period, we will be engaged in a
costly and challenging process to document and evaluate our
internal control over financial reporting. In this regard, we will
need to continue to dedicate internal resources, potentially engage
outside consultants and adopt a detailed work plan to assess and
document the adequacy of our internal control over financial
reporting. We will also need to continue to improve our control
processes as appropriate, validate through testing that our
controls are functioning as documented and implement a continuous
reporting and improvement process for our internal control over
financial reporting. Despite our efforts, there is a risk that we
will not be able to conclude, within the prescribed timeframe or at
all, that our internal control over financial reporting is
effective as required by Section 404.
If we are unable to address the weaknesses in our internal control
over financial reporting, investors may lose confidence in our
company.
We
have identified material weaknesses in our internal control over
financial reporting, which resulted in the need to restate our
consolidated financial statements. If we do not remediate the
material weaknesses in our internal control over financial
reporting, we may not be able to accurately report our financial
results or file our periodic reports in a timely manner, which may
cause investors to lose confidence in our reported financial
information and may lead to a decline in the market price of our
common stock.
Our business is subject to reporting requirements that continue to
evolve and change, which could continue to require significant
compliance effort and resources.
Because
our common stock will be publicly traded, we will be subject to
certain rules and regulations of federal, state and financial
market exchange entities charged with the protection of investors
and the oversight of companies whose securities are publicly
traded. These entities, including the Public Company Accounting
Oversight Board (PCAOB), the SEC and the Nasdaq Capital Market
(assuming our common stock has been approved for listing),
periodically issue new requirements and regulations and legislative
bodies also review and revise applicable laws. As interpretation
and implementation of these laws and rules and promulgation of new
regulations continues, we will continue to be required to commit
significant financial and managerial resources and incur additional
expenses to address such laws, rules and regulations, which could
in turn reduce our financial flexibility and create distractions
for management.
Any of
these events, in combination or individually, could disrupt our
business and adversely affect our business, financial condition,
results of operations and cash flows.
Risks Related to Ownership of Our Common Stock and this
Offering
Our stock price may be volatile and your investment could decline
in value.
The
market price of our common stock following this offering may
fluctuate substantially as a result of many factors, some of which
are beyond our control. These fluctuations could cause you to lose
all or part of the value of your investment in our common stock.
Factors that could cause fluctuations in the market price of our
common stock include the following:
●
quarterly
variations in our results of operations;
●
results of
operations that vary from the expectations of securities analysts
and investors;
●
results of
operations that vary from those of our competitors;
●
changes in
expectations as to our future financial performance, including
financial estimates by securities analysts;
●
publication of
research reports about us or the industries in which we
participate;
●
announcements by us
or our competitors of significant contracts, acquisitions or
capital commitments;
●
announcements by
third parties of significant legal claims or proceedings against
us;
●
changes affecting
the availability of financing for smaller publicly traded companies
like us;
●
regulatory
developments in the property development, digital transformation
technology or biohealth businesses;
●
significant future
sales of our common stock, and additions or departures of key
personnel;
●
the realization of
any of the other risk factors presented in this prospectus;
and
●
general economic,
market and currency factors and conditions unrelated to our
performance.
In
addition, the stock market in general has experienced significant
price and volume fluctuations that have often been unrelated or
disproportionate to operating performance of individual companies.
These broad market factors may seriously harm the market price of
our common stock, regardless of our operating performance. In the
past, following periods of volatility in the market price of a
company’s securities, securities class action litigation has
often been instituted. A class action suit against us could result
in significant liabilities and, regardless of the outcome, could
result in substantial costs and the diversion of our
management’s attention and resources.
Our common stock has no prior market and our stock price may
decline after the offering.
Before
this offering, there has been no public market for shares of our
common stock. Although we have applied to have our common stock
listed for trading on the Nasdaq Capital Market, an active trading
market for our common stock may not develop or, if it develops, may
not be sustained after this offering. Our company and the
underwriters will negotiate to determine the initial public
offering price. The initial public offering price may be higher
than the market price of our common stock after the offering and
you may not be able to sell your shares of our common stock at or
above the price you paid in the offering. As a result, you could
lose all or part of your investment.
Investors purchasing common stock in this offering will experience
immediate dilution.
The
initial public offering price of shares of our common stock is
higher than the pro forma as adjusted net tangible book value per
outstanding share of our common stock. You will incur immediate
dilution of $4.55 per share in the pro forma as adjusted net
tangible book value of shares of our common stock, based on an
assumed initial public offering price of $7.00 per share, which is
the midpoint of the range set forth on the cover page of this
prospectus. To the extent stock options are issued pursuant to our
2018 Incentive Compensation Plan in the future and ultimately
exercised, there will be further dilution of the common stock sold
in this offering.
Future sales, or the perception of future sales, of a substantial
amount of our shares of common stock could depress the trading
price of our common stock.
If we
or our stockholders sell substantial amounts of our shares of
common stock in the public market following this offering or if the
market perceives that these sales could occur, the market price of
shares of our common stock could decline. These sales may make it
more difficult for us to sell equity or equity-related securities
in the future at a time and price that we deem appropriate, or to
use equity as consideration for future acquisitions.
Immediately upon
completion of this offering, based on the number of shares
outstanding as of December 23, 2019, we will have 20,000,000 shares
of common stock authorized and 12,601,000 shares of common stock
outstanding. Of these shares, the 2,600,000 shares to be sold in
this offering (assuming the underwriter does not exercise its
option to purchase additional shares in this offering to cover
over-allotments, if any) will be freely tradable. We, our executive
officers and directors, and our stockholder have entered into
agreements with the underwriter not to sell or otherwise dispose of
shares of our common stock for a period of nine months following
the effectiveness of this prospectus, with certain exceptions.
Immediately upon the expiration of this lock-up period, 10,001,000
shares will be eligible for resale pursuant to Rule 144 under
the Securities Act, subject to the volume, manner of sale, holding
period and other limitations of Rule 144.
If securities or industry analysts do not publish or cease
publishing research or reports about us, our business or our
market, or if they change their recommendations regarding our stock
adversely, or if our actual results differ significantly from our
guidance, our stock price and trading volume could
decline.
The
trading market for our common stock will be influenced by the
research and reports that industry or securities analysts may
publish about us, our business, our market or our competitors. If
any of the analysts who may cover us change their recommendation
regarding our stock adversely, or provide more favorable relative
recommendations about our competitors, our stock price would likely
decline. If any analyst who may cover us were to cease coverage of
our company or fail to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could cause
our stock price or trading volume to decline.
In
addition, from time to time, we may release earnings guidance or
other forward-looking statements in our earnings releases, earnings
conference calls or otherwise regarding our future performance that
represent our management’s estimates as of the date of
release. Some or all of the assumptions of any future guidance that
we furnish may not materialize or may vary significantly from
actual future results. Any failure to meet guidance or
analysts’ expectations could have a material adverse effect
on the trading price or volume of our stock.
Anti-takeover provisions in our charter documents could discourage,
delay or prevent a change in control of our company and may affect
the trading price of our common stock.
Our
corporate documents and the Delaware General Corporation Law
contain provisions that may enable our board of directors to resist
a change in control of our company even if a change in control were
to be considered favorable by you and other stockholders. These
provisions include:
●
authorize the
issuance of “blank check” preferred stock that could be
issued by our board of directors to help defend against a takeover
attempt;
●
establish that
advance notice requirements for nominating directors and proposing
matters to be voted on by stockholders at stockholder meetings will
be as provided in the bylaws; and
●
provide that
stockholders are only entitled to call a special meeting upon
written request by 33.3% of the outstanding common
stock.
In
addition, Delaware law prohibits large stockholders, in particular
those owning 15% or more of our outstanding voting stock, from
merging or consolidating with us except under certain
circumstances. These provisions and other provisions under Delaware
law could discourage, delay or prevent a transaction involving a
change in control of our company. These provisions could also
discourage proxy contests and make it more difficult for you and
other stockholders to elect directors of your choosing and cause us
to take other corporate actions you desire.
Concentration of ownership of our common stock by our principal
stockholder will limit new investors from influencing significant
corporate decisions.
Upon
completion of this offering, our principal stockholder Chan Heng
Fai will own approximately 90% of our outstanding shares of common
stock. He will be able to make decisions such as (i) making
amendments to our certificate of incorporation and bylaws, (ii)
whether to issue additional shares of common stock and preferred
stock, including to himself, (iii) employment decisions, including
compensation arrangements, (iv) whether to enter into material
transactions with related parties, (v) election and removal of
directors and (vi) any merger or other significant corporate
transactions. The interests of Mr. Chan may not coincide with our
interests or the interests of other stockholders.
We expect to be a “controlled company” within the
meaning of the listing standards of Nasdaq and, as a result, we
will qualify for exemptions from certain corporate governance
requirements. You will not have the same protections afforded to
stockholders of companies that are subject to such
requirements.
Chan
Heng Fai, through HFE Holdings Limited, controls a majority of the
combined voting power of all classes of our voting stock. As a
result, we qualify as a “controlled company” within the
meaning of the listing standards of Nasdaq, and we have elected not
to comply with certain Nasdaq corporate governance requirements.
Under these rules, a “controlled company” may elect not
to comply with certain corporate governance requirements, including
the requirement that we have a majority of independent directors on
our board of directors. Accordingly, our stockholders may not have
the same protections afforded to stockholders of companies that are
subject to all of Nasdaq’s corporate governance
requirements.
We do not expect to pay any dividends on our common stock for the
foreseeable future.
We
currently expect to retain all future earnings, if any, for future
operation, expansion and debt repayment and have no current plans
to pay any cash dividends to holders of our common stock for the
foreseeable future. Any decision to declare and pay dividends in
the future will be made at the discretion of our board of directors
and will depend on, among other things, our operating results,
financial condition, cash requirements, contractual restrictions
and other factors that our board of directors may deem relevant. In
addition, our ability to pay dividends may be limited by covenants
of any existing and future outstanding indebtedness we or our
subsidiaries incur. As a result, you may not receive any return on
an investment in our common stock unless you sell our common stock
for a price greater than that which you paid for it.
We have 5,000,000 authorized unissued shares of preferred stock,
and our board has the ability to designate the rights and
preferences of this preferred stock without your vote.
Our
certificate of incorporation authorizes our board of directors to
issue “blank check” preferred stock and to fix the
rights, preferences, privileges and restrictions, including voting
rights, of these shares, without further stockholder approval. The
rights of the holders of common stock will be subject to and may be
adversely affected by the rights of holders of any preferred stock
that may be issued in the future. As indicated in the preceding
risk factor, the ability to issue preferred stock without
stockholder approval could have the effect of making it more
difficult for a third party to acquire a majority of the voting
stock of our company thereby discouraging, delaying or preventing a
change in control of our company. We currently have no outstanding
shares of preferred stock, or plans to issue any such shares in the
future.
We may utilize the proceeds of this offering in ways with which you
may not agree or in ways that may not yield a return.
Our
management will have considerable discretion in the application of
the net proceeds of this offering, and you will not have the
opportunity, as part of your investment decision, to assess whether
the proceeds are being used appropriately. The net proceeds may be
used with a view towards long-term benefits for our stockholders
and this may not increase our operating results or market value.
Until the net proceeds are used, they may be placed in capital
preservation investments that do not produce significant income or
that may lose value.
Our certificate of incorporation has an exclusive forum for
adjudication of disputes provision which limits the forum to the
Delaware Court of Chancery for actions against us, except where
there is exclusive federal jurisdiction.
Our
certificate of incorporation provides that, unless we consent in
writing to the selection of an alternative forum, the Court of
Chancery of the State of Delaware will be the sole and exclusive
forum for (i) any derivative action or proceeding brought on our
behalf, (ii) any action asserting a claim of breach of a fiduciary
duty owed by our directors, officers, or other employees to us or
to our stockholders, (iii) any action asserting a claim against us
or any director, officer or other employee arising pursuant to any
provision of the Delaware General Corporation Law, our certificate
of incorporation or bylaws or (iv) any action asserting a claim
that is governed by the internal affairs doctrine. It is possible
that a court could rule that this provision is not applicable or is
unenforceable. Any person or entity purchasing or otherwise
acquiring shares of our capital stock will be deemed to have notice
of and consented to this provision of our certificate of
incorporation. However, this sole and exclusive forum provision
will not apply in those instances where there is exclusive federal
jurisdiction, including but not limited to actions arising under
the Securities Act or the Exchange Act.
While
management believes limiting the forum is a benefit, some
stockholders could be inconvenienced by not being able to bring an
action in another forum they find favorable.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus contains forward-looking statements that involve
substantial risks and uncertainties. The forward-looking statements
are contained principally in the sections entitled
“Prospectus Summary,” “Risk Factors,”
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and
“Business,” but are also contained in this prospectus.
In some cases, you can identify forward-looking statements by the
words “may,” “might,” “will,”
“could,” “would,” “should,”
“expect,” “intend,” “plan,”
“aim,” “objective,”
“anticipate,” “believe,”
“estimate,” “predict,”
“project,” “potential,”
“continue,” “ongoing,”
“target,” “seek” or the negative of these
terms, or other comparable terminology intended to identify
statements about the future. Forward-looking statements contained
in this prospectus include, but are not limited to, statements
about:
●
our future
financial performance, including our revenue, costs of revenue,
operating expenses and profitability;
●
the sufficiency of
our cash and cash equivalents to meet our liquidity
needs;
●
our predictions
about the property development, digital transformation technology
and biohealth businesses and their respective market
trends;
●
our ability to
attract and retain customers in all our business segments to
purchase our products and services;
●
the availability of
financing for smaller publicly-traded companies like
us;
●
our ability to
successfully expand in our three principal business markets and
into new markets and industry verticals; and
●
our ability to
effectively manage our growth and future expenses.
We
caution you that the foregoing list may not contain all of the
forward-looking statements made in this prospectus.
These
statements involve known and unknown risks, uncertainties and other
factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from the
information expressed or implied by these forward-looking
statements. Although we believe that we have a reasonable basis for
each forward-looking statement contained in this prospectus, we
caution you that these statements are based on a combination of
facts and factors currently known by us and our expectations of the
future, about which we cannot be certain.
You
should refer to the “Risk Factors” section of this
prospectus for a discussion of important factors that may cause our
actual results to differ materially from those expressed or implied
by our forward-looking statements. As a result, of these factors,
we cannot assure you that the forward-looking statements in this
prospectus will prove to be accurate. Furthermore, if our
forward-looking statements prove to be inaccurate, the inaccuracy
may be material. In light of the significant uncertainties in these
forward-looking statements, you should not regard these statements
as a representation or warranty by us or any other person that we
will achieve our objectives and plans in any specified time frame,
or at all. We undertake no obligation to publicly update any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by federal
securities law.
You
should read this prospectus and the documents that we reference in
this prospectus and have filed as exhibits to the registration
statement, of which this prospectus is a part, completely and with
the understanding that our actual future results may be materially
different from what we expect. We qualify all of our
forward-looking statements by these cautionary
statements.
USE OF PROCEEDS
We
estimate that the net proceeds from the sale of our common stock in
this offering will be approximately $15,239,171 (or approximately
$17,614,271 if the underwriter exercises its option in full to
purchase additional shares of our common stock), based upon an
assumed initial public offering price of $7.00 per share, which is
the midpoint of the range set forth on the cover page of this
prospectus, after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by
us.
We
intend to use the net proceeds approximately as
follows:
|
Application of
Proceeds
|
Approximate Dollar
Amount
|
Approximate
Percentage of Net Proceeds
|
|
Fund acquisitions
of new companies and properties
|
$13,715,254
|
90%
|
|
Working capital and
general corporate purposes
|
1,523,917
|
10%
|
|
Total
|
$15,239,171
|
100.0%
|
A
significant portion of the net proceeds of this offering will be
used to fund possible acquisitions of new companies in the markets
in which we operate, or may operate in the future, and to acquire
additional real estate development properties. We intend to acquire
all or substantially all of an acquisition target’s voting
stock and only in limited cases acquire less than 51% of the voting
stock. We have no such acquisition agreements or commitments in
place at this time.
We will
use the remainder of the net proceeds from this offering for
working capital and general corporate purposes, including amounts
required to pay officers’ salaries, professional fees,
ongoing public reporting costs, office-related expenses and other
corporate expenses, including interest and overhead.
Working
capital may also include up to approximately $312,097 which may be
used for our sales and marketing and/or product enhancement
efforts. We do not currently intend to make any additional equity
investments in subsidiary companies, unless we are requested to
participate in an arm’s-length, unaffiliated third party-led
investment transaction or otherwise required to participate in
order to maintain our majority ownership in any such
company.
The
expected use of net proceeds from this offering represents our
intention based upon our present plans and business conditions. We
cannot predict with certainty all of the particular uses for the
proceeds of this offering or the amounts that we will actually
spend on the uses set forth above. Accordingly, our management will
have significant flexibility in applying the net proceeds of this
offering. The timing and amount of our actual expenditures will be
based on many factors, including cash flows from operations and the
anticipated growth of our business. Pending their use, we intend to
invest the net proceeds of this offering in a variety of
capital-preservation investments, including short- and
intermediate-term, interest-bearing, investment-grade
securities.
Our
board of directors will determine our future dividend policy based
on our result of operations, financial condition, capital
requirements and other circumstances. We have not previously
declared or paid any cash dividends on our common stock. We
anticipate that we will retain earnings to support operations and
finance the growth of our business, as described in this
prospectus. Accordingly, it is not anticipated that any cash
dividends will be paid on our common stock in the foreseeable
future.
CAPITALIZATION
The
following table sets forth our cash and cash equivalents and total
capitalization as of September 30, 2019:
●
on an actual basis;
and
●
on an as adjusted
basis reflecting the receipt by us of the net proceeds from the
sale of 2,600,000 shares of common stock in this offering at an
assumed initial public offering price of $7.00 per share, which is
the midpoint of the range set forth on the cover page of this
prospectus, after deducting the estimated underwriting discounts
and commissions and estimated offering expenses payable by us and
excluding the exercise of the over-allotment option held by the
underwriter with respect to this offering, as if the offering had
occurred on September 30, 2019.
The
following information is illustrative only of our cash and cash
equivalents and capitalization following the completion of this
offering and will change based on the actual initial public
offering price and other terms of this offering determined at
pricing. You should read this table together with
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and our consolidated
financial statements and the related notes appearing in this
prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted
cash
|
$11,413,896
|
$26,653,067
|
|
Debt, net of debt
discount
|
8,875,375
|
8,875,375
|
|
Long-term debt, net
of current portion
|
6,491,490
|
6,491,490
|
|
Stockholders’
equity
|
16,857,694
|
32,096,865
|
|
|
|
|
|
Common stock,
$0.001 par value
|
10,001
|
12,601
|
|
Additional paid-in
capital
|
53,876,032
|
69,112,603
|
|
Accumulated
deficit
|
(38,360,765)
|
(38,360,765)
|
|
Accumulated Other
Comprehensive Income
|
1,332,426
|
1,332,426
|
|
Stockholders’
equity
|
16,857,694
|
32,096,865
|
|
Non-controlling
interests
|
6,936,588
|
6,936,588
|
|
Total
stockholders’ equity
|
$23,794,282
|
$39,033,453
|
|
Total
capitalization
|
$30,285,772*
|
$45,524,943*
|
*Total
capitalization = Long-term debt + Total stockholders'
equity
DILUTION
If you
invest in our common stock in this offering, your ownership
interest will be immediately diluted to the extent of the
difference between the initial public offering price per share and
the pro forma, as adjusted net tangible book value per share of our
common stock immediately after this offering. Net tangible book
value per share is determined by dividing our total tangible assets
less total liabilities by the number of outstanding shares of
common stock.
As of
September 30, 2019, we had a net tangible book value of $16,857,694
or $1.69 per share of common stock. Our pro forma net tangible book
value per share represents the amount of our total tangible assets
reduced by the amount of our total liabilities and divided by the
total number of shares of our common stock outstanding as of
September 30, 2019.
Investors
participating in this offering will incur immediate and substantial
dilution. After giving effect to the issuance and sale of 2,600,000
shares of our common stock in this offering at an assumed initial
public offering price of $7.00 per share, which is the midpoint of
the range set forth on the cover page of this prospectus, and after
deducting the estimated underwriting discounts and commissions and
estimated offering expenses payable by us, our as adjusted net
tangible book value as of September 30, 2019, would have been
approximately $32,096,865 or $2.55 per share of common stock. This
represents an immediate increase in the pro forma net tangible book
value of $0.86 per share to existing stockholders and an immediate
dilution of $4.45 per share to investors purchasing shares of our
common stock in this offering. The following table illustrates this
per share dilution on a per share basis:
|
|
|
|
Assumed initial
public offering price
|
$7.00
|
|
Pro forma net
tangible book value before offering
|
1.69
|
|
Increase in pro
forma net tangible book value attributable to new
investors
|
0.86
|
|
Pro forma as
adjusted net tangible book value after offering
|
$2.55
|
|
Dilution in pro
forma net tangible book value to new investors
|
$4.55
|
Each
$1.00 increase (decrease) in the assumed initial public offering
price of $7.00 per share would increase (decrease) the pro forma as
adjusted dilution to new investors to $0.82 per share, assuming
that the number of shares offered, as set forth on the cover page
of this prospectus, remains the same, after deducting estimated
underwriting discounts and commissions and estimated offering
expenses. Similarly, each increase of 100,000 shares in the number
of shares of common stock offered would increase the as further
adjusted net tangible book value, as adjusted to give effect to
this offering, to approximately $0.03 per share and decrease the
dilution to new investors to $0.03 per share, assuming the assumed
initial public offering price remains the same and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses. Each decrease of 100,000 shares in the number of
shares of common stock offered would decrease the as adjusted net
tangible book value, as adjusted to give effect to this offering,
to approximately $0.03 per share and increase the dilution to new
investors to $0.03 per share, assuming the assumed initial public
offering price remains the same and after deducting estimated
underwriting discounts and commissions and estimated offering
expenses. If the underwriter exercises its over-allotment option in
full to purchase 390,000 additional shares of common stock from us
in this offering to cover over-allotments, if any, the pro forma as
adjusted net tangible book value per share after the offering would
be $2.65 per share, the increase in the pro forma net tangible book
value per share to existing stockholders would be $0.97 per share
and the dilution per share to new investors purchasing common stock
in this offering would be $4.35 per share.
The
following table illustrates, on an as adjusted basis as of
September 30, 2019, the differences between the number of shares of
common stock purchased from us, the total consideration paid, and
the average price per share paid by existing stockholders and new
investors purchasing shares of our common stock in this offering
based on an assumed initial public offering price of $7.00 per
share, which is the midpoint of the range set forth on the cover
page of this prospectus, before deducting underwriting discounts
and commissions and estimated offering expenses.
|
|
|
|
|
|
|
|
|
|
|
|
|
Existing
stockholders
|
10,001,000
|
79.4%
|
$16,857,694
|
48.1%
|
$1.69
|
|
New
investors
|
2,600,000
|
20.6%
|
$18,200,000
|
51.9%
|
$7.00
|
|
Total
|
12,601,000
|
100.0%
|
$35,057,694
|
100.0%
|
|
The
number of shares of common stock shown above to be outstanding
after this offering is based on 10,001,000 shares of our common
stock outstanding as of September 30, 2019, and excludes an
additional 500,000 shares of our common stock reserved for future
issuance under our 2018 Incentive Compensation Plan.
In
addition, if the underwriter exercises its over-allotment option to
purchase additional shares in full, the number of shares held by
new investors would increase to 2,990,000, or 23.0% of the total
number of shares of our common stock outstanding after this
offering.
To the
extent that stock options are exercised, new options are issued
under our 2018 Incentive Compensation Plan or we issue additional
shares of common stock in the future, there will be further
dilution to investors participating in this offering. In addition,
we may choose to raise additional capital because of market
conditions or strategic considerations, even if we believe that we
have sufficient funds for our current or future operating plans. If
we raise additional capital through the sale of equity or
convertible debt securities, the issuance of these securities could
result in further dilution to our stockholders.
The tables and calculations above are based on
10,001,000 shares of common stock outstanding as of
September 30, 2019, which
excludes:
●
500,000
shares of our common stock reserved for future issuance pursuant to
the exercise of stock options or other equity-based awards under
our 2018 Incentive Compensation Plan; and
●
390,000
common stock issuable upon exercise of underwriter’s
over-allotment option.
To
the extent that options are issued and exercised, new investors
will experience further dilution.
MANAGEMENT’S DISCUSSION
AND ANALYSIS
OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and accompanying notes and the
information contained in other sections of this prospectus,
particularly under the headings “Risk Factors” and
“Business.” It contains forward-looking statements that
involve risks and uncertainties, and is based on the beliefs of our
management, as well as assumptions made by, and information
currently available to, our management. Our actual results could
differ materially from those anticipated by our management in these
forward-looking statements as a result of various factors,
including those discussed below and in this prospectus,
particularly under the heading “Risk
Factors.”
Business Overview
We are
a diversified holding company principally engaged through our
subsidiaries in property development, digital transformation
technology and biohealth activities with operations in the United
States, Singapore, Hong Kong and Australia. We manage our three
principal businesses primarily through our 65.4%-owned subsidiary,
Singapore eDevelopment Ltd., a public company traded on the
Singapore Stock Exchange. Through this subsidiary (and indirectly,
through other public and private U.S. and Asian subsidiaries), we
are actively developing two significant real estate projects near
Houston, Texas and in Frederick, Maryland in our property
development segment. We have designed applications for enterprise
messaging and e-commerce software platforms in the United States
and Asia in our digital transformation technology business unit.
Our recent foray into the biohealth segment includes research to
treat neurological and immune-related diseases, nutritional
chemistry to create a natural sugar alternative, research regarding
innovative products to slow the spread of disease, and natural
foods and supplements. We opportunistically identify global
businesses for acquisition, incubation and corporate advisory
services, primarily related to our operating business segments. We
also have ownership interests outside of Singapore eDevelopment,
including an indirect 19.8% equity interest in Holista CollTech
Limited, a public Australian company that produces natural food
ingredients, and an indirect 13.7% equity interest in Vivacitas
Oncology Inc., a U.S.-based biopharmaceutical company, but neither
of which company has material asset value relative to our principal
businesses. Under the guidance of Chan Heng Fai, our founder,
Chairman and Chief Executive Officer, who is also our largest
stockholder, we have positioned ourselves as a participant in these
key markets through a series of strategic transactions. Our growth
strategy is both to pursue acquisition opportunities that we can
leverage on our global network using our capital and management
resources and to accelerate the expansion of our organic
businesses.
We
opportunistically identify global businesses for acquisition,
incubation and corporate advisory services, primarily related to
our existing operating business segments. We also have ownership
interests outside of Singapore eDevelopment, including an indirect
19.8% equity interest in Holista CollTech Limited, a public
Australian company that produces natural food ingredients, and an
indirect 13.7% equity interest in Vivacitas Oncology Inc., a
U.S.-based biopharmaceutical company, but neither of which company
has material asset value relative to our principal businesses.
Under the guidance of Chan Heng Fai, our founder, Chairman and
Chief Executive Officer, who is also our largest stockholder, we
have positioned ourselves as a participant in these key markets
through a series of strategic transactions. Our growth strategy is
both to pursue acquisition opportunities that we can leverage on
our global network using our capital and management resources and
to accelerate the expansion of our organic businesses.
We
generally acquire majority stakes in innovative and promising
businesses that are expected to appreciate in value over time. Our
emphasis is on building businesses in industries where our
management team has in-depth knowledge and experience, or where our
management can provide value by advising on new markets and
expansion. We have at times provided a range of global capital and
management services to these companies in order to gain access to
Asian markets. We have historically favored businesses that improve
an individual’s quality of life or that improve the
efficiency of businesses through technology in various industries.
We believe our capital and management services provide us with a
competitive advantage in the selection of strategic acquisitions,
which creates and adds value for our company and our
stockholders.
Our Revenue Model
Our
total revenue for the nine months ended September 30, 2019 and the
years ended December 31, 2018 and 2017 were $22,944,498,
$20,380,940 and $10,757,093, respectively. Our net loss for the
nine months ended September 30, 2019 was $4,534,317, and net losses
for the years ended December 31, 2018 and 2017 were $7,490,568 and
$7,085,847, respectively.
We
currently recognize revenue from the sale of our subdivision
development properties, the sale of our biohealth products and the
rendering of digital transformation technology services through
consulting fees. Sales of real properties accounted for
approximately 94%, sales of biohealth products accounted for
approximately 6% and digital transformation technology consulting
fees accounted for approximately 0% of our total revenue in the
first nine months of 2019, sales of properties accounted for
approximately 87%, sales of biohealth products accounted for
approximately 12% and digital transformation technology consulting
fees accounted for approximately 1% of our total revenue in 2018.
Sales of properties accounted for approximately 67%, sales of
biohealth products accounted for approximately 27%, digital
transformation technology consulting fees accounted for
approximately 1% and management services fees from other businesses
for approximately 6% of our total revenue in 2017.
From a
geographical perspective, we recognized 100%, 98% and 90% of our
total revenue in the first nine months of 2019 and the years ended
December 31, 2018 and 2017 in the United States, respectively,
followed by 0%, 2% and 1% of our total revenue in the first nine
months of 2019 and the years 2018 and 2017 in the People’s
Republic of China (which includes Hong Kong). Revenue in Australia
and Singapore accounted for the remainder of our 2017 total revenue
at 9%.
We
believe that, on an ongoing basis, revenue generated from our
property development business will decline as a percentage of our
total revenue as we expect to experience greater revenue
contribution from our digital transformation technology and
biohealth businesses and future business acquisitions.
Matters that May or Are Currently Affecting Our
Business
The
primary challenges and trends that could affect or are affecting
our financial results include:
●
Our ability to
improve our revenue through cross-selling and revenue-sharing
arrangements among our diverse group of companies;
●
Our ability to
identify complementary businesses for acquisition, obtain
additional financing for these acquisitions, if and when needed,
and profitably integrate them into our existing
operation;
●
Our ability to
attract competent, skilled technical and sales personnel for each
of our businesses at acceptable prices to manage our overhead;
and
●
Our ability to
control our operating expenses as we expand each of our businesses
and product and service offerings.
Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Common Control
Transactions resulted in the following basis of accounting for the
financial reporting periods:
●
The
acquisitions of Heng Fai Enterprises and Global eHealth were
accounted for prospectively as of October 1, 2018 and they did not
represent a change in reporting entity.
●
The
consolidated financial statements were retrospectively adjusted for
the acquisition of Hengfai International and the operating results
of Singapore eDevelopment as of January 1, 2017 for comparative
purposes as the entities were under common control.
●
On May 9, 2017,
SeD Capital Pte. Ltd., a subsidiary of the Company, entered into a
sale and purchase agreement with Chan Heng Fai to purchase the
entire shares in LiquidValue Asset Management Pte. Ltd. ("LVAM"
formerly Hengfai Asset Management Pte. Ltd, "HFAM") amounting to
100% of the issued and paid-up share capital of LVAM. The
consideration for the acquisition of LVAM was $441,780.
The consolidated financial statements
were retrospectively adjusted for this acquisition and its
operating results as of January 1, 2017, for comparative purpose as
the entities were under common
control.
ASC 805-50-45
defines the transfer of a business among entities under common
control at carrying amount with retrospective adjustment of prior
period financial statements when reporting entity is changed. ASC
250 defines a change in the reporting entity as a change that
results in financial statements that, in effect, are those of a
different reporting entity. Our management believed that the
acquisitions of Hengfai International and LVAM led to change in the
reporting entities and the acquisitions of Heng Fai Enterprises and
Global eHealth did not.
The
Company’s consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements include all accounts of the
Company and its majority owned and controlled subsidiaries. The
Company consolidates entities in which it owns more than 50% of the
voting common stock and controls operations. All intercompany
transactions and balances among consolidated subsidiaries have been
eliminated.
Use of Estimates and Critical Accounting Estimates and
Assumptions
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Significant estimates made by management
include, but are not limited to, allowance for doubtful accounts,
recoverability and useful lives of property, plant and equipment,
valuation of real estate assets, allocation of development costs
and capitalized interest to sold lots, the valuation allowance of
deferred taxes, contingencies and equity compensation. Actual
results could differ from those estimates.
Revenue Recognition and Cost of Sales
The
following represents a disaggregation of our revenue recognition
policies by segment:
Property
Development
● Rental Income. We temporarily lease
units to customers before selling or under rental guarantee
program. The Company and customer enter into a lease agreement with
set pricing and length. The lease usually is for one year and
rental price is set by considering local market price. Our
obligation is to provide the property for lease during the term.
Revenue is recognized over the life of the lease. The rental
business is not a continuing business for us at the present time
and not our major real estate business; however, we may expand
housing rental operations in the future.
● Property Sales. Our main business is
land development. We purchase land and develop it into residential
communities. The developed lots are then sold to builders (or
customers) for the construction of new homes. The builders enter
into sales contracts with us which set forth the prices and
timeline. The builders do the inspections to make sure all
conditions/requirements are met before taking title of lots. The
Company recognizes revenue when title is transferred. The Company
does not have further performance obligations or continuing
involvement once title is transferred.
● Cost of Sales of Properties. Costs of
property sales, including land acquisition costs, are allocated pro
rata to each lot based on the size of the lot relative to the total
size of all lots within the project. Development costs and capitalized interest are
allocated to lots sold based on the total expected development and
interest costs of the completed project and allocating a percentage
of those costs based on the selling price of the sold lot compared
to the expected sales values of all lots in the project. If
allocation of development costs and capitalized interest based on
the projection and relative expected sales value is impracticable,
those costs could also be allocated based on area method, the size
of the lot comparing to the total size of all lots in the
project.
Digital
Transformation Technology
● Software Development Income.
Revenue is recognized when (or as) the Company transfers promised
goods or services to its customers in amounts that reflect the
consideration to which the Company expects to be entitled to in
exchange for those goods or services, which occurs when (or as) the
Company satisfies its contractual obligations and transfers over
control of the promised goods or services to its customers. Costs
to obtain or fulfill a contract are expensed as incurred when the
amortization period is less than one-year. We generate revenue from
a project involving provision of services and web/software
development for customers. In respect to the provision of services,
the agreements are less than one year with a cancellation clause
and customers are typically billed on a monthly basis.
Biohealth
● Product Direct Sales. The
Company’s net sales consist of product sales. In general, the
Company's performance obligation is to transfer its products to its
third-party independent distributors (“Distributors”).
The Company generally recognizes revenue when product is shipped to
its Distributors.
The
Company’s Distributors may receive distributor allowances,
which are comprised of discounts, rebates and wholesale commission
payments from the Company. Distributor allowances resulting from
the Company’s sales of its products to its Distributors are
recorded against net sales because the distributor allowances
represent discounts from the suggested retail price.
Real Estate Assets
Real
estate assets are recorded at cost, except when acquired real
estate assets meet the definition of a business combination in
accordance with ASC 805, “Business Combinations,” which
are recorded at fair value. Interest, property taxes, insurance and
other incremental costs (including salaries) directly related to a
project are capitalized during the construction period of major
facilities and land improvements. The capitalization period begins
when activities to develop the parcel commence and ends when the
asset constructed is completed. The capitalized costs are recorded
as part of the asset to which they relate and are reduced when lots
are sold.
We
capitalized interest from the third-party borrowings of $415,844
and $1,178,220 and capitalized construction costs of $8,262,297 and
$5,899,103 for the years ended December 31, 2018 and 2017,
respectively.
For the
nine months ended September 30, 2019 and 2018, we capitalized
interest from the third-party borrowings of $514,985 and $369,912
and capitalized construction costs of $5,023,396 and $5,100,135,
respectively.
On
December 31, 2018, total real estate property under development was
$38.8 million, including:
● land
held for development in the amount of $19.7 million (consisting of
$9.3 million for Black Oak, $9.8 million for Ballenger Run and $0.6
million for our Perth project);
● capitalized
development costs in the amount of $12.2 million (consisting of
$3.3 million for Black Oak and $8.9 million for Ballenger Run);
and
● capitalized
finance costs were $6.9 million.
On
September 30, 2019, total real estate property under development
was $22.4 million, including:
● land
held for development in the amount of $14.4 million (consisting of
$6.9 million for Black Oak, $7.0 million for Ballenger Run and $0.5
million for our Perth project);
● capitalized
development costs in the amount of $3.8 million (consisting of $2.3
million for Black Oak and $1.5 million for Ballenger Run and $0.1
million for our Perth Project); and
● capitalized
finance costs were $4.2 million.
For the
year ended December 31, 2018, Black Oak project recognized a real
estate impairment of approximately $1.5 million from the sale of
124 lots to Houston LD, LLC.
During
the nine months ended September 30, 2019, Black Oak recognized
additional real estate impairment of approximately $3.9
million.
On
September 30, 2019, the capitalized construction costs were as
follows:
|
|
|
|
|
|
|
Land
held for development
|
$7,010,590
|
$6,886,937
|
$491,355
|
$14,388,882
|
|
Capitalized
development Costs
|
|
|
|
|
|
Hard
Construction Costs
|
16,623,859
|
7,905,736
|
|
24,529,595
|
|
Engineering
|
2,664,874
|
1,789,150
|
|
4,454,024
|
|
Consultation
|
323,163
|
104,867
|
|
428,029
|
|
Project
Management
|
1,531,470
|
2,126,762
|
|
3,658,232
|
|
Legal
|
314,157
|
223,048
|
|
537,205
|
|
Taxes
|
979,507
|
392,919
|
|
1,372,426
|
|
Other
Services
|
479,014
|
33,253
|
44,065
|
556,332
|
|
BAN
reimbursement
|
|
(4,987,889)
|
|
(4,987,889)
|
|
Impairment
Reserve
|
|
(3,938,769)
|
|
(3,938,769)
|
|
Construction
- Sold Lots
|
(21,400,070)
|
(1,364,805)
|
|
(22,764,875)
|
|
Total
capitalized development costs
|
$1,515,974
|
$2,284,272
|
$44,065
|
$3,844,310
|
|
|
|
|
|
|
|
Capitalized
finance costs
|
|
|
|
$4,188,205
|
|
|
|
|
|
|
|
Total
property under development
|
|
|
|
$22,421,397
|
On
December 31, 2018, the capitalized construction costs were as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
held for development
|
$9,843,587
|
$9,320,441
|
$513,264
|
$19,677,292
|
|
Capitalized
construction Costs
|
|
|
|
|
|
Hard
construction costs
|
14,842,916
|
5,883,149
|
|
20,726,065
|
|
Engineering
|
2,173,718
|
1,463,718
|
|
3,637,436
|
|
Consultation
|
328,663
|
134,687
|
|
463,350
|
|
Project
management
|
2,352,754
|
800,505
|
|
3,153,259
|
|
Legal
|
275,311
|
205,199
|
|
480,510
|
|
Taxes
|
708,386
|
838,382
|
|
1,546,768
|
|
Other
services
|
437,591
|
74,653
|
32,071
|
544,315
|
|
BAN
reimbursement
|
|
(4,667,080)
|
|
(4,667,080)
|
|
Impairment
reserve
|
|
(1,455,326)
|
|
(1,455,326)
|
|
Construction
- Sold Lots
|
(12,242,418)
|
|
|
(12,242,418)
|
|
Total
capitalized development costs
|
$8,876,921
|
$3,277,887
|
$32,071
|
$12,186,879
|
|
|
|
|
|
|
|
Capitalized
finance costs
|
|
|
|
$6,910,765
|
|
|
|
|
|
|
|
Total
property under development
|
|
|
|
$38,774,936
|
Through
September 30, 2019, there were no sales from the Perth project. In
addition, no sales agreement had been signed for this
project.
On
January 18, 2019, Black Oak sold 124 lots based on its Purchase and
Sale Agreement with Houston LD, LLC signed on July 3, 2018. The
purchase price was $6,175,000. An impairment of real estate of
approximately $1.5 million related to this sale was recorded on
December 31, 2018. The revenue was recognized in January 2019, when
the sale was closed, and the margin was 0% as a result of the
impairment recorded in FY 2018.
During
the nine months ended September 30, 2019, Black Oak recognized an
additional real estate impairment of approximately $3.9
million.
Results of Operations
Summary
of Statements of Operations for the Nine Months Ended September 30,
2019 and 2018
|
|
|
|
|
|
|
|
Revenue
|
$22,944,498
|
$16,389,892
|
|
Operating
Expenses
|
$27,802,144
|
$19,000,426
|
|
Other Income
(Expense)
|
$327,041
|
$(1,861,874)
|
|
Net
Loss
|
$(4,534,317)
|
$(4,552,671)
|
Revenue
The
following table sets forth period-over-period changes in revenues
for each of our reporting segments:
|
|
Nine Months
ended September 30,
|
|
|
|
|
|
|
|
|
Property
development
|
21,509,197
|
14,209,199
|
7,299,998
|
51%
|
|
Biohealth
|
1,406,951
|
2,021,121
|
(614,170)
|
-30%
|
|
Digital
transformation technology
|
-
|
135,515
|
(135,515)
|
-100%
|
|
Other
|
28,350
|
24,057
|
4,293
|
18%
|
|
Total
revenue
|
22,944,498
|
16,389,892
|
6,554,606
|
40%
|
Revenue
was $22,944,498 for the nine months ended September 30, 2019,
compared to $16,389,892 for the nine months ended September 30,
2018. This increase in revenue was primarily attributable to an
increase in property sales from the Ballenger Project and first
sale of a section of Black Oak Project. Pursuant to a lot purchase
agreement dated July 3, 2018, 150 CCM Black Oak Ltd sold 124 lots
located in the Company’s Black Oak to Houston LD, LLC for a
total purchase price of $6,175,000. As for our Ballenger Project,
builders are required to purchase a minimum number of lots based on
their applicable sale agreements. We collect revenue only from the
sale of lots to builders. We are not involved in the construction
of homes at the present time.
Revenues from our
biohealth segment come from the direct sales by iGalen Inc.
(formerly known as iGalen USA, LLC), which is 100% owned by iGalen
International Inc., Singapore eDevelopment’s 53%-owned
subsidiary. During the nine months ended September 30, 2019 and
2018, the revenues from iGalen Inc. were $1,406,951 and $2,021,121,
respectively. The decrease was mainly due to the slow sales of
current products and delay of the new product’s
promotion.
The
category described as “Other” includes corporate and
financial services and new venture businesses. "Other" includes
certain costs that are not allocated to the reportable segments,
primarily consisting of unallocated corporate overhead costs,
including administrative functions not allocated to the reportable
segments from global functional expenses.
The
financial services and new venture businesses are small and
diversified, and accordingly they are not each separately addressed
as one independent category. In the nine months ended September 30,
2019 and 2018, the revenue from other businesses was $28,350 and
$24,057, respectively, generated by fund management
services.
Operating
Expenses
The following table sets forth period-over-period
changes in cost of sales for each of our reporting
segments:
|
|
Nine months
ended September 30,
|
|
|
|
|
|
|
|
|
Property
development
|
18,819,865
|
12,144,497
|
6,675,368
|
55%
|
|
Biohealth
|
357,935
|
635,539
|
(277,604)
|
-44%
|
|
Digital
transformation technology
|
-
|
74,111
|
(74,111)
|
-100%
|
|
Other
|
-
|
-
|
-
|
-
|
|
Total cost of
sales
|
19,177,800
|
12,854,147
|
6,323,653
|
49%
|
Cost of
sales increased from $12,854,147 in the nine months ended September
30, 2018 to $19,177,800 in the nine months ended September 30,
2019, as a result of the increase in sales in the Ballenger Run and
Black Oak projects. Capitalized construction expenses, finance
costs and land costs are allocated to sales. We anticipate the
total cost of sales to increase as revenue increases.
The
gross margin increased from $3,535,745 to $3,766,698 in the nine
months ended September 30, 2018 and 2019, respectively. Our
Ballenger project gross margin increased from $2,422,969 to
$2,684,372 in the nine months ended September 30, 2018 and 2019,
respectively, due to the increase of the sales. The gross margin
from sales of Black Oak section one lots was approximately $0 after
real estate impairment of $1.5 million was recorded in
2018.
The
following table sets forth period-over-period changes in operating
expenses for each of our reporting segments
|
|
Nine months
ended September 30,
|
|
|
|
|
|
|
|
|
Property
development
|
4,598,112
|
762,630
|
3,835,482
|
503%
|
|
Biohealth
|
2,134,850
|
3,333,360
|
(1,198,510)
|
-36%
|
|
Digital
transformation technology
|
193,959
|
300,994
|
(107,035)
|
-36%
|
|
Other
|
1,697,423
|
1,749,295
|
(51,872)
|
-3%
|
|
Total
operating expenses
|
8,624,344
|
6,146,279
|
2,478,065
|
40%
|
Other
Income (Expense)
In the
nine months ended September 30, 2019, the Company had other
expenses of $8,624,344 compared to other expenses of $6,146,279 in
the nine months ended September 30, 2018. The change from
unrealized gain (loss) on securities investment and foreign
exchange transactions explained the volatility in these two
periods. In the nine months ended September 30, 2019 and 2018, the
unrealized loss on securities investment was $146,470 and
$2,508,245, respectively. Foreign exchange transaction gain was
$438,608 in the nine months ended September 30, 2019, compared to
$974,937 gain in the nine months ended September 30,
2018.
Net
Loss
In the
nine months ended September 30, 2019, the Company had a net loss of
$4,534,317 compared to a net loss of $4,552,671 in the nine months
ended September 30, 2018. The gross margin of the Ballenger project
increased from $2,422,969 to $2,684,372 in the nine months ended
September 30, 2018 and 2019, respectively. The prices of the lots
of the Black Oak project are based on the market prices when the
sales agreements are signed. During
the nine months ended September 30, 2019, the Company recognized $3,938,769
impairment on Black Oak as operating expense.
Liquidity
and Capital Resources
Our
real estate assets have decreased to $22,557,645 as of September
30, 2019 from $38,911,184 as of December 31, 2018. This decrease
primarily reflects a higher increase in the cost of sales than in
the capitalized costs related to the construction in progress and
impairment recorded on the Black Oak project. Our cash has
increased from $1,387,209 as of December 31, 2018 to $4,230,902 as
of September 30, 2019. Our liabilities declined from $19,500,842 at
December 31, 2018 to $14,776,532 at September 30, 2019. Our total
assets have decreased to $38,570,814 as of September 30, 2019 from
$48,702,456 as of December 31, 2018 due to the decrease of our real
estate assets.
On
November 23, 2015, SeD Maryland Development, LLC and Union Bank
(formerly Xenith Bank and The Bank of Hampton Roads) entered into a
Construction Loan Agreement, as amended by the Loan Modification
Commitment Letter, as further amended by the Loan Modification
Commitment Letter, dated as of August 30, 2017 and as further
amended by the Third Loan Modification Agreement, dated as of
September 18, 2017 (the “Union Bank Revolving Loan”).
The Union Bank Revolving Loan had a balance of approximately
$13,899 and the credit limit of $11 million as of December 31,
2018. At December 31, 2017, the Union Bank Revolving Loan balance
was approximately $8.3 million and credit limit was $11.0 million.
As a condition of the Union Bank Revolving Loan, were are required
to maintain a minimum of $2,600,000 in an interest-bearing account
maintained by the lender as additional security for the loans.
The loan from Union Bank was repaid in
January 2019 and the agreement between Union Bank and SeD Maryland
Development was terminated on April 17, 2019.
On
April 17, 2019, SeD Maryland Development LLC entered into a
Development Loan Agreement with Manufacturers and Traders Trust
Company (“M&T Bank”) in the principal amount not to
exceed at any one time outstanding the sum of $8,000,000, with a
cumulative loan advance amount of $18,500,000. The line of credit
bears interest rate on LIBOR plus 375 basis points. SeD Maryland
Development LLC was also provided with a Letter of Credit
(“L/C”) Facility in an aggregate amount of up to
$900,000. The L/C commission will be 1.5% per annum on the face
amount of the L/C. Other standard lender fees will apply in the
event the L/C is drawn down. The loan is a revolving line of
credit. The L/C Facility is not a
revolving loan, and amounts advanced and repaid may not be
re-borrowed. Repayment of the Loan Agreement is secured by a
$2,600,000 collateral fund and a Deed of Trust issued to the Lender
on the property owned by SeD Maryland.
Currently the Black
Oak project does not have any financing from third parties. On July
20, 2018, Black Oak LP was reimbursed $4,592,079 from the Harris
County Improvement District 17 for previous expenses incurred by
Black Oak LP in the development and installation of infrastructure
within the Black Oak project. The future development timeline of
Black Oak is based on multiple limiting conditions, such as the
amount of the funds raised from capital market, the loans from
third party financial institutions, and the government
reimbursements. The development proceed in stages and expenses will
be contingent on the amount of funding we will
receive.
On
November 29, 2016, SeD Home Ltd. entered into three $500,000 bonds
for a total of $1.5 million that were to incur annual interest at
8% and the principal was paid in full on November 29,
2019.
During
the year ended on December 31, 2017, Mr. Chan lent non-interest
loans of $7,156,680, for the general operations of the Company. The
loans are interest free, not tradable, unsecured, and repayable on
demand. On October 15, 2018, a formal lending agreement between the
Singapore eDevelopment Ltd and Mr. Chan was executed. Under the
agreement, Mr. Chan provides a lending credit limit of
approximately $10 million for Singapore eDevelopment Ltd with an
interest rate of 6% per annum for the outstanding borrowed amount,
which commenced retroactively from January 1, 2018. The loans are
still not tradable, unsecured and repayable on demand. As of
September 30, 2019 and December 31, 2018, the outstanding principal
balance of the Related Party Loan was $5,667,640 and $8,517,490,
respectively. Interest started to accrue on January 1, 2018 at 6%
per annum. During the nine months ended September 30, 2019 and
2018, the interest expenses were $268,847 and $357,048,
respectively. As of September 30, 2019 and December 31, 2018, the
accrued interest total was $736,756 and $476,063,
respectively.
On May 1, 2018, Rajen Manicka, CEO and one of the directors of
iGalen International Inc. which holds 100% of iGalen Inc., provided
a loan of approximately $367,246 to iGalen Inc. (the “2018
Related Party Loan”). The term of this loan is ten years. The
2018 Related Party Loan has an interest rate of 4.7% per annum. On
March 8 and March 27, 2019, iGalen borrowed an additional $150,000
and $30,000, respectively, from Rajen Manicka (the “2019
March Related Party Loan”), with the same terms as the 2018
Related Party Loan. As of September 30, 2019 and December 31, 2018,
the total outstanding principal balance of the 2018 and 2019 March
Related Party Loans was $573,850 and $345,706, respectively, and
was included in the Notes Payable – Related Parties balance
on the Company’s Consolidated Balance Sheets. During the nine
months ended September 30, 2019 and 2018, the Company incurred
$8,084 and $1,410 of interest expense, respectively.
From
January to September 2019, the Company sold 361,500 shares of
HotApp Blockchain to international investors with the amount of
$229,500, which was booked as additional paid-in capital. The
Company held 500,821,889 shares of the total outstanding shares of
506,898,576 before the sale. After the sale, the Company still owns
approximately 99% of HotApp Blockchain’s total outstanding
shares.
Summary
of Statements of Operations for the Year ended December 31, 2018
and 2017
|
|
|
|
|
|
|
|
Revenue
|
$20,380,940
|
$10,757,093
|
|
Operating
Expenses
|
24,611,252
|
15,658,660
|
|
Other Income
(Expense)
|
(3,163,507)
|
(2,551,921)
|
|
Net
Loss
|
(7,490,568)
|
(7,085,846)
|
Revenue
The
following table sets forth period-over-period changes in revenues
for each of our reporting segments:
|
|
|
|
|
|
|
|
|
|
|
Property
development
|
$17,675,034
|
$7,191,507
|
$10,483,527
|
146%
|
|
Biohealth
|
2,532,852
|
2,879,542
|
(346,690)
|
-12%
|
|
Digital
transformation technology
|
140,652
|
197,073
|
(56,421)
|
-29%
|
|
Other
|
32,402
|
488,971
|
(456,569)
|
-93%
|
|
Total
revenue
|
$20,380,940
|
$10,757,093
|
$9,623,847
|
89%
|
Revenue
was $20,380,940 for the year ended December 31, 2018, compared to
$10,757,093 for the year ended December 31, 2017. This increase in
revenue was primarily attributable to the property development
segment, specifically, an increase in property sales from the
Ballenger Project. Property sales were $17,675,034 in the year
ended December 31, 2018 and $7,191,507 in the year ended December
31, 2017. Revenue from biohealth and other businesses both
decreased by approximately $0.5 million.
Operating
Expenses
The following table sets forth period-over-period
changes in cost of sales for each of our reporting
segments:
|
|
|
|
|
|
|
|
|
|
|
Property
development
|
$14,777,546
|
$6,565,491
|
$8,212,055
|
125%
|
|
Biohealth
|
682,026
|
894,559
|
(212,533)
|
-24%
|
|
Digital
transformation technology
|
74,129
|
67,552
|
6,577
|
10%
|
|
Other
|
-
|
-
|
-
|
-
|
|
|
$15,533,701
|
$7,527,602
|
$8,006,099
|
106%
|
Cost of
sales increased to $15,533,701 for the year ended December 31, 2018
from $7,527,602 for the year ended December 31, 2017. This change
was primarily driven by the property development segment,
specifically, due to the increase in sales from the Ballenger Run
project. Capitalized construction expenses are allocated to the
sales. We anticipate that the total cost of sales will increase as
revenue increases.
The
following table sets forth period-over-period changes in operating
expenses for each of our reporting segments:
|
|
|
|
|
|
|
|
|
|
|
Property
development
|
$2,206,093
|
$1,019,926
|
$1,186,167
|
116%
|
|
Biohealth
|
2,846,048
|
3,610,583
|
(764,535)
|
-21%
|
|
Digital
transformation technology
|
518,175
|
406,495
|
111,680
|
27%
|
|
Other
|
3,507,235
|
3,094,054
|
413,181
|
-13%
|
|
|
$9,077,551
|
$8,131,058
|
$946,493
|
12%
|
Operating expenses
increased to $9,077,551 for the year ended December 31, 2018 from
$8,131,058 for the year ended December 31, 2017. This change was
largely caused by an impairment reserve of approximately $1.5
million for Black Oak section one sale, mainly due to several
factors, such as high finance costs from the third-party financial
institution for the development of section one, high closing costs,
oversight and management fees for section one and high accumulated
internal interest from 2014 to 2016. At same time, the Biohealth
operating expenses went down as the sales went down.
Other
Income (Expense)
In the
years ended December 31, 2018 and 2017, the Company had other
expense of $3,163,507 and $2,551,920, respectively. In 2018, the
unrealized loss of $3,366,958 on investment in securities at fair
value was the major contributor to this expense. In 2017, the
unrealized gain of $2,838,713 in investment on securities at fair
value was recorded in Other Comprehensive Income. The other
expenses in 2017 primarily consisted of the foreign exchange
transactions loss of $2,739,991. The Company had foreign exchange
transaction gain of $691,099 in 2018. The effect of foreign exchange rate changes
on the intercompany loans, which mostly consist of loans from
Singapore to the United States, is the reason for the significant
fluctuation of foreign exchange transaction Gain or
Loss.
During
2018, the interest expense of $476,063 from the loan Chan Heng Fai
lent to the Company was the main contributor to the total interest
expense. Chan Heng Fai’s loan started to accrue on January 1,
2018 but has not been paid off yet. In 2017, Chan Heng Fai’s
loan was interest free.
Net
Loss
Net
loss increased from $7,085,846 in the year ended December 31, 2017
to $7,490,568 in the year ended December 31, 2018. Approximately
$3.4 million of an unrealized loss from investments in securities
is one of the major reasons for this loss.
Liquidity
and Capital Resources
Our
real estate assets have decreased to $38,911,184 as of December 31,
2018 from $50,652,657 as of December 31, 2017. This decrease
primarily reflects a higher increase in the cost of sales than in
the capitalized costs related to the construction in progress. Our
cash has increased from $1,241,336 as of December 31, 2017 to
$1,387,209 as of December 31, 2018. Our liabilities declined from
$25,433,377 at December 31, 2017 to $19,500,842 at December 31,
2018. Our total assets have decreased to $48,702,456 as of December
31, 2018 from $60,178,972 as of December 31, 2017.
Summary of Cash Flows for the Nine Months ended September 30, 2019
and 2018
|
|
Nine Months Ended
September 30,
|
|
|
|
|
|
Net
cash provided by operating activities
|
$8,964,900
|
$8,405,987
|
|
Net
cash used in investing activities
|
$ 36,000
|
$59,518
|
|
Net
cash used in financing activities
|
$3,032,489
|
$7,420,297
|
Cash
Flows from Operating Activities
Net
cash provided by operating activities was $8,964,900 in the first
nine months of 2019, as compared to $8,405,987 in the same period
of 2018. The higher sales and less property development expenses
explain the increased cash flow provided by operating activities.
We received approximately $15.3 million from sales in the Ballenger
Run project and approximately $6.2 million from sales in the Black
Oak project for the nine months ended September 30, 2019 and
invested approximately $5.0 million in land development projects of
both Ballenger Run and Black Oak during the nine months ended
September 30, 2019.
Cash
Flows from Financing Activities
Net
cash used in financing activities was $3,032,489 and $7,420,297 for
the nine months ended September 30, 2019 and 2018, respectively.
During the nine months ended September 30, 2019, we received cash
proceeds of $229,500 from the sale of our HotApp shares to
individual investors. We paid-off the remaining principal amount of
$13,899 of the Union Bank loan and repaid approximately $2.3
million back to the director who made an operation loan to the
Company. The Company also distributed $740,250 to one minority
interest investor. During nine months ended September 30, 2018, we
repaid approximately $7.9 million back to the Union Bank loan and
borrowed $0.5 million from the directors of the Company for
operations.
Summary of Cash Flows for the Years ended December 31, 2018 and
2017
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
$8,025,640
|
$(7,146,236)
|
|
Net
cash (used in) investing activities
|
$(85,645)
|
$(530,538)
|
|
Net
cash provided by (used in) financing activities
|
$(6,593,932)
|
$6,221,842
|
Cash
Flows from Operating Activities
Net
cash provided by operating activities was $8.0 million in 2018, as
compared to cash used in operating activities of $7.1 million in
2017. This increase was primarily due to the increased sales of
Ballenger Run lots: approximately $17.3 million in 2018 compared to
$5.5 million in the same period of 2017. Ballenger Run development
costs were approximately $14.8 million in 2018 compared to $4.7
million in 2017. With the partial completion of phase one of the
Black Oak project, development speed was adjusted with the market
need and development costs decreased as well. At the same time, on
July 20, 2018, Black Oak received approximately $4.6 million in
reimbursement for previous construction costs. Cash received from
and spent for biohealth and other businesses were similar in both
periods.
Cash
Flows from Investing Activities
In
2018, we invested $55,000 in a joint venture called Sweet Sense
Inc. for the development, manufacture, and global distribution of
the new sugar substitute. In 2017, we invested $500,000 in equity
securities and mutual fund.
Cash
Flows from Financing Activities
Net
cash used in financing activities was $6.6 million in 2018, as
compared to net cash provided of $6.2 million for 2017.
In 2017, the Company received
approximately $4.5 million from stock issuances and $1 million the
Union Bank Revolving Loan. At same time, the Company borrowed $7.2
million from a related party to pay off Revere Loan at $6.3 million
and to support the operations. In 2018, we borrowed $1.6 million
from a related party for operations and at the same time, repaid
$8.3 million on the Union Bank Revolving
Loan.
Real Property Financing Arrangements
Through
Singapore eDevelopment, we have three property development
projects. Ballenger Run and Black Oak projects are the major
projects. The following tables show our forecasts of the phases of
the development and costs for each phase of
development:
|
Ballenger
Run
|
Estimated
Construction Costs
|
Expected
Completion Date
|
|
Phase
1
|
$13,786,000
|
Completed
|
|
Phase
2
|
10,210,000
|
December
2019
|
|
Phase
3
|
10,170,000
|
September
2020
|
|
Phase
4
|
3,460,000
|
December
2020
|
|
Phase
5
|
1,690,000
|
December
2021
|
|
Total
|
$39,316,000
|
|
|
Black
Oak
|
Estimated
Construction Costs
|
Expected
Completion Date
|
|
Phase
1
|
$7,080,000
|
Completed
|
|
Phase
2
|
183,060
|
January
2020
|
|
Phase
3
|
485,943
|
March
2021
|
|
Phase
4
|
203,472
|
April
2022
|
|
Phase
5
|
3,323,149
|
September
2021
|
|
Total
|
$11,275,624
|
|
The
Company’s Perth project in Australia is relatively small,
representing approximately 2% of the Company’s total projects
included in the estimated property costs and forecasted revenue,
and the development plan of this project is contingent on the local
market. The Company has been monitoring the local market, which has
seen no significant improvement to date, and the Company will
consider development once it is more confident in the market. The
Company has recorded impairment based on the market
conditions.
Black
Oak
Black
Oak is a 162-acre land infrastructure and subdivision project
situated in Magnolia, Texas, north of Houston. This project is
owned by certain subsidiaries of Singapore
eDevelopment.
On July
20, 2018, Black Oak LP received $4,592,079 in reimbursement for
previous construction costs incurred in the land development. Of
this amount, $1,650,000 will remain on deposit in the District's
Capital Projects Fund for the benefit of Black Oak LP and will be
released upon receipt of the evidence of (a) execution of a
purchase agreement between Black Oak LP and a home builder with
respect to the Black Oak development and (b) completion, finishing
and making ready for home construction of at least 105 unfinished
lots in the Black Oak development. In 2018, $446,745 was released
to reimburse the construction costs leaving a balance of $1,203,256
on December 31, 2018. In the first nine months of 2019, an
additional $796,715 was released leaving a balance of $406,541 on
September 30, 2019.
Ballenger
Run
In
November 2015, through SeD Intelligent Home, we completed the
$15.65 million acquisition of Ballenger Run, a 197-acre land
subdivision development located in Frederick County, Maryland.
Previously, on May 28, 2014, the RBG Family, LLC entered into the
Assignable Real Estate Sales Contract with NVR, Inc.
(“NVR”) by which RBG Family, LLC would sell the 197
acres for $15 million to NVR. On December 10, 2014, NVR assigned
this contract to SeD Maryland Development, LLC in the Assignment
and Assumption Agreement and entered into a series of Lot Purchase
Agreements by which NVR would purchase subdivided lots from SeD
Maryland Development, LLC (the “Lot Purchase
Agreements”).
On
November 23, 2015, SeD Maryland Development, LLC and Union Bank
(formerly Xenith Bank and The Bank of Hampton Roads) entered into a
Construction Loan Agreement, as amended by the Loan Modification
Commitment Letter, as further amended by the Loan Modification
Commitment Letter, dated as of August 30, 2017 and as further
amended by the Third Loan Modification Agreement, dated as of
September 18, 2017 (the “Union Bank Revolving Loan”).
The Union Bank Revolving Loan closed simultaneous with the
settlement on the land on November 23, 2015, and provided (i) for a
maximum of $11 million outstanding; (ii) maturity on December 31,
2019; and (iii) an $800,000 letter of credit facility, with an
annual rate of 15% on all issued letters of credit. On September
30, 2019 and December 31, 2018, the principal balances were $0 and
$13,899, respectively. As part of the transaction, we incurred loan
origination fees and closing fees, totaling $480,947, which were
recorded as debt discount and were amortized over the life of the
loan. The unamortized debt discounts were $0 on both September 30,
2019 and December 31, 2018.
The
loan was secured by a deed of trust on the property, a minimum
$2,600,000 of collateral cash, and a Limited Guaranty Agreement
with SeD Ballenger. In September 2017, SeD Maryland Development,
LLC and the Union Bank modified the related Revolving Credit Note,
which increased the original principal amount from $8,000,000 to
$11,000,000 and extended the maturity date of the loan and letter
of credit to December 31, 2019.
The
Union Bank Revolving Loan was intended to fund the development of
the first 276 lots, the multi-family parcel and senior living
parcel, the amenities associated with these phases, and certain
road improvements. The Union Bank Revolving Loan was repaid in
January 2019. On April 17, 2019, SeD
Maryland Development LLC and Union Bank terminated the
agreement.
On
April 17, 2019, SeD Maryland Development LLC entered into a
Development Loan Agreement with Manufacturers and Traders Trust
Company (“M&T Bank”) in the principal amount not to
exceed at any one time outstanding the sum of $8,000,000, with a
cumulative loan advance amount of $18,500,000. The line of credit
bears interest of LIBOR plus 375 basis points. SeD Maryland
Development LLC was also provided with a Letter of Credit
(“L/C”) Facility in an aggregate amount of $900,000.
The L/C commission is 1.5% per annum on the face amount of the L/C.
Other standard lender fees will apply in the event the L/C is drawn
down. The L/C Facility is not a revolving loan, and amounts
advanced and repaid may not be re-borrowed. Repayment of the Loan
Agreement is secured by $2.6 million collateral fund and a Deed of
Trust issued to the Lender on the property owned by SeD
Maryland.
LIBOR
is expected to be discontinued after 2021. Our line of credit
agreement provides procedures for determining a replacement or
alternative rate in the event that LIBOR is unavailable. However,
there can be no assurances as to whether such replacement or
alternative rate will be more or less favorable than LIBOR. We
intend to monitor the developments with respect to the potential
phasing out of LIBOR after 2021 and will work with our lenders to
ensure any transition away from LIBOR will have minimal impact on
our financial condition. We, however, can provide no assurances
regarding the impact of the discontinuation of LIBOR on the
interest rate that we would be required to pay or on our financial
condition.
As of
September 30, 2019, the principal balance of the loan was $0. As
part of the transaction, the Company incurred loan origination fees
and closing fees in the amount of $381,823 and capitalized into
construction in process.
Equity Security Investments
Investment Securities at Fair Value
The
Company commonly holds investments in equity securities with
readily determinable fair values, equity investments without
readily determinable fair values, investments accounted for under
the equity method, and investments at cost. Certain of the
Company’s investments in marketable equity securities and
other securities are long-term, strategic investments in companies
that are in various stages of development.
Prior
to the adoption of Financial Accounting Standards Board
(“FASB”) Accounting Standards Update
(“ASU”) 2016-01, Financial Instruments-Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities, investments in equity securities
were classified as either 1) available-for-sale securities, stated
at fair value, and unrealized holding gains and losses, net
of related tax
effects, were recorded directly to accumulated other comprehensive
income (loss) or 2) trading securities, stated at fair value, and
unrealized holding gains and losses, net of related tax benefits,
were recorded directly to net income (loss). With the adoption of
ASU 2016-01, investments in equity securities are still
stated at fair value, quoted by market prices, but all unrealized
holding gains and losses are credited or charged to net income
(loss) based on fair value measurement as the respective reporting
date.
The
Company accounts for certain of its investments in equity
securities in accordance with ASU 2016-01 Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities (“ASU 2016-01”). In
accordance with ASU 2016-01, the Company records all equity
investments with readily determinable fair values at fair value and
has elected the Fair Value Option (“FVO”) for certain
of its equity investments without readily determinable fair values,
utilizing a Black Scholes model for valuation. Unrealized holding
gains and losses in fair value are recognized as Other
Non-Operating Income, net in the Company’s Consolidated
Statements of Operation and Comprehensive Income.
Determining the
appropriate fair-value model and calculating the fair values of the
Company’s investments in equity securities requires
considerable judgment. Any change in the estimates used may cause
their values to be higher or lower than that reported. The
assumptions used in the model require significant judgment by
management and include the following: volatility, expected term,
risk-free interest rate, and dividends.
Due to
the inherent uncertainty of these estimates, these values may
differ materially from the values that would have been used had a
ready market for these investments existed.
The
Company has significant influence over Document Security Systems,
Inc. (“DSS”) as our Chief Executive Officer is the
beneficial owner of approximately 31.8% of the outstanding shares of DSS and
is the Chairman of the Board of Directors of DSS. The Company did
not have a controlling interest and therefore the Company’s
investment would be accounted for under equity method accounting or
could elect the fair value option accounting.
The
Company had significant influence over Amarantus BioScience
Holdings (“AMBS”) as the Company is the beneficial
owner of approximately 19.5% of the common shares of AMBS. The
Company did not have a controlling interest and therefore the
Company’s investment would be accounted for under equity
method accounting or could elect the fair value option
accounting.
The
Company had significant influence over Holista CollTech Limited
(“Holista”) as the Company and its CEO are the
beneficial owner of approximately 19.8% of the outstanding shares
of Holista and our CEO has a position on the Board of Directors of
Holista. The Company did not have a controlling interest and
therefore the Company’s investment would be accounted for
under equity method accounting or could elect the fair value option
accounting.
The
Company has elected the fair value options for the equity
securities noted above that would otherwise be accounted for under
the equity method of accounting to better match the measurement of
assets and liabilities in the Consolidated Statements of
Operations. AMBS, Holista and DSS are publicly traded companies and
fair value of these equity investments is determined by the quoted
stock prices. On September 30, 2019 and December 31, 2018, the fair
value (calculated by market trading prices on the end dates of the
periods) of total held equity stock of Amarantus, Holista and DSS
were $2,519,163 and $2,656,240, respectively.
Investment Securities at Cost
The
Company has a holding of 13.7% in Vivacitas Oncology Inc.
(“Vivacitas”), a private company that is currently not
listed on an exchange, with a purchase cost of $200,128. Vivacitas
was acquired after the adoption of ASU 2016-01. The Company applied
ASC 321 and elected the measurement alternative for equity
investments that do not have readily determinable fair values and
do not qualify for the practical expedient in ASC 820 to estimate
fair value using the NAV per share. Under the alternative, they
measure Vivacitas at cost, less any impairment, plus or minus
changes resulting from observable price changes in orderly
transactions for an identical or similar investment of the same
issuer.
There
has been no indication of impairment or changes in observable
prices via transactions of similar securities and is still carried
at a cost.
Investment Securities under Equity Method
Accounting
On April 25,
2018, BioLife Sugar, Inc. ("BioLife"), a subsidiary consolidated
under Singapore eDevelopment, entered into joint venture agreement
with Quality Ingredients, LLC ("QI"). The agreement created an
entity called Sweet Sense, Inc. ("Sweet Sense"), which was 50%
owned by Biolife and 50% owned by QI. Management believes its
investment of 50% represents significant influence over Sweet Sense
and accounts for the investment under the equity method of
accounting. As of December 31, 2018, BioLife had contributed
$55,000 to the joint venture and recorded its proportionate share
losses totaling $45,948 recorded as loss on investment in security
by equity method in the Condensed Consolidated Statements of
Operations and Other Comprehensive Loss. As of September 30, 2019,
the total investment in joint venture was equal to $91,000 and the
proportionate losses totaled $76,118. During the nine months ended
September 30, 2019, the Company recorded its proportionate share of
losses of $30,166 as loss on investment in security by equity
method in the Condensed Consolidated Statements of Operations and
Other Comprehensive Loss.
Off-Balance
Sheet Arrangements
We do not have any
off-balance sheet arrangements that are reasonably likely to have a
current or future effect on our financial condition, revenues,
results of operations, liquidity or capital
expenditures.
Impact
of Inflation
We
believe that inflation has not had a material impact on our results
of operations for the nine months ended September 30, 2019 or the
years ended December 31, 2018 and 2017. We cannot assure you that
future inflation will not have an adverse impact on our operating
results and financial condition.
Impact of Foreign Exchange Rates
The
effect of foreign exchange rate changes on the intercompany loans
(under ASC 830), which mostly consist of loans from Singapore to
the United States and which were approximately $36.6 million, $41.1
million and $42.8 million on September 30, 2019, December 31, 2018
and 2017, respectively, are the reason for the significant
fluctuation of foreign currency transaction Gain or Loss on the
Consolidated Statements of Operations and Other Comprehensive
Income. Because the intercompany loan balances between Singapore
and United States will remain at approximately $40 million over the
next year, we expect this fluctuation of foreign exchange rates to
still significantly impact the results of operations in 2019 and
2020, especially given that the foreign exchange rate may and is
expected to be volatile. If the amount of intercompany loan is
lowered in the future, the effect will also be reduced. However, at
this moment, we do not expect to repay the intercompany loans in
the short term.
Emerging Growth Company Status
We are
an “emerging growth company,” as defined in the JOBS
Act, and we may take advantage of certain exemptions from various
reporting requirements that are applicable to other public
companies that are not “emerging growth companies.”
Section 107 of the JOBS Act provides that an “emerging
growth company” can take advantage of the extended transition
period provided in Section 7(a)(2)(B) of the Securities Act
for complying with new or revised accounting standards. In other
words, an “emerging growth company” can delay the
adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have elected to take
advantage of these exemptions until we are no longer an emerging
growth company or until we affirmatively and irrevocably opt out of
this exemption.
Controls and Procedures
We are
not currently required to maintain an effective system of internal
controls as defined by Section 404 of the Sarbanes-Oxley Act. Only
in the event that we are deemed to be a large accelerated filer or
an accelerated filer would we be required to comply with the
independent registered public accounting firm attestation
requirement. Further, for as long as we remain an emerging growth
company as defined in the JOBS Act, we intend to take advantage of
certain exemptions from various reporting requirements that are
applicable to other public companies that are not emerging growth
companies including, but not limited to, not being required to
comply with the independent registered public accounting firm
attestation requirement.
Management is
responsible for the preparation and fair presentation of the
financial statements included in this prospectus. The financial
statements have been prepared in conformity with accounting
principles generally accepted in the United States of America and
reflect management’s judgment and estimates concerning
effects of events and transactions that are accounted for or
disclosed.
Management is also
responsible for establishing and maintaining adequate internal
control over financial reporting. Our internal control over
financial reporting includes those policies and procedures that
pertain to our ability to record, process, summarize and report
reliable data. Management recognizes that there are inherent
limitations in the effectiveness of any internal control over
financial reporting, including the possibility of human error and
the circumvention or overriding of internal control. Accordingly,
even effective internal control over financial reporting can
provide only reasonable assurance with respect to financial
statement presentation. Further, because of changes in conditions,
the effectiveness of internal control over financial reporting may
vary over time.
In
order to ensure that our internal control over financial reporting
is effective, management regularly assesses controls and did so
most recently for its financial reporting as of December 31, 2018.
This assessment was based on criteria for effective internal
control over financial reporting described in the Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission. In connection with
management’s evaluation of the effectiveness of our
company’s internal control over financial reporting as of
December 31, 2018, management determined that our company did not
maintain effective controls over financial reporting due to having
a limited staff with U.S. GAAP and SEC reporting experience.
Management determined that the ineffective controls over financial
reporting constitute a material weakness. To remediate such
weaknesses, we plan to appoint additional qualified personnel with
financial accounting, GAAP and SEC experience.
This
prospectus does not include an attestation report of our registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation
by our registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only management’s
report in this prospectus.
BUSINESS
Our Company
We are
a diversified holding company principally engaged through its
subsidiaries in property development, digital transformation
technology and biohealth activities with operations in the United
States, Singapore, Hong Kong and Australia. We manage our three
principal businesses primarily through our 65.4%-owned subsidiary,
Singapore eDevelopment Ltd., a public company traded on the
Singapore Stock Exchange. Through this subsidiary (and indirectly,
through other public and private U.S. and Asian subsidiaries), we
are actively developing two significant real estate projects near
Houston, Texas and in Frederick, Maryland in our property
development segment. We have designed applications for enterprise
messaging and e-commerce software platforms in the United States
and Asia in our digital transformation technology business unit.
Our recent foray into the biohealth segment includes research to
treat neurological and immune-related diseases, nutritional
chemistry to create a natural sugar alternative, research regarding
innovative products to slow the spread of disease, and natural
foods and supplements. We opportunistically identify global
businesses for acquisition, incubation and corporate advisory
services, primarily related to our operating business segments. We
also have ownership interests outside of Singapore eDevelopment,
including an indirect 19.8% equity interest in Holista CollTech
Limited, a public Australian company that produces natural food
ingredients, and an indirect 13.7% equity interest in Vivacitas
Oncology Inc., a U.S.-based biopharmaceutical company but neither
of which company has material asset value relative to our principal
businesses. Under the guidance of Chan Heng Fai, our founder,
Chairman and Chief Executive Officer, who is also our largest
stockholder, we have positioned ourselves as a participant in these
key markets through a series of strategic transactions. Our growth
strategy is both to pursue acquisition opportunities that we can
leverage on our global network using our capital and management
resources and to accelerate the expansion of our organic
businesses.
We
generally acquire majority stakes in innovative and promising
businesses that are expected to appreciate in value over time. Our
emphasis is on building businesses in industries where our
management team has in-depth knowledge and experience, or where our
management can provide value by advising on new markets and
expansion. We have at times provided a range of global capital and
management services to these companies in order to gain access to
Asian markets. We have historically favored businesses that improve
an individual’s quality of life or that improve the
efficiency of businesses through technology in various industries.
We believe our capital and management services provide us with a
competitive advantage in the selection of strategic acquisitions,
which creates and adds value for our company and our
stockholders.
We
intend at all times to operate our business in a manner as to not
become inadvertently subject to the regulatory requirements under
the Investment Company Act by, among other things, (i) utilizing
the net proceeds of this offering to purchase all or substantially
all of an acquisition target’s voting stock, and only in
limited cases purchase less than 51% of the voting stock; (ii)
monitoring our operations and our assets on an ongoing basis in
order to ensure that we own no less than a majority of Singapore
eDevelopment and that Singapore eDevelopment, in turn, owns no less
than a majority of SeD Intelligent Home and other such subsidiaries
with significant assets and operations; and (iii) limiting
additional equity investments from the net proceeds of this
offering into affiliated companies including our majority-owned
operating subsidiaries, except in special limited circumstances.
Additionally, we will continue to hire in-house management
personnel and employees with industry background and experience,
rather than retaining traditional investment portfolio managers to
oversee our group of companies.
Our Current Operations
Property
Development Business
Our
real estate business is primarily conducted through our indirect
subsidiary, SeD Intelligent Home Inc., a 99.9%-owned U.S.
subsidiary of Singapore eDevelopment, which owns, operates and
manages real estate development projects with a focus on land
subdivision developments. We generally contract out all real estate
development activities, working with engineers, surveyors,
architects and general contractors through each phase, including
planning, design and construction. Once the contractors complete
the land development, we then sell the developed lots to builders
for the construction of new homes. Where possible, we attempt to
pre-sell these lots before they are fully developed. SeD
Intelligent Home’s main assets are two such subdivision
development projects, one near Houston, Texas (known as Black Oak),
and one in Frederick, Maryland (known as Ballenger
Run).
Houston, Texas
Property. Black Oak is a land infrastructure and subdivision
development project consisting of 162 acres, currently projected to
have approximately 512 units, as we are presently attempting to
revise the site plan at Black Oak to allow for such number of
residential lots. Through a partnership with 150 CCM Black Oak,
Ltd., we had contracts to purchase seven contiguous parcels of
land. Our initial equity ownership in 150 CCM Black Oak, Ltd. was
$4.3 million for 60% ownership in the partnership. Since then we
have increased our ownership to 100%. We are presently in
negotiations with multiple builders, and we anticipate that our
involvement in this project will take approximately three to five
additional years to complete. On January 18, 2019, the first sale
of lots at Black Oak was completed and 124 lots were
sold.
The
site plan at Black Oak is being revised to allow for approximately
512 residential lots of varying sizes. Since February 2015, we have
completed several important phases of the project, including
property clearing, grading, pavement of roads and compliance with
the local improvement district to ensure reimbursement of these
costs. In addition to the recent sale of 124 lots, we are presently
in negotiations with multiple builders for lot takedowns or, in
some cases, entire phases of the project.
The
estimated construction costs and completion date for each phase are
as follows:
|
Black
Oak
|
Estimated
Construction Costs
|
Expected
Completion Date
|
|
Phase
1
|
$7,080,000
|
Completed
|
|
Phase
2
|
$ 183,060
|
January
2020
|
|
Phase
3
|
$ 485,943
|
March
2021
|
|
Phase
4
|
$ 203,472
|
April
2022
|
|
Phase
5
|
$ 3,323,149
|
September
2021
|
|
Total
|
$11,275,624
|
|
On July
3, 2018, 150 CCM Black Oak Ltd. entered into a Purchase and Sale
Agreement with Houston LD, LLC for the sale of 124 lots within the
Black Oak project (the “Black Oak Purchase Agreement”).
Pursuant to the Black Oak Purchase Agreement, it was agreed that
124 lots would be sold for a range of prices based on the lot type.
In addition, Houston LD, LLC agreed to contribute a
“community enhancement fee” for each lot, collectively
totaling $310,000, which is held in escrow. 150 CCM Black Oak, Ltd.
will apply these funds exclusively towards an amenity package on
the property. The closing of the transactions contemplated by the
Black Oak Purchase Agreement was subject to Houston LD, LLC
completing due diligence to its satisfaction.
On
October 12, 2018, 150 CCM Black Oak, Ltd. entered into an Amended
and Restated Purchase and Sale Agreement (the “Amended and
Restated Black Oak Purchase Agreement”) for these 124 lots.
Pursuant to the Amended and Restated Black Oak Purchase Agreement,
the purchase price remained at $6,175,000. 150 CCM Black Oak, Ltd.
was required to meet certain closing conditions and the timing for
the closing was extended.
On
January 18, 2019, the sale of 124 lots at Black Oak was completed
for $6,175,000 and the community enhancement fee equal to $310,000
was delivered to escrow account. An impairment of real estate of
approximately $2.4 million related to this sale was recorded on
December 31, 2018. The revenue was recognized in January, 2019,
when the sale was closed, and no gain or loss was recognized in
January, 2019.
During
the nine months ended September 30, 2019, we applied fair
value-based impairment test to the net book value of assets and
recorded an approximately $3.9 million impairment on Black
Oak’s net book value.
The
Black Oak project has applied for reimbursement of certain costs
for construction of roads, sewers, water and other basic
requirements. While we may be entitled to reimbursements from a
local improvement district, the amount and timing of such payments
is uncertain. The timing of such potential reimbursements will be
impacted by certain bond sales by the Harris County Improvement
District #17 from time to time.
On July
20, 2018, Black Oak LP received $4,592,079 in reimbursement for
previous construction costs incurred in the land development. Of
this amount, $1,650,000 will remain on deposit in the District's
Capital Projects Fund for the benefit of Black Oak LP and will be
released upon receipt of the evidence of (a) execution of a
purchase agreement between Black Oak LP and a home builder with
respect to the Black Oak development and (b) completion, finishing
and making ready for home construction of at least 105 unfinished
lots in the Black Oak development. In 2018, $446,745 was released
to reimburse the construction costs leaving a balance of $1,203,256
on December 31, 2018. In the first nine months of 2019, an
additional $796,715 was released, leaving a balance of $406,541 as
of September 30, 2019.
Frederick,
Maryland Property. In November
2015, through SeD Intelligent Home, we acquired Ballenger Run, a
land subdivision development consisting of 197 acres,
for $15.65 million. This property is
presently zoned for 479 entitled residential lots and 210 entitled
multi-family units. We anticipate that our involvement in this
project will take approximately three years from the date of this
prospectus. We expect to generate approximately $69 million (prior
to costs) in revenue from Ballenger Run through the sale of the
developed lots based on current sales agreements. However, there
can be no assurance that this level of revenue will be attained,
should we fail to attain certain goals, to meet certain
conditions or if market prices
for this development unexpectedly begin to
drop.
On
May 28, 2014, the RBG Family, LLC entered into an Assignable Real
Estate Sales Contract with NVR, Inc. (“NVR”) by which
RBG Family, LLC would sell the 197 acres for $15 million to NVR. On
December 10, 2014, NVR assigned this contract to SeD Maryland
Development, LLC (“SeD Maryland”) in the Assignment and
Assumption Agreement and entered into a series of Lot Purchase
Agreements by which NVR would purchase subdivided lots from SeD
Maryland (the “Lot Purchase Agreements”).
SeD
Maryland’s acquisition of the 197 acres was funded in part
from a $5.6 million deposit from NVR. The balance of $10.05 million
was derived from a total equity contribution of $15.2 million by
SeD Ballenger, LLC (“SeD Ballenger”) and CNQC Maryland
Development LLC (a unit of Qingjian International Group Co, Ltd,
China, “CNQC”). The project is owned by SeD. SeD
Maryland is 83.55% owned by SeD Ballenger and 16.45% by
CNQC.
Our
indirect subsidiary SeD Development Management, LLC is the manager
of Ballenger Run pursuant to a Management Agreement dated as of
July 15, 2015, by and between SeD Maryland and SeD Development
Management, LLC (the “Management Agreement”). Under the
Management Agreement, SeD Development Management, LLC manages,
operates and administers SeD Maryland’s day-to-day
operations, business and affairs, subject to the supervision of SeD
Maryland, and shall have only such functions and authority as SeD
Maryland may delegate to it. For performing these services, SeD
Development Management, LLC is entitled to a base management fee of
five percent of the gross revenue (including reimbursements) of
Ballenger Run. The base management fee is earned and paid in
monthly installments of $38,650, subject to adjustment after gross
revenue is determined. SeD Development Management, LLC may also
earn incentive compensation of 20% of any profit distributions to
SeD Maryland above a 30% pre-tax internal rate of
return.
SeD
Maryland entered into a Project Development and Management
Agreement for Ballenger Run with MacKenzie Development Company, LLC
and Cavalier Development Group, LLC on February 25, 2015 (the
“Project Development and Management Agreement”).
Pursuant to that agreement, MacKenzie Development Company, LLC
assigned its rights and obligations to this agreement to Adams
Aumiller Properties, LLC on September 9, 2017. Pursuant to the
Project Development and Management Agreement, Adams Aumiller, LLC
and Cavalier Development Group, LLC coordinate and manage the
construction, financing, and development of Ballenger Run. SeD
Maryland compensates Adams Aumiller LLC and Cavalier Development
Group, LLC with a monthly aggregate fee of $14,667 until all single
family and townhome lots have been sold. The monthly aggregate fee
will then adjust to $11,000, which will continue for approximately
eight months to allow all close out items to be finished, including
the release of guarantees and securities as required by the
government authorities. The Project Development and Management
Agreement for Ballenger Run also requires SeD Maryland to pay a fee
of $1,200 and $500 for each single-family and townhome,
respectively, sold to a third party. Finally, SeD Maryland will
also pay a fee of $50,000 upon the sale of certain portions of the
parcel.
We
anticipate that the completion of our involvement in this project
will take approximately three years from the date of this
prospectus.
Revenue
from Ballenger Run is anticipated to come from three main
sources:
●
sale
of 479 entitled and constructed residential lots to
NVR;
●
sale
of the lot for the 210 entitled multi-family units;
and
●
sale
of 479 front foot benefit assessments.
The
estimated construction costs and completion date for each phase are
as follows:
|
|
Estimated
Construction Costs
|
Expected
Completion Date
|
|
Phase
1
|
$13,786,000
|
Completed
|
|
Phase
2
|
10,210,000
|
December
2019
|
|
Phase
3
|
10,170,000
|
September
2020
|
|
Phase
4
|
3,460,000
|
March
2020
|
|
Phase
5
|
1,690,000
|
December
2021
|
|
Total
|
$39,316,000
|
|
On November 23, 2015, SeD Maryland and Union Bank
(formerly Xenith Bank and The Bank of Hampton Roads) entered into a
Construction Loan Agreement, as amended by the Loan Modification
Commitment Letter, as further amended by the Loan Modification
Commitment Letter, dated as of August 30, 2017 and as further
amended by the Third Loan Modification Agreement, dated as of
September 18, 2017 (the “Union Bank Revolving Loan”).
The Union Bank Revolving Loan closed simultaneous with the
settlement on the land on November 23, 2015, and provided (i) for a
maximum of $11 million outstanding; (ii) maturity on December 31,
2019; and (iii) an $800,000 letter of credit facility, with an
annual rate of 15% on all issued letters of credit. On
September 30, 2019 and December 31,
2018, the principal balances were $0 and $13,899, respectively. As
part of the transaction, we incurred loan origination fees and
closing fees, totaling $480,947, which were recorded as debt
discount and were amortized over the life of the loan. The
unamortized debt discounts were $0 on both September
30, 2019 and December 31,
2018.
The
loan was secured by a deed of trust on the property, $2,600,000 of
collateral cash, and a Limited Guaranty Agreement with SeD
Ballenger. In September 2017, SeD Maryland and the Union Bank
modified the related Revolving Credit Note, which increased the
original principal amount from $8,000,000 to $11,000,000 and
extended the maturity date of the loan and letter of credit to
December 31, 2019.
The
Union Bank Revolving Loan was intended to fund the development of
the first 276 lots, the multi-family parcel and senior living
parcel, the amenities associated with these phases, and certain
road improvements. The Union Bank Revolving Loan was repaid in
January 2019.
On
April 17, 2019, SeD Maryland Development LLC and Union Bank
terminated the Revolving Credit Note. After termination, Union Bank
still held $602,150 as collateral for current outstanding Letters
of Credit (L/C). The L/C collateral was released in June, 2019,
when all L/Cs were transferred to the M&T Bank L/C
Facility.
On
April 17, 2019, SeD Maryland Development LLC entered into a
Development Loan Agreement with Manufacturers and Traders Trust
Company (“M&T Bank”) in the principal amount not to
exceed at any one time outstanding the sum of $8,000,000, with a
cumulative loan advance amount of $18,500,000. The line of credit
bears interest of LIBOR plus 375 basis points. SeD Maryland
Development LLC was also provided with a L/C Facility in an
aggregate amount of $900,000. The L/C commission will be 1.5% per
annum on the face amount of the L/C. Other standard lender fees
will apply in the event L/C is drawn down. The loan is a revolving
line of credit. The L/C Facility is not a revolving loan, and
amounts advanced and repaid may not be re-borrowed. Repayment of
the Loan Agreement is secured by $2.6 million collateral fund and a
Deed of Trust issued to the Lender on the property owned by SeD
Maryland.
As of September 30, 2019, the principal balance of the loan was
$0. As part of the transaction, we incurred loan origination fees
and closing fees in the amount of $381,823 and capitalized them
into construction in process.
The
proceeds of the Land Development Loan and Letter of Credit Facility
will be used in connection with the Ballenger Run project,
including the development of certain single family lots. The Loan
Agreement contains standard representations and warranties. SeD
Intelligent Home Inc. will serve as the guarantor to the Land
Development Loan and Letter of Credit Facility and has executed an
Environmental Indemnification Agreement in favor of the
Lender.
Expenses
from Ballenger Run include, costs associated with land prices,
closing costs, hard development costs, cost in lieu of
construction, soft development costs and interest costs. We
presently estimate these costs to be between $55 and $56 million.
We may also encounter expenses which we have not anticipated, or
which are higher than presently anticipated.
We
are currently in the second of five phases for completion of this
project.
Sale of Residential Lots to NVR
The
residential lots were contracted for sale under the Lot Purchase
Agreements with NVR. NVR is a home builder engaged in the
construction and sale of single-family detached homes, townhouses
and condominium buildings. It also operates a mortgage banking and
title services business. Under the Lot Purchase Agreements, NVR
provided SeD Home with an upfront deposit of $5.6 million and has
agreed to purchase the lots at a range of prices. The lot types and
quantities to be sold to NVR under the Lot Purchase Agreements
include the following:
|
Lot
Type
|
|
|
Single
Family Detached Large
|
85
|
|
Single
Family Detached Small
|
89
|
|
Single
Family Detached Neo Traditional
|
33
|
|
Single
Family Attached 28’ Villa
|
121
|
|
Single
Family Attached 20’ End Unit
|
46
|
Single
Family Attached 16’ Internal Unit
|
105
|
|
Total
|
479
|
There are five different types of Lot Purchase
Agreements, which have generally the same terms except for the
price and unit details for each type of lot. Under the Lot Purchase
Agreements, NVR has agreed to purchase 30 available lots per
quarter. The Lot Purchase Agreements provide several conditions
related to preparation of the lots which must be met so that a lot
can be made available for sale to NVR. SeD Maryland is to provide
customary lot preparation including survey, grading, utilities
installation, paving, and other infrastructure and engineering. The
sale of 13 model lots to NVR began in May 2017. NVR has begun
marketing lots and has commenced sales. In the event NVR does not
purchase the lots under the Lot Purchase Agreements, SeD Maryland
would be entitled to keep the NVR deposit and terminate the Lot
Purchase Agreements. Should SeD Maryland breach a Lot Purchase
Agreement, it would have to return the remainder of the NVR deposit
that has not already been credited to NVR for any sales of lots
under the Lot Purchase Agreements, and NVR would be able to seek
specific performance of the Lot Purchase Agreements, as well as any
other rights available at law or in equity. 114 lots were sold in
the nine months ended September 30, 2019, compared to 102 lots sold in the year
ended December 31, 2018.
On
December 31, 2018, SeD Maryland entered into the Third Amendment to
the Lot Purchase Agreement (the “Third Amendment”) for
Ballenger Run with NVR. Pursuant to the Third Amendment, SeD
Maryland and NVR agreed that the number of certain lots that SeD
Maryland will sell to NVR (the 28 feet wide villa lots) would be
increased from the previously agreed 85 lots to a total of 121
lots. This property was previously zoned for 443 entitled
residential lots, 210 entitled multi-family units and 200 entitled
continuing care retirement community units approved for 20 years
from the date of a Developers Rights and Responsibilities
Agreement, dated as of October 8, 2014, as amended on September 6,
2016. SeD Maryland received the required zoning approval to change
the number of lots in July 2019. As a result of this Third
Amendment and the receipt of the required government approval, we
now plan to develop 479 entitled residential lots, 210 entitled
multi-family units and no continuing care retirement community
units at the Ballenger location.
SeD
Maryland and NVR agreed that NVR would pay SeD Maryland a $100,000
increase in the current deposit for the purchase of lots within
five business days of the Third Amendment, and that an additional
increase in the deposit in the amount of $200,000 would be made
once the needed approvals are received. Such deposits are
non-refundable.
Sale of Lots for the Multi-Family Units
In
June 2016, SeD Maryland entered into a lot purchase agreement with
Orchard Development Corporation relating to the sale of 210
multifamily units in the Ballenger Run Project for a total purchase
price of $5,250,000, which closed on August 7, 2018.
Sale of the Front Foot Benefit Assessments
Through
SeD Intelligent Home and its subsidiaries, we have established a
front foot benefit assessment on all of the NVR lots. This is a
30-year annual assessment allowed in Frederick County which
requires homeowners to reimburse the developer for the costs of
installing public water and sewer to the lots. These assessments
will become effective as homes are settled, at which time we can
sell the collection rights to investors who will pay an upfront
lump sum, enabling us to more quickly realize the revenue. Front
foot benefit assessments are subject to amendment by regulatory
agencies, legislative bodies, and court rulings, and any changes to
front foot benefit assessments could cause us to reassess these
projections.
Wetland Impact Permit
The
Ballenger Run project required a joint wetland impact permit, which
requires the review of several state and federal agencies,
including the U.S. Army Corps of Engineers and Maryland Department
of the Environment. The permit is primarily required for Phase 3 of
construction but it also affects a pedestrian trail at the
Ballenger Run project and the multi-family sewer connection. The
U.S. Army Corps of Engineers allowed us to proceed with
construction on Phase 1 but required archeological testing. In
November 2018, the archeological testing was completed with no
further recommendations on Phase 1 of the project. Required
architectural studies on the final phase of development will likely
result in the loss of only one lot, however, we cannot be certain
of future reviews and their impact on the
project.
The U.S. Army Corps of Engineers and Maryland Department of
the Environment permits were issued in June 2019. A modification to
the permit for a temporary stream crossing was also issued in
October 2019 allowing for the commencement of construction on Phase
3.
K-6 Grade School Site
In
connection with getting the necessary approvals for the Ballenger
Project, we agreed to transfer 30 acres of land that abut the
development for the construction of a local K-6 grade school. We
will not be involved in the construction of the
school.
Potential
Future Projects
In addition to these two main projects, we are
embarking on residential construction activities in partnership
with U.S. homebuilders, and have commenced discussions to acquire
smaller U.S. residential construction projects. These projects may
be within both the for-sale and for-rent markets. We
consider projects in diverse regions across the United States, and
maintain longstanding relationships with local owners, brokers,
attorneys and lenders to source projects. We will continue to focus
on off-market deals and raise appropriate financing for attractive
development opportunities. We believe these initiatives will
provide a set of solutions to stabilize the long term revenue
associated with property development in the United States and
create new ancillary service opportunities and revenue from this
business.
Our
property development business is headquartered in Bethesda,
Maryland. For the nine months ended September 30, 2019 and the
years ended December 31, 2018 and 2017, our property development
business accounted for 94%, 87% and 66% of our total revenues,
respectively.
Digital
Transformation Technology
Our
digital transformation technology business unit is committed to
enabling enterprises to engage in a digital transformation by
providing consulting, implementation and development services with
various technologies including blockchain, e-commerce, social media
and payment solutions. We commenced our technology business in 2015
through HotApp Blockchain, Inc., a 99.9% owned subsidiary of
Singapore eDevelopment. Its technology platform focuses on
business-to-business, or B2B, solutions, such as communications and
workflow, through instant messaging, international calling, social
media, e-commerce and payment systems and direct marketing. Using
its platform, consumers can discover and build their own
communities based on interests, location or their existing
networks. The HotApp platform tools empower these communities to
share their ideas and information across the multiple channels. As
these communities grow, they provide the critical mass that
attracts enterprises. The system is designed to ultimately help
enterprises and community users to transform their business models
in a more effective manner.
HotApp Blockchain
Subsidiary. Through HotApp, we have successfully implemented
several strategic platform developments for clients, including a
mobile front-end solution for network marketing, a hotel e-commerce
platform for a company in Asia and a real estate agent management
platform in China. We have also enhanced our technological
capability from mobile application development to include
architectural design, allowing mobile-friendly front-end solutions
to integrate with software platforms. HotApp’s main digital
assets at the present time are its applications. HotApp’s
emphasis will be on developing solutions and providing
services.
In
February 2017, HotApp entered into a revenue-sharing agreement with
iGalen Inc. Under the agreement, HotApp customized a secure app for
iGalen Inc.’s communication and management system. The app
enables mobile friendly backend access for iGalen Inc. members,
among other functions. HotApp is continuing to improve this secure
app. In particular, HotApp intends to utilize blockchain supply
logistics to improve its functions (the original iGalen app did not
utilize the latest distributed ledger technology). Once the
improvements to this technology are completed, and initially
utilized by iGalen, HotApp intends to then attempt to sell similar
services to other companies engaged in network marketing. This app
can be modified to meet the specific needs of any network marketing
company. We believe that these technologies will, among other
benefits, make it easier for network marketing companies to
securely and effectively manage their systems of compensation. Our
current plan is to commence sales of this technology in
2020.
In
addition to the development of technology for sales purposes,
HotApp also recently launched a new enterprise and intends to
expand its activities to include the development and
commercialization of other blockchain-related technologies. One
area we are presently exploring is providing technology consulting
for security token offerings (“STO”). Such services,
which have not yet commenced commercially, would include STO white
paper development, technology design and web development. HotApp
has no plans to launch its own token offering, but rather may
develop technologies that could facilitate such offerings by other
companies.
We
believe that the increasing acceptance of distributed ledger
technologies by potential customers will benefit us. The growth of
network marketing throughout the world would impact our
technologies that target that industry. In this rapidly evolving
field, however, technology is advancing quickly and it is possible
that our competitors could create products that gain market
acceptance before our products.
Biohealth
Business
With
populations aging and a growing focus on healthcare issues,
biohealth science has become increasingly vital. We recently
entered the biomedical and healthcare market by forming our
biohealth division, which is engaged in developing, researching,
testing, manufacturing, licensing and distributing (through retail,
direct selling, network marketing and e-commerce) biohealth
products and services. We strive to leverage our scientific
know-how and intellectual property rights to provide solutions to
pending healthcare issues. By tapping into the scientific expertise
of our subsidiaries and collaborating partners, we are undertaking
a concerted effort in the research and development, drug discovery
and development for the prevention, inhibition and treatment of
neurological, oncology and immune-related diseases.
Global BioLife Inc.
Our indirect majority-owned subsidiary Global BioLife Inc. has
biomedical intellectual property which was assigned to it by one of
the other shareholders in Global BioLife (such other shareholder is
owned by the chief scientist for the project). Most significantly,
this intellectual property portfolio includes patents for our
universal therapeutic drug platform, “Linebacker,”
which has demonstrated promising results in treating a range of
diseases including neurological, anti-microbial, anti-viral and
oncology diseases. Unlike the traditional approach to treat
individual diseases with specific drugs, the Linebacker platform
seeks to offer a breakthrough therapeutic option for multiple
diseases. Linebacker is designed to work by inhibiting a cascade of
inflammatory responses responsible for many diseases. Its design is
in direct contrast to the traditional approach of targeting
individual diseases with specific drugs. Charles River Laboratories
International, Inc., which an independent company that provides
services to help pharmaceutical and biotechnology companies,
government agencies and leading academic institutions around the
globe, has performed the studies needed for our Linebacker research
and drug development efforts. Linebacker is presently in the
development phase.
Through
Global BioLife, we have established a collaboration with U.S.-based
Chemia Corporation to develop specialized fragrances to counter
mosquito-borne diseases such as Zika and Dengue, among other
medical applications. The 3F mosquito fragrance product, which is
made from specialized oils sourced from botanicals that mosquitos
avoid, has shown promising results in repelling mosquitos in
laboratory testing. Global BioLife is seeking to commercialize this
product. In addition to the 3F mosquito fragrance, Global BioLife
is working with Chemia to develop additional 3F functional
fragrances for other applications.
We have
also developed a low-calorie, low glycemic level, natural modified
sugar through Global BioLife. The product, “Laetose,”
is a functional sugar with from 30% to 50% lower calorie count than
regular sugar, possesses low glycemic properties, and also
mitigates inflammation. This product is at the commercialization
stage. We are presently seeking to license Laetose.
iGalen International and
Holista CollTech. In connection with our expansion into
biohealth activities, we formed iGalen International Inc., in which
we own a 53% ownership stake and acquired a 19.8% ownership
interest in Holista CollTech, both of which companies source and
distribute patented dietary supplements and other health products.
Holista CollTech focuses on providing customers with scientifically
enhanced, engineered and tested natural health supplements and
consumer products. With business primarily in Australia and
Malaysia, Holista CollTech operates in three consumer segments
– healthy food ingredients, dietary supplements and collagen.
We research, develop, market and distribute health-oriented
products to address the growing needs of natural medicine. We offer
a suite of food ingredients including low-glycemic index baked
goods, low sodium salt, low-fat fried foods and low-calorie and
low-GI sugars. Holista CollTech produces cosmetic-grade sheep
(ovine) collagen using patented extraction methods from Australia.
In addition, iGalen Inc. has a longstanding agreement with Holista
CollTech to source all of its products exclusively from Holista
CollTech. iGalen Inc.’s primary product, Uncarb is a natural
carbohydrate optimizer that is intended to remove excess
carbohydrates, thereby improving blood sugar regulation and
achieving better blood lipid profiles and sustained weight
loss.
Holista CollTech
also recently launched its new low-glycemic index (GI) bread and
noodle products. The product’s main ingredients are locally
sourced and blended according to halal and kosher standards. The
noodle product is supported by Diabetes Canada, with a GI of 38,
well below the usual 60 to 65 for noodles. The product stems from
our support for fighting diabetes and obesity, particularly in
Asia.
Vivacitas Oncology.
We have an indirect equity interest of 14.2% at December 31, 2018
and 13.7% at September 30, 2019, in Vivacitas Oncology Inc., which
focuses on developing medications for cancer patients. We have a
close partnership with Vivacitas and its management, an experienced
research team and a distinguished medical advisory board. Vivacitas
seeks to bring more effective and less toxic chemotherapies to the
market for treatment of the most aggressive and intractable
cancers. At the present time, Vivacitas has three programs: (i) one
program has completed three clinical studies, including two Phase I
and one Phase II studies; (ii) one program for a potential
palliative treatment has completed three Phase III studies; and
(iii) one program is in the planning stages of a 2b/3 clinical
study.
Our
current financial statements do not yet reflect the acquisition of
our interests in Holista CollTech and Vivacitas Oncology, and we do
not consolidate or manage their operations.
Other Business Activities
In
addition to our three principal business activities, we generally
oversee several smaller other business activities at the present
time which we believe complement our three principal
businesses.
Global
Systematic Multi-Strategy Fund. Global Systematic
Multi-Strategy Fund (the "GSMS Fund"), a fund managed by one of our
indirect subsidiaries, LiquidValue Asset Management Pte. Ltd.
("LVAM") achieved a net return of approximately 20% for the year
ended December 31, 2017. Launched in June 2016, the GSMS Fund
adopts an "all-weather" strategy that seeks to produce consistent
risk-adjusted returns regardless of market volatility. It employs a
systematic approach focusing on liquid exchange traded securities
that are diversified across asset classes, geographical regions and
time frames. LVAM is a registered fund management company regulated
by the Monetary Authority of Singapore. LVAM intends to close the
GSMS Fund during the first half of 2020.
BMI Capital
Partners. Singapore eDevelopment's wholly-owned Hong
Kong subsidiary, BMI Capital Partners International Limited is a
boutique consultancy with a special focus on grooming clients to
become eligible to seek a stock exchange listing and offers debt
restructuring services. We have also been in negotiations with
various potential clients seeking business incubation, including
capital market opportunities in China. Recently, for example, we
have secured projects which include a feasibility study for a Hong
Kong firm to explore capital market options such as a potential
public listing on the Hong Kong Stock Exchange and a consultancy
contract to restructure a U.S. OTC-listed medical company.
As of September
30, 2019 and December 31, 2018 and 2017, the value of our interests
in the other business activities described above represented less
than 10% of the value of our total assets.
Sales and Marketing
We
focus our corporate marketing efforts on increasing brand
awareness, communicating the advantages of our various platforms
and generating qualified leads for our sales team. Our corporate
marketing plan is designed to continually elevate awareness of our
brand and generate demand for our offerings. We rely on a number of
channels in this area, including digital advertising, email
marketing, social media, affiliate marketing and broad-based media,
as well as through various strategic partnerships. We maintain our
website at http://www.hfenterp.com, and our various operating
subsidiaries maintain individual websites, many of which are
accessible through our main website.
Each of
our businesses has developed a field sales force in their
geographic markets. These sales force teams are responsible for
identifying and managing individual sales opportunities in their
respective regions.
Competition
The
businesses in which we participate, property development, digital
transformation technology and biohealth, are each highly
competitive. Competition is based upon several factors, including
price, reputation, quality and brand recognition. Existing and
future competitors may introduce products and services in the same
markets we serve, and competing products or services may have
better performance, lower prices, better functionality and broader
acceptance than our products. Our competitors may also add features
to their products or services similar to features that presently
differentiate our product and service offerings from theirs. This
competition could result in increased sales and marketing expenses,
thereby materially reducing our operating margins, and could harm
our ability to increase, or cause us to lose, market share. Some of
our competitors and potential competitors supply a wide variety of
products and services, and have well-established relationships with
our current and prospective customers.
Most,
if not all, of our current and potential competitors may have
significantly greater resources or better competitive positions in
certain product segments, geographic regions or user demographics
than we do. These factors may allow our competitors to respond more
effectively than us to new or emerging technologies and changes in
market conditions. By way of example,
in our property development business, some of our competitors
already have the advantage of having created vertically integrated
businesses, while other competitors have broader and deeper
relationships with sources of financing. Other competitors in
our property development business may have more substantial ties
and experience in geographical areas in which we
operate.
Our competitors may
develop products, features or services that are similar to ours or
that achieve greater acceptance, may undertake more far-reaching
and successful product development efforts or marketing campaigns,
or may adopt more aggressive pricing policies. This is particularly
relevant for our digital transformation technology business.
Certain competitors could use strong or dominant positions in one
or more markets to gain competitive advantage against us in our
target market or markets. As a result, our competitors may acquire
and engage customers or generate revenue at the expense of our own
efforts.
Protection of Proprietary Technology
We rely
on a combination of patent, trademark, copyright and trade secret
laws in the United States and other jurisdictions, as well as
confidentiality procedures and contractual provisions, to protect
our proprietary information, technology and brands.
We
protect our proprietary information and technology, in part, by
generally requiring our employees to enter into agreements
providing for the maintenance of confidentiality and the assignment
of rights to inventions made by them while employed by us. We also
may enter into non-disclosure and invention assignment agreements
with certain of our technical consultants to protect our
confidential and proprietary information and technology. We cannot
assure you that our confidentiality agreements with our employees
and consultants will not be breached, that we will be able to
effectively enforce these agreements, that we will have adequate
remedies for any breach of these agreements, or that our trade
secrets and other proprietary information and technology will not
be disclosed or will otherwise be protected.
We also
rely on contractual and license agreements with third parties in
connection with their use of our technology and services. There is
no guarantee that such parties will abide by the terms of such
agreements or that we will be able to adequately enforce our
rights. Protection of confidential information, trade secrets and
other intellectual property rights in the markets in which we
operate and compete is highly uncertain and may involve complex
legal questions. We cannot completely prevent the unauthorized use
or infringement of our confidential information or intellectual
property rights as such prevention is inherently difficult. Costly
and time-consuming litigation could be necessary to enforce and
determine the scope of our confidential information and
intellectual property protection.
Government Regulation
Like
many similarly diversified companies, our operations are subject to
routine regulation by governmental agencies. Much of this
regulation will affect us indirectly, inasmuch as, and to the
extent that, it affects our customers more directly. A summary of
the laws and regulations that might affect our customers is set
forth below.
Property Development
Business. The development of
our real estate projects will require us to comply with federal,
state and local environmental regulations. In connection
with this compliance, our real estate acquisition and development
projects will require environmental studies. To date, we have spent
approximately $42,356 on environmental studies and compliance.
Such costs are reflected in
construction progress costs in our financial
statements.
The cost of complying with governmental
regulations is significant and will
increase if we add additional real estate projects, become involved
in homebuilding in the future and are required to comply with
certain due diligence procedures related to third party
lenders.
At
the present time, we believe that we have all of the material
government approvals that we need to conduct our business as
currently conducted. We are subject to periodic local permitting
that must be addressed, but we do not anticipate that such
requirements for government approval will have a material impact on
our business as presently conducted. We are required to comply with
government regulations and to make filings from time to time with
various government entities. Such work is typically handled by
outside contractors we retain.
Digital Transformation
Technology Business. Companies conducting business on the
internet are subject to a number of foreign and domestic laws and
regulations. In addition, laws and regulations relating to user
privacy, freedom of expression, content, advertising, information
security and intellectual property rights are being debated and
considered for adoption by many countries throughout the world.
Online businesses face risks from some of the proposed legislation
that could be passed in the future.
The
adoption of any laws or regulations that adversely affect the
growth, popularity or use of the internet, including laws impacting
internet neutrality, could decrease the demand for our services and
increase our cost of doing business. As we expand internationally,
government regulation concerning the internet, and in particular,
network neutrality, may be nascent or non-existent. Within such a
regulatory environment, coupled with potentially significant
political and economic power of local network operators, we could
experience discriminatory or anti-competitive practices that could
impede our growth, cause us to incur additional expense or
otherwise negatively affect our business.
In the
United States, laws relating to the liability of providers of
online services for activities of their users and other third
parties are currently being tested by a number of claims, which
include actions for libel, slander, invasion of privacy and other
tort claims, unlawful activity, copyright and trademark
infringement, and other theories based on the nature and content of
the materials searched, the ads posted, or the content generated by
users. Certain foreign jurisdictions are also testing the
liability of providers of online services for activities of their
users and other third parties. Any court ruling that imposes
liability on providers of online services for activities of their
users and other third parties could harm our licensees’
businesses, and thus, indirectly, our business.
Biohealth Business.
Our businesses are subject to varying degrees of governmental
regulation in the countries in which operations are conducted, and
the general trend is toward increasingly stringent regulation. In
the United States, the drug, device and cosmetic industries have
long been subject to regulation by various federal and state
agencies, primarily as to product safety, efficacy, manufacturing,
advertising, labeling and safety reporting. The exercise of broad
regulatory powers by the U.S. Food and Drug Administration, or FDA,
continues to result in increases in the amounts of testing and
documentation required for FDA approval of new drugs and devices
and a corresponding increase in the expense of product
introduction. Similar trends are also evident in major markets
outside of the United States. The new medical device regulatory
framework and the new privacy regulations in Europe are examples of
such increased regulation.
The
costs of human health care have been and continue to be a subject
of study, investigation and regulation by governmental agencies and
legislative bodies around the world. In the United States,
attention has been focused on drug prices and profits and programs
that encourage doctors to write prescriptions for particular drugs,
or to recommend, use or purchase particular medical devices. Payers
have become a more potent force in the market place and increased
attention is being paid to drug and medical device pricing,
appropriate drug and medical device utilization and the quality and
costs of health care generally. The regulatory agencies under whose
purview we operate have administrative powers that may subject it
to actions such as product withdrawals, recalls, seizure of
products and other civil and criminal sanctions. In some cases, our
subsidiaries may deem it advisable to initiate product
recalls.
In
addition, business practices in the health care industry have come
under increased scrutiny, particularly in the United States, by
government agencies and state attorneys general, and resulting
investigations and prosecutions carry the risk of significant civil
and criminal penalties.
Further, we rely on
global supply chains, and production and distribution processes,
that are complex, are subject to increasing regulatory
requirements, and may be faced with unexpected changes that may
affect sourcing, supply and pricing of materials used in our
products. These processes also are subject to lengthy regulatory
approvals.
As
described above, certain of our businesses are subject to
compliance with laws and regulations of U.S. federal and state
governments, non-U.S. governments, their respective agencies and/or
various self-regulatory organizations or exchanges relating to,
among other things, disclosure and the privacy of client
information, and any failure to comply with these regulations could
expose us to liability and/or damage our reputation. Our businesses
have operated for many years within a legal framework that requires
us to monitor and comply with a broad range of legal and regulatory
developments that affect our activities. However, additional
legislation, changes in rules promulgated by self-regulatory
organizations or changes in the interpretation or enforcement of
existing laws and rules, either in the United States or elsewhere,
may directly affect our mode of operation and
profitability.
Rigorous legal and
compliance analysis of our businesses is endemic to our culture and
risk management. Management of each of our businesses supervise our
compliance personnel, who are responsible for addressing all
regulatory and compliance matters that affect our activities. We
strive to maintain a culture of compliance through the use of
policies and procedures, including a code of ethics, electronic
compliance systems, testing and monitoring, communication of
compliance guidance and employee education and training. Our
compliance policies and procedures address a variety of regulatory
and compliance matters such as the handling of material non-public
information, personal securities trading, marketing practices,
gifts and entertainment, valuation of investments, recordkeeping,
potential conflicts of interest, the allocation of corporate
opportunities, collection of fees and expense
allocation.
We also
monitor the information barriers that we maintain between the
public and private sides of our businesses. We believe that our
various businesses’ access to the intellectual knowledge and
contacts and relationships that reside throughout our firm benefits
all of our businesses. To maximize that access without compromising
compliance with our legal and contractual obligations, our
compliance group oversees and monitors the communications between
groups that are on the private side of our information barrier and
groups that are on the public side, as well as between different
public side groups. Our compliance group also monitors contractual
obligations that may be impacted and potential conflicts that may
arise in connection with these inter-group
discussions.
Facilities
We
manage our worldwide business from our principal executive offices
located in Bethesda, Maryland, in a leased space of approximately
2,059 square feet, under a lease expiring in December 2020. We also
maintain offices in Singapore, Magnolia, Texas, and Hong Kong
through leased spaces aggregating approximately 6,529 square feet,
under leases expiring on various dates from April 2020 to October,
2020. The leases have rental rates ranging from $2,409 to $10,814
per month. Our total rent expense under these office leases was
approximately $315,426 and $272,716 in 2018 and 2017, respectively.
We expect total rent expense to be approximately $295,041 under
office leases in 2019. We believe our present office space and
locations are adequate for our current operations and for near-term
planned expansion.
Employees
As of
December 23, 2019, we had a total of 17 full-time employees. In
addition to our full-time employees, we occasionally hire part-time
employees and independent contractors to assist us in various
operations, including property development, research and product
development and production.
Our
future success will depend in part on our ability to attract,
retain and motivate highly qualified technical and sales personnel
for whom competition is intense. Our employees are not represented
by any collective bargaining unit. We believe our relations with
employees and contractors are good.
Legal Proceedings
On
September 27, 2019, iGalen International Inc., one of our
majority-owned subsidiaries, and iGalen Inc., its wholly-owned
subsidiary, filed a complaint in the Superior Court of the State of
California, County of San Diego, Central Division, against Gara
Group, Inc., a Delaware corporation, and certain affiliated or
related entities, including the Chief Executive Officer of the Gara
Group (collectively these entities are referred to herein as the
“Gara Group”). A similar complaint had been filed in
Utah on September 26, 2019, but subsequently re-filed in
California. The complaint, as amended on October 24, 2019,
enumerates causes of action for breach of contract, breach of
covenant of good faith and fair dealing and intentional
interference with economic relations.
iGalen
Inc. and Gara Group are parties to a Specialized Services
Agreement, dated March 29, 2017 (the “Specialized Services
Agreement”). iGalen Inc. contracted with Gara Group to
provide for services that include, among other things, (i) product
fulfillment; (ii) software development and maintenance of an onsite
“Platform,” which includes a company website and
interactive portal referred to as the “Back Office”;
and (iii) managing iGalen’s social media sites. The Gara
Group had previously claimed that iGalen Inc. owed Gara Group
certain amounts, including (i) $125,000 for “Back Office
Fees”; (ii) $150,000 for “Speaking Fees”; and
(iii) $67,299 for services related to iGalen’s merchant
account, back office, and shipping fulfillment, invoiced on August
28 and 31, and September 15, 2019. iGalen Inc.’s amended
complaint notes that no provision in the Specialized Services
Agreement allows for the particular “Back Office Fees”
of $125,000 and that no provision in the Specialized Services
Agreement allows for the so-called “Speaking Fees” of
$150,000. Gara Group cut off services to iGalen following
iGalen’s indication that it was disputing the amounts owed.
iGalen’s amended complaint notes that the actions of Gara
Group and Mr. Gara have caused, and continue to cause, iGalen to
suffer substantial harm by, among other things, making it so iGalen
was unable to communicate with distributors via its website and
Back Office, fulfill orders made by distributors, or pay commission
to distributors. iGalen is seeking damages.
On
October 10, 2019, Gara Group filed a complaint in the Superior
Court of the State of California, County of San Diego, Central
Division against iGalen International Inc., iGalen Inc., Singapore
eDevelopment Limited, Chan Heng Fai, Dr. Rajen Manicka and David
Price, an executive of iGalen Inc. Gara Group’s complaint for
damages asserts that the Gara Group is entitled to general damages
of $9,000,000 and liquidated damages of $50,000,000. iGalen Inc.
intends to vigorously contest this matter. No trial date has been
set as of the date of this prospectus.
In
addition, from time to time, during the normal course of our
businesses, we may be subject to various litigation claims and
legal disputes, including in the area of intellectual property
(e.g., trademarks, copyrights and patents). Our intellectual
property rights extend to our technology, business processes and
the content on our website. We use the intellectual property of
third parties in marketing and providing our services through
contractual and other rights. Despite our efforts, from time to
time, third parties may allege that we have violated their
intellectual property rights.
Although the
results of claims, lawsuits and proceedings in which we may be
involved cannot be predicted with certainty, we do not currently
believe that the final outcome of the matters discussed above will
have a material adverse effect on our business, financial condition
or results of operations. However, defending and prosecuting any
such claims is costly and may impose a significant burden on our
management and employees. In addition, we may receive unfavorable
preliminary or interim rulings in the course of litigation, and
there can be no assurances that favorable final outcomes will be
obtained. With regard to intellectual property matters which may
arise, if we are unable to obtain an outcome which sufficiently
protects our rights, successfully defends our use or allows us time
to develop non-infringing technology and content or to otherwise
alter our business practices on a timely basis in response to the
claims against us, our business, prospects and competitive position
may be adversely affected.
MANAGEMENT
Executive Officers, Directors and Key Employees
The
following table sets forth the names and ages of our executive
officers, directors, director nominees and key employees, and their
positions with us, as of December 23, 2019:
|
Name
|
|
Position(s)
|
|
Chan Heng
Fai
|
75
|
Founder, Chairman
of the Board and Chief Executive Officer
|
|
Lui Wai Leung
Alan
|
49
|
Co-Chief Financial
Officer
|
|
Rongguo
Wei
|
48
|
Co-Chief Financial
Officer
|
|
Ang Hay Kim
Aileen
|
59
|
Executive
Director
|
|
Wong Tat
Keung
|
49
|
Director
Nominee
|
|
Charles
MacKenzie
|
48
|
Director Nominee
and Chief Development Officer
|
|
John
Thatch
|
57
|
Director
Nominee
|
|
Robert
Trapp
|
64
|
Director
Nominee
|
|
Michael
Gershon
|
47
|
Chief Legal
Officer
|
The
principal occupations for the past five years of each of our
executive officers, directors, director nominees and key employees
are as follows:
Executive Officers and Directors
Chan Heng Fai founded HF Enterprises
Inc. and has served as our Chairman of the Board and Chief
Executive Officer since inception. Mr. Chan is an expert in banking
and finance, with 45 years of experience in these industries. He
has restructured numerous companies in various industries and
countries during the past 40 years. Mr. Chan has served as the
Chief Executive Officer of our subsidiary Singapore eDevelopment
Ltd. since April 2014. Mr. Chan joined the Board of Directors of
Singapore eDevelopment, Ltd. in May 2013. From 1992 to 2015, Mr.
Chan served as Managing Chairman of Hong Kong-listed ZH
International Holdings, Ltd. (“ZH Holdings,” formerly
known as Heng Fai Enterprises Limited), an investment holding
company. Mr. Chan was formerly the Managing Director of SingHaiyi
Group Ltd., a public Singapore property development, investment and
management company (“SingHaiyi”), from March 2003 to
September 2013, and the Executive Chairman of China Gas Holdings
Limited, an investor and operator of the city gas pipeline
infrastructure in China from 1997 to 2002.
Mr.
Chan has served as a non-executive director of Document Security
Systems, Inc. since January 2017 and as Chairman of the Board since
March 2019. Mr. Chan has served as a member of the Board of
Directors of OptimumBank Holdings, Inc. since June of 2018. He has
also served as a non-executive director of our indirect subsidiary
SeD Intelligent Home Inc. since January 2017. Mr. Chan has also
served as a non-executive director of Holista CollTech Ltd., since
July 2013. Mr. Chan has served as a non-executive director of
Singapore eDevelopment’s 99.98%-owned subsidiary HotApp
Blockchain Inc. since October 2014. Mr. Chan has also served as
director of Heng Fai Enterprises Limited since September
1992.
Mr. Chan was
formerly a director of Global Medical REIT Inc., a healthcare
facility real estate company, from December 2013 to July 2015. He
also served as a director of Skywest Ltd., a public Australian
airline company from 2005 to 2006. Additionally, from November 2003
to September 2013, he was a Director of SingHaiyi. Mr. Chan served
as a member of the Board of Directors of RSI International Systems,
Inc., the developer of RoomKeyPMS, a web-based property management
system, from June 2014 to February 2019.
Mr.
Chan has committed that the majority of his time will be devoted to
managing the affairs of our company; however, Mr. Chan may engage
in other business ventures, including other technology-related
businesses.
As the
founder, Chairman, Chief Executive Officer and our largest
stockholder, Mr. Chan leads the board and guides our company. Mr.
Chan brings extensive property development and digital
transformation technology knowledge to our company and a deep
background in growth companies, emerging markets, mergers and
acquisitions, and capital market activities. His service as
Chairman and Chief Executive Officers creates a critical link
between management and the board.
Lui Wai Leung Alan has been our Co-Chief
Financial Officer since March 2018. Mr. Lui has been the Chief
Financial Officer of Singapore eDevelopment since November 2016 and
served as its Acting Chief Financial Officer since June 2016. Mr.
Lui has served as a director of BMI Capital Partners International
Ltd, a Hong Kong investment consulting company, since October 2016.
He has also served as a director of LiquidValue Asset Management
Pte Limited, a Singapore fund management company, since April 2018.
Both companies are wholly owned subsidiaries of Singapore
eDevelopment. Mr. Lui has served as the Co-Chief Financial Officer
of SeD Intelligent Home Inc. since December 2017 and has served as
the Co-Chief Financial Officer of SeD Home Inc. since October 2017.
Mr. Lui has served as Chief Financial Officer of HotApp Blockchain
Inc. since May 2016 and has served as a director of one of
HotApp’s subsidiaries since July 2016. From June 1997 through
March 2016, Mr. Lui served in various executive roles at ZH
International Holdings Ltd., a Hong Kong-listed company, including
as Financial Controller. Mr. Lui oversaw the financial and
management reporting and focusing on its financing operations,
treasury investment and management. He has extensive experience in
financial reporting, taxation and financial consultancy and
management. Mr. Lui is a certified practicing accountant in
Australia and received a Bachelor’s degree in Business
Administration from the Hong Kong Baptist University.
Rongguo Wei has been our Co-Chief
Financial Officer since March 2018. Mr. Wei has served as the Chief
Financial Officer of SeD Intelligent Home Inc. since March 2017.
Mr. Wei is a finance professional with more than 15 years of
experience working in public and private corporations in the United
States. As the Chief Financial Officer of SeD Development
Management LLC, Mr. Wei is responsible for oversight of all
finance, accounting, reporting and taxation activities for that
company. Prior to joining SeD Development Management LLC in August
2016, Mr. Wei worked for several different U.S. multinational and
private companies including serving as Controller at American Silk
Mill, LLC, a textile manufacturing and distribution company, from
August 2014 to July 2016, serving as a Senior Financial Analyst at
Air Products & Chemicals, Inc., a manufacturing company, from
January 2013 to June 2014, and serving as a Financial/Accounting
Analyst at First Quality Enterprise, Inc., a personal products
company, from 2011 to 2012. Mr. Wei served as a member of the Board
Directors of Amarantus Bioscience Holdings, Inc., a biotech
company, from February to May 2017, and has served as Chief
Financial Officer of that company from February 2017 until November
2017. Before Mr. Wei came to the United States, he worked as an
equity analyst at Hong Yuan Securities, an investment bank in
Beijing, China, concentrating on industrial and public company
research and analysis. Mr. Wei is a certified public accountant and
received his Master of Business Administration from the University
of Maryland and a Master of Business Taxation from the University
of Minnesota. Mr. Wei also holds a Master in Business degree from
Tsinghua University and a Bachelor’s degree from Beihang
University.
Ang Hay Kim Aileen has been our
Executive Director since March 2018. Ms. Ang has more than 20 years
of experience in finance and treasury, legal, human resources and
office administration. She is the Senior Vice President, Corporate
Services of Singapore eDevelopment, a position she has held since
2013 and a director of various indirect subsidiaries of our
company. She also holds a Cert-in-CEHA (Singapore real estate
industry certificate) and operates her own real estate business,
Ideal Realty Pte Ltd., since 2015. Ms. Ang was General Manager,
Corporate Services of Singapore Exchange listed Singxpress Ltd.
(now known as SingHaiyi Group Ltd.) from 2002 to 2013. She was
Senior Sales Director, Resale Division with DTZ Property Network
Pte. Ltd., a Singapore real estate company, from 2005 to
2011.
Ms.
Ang’s day-to-day operational leadership of our various
businesses and her knowledge of property development and the real
estate business make her well-qualified as a member of the
Board.
Wong Tat Keung has agreed to join the
Board of Directors of our company upon the closing of this
offering. Since 2010, Mr. Wong has served as the director of Aston
Wong CPA Limited. He has been an independent non-executive director
of Singapore eDevelopment since January 2017. Mr. Wong has been an
independent non-executive director of Roma Group Limited, a
valuation and technical advisory firm, since March 2016, and has
served as an independent non-executive director of Lerthai Group
Limited, a property, investment, management and development
company, since December 2018. Previously, he served as the director
and sole proprietor of Aston Wong & Co., a registered certified
public accounting firm, from January 2006 to February 2010. From
January 2005 to December 2005, he was a Partner at Aston Wong, Chan
& Co., Certified Public Accountants. From April 2003 to
December 2004, he served at Gary Cheng & Co., Certified Public
Accountants as Audit Senior. He served as an Audit Junior to
Supervisor of Hui Sik Wing & Co., certified public accountants
from April 1993 to December 1999. He served as an independent
non-executive director of SingHaiyi from July 2009 to July 2013 and
ZH Holdings from December 2009 to July 2015. Mr. Wong is a
Certified Public Accountant admitted to practice in Hong Kong. He
is a Fellow Member of Association of Chartered Certified
Accountants and an Associate Member of the Hong Kong Institute of
Certified Public Accountants. He holds a Master in Business
Administration degree (financial services) from the University of
Greenwich, London, England.
Mr.
Wong demonstrates extensive knowledge of complex, cross-border
financial, accounting and tax matters highly relevant to our
business, as well as working experience in internal corporate
controls, making him well-qualified to serve as an independent
member of the board.
Charles MacKenzie has agreed to join the
Board of Directors of our company upon the closing of this
offering. Mr. MacKenzie was appointed our Chief Development Officer
in December of 2019. Mr. MacKenzie has served as a member of the
Board of Directors of SeD Intelligent Home since December of
2017. He has served as Chief Executive Officer of SeD Home
Inc. since September 2019 and has served as the Chief Development
Officer for SeD Development Management, a subsidiary of SeD Home,
since July of 2015. Mr. MacKenzie also serves as a member of the
Board of Directors of SeD Home since October of 2017. He was
previously the Chief Development Officer for Inter-American
Development (IAD), a subsidiary of Heng Fai Enterprises from April
of 2014 to June of 2015. Mr. MacKenzie was the owner of Smartbox
Portable Storage, a residential moving and storage company, from
October 2006 to a successful sale in February 2017. Mr. MacKenzie
focuses on acquisitions and development of residential and
mixed-use projects within the United States. Mr. MacKenzie
specializes in site selection, contract negotiations, marketing and
feasibility analysis, construction and management oversight,
building design and investor relations. Mr. MacKenzie received a
B.A. and graduate degree from St. Lawrence University, where he
served on Board of Trustees from 2003 to 2007.
Mr.
MacKenzie’s extensive knowledge of real estate and ability to
assist our company in expanding its business qualify him to serve
as a member of the Board.
John "JT" Thatch has agreed to join the
Board of Directors of our company upon the closing of this
offering. Mr. Thatch is an accomplished entrepreneur who has
started, owned and operated several businesses in various
industries, public and private. The companies include a wide
variety of sectors including retail, wholesale, educational
services, finance, real estate management and technology companies.
Currently, Mr. Thatch is the Chief Executive Officer and a director
of Sharing Services Global Corporation, a publicly traded holding
company focused in the direct selling and marketing industry. He
has served in this role since March 2018. He is also a principal of
Superior Wine & Spirits, LLC, a Florida-based company that
imports, wholesales and distributes wine and liquor, a position he
has held since February 2016. Mr. Thatch served as Chief Executive
Officer of Universal Education Strategies, Inc. from January 2009
until December 2015, an organization consisting of six companies
that specialized in the development and sales of educational online
products and services. From 2000 to 2005, he was the Chief
Executive Officer of Onscreen Technologies, Inc., currently listed
on Nasdaq as CUI Global, Inc., a developer of cutting-edge thermal
management technologies for integrated LED technologies, circuits
and superconductors. Mr. Thatch was responsible for all aspects of
the company including board and shareholder communications, public
reporting and compliance with Sarbanes-Oxley, structuring and
managing the firm’s financial operations, and expansion
initiatives for all corporate products and services. He also
currently serves as the lead independent board member of Document
Security Systems Inc., a NYSE-listed company. He has had this
position since May 2019 and serves on several of that
company’s committees.
Mr.
Thatch’s public company financial and management experience
in the strategic growth and development of various companies
qualify him to serve as a member of the Board. Mr. Thatch will be
an independent director.
Robert Trapp has agreed to join the
Board of Directors of our company upon the closing of this
offering. Mr. Trapp has 35 years of cross-cultural business
experience with both public and privately-owned companies in Asia,
the United States and Canada, in a diverse range of industries
including hospitality, finance, property, mining, software, biotech
and consumer goods. Mr. Trapp is the Chief Executive Officer of BMI
Capital International LLC, a FINRA broker-dealer, a position he has
held since June 2015. Mr. Trapp also served as General Manager of
SeD Development Management LLC, a subsidiary of Singapore
eDevelopment, a position he held from September 2015 to February
2018. In addition, Mr. Trapp presently serves on the Board of
Directors of several of the subsidiaries of Singapore eDevelopment.
Mr. Trapp has served on the Board of Directors of AVANT Diagnostics
Inc., since November 2017. Previously, Mr. Trapp served on the
Board of Directors of Amarantus Bioscience Holdings Inc. from
February 2017 until May 2017 and on the Board of Directors of
HotApp International Inc. from December 2014 until June 2016. Mr.
Trapp served as President and Director at Master of Real Estate
LLC, a subsidiary of ZH International Holdings Ltd. (formerly Heng
Fai Enterprises Limited), a company listed on the Hong Kong Stock
Exchange, from August 2014 to August 2015 and served as Senior
Vice-President with Inter-American Management LLC, a property
management subsidiary of ZH International Holdings Ltd, from
October 2013 to August 2015. Mr. Trapp served as a Director of
eBanker USA.com, a subsidiary of ZH International Holdings Ltd,
from August 1998 to August 2015, and served as General Manager and
Rep Director with Hotel Plaza Miyazaki, a subsidiary of eBanker
USA.com, from September 2009 to May 2013. Mr. Trapp holds a
Bachelor of Commerce degree from the University of Calgary and a
Bachelor of Applied Arts in Hospitality & Tourism Management
from Ryerson University in Toronto, Canada.
Mr.
Trapp’s hands-on experience in operational management,
administration, financial management, marketing, and regulatory
compliance in diverse industries qualifies him to serve as a member
of the Board.
Key Employees
Michael Gershon has been our Chief Legal
Officer since October 2018. Mr. Gershon has served as Chief Legal
Officer of our subsidiary SeD Development Management LLC since
April 2019 and from February 2017 until April 2019 served as
Associate Corporate Counsel of that subsidiary. Prior to joining
our company, Mr. Gershon served as an attorney adviser with the
Division of Corporation Finance at the U.S. Securities and Exchange
Commission from November 2015 until November 2016 and served as an
associate at the law firm of Wuersch & Gering LLP from August
2004 until January 2015. Mr. Gershon received a B.A. degree in
economics from Boston College and a J.D. from Georgetown University
Law Center.
Status
as a Controlled Company
Chan
Heng Fai, through HFE Holdings Limited controls a majority of the
combined voting power of all classes of our voting stock. As a
result, we qualify as a “controlled company” within the
meaning of the listing standards of Nasdaq, and we have elected not
to comply with certain Nasdaq corporate governance requirements.
Therefore, we do not have a majority of independent directors
serving on our board and have individuals serving on our
compensation committee that do not qualify as independent according
to Nasdaq listing standards and the rules and regulations of the
SEC. Following this offering, we intend to utilize certain of these
exemptions. As a result, we will not have a majority of independent
directors on our board of directors.
The
“controlled company” exemption does not modify the
independence requirements for the audit committee, and we will
comply with the requirements of the SEC and Nasdaq Marketplace
Rules requiring that our audit committee be composed exclusively of
independent directors, subject to the phase-in provisions of the
applicable listing requirements and the SEC’s rules, which
permit up to one committee member that does not satisfy the
applicable independence requirements for up to one year after the
date of the offering. Nominations and corporate governance
functions will initially be managed by our full Board.
Our
board of directors has determined that Mr. Wong and Mr. Thatch are
independent within the meaning of Nasdaq
Rule 5605(a)(2).
We
are in the process of identifying other qualified independent
directors.
Board of Directors and Corporate Governance
When
considering whether directors have the experience, qualifications,
attributes and skills to enable the Board of Directors to satisfy
its oversight responsibilities effectively in light of our business
and structure, the Board of Directors focuses primarily on the
information discussed in each of the directors’ individual
biographies as set forth above.
The
Board of Directors periodically reviews relationships that
directors have with our company to determine whether the directors
are independent. Directors are considered
“independent” as long as they do not accept any
consulting, advisory or other compensatory fee (other than director
fees) from us, are not an affiliated person of our company or our
subsidiaries (e.g., an officer or a greater than 10% stockholder)
and are independent within the meaning of applicable United States
laws, regulations and the Nasdaq Capital Market listing rules. In
this latter regard, the Board of Directors uses the Nasdaq
Marketplace Rules (specifically, Section 5605(a)(2) of such rules)
as a benchmark for determining which, if any, of our directors are
independent, solely in order to comply with applicable SEC
disclosure rules.
The
Board of Directors has determined that, of our director nominees,
only Mr. Wong and Mr. Thatch are independent within the meaning of
the Nasdaq Marketplace Rule cited above. Each of Mr. Chan, Ms. Ang,
Mr. MacKenzie and Mr. Trapp are either current or former officers
or employees of our company or its subsidiaries, together with Mr.
Chan’s beneficial ownership of more than 10% of our
outstanding common stock, preclude them from being considered
independent within the meaning of the Nasdaq Listing
Rule.
Board Committees
Upon
the closing of this offering, our Board of Directors will have an
Audit Committee and Compensation Committee. The Audit Committee
will be initially composed of Mr. Wong (as Chairman), and Mr.
Thatch.
Our
Audit Committee and Compensation Committee will each comply with
the listing requirements of the Nasdaq Marketplace Rules. At least
one member of the Audit Committee will be an “audit committee
financial expert,” as that term is defined in Item
407(d)(5)(ii) of Regulation S-K, and each member will be
“independent” as that term is defined in Rule 5605(a)
of the Nasdaq Marketplace Rules. Our Board of Directors has
determined that each of Mr. Wong and Mr. Thatch are
independent.
Code of Ethics
We have
adopted a written code of ethics that applies to all of our
directors, officers and employees in accordance with the rules of
the Nasdaq Capital Market and the SEC. Prior to the closing of this
offering, we will post a copy of our code of ethics, and intend to
post amendments to this code, or any waivers of its requirements,
on our company website.
Conflicts of Interest
We
comply with applicable state law with respect to transactions
(including business opportunities) involving potential
conflicts. Applicable state corporate law requires that all
transactions involving our company and any director or
executive officer (or other entities with which they are
affiliated) are subject to full disclosure and approval of the
majority of the disinterested independent members of our Board of
Directors, approval of the majority of our stockholders or the
determination that the contract or transaction is intrinsically
fair to us. More particularly, our policy is to have any related
party transactions (i.e.,
transactions involving a director, an officer or an affiliate of
our company) be approved solely by a majority of the disinterested
independent directors serving on the Board of Directors. Upon the
closing of this offering, we intend to maintain a Board of
Directors consisting of a majority of independent directors.
Indemnification of Directors and Executive Officers
Section 145 of
the Delaware General Corporation Law provides for, under certain
circumstances, the indemnification of our officers, directors,
employees and agents against liabilities that they may incur in
such capacities. Below is a summary of the circumstances in which
such indemnification is provided.
In
general, the statute provides that any director, officer, employee
or agent of a corporation may be indemnified against expenses
(including attorneys’ fees), judgments, fines and amounts
paid in settlement, actually and reasonably incurred in a
proceeding (including any civil, criminal, administrative or
investigative proceeding) to which the individual was a party by
reason of such status. Such indemnity may be provided if the
indemnified person’s actions resulting in the liabilities:
(i) were taken in good faith; (ii) were reasonably
believed to have been in or not opposed to our best interests; and
(iii) with respect to any criminal action, such person had no
reasonable cause to believe the actions were unlawful. Unless
ordered by a court, indemnification generally may be awarded only
after a determination of independent members of the Board of
Directors or a committee thereof, by independent legal counsel or
by vote of the stockholders that the applicable standard of conduct
was met by the individual to be indemnified.
The
statutory provisions further provide that to the extent a director,
officer, employee or agent is wholly successful on the merits or
otherwise in defense of any proceeding to which he or she was a
party, he or she is entitled to receive indemnification against
expenses, including attorneys’ fees, actually and reasonably
incurred in connection with the proceeding.
Indemnification in
connection with a proceeding by us or in our right in which the
director, officer, employee or agent is successful is permitted
only with respect to expenses, including attorneys’ fees
actually and reasonably incurred in connection with the
defense. In such actions, the person to be indemnified must
have acted in good faith, in a manner believed to have been in our
best interests and must not have been adjudged liable to us, unless
and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense which the Court
of Chancery or such other court shall deem
proper. Indemnification is otherwise prohibited in connection
with a proceeding brought on our behalf in which a director is
adjudged liable to us, or in connection with any proceeding
charging improper personal benefit to the director in which the
director is adjudged liable for receipt of an improper personal
benefit.
Delaware law
authorizes us to reimburse or pay reasonable expenses incurred by a
director, officer, employee or agent in connection with a
proceeding in advance of a final disposition of the matter. Such
advances of expenses are permitted if the person furnishes to us a
written agreement to repay such advances if it is determined that
he or she is not entitled to be indemnified by us.
The
statutory section cited above further specifies that any provisions
for indemnification of or advances for expenses does not exclude
other rights under our certificate of incorporation, bylaws,
resolutions of our stockholders or disinterested directors, or
otherwise. These indemnification provisions continue for a person
who has ceased to be a director, officer, employee or agent of the
corporation and inure to the benefit of the heirs, executors and
administrators of such persons.
The
statutory provision cited above also grants us the power to
purchase and maintain insurance policies that protect any director,
officer, employee or agent against any liability asserted against
or incurred by him or her in such capacity arising out of his or
her status as such. Such policies may provide for indemnification
whether or not the corporation would otherwise have the power to
provide for it.
At present, we do not maintain directors’
and officers’ liability insurance in order to limit the
exposure to liability for indemnification of directors and
officers, including liabilities under the Securities Act; however,
we are in the process of obtaining such
insurance.
EXECUTIVE COMPENSATION
Summary Compensation Table
The
following table sets forth the cash and non-cash compensation
awarded to or earned by: (i) each individual who served as the
principal executive officer and principal financial officer of our
company during the years ended December 31, 2018 and 2017; and
(ii) each other individual that served as an executive officer
of our company at the conclusion of the years ended December 31,
2018 and 2017 and who received more than $100,000 in the form of
salary and bonus during such year. While our company was not
incorporated until March 7, 2018, we have included the information
for certain individuals who were employed and compensated by our
majority-owned subsidiary Singapore eDevelopment. Such compensation
was paid solely for services rendered to such subsidiary. For
purposes of this prospectus, these individuals are collectively the
“named executive officers” of our Company.
|
Name and
Position
|
|
|
|
|
|
Non-equity
Incentive Plan Compensation
|
Non-qualified
Deferred Compensation Earnings
|
|
|
|
Chan Heng Fai
|
2018
|
77,793
|
-
|
-
|
-
|
-
|
-
|
-
|
77,793
|
|
Chairman and Chief Executive
Officer
|
2017
|
309,521
|
-
|
-
|
-
|
-
|
-
|
-
|
309,521
|
|
Lui Wai Leung
Alan
|
2018
|
113,422
|
-
|
-
|
-
|
-
|
-
|
-
|
113,422
|
|
Co-Chief Financial
Officer
|
2017
|
104,899
|
-
|
-
|
-
|
-
|
-
|
-
|
104,899
|
|
Rongguo Wei
|
2018
|
118,800
|
-
|
-
|
-
|
-
|
-
|
-
|
118,800
|
|
Co-Chief Financial
Officer
|
2017
|
112,800
|
-
|
-
|
-
|
-
|
-
|
-
|
112,800
|
_____________
Employment and Consulting Agreements
We have
not entered into any written employment or consulting agreements
with any officer, director, employee or consultant, but expect to
do so prior to the closing of this offering.
Outstanding Equity Awards at Fiscal Year End
No
stock options or other equity awards were granted to any of our
named executive officers during the year ended December 31,
2018.
2018 Incentive Compensation Plan
Under
our 2018 Incentive Compensation Plan (the “Plan”),
adopted by our board of directors and holders of a majority of our
outstanding shares of common stock in September 2018, 500,000
shares of common stock (subject to certain adjustments) are
reserved for issuance upon exercise of stock options and grants of
other equity awards. The Plan is designed to serve as an incentive
for attracting and retaining qualified and motivated employees,
officers, directors, consultants and other persons who provide
services to us. The compensation committee of our board of
directors administers and interprets the Plan and is authorized to
grant stock options and other equity awards thereunder to all
eligible employees of our company, including non-employee
consultants to our company and directors.
The
Plan provides for the granting of “incentive stock
options” (as defined in Section 422 of the Code),
non-statutory stock options, stock appreciation rights, restricted
stock, restricted stock units, deferred stock, dividend
equivalents, bonus stock and awards in lieu of cash compensation,
other stock-based awards and performance awards. Options may be
granted under the Plan on such terms and at such prices as
determined by the compensation committee of the board, except that
the per share exercise price of the stock options cannot be less
than the fair market value of our common stock on the date of the
grant. Each option will be exercisable after the period or periods
specified in the stock option agreement, but all stock options must
be exercised within ten years from the date of grant. Options
granted under the Plan are not transferable other than by will or
by the laws of descent and distribution. The compensation committee
of the board has the authority to amend or terminate the Plan,
provided that no amendment shall be made without stockholder
approval if such stockholder approval is necessary to comply with
any tax or regulatory requirement. Unless terminated sooner, the
Plan will terminate ten years from its effective date. The Plan
also provides that no participant may receive stock options or
other awards under the Plan that in the aggregate equal more than
30% of all options or awards issued over the life of the Plan. To
date, we have not issued any stock options to officers, directors
or employees. The compensation committee intends to grant stock
options to key employees and non-executive directors of our
company.
Director Compensation
Following the
closing of this offering, we intend to compensate each non-employee
director through annual stock option grants and by paying a
quarterly cash fee. Currently, our directors do not receive
salaries or fees for serving on our board of directors, nor do they
receive any compensation for serving on committees. Mr. Chan and
Ms. Ang have been compensated by our majority-owned subsidiary,
Singapore eDevelopment, for their services as directors of that
company. Our board of directors will review director compensation
annually and adjust it according to then current market conditions
and good business practices.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Policies and Procedures for Transactions with Related
Persons
Our
board of directors intends to adopt a written related person
transaction policy to set forth the policies and procedures for the
review and approval or ratification of related person transactions.
Related persons include any executive officer, director or a holder
of more than 5% of our common stock, including any of their
immediate family members and any entity owned or controlled by such
persons. Related person transactions refer to any transaction,
arrangement or relationship, or any series of similar transactions,
arrangements or relationships in which (i) we were or are to
be a participant, (ii) the amount involved exceeds $120,000,
and (iii) a related person had or will have a direct or
indirect material interest. Related person transactions include,
without limitation, purchases of goods or services by or from the
related person or entities in which the related person has a
material interest, indebtedness, guarantees of indebtedness, and
employment by us of a related person, in each case subject to
certain exceptions set forth in Item 404 of
Regulation S-K under the Securities Act.
We
expect that the policy will provide that in any related person
transaction, our audit committee and board of directors will
consider all of the available material facts and circumstances of
the transaction, including: the direct and indirect interests of
the related persons; in the event the related person is a director
(or immediate family member of a director or an entity with which a
director is affiliated), the impact that the transaction will have
on a director’s independence; the risks, costs and benefits
of the transaction to us; and whether any alternative transactions
or sources for comparable services or products are available. After
considering all such facts and circumstances, our audit committee
and board of directors will determine whether approval or
ratification of the related person transaction is in our best
interests. For example, if our audit committee determines that the
proposed terms of a related person transaction are reasonable and
at least as favorable as could have been obtained from unrelated
third parties, it will recommend to our board of directors that
such transaction be approved or ratified. In addition, once we
become a public company, if a related person transaction will
compromise the independence of one of our directors, our audit
committee may recommend that our board of directors reject the
transaction if it could affect our ability to comply with
securities laws and regulations or Nasdaq listing
requirements.
Each
transaction described in “Certain Relationships and Related
Party Transactions” was entered into prior to the adoption of
our audit committee charter and the foregoing policy
proposal.
Transactions and Relationships with Directors, Officers and 5%
Stockholders
Recent Internal Restructuring. 100% of
the ownership interest in Hengfai International Pte. Ltd. was
transferred from Chan Heng Fai (an officer and director of our
company) to HF Enterprises Inc. in exchange for 8,500,000 shares of
our common stock to be held by HFE Holdings Limited. Hengfai
International Pte. Ltd., a Singapore limited company, is the sole
stockholder of Hengfai Business Development Pte. Ltd., which is the
owner of 761,185,294 ordinary shares of Singapore eDevelopment Ltd.
and warrants to purchase 359,834,471 ordinary shares of Singapore
eDevelopment Ltd.
Chan
Heng Fai transferred 100% of the ownership interest in Global
eHealth Limited to HF Enterprises Inc. in exchange for 1,000,000
shares of our common stock to be held by HFE Holdings Limited.
Global eHealth Limited, a Hong Kong company, is the owner of
46,226,673 ordinary shares, or 19.8%, of Holista CollTech
Limited.
Chan
Heng Fai transferred 100% of the ownership interest in Heng Fai
Enterprises Pte. Ltd.to HF Enterprises Inc. in exchange for 500,000
shares of our common stock to be held by HFE Holdings Limited. Heng
Fai Enterprises Pte. Ltd., a Singapore limited company, owns
2,480,000 shares of common stock or 14.2% at December 31, 2018 and
13.7% at September 30, 2019, of Vivacitas Oncology
Inc.
In
addition to the 10,000,000 shares issued as described above, 1,000
shares of our common stock were initially issued at our
incorporation.
Personal Guarantees by Directors. On
December 31, 2017, certain directors of Singapore eDevelopment
provided personal guarantees amounting to approximately $5,500,000
to secure external loans and borrowings from financial institutions
for Singapore eDevelopment.
Compensation of Key Management Personnel -
Directors’ Interests in Employee Share Option Plan.
During 2018, options to purchase 530,667 shares of Singapore
eDevelopment were forfeited due to the resignation of two directors
of Singapore eDevelopment; and in 2017, options to purchase
1,326,667 shares were forfeited. As of December 31, 2018, options
to purchase 1,061,333 shares of Singapore eDevelopment were
outstanding; and as of December 31, 2017, options to purchase
1,592,000 shares of Singapore eDevelopment were
outstanding.
Purchase of Subsidiary from a Director.
SeD Capital Pte. Ltd., a subsidiary of Singapore eDevelopment,
entered into a sale and purchase agreement on May 9, 2017 to
purchase all shares of LiquidValue Asset Management Pte. Ltd.
(“LVAM”). The consideration for the acquisition of LVAM
was approximately $441,780.
On
December 22, 2016, Singapore eDevelopment acquired 74,015,730
shares, representing 99.96% of the outstanding shares of SeD
Intelligent Home Inc. from Cloudbiz International Pte. Ltd.
(“Cloudbiz”) for a cash consideration of approximately
$68,000. Chan Heng Fai, our Chairman and Chief Executive Officer,
is the ultimate beneficial owner of Cloudbiz.
Revenue from a Related Party. On March
1, 2018, the Company’s subsidiary HotApp International Ltd.
entered into an Outsource Technology Development Agreement with
Document Security Systems, Inc. (“DSS”) which could be
terminated by either party on 30-days’ notice. The purpose of
such agreement was to facilitate DSS’ development of a
software application to be included as part of DSS’
AuthentiGuard® Technology suite. Under this agreement, DSS
agreed to pay $23,000 per month for access to HotApp International
Ltd.’s software programmers. This agreement was terminated on
July 31, 2018. Chan Heng Fai is a member of our Board of Directors
and, through his control of our majority stockholder, the
beneficial owner of a majority of our common stock. Chan Heng Fai
is also the Chairman of the Board of DSS and a stockholder of
DSS.
Sale of HotApp Blockchain to DSS Asia.
On October 25, 2018, HIP, a wholly owned subsidiary of HotApp
Blockchain, entered into an equity purchase agreement (the
“HotApps Purchase Agreement”) with DSS Asia, a Hong
Kong subsidiary of DSS International, pursuant to which HIP agreed
to sell to DSS Asia all of the issued and outstanding shares of
HotApps Information Technology Co. Ltd., also known as Guangzhou
HotApps, a wholly owned subsidiary of HIP. Guangzhou HotApps is
primarily engaged in engineering work for software development, as
well as, a number of outsourcing projects related to real estate
and lighting. Chan Heng Fai is the CEO of DSS Asia and DSS
International.
iGalen Inc. Affiliates. iGalen
Philippines and iGalen SDN are related party entities which are
owned by Dr. Rajen Manicka and are not owned by HFE. iGalen Inc.
provides use of its platform to collect sale revenue and payment of
expenses for these entities without service fees. On September 30,
2019 and December 31, 2018, iGalen owed $369,596 and $246,722,
respectively to iGalen Philippines and iGalen SDN.
Medi
Botanics Sdn Bhd, a subsidiary of Holista CollTech, is one of the
raw material and product suppliers of iGalen. Dr. Rajen Manicka is
the controlling shareholder and a director of both Medi Botanics
Sdn Bhd and Holista CollTech. Medi Botanics Sdn Bhd supplied
$372,594 and $575,581 of raw materials and products to iGalen in
the nine months ended September 30, 2019 and 2018, respectively. On
September 30, 2019 and December 31, 2018, iGalen owed $988,277 and
$719,395, respectively.
Investment in the Global Opportunity
Fund. On February 1, 2017, the Company invested $300,000 in
Global Opportunity Fund, a mutual fund registered in the Cayman
Islands. Chan Heng Fai is one of the directors of this fund.
LiquidValue Asset Management Pte. Ltd., one of the subsidiaries of
the Company, is the investment manager of the fund and receives a
management fee from the fund at 2% per annum of the aggregated net
asset value of the investments and a performance fee of 20%. In the
nine months ended on September 30, 2019 and 2018, the management
fee and performance fee charged to the Fund were $4,425 and $4,118,
respectively. On September 30, 2019 and December 31, 2018, the Fund
owed $72,743 and $69,478 respectively.
Convertible Notes. On February 21,
2014, a subsidiary, of Singapore eDevelopment, Singapore
Construction & Development Pte. Ltd. (“SCD”),
issued 20 convertible notes (the “Convertible Notes”)
in the amount of $175,000 each, totaling $3.5 million. These
convertible notes carry an interest rate of 18% per annum which is
payable to the noteholders upon the first anniversary of the
applicable note.
Unless
converted into Singapore eDevelopment’s ordinary shares or
converted into SCD’s ordinary shares at the holder’s
option at the rate of $0.04 per share, subject to anti-dilution and
adjustment provisions, the holder of each Convertible Note has the
right to require SCD to redeem the convertible note on February 2,
2017 at 106% of the principal amount. The Convertible Notes are
callable at the option of SCD at the first or second anniversary of
the issue date, at 102% and 104% of the principal amount,
respectively.
On May
19, 2016 SCD exercised its option to redeem the Convertible Notes
at 104% of the principal amount, and entered into an agreement with
the noteholders to fully redeem the Convertible Notes.
Approximately $3 million in principal of the Convertible Notes held
by two of the SCD directors (one of whom resigned in 2016), were
fully redeemed. SCD paid an early redemption premium of $117,000
and interest of $651,000.
The
fair value of the derivative liability component on May 19, 2016
was $413,280. Accordingly, a net fair value gain of $336,559 on
derivative liability was recognized as Other Income and a loss
$283,631 on early redemption of exchangeable notes was recognized
as Other Expenses in the Statement of Operations and Other
Comprehensive Income on such Date.
Notes Payable. On August 24, 2015,
Hengfai Business Development Pte. Ltd. (“HBD”), a
substantial shareholder of Singapore eDevelopment and a company
wholly-owned by Chan Heng Fai, provided a loan with a $15 million
credit limit to Singapore eDevelopment (the “Heng Fai
Business Development Loan”). On September 30, 2015, $10.5
million was drawn and used to finance the land purchase by a
subsidiary. The loan was unsecured, repayable upon demand and
interest-free. In 2016, this loan was assigned from a wholly owned
subsidiary of Singapore eDevelopment to Singapore eDevelopment,
extending its Convertible Notes to December 31, 2017. On April 5,
2017, the entire Heng Fai Business Development Loan of $10.5
million was converted into 372,855,000 ordinary shares of Singapore
eDevelopment at an issue price of approximately $0.03 per share,
and Singapore eDevelopment also issued 1,864,275,000 detachable
warrants at an exercise price of approximately $0.036 to Heng Fai
Business Development.
Management Fees
Black
Oak LP was obligated under the Limited Partnership Agreement (as
amended) to pay a $6,500 per month management fee to Arete Real
Estate and Development Company (Arete), a related party through
common ownership and $2,000 per month to American Real Estate
Investments LLC (AREI), a related party through common ownership.
Arete was also entitled to a developer fee of 3% of all development
costs excluding certain costs. The fees are to be accrued until
$1,000,000 is received in revenue and/or builder deposits relating
to the Black Oak project.
On
December 31, 2017, Singapore eDevelopment owed $314,630 to Arete in
accounts payable and accrued expenses.
On
December 31, 2017, Singapore eDevelopment owed $48,000 to AREI in
accounts payable and accrued expenses.
On
April 26, 2018, SeD Development USA, a wholly-owned subsidiary of
Singapore eDevelopment, Arete and AREI reached an agreement to
terminate the terms related to management fees and developer fees
in the Limited Partnership Agreement. Pursuant to the terms of the
termination agreement, Black Oak LP owes Arete $300,000 and AREI
$30,000, which will remain outstanding until Black Oak LP has
obtained $4,000,000 from district reimbursement revenue. The
reduction of the accruals was offset against real estate on the
balance sheet. On July 20, 2018, Black Oak LP received $4,592,079
in district reimbursement and these fees were paid.
SeD
Maryland Development, LLC was obligated under the terms of a
Project Development and Management Agreement with MacKenzie
Development Company LLC (“MacKenzie”) and Cavalier
Development Group LLC (“Cavalier”) to provide various
services for the development, construction and sale of the project.
MacKenzie is partially owned by a family member of a director of a
subsidiary of SeD Intelligent Home, a 99.99%-owned subsidiary of
Singapore eDevelopment. The developers were entitled to certain
fees based on time and performance related milestones. SeD
Intelligent Home incurred fees with MacKenzie of $0 and $176,000
for the years ended December 31, 2018 and 2017, respectively. SeD
Intelligent Home incurred fees with MacKenzie of $0 for the nine
months ended on both September 30, 2019 and 2018. These fees were
capitalized as part of real estate on the balance sheet. There were
no amounts owed to this related party at September 30, 2019 or
December 31, 2018, respectively. On September 15, 2017, MacKenzie
assigned its rights and obligations under the Project Development
and Management Agreement to Adams-Aumiller Properties,
LLC.
MacKenzie Equity
Partners, owned by Charles MacKenzie, who serves as our Chief
Development Officer, a director of SeD Intelligent Home, an officer
of certain of our subsidiaries, and is a nominee to join our Board,
has had a consulting agreement with Singapore eDevelopment via SeD
Development Management since 2015. Pursuant to the terms of the
agreement, as amended on January 1, 2018, SeD Development
Management paid a monthly fee of $15,000 with an additional $5,000
per month to be paid when the property development cash flow
milestones have been met. From January 2019, SeD Development
Management pays a monthly fee of $20,000 for the consulting fee.
Singapore eDevelopment incurred expenses of $240,000 and $222,930
for the years ended December 31, 2018 and 2017, respectively, and
$180,000 and $135,000 for the nine months ended on both September
30, 2019 and 2018, respectively, which were capitalized as part of
Real Estate on the balance sheet as the services relate to property
and project management. There were $0 and $60,000 owed to this
related party at September 30, 2019 and December 31, 2018,
respectively.
Consulting Services
A law
firm owned by Conn Flanigan, a director of SeD Intelligent Home, a
99.99%-owned subsidiary of Singapore eDevelopment, performs
consulting services for that company. Singapore eDevelopment
incurred expenses of $101,979 and $110,334 for the years ended 2018
and 2017, respectively and $52,723 and $88,030 for the nine months
ended September 30, 2019 and 2018, respectively. On September 30,
2019 and December 31, 2018, Singapore eDevelopment owed this
related party $7,587 and $8,000, respectively.
Rajen
Manicka, the Chief Executive Officer of Holista CollTech and
Co-founder of iGalen International Inc., performs consulting
services for iGalen Inc. at a rate of $120,000 per
year.
Notes Payable
During
the year ended on December 31, 2017, a director of the Company lent
non-interest loans of $7,156,680, for the general operations of
Singapore eDevelopment. The loans are interest free, not tradable,
unsecured, and repayable on demand. On October 15, 2018, a formal
lending agreement between Singapore eDevelopment Ltd and Chan Heng
Fai was executed. Under the agreement, Chan Heng Fai provides a
lending credit limit of approximately $10 million for Singapore
eDevelopment Ltd with an interest rate of 6% per annum for the
outstanding borrowed amount, which commenced retroactively from
January 1, 2018. The loans are still not tradable, unsecured and
repayable on demand. As of September 30, 2019 and December 31,
2018, the outstanding principal balance of the loan was $5,667,640
and $8,517,490, respectively. Chan Heng Fai confirmed through a
letter that he would not demand the repayment within a year from
December 23, 2019. Interest started to accrue on January 1, 2018 at
6% per annum. During the nine months ended September 30, 2019 and
2018, the interest expenses were $268,847 and $357,048,
respectively. As of September 30, 2019 and December 31, 2018, the
accrued interest total was $736,756 and $476,063,
respectively.
Prior
to this offering, Chan Heng Fai also provided interest free
short-term loan to our company for the general operations during
the IPO period. As of September 30, 2019, the loan balance was
$178,400.
On May
1, 2018, Rajen Manicka, CEO and one of the directors of iGalen
International Inc. which holds 100% of iGalen LLC, provided a loan
of approximately $367,246 to iGalen LLC (the “2018 Rajen
Loan”). The term of this loan is ten years. The Loan has an
interest rate of 4.7% per annum. On March 8, March 27 and April 23,
2019, iGalen borrowed an additional $150,000, $30,000 and $50,000
respectively, from Rajen Manicka, totaling $230,000 (the
“2019 Rajen Loan”). The 2019 Rajen Loan is interest
free, not tradable, unsecured, and repayable on demand. As of
September 30, 2019 and December 31, 2018, the total outstanding
principal balance of the 2018 and 2019 March Rajen Loan are
$573,850 and $345,706 respectively, and included in the Notes
Payable – Related Parties balance on the Company’s
Consolidated Balance Sheets. During the nine months ended September
30, 2019 and 2018, the Company incurred $8,084 and $1,410 of
interest expense, respectively.
Indemnification Agreements
We
intend to enter into an indemnification agreement with each of our
directors and executive officers. The indemnification agreements
and our certificate of incorporation and bylaws require us to
indemnify our directors and executive officers to the fullest
extent permitted by Delaware law. See “Management –
Indemnification of Directors and Executive
Officers.”
PRINCIPAL STOCKHOLDERS
The
following table and accompanying footnotes set forth certain
information with respect to the beneficial ownership of our common
stock as of December 23, 2019, referred to in the table below as
the “Beneficial Ownership Date,” and as adjusted to
reflect the sale of shares of our common stock offered by this
prospectus, by:
●
each person who is
known to be the beneficial owner of 5% or more of the outstanding
shares of our common stock;
●
each member of our
board of directors, director nominees and each of our named
executive officers individually; and
●
all of our
directors, director nominees and executive officers as a
group.
Beneficial
ownership is determined in accordance with the rules of the SEC. In
computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock
subject to stock options or warrants held by that person that are
currently exercisable or exercisable within 60 days of the
Beneficial Ownership Date and shares of restricted stock subject to
vesting until the occurrence of certain events, including the
closing of this offering, are deemed outstanding, but are not
deemed outstanding for computing the percentage ownership of any
other person (however, neither the stockholder nor the directors
and officers listed below own any stock options or warrants to
purchase shares of our common stock at the present time). The
percentages of beneficial ownership are based on 10,001,000 shares
of common stock outstanding as of the Beneficial Ownership Date and
11,501,000 shares of common stock outstanding immediately after
this offering, assuming that the underwriter will not exercise its
option to purchase up to 150,000 additional shares of our common
stock from us in full.
To our
knowledge, except as set forth in the footnotes to this table and
subject to applicable community property laws, each person named in
the table has sole voting and investment power with respect to the
shares set forth opposite such person’s name. Except as
otherwise indicated, the address of each of the persons in this
table is c/o HF Enterprises Inc., 4800 Montgomery Lane, Suite 210,
Bethesda, Maryland 20814.
|
|
Shares of Common
Stock Beneficially Owned Immediately Before this
Offering
|
Shares of Common
Stock Beneficially Owned Immediately After this
Offering
|
Name and Address
of Beneficial Owner
|
|
|
|
|
|
|
|
|
|
|
|
Directors
and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
Chan Heng Fai
(1)
|
10,001,000
|
100%
|
10,001,000
|
87%
|
|
Lui Wai Leung
Alan
|
0
|
-
|
0
|
-
|
|
Rongguo
Wei
|
0
|
-
|
0
|
-
|
|
Ang Hay Kim
Aileen
|
0
|
-
|
0
|
-
|
|
Wong Tat
Keung
|
0
|
-
|
0
|
-
|
|
Charles
MacKenzie
|
0
|
-
|
0
|
-
|
|
John
Thatch
|
0
|
-
|
0
|
-
|
|
Robert
Trapp
|
0
|
-
|
0
|
-
|
|
|
|
|
|
|
|
All directors and
executive officers as a group (5 persons)
|
10,001,000
|
100%
|
10,001,000
|
87%
|
______________
(1)
Represents shares
of common stock owned of record by HFE Holdings Limited, of which
Mr. Chan has sole voting and investment power with respect to such
shares.
DESCRIPTION OF CAPITAL STOCK
The following description summarizes important terms of our capital
stock. For a complete description, you should refer to our
certificate of incorporation and bylaws, forms of which are
incorporated by reference to the exhibits to the registration
statement of which this prospectus is a part, as well as the
relevant portions of the Delaware law. References to our
certificate of incorporation and bylaws are to our certificate of
incorporation and our bylaws, respectively, each of which will
become effective upon completion of this offering.
General
Our
authorized capital stock consists of 20,000,000 shares of common
stock with a $0.001 par value per share, and 5,000,000 shares
of preferred stock with a $0.001 par value per share, all of
which shares of preferred stock will be undesignated. Our board of
directors may establish the rights and preferences of the preferred
stock from time to time. As of December 23, 2019, there were
10,001,000 shares of common stock issued and outstanding, held of
record by one stockholder, HFE Holdings Limited (an entity
beneficially owned by Chan Heng Fai) and no shares of preferred
stock were issued or outstanding.
Common Stock
Each
holder of our common stock is entitled to one vote for each share
on all matters to be voted upon by the stockholders and there are
no cumulative rights. Subject to any preferential rights of any
outstanding preferred stock, holders of our common stock are
entitled to receive ratably the dividends, if any, as may be
declared from time to time by the board of directors out of legally
available funds. If there is a liquidation, dissolution or winding
up of our company, holders of our common stock would be entitled to
share in our assets remaining after the payment of liabilities and
any preferential rights of any outstanding preferred
stock.
Holders
of our common stock have no preemptive or conversion rights or
other subscription rights, and there are no redemption or sinking
fund provisions applicable to the common stock. All outstanding
shares of our common stock will be fully paid and non-assessable.
The rights, preferences and privileges of the holders of our common
stock are subject to, and may be adversely affected by, the rights
of the holders of shares of any series of preferred stock which we
may designate and issue in the future.
Preferred Stock
Under
the terms of our certificate of incorporation, our board of
directors is authorized to issue shares of preferred stock in one
or more series without stockholder approval. Our board of directors
has the discretion to determine the rights, preferences, privileges
and restrictions, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation
preferences, of each series of preferred stock.
The
purpose of authorizing our board of directors to issue preferred
stock and determine its rights and preferences is to eliminate
delays associated with a stockholder vote on specific issuances.
The issuance of preferred stock, while providing flexibility in
connection with possible future acquisitions and other corporate
purposes, will affect, and may adversely affect, the rights of
holders of common stock. It is not possible to state the actual
effect of the issuance of any shares of preferred stock on the
rights of holders of common stock until the board of directors
determines the specific rights attached to that preferred stock.
The effects of issuing preferred stock could include one or more of
the following:
●
restricting
dividends on the common stock;
●
diluting the voting
power of the common stock;
●
impairing the
liquidation rights of the common stock; or
●
delaying or
preventing changes in control or management of our
company.
We have
no present plans to issue any shares of preferred
stock.
Effect of Certain Provisions of our Charter and Bylaws and the
Delaware Anti-Takeover Statute
Certain
provisions of Delaware law, our certificate of incorporation and
our bylaws contain provisions that could have the effect of
delaying, deferring or discouraging another party from acquiring
control of us. These provisions, which are summarized below, may
have the effect of discouraging coercive takeover practices and
inadequate takeover bids. These provisions are also designed, in
part, to encourage persons seeking to acquire control of us to
first negotiate with our board of directors. We believe that the
benefits of increased protection of our potential ability to
negotiate with an unfriendly or unsolicited acquirer outweigh the
disadvantages of discouraging a proposal to acquire us because
negotiation of these proposals could result in an improvement of
their terms.
No cumulative voting
The
Delaware General Corporation Law provides that stockholders are not
entitled to the right to cumulate votes in the election of
directors unless our certificate of incorporation provides
otherwise. Our certificate of incorporation and bylaws prohibit
cumulative voting in the election of directors.
Undesignated preferred stock
The
ability to authorize undesignated preferred stock makes it possible
for our board of directors to issue one or more series of preferred
stock with voting or other rights or preferences that could impede
the success of any attempt to change control. These and other
provisions may have the effect of deferring hostile takeovers or
delaying changes in control or management of our
company.
Calling of special meetings of stockholders
Our
charter documents provide that a special meeting of stockholders
may be called only by resolution adopted by our board of directors,
chairman of the board of directors or chief executive officer or
upon the written request of stockholders owning at least 33.3% of
the outstanding common stock. Stockholders owning less than such
required amount may not call a special meeting, which may delay the
ability of our stockholders to force consideration of a proposal or
for holders controlling a majority of our capital stock to take any
action, including the removal of directors.
Requirements for advance notification of stockholder nominations
and proposals
Our
bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election
as directors, other than nominations made by or at the direction of
the board of directors or a committee of the board of directors.
However, our bylaws may have the effect of precluding the conduct
of certain business at a meeting if the proper procedures are not
followed. These provisions may also discourage or deter a potential
acquirer from conducting a solicitation of proxies to elect the
acquirer’s own slate of directors or otherwise attempting to
obtain control of our company.
Section 203 of the Delaware General Corporation
Law
Upon
completion of this offering, we will be subject to the provisions
of Section 203 of the Delaware General Corporation Law. In general,
Section 203 prohibits a publicly held Delaware corporation from
engaging in a “business combination” with an
“interested stockholder” for a three-year period
following the time that this stockholder becomes an interested
stockholder, unless the business combination is approved in a
prescribed manner. Under Section 203, a business combination
between a corporation and an interested stockholder is prohibited
unless it satisfies one of the following conditions:
●
before the
stockholder became interested, our board of directors approved
either the business combination or the transaction which resulted
in the stockholder becoming an interested stockholder;
●
upon consummation
of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding for purposes of determining
the voting stock outstanding, shares owned by persons who are
directors and also officers, and employee stock plans, in some
instances, but not the outstanding voting stock owned by the
interested stockholder; or
●
at or after the
time the stockholder became interested, the business combination
was approved by our board of directors and authorized at an annual
or special meeting of the stockholders by the affirmative vote of
at least two-thirds of the outstanding voting stock which is not
owned by the interested stockholder.
Section 203
defines a business combination to include:
●
any merger or
consolidation involving the corporation and the interested
stockholder;
●
any sale, transfer,
lease, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the
corporation;
●
subject to
exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
●
subject to
exceptions, any transaction involving the corporation that has the
effect of increasing the proportionate share of the stock of any
class or series of the corporation beneficially owned by the
interested stockholder; and
●
the receipt by the
interested stockholder of the benefit of any loans, advances,
guarantees, pledges or other financial benefits provided by or
through the corporation.
In
general, Section 203 defines an interested stockholder as any
entity or person beneficially owning 15% or more of the outstanding
voting stock of the corporation and any entity or person affiliated
with or controlling or controlled by the entity or
person.
Choice of Forum
Our
certificate of incorporation provides that, unless we consent in
writing to the selection of an alternative forum, the Court of
Chancery of the State of Delaware will be the sole and exclusive
forum for (i) any derivative action or proceeding brought on
our behalf, (ii) any action asserting a claim of breach of a
fiduciary duty owed by our directors, officers, or other employees
to us or to our stockholders, (iii) any action asserting a
claim against us or any director, officer or other employee arising
pursuant to any provision of the Delaware General Corporation Law,
our certificate of incorporation or bylaws or (iv) any action
asserting a claim governed by the internal affairs doctrine. It is
possible that a court could rule that this provision is not
applicable or is unenforceable. Any person or entity purchasing or
otherwise acquiring shares of our capital stock will be deemed to
have notice of and consented to this provision of our certificate
of incorporation. However, this sole and exclusive forum provision
will not apply in those instances where there is exclusive federal
jurisdiction, including but not limited to actions arising under
the Securities Act or the Exchange Act.
Limitations of Liability and Indemnification
See
“Certain Relationships and Related Party Transactions -
Indemnification Agreements.”
Exchange Listing
We
intend to list our common stock for trading on the Nasdaq Capital
Market under the symbol HFEN.
Transfer Agent and Registrar
Upon the completion of this offering, the
transfer agent and registrar for our common stock will be Direct
Transfer, Raleigh, North Carolina.
SHARES ELIGIBLE FOR FUTURE SALE
Prior
to this offering, there has not been a public market for shares of
our common stock. Future sales of substantial amounts of shares of
our common stock, including shares issued upon the exercise of
options which may be granted, in the public market after our
initial public offering, or the possibility of these sales
occurring, could cause the prevailing market price for our common
stock to fall or impair our ability to raise equity capital in the
future.
We will
have 12,601,000 shares of common stock outstanding immediately
after the completion of this offering based on the number of shares
outstanding on December 23, 2019 and assuming no exercise of
options after such date (or 12,991,000 shares if the underwriter
exercises its over-allotment option to purchase additional shares
in full). Of those shares, the 2,600,000 shares of common stock
sold in the offering (or 2,990,000 shares if the underwriter
exercises its over-allotment option to purchase additional shares
in full) will be freely transferable without restriction, unless
purchased by persons deemed to be our “affiliates” as
that term is defined in Rule 144 under the Securities Act. Any
shares purchased by an affiliate may not be resold except pursuant
to an effective registration statement or an applicable exemption
from registration, including an exemption under Rule 144
promulgated under the Securities Act. The remaining 10,001,000
shares of common stock to be outstanding immediately following the
completion of this offering are “restricted,” which
means they were originally sold in offerings that were not
registered under the Securities Act. Restricted shares may be sold
through registration under the Securities Act or under an available
exemption from registration, such as provided through
Rule 144, which rules are summarized below. Taking into
account the lock-up agreements described below, and assuming the
underwriter does not release any stockholders from the lock-up
agreements, the restricted shares of our common stock will be
available for sale in the public market as follows:
●
2,600,000 shares
will be eligible for sale immediately upon completion of this
offering; and
●
10,001,000 shares
will become eligible for sale, subject to the provisions of
Rule 144 or Rule 701, upon the expiration of lock-up
agreements not to sell such shares entered into between the
underwriter and such stockholders beginning six months after the
effectiveness of this prospectus.
Rule 144
In
general, under Rule 144 of the Securities Act, as in effect on
the date of this prospectus, a person (or persons whose shares are
aggregated) who has beneficially owned restricted stock for at
least three months, will be entitled to sell in any three-month
period a number of shares that does not exceed the greater
of:
●
1% of the number of
shares of common stock then outstanding (126,010 shares immediately
after this offering or 129,910 shares if the underwriter’s
over-allotment option to purchase additional shares is exercised in
full); or
●
the average weekly
trading volume of our common stock on Nasdaq during the four
calendar weeks immediately preceding the date on which the notice
of sale is filed with the SEC.
Subject
to the lock-up agreements described above, our affiliates who have
beneficially owned shares of our common stock for at least nine
months, including the holding period of any prior owner other than
one of our affiliates, will be entitled to sell within any
three-month period a number of shares that does not exceed the
greater of:
●
1% of the number of
shares of our common stock then outstanding, which will equal
approximately 126,010 shares immediately after this offering;
and
●
the average weekly
trading volume in our common stock on Nasdaq during the four
calendar weeks preceding the date of filing of a Notice of Proposed
Sale of Securities Pursuant to Rule 144 with respect to the
sale.
Sales
pursuant to Rule 144 are subject to requirements relating to
manner of sale, notice and availability of current public
information about us. A person (or persons whose shares are
aggregated) who is not deemed to be an affiliate of ours for
90 days preceding a sale, and who has beneficially owned
restricted stock for at least one year is entitled to sell such
shares without complying with the manner of sale, public
information, volume limitation or notice provisions of
Rule 144. Rule 144 will not be available to any
stockholders until we have been subject to the reporting
requirements of the Exchange Act for 90 days.
Rule 701
Rule
701 under the Securities Act, as in effect on the date of this
prospectus, permits resale of shares in reliance upon Rule 144 but
without compliance with certain restrictions of Rule 144, including
the holding period requirement. Most of our employees, executive
officers, directors or consultants who purchased shares under a
written compensatory plan or contract may be entitled to rely on
the resale provisions of Rule 701, but all holders of Rule 701
shares are required to wait until 90 days after the date of this
prospectus before selling their shares. However, substantially all
Rule 701 shares are subject to lock up agreements as described
below and under the section “Underwriting” included in
this prospectus and will become eligible for sale upon the
expiration of the restrictions set forth in those
agreements.
Lock-Up Agreements
Our
directors, executive officers and holders of 5% or more of our
outstanding shares following this offering will enter into lock-up
agreements with the representative prior to the commencement of
this offering pursuant to which each of these persons or entities
will agree not to sell or otherwise dispose of any common stock or
securities convertible into or exercisable or exchangeable for
shares of common stock for a period of six months after the
effectiveness of this prospectus, subject to certain exceptions.
See “Underwriting” for a description of these lock-up
provisions.
UNDERWRITING
Subject
to the terms and conditions set forth in the underwriting agreement
between us and the underwriters named below, for whom WestPark
Capital is acting as the representative (the
“Representative”), we have agreed to sell to the
underwriters, and each underwriter has severally agreed to
purchase, the number of shares of our common stock listed next to
its name in the following table:
|
Underwriter
|
|
|
WestPark
Capital
|
|
|
|
|
|
Total
|
2,600,000
|
Under
the terms of the underwriting agreement, the underwriters are
committed to purchase all of the shares offered by this prospectus
(other than the shares subject to the underwriters’ option to
purchase additional shares), if the underwriters buy any of such
shares. The underwriters’ obligation to purchase the shares
is subject to satisfaction of certain conditions, including, among
others, the continued accuracy of representations and warranties
made by us in the underwriting agreement, delivery of legal
opinions and the absence of any material changes in our assets,
business or prospects after the date of this
prospectus.
The
underwriters initially propose to offer the common stock directly
to the public at the public offering price set forth on the front
cover page of this prospectus and to certain dealers at such
offering price less a concession not to exceed $____ per share.
After the initial public offering of the shares of our common
stock, the offering price and other selling terms may be changed by
the underwriters.
Over-Allotment Option
We have
granted to the underwriters an option to purchase up to 390,000
additional shares of our common stock at the same price per share
as they are paying for the shares shown in the table above. The
underwriters may exercise this option in whole or in part at any
time within 60 days after the date of the underwriting agreement.
To the extent the underwriters exercise this option, each
underwriter will be committed, so long as the conditions of the
underwriting agreement are satisfied, to purchase a number of
additional shares proportionate to that underwriters’ initial
commitment as indicated in the table at the beginning of this
section plus, in the event that any underwriter defaults in its
obligation to purchase shares under the underwriting agreement,
certain additional shares.
Underwriting Commissions and Discounts and Expenses
The
following table shows the per share and total underwriting
discounts and commissions we will pay to the underwriters. These
amounts are shown assuming both no exercise and full exercise of
the underwriters’ option to purchase additional shares of our
common stock.
|
|
|
|
|
|
|
|
|
|
Public offering
price
|
$
|
$
|
$
|
|
Underwriting
discounts and commissions to be paid by us:
|
$
|
$
|
$
|
|
Total
|
$
|
$
|
$
|
|
Proceeds, before
expenses, to us
|
$
|
$
|
$
|
We
estimate that the total expenses of the offering payable by us,
excluding underwriting discounts and commissions, will be
approximately $1,140,829, including a3% unaccountable expense
allowance. We have agreed to reimburse the underwriters for certain
of their expenses, including fees of counsel in connection with
filing with FINRA, in an amount not to exceed $75,000. A
non-refundable retainer of $50,000 has been previously paid to the
representative.
As
additional compensation to the underwriter, upon consummation of
this offering, we will issue to the underwriter or its designees a
warrant to purchase an aggregate number of shares of our common
stock equal to 10% of the number of shares of common stock issued
in this offering, at an exercise price per share equal to 120% of
the initial public offering price (the “Underwriter
Warrant”). The Underwriter Warrant and the underlying shares
of common stock will not be exercised, sold, transferred, assigned,
or hypothecated or be the subject of any hedging, short sale,
derivative, put or call transaction that would result in the
effective economic disposition of the Underwriter Warrant by any
person for a period of 180 days from the effective date of the
registration statement for this offering in accordance with FINRA
Rule 5110. The Underwriter Warrant will expire on the fifth
anniversary of the effective date of the registration statement for
this offering.
Right of First Refusal
In
connection with this offering, we granted the Representative a
right of first refusal for a period of three years following the
closing of this offering or until an offering occurs which the
Representative declined, to effect a proposed U.S. public offering
of any debt or equity securities (other than bank debt or similar
financing) by us or any of our majority owned or controlled U.S.
subsidiaries, on terms as favorable as previously offered in
writing by a reputable investment banker, subject to certain
exceptions.
Stabilization
In
accordance with Regulation M under the Exchange Act, the
underwriters may engage in activities that stabilize, maintain or
otherwise affect the price of our common stock, including short
sales and purchases to cover positions created by short positions,
stabilizing transactions, syndicate covering transactions, penalty
bids and passive market making.
|
●
|
Short
positions involve sales by the underwriters of shares in excess of
the number of shares the underwriters are obligated to purchase,
which creates a syndicate short position. The short position may be
either a covered short position or a naked short position. In a
covered short position, the number of shares involved in the sales
made by the underwriters in excess of the number of shares they are
obligated to purchase is not greater than the number of shares that
they may purchase by exercising their option to purchase additional
shares. In a naked short position, the number of shares involved is
greater than the number of shares in their option to purchase
additional shares. The underwriters may close out any short
position by either exercising their option to purchase additional
shares or purchasing shares in the open market.
|
|
●
|
Stabilizing
transactions permit bids to purchase the underlying security as
long as the stabilizing bids do not exceed a specific maximum
price.
|
|
●
|
Syndicate
covering transactions involve purchases of our common stock in the
open market after the distribution has been completed to cover
syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among
other things, the price of shares available for purchase in the
open market as compared to the price at which they may purchase
shares through the underwriters’ option to purchase
additional shares. If the underwriters sell more shares than could
be covered by the underwriters’ option to purchase additional
shares, thereby creating a naked short position, the position can
only be closed out by buying shares in the open market. A naked
short position is more likely to be created if the underwriters are
concerned that there could be downward pressure on the price of the
shares in the open market after pricing that could adversely affect
investors who purchase in the offering.
|
|
●
|
Penalty
bids permit the representative to reclaim a selling concession from
a syndicate member when the common stock originally sold by the
syndicate member is purchased in a stabilizing or syndicate
covering transaction to cover syndicate short
positions.
|
|
●
|
In
passive market making, market makers in our common stock who are
underwriters or prospective underwriters may, subject to
limitations, make bids for or purchase shares of our common stock
until the time, if any, at which a stabilizing bid is
made.
|
These
activities may have the effect of raising or maintaining the market
price of our common stock or preventing or retarding a decline in
the market price of our common stock. As a result of these
activities, the price of our common stock may be higher than the
price that might otherwise exist in the open market. These
transactions may be effected on Nasdaq or otherwise and, if
commenced, may be discontinued at any time.
Neither
we nor any of the underwriters make any representation or
prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of our common
stock. In addition, neither we nor any of the underwriters make any
representation that the Representative will engage in these
stabilizing transactions or that any transaction, once commenced,
will not be discontinued without notice.
Indemnification
We have
agreed to indemnify the underwriter against all losses, claims,
damages, expenses and liabilities, as the same are incurred
(including the reasonable fees and expenses of counsel), relating
to or arising out of the offering, undertaken in good
faith.
Discretionary Accounts
The
underwriters have informed us that they do not expect to make sales
to accounts over which they exercise discretionary authority in
excess of 5% of the shares of our common stock being offered in
this offering.
IPO Pricing
Prior
to the completion of this offering, there has been no public market
for our common stock. The initial public offering price has been
negotiated between us and the Representative. Among the factors
considered in these negotiations are: the history of, and prospects
for, us and the industry in which we compete; our past and present
financial performance; an assessment of our management; the present
state of our development; the prospects for our future earnings;
the prevailing conditions of the applicable United States
securities market at the time of this offering; previous trading
prices for our common stock in the private market and market
valuations of publicly traded companies that we and the
Representative believe to be comparable to us.
Lock-Up Agreements
We have
agreed that for a period of six months after the date of the
effectiveness of this prospectus, we will not, without the prior
written consent of the Representative, which may be withheld or
delayed in its sole discretion:
|
●
|
offer,
pledge, sell, contract to sell, contract to purchase, or purchase
any option or contract to sell, grant any option, right or warrant
for the sale of, lend or otherwise dispose of or transfer, directly
or indirectly, any of our common stock or any securities
convertible into or exercisable or exchangeable for our common
stock, or file any registration statement under the Securities Act
with respect to any of the foregoing; or
|
|
●
|
enter
into any swap or other arrangement that transfers to another, in
whole or in part, directly or indirectly, any of the economic
consequences of ownership of any of our common stock,
|
whether
any such transaction described above is to be settled by delivery
of shares of our common stock or such other securities, in cash or
otherwise. The prior sentence will not apply to (i) the shares to
be sold pursuant to the underwriting agreement, (ii) any shares of
our common stock issued by us upon the exercise of an option or
other security outstanding on the date hereof, (iii) such issuances
of options or grants of restricted stock or other equity-based
awards under our 2018 Incentive Compensation Plan and the issuance
of shares issuable upon exercise of any such equity-based awards,
and (iv) the filing by us of registration statements on Form
S-8.
Each of
our stockholders, directors and our executive officers has agreed
that for a period ending six months after the date of the effective
of this prospectus, none of them will, without the prior written
consent of the Representative which may be withheld or delayed in
the Representative’s sole discretion:
|
●
|
offer,
pledge, sell, contract to sell, contract to purchase, or purchase
any option or contract to sell, grant any option, right or warrant
for the sale of, lend or otherwise dispose of or transfer, directly
or indirectly, any shares of our common stock, or any securities
convertible into or exercisable or exchangeable for our common
stock owned directly by such director or executive officer or with
respect to which such director or executive officer has beneficial
ownership; or
|
|
●
|
enter
into any swap or other arrangement that transfers to another, in
whole or in part, directly or indirectly, any of the economic
consequences of ownership of our common stock, whether any such
transaction described above is to be settled by delivery of our
common stock or such other securities, in cash or
otherwise.
|
Notwithstanding the
prior sentence, subject to applicable securities laws and the
restrictions contained in our charter, our directors and executive
officers may transfer our securities: (i) pursuant to the exercise
or conversion of our securities, including, without limitation,
options and warrants; (ii) as a bona fide gift or gifts, provided
that the donee or donees thereof agree to be bound in writing by
the restrictions set forth above; (iii) to any trust for the direct
or indirect benefit of such director or executive officer or the
immediate family of such director or executive officer, provided
that the trustee of the trust agrees to be bound in writing by the
restrictions set forth above; (iv) pursuant to any transfer
required under any benefit plans or our charter or bylaws; (v) as
required by participants in our 2018 Incentive Compensation Plan
stock incentive plan in order to reimburse or pay federal income
tax and withholding obligations in connection with vesting of
restricted stock grants or the exercise of stock options or
warrants; or (vi) in or in connection with any merger,
consolidation, combination or sale of all or substantially all of
our assets or in connection with any tender offer or other offer to
purchase at least 50% of our common stock.
Notwithstanding
the foregoing, nothing shall prevent our directors or executive
officers from, or restrict their ability to, (i) purchase our
securities in a public or private transaction, or (ii) exercise or
convert any options, warrants or other convertible securities
issued to or held by such director or executive officer, including
those granted under our 2018 Incentive Compensation
Plan.
Other Relationships
WestPark Capital
may in the future provide us and our affiliates with investment
banking and financial advisory services for which Westpark Capital
may in the future receive customary fees. WestPark Capital, as the
Representative, may release, or authorize us to release, as the
case may be, the common stock and other securities subject to the
lock-up agreements described above in whole or in part at any time
with or without notice.
Electronic Distribution
A
prospectus in electronic format may be made available on the
websites maintained by one or more of the underwriters or selling
group members, if any, participating in the offering. The
Representative may allocate a number of shares to the underwriters
and selling group members, if any, for sale to their online
brokerage account holders. Any such allocations for online
distributions will be made by the representative on the same basis
as other allocations.
Listing
In
connection with this offering, we intend to apply to have our
common stock listed on the Nasdaq Capital Market under the symbol
HFEN. There is no assurance, however, that our common stock will be
listed on the Nasdaq Capital Market or any other national
securities exchange.
Transfer Agent and Registrar
The
transfer agent and registrar for our common stock is Direct
Transfer, Raleigh, North Carolina.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Section 145 of
the Delaware General Corporation Law, as amended, authorizes us to
indemnify any director or officer under certain prescribed
circumstances and subject to certain limitations against certain
costs and expenses, including attorney’s fees actually and
reasonably incurred in connection with any action, suit or
proceeding, whether civil, criminal, administrative or
investigative, to which a person is a party by reason of being one
of our directors or officers if it is determined that such person
acted in accordance with the applicable standard of conduct set
forth in such statutory provisions. Our certificate of
incorporation contains provisions relating to the indemnification
of director and officers and our bylaws extend such indemnities to
the full extent permitted by Delaware law. We may also
purchase and maintain insurance for the benefit of any director or
officer, which may cover claims for which we could not indemnify
such persons.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the SEC, such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
Olshan
Frome Wolosky LLP, New York, New York, as our counsel, will pass
upon the validity of the issuance of the shares of our common stock
being offered by this prospectus. Manatt, Phelps & Phillips,
LLP, Costa Mesa, California, is acting as counsel for the
underwriter in connection with this offering.
The
consolidated financial statements of HF Enterprises Inc. as of
December 31, 2018 and 2017 included in this prospectus and in this
registration statement have been so included in reliance on the
report of Rosenberg Rich Baker Berman, P.A., an independent
registered public accounting firm, appearing elsewhere herein and
in this registration statement, given on the authority of said firm
as experts in auditing and accounting.
WHERE
YOU CAN FIND MORE INFORMATION
We have
filed with the SEC a registration statement on Form S-1 (including
the exhibits, schedules and amendments to the registration
statement) under the Securities Act with respect to the shares of
our common stock offered by this prospectus. This prospectus
does not contain all the information set forth in the registration
statement. For further information with respect to us and the
shares of our common stock to be sold in this offering, we refer
you to the registration statement. Statements contained in
this prospectus as to the contents of any contract, agreement or
other documents to which we make reference are not necessarily
complete. In each instance, we refer you to the copy of such
contract, agreement or other document filed as an exhibit to the
registration statement.
Following this
offering, we will be subject to the reporting and information
requirements of the Exchange Act and, as a result, we will file
annual, quarterly and current reports, and other information with
the SEC. You may read and copy this information at the Public
Reference Room of the SEC located at 100 F Street, N.E.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operation of the Public Reference Room.
Copies of all or any part of the registration statement may be
obtained from the SEC’s offices upon payment of fees
prescribed by the SEC. The SEC maintains an internet site that
contains periodic and current reports, information statements and
other information regarding issuers that file electronically with
the SEC. The address of the SEC’s website is
http://www.sec.gov.
We will
provide a copy of our annual report to stockholders, including our
audited consolidated financial statements, at no charge upon
written request sent to HF Enterprises Inc., 4800 Montgomery Lane,
Suite 210, Bethesda, Maryland 20814. Our corporate website is
located at http://www.hfenterp.com. The information on, or
that can be accessed through, our website is not incorporated by
reference into this prospectus and should not be considered to be a
part of this prospectus.
HF Enterprises Inc. and Subsidiaries
Table of Contents
For Nine Months Ended September 30, 2019 and 2018
|
Condensed
Consolidated Balance Sheets
|
F-1
|
|
|
|
|
Condensed
Consolidated Statements of Operations and Other Comprehensive
Loss
|
F-2
|
|
|
|
|
Condensed
Consolidated Statements of Stockholders’ Equity
|
F-3-
F-4
|
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
F-5
|
|
|
|
|
Notes
to Condensed Consolidated Financial Statements
|
F-6 -
F-35
|
HF
Enterprises Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
Current
Assets:
|
|
|
|
Cash
|
$4,230,902
|
$1,387,209
|
|
Restricted
Cash
|
7,182,994
|
4,120,989
|
|
Account
Receivables, Net
|
857,325
|
564,759
|
|
Prepaid
Expenses
|
123,858
|
140,442
|
|
Inventory
|
220,070
|
198,817
|
|
Investment
in Securities at Fair Value
|
2,852,895
|
3,026,766
|
|
Investment
in Securities at Cost
|
200,128
|
200,128
|
|
Investment
in Securities by Equity Method
|
14,882
|
9,052
|
|
Deposits
|
65,532
|
23,603
|
|
Current
Assets of Discontinued Operations
|
-
|
14,317
|
|
Operating
Lease Right-Of-Use Asset
|
181,855
|
-
|
|
Total
Current Assets
|
15,930,441
|
9,686,082
|
|
Real
Estate
|
|
|
|
Properties
under Development
|
22,421,397
|
38,774,936
|
|
Real
Estate Held For Sale
|
136,248
|
136,248
|
|
Total
Real Estate
|
22,557,645
|
38,911,184
|
|
|
|
|
|
Property
and Equipment, Net
|
82,728
|
103,425
|
|
Non-Current
Assets of Discontinued Operations
|
-
|
1,765
|
|
Total
Assets
|
$38,570,814
|
$48,702,456
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
Payable and Accrued Expenses
|
$3,125,122
|
$4,394,853
|
|
Accrued
Interest - Related Parties
|
736,756
|
476,063
|
|
Deferred
Revenue
|
48,531
|
84,998
|
|
Builder
Deposits
|
768,870
|
1,296,062
|
|
Operating
Lease Liability
|
188,748
|
-
|
|
Note
Payable
|
151,290
|
13,899
|
|
Bonds
Payable, Net of Debt Discount of $4,161 and $43,651
|
|
|
|
on
September 30, 2019 and December 31, 2018, respectively
|
1,495,839
|
1,456,349
|
|
Current
Liabilities of Discontinued Operations
|
-
|
174,606
|
|
Total
Current Liabilities
|
6,515,156
|
7,896,830
|
|
Long-Term
Liabilities:
|
|
|
|
Builder
Deposits
|
1,769,886
|
2,582,780
|
|
Note
Payable
|
-
|
158,036
|
|
Notes
Payable - Related Parties
|
6,491,490
|
8,863,196
|
|
Total
Liabilities
|
14,776,532
|
19,500,842
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
Preferred
Stock, $0.001 par value; 5,000,000 shares authorized, none
issued
|
-
|
-
|
|
Common
Stock, $0.001 par value; 20,000,000 shares authorized;
10,001,000
|
|
|
|
shares
issued and outstanding on September 30, 2019
|
|
|
|
and
December 31, 2018, respectively
|
10,001
|
10,001
|
|
Additional
Paid In Capital
|
53,876,032
|
53,717,424
|
|
Accumulated
Deficit
|
(38,360,765)
|
(35,263,650)
|
|
Accumulated
Other Comprehensive Income
|
1,332,426
|
1,582,788
|
|
Total
Stockholders' Equity
|
16,857,694
|
20,046,563
|
|
Non-controlling
Interests
|
6,936,588
|
9,155,051
|
|
Total
Stockholders' Equity
|
23,794,282
|
29,201,614
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
$38,570,814
|
$48,702,456
|
See accompanying notes to condensed consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Condensed Consolidated Statements of Operations and Other
Comprehensive Loss
For the Three and Nine Months Ended September 30, 2019 and
2018
(Unaudited)
|
|
Three Months Ended on September 30,
|
Nine Months Ended on September 30,
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Property
Sales
|
$4,938,017
|
$7,908,864
|
$21,509,197
|
$14,209,199
|
|
Biohealth
Product Sales
|
360,351
|
678,309
|
1,406,951
|
2,021,121
|
|
Digital
Transformation Technology
|
-
|
33,221
|
-
|
135,515
|
|
Others
|
8,495
|
8,963
|
28,350
|
24,057
|
|
|
5,306,863
|
8,629,357
|
22,944,498
|
16,389,892
|
|
Operating
Expenses
|
|
|
|
-
|
|
Cost
of Sales
|
4,130,484
|
6,933,091
|
19,177,800
|
12,854,147
|
|
General
and Administrative
|
1,552,538
|
1,819,317
|
4,592,441
|
5,688,733
|
|
Research
and Development
|
4,245
|
27,503
|
93,134
|
457,546
|
|
Impairment
of Real Estate
|
-
|
-
|
3,938,769
|
-
|
|
|
5,687,267
|
8,779,911
|
27,802,144
|
19,000,426
|
|
|
|
|
|
|
|
Loss
From Operations
|
(380,404)
|
(150,554)
|
(4,857,646)
|
(2,610,534)
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
Interest
Income
|
16,440
|
10,027
|
44,021
|
22,198
|
|
Interest
Expense
|
(86,440)
|
(110,323)
|
(286,805)
|
(356,584)
|
|
Gain
on Disposal of Subsidiary
|
-
|
-
|
299,255
|
-
|
|
Foreign
Exchange Transaction Gain (Loss)
|
757,068
|
162,354
|
438,608
|
974,937
|
|
Unrealized
Gain (Loss) on Securities Investment
|
507,727
|
(254,655)
|
(146,470)
|
(2,508,245)
|
|
Loss
on Investment on Security by Equity Method
|
(17,356)
|
-
|
(30,166)
|
-
|
|
Other
Income (Expense)
|
2,887
|
5,707
|
8,598
|
5,820
|
|
|
1,180,326
|
(186,890)
|
327,041
|
(1,861,874)
|
|
|
|
|
|
|
|
Net
Income (Loss) Before Income Taxes
|
799,922
|
(337,444)
|
(4,530,605)
|
(4,472,408)
|
|
|
|
|
|
|
|
Income
Tax Benefit (Expense)
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
Net
Income (Loss) from Continuing Operations
|
799,922
|
(337,444)
|
(4,530,605)
|
(4,472,408)
|
|
|
|
|
|
|
|
Loss
from Discontinued Operations, Net of Tax
|
-
|
(32,143)
|
(3,712)
|
(80,263)
|
|
Net
Income (Loss)
|
799,922
|
(369,587)
|
(4,534,317)
|
(4,552,671)
|
|
|
|
|
|
|
|
Net
Income (Loss) Attributable to Non-Controlling Interest
|
36,181
|
(107,006)
|
(1,437,202)
|
(1,555,782)
|
|
|
|
|
|
|
|
Net
Income (Loss) Attributable to Common Stockholders
|
$763,741
|
$(262,581)
|
$(3,097,115)
|
$(2,996,889)
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss), Net
|
|
|
|
|
|
Unrealized
Gain (Loss) on Securities Investment
|
(53,681)
|
289
|
(36,747)
|
(20,060)
|
|
Foreign
Currency Translation Adjustment
|
(584,561)
|
241,779
|
(325,518)
|
(49,049)
|
|
Other
Comprehensive Gain (Loss)
|
161,680
|
(127,519)
|
(4,896,582)
|
(4,621,780)
|
|
|
|
|
|
|
|
Comprehensive
Loss Attributable to Non-controlling Interests
|
(160,972)
|
(32,231)
|
(1,549,106)
|
(1,577,130)
|
|
|
|
|
|
|
|
Comprehensive
Income (Loss) Attributable to Common Stockholders
|
$322,652
|
$(95,288)
|
$(3,347,476)
|
$(3,044,650)
|
|
|
|
|
|
|
|
Net
Loss Per Share - Basic and Diluted
|
|
|
|
|
|
Continuing
Operations
|
$0.08
|
$(0.03)
|
$(0.31)
|
$(0.30)
|
|
Discontinued
Operations
|
$-
|
$-
|
$(0.00)
|
$(0.01)
|
|
Net
(Loss) Income Per Share
|
$0.08
|
$(0.03)
|
$(0.31)
|
$(0.31)
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Basic and Diluted
|
10,001,000
|
10,001,000
|
10,001,000
|
10,001,000
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to condensed consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For Nine Months Ended
September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid in Capital
|
Accumulated
Other Comprehensive Income
|
|
Non-controlling
Interests
|
Total
Stockholders Equity
|
|
Balance at
January 1, 2019
|
|
|
10,001,000
|
$10,001
|
$53,717,424
|
$1,582,788
|
$(35,263,650)
|
$9,155,051
|
$29,201,614
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
Selling Subsidiary Equity
|
|
|
|
|
127,508
|
|
|
56,992
|
184,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
Unrealized Gain on Investment
|
|
|
|
|
|
11,681
|
|
5,221
|
16,902
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translations
|
|
|
|
|
|
74,262
|
|
33,194
|
107,456
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
344,151
|
50,766
|
394,917
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
March 31, 2019
|
|
|
10,001,000
|
$10,001
|
$53,844,932
|
$1,668,731
|
$(34,919,499)
|
$9,301,224
|
$29,905,389
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
Selling Subsidiary Equity
|
|
|
|
|
10,367
|
|
|
4,633
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
Unrealized Gain on Investment
|
|
|
|
|
|
22
|
|
10
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translations
|
|
|
|
|
|
104,762
|
|
46,825
|
151,587
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividend
Distribution
|
|
|
|
|
|
|
|
(740,250)
|
(740,250)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
(4,205,007)
|
(1,524,149)
|
(5,729,156)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
June 30, 2019
|
|
|
10,001,000
|
$10,001
|
$53,855,299
|
$1,773,515
|
$(39,124,506)
|
$7,088,293
|
$23,602,602
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
Selling Subsidiary Equity
|
|
|
|
|
20,733
|
|
|
9,267
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
Unrealized Gain on Investment
|
|
|
|
|
|
(37,099)
|
|
(16,582)
|
(53,681)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translations
|
|
|
|
|
|
(403,990)
|
|
(180,571)
|
(584,561)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income
|
|
|
|
|
|
|
763,741
|
36,181
|
799,922
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
September 30, 2019
|
|
|
10,001,000
|
$10,001
|
$53,876,032
|
$1,332,426
|
$(38,360,765)
|
$6,936,588
|
$23,794,282
|
See accompanying notes to condensed consolidated
financial statements.
HF Enterprises Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
For
Nine Months Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid in Capital
|
Accumulated
Other Comprehensive Income
|
|
Non-controlling
Interests
|
Total
Stockholders Equity
|
|
Balance at
January 1, 2018
|
|
|
10,001,000
|
$10,001
|
$51,324,448
|
$3,923,236
|
$(32,235,614)
|
$11,723,524
|
$34,745,595
|
|
|
|
|
|
|
|
|
|
|
|
Change in
Unrealized Loss on Investment
|
|
|
|
|
|
(14,063)
|
|
(6,286)
|
(20,349)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translations
|
|
|
|
|
|
532,659
|
|
238,082
|
770,741
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gains Reclassification
|
|
|
|
|
|
(1,961,835)
|
1,961,835
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
(2,812,674)
|
(1,331,748)
|
(4,144,422)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
March 31, 2018
|
|
|
10,001,000
|
$10,001
|
$51,324,448
|
$2,479,997
|
$(33,086,453)
|
$10,623,572
|
$31,351,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translations
|
|
|
|
|
|
(733,650)
|
|
(327,919)
|
(1,061,569)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
(Loss)
|
|
|
|
|
|
|
78,367
|
(117,029)
|
(38,662)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
June 30, 2018
|
|
|
10,001,000
|
$10,001
|
$51,324,448
|
$1,746,347
|
$(33,008,086)
|
$10,178,624
|
$30,251,334
|
|
|
|
|
|
|
|
|
|
|
|
Change in
Unrealized Loss on Investment
|
|
|
|
|
|
200
|
|
89
|
289
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Currency Translations
|
|
|
|
|
|
167,093
|
|
74,686
|
241,779
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
(262,581)
|
(107,006)
|
(369,587)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
September 30, 2018
|
|
|
10,001,000
|
$10,001
|
$51,324,448
|
$1,913,640
|
$(33,270,667)
|
$10,146,393
|
$30,123,815
|
See accompanying notes to condensed consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2019 and 2018
(Unaudited)
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
Net
Loss from Continuing Operations
|
$(4,530,605)
|
$(4,472,408)
|
|
Adjustments
to reconcile net income (loss) to net cash from operating
activities:
|
|
|
|
Depreciation
|
20,697
|
35,799
|
|
Amortization
of Right -Of - Use Asset
|
55,726
|
-
|
|
Gain
on Disposal of subsidiary
|
(299,255)
|
-
|
|
Foreign
Exchange Transaction Gain
|
(438,608)
|
(974,937)
|
|
Unrealized
Loss on Security Investment
|
146,470
|
2,508,245
|
|
Impairment
of Real Estate
|
3,938,769
|
-
|
|
Changes
in Operating Assets and Liabilities
|
|
|
|
Real
Estate
|
12,565,198
|
11,180,697
|
|
Trade
Receivables
|
(125,855)
|
389,372
|
|
Prepaid
Expense
|
(14,335)
|
31,926
|
|
Deferred
Revenue
|
(36,467)
|
(27,255)
|
|
Inventory
|
(21,253)
|
(109,950)
|
|
Accounts
Payable and Accrued Expenses
|
(1,192,527)
|
726,070
|
|
Accrued
Interest - Related Parties
|
275,245
|
357,048
|
|
Operating
Lease Liability
|
(62,707)
|
-
|
|
Tenant
Security Deposits
|
-
|
(1,400)
|
|
Builder
Deposits
|
(1,340,086)
|
(1,162,354)
|
|
Net
Cash Provided by Continuing Operating Activities
|
8,940,407
|
8,480,853
|
|
Net
Cash Provided by (Used In) Discontinued Operating
Activities
|
24,493
|
(74,866)
|
|
Net
Cash Provided by Operating Activities
|
8,964,900
|
8,405,987
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
Purchase
of Fixed Assets
|
-
|
(4,518)
|
|
Investment
in Joint Venture
|
(36,000)
|
(55,000)
|
|
Net
Cash Used in Continuing Investing Activities
|
(36,000)
|
(59,518)
|
|
Net
Cash Used in Discontinued Investing Activities
|
-
|
-
|
|
Net
Cash Used in Investing Activities
|
(36,000)
|
(59,518)
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
Proceeds
from Sale of Subsidiary Shares
|
229,500
|
-
|
|
Repayments
of Note Payable
|
(13,899)
|
(7,874,959)
|
|
Acquisition
of Minority Interest
|
-
|
(60,000)
|
|
Distribution
to Minority Shareholder
|
(740,250)
|
-
|
|
Net
Proceeds (Paid to) from Notes Payable - Related
Parties
|
(2,507,840)
|
486,160
|
|
Net
Cash Used In Continuing Financing Activities
|
(3,032,489)
|
(7,448,799)
|
|
Net
Cash Provided By Discontinued Financing Activities
|
-
|
28,502
|
|
Net
Cash Used In Financing Activities
|
(3,032,489)
|
(7,420,297)
|
|
|
|
|
|
Net
Increase in Cash and Restricted Cash
|
5,896,411
|
926,172
|
|
Effects
of Foreign Exchange Rates on Cash
|
9,287
|
38,184
|
|
|
|
|
|
Cash
and Restricted Cash - Beginning of Year
|
5,508,198
|
4,137,041
|
|
Cash
and Restricted Cash- End of Period
|
$11,413,896
|
$5,101,397
|
|
|
|
|
|
Supplementary
Cash Flow Information
|
|
|
|
Cash
Paid For Interest
|
$4,663
|
$284,778
|
|
Cash
Paid For Taxes
|
$-
|
$-
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing
Activities
|
|
|
|
Convert
Related Party Loan to Common Stock
|
$-
|
$10,500,000
|
|
Amortization
of Debt Discount Capitalized
|
$381,823
|
$77,604
|
See accompanying notes to condensed consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
HF
Enterprises Inc. (the “Company” or “HFE”)
was incorporated in the State of Delaware on March 7, 2018 and
1,000 shares of common stock was issued to Chan Heng Fai, the
founder, Chairman and Chief Executive Officer of the Company. HFE
is a diversified holding company principally engaged in property
development, digital transformation technology, biohealth and other
related business activities with operations in the United States,
Singapore, Hong Kong, and Australia. The Company manages its
principal businesses primarily through its 69.08% as of September
30, 2019 and 69.11% as of December 31, 2018, owned subsidiary,
Singapore eDevelopment Ltd. (“SeD Ltd”), a public
company traded on the Singapore Stock Exchange.
On
October 1, 2018, Chan Heng Fai transferred his 100% interest in
Hengfai International Pte. Ltd. (“Hengfai
International”) to HF Enterprises Inc. in exchange for
8,500,000 shares of the Company’s common stock. Hengfai
International holds a 100% interest in Hengfai Business Development
Pte. Ltd. (“Hengfai Business Development”). Both
Hengfai International and Hengfai Business Development are holding
companies with no business operations. Hengfai Business Development
holds 761,185,294 shares and 359,834,471 warrants of SeD Ltd, or
69.08% as of September 30, 2019 and 69.11% as of December 31, 2018,
of the outstanding shares of SeD Ltd, which is the primary
operating company of HFE.
Also on
October 1, 2018, Chan Heng Fai transferred his 100% ownership
interest in Heng Fai Enterprises Pte. Ltd. (“Heng Fai
Enterprises”) and Global eHealth Limited (“Global
eHealth”) to HF Enterprises Inc. in exchange for 500,000 and
1,000,000 shares of the Company’s common stock, respectively.
Both Heng Fai Enterprises and Global eHealth are holding companies
with no business operations.
The
contributions to HFE on October 1, 2018 of Hengfai International,
Heng Fai Enterprises, and Global eHealth from Chan Heng Fai
represented transactions under common control.
The
Company has four operating segments based on the products and
services offered. These include our three principal businesses
– property development, digital transformation technology and
biohealth – as well as a fourth category consisting of
certain other business activities.
Property Development
The
Company’s property development segment is comprised of SeD
Intelligent Home Inc. (“SeD Intelligent Home”) and SeD
Perth Pty Ltd.
In
2014, Singapore eDevelopment Ltd. commenced operations developing
property projects and participating in third-party property
development projects. SeD Intelligent Home Inc., a 99.9%-owned
subsidiary of Singapore eDevelopment, owns, operates and manages
real estate development projects with a focus on land subdivision
developments.
Development
activities are generally contracted out, including planning, design
and construction, as well as other work with engineers, surveyors,
architects and general contractors. The developed lots are then
sold to builders for the construction of new homes. SeD Intelligent
Home’s main assets are two subdivision development projects,
one near Houston, Texas, known as Black Oak, consisting of 162
acres and currently projected to have approximately 512 units, and
one in Frederick, Maryland, known as Ballenger Run, consisting of
197 acres and currently projected to have approximately 689
units.
Digital Transformation Technology
The
Company’s digital transformation technology segment is
comprised of HotApp Blockchain Inc. and its
subsidiaries.
The
Company’s digital transformation technology business is
involved in mobile application product development and other
businesses, providing information technology services to end-users,
service providers and other commercial users through multiple
platforms. This technology platform consists of instant messaging
systems, social media, e-commerce and payment systems, direct
marketing platforms, e-real estate, brand protection and
counterfeit and fraud detection. HotApp Blockchain Inc.
(“HotApp Blockchain" or “HotApp”), a 99.9%-owned
subsidiary of Singapore eDevelopment, focuses on
business-to-business solutions such as enterprise messaging and
workflow. Through HotApp, the Company has successfully implemented
several strategic platform developments for clients, including a
mobile front-end solution for network marketing, a hotel e-commerce
platform for Asia and a real estate agent management platform in
China.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
On
October 25, 2018, HotApps International Pte. Ltd.
(“HIP”) entered into an Equity Purchase Agreement with
DSS Asia Limited (“DSS Asia”), a Hong Kong subsidiary
of DSS International Inc. (“DSS International”),
pursuant to which HIP agreed to sell to DSS Asia all of the issued
and outstanding shares of HotApps Information Technology Co. Ltd.,
also known as Guangzhou HotApps Technology Ltd. (“Guangzhou
HotApps”). The transaction closed on January 14, 2019. Chan
Heng Fai is the CEO of DSS Asia and DSS International. See Note 14
– Discontinued Operations and Note 11 – Related Party
Transactions.
Biohealth
The
Company’s biohealth segment is comprised of Singapore
BioMedical Pte. Ltd. and Health Wealth Happiness Pte.
Ltd.
The
Company’s biohealth business is committed to both funding
research and developing and selling products that promote a healthy
lifestyle. Global BioLife is one of the entities within this
segment, focusing on research in three main areas: (i) development
of a universal therapeutic drug platform; (ii) a new sugar
substitute; and (iii) a multi-use fragrance. Global BioLife
established a joint venture, Sweet Sense, Inc., with Quality
Ingredients, LLC for the development, manufacture, and global
distribution of the new sugar substitute. On November 8, 2019,
Impact BioMedical Inc., a subsidiary of the Company, purchased 50%
of Sweet Sense Inc. from Quality Ingredients, LLC for
$91,000. Sweet Sense Inc. is now 81.8% owned subsidiary of
Singapore eDevelopment.
Currently,
all revenues from our biohealth segment come from the direct sales
by iGalen Inc. (formerly known as iGalen USA, LLC), which is 100%
owned by iGalen International Inc., Singapore eDevelopment’s
53%-owned subsidiary. During the nine months ended September 30,
2019 and 2018, the revenues from iGalen Inc. were $1,406,951 and
$2,021,121, respectively.
Other Business Activities
In
addition to the segments identified above, the Company provides
corporate strategy and business development services, asset
management services, corporate restructuring and leveraged buy-out
expertise. These service offerings build relationships with
promising companies for potential future collaboration and
expansion. We believe that our other business activities complement
our three principal businesses.
The
Company’s other business activities segment is primarily
comprised of Singapore eDevelopment Ltd, SeD Capital Pte. Ltd., BMI
Capital Partners International Limited and Singapore Construction
& Development Pte. Ltd.
2.
GOING CONCERN
The
accompanying financial statements have been prepared on the basis
that the Company is a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. The Company has experienced net losses over the
past 9 months. As of and for the nine months ended September 30,
2019, the Company had an accumulated deficit of $38,360,765 a net
loss of $4,534,317, and net cash provided by operating activities
of $8,964,900.
As a
result, these conditions may raise substantial doubt regarding our
ability to continue as a going concern 12 months from the date of
issuance of our financial statements. However, the Company expects
to have high volume of cash in hand and strong operating cash
inflows for at least the next twelve months. As of September 30,
2019, the Company had cash and restricted cash of $11,413,896,
compared to $5,508,198 as of December 31, 2018. Management has
evaluated the conditions in relation to the Company’s ability
to meet its obligations and plans to continue borrowing funds from
third party financial institutions in order to meet the operating
cash requirements. Concurrently, management will work with the
related party debtors on a plan to repay the related party loans,
which are repayable on demand, to ensure the Company’s
operation cash requirement is its’ first
priority.
During
the nine months ended September 30, 2019, the revenue from lot
sales was approximately $21.5 million and cash flow provided by
operating activities from property development was approximately
$10.7 million. Furthermore, the Company had not defaulted on any
principal and interest repayment on its loans and borrowings and
had repaid its floating rate loan during the year. The Company had
obtained a letter of financial support from Chan Heng Fai, the
chairman and CEO of the Company. He committed to provide any
additional funding required by the Company and would not demand
repayment within the next 12 months from the date of issuance of
our 2019 interim financial statements if the need
arises.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As a
result of management’s plans, high volume cash in bank
accounts, favorable operating cash flow from operations in nine
months ended on September 30, 2019 and the support from the
director, the Company believes the initial conditions which raised
substantial doubt regarding the ability to continue as a going
concern have been alleviated. Therefore, the accompanying
consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements
have been prepared in accordance with accounting principles
generally accepted in the United States of America (“U.S.
GAAP”) and following the requirements of the Securities and
Exchange Commission ("SEC") for interim reporting. As permitted
under those rules, certain footnotes or other financial information
that are normally required by U.S. GAAP can be condensed or
omitted. These interim financial statements have been prepared on
the same basis as the Company's annual financial statements and, in
the opinion of management, reflect all adjustments, consisting only
of normal recurring adjustments, which are necessary for a fair
statement of the Company's financial information. These interim
results are not necessarily indicative of the results to be
expected for the year ending December 31, 2019 or any other interim
period or for any other future year. These unaudited condensed
consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements and
the notes thereto for the year ended December 31, 2018, as filed
with the SEC.
The balance sheet as of December 31, 2018 has been derived from
audited financial statements at that date but does not include all
of the information required by U.S. GAAP for complete financial
statements.
The condensed consolidated financial statements include all
accounts of the Company and its majority owned and controlled
subsidiaries. The Company consolidates entities in which it owns
more than 50% of the voting common stock and controls operations.
All intercompany transactions and balances among consolidated
subsidiaries have been eliminated.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
The Company's condensed consolidated financial statements include
the financial position, results of operations and cash flows of the
following entities as of September 30, 2019 and December 31, 2018,
and for the three and nine months periods ended September 30, 2019
and 2018 as follows:
|
|
|
|
|
|
|
|
|
|
Name of subsidiary consolidated under HFE
|
|
State
or other jurisdiction of incorporation or
organization
|
|
|
|
|
|
|
|
|
|
Hengfai
International Pte. Ltd
|
|
Singapore
|
100
|
100
|
|
Hengfai
Business Development Pte. Ltd
|
|
Singapore
|
100
|
100
|
|
Singapore
eDevelopment Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
Singapore
Construction & Development Pte Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
Art
eStudio Pte. Ltd.
|
|
Singapore
|
35.24*
|
35.25*
|
|
Singapore
Construction Pte. Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
Global
BioMedical Pte. Ltd (f.k.a Singapore BioMedical Pte.
Ltd.)
|
|
Singapore
|
69.08
|
69.11
|
|
SeD
BioLife International Inc.
|
|
United
States of America
|
69.08
|
69.11
|
|
SeD
BioMedical International Inc.
|
|
United
States of America
|
69.08
|
69.11
|
|
Global
BioMedical Inc.
|
|
United
States of America
|
62.80
|
62.83
|
|
Global
BioLife Inc.
|
|
United
States of America
|
43.96*
|
43.98*
|
|
SeD
Investment Pte. Ltd. (f.ka SingLife Regenerate Pte.
Ltd.)
|
|
Singapore
|
69.08
|
69.11
|
|
Health
Wealth Happiness Pte. Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
iGalen
International Inc.
|
|
United
States of America
|
36.61*
|
36.63*
|
|
iGalen
Inc (f.k.a iGalen USA LLC)
|
|
United
States of America
|
36.61*
|
36.63*
|
|
SeD
Capital Pte. Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
LiquidValue
Asset Management Pte. Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
SeD
Home Limited
|
|
Hong
Kong
|
69.08
|
69.11
|
|
Global
Lite Food Pte. Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
Global
Techfund of Fund Pte. Ltd.
|
|
Singapore
|
69.08
|
69.11
|
|
Singapore
eChain Logisitic Pte. Ltd. (f.k.a CloudTV Pte. Ltd.)
|
|
Singapore
|
69.08
|
69.11
|
|
BMI
Capital Partners International Limited.
|
|
Hong
Kong
|
69.08
|
69.11
|
|
SeD
Perth Pty Ltd.
|
|
Australia
|
69.08
|
69.11
|
|
SeD
Home International, Inc.
|
|
United
States of America
|
69.08
|
69.11
|
|
SeD
Intelligent Home Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
SeD
Home, Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
SeD
USA, LLC
|
|
United
States of America
|
69.07
|
69.10
|
|
150
Black Oak GP, Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
SeD
Development USA, Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
150
CCM Black Oak Ltd.
|
|
United
States of America
|
69.07
|
69.10
|
|
SeD
Texas Home, LLC
|
|
United
States of America
|
69.07
|
69.10
|
|
SeD
Ballenger, LLC
|
|
United
States of America
|
69.07
|
69.10
|
|
SeD
Maryland Development, LLC
|
|
United
States of America
|
57.70
|
57.73
|
|
SeD
Development Management, LLC
|
|
United
States of America
|
58.71
|
58.74
|
|
SeD
Builder, LLC
|
|
United
States of America
|
69.07
|
69.10
|
|
HotApp
Blockchain, Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
HotApps
International Pte. Ltd.
|
|
Singapore
|
69.07
|
69.10
|
|
HotApps
Call Pte. Ltd.
|
|
Singapore
|
69.07
|
69.10
|
|
Guangzhou
HotApps Technology Ltd.
|
|
China
|
0
|
69.10
|
|
HotApp
International Limited
|
|
Hong
Kong
|
69.07
|
69.10
|
|
HWH
International Inc.
|
|
United
States of America
|
69.08
|
69.11
|
|
Health,
Wealth & Happiness Inc.
|
|
United
States of America
|
69.08
|
69.11
|
|
HWH
Multi-Strategy Investment Inc.
|
|
United
States of America
|
69.08
|
69.11
|
|
Impact
Biomedical Inc.
|
|
United
States of America
|
69.08
|
69.11
|
|
Biolife
Sugar, Inc.
|
|
United
States of America
|
43.89*
|
43.91*
|
|
Happy
Sugar, Inc.
|
|
United
States of America
|
43.89*
|
43.91*
|
|
SeD
Home Rental, Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
Crypto
Exchange, Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
HWH
World Inc.
|
|
United
States of America
|
69.07
|
69.10
|
|
HWH
World Pte. Ltd. (f.k.a Crypto Exchange Pte. Ltd.)
|
|
Singapore
|
69.07
|
69.10
|
*Although
the Company indirectly holds percentage of shares of these entities
less than 50%, the subsidiaries of the Company directly hold more
than 50% of shares of these entities. They are still consolidated
into the Company.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Use of Estimates and Critical Accounting Estimates and
Assumptions
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Significant estimates made by management
include, but are not limited to, allowance for doubtful accounts,
recoverability and useful lives of property, plant and equipment,
valuation of real estate assets, allocation of development costs
and capitalized interest to sold lots, the valuation allowance of
deferred taxes, contingencies and equity compensation. Actual
results could differ from those estimates.
In our
property development business, land acquisition costs are allocated
to each lot based on the area method, the size of the lot comparing
to the total size of all lots in the project. Development costs and
capitalized interest are allocated to lots sold based on the total
expected development and interest costs of the completed project
and allocating a percentage of those costs based on the selling
price of the sold lot compared to the expected sales values of all
lots in the project.
If
allocation of development costs and capitalized interest based on
the projection and relative expected sales value is impracticable,
those costs could also be allocated based on area method, the size
of the lot comparing to the total size of all lots in the
project.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash
equivalents. Cash and cash equivalents include cash on hand and at
the bank and short-term deposits with financial institutions that
are readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in values. There were no cash
equivalents as of September 30, 2019 and December 31,
2018.
Restricted Cash
As a
condition to the loan agreement with the Manufacturers and Traders
Trust Company (“M&T Bank”), the Company is required
to maintain a minimum of $2,600,000 in an interest-bearing account
maintained by the lender as additional security for the loans. The
fund is required to remain as collateral for the loan until the
loan is paid off in full and the loan agreement terminated. The
Company also has an escrow account with M&T Bank to deposit
partial revenue from lot sales. The fund in the escrow account is
specifically used for the payment of the loan from M&T Bank.
The fund is required to remain in the escrow account for the loan
payment until the loan agreement terminates. As of September 30,
2019 the total balance of these two accounts was
$6,641,177.
As a
condition to the loan agreement with National Australian Bank
Limited in conjunction with the Perth project, an Australian real
estate development project, the Company is required to maintain
$35,276 in a non-interest-bearing account. As of September 30, 2019
and December 31, 2018, the account balance was $35,276. These funds
will remain as collateral for the loans until paid in
full.
On July
20, 2018, Black Oak LP received $4,592,079 in district
reimbursement payments for previous construction costs incurred in
land development. Of this amount, $1,650,000 will remain on deposit
in the District’s Capital Projects Fund for the benefit of
Black Oak LP and will be released upon receipt of the evidence of:
(a) the execution of a purchase agreement between Black Oak LP and
a home builder with respect to the Black Oak development and (b)
the completion, finishing and readying for home construction of at
least 105 unfinished lots in the Black Oak development. After
entering the purchase agreement with Houston LD, LLC, the above
requirements were met. The amount of the deposit will be released
to the Company by presenting the invoices paid for land
development. After releasing funds to the Company, the amount on
deposit was $406,541 and $1,203,256 on September 30, 2019 and
December 31, 2018, respectively.
As a
condition to use the credit card services for the Company’s
bio product direct sale business, provided by Global Payroll
Gateway, Ltd. (“GPG”), a financial service company, the
Company is required to deposit 10% revenue from the direct sales to
a non-interest-bearing GPG reserve account with a maximum amount of
$200,000. The Company is allowed to temporarily use the money in
this deposit account upon request and pay back on a short-term
basis. As of September 30, 2019 and December 31, 2018, the balance
in the reserve account was $100,000 and $156,303, respectively. The
fund will not be fully refunded to the Company until the service
agreement with GPG terminates.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts
receivable are stated at amounts due from buyers, contractors, and
all third parties, net of an allowance for doubtful accounts. The
Company monitors its accounts receivable balances on a monthly
basis to ensure that they are collectible. On a quarterly basis,
the Company uses its historical experience to estimate its accounts
receivable reserve. The Company’s allowance for doubtful
accounts represents an estimate of the losses expected to be
incurred based on specifically identified accounts as well as
general reserves. Generally, the amount of allowance is primarily
decided by division management’s historical experiences, the
delinquency trends, the resolution rates, the aging of receivables,
the credit quality indicators and financial health of specific
customers. As of September 30, 2019 and December 31, 2018, the
allowance was $0.
Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost is
determined using the first-in, first-out method and includes all
costs in bringing the inventories to their present location and
condition. Net realizable value is the estimated selling price in
the ordinary course of business less the estimated costs necessary
to make the sale. As of September 30, 2019 and December 31, 2018,
inventory consisted of finished goods, our iGalen Inc. health
supplement products and raw materials to make these products. The
Company evaluates a potential reserve for obsolescence and possible
price concessions required to liquidate inventories below net
realizable value. On September 30, 2019 and December 31, 2018, the
reserve was $0.
Investment Securities
Investment Securities at Fair Value
The
Company commonly holds investments in equity securities with
readily determinable fair values, equity investments without
readily determinable fair values, investments accounted for under
the equity method, and investments at cost. Certain of the
Company’s investments in marketable equity securities and
other securities are long-term, strategic investments in companies
that are in various stages of development.
Prior
to the adoption of Financial Accounting Standards Board
(“FASB”) Accounting Standards Update
(“ASU”) 2016-01, Financial Instruments-Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities, investments in equity securities
were classified as either 1) available-for-sale securities, stated
at fair value, and unrealized holding gains and losses, net
of related tax
effects, were recorded directly to accumulated other comprehensive
income (loss) or 2) trading securities, stated at fair value, and
unrealized holding gains and losses, net of related tax benefits,
were recorded directly to net income (loss). With the adoption of
ASU 2016-01, investments in equity securities are still
stated at fair value, quoted by market prices, but all unrealized
holding gains and losses are credited or charged to net income
(loss) based on fair value measurement as the respective reporting
date.
The
Company accounts for certain of its investments in equity
securities in accordance with ASU 2016-01 Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities (“ASU 2016-01”). In
accordance with ASU 2016-01, the Company records all equity
investments with readily determinable fair values at fair value and
has elected the Fair Value Option (“FVO”) for certain
of its equity investments without readily determinable fair values,
utilizing a Black Scholes model for valuation. Unrealized holding
gains and losses in fair value are recognized as Other
Non-Operating Income, net in the Company’s Consolidated
Statements of Operation and Comprehensive Income.
Determining
the appropriate fair-value model and calculating the fair values of
the Company’s investments in equity securities requires
considerable judgment. Any change in the estimates used may cause
their values to be higher or lower than that reported. The
assumptions used in the model require significant judgment by
management and include the following: volatility, expected term,
risk-free interest rate, and dividends.
Due to
the inherent uncertainty of these estimates, these values may
differ materially from the values that would have been used had a
ready market for these investments existed.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
The
Company has significant influence over Document Securities Systems
Inc. (“DSS”) as our Chief Executive Officer is the
beneficial owner of approximately 31.8% of the outstanding shares
of DSS and is a member of the Board of Directors of DSS. The
Company did not have a controlling interest and therefore the
Company’s investment would be accounted for under equity
method accounting or could elect the fair value option
accounting.
The
Company had significant influence over Amarantus BioScience
Holdings (“AMBS”) as the Company is the beneficial
owner of approximately 19.5% of the common shares of AMBS. The
Company did not have a controlling interest and therefore the
Company’s investment would be accounted for under equity
method accounting or could elect the fair value option
accounting.
The
Company had significant influence over Holista CollTech Limited
(“Holista”) as the Company and its CEO are the
beneficial owner of approximately 19.8% of the outstanding shares
of Holista and our CEO holds a position on Holista's Board of
Directors. The Company did not have a controlling interest and
therefore the Company’s investment would be accounted for
under equity method accounting or could elect the fair value option
accounting.
The
Company has elected the fair value options for the equity
securities noted above that would otherwise be accounted for under
the equity method of accounting to better match the measurement of
assets and liabilities in the Consolidated Statements of
Operations. AMBS, Holista and DSS are publicly traded companies and
fair value of these equity investments is determined by the quoted
stock prices.
The
Company accounts for certain of its investments in real estate
funds without readily determinable fair values in accordance with
ASU No. 2015-07, Fair Value
Measurement (Topic 820): Disclosures for Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its
Equivalent) (“2015-07”). As of September 30,
2019 and December 31, 2018 the Company maintains an investment in a
real estate fund, The Global Opportunity Fund. This fund invests
primarily in the U.S. and meets the criteria within Accounting
Standards Codification (“ASC”) 2015-07. Chan Heng Fai,
the Chairman and CEO of the Company, is also one of the directors
of the Global Opportunity Fund. The fair values of the investments
in this class have been estimated using the net asset value of the
Company’s ownership interest in Global Opportunity Fund.
These investments can never be redeemed with the fund.
Distributions from the fund will be received as the underlying
investments of the fund are liquidated. The management of the fund
intends to liquidate the fund during the first half of 2020. The
fund intends to sell 100 percent of the total investment in this
class. Because it is not probable that any individual investment
will be sold, the fair value of each individual investment has been
estimated using the net asset value of the Company’s
ownership interest in partners’ capital. Once it has been
determined which investments will be sold and whether those
investments will be sold individually or in a group, the
investments will be sold in an action process. The investee
fund’s management must obtain approval from the buyer before
the sale of the investments can be completed.
The
changes in the fair values of the investment were recorded directly
to accumulated other comprehensive income (loss). Due to the
inherent uncertainty of these estimates, these values may differ
materially from the values that would have been used had a ready
market for these investments existed.
Investment Securities at Cost
The
Company has an equity holding in Vivacitas Oncology Inc.
(“Vivacitas”), a private company that is currently not
listed on an exchange. Vivacitas was acquired after the adoption of
ASU 2016-01. The Company applied ASC 321 and elected the
measurement alternative for equity investments that do not have
readily determinable fair values and do not qualify for the
practical expedient in ASC 820 to estimate fair value using the NAV
per share. Under the alternative, we measure Vivacitas at cost,
less any impairment, plus or minus changes resulting from
observable price changes in orderly transactions for an identical
or similar investment of the same issuer.
There
has been no indication of impairment or changes in observable
prices via transactions of similar securities and investment is
still carried at cost.
Investment Securities under Equity Method Accounting
BioLife
Sugar, Inc. (“BioLife’), a subsidiary consolidated
under SeD Ltd., entered into a joint venture agreement on April 25,
2018 with Quality Ingredients, LLC (“QI”). The
agreement created an entity called Sweet Sense, Inc. (“Sweet
Sense”) which is 50% owned by Biolife and 50% owned by QI.
Management believes its 50% investment of represents significant
influence over Sweet Sense and accounts for the investment under
the equity method of accounting. As of December 31, 2018,
BioLife contributed $55,000 to the joint venture and recorded its
proportionate share losses totaling $45,948 recorded as loss on
investment on security by equity method in the Condensed
Consolidated Statements of Operations and Other Comprehensive Loss.
As of September 30, 2019, the total investment in joint venture was
equal to $91,000 and the proportionate losses totaled $76,118.
During the nine months ended on September 30, 2019, the Company
recorded its proportionate share losses of $30,166 as loss on
investment in security by equity method in the Condensed
Consolidated Statements of Operations and Other Comprehensive
Loss.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Real Estate Assets
Real
estate assets are recorded at cost, except when real estate assets
are acquired that meet the definition of a business combination in
accordance with Financial Accounting Standards Board
(“FASB”) ASC 805 - “Business Combinations”,
which acquired assets are recorded at fair value. Interest,
property taxes, insurance and other incremental costs (including
salaries) directly related to a project are capitalized during the
construction period of major facilities and land improvements. The
capitalization period begins when activities to develop the parcel
commence and ends when the asset constructed is completed. The
capitalized costs are recorded as part of the asset to which they
relate and are reduced when lots are sold.
The
Company capitalized interest and finance expenses from third-party
borrowings of $514,985 and $369,912 for the nine months ended
September 30, 2019 and 2018, respectively. The Company capitalized
construction costs of $5,023,396 and $5,100,135 for the nine months
ended September 30, 2019 and 2018, respectively.
The
Company’s policy is to obtain an independent third-party
valuation for each major project in the United Sates to test for
impairment. Management may use market comparison method to value
other relatively small projects, such as the project in Perth,
Australia. In addition to the annual assessment of potential
triggering events in accordance with ASC 360 – Property Plant and Equipment
(“ASC 360”), the Company applies a fair value based
impairment test to the net book value assets on an annual basis and
on an interim basis if certain events or circumstances indicate
that an impairment loss may have occurred.
On
October 12, 2018, 150 CCM Black Oak, Ltd. entered into an Amended
and Restated Purchase and Sale Agreement for 124 lots. Pursuant to
the Amended and Restated Purchase and Sale Agreement, the purchase
price remained $6,175,000, 150 CCM Black Oak, Ltd. was required to
meet certain closing conditions and the timing for the closing was
extended. On January 18, 2019, the sale of 124 lots at the
Company’s Black Oak project in Magnolia, Texas was completed.
After allocating costs of revenue to this sale, the Company
incurred a loss of approximately $1.5 million from this sale and
recognized a real estate impairment of approximately $1.5 million
for the year ended December 31, 2018.
On June
30, 2019, the Company recorded approximately $3.9 million of
impairment on the Black Oak project based on discounted estimated
future cash flows.
Properties held for sale
Properties
held for sale are acquired with the intention that they will be
sold in the ordinary course of business and are therefore stated at
the lower of cost or net realizable value. Related acquisition
expense, interest, and other related expenditures are capitalized
as part of the cost of properties for sale. Net realizable value
represents the estimated selling price, less costs to be incurred
in selling the property.
A
property is classified as “held for sale” when all of
the following criteria for a plan of sale have been
met:
(1)
management, having the authority to approve the action, commits to
a plan to sell the property;
(2) the
property is available for immediate sale in its present condition,
subject only to terms that are usual and customary;
(3) an
active program to locate a buyer and other actions required to
complete the plan to sell, have been initiated;
(4) the
sale of the property is probable and is expected to be completed
within one year or the property is under a contract to be
sold;
(5) the
property is being actively marketed for sale at a price that is
reasonable in relation to its current fair value; and
(6)
actions necessary to complete the plan of sale indicate that it is
unlikely that significant changes to the plan will be made or that
the plan will be withdrawn.
When
all of these criteria are met, the property is classified as
“held for sale”. As of September 30, 2019 and December
31, 2018, real estate held for sale on the Company’s balance
sheet represents the El Tesoro project in the amount of
$136,248.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Properties under development
Properties
under development are properties being constructed for sale in the
ordinary course of business, rather than to be held for the
Company’s own use, rental or capital
appreciation.
Property and Equipment
Property
and equipment are recorded at cost. Repairs and maintenance are
expensed as incurred. Expenditures incurred as a consequence of
acquiring or using the asset, or that increase the value or
productive capacity of assets are capitalized (such as
dismantlement, removal, and restoration costs). When property and
equipment is retired, sold, or otherwise disposed of, the
asset’s carrying amount and related accumulated depreciation
are removed from the accounts and any gain or loss is included in
operations. Depreciation is computed by the straight-line method
(after considering their respective estimated residual values) over
the estimated useful lives of the respective assets as
follows:
|
Office
and computer equipment
|
3 - 5
years
|
|
Furniture
and fixtures
|
3 - 5
years
|
|
Vehicles
|
10
years
|
The
Company reviews the carrying value of property and equipment for
impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and
eventual disposition. In cases where undiscounted expected future
cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds
the fair value of assets. The factors considered by management in
performing this assessment include current operating results,
trends, and prospects, as well as the effects of obsolescence,
demand, competition, and other economic factors.
Revenue Recognition and Cost of Sales
ASC 606
- Revenue from Contracts with
Customers ("ASC 606"), establishes principles for reporting
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from the entity's contracts to
provide goods or services to customers. The Company adopted this
new standard on January 1, 2018 under the modified retrospective
method. The adoption of this new standard did not have a material
effect on our financial statements.
In
accordance with ASC 606, revenue is recognized when a customer
obtains control of promised goods or services. The amount of
revenue recognized reflects the consideration to which the Company
expects to be entitled to receive in exchange for these goods or
services. The provisions of ASC 606 include a five-step process by
which the determination of revenue recognition, depicting the
transfer of goods or services to customers in amounts reflecting
the payment to which the Company expects to be entitled in exchange
for those goods or services. ASC 606 requires the Company to apply
the following steps: (1) identify the contract with the customer;
(2) identify the performance obligations in the contract; (3)
determine the transaction price; (4) allocate the transaction price
to the performance obligations in the contract; and (5) recognize
revenue when, or as, performance obligations are
satisfied.
The
following represents a disaggregation of the Company’s
revenue recognition policies by Segments:
Property Development
Property Sales
The
Company's main business is land development. The Company purchases
land and develops it into residential communities. The developed
lots are sold to builders (customers) for the construction of new
homes. The builders enter a sales contract with the Company before
they take the lots. The prices and timeline are determined and
agreed upon in the contract. The builders do the inspections to
make sure all conditions and requirements in contracts are met
before purchasing the lots. A detailed breakdown of the five-step
process for the revenue recognition of the Ballenger and Black Oak
projects, which represented approximately 85% of the
Company’s revenue in the nine months ended on September 30,
2019 and 2018, is as follows:
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
●
Identify the
contract with a customer.
The
Company has signed agreements with the builders for developing the
raw land to ready to build lots. The contract has agreed upon
prices, timelines, and specifications for what is to be
provided.
●
Identify the
performance obligations in the contract.
Performance
obligations of the Company include delivering developed lots to the
customer, which are required to meet certain specifications that
are outlined in the contract. The customer inspects all lots prior
to accepting title to ensure all specifications are
met.
●
Determine the
transaction price.
The
transaction price is fixed and specified in the contract. Any
subsequent change orders or price changes are required to be
approved by both parties.
●
Allocate the
transaction price to performance obligations in the
contract.
Each
lot or a group of lots is considered to be a separate performance
obligation, for which the specified price in the contract is
allocated to.
●
Recognize revenue
when (or as) the entity satisfies a performance
obligation.
The
builders do the inspections to make sure all
conditions/requirements are met before taking title of lots. The
Company recognizes revenue at a point in time when title is
transferred. The Company does not have further performance
obligations or continuing involvement once title is
transferred.
Contract Assets and Contract Liabilities
Based
on contracts, customers are invoiced once all performance
obligations have been satisfied, at which point payment is
unconditional. Accordingly, the Company’s contracts do not
give rise to contract assets or liabilities under ASC 606. Accounts
receivable are recorded when the right to consideration becomes
unconditional. The Company discloses receivables from contracts
with customers separately in the statement of financial
position.
Cost of Sales
Land
acquisition costs are allocated to each lot based on the area
method, the size of the lot comparing to the total size of all lots
in the project. Development costs and capitalized interest are
allocated to lots sold based on the total expected development and
interest costs of the completed project and allocating a percentage
of those costs based on the selling price of the sold lot compared
to the expected sales values of all lots in the
project.
If
allocation of development costs and capitalized interest based on
the projection and relative expected sales value is impracticable,
those costs could also be allocated based on area method, the size
of the lot comparing to the total size of all lots in the
project.
Biohealth
Product Direct Sales
The
Company’s net sales consist of product sales. The Company's
performance obligation is to transfer its products to its third
party independent distributors (“Distributors”). The
Company generally recognizes revenue when product is shipped to its
Distributors.
The
Company’s Distributors may receive distributor allowances,
which are comprised of discounts, rebates and wholesale commission
payments from the Company. Distributor allowances resulting from
the Company’s sales of its products to its Distributors are
recorded against net sales because the distributor allowances
represent discounts from the suggested retail price.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
In
addition to distributor allowances, the Company compensates its
sales leader Distributors with leadership incentives for services
rendered, relating to the development, retention, and management of
their sales organizations. Leadership Incentives are payable based
on achieved sales volume, which are recorded in general and
administrative expenses. The Company recognizes revenue when it
ships products. The Company receives the net sales price in cash or
through credit card payments at the point of sale.
If a
Distributor returns a product to the Company on a timely basis,
they may obtain a replacement product from the Company for such
returned products. In addition, the Company maintains a buyback
program pursuant to which it will repurchase products sold to a
Distributor who has decided to leave the business. Allowances for
product returns, primarily in connection with the Company’s
buyback program, are provided at the time the sale is recorded.
This accrual is based upon historical return rates for each country
and the relevant return pattern, which reflects anticipated returns
to be received over a period of up to 12 months following the
original sale.
Annual Membership
The
Company collects an annual membership fee from its Distributors for
access to certain back office services and corporate events. The
Company recognizes revenue associated with the membership over the
one-year period of the membership. Before the membership fee is
recognized as revenue, it is recorded as deferred
revenue.
Shipping and Handling
Shipping
and handling services relating to product sales are recognized as
fulfillment activities on the Company’s performance
obligation to transfer products and are recorded to net the
shipping and handling expenses paid by the Company and are not
considered as separate revenues under ASC 606. Shipping and
handling expenses netting of service charges from customers were
$183,138 and $201,210 for the nine months ended September 30, 2019
and 2018, respectively. Shipping and handling costs paid by the
Company are included in general and administrative
expenses.
Contract assets and contract liabilities
Based
on the terms of the Company’s contracts, customers are
usually invoiced once performance obligations have been satisfied,
at which point payment is unconditional. Accordingly, the
Company’s contracts do not give rise to contract assets or
liabilities under ASC 606. Accounts receivable are recorded when
the right to consideration becomes unconditional.
Digital Transformation Technology
Software Development Income
Revenue
is recognized when (or as) the Company transfers promised goods or
services to its customers in amounts that reflect the consideration
to which the Company expects to be entitled to in exchange for
those goods or services, which occurs when (or as) the Company
satisfies its contractual obligations and transfers over control of
the promised goods or services to its customers.
The
Company generates revenue from a project involving provision of
services and web/software development for customers. With respect
to the provision of services, the agreements are less than one year
with a cancellable clause and customers are typically billed on a
monthly basis.
Contract assets and contract liabilities
Based
on the terms of the Company’s contracts, customers are
usually invoiced once performance obligations have been satisfied,
at which point payment is unconditional. Accordingly, the
Company’s contracts do not give rise to contract assets or
liabilities under ASC 606. Accounts receivable are recorded when
the right to consideration becomes unconditional.
Remaining performance obligations
As of
September 30, 2019 and December 31, 2018, there are no remaining
performance obligations or continuing involvement, as all projects
within the information technology segment have been
completed.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Other Businesses
Mutual Fund Management Service Income
Revenue
is recognized when (or as) the Company performs services to its
customers in amounts that reflect the consideration to which the
Company expects to be entitled to in exchange for those services,
which occurs when (or as) the Company satisfies its contractual
obligations and performs services to its customers.
The
Company generates revenue from providing management services for
mutual fund customers. In respect to the provision of services, the
agreements are less than one year with a cancellable clause and
customers are typically billed on a monthly
basis.
Contract assets and contract liabilities
Based
on the terms of the Company’s contracts, customers are
usually invoiced on monthly basis once performance obligations have
been satisfied, at which point payment is unconditional.
Accordingly, the Company’s contracts do not give rise to
contract assets or liabilities under ASC 606. Accounts receivable
are recorded when the right to consideration becomes
unconditional.
Remaining performance obligations
As of
September 30, 2019 and December 31, 2018, there were no remaining
performance obligations or continuing involvement, as all service
obligations within the other business activities segment have been
completed.
Advertising
Costs
incurred for advertising for the Company are charged to operations
as incurred. Advertising expenses for the nine months ended
September 30, 2019 and 2018 were $156,882 and $140,838,
respectively.
Foreign currency
Functional and reporting currency
Items
included in the financial statements of each entity in the Company
are measured using the currency of the primary economic environment
in which the entity operates (“functional currency”).
The financial statements of the Company are presented in US dollars
(the “reporting currency”).
The
functional and reporting currency of the Company is the United
States dollar (“U.S. dollar”). The financial records of
the Company’s subsidiaries located in Singapore, Hong Kong
and Australia are maintained in their local currencies, the
Singapore Dollar (S$), Hong Kong Dollar (HK$) and Australian Dollar
(“AUD”), which are also the functional currencies of
these entities.
Transactions in foreign currencies
Transactions
in currencies other than the functional currency during the year
are converted into functional currency at the applicable rates of
exchange prevailing when the transactions occurred. Transaction
gains and losses are recognized in the statement of
operations.
The
Company’s majority foreign currency transaction gains or
losses come from the effects of foreign exchange rate changes on
the intercompany loans between Singapore entities and U.S.
entities. During the nine months ended on September 30, 2019 and
2018, gains on foreign exchange were $438,608 and $974,937,
respectively.
Translation
of consolidated entities’ financial
statements
Monetary
assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at
the rates of exchange ruling at the balance sheet date. The
Company’s entities with functional currency of AUD, Hong Kong
Dollar and Singapore Dollar, translate their operating results and
financial positions into the U.S. dollar, the Company’s
reporting currency. Assets and liabilities are translated using the
exchange rates in effect on the balance sheet date. Revenues,
expenses, gains and losses are translated using the average rate
for the year. Translation adjustments are reported as cumulative
translation adjustments and are shown as a separate component of
comprehensive income (loss).
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
For the
nine months ended on September 30, 2019 and 2018, the Company
recorded other comprehensive loss from translation loss of $325,518
and $49,049, respectively, in the condensed consolidated financial
statements.
Earnings per share
The
Company presents basic and diluted earnings per share data for its
ordinary shares. Basic earnings per share is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted-average number of ordinary shares
outstanding during the year, adjusted for treasury shares held by
the Company.
Diluted
earnings per share is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted-average
number of ordinary shares outstanding, adjusted for treasury shares
held, for the effects of all dilutive potential ordinary shares,
which comprise convertible securities, such as stock options,
convertible bonds and warrants. Due to the limited operations of
the Company, there are no potentially dilutive securities
outstanding on September 30, 2019 and December 31,
2018.
Fair Value Measurements
ASC
820, Fair Value Measurement and
Disclosures, defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. This topic also establishes a
fair value hierarchy which requires classification based on
observable and unobservable inputs when measuring fair value. There
are three levels of inputs that may be used to measure fair
value:
Level
1: Observable inputs such as quoted prices (unadjusted) in an
active market for identical assets or liabilities.
Level
2: Inputs other than quoted prices that are observable, either
directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are not
active.
Level
3: Unobservable inputs that are supported by little or no market
activity; therefore, the inputs are developed by the Company using
estimates and assumptions that the Company expects a market
participant would use, including pricing models, discounted cash
flow methodologies, or similar techniques.
The
carrying value of the Company’s financial instruments,
including cash and cash equivalents, accounts receivable and
accounts payable and accrued expenses approximate fair value
because of the short-term maturity of these financial instruments.
The liabilities in connection with the conversion and make-whole
features included within certain of the Company’s convertible
notes payable and warrants are each classified as a level 3
liability.
Non-controlling interests
Non-controlling
interests represent the equity in subsidiary not attributable,
directly or indirectly, to owners of the Company, and are presented
separately in the consolidated statements of operation and
comprehensive income, and within equity in the Consolidated Balance
Sheets, separately from equity attributable to owners of the
Company.
On
September 30, 2019 and December 31, 2018, the aggregate
non-controlling interests in the Company were $6,936,588 and
$9,155,051 respectively, which is separately disclosed on the
Consolidated Balance Sheets.
Recent Accounting Pronouncements
Accounting pronouncement adopted
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash (“ASU 2016-18”), which requires
that restricted cash and cash equivalents be included as components
of total cash and cash equivalents as presented on the statement of
cash flows. ASU 2016-18 was effective for fiscal years, and interim
periods within those years, beginning after December 15, 2017 and a
retrospective transition method is required. This guidance did not
impact financial results, but resulted in a change in the
presentation of restricted cash and restricted cash equivalents
within the statement of cash flows. The Company adopted this
guidance effective January 1, 2017.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
In
January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities (“ASU 2016-01”). The new
guidance requires equity investments (except those accounted for
under the equity method of accounting, or those that result in
consolidation of the investee) with readily determinable fair values to be
measured at fair value with changes in fair value recognized in net
income. Equity investments that do not have readily determinable fair values are
allowed to be remeasured upon the occurrence of an observable price
change or upon identification of an impairment. Along
with ASU 2016-01, the
Company evaluated the Accounting Standards Update 2018-03,
Technical Corrections and
Improvements to Financial Instruments Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial
Liabilities (“ASU 2018-03”), which was issued in
February 2018, and
Accounting Standards Update 2018-04, Investments—Debt Securities (Topic 320)
and Regulated Operations (Topic 980): Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release
No. 33-9273 (“ASU 2018-04”), which was issued in
March 2018. The Company adopted ASU 2016-01, ASU
2018-03 and ASU 2018-04 as of January 1, 2018. Upon adoption the
Company reclassified $1,961,835 of previously recognized unrealized
gains from Accumulated Other Comprehensive Income to Accumulated
Deficit.
In May
2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic
606) (“ASU 2014-09”). The standard’s core
principle is that a company will recognize revenue when it
transfers promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be
entitled in exchange for those goods or services. In doing so,
companies will need to use more judgment and make more estimates
than under previous guidance. This may include identifying
performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price and
allocating the transaction price to each separate performance
obligation. In July 2015, the FASB approved the proposal to defer
the effective date of ASU 2014-09 standard by one year. Early
adoption was permitted after December 15, 2016, and the standard
became effective for public entities for annual reporting periods
beginning after December 15, 2017 and interim periods therein. In
2016, the FASB issued final amendments to clarify the
implementation guidance for principal versus agent considerations
(“ASU No. 2016-08”), accounting for licenses of
intellectual property and identifying performance obligations
(“ASU No. 2016-10”), narrow-scope improvements and
practical expedients (“ASU No. 2016-12”) and technical
corrections and improvements to ASU 2014-09 (“ASU No.
2016-20”) in its new revenue standard. The Company has
performed a review of the requirements of the new revenue standard
and is monitoring the activity of the FASB and the transition
resource group as it relates to specific interpretive guidance. The
Company reviewed customer contracts, applied the five-step model of
the new standard to its contracts, and compared the results to its
current accounting practices. The Company adopted this new standard
on January 1, 2018 under the modified retrospective method to all
contracts not completed as of January 1, 2018 and the adoption did
not have a material effect on the Company’s financial
statements. The adoption of this standard required increased
disclosures related to the disaggregation of revenue.
The
FASB also issued ASU 2018-05 to amend SEC paragraphs in ASC 740 -
Income Taxes, to reflect
SAB 118, which provides guidance for companies that are not able to
complete their accounting for the income tax effects of the Tax
Cuts and Jobs Act in the period of enactment. The Company has
adopted ASC 2018-05 as of January 1, 2018 and determined that this
ASU does not have a material impact on the condensed consolidated
financial statements as of September 30, 2019 and December 31,
2018.
In
February 2018, the FASB issued ASU 2018-02, which permits - but
does not require - companies to reclassify stranded tax effects
caused by 2017 tax reform from accumulated other comprehensive
income to retained earnings. Additionally, this ASU requires new
disclosures by all companies, whether they opt to do the
reclassification or not. The Company has adopted ASC 2018-02 as of
January 1, 2018 and determined that this ASU does not have a
material impact on the condensed consolidated financial statements
as of September 30, 2019 and December 31, 2018.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842)
(“ASU 2016-02”) which supersedes ASC Topic 840, Leases.
ASU 2016-02 requires lessees to recognize a right-of-use asset and
a lease liability on their balance sheets for all the leases with
terms greater than twelve months. Based on certain criteria, leases
will be classified as either financing or operating, with
classification affecting the pattern of expense recognition in the
income statement. For leases with a term of twelve months or less,
a lessee is permitted to make an accounting policy election by
class of underlying asset not to recognize lease assets and lease
liabilities. If a lessee makes this election, it should recognize
lease expense for such leases generally on a straight-line basis
over the lease term. ASU 2016-02 is effective for fiscal years
beginning after December 15, 2019 for emerging growth companies,
and interim periods within those years, with early adoption
permitted. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. In July
2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842):
Targeted Improvements” that allows entities to apply the
provisions of the new standard at the effective date (e.g. January
1, 2019), as opposed to the earliest period presented under the
modified retrospective transition approach (January 1, 2017) and
recognize a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption. The modified
retrospective approach includes a number of optional practical
expedients primarily focused on leases that commenced before the
effective date of Topic 842, including continuing to account for
leases that commence before the effective date in accordance with
previous guidance, unless the lease is modified. The new leasing
standard presents dramatic changes to the balance sheets of
lessees. Lessor accounting is updated to align with certain changes
in the lessee model and the new revenue recognition standard. The
standard had a material impact on the Company’s condensed
consolidated balance sheets, but did not have an impact on its
condensed consolidated statements of operations. The most
significant impact was the recognition of right-of-use assets and
lease liabilities for operating leases. As a lessor of one home on
leasing, this standard does not have material impact on the
Company. The balances of operating lease right-of-use assets and
operating lease liabilities as of September 30, 2019 were $181,855
and $188,748, respectively. Operating lease right-of-use assets and
operating lease liabilities are recognized based on the present
value of the future minimum lease payments over the lease term at
commencement date. As our leases do not provide a readily
determinable implicit rate, we estimate our incremental borrowing
rate to discount the lease payments based on information available
at lease commencement. The operating lease right-of-use asset also
includes any lease payments made and excludes lease incentives and
initial direct costs incurred. The lease term includes options to
extend or terminate when we are reasonably certain the option will
be exercised. In general, we are not reasonably certain to exercise
such options. We recognize lease expense for minimum lease payments
on a straight-line basis over the lease term. We elected the
practical expedient to not recognize operating lease right-of-use
assets and operating lease liabilities for lease agreements with
terms less than 12 months.
In July
2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic
260), Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for
Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception (“ASU 2017-11”). ASU 2017-11 is
intended to simplify the accounting for financial instruments with
characteristics of liabilities and equity. Among the issues
addressed are: (i) determining whether an instrument (or embedded
feature) is indexed to an entity’s own stock; (ii)
distinguishing liabilities from equity for mandatorily redeemable
financial instruments of certain nonpublic entities; and (iii)
identifying mandatorily redeemable non-controlling interests. The
Company adopted ASU 2017-11 on January 1, 2019 and determined that
this ASU does not have a material impact on the condensed
consolidated financial statements as of September 30, 2019 and
December 31, 2018.
Accounting pronouncement being evaluated
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework: Changes to the Disclosure Requirements for Fair Value
Measurement (“ASU 2018-13”). ASU 2018-13 is
intended to improve the effectiveness of fair value measurement
disclosures. ASU 2018-13 is effective for fiscal years beginning
after December 15, 2019, and interim periods within those fiscal
years. Early adoption is permitted. The Company is currently
evaluating the impact of ASU 2018-13 on its future consolidated
financial statements.
In
October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted
Improvements to Related Party Guidance for Variable Interest
Entities. (“ASU 2018-17”) expands the accounting
alternative that allows private companies the election not to apply
the variable interest entity guidance to qualifying common control
leasing arrangements. ASU 2018-17 broadens the scope of the private
company alternative to include all common control arrangements that
meet specific criteria (not just leasing arrangements). ASU 2018-17
also eliminates the requirement that entities consider indirect
interests held through related parties under common control in
their entirety when assessing whether a decision-making fee is a
variable interest. Instead, the reporting entity will consider such
indirect interests on a proportionate basis. The amendments are
effective for fiscal years ending after December 15, 2019. Early
adoption is permitted. The Company is currently assessing the
timing and impact of adopting the updated provisions to its
consolidated financial statements.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
4.
CONCENTRATION
OF CREDIT RISK
The
Company maintains cash balances at various financial institutions
in different countries. These balances are usually secured by the
central banks’ insurance companies. At times, these balances
may exceed the insurance limits. As of September 30, 2019 and
December 31, 2018, uninsured cash and restricted cash balances were
$10,313,420 and $4,125,113, respectively.
For the
nine months ended September 30, 2019, two customers accounted for
approximately 70% and 29% of the Company’s property and
development revenue. For the nine months ended September 30, 2018,
two customers accounted for approximately 62% and 37% of the
Company’s property and development revenue.
For the
nine months ended September 30, 2018, one customer accounted for
100% of the Company’s digital transformation technology
revenue. No revenue was recognized by the Company’s digital
transformation technology during the nine months ended on September
30, 2019.
As of
December 31, 2018, one related party customer accounted for
approximately 80% and a second customer accounted for approximately
20% of Company’s digital transformation technology accounts
receivable. As of September 30, 2019, accounts receivable on
Company’s digital transformation technology’s Condensed
Consolidated Balance Sheet was $0.
For the
nine months ended September 30, 2019 and 2018, one customer
accounted for approximately 80% of the Company’s Other
Business Segment revenue and the second customer accounted for
approximately 20%.
As of
September 30, 2019 and 2018, one customer accounted for
approximately 80% of the Company’s Other Business Segment
accounts receivable and the second customer accounted for
approximately 20%.
No
other concentrations were identified within the Biohealth segment
for the nine months ended on September 30, 2019 and
2018.
Operating
segments are defined as components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker, or
decision–making group, in deciding how to allocate resources
and in assessing performance. The Company’s chief operating
decision-maker is the Chief Executive Officer. The Company operates
in and reports four business segments: property development,
digital transformation technology, biohealth, and other business
activities. The Company’s reportable segments are determined
based on the services they perform and the products they sell, not
on the geographic area in which they operate. The Company’s
chief operating decision maker evaluates segment performance based
on segment revenue. Costs excluded from segment income (loss)
before taxes and reported as “Other” consist of
corporate general and administrative activities which are not
allocable to the four reportable segments.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
The
following table summarizes the Company’s segment information
for the following balance sheet dates presented, and for the nine
months ended September 30, 2019 and 2018:
|
|
|
Digital Transformation Technology
|
|
|
|
|
Nine Months ended September 30, 2019
|
|
|
|
|
|
|
Revenue
|
$21,509,197
|
$-
|
$1,406,951
|
$28,350
|
$22,944,498
|
|
Cost
of Sales
|
(18,819,865)
|
-
|
(357,935)
|
-
|
(19,177,800)
|
|
Gross
Margin
|
2,689,332
|
-
|
1,049,016
|
28,350
|
3,766,698
|
|
Operating
Expenses
|
(4,598,112)
|
(193,959)
|
(2,134,850)
|
(1,697,423)
|
(8,624,344)
|
|
Operating
Income (Loss)
|
(1,908,780)
|
(193,959)
|
(1,085,834)
|
(1,669,073)
|
(4,857,646)
|
|
Other
Income (Expense)
|
34,433
|
296,726
|
756
|
(4,874)
|
327,041
|
|
Net
Income (Loss) Before Income Tax
|
(1,874,347)
|
102,767
|
(1,085,078)
|
(1,673,947)
|
(4,530,605)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September 30, 2018
|
|
|
|
|
|
|
Revenue
|
$14,209,199
|
$135,515
|
$2,021,121
|
$24,057
|
$16,389,892
|
|
Cost
of Sales
|
(12,144,497)
|
(74,111)
|
(635,539)
|
-
|
(12,854,147)
|
|
Gross
Margin
|
2,064,702
|
61,404
|
1,385,582
|
24,057
|
3,535,745
|
|
Operating
Expenses
|
(762,630)
|
(300,994)
|
(3,333,360)
|
(1,749,295)
|
(6,146,279)
|
|
Operating
Income (Loss)
|
1,302,072
|
(239,590)
|
(1,947,778)
|
(1,725,238)
|
(2,610,534)
|
|
Other
Income (Expense)
|
22,168
|
(49,766)
|
(89,312)
|
(1,744,964)
|
(1,861,874)
|
|
Net
Loss Before Income Tax
|
1,324,240
|
(289,356)
|
(2,037,090)
|
(3,470,202)
|
(4,472,408)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
Cash
and Restricted Cash
|
$8,929,903
|
$60,655
|
$150,170
|
$2,273,168
|
$11,413,896
|
|
Total
Assets
|
32,144,863
|
209,863
|
869,942
|
5,346,146
|
38,570,814
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Cash
and Restricted Cash
|
$4,683,040
|
$118,044
|
$174,183
|
$532,931
|
$5,508,198
|
|
Total
Assets
|
43,786,046
|
136,211
|
753,492
|
4,026,706
|
48,702,456
|
As of
September 30, 2019 and December 31, 2018, real estate assets
consisted of the following:
|
|
|
|
|
|
|
|
|
Construction
in Progress
|
$8,032,515
|
$19,097,644
|
|
Land
Held for Development
|
14,388,882
|
19,677,292
|
|
Total
Properties Under Development
|
22,421,397
|
38,774,936
|
|
|
|
|
|
Real
Estate Held for Sale
|
136,248
|
136,248
|
|
Total
Real Estate Assets
|
$22,557,645
|
$38,911,184
|
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
7.
PROPERTY
AND EQUIPMENT
As of
September 30, 2019 and December 31, 2018, property and equipment
consisted of the following:
|
|
|
|
|
|
|
|
|
Computer
Equipment
|
$175,992
|
$175,992
|
|
Furniture
and Fixtures
|
52,798
|
52,798
|
|
Vehicles
|
90,929
|
90,929
|
|
Subtotal
|
319,719
|
319,719
|
|
Accumulated
Depreciation
|
(236,911)
|
(216,294)
|
|
Total
|
$82,728
|
$103,425
|
The
Company recorded depreciation expense of $20,697 and $35,799 during
the nine months ended September 30, 2019 and 2018,
respectively.
In
November 2015, SeD Maryland Development, LLC (“SeD
Maryland”) entered into lot purchase agreements with NVR,
Inc. (“NVR”) relating to the sale of single-family home
and townhome lots to NVR in the Ballenger Run Project. The purchase
agreements were amended three times thereafter. Based on the
agreements, NVR is entitled to purchase 479 lots for a price of
approximately $64,000,000, which escalates 3% annually after June
1, 2018.
As part
of the agreements, NVR was required to give a deposit in the amount
of $5,600,000. Upon the sale of lots to NVR, 9.9% of the purchase
price is taken as payback of the deposit. A violation of the
agreements by NVR would cause NVR to forfeit the deposit. On
January 3, 2019 NVR gave SeD Maryland Development, LLC another
deposit in the amount of $100,000 based on the 3rd Amendment to the Lot Purchase
Agreement. As of September 30, 2019 and December 31, 2018, amounts
held on deposit from NVR were $2,538,756 and $3,878,842,
respectively.
As of
September 30, 2019 and December 31, 2018, bonds payable consisted
of the following:
|
|
|
|
|
SeD Home Ltd
Bonds
|
$1,500,000
|
$1,500,000
|
|
Less: Debt
Discount
|
(4,161)
|
(43,651)
|
|
Total bonds
payable
|
$1,495,839
|
$1,456,349
|
On
November 29, 2016 SeD Home Ltd entered into three $500,000 bonds
for a total transaction price of $1,500,000. These bonds are
guaranteed by both SeD Home and Chan Heng Fai who provided
approximately $5 million personal guarantee, accrue interest
annually at 8%, and mature on November 29, 2019. Upon maturity, the
bondholders have the right to propose on the acquisition of a
property built by SeD Home, as facilitated by SeD. The proposed
acquisition purchase price would be at SeD Home's cost. In the
event the cost exceeds $1,500,000, the difference is paid by the
bondholders, alternatively if the cost price is less than
$1,500,000, SeD Home pays the deficit.
As of
September 30, 2019 and December 31, 2018, the principal balances
were both $1,500,000. As part of the
transaction, the Company incurred loan origination fees and closing
fees, totaling $150,000, which were recorded as debt discount and
are amortized over the life of the loan. The unamortized debt
discount was $4,161 and $43,651 on September 30, 2019 and December 31, 2018,
respectively.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of
September 30, 2019 and December 31, 2018, notes payable consisted
of the following:
|
|
|
|
|
Union Bank
Loan
|
$-
|
$13,899
|
|
M&T Bank
Loan
|
-
|
-
|
|
Australia
Loan
|
151,290
|
158,036
|
|
Total notes
payable
|
$151,290
|
$171,935
|
Union Bank Loan
On November 23, 2015, SeD Maryland entered into a Revolving Credit
Note with the Union Bank in the original principal amount of
$8,000,000. During the term of the loan, cumulative loan advances
may not exceed $26,000,000. The line of credit bears interest at
LIBOR plus 3.8% with a floor rate of 4.5%. The interest rate at
December 31, 2018 was 6.125%. Beginning December 1, 2015,
interest only payments were due on the outstanding principal
balance. The entire unpaid principal and interest sum was due and
payable on November 22, 2018, with the option of one twelve-month
extension period. The loan is secured by a deed of trust on the
property, $2,600,000 of collateral cash, and a Limited Guaranty
Agreement with SeD Ballenger. The Company also had an $800,000
letter of credit from the Union Bank. The letter of credit was due
on November 22, 2018 and bore interest at 15%. In September 2017,
SeD Maryland Development LLC and the Union Bank modified the
Revolving Credit Note, which increased the original principal
amount from $8,000,000 to $11,000,000 and extended the maturity
date of the loan and letter of credit to December 31, 2019.
Accordingly, this change in terms of the Union Bank Loan was
accounted for as a modification in accordance with
ASC 470 –
Debt.
On
April 17, 2019, the Union Bank Loan was paid off and SeD Maryland
Development LLC and Union Bank terminated the Revolving Credit
Note. After termination, the collateral cash was released and all
L/Cs were transferred to the M&T Bank L/C
Facility.
M&T Bank Loan
On
April 17, 2019, SeD Maryland Development LLC entered into a
Development Loan Agreement with Manufacturers and Traders Trust
Company (“M&T Bank”) in the principal amount not to
exceed at any one time outstanding the sum of $8,000,000, with a
cumulative loan advance amount of $18,500,000. The line of credit
bears interest rate on LIBOR plus 375 basis points. SeD Maryland
Development LLC was also provided with a Letter of Credit
(“L/C”) Facility in an aggregate amount of up to
$900,000. The L/C commission will be 1.5% per annum on the face
amount of the L/C. Other standard lender fees will apply in the
event L/C is drawn down. The loan is a revolving line of credit.
The L/C Facility is not a revolving
loan, and amounts advanced and repaid may not be re-borrowed.
Repayment of the Loan Agreement is secured by $2,600,000 collateral
fund and a Deed of Trust issued to the Lender on the property owned
by SeD Maryland. As of September 30, 2019, the outstanding balance
of the revolving loan was $0.
Australia Loan
On January 7, 2017, SeD Perth Pty Ltd (“SeD Perth”)
entered into a loan agreement with National Australian Bank Limited
(the “Australia Loan”) for the purpose of funding land
development. The loan facility provides SeD Perth with access to
funding of up to approximately $460,000 and matures on December 31,
2018. The Australia Loan is secured by both the land under
development and a pledged deposit of $35,276. This loan is
denominated in AUD. Personal guarantees amounting to approximately
$500,000 have been provided by our Chief Executive Officer, Chan
Heng Fai and by Rajen Manicka, the Chief Executive Officer of
Holista CollTech and Co-founder of iGalen Inc. The interest rate on
the Australia Loan is based on the weighted average interest rates
applicable to each of the business markets facility components as
defined within the loan agreement, ranging from 6.03% to 6.35% per
annum for the year ended December 31, 2018 and from 5.55% to 6.06%
per annum for the year ended December 31, 2017. On September 7,
2017 the Australia Loan was amended to reduce the maximum borrowing
capacity to approximately $179,000 and on February 6, 2019 the
terms of the Australia Loan were further amended to reflect an
extended maturity date of March 31, 2020.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
As of September 30, 2019 and December 31, 2018 the balance
outstanding on the Australia Loan was $151,290 and $158,036,
respectively.
11.
RELATED
PARTY TRANSACTIONS
Personal guarantees by directors
As of
both September 30, 2019 and December 31, 2018, certain directors of
the Company had provided personal guarantees amounting to
approximately $5,500,000 to secure external loans and borrowings
from financial institutions for HFE and the consolidated
entities.
Revenue from a Related Party
On
March 1, 2018, the Company’s subsidiary HotApp International
Ltd. entered into an Outsource Technology Development Agreement
(the “Agreement”) with Document Security Systems,
Inc. (“DSS”), which may be terminated by either party
on 30-days’ notice. The purpose of the Agreement is to
facilitate DSS’s development of a software application to be
included as part of DSS’s AuthentiGuard® Technology
suite. Under this agreement, DSS agreed to pay $23,000 per month
for access to HotApp International Ltd.’s software
programmers. The agreement was terminated on July 31, 2018. Mr.
Chan Heng Fai is a member of the Company’s Board of Directors
and, through his control of the Company’s majority
stockholder, the beneficial owner of a majority of the
Company’s common stock. Chan Heng Fai is also a member of the
Board of DSS and a stockholder of DSS. For the nine months ended on
September 30, 2019 and 2018, the revenue from DSS was $0 and
$92,000.
Sale of HotApp Blockchain to DSS Asia
On
October 25, 2018, HIP a wholly owned subsidiary of HotApp
Blockchain, entered into an equity purchase agreement (the
“HotApps Purchase Agreement”) with DSS Asia, a Hong
Kong subsidiary of DSS International, pursuant to which HIP agreed
to sell to DSS Asia all of the issued and outstanding shares of
HotApps Information Technology Co. Ltd., also known as Guangzhou
HotApps, a wholly owned subsidiary of HIP. Guangzhou HotApps is
primarily engaged in engineering work for software development, as
well as, a number of outsourcing projects related to real estate
and lighting. Chan Heng Fai is the CEO of DSS Asia and DSS
international. For further details on this transaction, refer to
Note 14 – Discontinued
Operations.
Notes Payable
During the year ended on December 31, 2017, a director of the
Company lent non-interest loans of $7,156,680, for the general
operations of the Company. The loans are interest free, not
tradable, unsecured, and repayable on demand. On October 15, 2018,
a formal lending agreement between the Singapore eDevelopment Ltd
and Chan Heng Fai was executed. Under the agreement, Chan Heng Fai
provides a lending credit limit of approximately $10 million for
Singapore eDevelopment Ltd with interest rate 6% per annum for the
outstanding borrowed amount, which commenced retroactively from
January 1, 2018. The loans are still not tradable, unsecured and
repayable on demand. As of September 30, 2019 and December 31, 2018
the outstanding principal balance of the loan is $5,667,640 and
$8,517,490, respectively. Chan Heng Fai confirmed through a letter
that he would not demand the repayment within a year. Interest
started to accrue on January 1, 2018 at 6% per annum. During the
nine months ended on September 30, 2019 and 2018, the interest
expenses were $268,847 and $357,048, respectively. As of September
30, 2019 and December 31, 2018, the accrued interest total was
$736,756 and $476,063, respectively. Chan Heng Fai confirmed no
demand for Loan repayment within one year.
Chan
Heng Fai also provide interest free short-term loan to HF
Enterprise for the general operations during the IPO
period.
On May
1, 2018, Rajen Manicka, CEO and one of the directors of iGalen
International Inc., which holds 100% of iGalen Inc., provided a
loan of approximately $367,246 to iGalen Inc. (the “2018
Rajen Loan”). The term of this loan is ten years. The Loan
has an interest rate of 4.7% per annum. On March 8, March 27 and
April 23, 2019, iGalen borrowed additional $150,000, $30,000 and
$50,000, respectively, from Rajen Manicka, total $230,000 (the
“2019 Rajen Loan”). 2019 Rajen Loan is interest free,
not tradable, unsecured, and repayable on demand. As of September
30, 2019 and December 31, 2018, the total outstanding principal
balance of the loans was $573,850 and $345,706 and was included in
the Notes Payable – Related Parties balance on the
Company’s Consolidated Balance Sheets. During the nine months
ended September 30, 2019 and 2018, the Company incurred $8,084 and
$1,410 of interest expense, respectively.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
On
August 13, 2019, iGalen International Inc., which holds 100% of
iGalen Inc., borrowed $250,000 from Decentralized Sharing Services,
Inc., a company whose sole shareholder and director is Chan Heng
Fai, our Chief Executive Officer. The term of such loan is 12
months, with an interest rate of 10% per annum. In addition,
Decentralized Sharing Services, Inc. received the right to receive
3% of any revenue received by iGalen International Inc. for 99
years.
Shares issued in exchange agreement with Chairman and
CEO
Hengfai International Pte. Ltd
On October 1, 2018, 100% of the ownership interest in Hengfai
International Pte. Ltd. (“Hengfai International”) was
transferred from Chan Heng Fai, our founder, Chairman and Chief
Executive Officer to HF Enterprises Inc. in exchange for 8.5
million shares of the Company. Hengfai International holds 100% of
Hengfai Business Development Pte. Ltd. (“Hengfai Business
Development”), which holds 761,185,294 shares of SeD Ltd and
359,834,471 warrants. Both Hengfai International and Hengfai
Business Development are holding companies without any business
operations.
Heng Fai Enterprises Pte. Ltd.
On October 1, 2018, 100% of the ownership interest in Heng Fai
Enterprises Pte. Ltd. (“Heng Fai Enterprises”) was
transferred from Chan Heng Fai, our founder, Chairman and Chief
Executive Officer to HF Enterprises Inc. in exchange for 500,000
shares of the Company. Heng Fai Enterprises holds 2,730,000 shares
(13.72% as of September 30, 2019 and 14.2% as of December 31,
2018). Of Vivacitas Oncology Inc., a U.S.-based biopharmaceutical
company. Heng Fai Enterprises cost to purchase these Vivacitas
shares was $200,128, which is recorded at cost by the Company
because it does not have a readily determinable fair value as it is
a private US company. Heng Fai Enterprises is a holding company
without any business operations.
Global eHealth Limited
On October 1, 2018, 100% of Global eHealth Limited (“Global
eHealth”) was transferred from Chan Heng Fai, a director of
the Company, to the Company in exchange for 1,000,000 shares of the
Company. There was no other consideration exchange in conjunction
with this transaction. Global eHealth holds 46,226,673 shares
(19.8%) of Holista CollTech Limited, a public Australian company
that produces natural food ingredients. Global eHealth is a holding
company without any business operations.
Management Fees
MacKenzie
Equity Partners, owned by Charles MacKenzie, a Director of the
Company's subsidiary SeD Intelligent Home Inc., has had a
consulting agreement with the Company since 2015. Per the terms of
the agreement, as amended on January 1, 2018, the Company pays a
monthly fee of $15,000 with an additional $5,000 per month due upon
the close of the sale to Houston LD, LLC. Since January of 2019,
the Company has paid a monthly fee of $20,000 for these consulting
services. The Company incurred expenses of $180,000 and $135,000
for the nine months ended September 30, 2019 and 2018,
respectively, which were capitalized as part of Real Estate on the
Company’s Consolidated Balance Sheet as the services relate
to property and project management. As of September 30, 2019, and
December 31, 2018 the outstanding balance of $0 and $60,000,
respectively, is included in the Accounts Payable – Related
Parties balance on the Company’s Consolidated Balance
Sheets.
Purchase of Minority Interest in Black Oak LP
On July 23, 2018, SeD Development USA, LLC, a wholly owned
subsidiary of SeD, entered into two partnership interest purchase
agreements (the “Black Oak Purchase Agreements”)
through which it purchased an aggregate of 31% of Black Oak LP for
$60,000. In addition, if and when Black Oak LP receives at least
$15,000,000 in net reimbursement receivable proceeds from HC17
and/or Aqua Texas, Inc. (net of any expenses Harris County
Improvement District 17 and/or Aqua Texas, Inc. may deduct), Black
Oak LP shall pay Fogarty Family Trust II, one of two previous
partners of Black Oak LP, an amount equal to 10% of the net
reimbursement receivable proceeds received from HC17 and/or Aqua
Texas, Inc. that exceeds $15,000,000; provided however, this
obligation shall only apply to reimbursement revenue received on or
before December 31, 2025. Prior to the Black Oak Purchase
Agreements, the Company owned and controlled Black Oak LP through
its 68.5% limited partnership interest and its ownership of the
General Partner, 150 Black Oak GP, Inc, a 0.5% owner in Black Oak
LP. As a result of the purchase, the Company, through its
subsidiaries, now owns 100% of Black Oak LP.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Consulting Services
A law
firm owned by Conn Flanigan, a Director of SeD Intelligent Home,
performs consulting services for SeD Intelligent Home and some
subsidiaries of the Company. The Company incurred expenses of
$52,723 and $88,030 for the nine months ended September 30, 2019
and 2018, respectively. On September 30, 2019 and December 31,
2018, we owed this related party $7,587 and $8,000,
respectively.
Rajen
Manicka, the Chief Executive Officer of Holista CollTech and
Co-founder of iGalen International Inc., performs consulting
services for iGalen Inc. iGalen Inc. incurred expenses of $180,000
and $180,000 for the nine months ended September 30, 2019 and 2018,
respectively. On September 30, 2019 and December 31, 2018, iGalen
owed this related party fees for consulting services in the amount
of $611,403 and $465,331, respectively.
iGalen Inc. Affiliates
iGalen
Philippines and iGalen SDN are related party entities which are
owned by Dr. Rajen Manicka and are not owned by HFE. iGalen Inc.
provides use of its platform to collect sale revenue and payment of
expenses for these entities without service fees. On September 30,
2019 and December 31, 2018, iGalen owed $369,596 and $246,722,
respectively to iGalen Philippines and iGalen SDN.
Medi
Botanics Sdn Bhd, a subsidiary of Holista CollTech, is one of the
raw material and product suppliers of iGalen. Dr. Rajen Manicka is
the controlling shareholder and a director of both Medi Botanics
Sdn Bhd and Holista CollTech. Medi Botanics Sdn Bhd supplied
$372,594 and $575,581 raw materials and products to iGalen in the
nine months ended September 30, 2019 and 2018, respectively. On
September 30, 2019 and December 31, 2018, iGalen owed $988,277 and
$719,395, respectively.
Investment in the Global Opportunity Fund
On
February 1, 2017, the Company invested $300,000 in Global
Opportunity Fund (“Fund”), a mutual fund registered in
the Cayman Islands and Chan Heng Fai is one of the directors of
this fund. LiquidValue Asset Management Pte. Ltd., one of the
subsidiaries of the Company, is the investment manager of the Fund
and receives a management fee from the Fund at 2% per annum of the
aggregated net asset value of the investments and a performance fee
of 20%. In the nine months ended on September 30, 2019 and 2018,
the management fee and performance fee charged to the Fund were
$4,425 and $4,118, respectively. On September 30, 2019 and December
31, 2018, the Fund owed $72,743 and $69,478
respectively.
The
Company is authorized to issue 20,000,000 common shares and
5,000,000 preferred shares, both at a par value $0.001 per share.
At September 30, 2019 and December 31, 2018, there were 10,001,000
common shares issued and outstanding.
From
January to September, 2019, the Company sold 361,500 shares of
HotApp Blockchain to international investors with the amount of
$229,500, which was booked as addition paid-in capital. The Company
held 500,821,889 shares of the total outstanding shares 506,898,576
before the sale. After the sale, the Company still owns
approximately 99% of HotApp Blockchain’s total outstanding
shares.
From
January to September, 2019, SeD Maryland Development LLC Board
approved three payment distribution plans to members and paid total
$740,250 in distributions to the minority shareholder.
On July
31, 2019 500,000 warrants of Singapore eDevelopment were exercised
by an unrelated shareholder. After these 500,000 warrants were
exercised, the total number of outstanding ordinary shares of
Singapore eDevelopment was 1,101,956,707. The Company’s
ownership percentage of Singapore eDevelopment has changed from
69.11% to 69.08%.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
13.
ACCUMULATED
OTHER COMPREHENSIVE INCOME
Following
is a summary of the changes in the balances of accumulated other
comprehensive income, net of tax:
Changes in Accumulated Other Comprehensive Income by
Component
For Nine Month Ended on September 30, 2019
|
|
Unrealized Gains and Losses on Security Investment
|
Foreign Currency Translations
|
|
|
Balance
at January 1, 2019
|
$(23,779)
|
$1,606,567
|
$1,582,788
|
|
|
|
|
|
|
Other
Comprehensive Income
|
(25,396)
|
(224,966)
|
(250,362)
|
|
|
|
|
|
|
Balance
at September 30, 2019
|
$(49,175)
|
$1,381,601
|
$1,332,426
|
Changes in Accumulated Other Comprehensive Income by
Component
For Nine Month Ended on September 30, 2018
|
|
Unrealized Gains and Losses on Security Investment
|
Foreign Currency Translations
|
|
|
Balance
at January 1, 2018
|
$1,961,835
|
$1,961,401
|
$3,923,236
|
|
|
|
|
|
|
Other
Comprehensive Income
|
(13,863)
|
(33,898)
|
(47,761)
|
|
|
|
|
|
|
Amount
Reclassified From Accumulated Other Comprehensive
Income
|
(1,961,835)
|
-
|
(1,961,835)
|
|
|
|
|
|
|
Balance
at September 30, 2018
|
$(13,863)
|
$1,927,503
|
$1,913,640
|
14.
DISCONTINUED
OPERATIONS
On
October 25, 2018, HotApps International Pte. Ltd.
(“HIP”) entered into an Equity Purchase Agreement with
DSS Asia Limited (“DSS Asia”), a Hong Kong subsidiary
of DSS International Inc. (“DSS International”),
pursuant to which HIP agreed to sell to DSS Asia all of the issued
and outstanding shares of HotApps Information Technology Co. Ltd.,
also known as Guangzhou HotApps Technology Ltd. (“Guangzhou
HotApps”). Guangzhou HotApps was a wholly owned subsidiary of
HIP, which was primarily engaged in engineering work for software
development, mainly voice over internet protocol. Guangzhou HotApps
was also involved in a number of outsourcing projects, including
projects related to real estate and lighting.
The
parties to the Equity Purchase Agreement agreed that the purchase
price for this transaction would be $100,000, which would be paid
in the form of a two-year, interest free, unsecured, demand
promissory note in the principal amount of $100,000, and that such
note would be due and payable in full in two years. The closing of
the Equity Purchase Agreement was subject to certain conditions;
these conditions were met and the transaction closed on January 14,
2019.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
The
composition of assets and liabilities included in discontinued
operations was as follows:
|
|
|
|
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$31,060
|
$9,268
|
|
Deposit
and other receivable
|
5,136
|
5,049
|
|
Total
Current Assets
|
36,196
|
14,317
|
|
|
|
|
|
Fixed
assets, net
|
1,717
|
1,765
|
|
Total
Assets
|
$37,913
|
$16,082
|
|
|
|
|
|
Liabilities and
Stockholders' Deficit
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
Accounts
payable and accrued expenses
|
$202,848
|
$174,606
|
|
Total
Current Liabilities
|
202,848
|
174,606
|
|
|
|
|
|
Total
Liabilities
|
$202,848
|
$174,606
|
The
aggregate financial results of discontinued operations were as
follows:
|
|
Three
Months
Ended
September
30,
2019
|
Three
Months
Ended
September
30,
2018
|
Nine
Months
Ended
September
30,
2019
|
Nine
Months
Ended
September
30,
2018
|
|
Project
fee-others
|
$-
|
$-
|
$-
|
$7,437
|
|
|
-
|
-
|
-
|
7,437
|
|
|
|
|
|
|
|
Cost
of revenues
|
-
|
-
|
-
|
4,596
|
|
Gross
profit
|
$-
|
$-
|
$-
|
$2,841
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Depreciation
|
-
|
1,193
|
48
|
$5,989
|
|
General and
administrative
|
-
|
21,279
|
3,662
|
68,413
|
|
Total
operating expenses
|
-
|
22,472
|
3,710
|
74,402
|
|
|
|
|
|
|
|
Loss
from operations
|
-
|
(22,472)
|
(3,710)
|
(71,561)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expenses):
|
|
|
|
|
|
Other sundry
income
|
-
|
81
|
-
|
421
|
|
Foreign exchange
loss
|
-
|
(9,752)
|
(2)
|
(9,123)
|
|
Total
other expenses
|
-
|
(9,671)
|
(2)
|
(8,702)
|
|
Loss
from discontinued operations
|
$-
|
$(32,143)
|
$(3,712)
|
$(80,263)
|
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
The
cash flows attributable to the discontinued operation are as
follows:
|
|
Nine Months
Ended
September
30,
2019
|
Nine Months
Ended
September
30,
2018
|
|
Operating
|
$24,493
|
$(74,866)
|
|
Investing
|
-
|
-
|
|
Financing
|
-
|
28,502
|
|
Net
cash (outflows)/inflows
|
$24,493
|
$(46,364)
|
15.
INVESTMENTS
MEASURED AT FAIR VALUE
Financial
assets measured at fair value on a recurring basis are summarized
below and disclosed on the consolidated balance sheet as of
September 30, 2019 and December 31, 2018:
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Investment
securities- Fair Value Option
|
$3,457,056
|
$2,519,163
|
$-
|
$-
|
$2,519,163
|
|
Investment
securities- Trading
|
16,016
|
15,654
|
-
|
-
|
15,654
|
|
Convertible
note receivable
|
50,000
|
-
|
-
|
40,746
|
40,746
|
|
Total
|
$3,523,072
|
$2,534,817
|
$-
|
$40,746
|
$2,575,563
|
|
Investment
securities- Fair Value NAV as practical expedient
|
|
|
|
|
277,332
|
|
Total
Investment in securities at Fair Value
|
|
|
|
|
$2,852,895
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Investment
securities- Fair Value Option
|
$3,457,056
|
$2,656,240
|
$-
|
$-
|
$2,656,240
|
|
Investment
securities- Trading
|
16,016
|
15,701
|
-
|
-
|
15,701
|
|
Convertible
note receivable
|
50,000
|
-
|
-
|
78,723
|
78,723
|
|
Total
|
$3,523,072
|
$2,671,941
|
$-
|
$78,723
|
$2,750,664
|
|
Investment
securities- Fair Value NAV as practical expedient
|
|
|
|
|
276,102
|
|
Total
Investment in securities at Fair Value
|
|
|
|
|
$3,026,766
|
Unrealized loss on investment securities for the nine months ended
September 30, 2019 and 2018 was $146,470 and $2,508,245,
respectively.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
For U.S. trading stocks, we use Bloomberg Market stock prices as
the share prices to calculate fair value. For overseas stock, we
use the stock price from local stock exchange to calculate fair
value. The following chart shows details of the fair value of
equity security investment at September 30, 2019 and December 31,
2018, respectively.
|
|
|
Share price
|
|
|
|
Market Value
|
|
|
|
|
|
9/30/2019
|
|
Shares
|
|
9/30/2019
|
|
Valuation
|
|
DSS (Related Party)
|
|
0.385
|
|
500,000
|
|
192,500
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
AMBS (Related Party)
|
|
0.018
|
|
20,000,000
|
|
360,000
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Holista (Related Party)
|
|
0.043
|
|
46,226,673
|
|
1,966,663
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
|
|
|
15,654
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 1 Equity Securities
|
|
2,534,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vivacitas (Related Party)
|
|
N/A
|
|
2,480,000
|
|
200,128
|
|
Investment
in Securities at Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities
|
|
2,734,945
|
|
|
|
|
|
Share price
|
|
|
|
Market Value
|
|
|
|
|
|
12/31/2018
|
|
Shares
|
|
12/31/2018
|
|
Valuation
|
|
DSS (Related Party)
|
|
0.733
|
|
500,000
|
|
366,300
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
AMBS (Related Party)
|
|
0.020
|
|
20,000,000
|
|
400,000
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Holista (Related Party)
|
|
0.041
|
|
46,226,673
|
|
1,889,940
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
Others
|
|
|
|
|
|
15,701
|
|
Investment
in Securities at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Level 1 Equity Securities
|
|
2,671,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vivacitas (Related Party)
|
|
N/A
|
|
2,480,000
|
|
200,128
|
|
Investment
in Securities at Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Equity Securities
|
|
2,872,069
|
|
|
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Other investments consist of a $50,000 investment in a convertible
promissory note of Sharing Services, Inc. (“Sharing Services
Convertible Note”), a company quoted on the US OTC market.
The value of the convertible note was estimated by management using
a Black-Scholes valuation model.
The
table below provides a summary of the changes in fair value,
including net transfers in and/or out of all financial assets
measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the six months ended September
30, 2019 and 2018:
|
|
|
|
Balance at December
31, 2018
|
$78,723
|
|
Total
losses
|
(37,977)
|
|
Purchases, sales,
and settlements
|
-
|
|
Balance
at September 30, 2019
|
$40,746
|
|
|
|
|
Balance at December
31, 2017
|
$50,000
|
|
Total
gains
|
28,723
|
|
Purchases, sales,
and settlements
|
-
|
|
Balance
at September 30, 2018
|
$78,723
|
The
fair value of the Sharing Services
Convertible Note as of September 30, 2019 and December 31,
2018 was calculated using a Black-Scholes valuation model valued
with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
Dividend
yield
|
0.00%
|
0.00%
|
|
Expected
volatility
|
151.01%
|
162.68%
|
|
Risk free interest
rate
|
1.75%
|
1.98%
|
|
Contractual term
(in years)
|
3.02
|
3.76
|
|
Exercise
price
|
$0.15
|
$0.15
|
Changes
in the observable input values would likely cause material changes
in the fair value of the Company’s Level 3 financial
instruments. A significant increase (decrease) in this likelihood
would result in a higher (lower) fair value
measurement.
Additionally,
the Company maintains an investment in mutual funds which is
measured at fair value on a recurring basis using net asset value
per share as a practical expedient. As of September 30, 2019 and
December 31, 2018, the balance of this investment was $277,332 and
$276,102, respectively, and was included as part of Investment
Securities at Fair Value on the Company’s consolidated
balance sheet.
16.
COMMITMENTS
AND CONTINGENCIES
Commercial leases
The
Company has entered into 4 commercial leases in Bethesda, Maryland,
Magnolia, Texas, Singapore, and Hong Kong, relating to the rental
of office premises. These leases have tenure of between one and
three years with a renewal options. The Company is restricted from
subleasing the office premises to third parties without prior
written consent of the landlord. The rents are paid on monthly
basis and the rates usually are escalating about 3%
annually.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Annual
future minimum lease payments under these long-term building leases
for the next five years and thereafter are as follows:
|
December 31,
|
|
|
Remaining
2019
|
$80,458
|
|
2020
|
212,934
|
|
2021
|
-
|
|
2022
|
-
|
|
Thereafter
|
-
|
|
|
$293,392
|
Rent
expense for the nine months ended September 30, 2019 and 2018 were
$232,566 and $230,550, respectively.
The
Company’s leases are accounted for as operating leases.
Operating lease right-of-use assets and operating lease liability
is included on the face of the condensed consolidated balance
sheet. The Company elected the practical expedient to not recognize
operating lease right-of-use assets and operating lease liabilities
for lease agreements with terms less than 12 months or de
minimis.
The
balance of the operating lease right-of-use asset and operating
lease liability as of September 30, 2019 was $181,855 and $188,748,
respectively.
Supplemental
Cash Flow and Other Information Related to Operating Leases as
follows:
|
|
Nine Months
Ended
September
30,
2019
|
|
Operating Cash
Flows
|
$209,274
|
|
Weighted Average
Remaining Operating Lease Term (in years)
|
1.1
|
|
Weighted Average
Operating Lease Discount Rate
|
6.1%
|
Lots Sales Agreement
On
November 23, 2015, SeD Maryland Development LLC completed the
$15,700,000 acquisition of Ballenger Run, a 197-acre land
sub-division development located in Frederick County, Maryland.
Previously, on May 28, 2014, the RBG Family, LLC entered into a
$15,000,000 assignable real estate sales contract with NVR, by
which RBG Family, LLC would facilitate the sale of the 197 acres of
Ballenger Run to NVR. On December 10, 2014, NVR assigned this
contract to SeD Maryland Development, LLC through execution of an
assignment and assumption agreement and entered into a series of
lot purchase agreements by which NVR would purchase 443 subdivided
residential lots from SeD Maryland Development, LLC. Through December 31, 2018, NVR has purchased
144 lots. In the nine months ended on September 30, 2019, NVR
purchased 114 additional lots.
On July 20, 2016, SeD Maryland entered into a lot purchase
agreement with Orchard Development Corporation relating to the sale
of 210 multifamily units in the Ballenger Run Project for a total
purchase price of $5,250,000, which closed on August 7,
2018.
On February 19, 2018, SeD Maryland entered into a contract to sell
the Continuing Care Retirement Community Assisted Independent
Living parcel to Orchard Development Corporation. It was agreed
that the purchase price for the 5.9 acre lot would be $2,900,000
with a $50,000 deposit. It was also agreed that Orchard Development
Corporation would have the right to terminate the transaction
during the feasibility study period, which would last through May
30, 2018, and receive a refund of its deposit. On April 13, 2018,
Orchard Development Corporation indicated that it would not be
proceeding with the purchase of the CCRC parcel. On December 31,
2018, SeD Maryland entered into the Third Amendment to the Lot
Purchase Agreement for Ballenger Run with NVR. Pursuant to the
Third Amendment, SeD Maryland will convert the 5.9 acre CCRC parcel
to 36 lots (the 28 feet wide villa lot) and sell to NVR. SeD
Maryland pursued the required zoning approval to change the number
of such lots from 85 to 121, which was approved in July
2019.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
On July 3, 2018, 150 CCM Black Oak entered into a Purchase and Sale
Agreement with Houston LD, LLC for the sale of 124 lots located at
its Black Oak project. Pursuant to the Purchase and Sale Agreement,
it was agreed that 124 lots would be sold for a range of prices
based on the lot type. In addition, Houston LD, LLC agreed to
contribute a “community enhancement fee” for each lot,
collectively totaling $310,000, which is currently held in escrow.
150 CCM Black Oak will apply these funds exclusively towards an
amenity package on the property. The closing of the transactions
contemplated by the Purchase and Sale Agreement was subject to
Houston LD, LLC completing due diligence to its satisfaction. On
October 12, 2018, 150 CCM Black Oak, Ltd. entered into an Amended
and Restated Purchase and Sale Agreement (the “Amended and
Restated Purchase and Sale Agreement”) for these 124 lots.
Pursuant to the Amended and Restated Purchase and Sale Agreement,
the purchase price remained $6,175,000, 150 CCM Black Oak, Ltd. was
required to meet certain closing conditions and the timing for the
closing was extended.
On
January 18, 2019, the sale of 124 lots in Magnolia, Texas was
completed.
Royalty Fees
The Company has royalty commitments for the license and sale rights
of certain nutraceutical products that include both fixed and
variable royalty payments through 2022. The fixed royalty
commitments are $15,000 per month. Variable royalty payments vary
from $1.00 per unit sold to $0.20 per unit sold depending on sales
volume. The Exclusive Sublicensing Agreement was terminated
on January 8, 2019. During the nine months ended September 30, 2019
and 2018, the Company incurred royalty expenses of $0 and $169,520,
respectively.
Litigation with Gara Group
On
September 27, 2019, iGalen International Inc., one of our
majority-owned subsidiaries, and iGalen Inc., its wholly-owned
subsidiary, filed a complaint in the Superior Court of the State of
California, County of San Diego, Central Division, against Gara
Group, Inc., a Delaware corporation, and certain affiliated or
related entities, including the Chief Executive Officer of the Gara
Group (collectively these entities are referred to herein as the
“Gara Group”). The amended complaint, filed by
iGalen International Inc. and iGalen on October 24, 2019,
enumerates causes of action for (i) breach of contract; (ii) breach
of covenant of good faith and fair dealing; and (iii) intentional
interference with economic relations.
iGalen
Inc. and Gara Group are parties to a Specialized Services
Agreement, dated March 29, 2017 (the “Specialized Services
Agreement”). iGalen Inc. contracted with Gara Group to
provide certain services. Gara Group cut off services to
iGalen following iGalen’s indication that it was disputing
the amounts owed. iGalen’s amended complaint notes that
the actions of Gara Group and Mr. Gara has caused, and continue to
cause iGalen to suffer substantial harm by, among other things,
making it so iGalen was unable to communicate with distributors via
its website and Back Office, fulfill orders made by distributors,
or pay commission to distributors. iGalen is seeking
damages.
On
October 10, 2019, Gara Group filed a complaint in the Superior
Court of the State of California, County of San Diego, Central
Division against iGalen International Inc., iGalen Inc., Singapore
eDevelopment Limited, Chan Heng Fai, Dr. Rajen Manicka and David
Price, an executive of iGalen Inc. Gara Group’s
complaint for damages asserts that the Gara Group is entitled to
general damages of $9,000,000 and liquidated damages of
$50,000,000. iGalen Inc. intends to vigorously contest this
matter. No trial date has been set as of the date
hereof.
17.
DIRECTORS
AND EMPLOYEES’ BENEFITS
Stock Option plans HFE
The
Company reserves 500,000 shares of common stock under the Incentive
Compensation Plan for high-quality executives and other employees,
officers, directors, consultants and other persons who provide
services to the Company or its related entities. This plan is meant
to enable such persons to acquire or increase a proprietary
interest in the Company in order to strengthen the mutuality of
interests between such persons and the Company’s
shareholders, and providing such persons with performance
incentives to expand their maximum efforts in the creation of
shareholder value. As of September 30, 2019 and December 31, 2018,
there have been no options granted.
HF Enterprises Inc. and Subsidiaries
Notes
to Condensed Consolidated Financial Statements
Singapore eDevelopment Stock Option plans
On
November 20, 2013, SeD Ltd approved a Stock Option Plan (the
“2013 Plan”). Employees, executive directors, and
non-executive directors (including the independent directors) are
eligible to participate in the 2013 Plan.
The
following tables summarize stock option activity under the 2013
Plan for the nine months ended September 30, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of
December 31, 2018
|
1,061,333
|
$0.09
|
$-
|
5.00
|
$-
|
|
Granted
|
-
|
-
|
-
|
|
|
|
Exercised
|
-
|
-
|
-
|
|
|
|
Forfeited,
cancelled, expired
|
-
|
-
|
-
|
|
|
|
Outstanding as of
September 30, 2019
|
1,061,333
|
$0.09
|
$-
|
4.25
|
$-
|
|
Vested and
exercisable at September 30, 2019
|
1,061,333
|
$0.09
|
$-
|
4.25
|
$-
|
The
Company evaluated the events and transactions subsequent to
September 30, 2019, the balance sheet date, through December 23,
2019, the date the consolidated financial statements were available
to be issued.
Distribution to Minority Shareholders
On
October 7, 2019, the Board of Managers of SeD Maryland Development
LLC (the 83.55% owned subsidiary of the Company which owns the
Company’s Ballenger Project) authorized the payment of
distributions to its members in the amount of $500,000.
Accordingly, the minority member of SeD Maryland Development LLC
received a distribution in the amount of $82,250, with the
remainder being distributed to a subsidiary of the Company, which
eliminates upon consolidation.
Purchased stock of Sweet Sense Inc.
On
November 8, 2019, Impact BioMedical Inc., a subsidiary of the
Company, purchased 50% of Sweet Sense Inc. from Quality
Ingredients, LLC for $91,000. Sweet Sense is now 81.8% owned
subsidiary of Singapore eDevelopment. In addition, Sweet
Sense Inc. granted Quality Candy Company, LLC, an affiliate of
Quality Ingredients, LLC a Five (5) year, non-exclusive license for
the production and sale of Laetose and products containing
Laetose. Pursuant to this license, Quality Candy Company, LLC
will pay Sweet Sense a royalty of Two percent (2%) of (i) any sales
of Laetose made by Quality Candy Company, LLC; or a royalty of One
percent (1%) of any sales of any product, including but not limited
to candy, that shall contain Laetose. Sweet Sense may
terminate this license at its discretion during its term by paying
Quality Candy Company, LLC an amount of between $50,000 and
$300,000, based on royalties paid to Sweet Sense during the
term.
iGalen loan from related party
On
November 3, 2019, iGalen Inc. borrowed $160,000 from iGalen Funding
Inc., a company whose directors and shareholders include two
members of the Board of iGalen Inc. The term of such loan is 6
months, with an interest rate of 10% per annum.
Exercised Warrants of Singapore
eDevelopment
On
December 19, 2019, Document Security Systems, Inc. exercised
warrants to acquire 61,977,577 shares of Singapore eDevelopment.
Mr. Chan, our Chief Executive Officer, Chairman of our Board and
controlling shareholder, is also Chairman of the Board of Document
Security Systems, Inc. and a significant shareholder of Document
Security Systems, Inc. As a result of the exercise of these
warrants, the percent of Singapore eDevelopment that our company
owns has been reduced from 69.1% to 65.4%.
HF Enterprises Inc. and Subsidiaries
Table of Contents
For Years Ended December 31, 2018 and 2017
|
Independent
Auditor’s Report
|
|
F-37
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
F-38
|
|
|
|
|
|
Consolidated
Statements of Operations and Other Comprehensive Loss
|
F-39
|
|
|
|
|
|
Consolidated
Statements of Stockholders' Equity
|
|
F-40
|
|
|
|
|
|
Consolidated
Statements of Cash Flows
|
|
F-41
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
F-42 -
F-88
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Board of Directors and
Stockholders
of HF Enterprises Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of HF
Enterprises Inc. (the Company) as of December 31, 2018 and 2017,
and the related consolidated statements of operations and other
comprehensive loss, stockholders’ equity, and cash flows for
each of the years in the two-year period ended December 31, 2018,
and the related notes (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2018 and 2017, and the
results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 2018, in conformity with
accounting principles generally accepted in the United States of
America.
Restatement of Previously Issued Financial Statements
As discussed in Note 4, the Company has restated its 2017 financial
statements to correct errors.
Basis for Opinion
These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements
based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement, whether due
to error or fraud. The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting. As part of our audits, we are required to obtain an
understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
/s/ Rosenberg Rich Baker Berman P.A.
August 12, 2019, except for the subsequent event discussed in Note
20 to the consolidated financial statements relating to the
subsequent impairment of the Black Oak project, as to which the
date is November 12, 2019
We have served as the Company’s auditor since
2018.
Somerset, New Jersey
HF Enterprises Inc. and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
Current
Assets:
|
|
|
|
Cash
|
$ 1,387,209
|
$ 1,241,336
|
|
Restricted
Cash
|
4,120,989
|
2,895,705
|
|
Account
Receivables, Net
|
564,759
|
905,859
|
|
Prepaid
Expenses
|
140,442
|
127,288
|
|
Inventory
|
198,817
|
63,853
|
|
Investment
in Securities at Fair Value
|
3,026,766
|
4,102,756
|
|
Investment
in Securities at Cost
|
200,128
|
-
|
|
Investment
in Securities by Equity Method
|
9,052
|
-
|
|
Deposits
|
23,603
|
23,603
|
|
Current
Assets of Discontinued Operations
|
14,317
|
35,038
|
|
Total
Current Assets
|
9,686,082
|
9,395,438
|
|
Real
Estate
|
|
|
|
Properties
under Development
|
38,774,936
|
50,516,409
|
|
Real
Estate Held For Sale
|
136,248
|
136,248
|
|
Total
Real Estate
|
38,911,184
|
50,652,657
|
|
|
|
|
|
Property
and Equipment, Net
|
103,425
|
122,568
|
|
Non-Current
Assets of Discontinued Operations
|
1,765
|
8,309
|
|
Total
Assets
|
$ 48,702,456
|
$ 60,178,972
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
Current
Liabilities:
|
|
|
|
Accounts
Payable and Accrued Expenses
|
$ 4,394,853
|
$ 2,690,849
|
|
Accrued
Interest - Related Parties
|
476,063
|
-
|
|
Deferred
Revenue
|
84,998
|
114,110
|
|
Builder
Deposits
|
1,296,062
|
1,477,876
|
|
Notes
Payable, Net of Debt Discount of $0 and $140,277
|
|
|
|
on
December 31, 2018 and 2017, respectively
|
13,899
|
8,306,897
|
|
Bonds
Payable, Net of Debt Discount of $43,651 and $0
|
|
|
|
on
December 31, 2018 and 2017, respectively
|
1,456,349
|
-
|
|
Current
Liabilities of Discontinued Operations
|
174,606
|
171,566
|
|
Total
Current Liabilities
|
7,896,830
|
12,761,298
|
|
Long-Term
Liabilities:
|
|
|
|
Builder
Deposits
|
2,582,780
|
3,878,842
|
|
Notes
Payable
|
158,036
|
-
|
|
Bonds
Payable, Net of Debt Discount of $0 and $90,980
|
|
|
|
on
December 31, 2018 and 2017, respectively
|
-
|
1,409,020
|
|
Notes
Payable - Related Parties
|
8,863,196
|
7,384,217
|
|
Total
Liabilities
|
19,500,842
|
25,433,377
|
|
|
|
|
|
Commitments
and Contingencies
|
-
|
-
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
Preferred
Stock, $0.001 par value; 5,000,000 shares authorized, none
issued
|
-
|
-
|
|
Common
Stock, $0.001 par value; 20,000,000 shares authorized;
10,001,000
|
|
|
|
shares
issued and outstanding on December 31, 2018 and 2017,
respectively
|
10,001
|
10,001
|
|
Additional
Paid In Capital
|
53,717,424
|
51,324,448
|
|
Accumulated
Deficit
|
(35,263,650)
|
(32,235,614)
|
|
Accumulated
Other Comprehensive Income
|
1,582,788
|
3,923,236
|
|
Total
Stockholders' Equity
|
20,046,563
|
23,022,071
|
|
Non-controlling
Interests
|
9,155,051
|
11,723,524
|
|
Total
Stockholders' Equity
|
29,201,614
|
34,745,595
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
$ 48,702,456
|
$ 60,178,972
|
See accompanying notes to consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Consolidated Statements of Operations and Other Comprehensive
Loss
For the Years Ended December 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
Property
Sales
|
$ 17,675,034
|
$ 7,191,507
|
|
Biohealth
Product Sales
|
2,532,852
|
2,879,542
|
|
Digital
Transformation Technology
|
140,652
|
197,073
|
|
Others
|
32,402
|
488,971
|
|
|
20,380,940
|
10,757,093
|
|
Operating
Expenses
|
|
|
|
Cost
of Sales
|
15,533,701
|
7,527,602
|
|
General
and Administrative
|
7,160,473
|
7,780,596
|
|
Research
and Development
|
461,752
|
350,462
|
|
Impairment
of Real Estate
|
1,455,326
|
-
|
|
|
24,611,252
|
15,658,660
|
|
|
|
|
|
Loss
From Operations
|
(4,230,312)
|
(4,901,567)
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
Interest
Income
|
59,346
|
25,894
|
|
Interest
Expense
|
(509,208)
|
-
|
|
Foreign
Exchange Transaction Gain (Loss)
|
691,099
|
(2,739,991)
|
|
Unrealized
Loss on Investment on Securities at Fair Value
|
(3,366,958)
|
-
|
|
Loss
on Investment on Securities by Equity Method
|
(45,948)
|
-
|
|
Other
Income
|
11,511
|
277,354
|
|
Other
Expense
|
(3,349)
|
(115,177)
|
|
|
(3,163,507)
|
(2,551,920)
|
|
|
|
|
|
Net
Loss Before Income Taxes
|
(7,393,819)
|
(7,453,487)
|
|
|
|
|
|
Income
Tax Benefit
|
-
|
588,659
|
|
|
|
|
|
Net
Loss from Continuing Operations
|
(7,393,819)
|
(6,864,828)
|
|
|
|
|
|
Net
Loss from Discontinued Operations, Net of Tax
|
(96,749)
|
(221,018)
|
|
Net
Loss
|
(7,490,568)
|
(7,085,846)
|
|
|
|
|
|
Net
Loss Attributable to Non-Controlling Interests
|
(2,500,698)
|
(2,777,335)
|
|
|
|
|
|
Net
Loss Attributable to Common Stockholders
|
$ (4,989,870)
|
$ (4,308,511)
|
|
|
|
|
|
Other
Comprehensive Income (Loss), Net
|
|
|
|
Unrealized
(Loss) Gain on Securities Investment
|
(34,408)
|
2,838,713
|
|
Foreign
Currency Translation Adjustment
|
(513,435)
|
1,222,746
|
|
|
(547,843)
|
4,061,459
|
|
|
|
|
|
Comprehensive
Loss
|
(8,038,411)
|
(3,024,387)
|
|
|
|
|
|
Comprehensive
Loss Attributable to Non-controlling Interests
|
(2,669,927)
|
(1,522,750)
|
|
|
|
|
|
Comprehensive
Loss Attributable to Common Stockholders
|
$ (5,368,484)
|
$ (1,501,637)
|
|
|
|
|
|
Net
Loss Per Share - Basic and Diluted
|
|
|
|
Continuing
Operations
|
$ (0.50)
|
$ (0.43)
|
|
Discontinued
Operations
|
$ (0.01)
|
$ (0.02)
|
|
Net
Loss Per Share
|
$ (0.51)
|
$ (0.45)
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Basic and Diluted
|
10,001,000
|
10,001,000
|
See accompanying notes to consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Consolidated Statements of Stockholders’
Equity
For the Years Ended December 31, 2018 and December 31,
2017
(As
Restated for year ended on December 31, 2017)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid in Capital
|
Accumulated
Other Comprehensive Income
|
|
Non-controlling
Interests
|
Total
Stockholders Equity
|
|
Balance at January 1,
2017
|
|
|
10,001,000
|
$ 10,001
|
$ 40,938,283
|
$ 1,116,362
|
$ (27,927,103)
|
$ 8,603,985
|
$ 22,741,528
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
shareholder
|
|
|
|
|
3,129,615
|
|
|
1,398,840
|
4,528,455
|
|
|
|
|
|
|
|
|
|
|
Loan Converted to
Equity
|
|
|
|
|
7,256,550
|
|
|
3,243,450
|
10,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
Translations
|
|
|
|
|
|
845,039
|
|
377,706
|
1,222,745
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain on Securities Investment
|
|
|
|
|
1,961,835
|
|
876,878
|
2,838,713
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
(4,308,511)
|
(2,777,335)
|
(7,085,846)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1,
2018
|
|
|
10,001,000
|
$ 10,001
|
$ 51,324,448
|
$ 3,923,236
|
$ (32,235,614)
|
$ 11,723,524
|
$ 34,745,595
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of Minority
Interest
|
|
|
|
|
(135,661)
|
|
|
75,661
|
(60,000)
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from Selling Subsidiary Equity
|
|
|
|
57,707
|
|
|
25,793
|
83,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency
Translations
|
|
|
|
|
|
(354,834)
|
|
(158,600)
|
(513,434)
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Gains
Reclassification
|
|
|
|
|
|
(1,961,835)
|
1,961,835
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Loss on
Investment
|
|
|
|
|
|
(23,779)
|
|
(10,629)
|
(34,408)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Issued in
Exchange Agreements
|
|
|
|
|
2,470,930
|
|
|
|
2,470,930
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
(4,989,870)
|
(2,500,698)
|
(7,490,568)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2018
|
|
|
10,001,000
|
$ 10,001
|
$ 53,717,424
|
$ 1,582,788
|
$ (35,263,650)
|
$ 9,155,051
|
$ 29,201,614
|
See accompanying notes to consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2018 and 2017
|
|
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
Net
Loss from Continuing Operations
|
$ (7,393,819)
|
$ (6,864,828)
|
|
Adjustments
to reconcile net loss to net cash from operating
activities:
|
|
|
|
Depreciation
|
41,197
|
58,032
|
|
Loss
on Disposal of PP&E
|
8,303
|
131
|
|
Impairment
of Real Estate
|
1,455,326
|
-
|
|
Foreign
Exchange Transaction (Gain) Loss
|
(691,099)
|
2,739,991
|
|
Unrealized
Loss on Security Investment
|
3,366,958
|
-
|
|
Changes
in Operating Assets and Liabilities
|
|
|
|
Real
Estate
|
10,152,944
|
(1,448,306)
|
|
Trade
Receivables
|
321,325
|
(488,009)
|
|
Office
Deposit
|
7,640
|
6,469
|
|
Prepaid
Expense
|
11,970
|
5,416
|
|
Inventory
|
(134,964)
|
(63,853)
|
|
Accounts
Payable and Accrued Expenses
|
2,474,888
|
131,498
|
|
Deferred
Revenue
|
(29,112)
|
114,110
|
|
Tenant
Security Deposits
|
(1,400)
|
(2,550)
|
|
Accrued
Income Tax Expense
|
-
|
(588,659)
|
|
Builder
Deposits
|
(1,477,876)
|
(543,282)
|
|
Net
Cash Provided by (Used In) Continuing Operating
Activities
|
8,112,281
|
(6,943,840)
|
|
Net
Cash Used In Discontinued Operating Activities
|
(86,641)
|
(202,395)
|
|
Net
Cash Provided by (Used In) Operating Activities
|
8,025,640
|
(7,146,235)
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
Purchase
of Fixed Assets
|
(30,645)
|
(30,538)
|
|
Purchase
of Investment Securities
|
-
|
(150,000)
|
|
Equity
Method Investment Contributions
|
(55,000)
|
-
|
|
Investment
in Development Fund
|
-
|
(350,000)
|
|
Net
Cash Used in Continuing Investing Activities
|
(85,645)
|
(530,538)
|
|
Net
Cash Provided by Discontinued Investing Activities
|
-
|
-
|
|
Net
Cash Used in Investing Activities
|
(85,645)
|
(530,538)
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
Proceeds
from Issuance of Ordinary Shares
|
-
|
4,528,455
|
|
Share
Issuing Expenses
|
-
|
(90,428)
|
|
Acquisition
of Minority Interest
|
(60,000)
|
-
|
|
Proceeds
from Notes Payable
|
-
|
1,052,350
|
|
Proceeds
from Sale of Subsidiary Shares
|
83,500
|
-
|
|
Repayments
of Note Payable
|
(8,258,398)
|
(6,315,215)
|
|
Financing
Fees Paid
|
-
|
(110,000)
|
|
Net
Proceeds from Notes Payable - Related Parties
|
1,640,966
|
7,156,680
|
|
Net
Cash (Used in) Provided By Continuing Financing
Activities
|
(6,593,932)
|
6,221,842
|
|
Net
Cash Provided By Discontinued Financing Activities
|
-
|
-
|
|
Net
Cash (Used in) Provided By Financing Activities
|
(6,593,932)
|
6,221,842
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Restricted Cash
|
1,346,063
|
(1,454,931)
|
|
Effects
of Foreign Exchange Rates on Cash
|
25,094
|
(14,045)
|
|
|
|
|
|
Cash
and Restricted Cash - Beginning of Year
|
4,137,041
|
5,606,017
|
|
Cash
and Restricted Cash- End of Year
|
$ 5,508,198
|
$ 4,137,041
|
|
|
|
|
|
Supplementary
Cash Flow Information
|
|
|
|
Cash
Paid For Interest
|
$ 418,067
|
$ 1,233,228
|
|
Cash
Paid For Taxes
|
$ -
|
$ -
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing
Activities
|
|
|
|
Convert
Related Party Loan to Common Stock
|
$ -
|
$ 10,500,000
|
|
Amortization
of Debt Discount Capitalized
|
$ 190,277
|
$ 375,111
|
|
Stock
Capital Contribution
|
$ 2,470,930
|
$ -
|
See accompanying notes to consolidated financial
statements.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
1.
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
HF
Enterprises Inc. (the “Company” or “HFE”)
was incorporated in the State of Delaware on March 7, 2018 and 1,000 shares
of common stock were issued to Chan
Heng Fai, the founder, Chairman and Chief Executive Officer of the
Company. HFE is a diversified holding company principally
engaged in property development, digital transformation technology,
biohealth and other related business activities with operations in
the United States, Singapore, China, Hong Kong, and Australia. The
Company manages its principal businesses primarily through its
69.11% owned subsidiary, Singapore eDevelopment Ltd. (“SeD
Ltd”), a public company traded on the Singapore Stock
Exchange.
On October 1, 2018, Chan Heng Fai transferred his 100% interest in
Hengfai International Pte. Ltd. (“Hengfai
International”) to HF Enterprises Inc. in exchange for
8,500,000 shares of the Company’s common stock. Hengfai
International holds a 100% interest in Hengfai Business Development
Pte. Ltd. (“Hengfai Business Development”). Both
Hengfai International and Hengfai Business Development are holding
companies with no business operations. Hengfai Business Development
holds 761,185,294 shares and 359,834,471 warrants of SeD Ltd, or
69.11% of the outstanding shares of SeD Ltd, which is the primary
operating company of HFE.
Also on October 1, 2018, Chan Heng Fai transferred his 100%
ownership interest in Heng Fai Enterprises Pte. Ltd. (“Heng
Fai Enterprises”) and Global eHealth Limited (“Global
eHealth”) to HF Enterprises Inc. in exchange for 500,000 and
1,000,000 shares of the Company’s common stock, respectively.
Both Heng Fai Enterprises and Global eHealth are holding companies
with no business operations.
The contributions to HFE on October 1, 2018 of Hengfai
International, Heng Fai Enterprises, and Global eHealth from Chan
Heng Fai (the “Common Control Transactions”)
represented transactions under common control.
The
Company has four operating segments based on the products and
services offered. These include our three principal businesses-
property development, digital transformation technology and
biohealth- as well as a fourth category consisting of certain other
business activities.
Property Development
The
Company’s property development segment is comprised of SeD
Intelligent Home Inc. (“SeD Intelligent Home”) and SeD
Perth Pty Ltd.
In
2014, Singapore eDevelopment Ltd. commenced operations developing
property projects and participating in third-party property
development projects. SeD Intelligent Home Inc., a 99.9%-owned
subsidiary of Singapore eDevelopment, owns, operates and manages
real estate development projects with a focus on land subdivision
developments.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Development
activities are generally contracted out, including planning, design
and construction, as well as, other work with engineers, surveyors,
architects and general contractors. The developed lots are then
sold to builders for the construction of new homes. SeD Intelligent
Home’s main assets are two subdivision development projects,
one near Houston, Texas, known as Black Oak, consisting of 162
acres and currently projected to have approximately 512 units, and
one in Frederick, Maryland, known as Ballenger Run, consisting of
197 acres and currently projected to have approximately 689
units.
Digital Transformation Technology
The
Company’s digital transformation technology segment is
comprised of HotApp Blockchain Inc. and its
subsidiaries.
The
Company’s digital transformation technology business is
involved in mobile application product development and other
businesses, providing information technology services to end-users,
service providers and other commercial users through multiple
platforms. This technology platform consists of instant messaging
systems, social media, e-commerce and payment systems, direct
marketing platforms, e-real estate, brand protection and
counterfeit and fraud detection. HotApp Blockchain Inc
(“HotApp Blockchain" or “HotApp”), a 99.9%-owned
subsidiary of Singapore eDevelopment, focuses on
business-to-business solutions such as enterprise messaging and
workflow. Through HotApp, the Company has successfully implemented
several strategic platform developments for clients, including a
mobile front-end solution for network marketing, a hotel e-commerce
platform for Asia and a real estate agent management platform in
China.
On
October 25, 2018, HotApps International Pte. Ltd.
(“HIP”) entered into an Equity Purchase Agreement with
DSS Asia Limited (“DSS Asia”), a Hong Kong subsidiary
of DSS International Inc. (“DSS International”),
pursuant to which HIP agreed to sell to DSS Asia all of the issued
and outstanding shares of HotApps Information Technology Co. Ltd.,
also known as Guangzhou HotApps Technology Ltd. (“Guangzhou
HotApps”). The transaction closed on January 14, 2019. Chan
Heng Fai is the CEO of DSS Asia and DSS International. See Note 15
- Discontinued Operations and Note 12 - Related Party
Transactions.
Biohealth
The
Company’s biohealth segment is comprised of Singapore
BioMedical PL and Health Wealth Happiness Pte. Ltd.
The
Company’s biohealth business is committed to both funding
research and developing and selling products that promote a healthy
lifestyle. Global BioLife is one of the entities within this
segment, focusing on research in three main areas: (i) development
of a universal therapeutic drug platform; (ii) a new sugar
substitute; and (iii) a multi-use fragrance. Global BioLife has
established a joint venture with Quality Candy Company, LLC for the
development, manufacture, and global distribution of the new sugar
substitute. iGalen Inc. is one of subsidiaries under Health Wealth
Happiness Pte. Ltd. and focuses on distribution of supplements and
other health products.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Other Business Activities
In
addition to the segments identified above, the Company provides
corporate strategy and business development services, asset
management services and corporate restructuring and leveraged
buy-out expertise. These service offerings build relationships with
promising companies for potential future collaboration and
expansion. We believe our other business activities complement our
three principal businesses.
The
Company’s other business activities segment is primarily
comprised of Singapore eDevelopment Ltd, SeD Capital Pte Ltd, BMI
Capital Partners International Limited and Singapore Construction
& Development Pte. Ltd.
The
accompanying financial statements have been prepared on the basis
that the Company is a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. The Company has experienced net losses over the
past 2 years. As of and for the year ended December 31, 2018, the
Company had an accumulated deficit of $35,263,650 a net loss of
$7,490,568, and net cash provided by operating activities of
$8,025,640. As of and for the year ended December 31, 2017, the
Company had an accumulated deficit of $32,235,614, net loss of
$7,085,847, and net cash used in operating activities of
$7,146,236.
As a
result, these conditions may raise substantial doubt regarding our
ability to continue as a going concern 12 months from the date of
issuance of our 2018 financial statements. However, the Company
expects to have high volume of cash in hand and strong operating
cash inflows for at least the next twelve months. As of December
31, 2018, the Company had cash and restricted cash of $5,508,198,
compared to $4,137,041 as of December 31, 2017. Management has
evaluated the conditions in relation to the Company’s ability
to meet its obligations and plans to continue borrowing funds from
third party financial institutions in order to meet the operating
cash requirements. Concurrently, management will work with the
related party debtors on a plan to repay the related party loans,
which are repayable on demand, to ensure the Company’s
operation cash requirement is its’ first
priority.
In the
budgeting for the Company’s cash flows and funding
requirements, the Company considered that the Company had entered
into agreements with a customer for its land subdivision
development, the securing of an agreement with an external
unrelated purchaser in respect of the sale of its 124 residential
dwelling units in respect of its Black Oak project in Magnolia,
Texas in January 2019, as well as the proceeds arising from the
sale of biomedical products. During the 6 months ended June 30,
2019, the revenue from lot sales was approximately $16.6 million
and cash flow provided by operating activities from property
development was approximately $8.8 million. Furthermore, the
Company had not defaulted on any principal and interest repayment
on its loans and borrowings and had substantially repaid its
floating rate loan during the year. The Company had obtained a
letter of financial support from Chan Heng Fai, the chairman and
CEO of the Company. He committed to provide any additional funding
required by the Company and would not demand repayment within the
next 12 months from the date of issuance of our 2018 financial
statements if the need arises.
As a
result of management’s plans, high volume cash in bank
accounts, favorable operating cash flow from operations in 2018 and
the support from the director, the Company believes the initial
conditions which raised substantial doubt regarding the ability to
continue as a going concern have been alleviated. Therefore, the
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going
concern.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
3.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Common Control Transactions resulted in the following basis of
accounting for the financial reporting periods:
●
The
acquisitions of Heng Fai Enterprises and Global eHealth were
accounted for prospectively as of October 1, 2018 and they did not
represent a change in reporting entity.
●
The
consolidated financial statements were retrospectively adjusted for
the acquisition of Hengfai International and the operating results
of SeD Ltd as of January 1, 2017 for comparative purposes as the
entities were under common control.
●
On
May 9, 2017, SeD Capital Pte. Ltd., a subsidiary of the Company,
entered into a sale and purchase agreement with Chan Heng Fai to
purchase the entire shares in Liquid Value Asset Management Pte.
Ltd.(“LVAM” f.k.a. Hengfai Asset Management Pte. Ltd,
“HFAM”) amounting to 100% of the issued and paid-up
share capital of LVAM. The consideration for the acquisition of
LVAM is $441,780. The operating results of the Company in 2017
consolidated financial statements were retrospectively adjusted for
this acquisition and its operating results as if the transaction
happened on of January 1, 2017, for comparative purpose as the
entities were under common control.
ASC 805-50-45 defines the transfer of a business among entities
under common control at carrying amount with retrospective
adjustment of prior period financial statements when reporting
entity is changed. ASC 250 defines a change in the reporting entity
as a change that results in financial statements that, in effect,
are those of a different reporting entity. The Management believed
that the acquisitions of Hengfai International and LVAM led to
change in the reporting entities and the acquisitions of Heng Fai
Enterprises and Global eHealth did not.
The Company’s consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
The consolidated financial statements include all accounts of the
Company and its majority owned and controlled subsidiaries. The
Company consolidates entities in which it owns more than 50% of the
voting common stock and controls operations. All intercompany
transactions and balances among consolidated subsidiaries have been
eliminated.
The Company consolidated the operations of the following entities
as of December 31, 2018 and 2017 as follows:
|
|
State
or other jurisdiction of
|
|
|
|
incorporation
or organization
|
|
|
Name
of subsidiary consolidated under HFE
|
|
|
|
|
|
|
|
|
|
Hengfai
International Pte. Ltd
|
Singapore
|
100
|
0
|
|
Hengfai
Business Development Pte. Ltd
|
Singapore
|
100
|
0
|
|
Singapore
eDevelopment Ltd.
|
Singapore
|
69.11
|
69.11
|
|
Singapore
Construction & Development Pte Ltd.
|
Singapore
|
69.11
|
69.11
|
|
Art
eStudio Pte. Ltd.
|
Singapore
|
35.25
|
35.25
|
|
Singapore
Construction Pte. Ltd.
|
Singapore
|
69.11
|
69.11
|
|
Global
BioMedical Pte. Ltd (f.k.a Singapore BioMedical Pte.
Ltd.)
|
Singapore
|
69.11
|
69.11
|
|
SeD
BioLife International Inc.
|
United
States of America
|
69.11
|
69.11
|
|
SeD
BioMedical International Inc.
|
United
States of America
|
69.11
|
69.11
|
|
Global
BioMedical Inc.
|
United
States of America
|
62.83
|
62.83
|
|
Global
BioLife Inc.
|
United
States of America
|
43.98
|
43.98
|
|
SeD
Investment Pte. Ltd (f.ka SingLife Regenerate Pte.
Ltd.)
|
Singapore
|
69.11
|
69.11
|
|
Health
Wealth Happiness Pte. Ltd.
|
Singapore
|
69.11
|
69.11
|
|
iGalen
International Inc.
|
United
States of America
|
36.63
|
36.63
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
|
iGalen
Inc. (f.k.a iGalen USA LLC)
|
United
States of America
|
36.63
|
36.63
|
|
SeD
Capital Pte. Ltd.
|
Singapore
|
69.11
|
69.11
|
|
SeD
BioMedical International Pte. Ltd.
|
Singapore
|
0.00
|
69.11
|
|
SeD
BioMedical Inc.
|
United
States of America
|
0.00
|
55.29
|
|
SeD
BioMedical Pte. Ltd.
|
Singapore
|
0.00
|
55.29
|
|
SeD
BioMedical Limited
|
Hong
Kong
|
0.00
|
55.29
|
|
SeD
BioMedical Sdn Bhd
|
Malaysia
|
0.00
|
55.29
|
|
LiquidValue
Asset Management Pte. Ltd.
|
Singapore
|
69.11
|
69.11
|
|
SeD
Home Limited
|
Hong
Kong
|
69.11
|
69.11
|
|
Global
Lite Food Pte. Ltd.
|
Singapore
|
69.11
|
69.11
|
|
BMI
Asset Management Pte. Ltd. (f.k.a SeD Global Management Pte.
Ltd.)
|
Singapore
|
0.00
|
69.11
|
|
SeD
Medical Solution Pte. Ltd.
|
Singapore
|
0.00
|
69.11
|
|
SeD
Health Solution Pte. Ltd.
|
Singapore
|
0.00
|
69.11
|
|
Global
Techfund of Fund Pte. Ltd.
|
Singapore
|
69.11
|
69.11
|
|
Singapore
eChain Logisitic Pte. Ltd. (f.k.a CloudTV Pte. Ltd.)
|
Singapore
|
69.11
|
69.11
|
|
BMI
Capital Partners International Limited
|
Hong
Kong
|
69.11
|
69.11
|
|
SeD
Perth Pty Ltd
|
Australia
|
69.11
|
69.11
|
|
SeD
Home International, Inc.
|
United
States of America
|
69.11
|
69.11
|
|
SeD Intelligent Home Inc.
|
United
States of America
|
69.10
|
69.10
|
|
SeD Home, Inc..
|
United
States of America
|
69.10
|
69.10
|
|
SeD
USA, LLC
|
United
States of America
|
69.10
|
69.10
|
|
150
Black Oak GP, Inc.
|
United
States of America
|
69.10
|
69.10
|
|
SeD
Development USA, Inc.
|
United
States of America
|
69.10
|
69.10
|
|
150
CCM Black Oak Ltd
|
United
States of America
|
69.10
|
47.69
|
|
SeD
Texas Home, LLC
|
United
States of America
|
69.10
|
69.10
|
|
SeD
Ballenger, LLC
|
United
States of America
|
69.10
|
69.10
|
|
SeD
Maryland Development, LLC
|
United
States of America
|
57.73
|
57.73
|
|
SeD
Development Management, LLC
|
United
States of America
|
58.74
|
58.74
|
|
SeD
Builder, LLC
|
United
States of America
|
69.10
|
69.10
|
|
HotApp
Blockchain, Inc.
|
United
States of America
|
69.10
|
69.10
|
|
HotApps
International Pte. Ltd
|
Singapore
|
69.10
|
69.10
|
|
HotApps
Call Pte. Ltd
|
Singapore
|
69.10
|
69.10
|
|
Guangzhou
HotApps Technology Ltd
|
China
|
69.10
|
69.10
|
|
HotApp
International Limited
|
Hong
Kong
|
69.10
|
69.10
|
|
HWH
International Inc.
|
United
States of America
|
69.11
|
69.11
|
|
Health,
Wealth & Happiness Inc.
|
United
States of America
|
69.11
|
69.11
|
|
HWH
Multi-Strategy Investment Inc
|
United
States of America
|
69.11
|
69.11
|
|
Impact
Biomedical Inc.
|
United
States of America
|
69.11
|
0.00
|
|
Biolife
Sugar, Inc.
|
United
States of America
|
43.91
|
0.00
|
|
Happy
Sugar, Inc.
|
United
States of America
|
43.91
|
0.00
|
|
SeD
Home Rental, Inc.
|
United
States of America
|
69.10
|
0.00
|
|
Crypto
Exchange, Inc.
|
United
States of America
|
69.10
|
0.00
|
|
HWH
World Inc.
|
United
States of America
|
69.10
|
0.00
|
|
HWH
World Pte. Ltd (f.k.a Crypto Exchange Pte. Ltd.)
|
Singapore
|
69.10
|
69.10
|
*Although the Company indirectly holds percentage of shares of
these entities less than 50%, the subsidiaries of the Company
directly hold more than 50% of shares of these entities. They are
still consolidated into the Company.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Use of Estimates and Critical Accounting Estimates and
Assumptions
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during
the reporting periods. Significant estimates made by management
include, but are not limited to, allowance for doubtful accounts,
recoverability and useful lives of property, plant and equipment,
valuation of real estate assets, allocation of development costs
and capitalized interest to sold lots, the valuation allowance of
deferred taxes, contingencies and equity compensation. Actual
results could differ from those estimates.
In our
property development business, land acquisition costs are allocated
to each lot based on the area method, the size of the lot comparing
to the total size of all lots in the project. Development costs and
capitalized interest are allocated to lots sold based on the total
expected development and interest costs of the completed project
and allocating a percentage of those costs based on the selling
price of the sold lot compared to the expected sales values of all
lots in the project.
If
allocation of development costs and capitalized interest based on
the projection and relative expected sales value is impracticable,
those costs could also be allocated based on area method, the size
of the lot comparing to the total size of all lots in the
project.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash
equivalents. Cash and cash equivalents include cash on hand and at
the bank and short-term deposits with financial institutions that
are readily convertible to a known amount of cash and are subject
to an insignificant risk of changes in values. There were no cash
equivalents as of December 31, 2018 and 2017.
Restricted Cash
As a
condition to the loan agreement with the Union Bank (formerly known
as Xenith Bank, f/k/a The Bank of Hampton Roads), the Company was
required to maintain a minimum of $2,600,000 in an interest-bearing
account maintained by the lender as additional security for the
loans. As of December 31, 2018 and 2017, the account balance was
$2,726,154 and $2,656,670, respectively. The funds were required to
remain as collateral for the loans until the loans are paid off in
full. The loan has been fully paid off in January 2019 and all
remaining amount in this account was released on April 19,
2019.
As a
condition to the loan agreement with National Australian Bank
Limited in conjunction with the Perth project, an Australia real
estate development project, the Company is required to maintain
$35,276 in a non-interest-bearing account. As of December 31, 2018
and 2017, the account balance was $35,276. These funds will remain
as collateral for the loans until paid in full.
On July
20, 2018, Black Oak LP received $4,592,079 in district
reimbursement payment for previous construction costs incurred in
land development. Of this amount, $1,650,000 will remain on deposit
in the District’s Capital Projects Fund for the benefit of
Black Oak LP and will be released upon receipt of the evidence of:
(a) the execution of a purchase agreement between Black Oak LP and
a home builder with respect to the Black Oak development and (b)
the completion, finishing and readying for home construction of at
least 105 unfinished lots in the Black Oak development. The balance
was $1,203,256 on December 31, 2018.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
As a
condition to use the credit card services provided by Global
Payroll Gateway, Ltd. (“GPG”), a financial service
company, the Company is required to deposit 10% revenue from sales
to a non-interest-bearing GPG reserve account with a maximum amount
of $200,000. The Company is allowed to temporarily use the money in
this deposit account upon request and pay back on a short term
basis. As of December 31, 2018 and 2017, the balance in the reserve
account were $156,303 and $200,000, respectively. These funds will
be fully refunded to the Company until the service agreement with
GPG terminates.
Accounts Receivable and Allowance for Doubtful
Accounts
Accounts
receivable are stated at amounts due from buyers, contractors, and
all third parties, net of an allowance for doubtful accounts. The
Company monitors its accounts receivable balances on a monthly
basis to ensure that they are collectible. On a quarterly basis,
the Company uses its historical experience to estimate its accounts
receivable reserve. The Company’s allowance for doubtful
accounts represents an estimate of the losses expected to be
incurred. Generally, the amount of allowance is primarily decided
by division management’s historical experiences, the
delinquency trends, the resolution rates, the aging of receivables,
the credit quality indicators and financial health of specific
customers. As of December 31, 2018 and 2017, the allowance was
$0.
Inventories
Inventories
are stated at the lower of cost or net realizable value. Cost is
determined using the first-in, first-out method and includes all
costs in bringing the inventories to their present location and
condition. Net realizable value is the estimated selling price in
the ordinary course of business less the estimated costs necessary
to make the sale. As of December 31, 2018 and 2017, inventory
consisted of finished goods, our iGalen Inc. health supplement
products. The Company evaluates a potential reserve for
obsolescence and possible price concessions required to liquidate
inventories below net realizable value. The reserve on December 31,
2018 and 2017 was $0.
Investment Securities
Investment Securities at Fair Value
The
Company commonly holds investments in equity securities with
readily determinable fair values, equity investments without
readily determinable fair values, investments accounted for under
the equity method, and investments at cost. Certain of the
Company’s investments in marketable equity securities and
other securities are long-term, strategic investments in companies
that are in various stages of development.
Prior
to the adoption of Financial Accounting Standards Board
(“FASB”) Accounting Standards Update
(“ASU”) 2016-01, Financial Instruments-Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities, investments in equity securities
were classified as either 1.) available-for-sale securities, stated
at fair value, and unrealized holding gains and losses, net
of related tax
effects, were recorded directly to accumulated other comprehensive
income (loss) or 2.) trading securities, stated at fair value, and
unrealized holding gains and losses, net of related tax effects,
were recorded directly to net income (loss).With the adoption of
ASU 2016-01, investments in equity securities are still
stated at fair value, quoted by market prices, but all unrealized
holding gains and losses are credited or charged to net income
(loss) based on fair value measurement as the respective reporting
date.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
Company accounts for certain of its investments in equity
securities in accordance with ASU 2016-01 Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities (“ASU 2016-01”). In
accordance with ASU 2016-01, the Company records all equity
investments with readily determinable fair values at fair value and
has elected the Fair Value Option (“FVO”) for certain
of its equity investments without readily determinable fair values,
utilizing a Black Scholes model for valuation. Unrealized holding
gains and losses in fair value are recognized as Other
Non-Operating Income, net in the Company’s Consolidated
Statements of Operation and Comprehensive Income.
Determining
the appropriate fair-value model and calculating the fair values of
the Company’s investments in equity securities requires
considerable judgment. Any change in the estimates used may cause
their values to be higher or lower than that reported. The
assumptions used in the model require significant judgment by
management and include the following: volatility, expected term,
risk-free interest rate, and dividends.
The
Company has significant influence over Amarantus BioScience
Holdings (“AMBS”) is the beneficial owner of
approximately 19.5% of the common shares of AMBS. The Company did
not have a controlling interest and therefore the Company’s
investment would be accounted for under equity method accounting or
could elect the fair value option accounting.
The
Company has significant influence over Holista CollTech Limited
(“Holista”) as the Company and its CEO are the
beneficial owner of approximately 19.8% of the outstanding shares
of Holista and our CEO holds a position on the Holista Board of
Directors. The Company did not have a controlling interest and
therefore the Company’s investment would be accounted for
under equity method accounting or choose the fair value
accounting.
The
Company has significant influence over Document Security Systems
Inc., (“DSS”) as our Chief Executive Officer is the
beneficial owner of approximately 31.8% of the outstanding shares
of DSS and is a member of the Board of Directors of DSS. The
Company did not have a controlling interest and therefore the
Company’s investment would be accounted for under equity
method accounting or could elect the fair value option
accounting.
The
Company has elected the FVO for the equity securities noted above
that would otherwise be accounted for under the equity method of
accounting to better match the measurement of assets and
liabilities in the Consolidated Statements of Operations. AMBS,
Holista and DSS are publicly traded companies and fair value of
these equity investments is determined by the quoted stock
prices.
The
Company accounts for certain of its investments in real estate
funds without readily determinable fair values in accordance with
ASU No. 2015-07, Fair Value
Measurement (Topic 820): Disclosures for Investments in Certain
Entities That Calculate Net Asset Value per Share (or Its
Equivalent) (“2015-07”). As of December 31, 2018
and 2017 the Company maintains an investment in a real estate fund,
The Global Opportunity Fund. This fund invests primarily in the
U.S. and meets the criteria within Accounting Standards
Codification (“ASC”) 2015-07. Chan Heng Fai, the
Chairman and CEO of the Company, is also one of the directors of
the Global Opportunity Fund. The fair values of the investments in
this class have been estimated using the net asset value of the
Company’s ownership interest in Global Opportunity Fund.
These investments can never be redeemed with the funds.
Distributions from each fund will be received as the underlying
investments of the funds are liquidated. It is estimated that the
underlying assets of the fund will be liquidated over the next 1 to
10 years. The fund intends to sell 100 percent of the total
investment in this class. However, the individual investments that
will be sold have not yet been determined. Because it is not
probable that any individual investment will be sold, the fair
value of each individual investment has been estimated using the
net asset value of the Company’s ownership interest in
partners’ capital. Once it has been determined which
investments will be sold and whether those investments will be sold
individually or in a group, the investments will be sold in an
action process. The investee fund’s management must approve
of the buyer before the sale of the investments can be
completed.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
changes in the fair values of the investment were recorded directly
to accumulated other comprehensive income (loss). Due to the
inherent uncertainty of these estimates, these values may differ
materially from the values that would have been used had a ready
market for these investments existed.
Investment Securities at Cost
The
Company has a holding in Vivacitas Oncology Inc.
(“Vivacitas”) a private equity holding that is
currently not listed on an exchange. Vivacitas was acquired after
the adoption of ASU 2016-01. The Company applied ASC 321 and
elected the measurement alternative for equity investments that do
not have readily determinable fair values and do not qualify for
the practical expedient in ASC 820 to estimate fair value using the
NAV per share. Under the alternative, they measure Vivacitas at
cost, less any impairment, plus or minus changes resulting from
observable price changes in orderly transactions for an identical
or similar investment of the same issuer.
There
has been no indication of impairment or changes in observable
prices via transactions of similar securities and is still carried
at cost.
Investment Securities under Equity Method Accounting
BioLife
Sugar, Inc. (“BioLife”), a subsidiary consolidated
under SeD Ltd., entered into a joint venture agreement on April 25,
2018 with Quality Ingredients, LLC (“QI”). The
agreement created an entity called Sweet Sense, Inc. (“Sweet
Sense”) which is 50% owned by Biolife and 50% owned by QI.
Management believes its investment of 50% represents significant
influence over Sweet Sense and accounts for the investment under
the equity method of accounting. BioLife contributed $55,000 to the
joint venture during 2018 and recorded its proportionate share
losses totaling $45,948 recorded as loss on investment in security
by equity method in the Consolidated Statements of Operations and
Other Comprehensive Loss.
Real Estate Assets
Real
estate assets are recorded at cost, except when real estate assets
are acquired that meet the definition of a business combination in
accordance with Financial Accounting Standards Board
(“FASB”) ASC 805 - “Business Combinations”,
which acquired assets are recorded at fair value. Interest,
property taxes, insurance and other incremental costs (including
salaries) directly related to a project are capitalized during the
construction period of major facilities and land improvements. The
capitalization period begins when activities to develop the parcel
commence and ends when the asset constructed is completed. The
capitalized costs are recorded as part of the asset to which they
relate and are reduced when lots are sold.
The
Company capitalized construction costs $8,262,297 and $5,899,103
and capitalized interest from the third-party borrowings of
$415,844 and $1,178,220 for the years ended December 31, 2018 and
2017, respectively.
The
Company’s policy is to obtain an independent third-party
valuation for each major project in the United Sates to test for
impairment. The management may use market comparison method to
value other relatively small projects, such as the project in
Perth, Australia. In addition to the annual assessment of potential
triggering events in accordance with ASC 360 – Property Plant and Equipment
(“ASC 360”), the Company applies a fair value based
impairment test to the net book value assets on an annual basis and
on an interim basis if certain events or circumstances indicate
that an impairment loss may have occurred.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
On
October 12, 2018, 150 CCM Black Oak, Ltd. entered into an Amended
and Restated Purchase and Sale Agreement for these 124 lots.
Pursuant to the Amended and Restated Purchase and Sale Agreement,
the purchase price remained $6,175,000, 150 CCM Black Oak, Ltd. was
required to meet certain closing conditions and the timing for the
closing was extended. On January 18, 2019, the sale of 124 lots at
the Company’s Black Oak project in Magnolia, Texas was
completed. After allocating costs of revenue to this sale, the
Company incurred a loss of approximately $1.5 million from this
sale and recognized a real estate impairment of approximately $1.5
million for the year ended December 31, 2018.
Properties held for sale
Properties
held for sale are acquired with the intention that they will be
sold in the ordinary course of business and are therefore stated at
the lower of cost or net realizable value. Related acquisition
expense, interest, and other related expenditures are capitalized
as part of the cost of properties for sale. Net realizable value
represents the estimated selling price, less costs to be incurred
in selling the property.
A
property is classified as “held for sale” when all of
the following criteria for a plan of sale have been
met:
(1)
management, having the authority to approve the action, commits to
a plan to sell the property.
(2) the
property is available for immediate sale in its present condition,
subject only to terms that are usual and customary.
(3) an
active program to locate a buyer and other actions required to
complete the plan to sell, have been initiated.
(4) the
sale of the property is probable and is expected to be completed
within one year or the property is under a contract to be
sold.
(5) the
property is being actively marketed for sale at a price that is
reasonable in relation to its current fair value. and
(6)
actions necessary to complete the plan of sale indicate that it is
unlikely that significant changes to the plan will be made or that
the plan will be withdrawn.
When
all of these criteria have been met, the property is classified as
“held for sale”. As of December 31, 2018 and 2017, real
estate held for sale on the Company’s balance sheet
represents the El Tesoro project in the amount of
$136,248.
Properties under development
Properties
under development are properties being constructed for sale in the
ordinary course of business, rather than to be held for the
Company’s own use, rental or capital
appreciation.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Property and Equipment
Property
and equipment are recorded at cost. Repairs and maintenance are
expensed as incurred. Expenditures incurred as a consequence of
acquiring or using the asset, or that increase the value or
productive capacity of assets are capitalized (such as
dismantlement, removal, and restoration costs). When property and
equipment is retired, sold, or otherwise disposed of, the
asset’s carrying amount and related accumulated depreciation
are removed from the accounts and any gain or loss is included in
operations. Depreciation is computed by the straight-line method
over the estimated useful lives of the respective assets as
follows:
|
Office
and computer equipment
|
3 - 5
years
|
|
Furniture
and fixtures
|
3 - 5
years
|
|
Vehicles
|
10
years
|
The
Company reviews the carrying value of property and equipment for
impairment whenever events and circumstances indicate that the
carrying value of an asset may not be recoverable from the
estimated future cash flows expected to result from its use and
eventual disposition. In cases where undiscounted expected future
cash flows are less than the carrying value, an impairment loss is
recognized equal to an amount by which the carrying value exceeds
the fair value of assets. The factors considered by management in
performing this assessment include current operating results,
trends, and prospects, as well as the effects of obsolescence,
demand, competition, and other economic factors.
Revenue Recognition and Cost of Sales
ASC 606
- Revenue from Contracts with
Customers ("ASC 606"), establishes principles for reporting
information about the nature, amount, timing and uncertainty of
revenue and cash flows arising from the entity's contracts to
provide goods or services to customers. The Company adopted this
new standard on January 1, 2018 under the modified retrospective
method. The adoption of this new standard did not have a material
effect on our financial statements.
In
accordance with ASC 606, revenue is recognized when a customer
obtains control of promised goods or services. The amount of
revenue recognized reflects the consideration to which the Company
expects to be entitled to receive in exchange for these goods or
services. The provisions of ASC 606 include a five-step process by
which the determination of revenue recognition, depicting the
transfer of goods or services to customers in amounts reflecting
the payment to which the Company expects to be entitled in exchange
for those goods or services. ASC 606 requires the Company to apply
the following steps: (1) identify the contract with the customer;
(2) identify the performance obligations in the contract; (3)
determine the transaction price; (4) allocate the transaction price
to the performance obligations in the contract; and (5) recognize
revenue when, or as, performance obligations are
satisfied.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
following represents a disaggregation of the Company’s
revenue recognition policies by Segments:
Property Development
Property Sales
The
Company's main business is land development. The Company purchases
land and develops it into residential communities. The developed
lots are sold to builders (customers) for the construction of new
homes. The builders enter a sales contract with the Company before
they take the lots. The prices and timeline are determined and
agreed upon in the contract. The builders do the inspections to
make sure all conditions and requirements in contracts are met
before purchasing the lots. A detailed breakdown of the five-step
process for the revenue recognition of the Ballenger and Black Oak
projects, which represented approximately 85% of the
Company’s revenue in 2018 and 2017, is as
follows:
●
Identify the
contract with a customer.
The
Company has signed agreements with the builders for developing the
raw land to ready to build lots. The contract has agreed upon
prices, timelines, and specifications for what is to be
provided.
●
Identify the
performance obligations in the contract.
Performance
obligations of the Company include delivering developed lots to the
customer, which are required to meet certain specifications that
are outlined in the contract. The customer inspects all lots prior
to accepting title to ensure all specifications are
met.
●
Determine the
transaction price.
The
transaction price is fixed and specified in the contract. Any
subsequent change orders or price changes are required to be
approved by both parties.
●
Allocate the
transaction price to performance obligations in the
contract.
Each
lot or a group of lots is considered to be a separate performance
obligation, for which the specified price in the contract is
allocated to.
●
Recognize revenue
when (or as) the entity satisfies a performance
obligation.
The
builders do the inspections to make sure all
conditions/requirements are met before taking title of lots. The
Company recognizes revenue at a point in time when title is
transferred. The Company does not have further performance
obligations or continuing involvement once title is
transferred.
Contract Assets and Contract Liabilities
Based
on contracts, customers are invoiced once all performance
obligations have been satisfied, at which point payment is
unconditional. Accordingly, the Company’s contracts do not
give rise to contract assets or liabilities under ASC 606. Accounts
receivable are recorded when the right to consideration becomes
unconditional. The Company discloses receivables from contracts
with customers separately in the statement of financial
position.
Cost of Sales
Land
acquisition costs are allocated to each lot based on the area
method, the size of the lot comparing to the total size of all lots
in the project. Development costs and capitalized interest are
allocated to lots sold based on the total expected development and
interest costs of the completed project and allocating a percentage
of those costs based on the selling price of the sold lot compared
to the expected sales values of all lots in the
project.
If
allocation of development costs and capitalized interest based on
the projection and relative expected sales value is impracticable,
those costs could also be allocated based on area method, the size
of the lot comparing to the total size of all lots in the
project.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Biohealth
Product Direct Sales
The
Company’s net sales consist of product sales. The Company's
performance obligation is to transfer its products to its third
party independent distributors (“Distributors”). The
Company generally recognizes revenue when product is shipped to its
Distributors.
The
Company’s Distributors may receive distributor allowances,
which are comprised of discounts, rebates and wholesale commission
payments from the Company. Distributor allowances resulting from
the Company’s sales of its products to its Distributors are
recorded against net sales because the distributor allowances
represent discounts from the suggested retail price.
In
addition to distributor allowances, the Company compensates its
sales leader Distributors with leadership incentives for services
rendered, relating to the development, retention, and management of
their sales organizations. Leadership Incentives are payable based
on achieved sales volume, which are recorded in general and
administrative expenses. The Company recognizes revenue when it
ships products. The Company receives the net sales price in cash or
through credit card payments at the point of sale.
If a
Distributor returns a product to the Company on a timely basis,
they may obtain a replacement product from the Company for such
returned products. In addition, the Company maintains a buyback
program pursuant to which it will repurchase products sold to a
Distributor who has decided to leave the business. Allowances for
product returns, primarily in connection with the Company’s
buyback program, are provided at the time the sale is recorded.
This accrual is based upon historical return rates for each country
and the relevant return pattern, which reflects anticipated returns
to be received over a period of up to 12 months following the
original sale.
Annual Membership
The
Company collects an annual membership fee from its Distributors for
access to certain back office services and corporate events. The
Company recognizes revenue associated with the membership over the
one-year period of the membership. Before the membership fee is
recognized as revenue, it is recorded as deferred
revenue.
Shipping and Handling
Shipping
and handling services relating to product sales are recognized as
fulfillment activities on the Company’s performance
obligation to transfer products and are therefore recorded within
net the shipping and handling expenses paid by the Company and are
not considered as separate revenues under ASC 606. Shipping and
handling expenses after netting service charges from customers were
$304,307 and $67,194 for the years ended December 31, 2018, and
2017, respectively. Shipping and handling expenses paid by the
Company are included in general and administrative
expenses.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Contract assets and contract liabilities
Based
on the terms of the Company’s contracts, customers are
usually invoiced once performance obligations have been satisfied,
at which point payment is unconditional. Accordingly, the
Company’s contracts do not give rise to contract assets or
liabilities under ASC 606. Accounts receivable are recorded when
the right to consideration becomes unconditional.
Digital Transformation Technology
Software Development Income
Revenue
is recognized when (or as) the Company transfers promised goods or
services to its customers in amounts that reflect the consideration
to which the Company expects to be entitled to in exchange for
those goods or services, which occurs when (or as) the Company
satisfies its contractual obligations and transfers over control of
the promised goods or services to its customers.
The
Company generates revenue from a project involving provision of
services and web/software development for customers. With respect
to the provision of services, the agreements are less than one year
with a cancellable clause and customers are typically billed on a
monthly basis.
Contract assets and contract liabilities
Based
on the terms of the Company’s contracts, customers are
usually invoiced once performance obligations have been satisfied,
at which point payment is unconditional. Accordingly, the
Company’s contracts do not give rise to contract assets or
liabilities under ASC 606. Accounts receivable are recorded when
the right to consideration becomes unconditional.
Remaining performance obligations
As of
December 31, 2018, there were no remaining performance obligations,
as all projects within the information technology segment have been
completed.
Other Businesses
Mutual Fund Management Service Income
Revenue
is recognized when (or as) the Company performs services to its
customers in amounts that reflect the consideration to which the
Company expects to be entitled to in exchange for those services,
which occurs when (or as) the Company satisfies its contractual
obligations and performs services to its customers.
The
Company generates revenue to provide management services for mutual
fund customers. In respect to the provision of services, the
agreements are less than one year with a cancellable clause and
customers are typically billed on a monthly
basis.
Contract assets and contract liabilities
Based
on the terms of the Company’s contracts, customers are
usually invoiced on monthly basis once performance obligations have
been satisfied, at which point payment is unconditional.
Accordingly, the Company’s contracts do not give rise to
contract assets or liabilities under ASC 606. Accounts receivable
are recorded when the right to consideration becomes
unconditional.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Remaining performance obligations
As of
December 31, 2018, there are no remaining performance obligations,
as all service obligations within the other business activities
segment have been completed.
Advertising
Costs
incurred for advertising for the Company are charged to operations
as incurred. Advertising expenses for the years December 31, 2018
and 2017 were $206,313 and $456,129, respectively.
Stock-Based Compensation
The
Company accounts for stock-based compensation in accordance with
ASC 718 - “Compensation
– Stock Compensation” (“ASC 718”)
which establishes financial accounting and reporting standards for
stock-based employee compensation. It defines a fair value-based
method of accounting for an employee stock option or similar equity
instrument. The Company accounts for compensation cost for stock
option plans in accordance with ASC 718.
The
Company recognizes all forms of share-based payments, including
stock option grants, warrants and restricted stock grants, at their
fair value on the grant date, which are based on the estimated
number of awards that are ultimately expected to vest.
Foreign currency
Functional and reporting currency
Items
included in the financial statements of each entity in the Company
are measured using the currency of the primary economic environment
in which the entity operates (“functional currency”).
The financial statements of the Company are presented in US dollars
(the “reporting currency”).
The
functional and reporting currency of the Company is the United
States dollar (“U.S. dollar”). The financial records of
the Company’s subsidiaries located in Singapore, Hong Kong
and, Australia the PRC are maintained in their local currencies,
the Singapore Dollar (S$), Hong Kong Dollar (HK$), Australian
Dollar (“AUD”) and Renminbi ("RMB"), which are also the
functional currencies of these entities.
Transactions in foreign currencies
Transactions
in currencies other than the functional currency during the year
are converted into functional currency at the applicable rates of
exchange prevailing when the transactions occurred. Transaction
gains and losses are recognized in the statement of
operations.
The
Company’s majority foreign currency transaction gains or
losses come from the effects of foreign exchange rate changes on
the intercompany loans between Singapore entities and U.S.
entities. Gain on foreign exchange transactions was $691,099 during
the year ended on December 31, 2018 and loss was $2,739,991 during
the year ended on December 31, 2017.
Translation of consolidated entities’ financial
statements
Monetary
assets and liabilities denominated in currencies other than the
functional currency are translated into the functional currency at
the rates of exchange ruling at the balance sheet date. The
Company’s entities with functional currency of AUD, Renminbi,
Hong Kong Dollar and Singapore Dollar, translate their operating
results and financial positions into the U.S. dollar, the
Company’s reporting currency. Assets and liabilities are
translated using the exchange rates in effect on the balance sheet
date. Revenues, expenses, gains and losses are translated using the
average rate for the year. Translation adjustments are reported as
cumulative translation adjustments and are shown as a separate
component of comprehensive income (loss).
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For the
year ended on December 31, 2018, the Company recorded other
comprehensive loss from translation loss of $513,435 in the
consolidated financial statements. For the year ended on December
31, 2017, the Company recorded other comprehensive income from
translation gain of $1,222,746 in the consolidated financial
statements.
Income Taxes
USA Income Taxes
Income
tax expense represents the sum of the current tax expense and
deferred tax expense.
Income
tax for current and prior periods is recognized at the amount
expected to be paid to or recovered from the tax authorities, using
the tax rates and tax laws that have been enacted or substantially
enacted by the balance sheet date.
Deferred
income tax is provided in full, using the liability method, on
temporary differences at the balance sheet date between the tax
bases of assets and liabilities and their carrying amounts in the
financial statements.
Deferred
tax assets and liabilities are recognized for all temporary
differences, except:
●
Where the deferred
tax arises from the initial recognition of an asset or liability in
a transaction that is not a business combination and at the time of
the transaction affects neither the accounting profit nor taxable
profit or loss.
●
In respect of
temporary differences associated with investments in subsidiaries,
where the timing of the reversal of the temporary differences can
be determined and it is probable that the temporary differences
will not reverse in the foreseeable future; and
●
In respect of
deductible temporary differences and carry-forward of unutilized
tax losses, if it is not probable that taxable profits will be
available against which those deductible temporary differences and
carry-forward of unutilized tax losses can be
utilized.
The
carrying amount of deferred tax assets is reviewed at each balance
sheet date and reduced to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or
part of the deferred tax asset to be utilized. Unrecognized
deferred tax assets are reassessed at each balance sheet date and
are recognized to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be
utilized.
Deferred
tax assets and liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realized or the
liability is settled, based on tax rates and tax laws that have
been enacted or substantively enacted at the balance sheet
date.
Current
and deferred income tax are recognized as income or expense in the
profit or loss, except to the extent that the tax arises from a
business combination or a transaction which is recognized either in
other comprehensive income or directly in equity. Deferred tax
arising from a business combination is adjusted against goodwill on
acquisition.
Deferred tax assets
and liabilities are offset if there is a legally enforceable right
to offset current tax liabilities and assets and they relate to
income taxes levied by the same tax authorities on the same taxable
entity, or on different tax entities, provided they intend to
settle current tax liabilities and assets on a net basis or their
tax assets and liabilities will be realized
simultaneously.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Deferred
income tax assets and liabilities are determined based on the
estimated future tax effects of net operating loss and credit
carry-forwards and temporary differences between the tax basis of
assets and liabilities and their respective financial reporting
amounts measured at the current enacted tax rates. The differences
relate primarily to net operating loss carryforward from date of
acquisition and to the use of the cash basis of accounting for
income tax purposes. The Company records an estimated valuation
allowance on its deferred income tax assets if it is more likely
than not that these deferred income tax assets will not be
realized.
The
Company recognizes a tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be
sustained on examination by taxing authorities, based on the
technical merits of the position. The tax benefits recognized in
the consolidated financial statements from such a position are
measured based on the largest benefit that has a greater than 50%
likelihood of being realized upon ultimate settlement. The Company
has not recorded any unrecognized tax benefits.
The
Company has not filed its 2018 Tax Return and therefore remains
open to examination.
Income Taxes in other countries
Significant
judgement is involved in determining the income taxes mainly in
Singapore. There are certain transactions and computations for
which the ultimate tax determination is uncertain during the
ordinary course of business. The Company recognizes liabilities for
expected tax liabilities based on estimates of whether additional
taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recognized, such
differences will impact the income tax and deferred tax provisions
in the period in which such determination is made.
Earnings per share
The
Company presents basic and diluted earnings per share data for its
ordinary shares. Basic earnings per share is calculated by dividing
the profit or loss attributable to ordinary shareholders of the
Company by the weighted-average number of ordinary shares
outstanding during the year, adjusted for treasury shares held by
the Company.
Diluted
earnings per share is determined by adjusting the profit or loss
attributable to ordinary shareholders and the weighted-average
number of ordinary shares outstanding, adjusted for treasury shares
held, for the effects of all dilutive potential ordinary shares,
which comprise convertible securities, such as stock options,
convertible bonds and warrants. There are no potentially dilutive
securities outstanding on December 31, 2018 and 2017.
Fair Value Measurements
ASC
820, Fair Value Measurement and
Disclosures, defines fair value as the exchange price that
would be received for an asset or paid to transfer a liability (an
exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market
participants on the measurement date. This topic also establishes a
fair value hierarchy which requires classification based on
observable and unobservable inputs when measuring fair value. There
are three levels of inputs that may be used to measure fair
value:
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Level
1: Observable inputs such as quoted prices (unadjusted) in an
active market for identical assets or liabilities.
Level
2: Inputs other than quoted prices that are observable, either
directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for
identical or similar assets or liabilities in markets that are not
active.
Level 3:
Unobservable inputs that are supported by little or no market
activity; therefore, the inputs are developed by the Company using
estimates and assumptions that the Company expects a market
participant would use, including pricing models, discounted cash
flow methodologies, or similar techniques.
The
carrying value of the Company’s financial instruments,
including cash and cash equivalents, accounts receivable and
accounts payable and accrued expenses approximate fair value
because of the short-term maturity of these financial instruments.
The liabilities in connection with the conversion and make-whole
features included within certain of the Company’s convertible
notes payable and warrants are each classified as a level 3
liability.
Non-controlling interests
Non-controlling
interests represent the equity in subsidiary not attributable,
directly or indirectly, to owners of the Company, and are presented
separately in the consolidated statements of operation and
comprehensive income, and within equity in the Consolidated Balance
Sheets, separately from equity attributable to owners of the
Company.
On
December 31, 2018 and 2017, the aggregate non-controlling interests
in the Company were $9,155,051 and $11,723,524, respectively, which
is separately disclosed on the Consolidated Balance
Sheets.
Recent Accounting Pronouncements
Accounting pronouncement adopted
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash (“ASU 2016-18”), which requires
that restricted cash and cash equivalents be included as components
of total cash and cash equivalents as presented on the statement of
cash flows. ASU 2016-18 was effective for fiscal years, and interim
periods within those years, beginning after December 15, 2017 and a
retrospective transition method is required. This guidance did not
impact financial results, but resulted in a change in the
presentation of restricted cash and restricted cash equivalents
within the statement of cash flows. The Company adopted this
guidance effective January 1, 2017.
In
January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic
825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities (“ASU 2016-01”). The new
guidance requires equity investments (except those accounted for
under the equity method of accounting, or those that result in
consolidation of the investee) with readily determinable fair values to be
measured at fair value with changes in fair value recognized in net
income. Equity investments that do not have readily determinable fair values are
allowed to be remeasured upon the occurrence of an observable price
change or upon identification of an impairment. Along
with ASU 2016-01, the
Company evaluated the Accounting Standards Update 2018-03,
Technical Corrections and
Improvements to Financial Instruments Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial
Liabilities (“ASU 2018-03”), which was issued in
February 2018, and
Accounting Standards Update 2018-04, Investments—Debt Securities (Topic 320)
and Regulated Operations (Topic 980): Amendments to SEC Paragraphs
Pursuant to SEC Staff Accounting Bulletin No. 117 and SEC Release
No. 33-9273 (“ASU 2018-04”), which was issued in
March 2018. The Company adopted ASU 2016-01, ASU
2018-03 and ASU 2018-04 as of January 1, 2018. Upon adoption the
Company reclassified $1,961,835 of previously recognized unrealized
gains from Accumulated Other Comprehensive Income to Accumulated
Deficit.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
In May
2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic
606) (“ASU 2014-09”). The standard’s core
principle is that a company will recognize revenue when it
transfers promised goods or services to customers in an amount that
reflects the consideration to which the company expects to be
entitled in exchange for those goods or services. In doing so,
companies will need to use more judgment and make more estimates
than under previous guidance. This may include identifying
performance obligations in the contract, estimating the amount of
variable consideration to include in the transaction price and
allocating the transaction price to each separate performance
obligation. In July 2015, the FASB approved the proposal to defer
the effective date of ASU 2014-09 standard by one year. Early
adoption was permitted after December 15, 2016, and the standard
became effective for public entities for annual reporting periods
beginning after December 15, 2017 and interim periods therein. In
2016, the FASB issued final amendments to clarify the
implementation guidance for principal versus agent considerations
(“ASU No. 2016-08”), accounting for licenses of
intellectual property and identifying performance obligations
(“ASU No. 2016-10”), narrow-scope improvements and
practical expedients (“ASU No. 2016-12”) and technical
corrections and improvements to ASU 2014-09 (“ASU No.
2016-20”) in its new revenue standard. The Company has
performed a review of the requirements of the new revenue standard
and is monitoring the activity of the FASB and the transition
resource group as it relates to specific interpretive guidance. The
Company reviewed customer contracts, applied the five-step model of
the new standard to its contracts, and compared the results to its
current accounting practices. The Company adopted this new standard
on January 1, 2018 under the modified retrospective method to all
contracts not completed as of January 1, 2018 and the adoption did
not have a material effect on the Company’s financial
statements. The adoption of this standard required increased
disclosures related to the disaggregation of revenue.
The
FASB also issued ASU 2018-05 to amend SEC paragraphs in ASC 740 -
Income Taxes, to reflect
SAB 118, which provides guidance for companies that are not able to
complete their accounting for the income tax effects of the Tax
Cuts and Jobs Act in the period of enactment. The Company has
adopted ASC 2018-05 as of January 1, 2018 and determined that this
ASU does not have a material impact on the consolidated financial
statements as of December 31, 2018.
In
February 2018, the FASB issued ASU 2018-02, which permits - but
does not require - companies to reclassify stranded tax effects
caused by 2017 tax reform from accumulated other comprehensive
income to retained earnings. Additionally, this ASU requires new
disclosures by all companies, whether they opt to do the
reclassification or not. The Company has adopted ASC 2018-02 as of
January 1, 2018 and determined that this ASU does not have a
material impact on the consolidated financial statements as of
December 31, 2018.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Accounting pronouncement being evaluated
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU
2016-02”) which supersedes ASC Topic 840, Leases. ASU 2016-02
requires lessees to recognize a right-of-use asset and a lease
liability on their balance sheets for all the leases with terms
greater than twelve months. Based on certain criteria, leases will
be classified as either financing or operating, with classification
affecting the pattern of expense recognition in the income
statement. For leases with a term of twelve months or less, a
lessee is permitted to make an accounting policy election by class
of underlying asset not to recognize lease assets and lease
liabilities. If a lessee makes this election, it should recognize
lease expense for such leases generally on a straight-line basis
over the lease term. ASU 2016-02 is effective for fiscal years
beginning after December 15, 2019 for emerging growth companies,
and interim periods within those years, with early adoption
permitted. In transition, lessees and lessors are required to
recognize and measure leases at the beginning of the earliest
period presented using a modified retrospective approach. In July
2018, the FASB issued ASU No. 2018-11, “Leases (Topic 842):
Targeted Improvements” that allows entities to apply the
provisions of the new standard at the effective date (e.g. January
1, 2019), as opposed to the earliest period presented under the
modified retrospective transition approach (January 1, 2017) and
recognize a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption. The modified
retrospective approach includes a number of optional practical
expedients primarily focused on leases that commenced before the
effective date of Topic 842, including continuing to account for
leases that commence before the effective date in accordance with
previous guidance, unless the lease is modified. The most significant impact of adoption was the
recognition of right-of-use assets and lease liabilities for
operating leases. The Company does not expect a significant change
in its leasing activities between now and adoption. On adoption,
the Company currently expects to recognize operating lease
liabilities less than $200,000 with corresponding ROU assets of the
same amount based on the present value of the remaining rental
payments for our Bethesda Office lease on the consolidated balance
sheet. Adoption of the standard had no impact to net cash from or
used in operating, investing, or financing activities in the
Company’s consolidated statement of cash
flows.
In
August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure
Framework: Changes to the Disclosure Requirements for Fair Value
Measurement (“ASU 2018-13”). ASU 2018-13 is
intended to improve the effectiveness of fair value measurement
disclosures. ASU 2018-13 is effective for fiscal years beginning
after December 15, 2019, and interim periods within those fiscal
years. Early adoption is permitted. The Company is currently
evaluating the impact of ASU 2018-13 on its future consolidated
financial statements.
In
October 2018, the FASB issued ASU 2018-17, Consolidation (Topic 810): Targeted
Improvements to Related Party Guidance for Variable Interest
Entities. (“ASU 2018-17”) expands the accounting
alternative that allows private companies the election not to apply
the variable interest entity guidance to qualifying common control
leasing arrangements. ASU 2018-17 broadens the scope of the private
company alternative to include all common control arrangements that
meet specific criteria (not just leasing arrangements). ASU 2018-17
also eliminates the requirement that entities consider indirect
interests held through related parties under common control in
their entirety when assessing whether a decision-making fee is a
variable interest. Instead, the reporting entity will consider such
indirect interests on a proportionate basis. The amendments are
effective for fiscal years ending after December 15, 2019. Early
adoption is permitted. The Company is currently assessing the
timing and impact of adopting the updated provisions to its
consolidated financial statements.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
In July
2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic
260), Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for
Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable
Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope
Exception (“ASU 2017-11”). ASU 2017-11 is
intended to simplify the accounting for financial instruments with
characteristics of liabilities and equity. Among the issues
addressed are: (i) determining whether an instrument (or embedded
feature) is indexed to an entity’s own stock; (ii)
distinguishing liabilities from equity for mandatorily redeemable
financial instruments of certain nonpublic entities; and (iii)
identifying mandatorily redeemable non-controlling interests. ASU
2017-11 is effective for the Company on January 1, 2019. The
Company is currently evaluating the impact of ASU 2017-11 on its
future consolidated financial statements.
4.
RESTATEMENT
OF PREVIOUSLY ISSUED CONSOLIDATED FINANCIAL STATEMENT
The
Company has restated its audited consolidated financial statements
for the year ended December 31, 2017 for the issues described
below. The effects of the restatement adjustments on (i) the
Company’s Consolidated Balance Sheet on December 31, 2017,
(ii) the Company’s Consolidated Statement of Operations and
Other Comprehensive Income for the year ended December 31, 2017,
(iii) the Company’s Consolidated Statements of
Shareholders’ Equity for the year ended December 31, 2017 and
(iv) the Company’s Consolidated Statement of Cash Flows for
the year ended December 31, 2017 are presented
below.
Restricted Cash
The
Company incorrectly classified $200,000 of restricted cash as a
receivable. The 2017 balance sheet has been restated for this
error.
Cash
The
Company incorrectly classified $20,262 of cash as a receivable. The
2017 balance sheet has been restated for this error.
Merger Reserve
Merger
reserve of $1,107,039 was incorrectly recorded in 2017 on both
Consolidated Statement of cash flow and Consolidated Statement of
Stockholders’ Equity. Since LVAM (f.k.a HFAM) was acquired under common
control and the transaction did not have any gain or loss it did
not increase additional paid in capital in 2017. The 2017 financial
statements have been restated for this error to show the retrospective
adjustment.
Employee Stock Option
Employee
stock option change as the amount of $120,301 was incorrectly
booked in 2017. The 2017 consolidated financial statements have
been restated for this error.
Tenant Security Deposits
Tenant
security deposits in the amount of $2,625 have been reclassified to
be included in Accounts Payable and Accrued Expenses.
Marketing Expense
Marketing
expense in the amount of $456,129 has been reclassified to be
included in General and Administrative Expenses.
Reclassify Bond Obligations
Bond
obligations, net of debt discount, in the amount of $1,409,020,
were incorrectly shown as a current liability. The financial
statements have been restated to reclassify this to
long-term.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Allocate Builder Deposit between Current and long-term
liabilities
Builder
deposits in the amount of $1,477,876, were incorrectly shown as a
long-term liability. The financial statements have been restated to
reclassify this to current.
Adjust Unrealized Gain/Loss on Security Investments
The
Company incorrectly retrospectively adopted ASU 2016-01 in the year
ended December 31, 2017 and 2016 financial statements. The effect
of the corresponding unrealized gain $2,838,713 was adjusted in the
Consolidated Balance Sheets, Consolidated Statement of Operations
and Other Comprehensive Income, Consolidated Statements of
Stockholder’s Equity and Consolidated Statements of Cash
Flows.
Adjust Foreign Currency Translation Adjustment
The
Company erroneously recorded foreign exchange transaction gain
$2,873,874 from intercompany loans within Other Comprehensive
Income. These loans are expected to be repaid and are not
permanently reinvested. The Company has adjusted the effect of the
foreign exchange transaction gain/loss in the Consolidated Balance
Sheets, Consolidated Statement of Operations and Other
Comprehensive Income, Consolidated Statements of
Stockholder’s Equity and Consolidated Statements of Cash
Flows.
Disclosed the Total and Per Share Net Loss
In the
Consolidated Statement of Operations and Other Comprehensive
Income, total and per share net loss attributable to common
stockholders and the total net loss attributable to noncontrolling
interests were previously undisclosed. The Company has updated
these financials to include total net loss attributable to
non-controlling interests.
Adjust Perth Project Impairment Reversal
The
Company incorrectly reversed a prior impairment of $158,836 at the
time of a sale. The Company originally recorded other income and an
increase to the value of the asset, which was expensed into cost of
sales upon the sale. The financial statements have been restated to
reclassify the other income to cost of sales.
HotApps Discontinued Operation
On
October 25, 2018, HIP entered into an Equity Purchase Agreement
with DSS Asia, a Hong Kong subsidiary of DSS International,
pursuant to which HIP agreed to sell to DSS Asia all of the issued
and outstanding shares of Guangzhou HotApps Technology Ltd.. Chan
Heng Fai is the director of the Company, the chairmen and CEO of
DSS Asia, and the director of DSS International. Guangzhou HotApps
was a wholly owned subsidiary of HIP, which was primarily engaged
in engineering work for software development, mainly voice over
internet protocol. The transaction was closed on January 14, 2019.
The 2017 and 2018 financial statements were adjusted to reflect
this discontinued operation.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Reclassify iGalen Inc. sales commission and royalty fee and correct
revenue recognition of annual membership fee
In
2017, sales commissions of $1,053,440 and royalty fees $279,818
were reclassified from cost of goods sold to general and
administrative expense; Annual membership fees income was reduced
by $114,110, as the revenue was not yet earned. These fees were
corrected to be shown as deferred revenue. Approximately $3,000
membership fee from 2016 was recognized in 2017 and has been
restated to show this income in 2017.
Correction for withholding tax
The
Company incorrectly recorded withholding tax on intercompany
transactions. Therefore, the Company restated its financial
statements to reduce the accrual by $2,457,443, reduce the expense
by $454,441, and increase retained earnings by
$2,093,002.
Correction for real estate and additional paid in
capital
The
Company did not properly eliminate intercompany transactions
relating to imputed interest in the amount of $1,586,112 from
borrowings between SeD Intelligent Home and Hengfai Business
Development Pte. Ltd.
Correction for interest expense
The
$1.5M in bonds were taken out to fund the Black Oak project with
all interest and debt discount amortization associated with these
obligations being capitalized. The Company incorrectly expensed
interest expense of $10,000 in 2016 and $120,000 in 2017. The bond
discount amortization of $4,176 in 2016 and $50,000 in 2017 was
incorrectly included in general and administrative expense. The
financial statements have been restated to capitalize these amounts
into real estate, remove the expense from the statement of
operations and adjust accumulated deficit.
The
following table presents the Consolidated Balance Sheet as
previously reported, restatement adjustments and the Consolidated
Balance Sheet as restated at December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
Cash
|
$ 1,221,074
|
$ 20,262
|
$ -
|
$ 1,241,336
|
|
Restricted
Cash
|
2,695,705
|
200,000
|
-
|
2,895,705
|
|
Account
Receivables, Net
|
1,161,158
|
(255,299)
|
-
|
905,859
|
|
Prepaid
Expenses
|
127,288
|
-
|
-
|
127,288
|
|
Inventory
|
63,853
|
-
|
-
|
63,853
|
|
Investment
in Securities at Fair Value
|
3,736,016
|
366,740
|
-
|
4,102,756
|
|
Other
Investments
|
366,740
|
(366,740)
|
-
|
-
|
|
Deposits
|
23,603
|
-
|
-
|
23,603
|
|
Current
Assets of Discontinued Operations
|
-
|
-
|
35,038
|
35,038
|
|
Total
Current Assets
|
9,395,437
|
(35,037)
|
35,038
|
9,395,438
|
|
Real
Estate
|
|
|
|
|
|
Properties
under Development
|
52,219,636
|
(1,703,227)
|
-
|
50,516,409
|
|
Real
Estate Held For Sale
|
136,248
|
-
|
-
|
136,248
|
|
Total
Real Estate
|
52,355,884
|
(1,703,227)
|
-
|
50,652,657
|
|
|
|
|
|
|
|
Properties
and Equipment, net
|
115,231
|
7,337
|
-
|
122,568
|
|
Non-Current
Assets of Discontinued Operations
|
-
|
-
|
8,309
|
8,309
|
|
Total
Assets
|
$ 61,866,553
|
$ (1,687,581)
|
$ 43,347
|
$ 60,178,972
|
|
|
|
|
|
|
|
Liabilities
and Stockholders' Equity:
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
Accounts
Payable and Accrued Expenses
|
$ 5,317,233
|
$ (2,626,384)
|
$ -
|
$ 2,690,849
|
|
Deferred
Revenue
|
-
|
114,110
|
-
|
114,110
|
|
Tenant
Security Deposits
|
2,625
|
(2,625)
|
-
|
-
|
|
Builder
Deposits
|
|
1,477,876
|
-
|
1,477,876
|
|
Notes
Payable, Net of Debt Discount of $140,277
|
|
|
|
|
|
on
December 31, 2017
|
9,715,917
|
(1,409,020)
|
-
|
8,306,897
|
|
Current
Liabilities of Discontinued Operations
|
|
-
|
171,566
|
171,566
|
|
Total
Current Liabilities
|
15,035,775
|
(2,446,043)
|
171,566
|
12,761,298
|
|
Long-Term
Liabilities:
|
|
|
|
|
|
Builder
Deposits
|
5,356,718
|
(1,477,876)
|
-
|
3,878,842
|
|
Bond
Payable, Net of Debt Discount of $90,980
|
|
|
|
|
|
on
December 31, 2017
|
-
|
1,409,020
|
-
|
1,409,020
|
|
Notes
Payable - Related Parties
|
7,384,217
|
-
|
-
|
7,384,217
|
|
Total
Liabilities
|
27,776,710
|
(2,514,899)
|
171,566
|
25,433,377
|
|
|
|
|
|
|
|
Stockholders'
Equity:
|
|
|
|
|
|
Preferred
Stock, $0.001 par value; 5,000,000 shares authorized, non
issued
|
|
|
|
|
|
Common
Stock, $0.001 par value; 20,000,000 shares authorized;
10,001,000
|
|
|
|
|
|
shares
issued and outstanding
|
10,001
|
-
|
-
|
10,001
|
|
Additional
Paid In Capital
|
52,275,731
|
(951,283)
|
-
|
51,324,448
|
|
Accumulated
Deficit
|
(29,384,481)
|
(2,722,915)
|
(128,219)
|
(32,235,614)
|
|
Accumulated
Other Comprehensive (Loss) Income
|
(370,488)
|
4,293,724
|
-
|
3,923,236
|
|
Total
Stockholders' Equity
|
22,530,763
|
619,527
|
(128,219)
|
23,022,071
|
|
Non-controlling
Interests
|
11,559,079
|
164,445
|
-
|
11,723,524
|
|
Total
Stockholders' Equity
|
34,089,843
|
783,971
|
(128,219)
|
34,745,595
|
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity
|
$ 61,866,553
|
$ (1,730,928)
|
$ 43,347
|
$ 60,178,972
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
following table presents the Consolidated Statement of Operations
and Other Comprehensive Income as previously reported, restatement
adjustments and the Consolidated Statement of Operations and Other
Comprehensive Income as restated for the year ended December 31,
2017:
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
Property
Sales
|
$ 7,191,507
|
$ -
|
$ -
|
$ 7,191,507
|
|
Biohealth
Product Sales
|
2,990,514
|
(110,972)
|
-
|
2,879,542
|
|
Digital
Transformation Technology
|
|
197,073
|
-
|
197,073
|
|
Others
|
736,959
|
(247,988)
|
-
|
488,971
|
|
|
10,918,980
|
(161,887)
|
-
|
10,757,093
|
|
Operating
Expenses
|
|
|
|
|
|
Cost
of Sales
|
9,033,589
|
(1,505,987)
|
-
|
7,527,602
|
|
Marketing
|
456,129
|
(456,129)
|
-
|
-
|
|
General
and Administrative
|
6,093,239
|
1,687,357
|
-
|
7,780,596
|
|
Research
and Development
|
520,315
|
(169,853)
|
-
|
350,462
|
|
|
16,103,272
|
(444,612)
|
-
|
15,658,660
|
|
|
|
|
|
|
|
Loss
From Operations
|
(5,184,292)
|
282,725
|
-
|
(4,901,567)
|
|
|
|
|
|
|
|
Other
Income (Expense)
|
|
|
|
|
|
Interest
Income
|
25,894
|
-
|
-
|
25,894
|
|
Interest
Expense
|
(119,999)
|
119,999
|
-
|
-
|
|
Unrealized
Gain on Securities Investment
|
2,838,713
|
(2,838,713)
|
-
|
-
|
|
Withholding
Tax
|
(454,441)
|
454,441
|
-
|
-
|
|
Foreign
Exchange Transaction Gain (Loss)
|
129,060
|
(2,869,051)
|
-
|
(2,739,991)
|
|
Other
Income
|
277,127
|
227
|
-
|
277,354
|
|
Other
Expense
|
(115,178)
|
1
|
-
|
(115,177)
|
|
|
2,581,176
|
(5,133,096)
|
-
|
(2,551,920)
|
|
|
|
|
|
|
|
Net
Loss Before Income Taxes
|
(2,603,116)
|
(4,850,371)
|
-
|
(7,453,487)
|
|
|
|
|
|
|
|
Income
Tax Benefit
|
588,659
|
-
|
-
|
588,659
|
|
|
|
|
|
|
|
Net
Loss from Continuing Operations
|
(2,014,457)
|
(4,850,371)
|
-
|
(6,864,828)
|
|
|
|
|
|
|
|
Net
Loss from Discontinued Operations, Net of Tax
|
-
|
-
|
(221,018)
|
(221,018)
|
|
Net
Loss
|
(2,014,457)
|
(4,850,371)
|
(221,018)
|
(7,085,846)
|
|
|
|
|
|
|
|
Net
Loss Attributable to No-Controlling Interests
|
-
|
(2,777,335)
|
-
|
(2,777,335)
|
|
|
|
|
|
|
|
Net
Loss Attributable to Common Stockholders
|
$ -
|
$ (2,073,036)
|
$ (221,018)
|
$ (4,308,511)
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss), Net
|
|
|
|
|
|
Unrealized
Gain on Securities Investment
|
-
|
2,838,713
|
-
|
2,838,713
|
|
Foreign
Currency Translation Adjustment
|
(2,868,823)
|
4,091,569
|
-
|
1,222,746
|
|
Comprehensive
Loss
|
(4,883,280)
|
2,079,911
|
(221,018)
|
(3,024,387)
|
|
|
|
|
|
|
|
Comprehensive
Loss Attributable to Non-controlling Interests
|
(2,059,897)
|
537,147
|
-
|
(1,522,750)
|
|
|
|
|
|
|
|
Comprehensive
Loss Attributable to Common Stockholders
|
$ (2,823,383)
|
$ 1,542,764
|
$ (221,018)
|
$ (1,501,637)
|
|
|
|
|
|
|
|
Net
Loss Per Share - Basic and Diluted
|
|
|
|
|
|
Continuing
Operations
|
$ -
|
$ (0.43)
|
$ -
|
$ (0.43)
|
|
Discontinued
Operations
|
$ -
|
$ -
|
$ (0.02)
|
$ (0.02)
|
|
Net
Loss
|
$ -
|
$ (0.43)
|
$ (0.02)
|
$ (0.45)
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding - Basic and Diluted
|
10,001,000
|
-
|
-
|
10,001,000
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
following table presents the Consolidated Statement of
Stockholders’ Equity as previously reported, restatement
adjustments and the Consolidated Statement of Stockholders’
Equity as restated for the year ended December 31,
2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
Paid in Capital
|
Accumulated
Other Comprehensive Income
|
|
Non-controlling
Interests
|
Total
Stockholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2017 (As Previous Reported)
|
|
|
10,001,000
|
$10,001
|
$52,275,731
|
$(370,488)
|
$(29,384,481)
|
$11,559,079
|
$34,089,843
|
|
|
|
|
|
|
|
|
|
|
|
|
Correction of
Errors
|
|
|
|
|
(951,283)
|
4,293,724
|
(2,722,915)
|
164,445
|
783,971
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
Operations
|
|
|
|
|
|
|
(128,219)
|
|
(128,219)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2017 (As Restated)
|
|
|
10,001,000
|
$10,001
|
$51,324,448
|
$3,923,236
|
$(32,235,614)
|
$11,723,524
|
$34,745,595
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
following table presents the Consolidated Statement of Cash Flows
as previously reported, restatement adjustments and the
Consolidated Statement of Cash Flows as restated for the year ended
December 31, 2017:
|
|
|
|
|
|
|
Cash
Flows From Operating Activities
|
|
|
|
|
|
Net
Loss from Continuing Operations
|
$ (2,014,457)
|
$ (4,850,371)
|
$ -
|
$ (6,864,828)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
Depreciation
|
49,477
|
8,555
|
-
|
58,032
|
|
Loss
on Disposal of PP&E
|
-
|
131
|
-
|
131
|
|
Amortization
of Debt Discount
|
50,153
|
(50,153)
|
-
|
-
|
|
Accrued
Other Tax Expense
|
454,441
|
(454,441)
|
-
|
-
|
|
Foreign
Exchange Transaction (Gain) Loss
|
(129,060)
|
2,869,051
|
-
|
2,739,991
|
|
Unrealized
Gain on Security Investment
|
(2,979,126)
|
2,979,126
|
-
|
-
|
|
Employee
Stock Option Expense
|
(120,301)
|
120,301
|
-
|
-
|
|
Merger
Reserves
|
1,107,039
|
(1,107,039)
|
-
|
-
|
|
Changes
in Operating Assets and Liabilities
|
|
|
|
|
|
Real
Estate
|
(834,836)
|
(613,470)
|
-
|
(1,448,306)
|
|
Trade
Receivables
|
(967,776)
|
479,767
|
-
|
(488,009)
|
|
Office
Deposit
|
-
|
6,469
|
-
|
6,469
|
|
Prepaid
Expense
|
5,683
|
(267)
|
-
|
5,416
|
|
Inventory
|
(63,853)
|
-
|
-
|
(63,853)
|
|
Accounts
Payable and Accrued Expenses
|
416,360
|
(284,862)
|
-
|
131,498
|
|
Deferred
Revenue
|
-
|
114,110
|
-
|
114,110
|
|
Tenant
Security Deposits
|
(2,550)
|
-
|
-
|
(2,550)
|
|
Accrued
Income Tax Expense
|
(558,937)
|
(29,722)
|
-
|
(588,659)
|
|
Builder
Deposits
|
(543,282)
|
-
|
-
|
(543,282)
|
|
Net
Cash Used In Continuing Operating Activities
|
(6,131,025)
|
(812,815)
|
-
|
(6,943,840)
|
|
Net
Cash Used In Discontinued Operating Activities
|
-
|
-
|
(202,395)
|
(202,395)
|
|
Net
Cash Used In Operating Activities
|
(6,131,025)
|
(812,815)
|
(202,395)
|
(7,146,235)
|
|
|
|
|
|
|
|
Cash
Flows From Investing Activities
|
|
|
|
|
|
Purchase
of Fixed Assets
|
(28,615)
|
(1,923)
|
-
|
(30,538)
|
|
Investment
in Stocks
|
-
|
(150,000)
|
-
|
(150,000)
|
|
Others
Investment
|
(366,740)
|
16,740
|
-
|
(350,000)
|
|
Net
Cash Used in Continuing Investing Activities
|
(395,355)
|
(135,183)
|
-
|
(530,538)
|
|
Net
Cash Used in Discontinued Investing Activities
|
-
|
-
|
-
|
-
|
|
Net
Cash Used in Investing Activities
|
(395,355)
|
(135,183)
|
-
|
(530,538)
|
|
|
|
|
|
|
|
Cash
Flows From Financing Activities
|
|
|
|
|
|
Proceeds
from Issuance of Ordinary Shares
|
4,749,800
|
(221,345)
|
-
|
4,528,455
|
|
Share
Issuing Expenses
|
(93,500)
|
3,072
|
-
|
(90,428)
|
|
Proceeds
from Notes Payable
|
1,052,350
|
-
|
-
|
1,052,350
|
|
Repayments
of Note Payable
|
(6,282,027)
|
(33,188)
|
-
|
(6,315,215)
|
|
Financing
Fees Paid
|
(110,000)
|
-
|
-
|
(110,000)
|
|
Net
Proceeds from Notes Payable - Related Parties
|
8,021,475
|
(864,795)
|
-
|
7,156,680
|
|
Net
Cash Provided By Continuing Financing Activities
|
7,338,098
|
(1,116,256)
|
-
|
6,221,842
|
|
Net
Cash Provided By Discontinued Financing Activities
|
-
|
-
|
-
|
-
|
|
Net
Cash Provided By Financing Activities
|
7,338,098
|
(1,116,256)
|
-
|
6,221,842
|
|
|
|
|
|
|
|
Net
Increase (Decrease) in Cash and Restricted Cash
|
811,718
|
(2,064,254)
|
(202,395)
|
(1,454,931)
|
|
Effects
of Foreign Currency Translation on Cash
|
(2,214,051)
|
2,200,006
|
-
|
(14,045)
|
|
Cash
and Restricted Cash - Beginning of Years
|
5,319,113
|
286,904
|
-
|
5,606,017
|
|
Cash
and Restricted Cash- End of Years
|
$ 3,916,779
|
$ 422,657
|
$ (202,395)
|
$ 4,137,041
|
|
|
|
|
|
|
|
Supplementary
Cash Flow Information
|
|
|
|
|
|
Cash
Paid For Interest
|
$ 1,113,228
|
$ 120,000
|
$ -
|
$ 1,233,228
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Non-Cash Investing and Financing
Activities
|
|
|
|
|
|
Convert
Related Party Loan to Common Stock
|
$ 11,156,003
|
$ (656,003)
|
$ -
|
$ 10,500,000
|
|
Amortization
of Debt Discount Capitalized
|
$ 324,958
|
$ 50,153
|
$ -
|
$ 375,111
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
5.
CONCENTRATION
OF CREDIT RISK
The
Company maintains cash balances at various financial institutions
in different countries. These balances are usually secured by the
central banks’ insurance companies. At times, these balances
may exceed the insurance limits. As of December 31, 2018 and 2017,
uninsured cash and restricted cash balances were $4,125,113 and
$2,942,020, respectively.
For the
year ended December 31, 2018, 1 customer accounted for
approximately 70% of the Company’s property and development
revenue and the second customer accounted for approximately 30%.
For the year end December 31, 2017, 1 customer account for
approximately 76% of the Company’s property and development
revenue.
As of
December 31, 2018 and 2017, respectively, 1 customer accounted for
approximately 0% and 100% of
the Company’s property
and development accounts receivable.
For the
year ended December 31, 2018, 1 related party customer accounted
for approximately 80% of the Company’s digital transformation
technology revenue and the second customer accounted for
approximately 20%. For the year end December 31, 2017, 1 related
party customer accounted for approximately 70% of the
Company’s digital transformation technology revenue and the
second customer accounted for approximately 30%.
As of
December 31, 2018 and 2017, 1 related party customer accounted for
approximately 100% of the Company’s digital
transformation technology accounts receivable.
For the
year ended December 31, 2018, 1 customer accounted for
approximately 80% of the Company’s Other Business segment
revenue and the second customer accounted for approximately 20%.
For the year end December 31, 2017, 1 customer accounted for
approximately 99% of the Company’s Other Business segment
revenue.
As of
December 31, 2018, 1 customer accounted for approximately 76% of
the Company’s Other Business segment accounts receivable and
the second customer accounted for approximately 24%. For the year
end December 31, 2017, 3 customers accounted for approximately 90%
of the Company’s Other Business segment accounts
receivable.
No
other concentrations were identified within the Biohealth segment
for the years ended December 31, 2018 and 2017.
Operating
segments are defined as components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker, or
decision–making group, in deciding how to allocate resources
and in assessing performance. The Company’s chief operating
decision-maker is the Chief Executive Officer. The Company operates
in and reports four business segments: property development,
digital transformation technology, biohealth and other business
activities. The Company’s reportable segments are determined
based on the services they perform and the products they sell, not
on the geographic area in which they operate. The Company’s
chief operating decision maker evaluates segment performance based
on segment revenue. Costs excluded from segment income (loss)
before taxes and reported as “Other” consist of
corporate general and administrative activities which are not
allocable to the four reportable segments.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
following table summarizes the Company’s segment information
for the following balance sheet dates presented, and for the year
ended December 31, 2018 and December 31, 2017:
|
|
|
Digital
Transformation Technology
|
|
|
|
|
Year ended December 31, 2018
|
|
|
|
|
|
|
Revenue
|
$ 17,675,034
|
$ 140,652
|
$ 2,532,852
|
$ 32,402
|
$ 20,380,940
|
|
Cost
of Sales
|
(14,777,546)
|
(74,129)
|
(682,026)
|
-
|
(15,533,701)
|
|
Gross
Margin
|
2,897,488
|
66,523
|
1,850,826
|
32,402
|
4,847,239
|
|
Operating
Expenses
|
(2,206,093)
|
(518,175)
|
(2,846,048)
|
(3,507,235)
|
(9,077,551)
|
|
Operating
Loss
|
691,395
|
(451,652)
|
(995,222)
|
(3,474,833)
|
(4,230,312)
|
|
Other
Income (Expense)
|
38,019
|
(51,508)
|
(6,283)
|
(3,143,735)
|
(3,163,507)
|
|
Net
Loss Before Income Tax
|
729,414
|
(503,160)
|
(1,001,505)
|
(6,618,568)
|
(7,393,819)
|
|
|
|
|
|
|
|
|
Year ended December 31, 2017 (As Restated)
|
|
|
|
|
|
|
Revenue
|
$ 7,191,507
|
$ 197,073
|
$ 2,879,542
|
$ 488,971
|
$ 10,757,093
|
|
Cost
of Sales
|
(6,565,491)
|
(67,552)
|
(894,559)
|
-
|
(7,527,602)
|
|
Gross
Margin
|
626,016
|
129,521
|
1,984,983
|
488,971
|
3,229,491
|
|
Operating
Expenses
|
(1,019,926)
|
(406,495)
|
(3,610,583)
|
(3,094,054)
|
(8,131,058)
|
|
Operating
Loss
|
(393,910)
|
(276,974)
|
(1,625,600)
|
(2,605,083)
|
(4,901,567)
|
|
Other
Income (Expense)
|
(44,566)
|
4
|
(130,333)
|
(2,377,025)
|
(2,551,920)
|
|
Net
Loss Before Income Tax
|
(438,476)
|
(276,970)
|
(1,755,933)
|
(4,982,108)
|
(7,453,487)
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Cash
and Restricted Cash
|
$ 4,683,040
|
$ 118,044
|
$ 174,183
|
$ 532,931
|
$ 5,508,198
|
|
Total
Assets
|
43,786,046
|
136,211
|
753,492
|
4,026,706
|
48,702,456
|
|
|
|
|
|
|
|
|
December 31, 2017 (As Restated)
|
|
|
|
|
|
|
Cash
and Restricted Cash
|
$ 3,055,188
|
$ 95,038
|
$ 463,381
|
$ 523,434
|
$ 4,137,041
|
|
Total
Assets
|
54,317,387
|
276,073
|
644,287
|
4,941,225
|
60,178,972
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
As of
December 31, 208 and 2017, real estate assets consisted of the
following:
|
|
|
|
|
|
|
|
|
Construction
in Progress
|
$19,097,644
|
$27,349,033
|
|
Land
Held for Development
|
19,677,292
|
25,645,806
|
|
Total
Properties Under Development
|
38,774,936
|
50,516,409
|
|
|
|
|
|
Real
Estate Held for Sale
|
136,248
|
136,248
|
|
Total
Real Estate Assets
|
$38,911,184
|
$50,652,657
|
8.
PROPERTY
AND EQUIPMENT
As of
December 31, 2018 and 2017, property and equipment consisted of the
following:
|
|
|
|
|
|
|
|
|
Computer
Equipment
|
$175,992
|
$204,952
|
|
Furniture
and Fixtures
|
52,798
|
34,408
|
|
Vehicles
|
90,929
|
96,492
|
|
Subtotal
|
319,719
|
335,852
|
|
Accumulated
Depreciation
|
(216,294)
|
(213,284)
|
|
Total
|
$103,425
|
$122,568
|
The
Company recorded depreciation expense of $41,197 and $58,032 during
the years ended December 31, 2018 and 2017,
respectively.
In
November 2015, SeD Maryland Development, LLC (“SeD
Maryland”) entered into lot purchase agreements with NVR,
Inc. (“NVR”) relating to the sale of single-family home
and townhome lots to NVR in the Ballenger Run Project. The purchase
agreements were amended two times thereafter. Based on the
agreements, NVR is entitled to purchase 479 lots for a price of
approximately $64,000,000, which escalates 3% annually after June
1, 2018.
As part
of the agreements, NVR was required to give a deposit in the amount
of $5,600,000. Upon the sale of lots to NVR, 9.9% of the purchase
price is taken as payback of the deposit. A violation of the
agreements by NVR would cause NVR to forfeit the deposit. On
January 3, 2019 NVR gave SeD Maryland Development, LLC another
deposit in the amount of $100,000 based on the 3rd Amendment to the
Lot Purchase Agreement. As December 31, 2018 and 2017, amounts held
on deposit from NVR were $3,878,842 and $5,056,718,
respectively.
In
January 2015, Black Oak LP entered into a purchase agreement with
Lexington 26 LP (“Colina”), a building company located
in Texas. Upon execution of this agreement, Colina was required to
provide Black Oak LP with a deposit in the amount of $300,000. In
February 2018, the entire deposit of $300,000 was refunded to
Colina due to a mutual termination of the development plan. As of
December 31, 2018 and 2017, amounts held on deposit from Colina
were $0 and $300,000, respectively.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
As of
December 31, 2018 and 2017, bonds payable consisted of the
following:
|
|
|
|
|
SeD Home Ltd
Bonds
|
$1,500,000
|
$1,500,000
|
|
Less: Debt
Discount
|
(43,651)
|
(90,980)
|
|
Total bonds
payable
|
$1,456,349
|
$1,409,020
|
On
November 29, 2016 SeD Home Ltd entered into three $500,000 bonds
for a total transaction price of $1,500,000. These bonds are
guaranteed by both SeD Home and Chan Heng Fai who provided
approximately $5 million personal guarantee, accrue interest
annually at 8%, and mature on November 29, 2019. Upon maturity, the
bondholders have the right to propose on the acquisition of a
property built by SeD Home, as facilitated by SeD. The proposed
acquisition purchase price would be at SeD Home's cost. In the
event the cost exceeds $1,500,000, the difference is paid by the
bondholders, alternatively if the cost price is less than
$1,500,000, SeD Home Ltd pays the deficit.
As
December 31, 2018 and 2017 the principal balance was $1,500,000 and
$1,500,000, respectively. As part of
the transaction, the Company incurred loan origination fees and
closing fees, totaling $150,000, which were recorded as debt
discount and are amortized over the life of the loan. The
unamortized debt discount was $43,651 and $90,980 on
December 31, 2018 and December 31, 2017,
respectively.
As of
December 31, 2018 and 2017, notes payable consisted of the
following:
|
|
|
|
|
Union Bank
Loan
|
$13,899
|
$8,272,297
|
|
Australia
Loan
|
158,036
|
174,877
|
|
Less: Debt
Discount
|
-
|
(140,277)
|
|
Total notes
payable
|
$171,935
|
$8,306,897
|
Union Bank Loan
On November 23, 2015, SeD Maryland entered into a Revolving Credit
Note with the Union Bank in the original principal amount of
$8,000,000. During the term of the loan, cumulative loan advances
may not exceed $26,000,000. The line of credit bears interest at
LIBOR plus 3.8% with a floor rate of 4.5%. The interest rate at
December 31, 2018 was 6.125%. Beginning December 1, 2015,
interest only payments were due on the outstanding principal
balance. The entire unpaid principal and interest sum was due and
payable on November 22, 2018, with the option of one twelve-month
extension period. The loan is secured by a deed of trust on the
property, $2,600,000 of collateral cash, and a Limited Guaranty
Agreement with SeD Ballenger. The Company also had an $800,000
letter of credit from the Union Bank. The letter of credit was due
on November 22, 2018 and bore interest at 15%. In September 2017,
SeD Maryland Development LLC and the Union Bank amended the
Revolving Credit Note, which increased the original principal
amount from $8,000,000 to $11,000,000 and extended the maturity
date of the loan and letter of credit to December 31, 2019.
Accordingly, this change in terms of the Union Bank Loan was
accounted for as a modification in accordance with
ASC 470 –
Debt.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
As of December 31, 2018 and 2017, the principal balance was $13,899
and $8,272,297, respectively. As part of the transaction, the
Company incurred loan origination fees and closing fees, totaling
$480,947, which were recorded as debt discount and were amortized
over the life of the loan. The unamortized debt discount was $0 and
$140,277 on December 31, 2018 and December 31, 2017,
respectively.
On April 17, 2019, SeD Maryland Development LLC and Union Bank
terminated the agreement.
Australia Loan
On
January 7, 2017, SeD Perth Pty Ltd (“SeD Perth”)
entered into a loan agreement with National Australian Bank Limited
(the “Australia Loan”) for the purpose of funding land
development. The loan facility provides SeD Perth with access to
funding of up to approximately $460,000 and matures on December 31,
2018. The Australia Loan is secured by both the land under
development, as well as, a pledged deposit of $35,276. This loan is
denominated in AUD and is provided personal guarantees amounting to
approximately $500,000 from our Chief Executive Officer, Chan Heng
Fai and Rajen Manicka, the Chief Executive Officer of Holista
CollTech and Co-founder of iGalen Inc. The interest rate on the
Australia Loan is based on the weighted average interest rates
applicable to each of the business markets facility components as
defined within the loan agreement, ranging from 6.03% to 6.35% per
annum for the year ended December 31, 2018 and from 5.55% to 6.06%
per annum for the year ended December 31, 2017. On September 7,
2017 the Australia Loan was amended to reduce the maximum borrowing
capacity to approximately $179,000 and on February 6, 2019 the
terms of the Australia Loan were further amended to reflect an
extended maturity date of March 31, 2020.
As
December 31, 2018 and 2017 the principal balance outstanding on the
Australia Loan was $158,036 and $174,877,
respectively.
Revere Note
On
October 7, 2015, Black Oak LP entered into a note agreement with
Revere High Yield Fund, LP ("Revere") for a principal amount of
$6,000,000 (the “Revere Note”). The Revere Note bears
interest at 13% and has a stated maturity date of October 7, 2016.
In connection with the Revere Note, Black Oak LP incurred
origination and closing fees of $524,233, which were recorded as
debt discount and amortized over the life of the note. The Revere
Note is secured by a deed of trust on the property and a limited
guarantee agreement with related parties of the Company. On October
1, 2016, the Revere Note was amended to reflect an extended
maturity date of April 1, 2017. In conjunction with this amendment,
the Company incurred legal fees of $109,285 which were recorded as
a debt discount and amortized over the extended life of the note.
On April 1, 2017, the Revere Note was again amended to extend the
maturity date to October 1, 2017. In conjunction with this
subsequent amendment, the Company incurred legal fees of $110,000
which were recorded as a debt discount and amortized over the
extended life of the note. As of October 1, 2017, the loan was
fully repaid. No outstanding principal or unamortized debt discount
remains as of December 31, 2018 or 2017.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
12.
RELATED
PARTY TRANSACTIONS
Shares issued in Exchange Agreements with Chairman and
CEO
As discussed in Note 1, on October 1, 2018, Chan Heng Fai, the
founder, Chairman, and Chief Executive Officer of HFE, transferred
his 100% interest in Hengfai International, Heng Fai Enterprises
and Global eHealth to HF Enterprises Inc. in exchange for
8,500,000, 500,000 and 1,000,000 shares respectively of the
Company’s common stock.
Personal guarantees by directors
As of
December 31, 2018 and 2017, certain directors of the Company
provided personal guarantees amounting to approximately $5,000,000
to secure bonds issued by SeD Home Ltd and $500,000 to secure the
Australia Loan.
Purchase of subsidiary from
Chairman and CEO
On May 9, 2017, SeD Capital Pte. Ltd., a subsidiary of the Company,
entered into a sale and purchase agreement with Chan Heng Fai to
purchase the entire shares in Liquid Value Asset Management Pte.
Ltd. (“LVAM” f.k.a. Hengfai Asset Management Pte. Ltd,
“HFAM”) amounting to 100% of the issued and paid-up
share capital of LVAM. The consideration for the acquisition of
LVAM is $441,780. This was a transaction under common control and
consolidated 2017 financial statements were retrospectively
adjusted to reflect the operating results as of January 1,
2017.
Revenue from a Related Party
On
March 1, 2018, the Company’s subsidiary HotApp International
Ltd. entered into an Outsource Technology Development Agreement
(the “Agreement”) with Document Security Systems, Inc.
(“DSS”), which may be terminated by either party on
30-days’ notice. The purpose of the Agreement is to
facilitate DSSs’ development of a software application to be
included as part of DSSs’ AuthentiGuard® Technology
suite. Under this agreement, DSS agreed to pay $23,000 per month
for access to HotApp International Ltd.’s software
programmers. The agreement was terminated on July 31, 2018. Mr.
Chan Heng Fai is a member of the Company’s Board of Directors
and, through his control of the Company’s majority
stockholder, the beneficial owner of a majority of the
Company’s common stock. Chan Heng Fai is also a member of the
Board of DSS and a stockholder of DSS.
The
Company recorded revenues from DSS of $115,135 for the year ended
December 31, 2018.
Sale of HotApp Blockchain to DSS Asia
On
October 25, 2018, HIP a wholly owned subsidiary of HotApp
Blockchain, entered into an equity purchase agreement (the
“HotApps Purchase Agreement”) with DSS Asia, a Hong
Kong subsidiary of DSS International, pursuant to which HIP agreed
to sell to DSS Asia all of the issued and outstanding shares of
HotApps Information Technology Co. Ltd., also known as Guangzhou
HotApps, a wholly owned subsidiary of HIP, is primarily engaged in
engineering work for software development, as well as, a number of
outsourcing projects related to real estate and lighting. Chan Heng
Fai is the CEO of DSS Asia and DSS International. For further
details on this transaction, refer to Note 15 – Discontinued
Operations.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Notes Payable
During
the year ended on December 31, 2017, Chan Heng Fai, our founder,
Chairman and Chief Executive Officer lent non-interest loans of
$7,156,680, for the general operations of the Company. The loans
were interest free, not tradable, unsecured, and repayable on
demand. On October 15, 2018, a formal lending agreement between the
Singapore eDevelopment Ltd and Chan Heng Fai was executed. Under
the agreement, Chan Heng Fai provides a lending credit limit of
approximately $10 million for Singapore eDevelopment Ltd with an
interest rate of 6% per annum for the outstanding borrowed amount,
which commenced retroactively from January 1, 2018. During the year
ended on December 31, 2018, net borrowings were $1,190,476. As of
December 31, 2017 and 2018, the outstanding principal balance of
the Related Party Loan was $7,384,217 and $8,517,490, respectively.
As of December 31, 2018, the interest expense was $476,063 and
total amount was not paid but accrued. The loans are unsecured and
repayable on demand. Chan Heng Fai confirmed no demand for loan
repayment within one year.
On May
1, 2018, Rajen Manicka, the Chief Executive Officer of Holista
CollTech and Co-founder of iGalen Inc., provided a loan of
Malaysian ringgit (“RM”) 1,530,000 to iGalen Inc. (the
“2018 Related Party Loan”). The term of this loan is
ten years from the date of issuance, repayable in monthly
instalments beginning on June 1, 2018. The 2018 Related Party Loan
has an interest rate of 4.7% per annum. As of December 31, 2018,
the outstanding principal balance of the Related Party Loan is
$345,706 and included in the Notes Payable – Related Parties
balance on the Company’s Consolidated Balance Sheets. During
the year ended December 31, 2018 the Company incurred $33,411 of
interest expense.
Shares issued in exchange agreement with Chairman and
CEO
Hengfai International Pte. Ltd
On October 1, 2018, 100% of the ownership interest in Hengfai
International Pte. Ltd. (“Hengfai International”) was
transferred from Chan Heng Fai, our founder, Chairman and Chief
Executive Officer to HF Enterprises Inc. in exchange for 8.5
million shares of the Company. Hengfai International holds 100% of
Hengfai Business Development Pte. Ltd. (“Hengfai Business
Development”), which holds 761,185,294 shares of SeD Ltd and
359,834,471 warrants. Both Hengfai International and Hengfai
Business Development are holding companies without any business
operations.
Heng Fai Enterprises Pte. Ltd.
On October 1, 2018, 100% of the ownership interest in Heng Fai
Enterprises Pte. Ltd. (“Heng Fai Enterprises”) was
transferred from Chan Heng Fai, our founder, Chairman and Chief
Executive Officer to HF Enterprises Inc. in exchange for 500,000
shares of the Company. Heng Fai Enterprises holds 2,480,000 shares
(14.23%) of Vivacitas Oncology Inc., a U.S.-based biopharmaceutical
company. Heng Fai Enterprises’ cost to purchase these
Vivacitas shares was $200,128, which was recorded as investment by
cost method as it does not have a readily determinable fair value
as it is a private US company. Heng Fai Enterprises is a holding
company without any business operations.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Global eHealth Limited
On October 1, 2018, 100% of Global eHealth Limited (“Global
eHealth”) was transferred from Heng Fai Chan, a director of
the Company, to the Company in exchange for 1,000,000 shares of the
Company. There was no other consideration exchange in conjunction
with this transaction. Global eHealth holds 46,226,673 shares
(19.8%) of Holista CollTech Limited, a public Australian company
that produces natural food ingredients. Global eHealth is a holding
company without any business operations.
Management Fees
Black
Oak LP was obligated under the Limited Partnership Agreement (as
amended) to pay a $6,500 per month management fee to Arete Real
Estate and Development Company (Arete), a related party through
common ownership and $2,000 per month to American Real Estate
Investments LLC (AREI), a related party through common ownership.
Arete is also entitled to a developer fee of 3% of all development
costs excluding certain costs. The fees were to be accrued until
$1,000,000 is received in revenue and/or builder deposits relating
to the Black Oak Project.
As of
December 31, 2017, outstanding management fees payable to Arete and
AREI are $314,630 and $48,000, respectively and included in
Accounts Payable and Accrued Expenses.
On
April 26, 2018, SeD Development USA, Arete and AREI reached an
agreement to terminate the terms related to management fees and
developer fees in the Limited Partnership Agreement. In July 2018,
per the terms of the termination agreement, Black Oak LP paid Arete
$300,000 and AREI $30,000 to fulfil the commitments.
MacKenzie
Equity Partners, owned by Charles MacKenzie, a Director of the
Company's subsidiary SeD Intelligent Home Inc., has had a
consulting agreement with the Company since 2015. Per the terms of
the agreement, as amended on January 1, 2018, the Company pays a
monthly fee of $15,000 with an additional $5,000 per month due upon
the close of the sale to Houston LD, LLC. The Company incurred
expenses of $240,000 and $222,930 for the years ended December 31,
2018 and 2017, respectively, which were capitalized as part of Real
Estate on the Company’s Consolidated Balance Sheet as the
services relate to property and project management. As of December
31, 2018, and 2017 the outstanding balance of $60,000 and $0,
respectively.
Purchase of Minority Interest in Black Oak LP
On July 23, 2018, SeD Development USA, LLC, a wholly owned
subsidiary of SeD, entered into two partnership interest purchase
agreements (the “Black Oak Purchase Agreements”)
through which it purchased an aggregate of 31% of Black Oak LP for
$60,000. In addition, if and when Black Oak LP receives at least
$15,000,000 in net reimbursement receivable proceeds from HC17
and/or Aqua Texas, Inc. (net of any expenses Harris County
Improvement District 17 and/or Aqua Texas, Inc. may deduct), Black
Oak LP shall pay Fogarty Family Trust II, one of two previous
partners of Black Oak LP, an amount equal to 10% of the net
reimbursement receivable proceeds received from HC17 and/or Aqua
Texas, Inc. that exceeds $15,000,000; provided however, this
obligation shall only apply to reimbursement revenue received on or
before December 31, 2025. Prior to the Black Oak Purchase
Agreements , the Company owned and controlled Black Oak LP through
its 68.5% limited partnership interest and its ownership of the
General Partner, 150 Black Oak GP, Inc, a 0.5% owner in Black Oak
LP. As a result of the purchase, the Company, through its
subsidiaries, now owns 100% of Black Oak LP.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Consulting Services
A law
firm, owned by Conn Flanigan, a Director of SeD Intelligent Home,
performs consulting services for SeD Intelligent Home and its
subsidiaries. SeD Intelligent Home incurred expenses of $110,334
and $96,000 for the years ended 2018 and 2017, respectively. On
December 31, 2018 and 2017, SeD Intelligent Home and subsidiaries
owed this related party $8,000 and $18,000,
respectively.
Dr.
Rajen Manicka, the Chief Executive Officer of Holista CollTech and
Co-founder of iGalen Inc., performs consulting services for iGalen
Inc. iGalen Inc. incurred expenses of $240,000 and $240,000 for the
years ended 2018 and 2017, respectively. On December 31, 2018 and
2017, iGalen Inc. owed this related party $465,331 and $218,500,
which included both unpaid consulting fees and loan from him,
respectively.
iGalen Inc. Affiliates
iGalen
Philippines and iGalen SDN are related party entities which are
owned by Dr. Rajen Manicka and are not owned by HFE. iGalen Inc.
provides use of its platform to collect sale revenue and payment of
expenses for these entities without service fees. On December 31,
2018 and 2017, iGalen Inc. owed $246,722 and $347,056, respectively
to iGalen Philippines and iGalen SDN.
Medi
Botanics Sdn Bhd, a subsidiary of Holista CollTech, is one of the
raw material and product suppliers of iGalen Inc. Dr. Rajen Manicka
is the controlling shareholder and the director of both Medi
Botanics Sdn Bhd and Holista CollTech. Medi Botanics Sdn Bhd
supplied $715,053 and $777,308 raw materials and products to iGalen
Inc. in the years ended on December 31, 2018 and 2017,
respectively. On December 31, 2018 and 2017, iGalen Inc. owed
$719,395 and $226,267, respectively.
Investment in the Global Opportunity Fund
On
February 1, 2017, the Company invested $300,000 in Global
Opportunity Fund (“Fund”), a mutual fund registered in
the Cayman Islands and Chan Heng Fai is one of the directors of
this fund. LiquidValue Asset Management Pte. Ltd., one of the
subsidiaries of the Company, is the investment manager of the Fund
and receives a management fee from the Fund at 2% per annum of the
aggregated net asset value of the investments and a performance fee
of 20% on a class of shares. During the years ended on December 31,
2018 and 2017, the management fee and performance fee charged to
the Fund were $5,709 and $4,888, respectively. On December 31, 2018
and 2017, the Fund owed $69,478 and $65,215,
respectively.
The
Company is authorized to issue 20,000,000 common shares and
5,000,000 preferred shares, both at a par value $0.001 per share.
These shares have full voting rights. At December 31, 2018 and
2017, there were 10,001,000 common shares issued and
outstanding.
On
December 3, 2018, the Company sold 167,000 shares of HotApp
Blockchain to international investors with the amount of $83,500,
which was booked as addition paid-in capital. The Company held
500,988,889 shares of the total outstanding shares 506,898,576
before the sale. After the sale, the Company still owns
approximately 99% of HotApp Blockchain’s total outstanding
shares.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
14.
ACCUMULATED OTHER COMPREHENSIVE INCOME
Following is a summary of the changes in the balances of
accumulated other comprehensive income, net of tax:
Changes in Accumulated Other Comprehensive Income by
Component
For Year Ended on December 31, 2018
|
|
Unrealized Gains and Losses on Security Investment
|
Foreign Currency Translations
|
|
|
Balance
at January 1, 2018
|
$1,961,835
|
$1,961,401
|
$3,923,236
|
|
|
|
|
|
|
Other
Comprehensive Income
|
(23,779)
|
(354,834)
|
(378,613)
|
|
|
|
|
|
|
Amount
Reclassified From Accumulated Other Comprehensive
Income
|
(1,961,835)
|
-
|
(1,961,835)
|
|
|
|
|
|
|
Balance
at December 31, 2018
|
$(23,779)
|
$1,606,567
|
$1,582,788
|
|
Reclassification Out of Accumulated Other Comprehensive
Income
|
|
For Year Ended on December 31, 2018
|
|
Details
About Accumulated Other Comprehensive Income
Components
|
Amount
Reclassified from Accumulated Other Comprehensive
Income
|
Affected
Line Item in the Statement Where Net Income Is
Presented
|
|
|
|
|
|
Unrealized
Loss from Investment on Equity Securities
|
$ (1,961,835)
|
Accumulated
Deficit
|
|
Changes in Accumulated Other Comprehensive Income by
Component
|
|
For Year Ended on December 31, 2017
|
|
|
Unrealized Gains and Losses on Security Investment
|
Foreign Currency Translations
|
|
|
Balance
at January 1, 2017
|
$ -
|
$ 1,116,362
|
$ 1,116,362
|
|
|
|
|
|
|
Other
Comprehensive Income
|
1,961,835
|
845,039
|
2,806,874
|
|
|
|
|
|
|
Balance
at December 31, 2017
|
$ 1,961,835
|
$ 1,961,401
|
$ 3,923,236
|
15.
DISCONTINUED
OPERATIONS
On
October 25, 2018, HIP a wholly owned subsidiary of HotApp
Blockchain, entered into an equity purchase agreement (the
“HotApps Purchase Agreement”) with DSS Asia, a Hong
Kong subsidiary of DSS International, pursuant to which HIP agreed
to sell to DSS Asia all of the issued and outstanding shares of
HotApps Information Technology Co. Ltd., also known as Guangzhou
HotApps, a wholly owned subsidiary of HIP, is primarily engaged in
engineering work for software development, as well as, a number of
outsourcing projects related to real estate and
lighting.
In
consideration for the sale of Guangzhou HotApps, DSS Asia issued to
HIP a two-year, interest free, unsecured, demand promissory note in
the principal amount of $100,000. The closing of the Equity
Purchase Agreement was subject to certain conditions; these
conditions were met and the transaction closed on January 14,
2019.
Chan Heng Fai is the Acting Chief Executive Officer Member
of the Board of Directors of HotApp Blockchain. He is also
the founder, Chairman, and Chief
Executive Officer of Singapore eDevelopment Limited, the
Chief Executive Officer and Chairman of DSS International, and a
significant shareholder and a member of the Board of Document
Security Systems Inc., a company which is the sole owner of DSS
International.
Lum Kan
Fai, a Member of the Board of Directors of HotApp Blockchain, is
also an employee of DSS International.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
composition of assets and liabilities included in discontinued
operations was as follows:
|
|
|
|
|
Assets
|
|
|
|
Current
Assets
|
|
|
|
Cash
|
$9,268
|
$29,701
|
|
Deposit
and other receivable
|
5,049
|
5,337
|
|
Total
Current Assets
|
14,317
|
35,038
|
|
|
|
|
|
Fixed
assets, net
|
1,765
|
8,309
|
|
Total
Assets
|
$16,082
|
$43,347
|
|
|
|
|
|
Liabilities and
Stockholders' Deficit
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
Accounts
payable and accrued expenses
|
$174,606
|
$171,566
|
|
Total
Current Liabilities
|
174,606
|
171,566
|
|
|
|
|
|
Total
Liabilities
|
$174,606
|
$171,566
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
aggregate financial results of discontinued operations were as
follows:
|
|
Year Ended December
31,
2018
|
Year Ended December
31,
2017
|
|
Revenues
|
|
|
|
Project
fee-others
|
$7,325
|
$50,916
|
|
|
7,325
|
50,916
|
|
|
|
|
|
Cost of
revenues
|
4,527
|
13,964
|
|
|
|
|
|
Gross
profit
|
$2,798
|
$36,952
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research and
product development
|
$-
|
$169,853
|
|
Depreciation
|
6,544
|
26,277
|
|
General and
administrative
|
93,182
|
57,016
|
|
Total
operating expenses
|
99,726
|
253,146
|
|
|
|
|
|
(Loss) from
operations
|
(96,928)
|
(216,194)
|
|
|
|
|
|
Other income
(expenses):
|
|
|
|
Other sundry
income
|
415
|
-
|
|
Foreign exchange
gain (loss)
|
(236)
|
(4,824)
|
|
Total other income
(expenses)
|
179
|
(4,824)
|
|
|
|
|
|
Loss from
discontinued operations
|
$(96,749)
|
$(221,018)
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
16.
INVESTMENTS
MEASURED AT FAIR VALUE
Financial
assets measured at fair value on a recurring basis are summarized
below and disclosed on the consolidated balance sheet as of
December 31, 2018 and December 31, 2017:
|
|
|
Fair
Value Measurement Using
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Investment
securities- Fair Value Option
|
$3,457,056
|
$2,656,240
|
$-
|
$-
|
$2,656,240
|
|
Investment
securities- Trading
|
16,016
|
15,701
|
-
|
-
|
15,701
|
Convertible
note receivable
|
50,000
|
-
|
-
|
78,723
|
78,723
|
|
Total
|
$3,523,072
|
$2,671,941
|
$ -
|
$78,723
|
$2,750,664
|
|
Investment
securities- Fair Value NAV as practical expedient
|
|
|
|
|
276,102
|
|
Total
Investment in securities at Fair Value
|
|
|
|
|
$3,026,766
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Investment
securities- Fair Value Option
|
$875,000
|
$3,720,000
|
$-
|
$-
|
$3,720,000
|
|
Investment
securities- Trading
|
16,016
|
16,016
|
-
|
-
|
16,016
|
Convertible
note receivable
|
50,000
|
-
|
-
|
50,000
|
50,000
|
|
Total
|
$941,016
|
$3,736,016
|
$ -
|
$50,000
|
$3,786,016
|
|
Investment
securities- Fair Value NAV as practical expedient
|
|
|
|
|
316,740
|
|
Total
Investment in securities at Fair Value
|
|
|
|
|
$4,102,756
|
Unrealized loss on investment securities for the year ended
December 31, 2018 was $3,366,958 and unrealized gain on investment
securities for the year ended December 31, 2017 was
$2,838,713.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For U.S. trading stocks, we use Bloomberg Market stock prices as
the share prices to calculate fair value. For overseas stock, we
use stock price from local stock exchange to calculate fair value.
The following chart shows details of the investment securities
under the fair value option and at cost on December 31, 2018 and
2017, respectively.
|
|
|
|
|
|
Fair
Value Option
|
|
|
|
|
|
|
|
|
|
DSS (Related Party)
|
0.733
|
500,000
|
366,300
|
|
|
|
|
|
|
AMBS (Related Party)
|
0.020
|
20,000,000
|
400,000
|
|
|
|
|
|
|
Holista (Related Party)
|
0.041
|
46,226,673
|
1,889,940
|
|
|
|
|
|
|
|
|
|
2,656,240
|
|
Cost
|
|
|
|
|
|
|
|
|
|
Vivacitas (Related Party)
|
N/A
|
2,480,000
|
200,128
|
|
|
|
|
|
|
Fair
Value Option
|
|
|
|
|
|
|
|
|
|
DSS (Related Party)
|
1.800
|
500,000
|
900,000
|
|
|
|
|
|
|
AMBS (Related Party)
|
0.141
|
20,000,000
|
2,820,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,720,000
|
The company has a $50,000 investment in a convertible promissory
note of Sharing Services, Inc (“Sharing Services Convertible
Note”), a company quoted on the US OTC market. The value of
the convertible note was estimated by management using a
Black-Scholes valuation model.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
table below provides a summary of the changes in fair value,
including net transfers in and/or out of all financial assets
measured at fair value on a recurring basis using significant
unobservable inputs (Level 3) during the year ended December 31,
2018:
|
|
|
|
Balance at January
1, 2017
|
$50,000
|
Total gains and
losses Purchases, sales, and settlements
|
-
|
|
Balance at December
31, 2017
|
$50,000
|
|
Total gains and
losses
|
28,723
|
Purchases, sales,
and settlements
|
-
|
|
Balance
at December 31, 2018
|
$78,723
|
The
fair value of the Sharing Services
Convertible Note as of December 31, 2018 and December 31,
2017 was calculated using a Black-Scholes valuation model valued
with the following weighted average assumptions:
|
|
|
|
|
Dividend
yield
|
0.00%
|
0.00%
|
|
Expected
volatility
|
162.68%
|
162.68%
|
|
Risk free interest
rate
|
1.98%
|
1.98%
|
|
Contractual term
(in years)
|
4.77
|
5.77
|
|
Exercise
price
|
$0.15
|
$ 0.15
|
Changes
in the observable input values would likely cause material changes
in the fair value of the Company’s Level 3 financial
instruments. A significant increase (decrease) in this likelihood
would result in a higher (lower) fair value
measurement.
The
following table presents summarized financial information for our
investments that we elected the fair value option that would
otherwise be accounted for under the equity method of
accounting.
|
|
Summarized
Financial Information
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
AMBS
(Unaudited)
|
$3,480,000
|
$31,216,000
|
$(3,767,000)
|
|
Holista
|
$7,427,432
|
$2,863,760
|
$(2,203,360)
|
|
DSS
|
$15,279,786
|
$7,705,453
|
$1,464,969
|
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
AMBS
(Unaudited)
|
$10,238,000
|
$28,255,000
|
$(4,437,000)
|
|
Holista
|
$6,813,755
|
$3,330,243
|
$(3,174,268)
|
|
DSS
|
$17,430,777
|
$12,645,518
|
$(587,156)
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
US income taxes
On December 22, 2017, the “Tax Cuts and Jobs Act”
(“TCJA”) was signed into legislation, lowering the
corporate tax rate to 21 percent beginning with years starting
January 1, 2018. Because a change in tax law is accounted for in
the period of enactment, the deferred tax assets and liabilities
have been adjusted to the newly enacted U.S. corporate rate, and
the related impact to the tax expense has been recognized in the
current year.
Deferred tax assets and (liabilities) consist of the following at
December 31, 2018 and 2017:
|
|
|
|
|
Interest
Income
|
$(4,023,599)
|
$(2,957,688)
|
|
Interest
Expense
|
3,928,264
|
3,355,098
|
|
Depreciation
and Amortization
|
6,302
|
2,510
|
|
Management
Fees
|
404,342
|
276,741
|
|
Others
|
113,633
|
239,482
|
|
Net
Operating Loss
|
916,366
|
890,414
|
|
|
1,345,308
|
1,806,557
|
|
Valuation
Allowance
|
(1,345,308)
|
(1,806,557)
|
|
Net
Deferred Tax Asset
|
$-
|
$-
|
As of December 31, 2018, the Company has federal net operating loss
carry-forwards of approximately $3,800,000 which will begin to
expire in 2038. The full utilization of the deferred tax assets in
the future is dependent upon the Company’s ability to
generate taxable income. Accordingly, a valuation allowance of an
equal amount has been established. During the years ended December
31, 2018 and 2017, the valuation allowance decreased by $461,249
and $142,206, respectively.
The expected tax expense (benefit) based on the statuary rate is
reconciled with actual tax benefit as follows:
|
|
|
|
|
US
Federal statutory rate
|
21%
|
21%
|
|
State
income tax rate
|
8.25%
|
8.25%
|
|
Federal
Benefit
|
(1.73)%
|
(1.73)%
|
|
Valuation
Allowance
|
(27.52)%
|
(27.52)%
|
|
Income
tax provision (benefit)
|
-%
|
-%
|
On
December 31, 2017, the Company’s US subsidiaries have federal
net operating loss carry-forwards of approximately $3,900,000,
which will begin to expire in 2037. The SeD Maryland net operating
loss carry-forwards of approximately $4,300,000 will begin to
expire in 2037 as well. The full utilization of the deferred tax
assets in the future is dependent upon the Company’s ability
to generate taxable income; accordingly, a valuation allowance of
an equal amount has been established. During the year ended
December 31, 2017, the valuation allowance decreased by $461,249
mainly because of the expected reduction in the of corporate tax
rate in the future.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
The
federal income tax returns of the Company are subject to
examination by the IRS, generally for three years after they are
filed. The tax returns for the years ended December 31, 2018, 2017
and 2016 are still subject to examination by the taxing
authorities.
Income taxes – Other Countries
On
December 31, 2018 and 2017, foreign subsidiaries have tax losses
approximately $2,400,000 and $2,500,000, respectively, which are
available for offset against future taxable profits, subject to the
agreement of the tax authorities and compliance with the relevant
provisions. The deferred tax assets arising from these tax losses
have not been recognized because it is not probable that future
taxable profits will be available to use these tax assets. The
following charts show the details in different regions as of
December 31, 2018 and 2017.
As of December 31, 2018
|
|
|
|
|
|
|
Cumulative
loss & other deferred tax assets before tax
|
$(10,894,198)
|
$(274,945)
|
$(2,729,852)
|
$(13,898,996)
|
|
Statutory
tax rates
|
17.00%
|
30.00%
|
16.50%
|
|
|
Tax
at the domestic tax rates applicable to profits in the countries
where the Company operates
|
$(1,852,014)
|
$(82,484)
|
$(450,426)
|
$(2,384,923)
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
Deferred tax assets not recognized
|
$1,852,014
|
$82,484
|
$450,426
|
$2,384,923
|
|
|
|
|
|
|
|
Income
tax expenses recognized in
profit or loss
|
$-
|
$-
|
$-
|
$-
|
As of December 31, 2017
|
|
|
|
|
|
|
|
Cumulative
loss & other deferred tax assets before tax
|
$(12,541,616)
|
$(274,945)
|
$(2,065,306)
|
$(1,983,354)
|
$(16,865,221)
|
|
Statutory
tax rates
|
17.00%
|
30.00%
|
16.50%
|
25.00%
|
|
|
Tax
at the domestic tax rates applicable to profits in the countries
where the Company operates
|
$(2,132,075)
|
$(82,484)
|
$(340,775)
|
$(495,839)
|
$(3,051,172)
|
|
|
|
|
|
|
|
|
Tax
benefit - reverse accrued income tax in 2016
|
588,659
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments:
|
|
|
|
|
|
|
Deferred tax assets not recognized
|
$1,543,416
|
$82,484
|
$340,775
|
$495,839
|
$3,051,172
|
|
|
|
|
|
|
|
|
Income
tax expenses recognized in
profit or loss
|
$-
|
$-
|
$-
|
$-
|
$-
|
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
In
2016, $588,659 was recorded as a reserve for
debt restructuring. In 2017, after the completion of debt
restructure, no tax was required to pay and the reserves was
reversed.
18.
COMMITMENTS
AND CONTINGENCIES
Commercial leases
The
Company has entered into 6 commercial leases in Singapore, Hong
Kong, and China, relating to the rental of office premises. These
leases have tenure of between one and three years with a renewal
option. The Company is restricted from subleasing the office
premises to third parties without prior written consent of the
landlord. The rents are paid on monthly basis and the rates
escalate at a rate of 3% annually.
Annual
future minimum lease payments under these long-term building leases
are as follows:
|
For
the Years Ended December 31:
|
|
|
|
|
|
2019
|
$ 223,169
|
|
2020
|
147,859
|
|
2021
|
-
|
|
2022
|
-
|
|
Thereafter
|
-
|
|
Total
|
$ 371,028
|
Rent
expense for the years ended December 31, 2018 and 2017 was $283,432
and $272,716, respectively.
Lots Sales Agreement
On
November 23, 2015, SeD Maryland Development LLC completed the
$15,700,000 acquisition of Ballenger Run, a 197-acre land
sub-division development located in Frederick County, Maryland.
Previously, on May 28, 2014, the RBG Family, LLC entered into a
$15,000,000 assignable real estate sales contract with NVR, by
which RBG Family, LLC would facilitate the sale of the 197 acres of
Ballenger Run to NVR. On December 10, 2014, NVR assigned this
contract to SeD Maryland Development, LLC through execution of an
assignment and assumption agreement and entered into a series of
lot purchase agreements by which NVR would purchase 443 subdivided
residential lots from SeD Maryland Development, LLC. Through December 31, 2017, NVR has purchased 42
lots.
On July 20, 2016, SeD Maryland entered into a lot purchase
agreement with Orchard Development Corporation relating to the sale
of 210 multifamily units in the Ballenger Run Project for a total
purchase price of $5,250,000, which closed on August 7,
2018.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
On February 19, 2018, SeD Maryland entered into a contract to sell
the Continuing Care Retirement Community Assisted Independent
Living parcel to Orchard Development Corporation. It was agreed
that the purchase price for the 5.9 acre lot would be $2,900,000
with a $50,000 deposit. It was also agreed that Orchard Development
Corporation would have the right to terminate the transaction
during the feasibility study period, which would last through May
30, 2018, and receive a refund of its deposit. On April 13, 2018,
Orchard Development Corporation indicated that it would not be
proceeding with the purchase of the CCRC parcel. On December 31,
2018, SeD Maryland entered into the Third Amendment to the Lot
Purchase Agreement for Ballenger Run with NVR. Pursuant to the
Third Amendment, SeD Maryland will convert the 5.9 acre CCRC parcel
to 36 lots (the 28 feet wide villa lot) and sell to NVR. SeD
Maryland will pursue the required zoning approval to change the
number of such lots from 85 to 121.
On July 3, 2018, 150 CCM Black Oak entered into a Purchase and Sale
Agreement with Houston LD, LLC for the sale of 124 lots located at
its Black Oak project. Pursuant to the Purchase and Sale Agreement,
it was agreed that 124 lots would be sold for a range of prices
based on the lot type. In addition, Houston LD, LLC agreed to
contribute a “community enhancement fee” for each lot,
collectively totaling $310,000, which is currently held in escrow.
150 CCM Black Oak will apply these funds exclusively towards an
amenity package on the property. The closing of the transactions
contemplated by the Purchase and Sale Agreement was subject to
Houston LD, LLC completing due diligence to its satisfaction. On
October 12, 2018, 150 CCM Black Oak, Ltd. entered into an Amended
and Restated Purchase and Sale Agreement (the “Amended and
Restated Purchase and Sale Agreement”) for these 124 lots.
Pursuant to the Amended and Restated Purchase and Sale Agreement,
the purchase price remained $6,175,000, 150 CCM Black Oak, Ltd. was
required to meet certain closing conditions and the timing for the
closing was extended.
On
January 18, 2019, the sale of 124 lots in Magnolia, Texas was
completed.
Royalty Fees
The Company has royalty commitments for the license and sale rights
of certain nutraceutical products that include both fixed and
variable royalty payments through 2022. The fixed royalty
commitments are $15,000 per month. Variable royalty payments vary
from $1.00 per unit sold to $0.20 per unit sold depending on sales
volume. During 2018 and 2017, the Company incurred royalty
expenses of $ 223,632 and $ 279,818, respectively. The Exclusive
Sublicensing Agreement was terminated on January 8,
2019.
19.
DIRECTORS
AND EMPLOYEES’ BENEFITS
Stock Option plans HFE
The
Company reserves 500,000 shares of common stock under the Incentive
Compensation Plan for high-quality executives and other employees,
officers, directors, consultants and other persons who provide
services to the Company or its related entities. This plan is meant
to enable such persons to acquire or increase a proprietary
interest in the Company in order to strengthen the mutuality of
interests between such persons and the Company’s
shareholders, and providing such persons with performance
incentives to expend their maximum efforts in the creation of
shareholder value. As of December 31, 2018 and 2017, there have
been no options granted.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Stock Option plans SeD Ltd
On
November 20, 2013, SeD Ltd approved a Stock Option Plan (the
“2013 Plan”). Employees, executive directors, and
non-executive directors (including the independent directors) are
eligible to participate in the 2013 Plan.
The
following tables summarize stock option activity under the 2013
Plan for the years ended December 31, 2018 and 2017:
|
|
Options
for Common Shares
|
|
Remaining
Contractual Term
|
Aggregate
Intrinsic Value
|
|
Outstanding
as of January 1, 2017
|
2,918,667
|
$0.09
|
4.09
|
$-
|
|
Granted
|
-
|
$-
|
|
|
|
Exercised
|
-
|
$-
|
|
|
|
Forfeited,
cancelled, expired
|
(1,326,667)
|
$0.09
|
|
$-
|
|
Outstanding
as of December 31, 2017
|
1,592,000
|
$0.09
|
4.33
|
$-
|
|
Vested
and exercisable at December 31, 2017
|
1,592,000
|
$0.09
|
|
-
|
|
Granted
|
-
|
$-
|
|
|
|
Exercised
|
-
|
$-
|
|
|
|
Forfeited,
cancelled, expired
|
(530,667)
|
$0.09
|
|
$-
|
|
Outstanding
as of December 31, 2018
|
1,061,333
|
$0.09
|
5.00
|
$-
|
|
Vested
and exercisable at December 31, 2018
|
1,061,333
|
$0.09
|
|
-
|
The
Company evaluated the events and transactions subsequent to
December 31, 2018, the balance sheet date, through August 12, 2019,
the date the consolidated financial statements were available to be
issued.
Black Oak completed sale with Houston LD, LLC
On July 3, 2018, 150 CCM Black Oak entered into a Purchase and Sale
Agreement with Houston LD, LLC for the sale of 124 lots located at
its Black Oak project. On October 12, 2018, 150 CCM Black Oak, Ltd.
entered into an Amended and Restated Purchase and Sale Agreement
for these 124 lots. Pursuant to the Amended and Restated Purchase
and Sale Agreement, the purchase price remained $6,175,000, 150 CCM
Black Oak, Ltd. was required to meet certain closing conditions and
the timing for the closing was extended. On January 18, 2019, the
sale of 124 lots in Magnolia, Texas was completed.
Development loan with M&T Bank
On
April 17, 2019, SeD Maryland Development LLC entered into a
Development Loan Agreement with Manufacturers and Traders Trust
Company (“M&T Bank”) in the principal amount not to
exceed at any one time outstanding the sum of $8,000,000, with a
cumulative loan advance amount of $18,500,000. The line of credit
bears interest rate on LIBOR plus 375 basis points. SeD Maryland
Development LLC was also provided with a Letter of Credit
(“L/C”) Facility in an aggregate amount of up to
$900,000. The L/C commission is 1.5% per annum on the face amount
of the L/C. Other standard lender fees will apply in the event L/C
is drawn down. The L/C Facility is not
a revolving loan, and amounts advanced and repaid may not be
re-borrowed. Repayment of the Loan Agreement is secured by a
$2,600,000 collateral fund and a Deed of Trust issued to the Lender
on the property owned by SeD Maryland.
HF Enterprises Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
Union Bank Loan Termination
On
April 17, 2019, SeD Maryland Development LLC and Union Bank
terminated the Revolving Credit Note. After termination, Union Bank
still held $602,150 as collateral for current outstanding L/Cs. On
June 10, 2019, the L/C collateral was released after all L/Cs are
transferred to the M&T Bank L/C Facility.
Cash Distributions
From
April to August, 2019, SeD Maryland Development LLC Board approved
three payment distribution plans to members and paid total $740,250
in distributions to the minority shareholder.
Exercised Warrants of Singapore eDevelopment
On July
31, 2019 500,000 warrants of Singapore eDevelopment were exercised
by an unrelated shareholder. After these 500,000 warrants were
exercised, the total number of outstanding ordinary shares of
Singapore eDevelopment was 1,101,956,707. The Company’s
ownership percentage of Singapore eDevelopment has changed from
69.11% to 69.08%.
Additional
Black Oak Impairment Recorded
As of
the June 30, 2019 reporting date, the Company determined that the
Black Oak project had additional impairment of approximately $3.9
million by using discounted estimated future cash
flows.
2,600,000 Shares
HF
ENTERPRISES INC.
Common Stock
PROSPECTUS
, 2020
WestPark
Capital Inc.
Until
_____, 2020 (25 days after the date of this prospectus), all
dealers that buy, sell or trade shares of our common stock, whether
or not participating in this offering, may be required to deliver a
prospectus. This delivery requirement is in addition to the
obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution
The
following table sets forth the costs and expenses, other than
underwriting commissions and the underwriter's unaccountable
expense allowance, to be paid in connection with the sale of the
shares of common stock being registered, all of which we will
pay. All amounts, other than the SEC registration fee, the
Nasdaq Capital Market listing application fee and the FINRA filing
fee are estimates.
|
SEC registration
fee
|
$3,429
|
|
Nasdaq Capital
Market listing application fee
|
5,000
|
|
Printing/EDGAR
expenses
|
20,000
|
|
FINRA filing
fee
|
5,200
|
|
Blue sky legal and
filing fees
|
-
|
|
Underwriter
expenses
|
200,000
|
|
Legal fees and
expenses
|
250,000
|
|
Accounting fees and
expenses
|
100,000
|
|
Transfer agent
fees
|
10,000
|
|
Miscellaneous
|
1,200
|
|
Total
|
$594,829
|
Item 14. Indemnification of Directors and
Officers
Section 145 of
the Delaware General Corporation Law (the “DGCL”)
provides for, under certain circumstances, the indemnification of
our officers, directors, employees and agents against liabilities
that they may incur in such capacities. A summary of the
circumstances in which such indemnification provided for is
contained herein.
In
general, the statute provides that any director, officer, employee
or agent of a corporation may be indemnified against expenses
(including attorneys’ fees), judgments, fines and amounts
paid in settlement, actually and reasonably incurred in a
proceeding (including any civil, criminal, administrative or
investigative proceeding) to which the individual was a party by
reason of such status. Such indemnity may be provided if the
indemnified person’s actions resulting in the liabilities:
(i) were taken in good faith; (ii) were reasonably
believed to have been in or not opposed to our best interest; and
(iii) with respect to any criminal action, such person had no
reasonable cause to believe the actions were unlawful. Unless
ordered by a court, indemnification generally may be awarded only
after a determination of independent members of the Board of
Directors or a committee thereof, by independent legal counsel or
by vote of the stockholders that the applicable standard of conduct
was met by the individual to be indemnified.
The
statutory provisions further provide that to the extent a director,
officer, employee or agent is wholly successful on the merits or
otherwise in defense of any proceeding to which he was a party, he
is entitled to receive indemnification against expenses, including
attorneys’ fees, actually and reasonably incurred in
connection with the proceeding.
Indemnification in
connection with a proceeding by us or in our right in which the
director, officer, employee or agent is successful is permitted
only with respect to expenses, including attorneys’ fees
actually and reasonably incurred in connection with the
defense. In such actions, the person to be indemnified must
have acted in good faith, in a manner believed to have been in our
best interest and must not have been adjudged liable to us unless
and only to the extent that the Court of Chancery or the court in
which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, in view of
all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense which the Court
of Chancery or such other court shall deem
proper. Indemnification is otherwise prohibited in connection
with a proceeding brought on our behalf in which a director is
adjudged liable to us, or in connection with any proceeding
charging improper personal benefit to the director in which the
director is adjudged liable for receipt of an improper personal
benefit.
Delaware law
authorizes us to reimburse or pay reasonable expenses incurred by a
director, officer, employee or agent in connection with a
proceeding in advance of a final disposition of the
matter. Such advances of expenses are permitted if the person
furnishes to us a written agreement to repay such advances if it is
determined that he is not entitled to be indemnified by
us.
The
statutory section cited above further specifies that any provisions
for indemnification of or advances for expenses does not exclude
other rights under our certificate of incorporation, bylaws,
resolutions of our stockholders or disinterested directors, or
otherwise. These indemnification provisions continue for a
person who has ceased to be a director, officer, employee or agent
of the corporation and inure to the benefit of the heirs, executors
and administrators of such persons.
The
statutory provision cited above also grants us the power to
purchase and maintain insurance policies that protect any director,
officer, employee or agent against any liability asserted against
or incurred by him in such capacity arising out of his status as
such. Such policies may provide for indemnification whether or not
the corporation would otherwise have the power to provide for
it.
Our
Certificate of Incorporation provides that to the fullest extent
permitted by the DGCL, as the same exists or may hereafter be
amended, a director of our company shall not be personally liable
to our company or its stockholders for monetary damages for breach
of fiduciary duty as a director.
Our
bylaws provide that each person who was or is made a party to, or
is threatened to be made a party to, or is involved in any action,
suit, or proceeding, whether civil, criminal, administrative, or
investigative, by reason of the fact that he or she is or was a
director or officer of our company or is or was serving at the
request of our company as a director, officer, employee, or agent
of another corporation or of a partnership, joint venture, trust,
or other enterprise, including service with respect to employee
benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as such director, officer, employee,
or agent, or in any other capacity while serving as such director,
officer, employee, or agent, shall be indemnified and held harmless
by our company to the fullest extent permitted by the DGCL, as the
same exists or may hereafter be amended, against all expense,
liability, and loss (including attorneys’ fees, judgments,
fines, other expenses and losses, amounts paid or to be paid in
settlement, and excise taxes or penalties arising under the
Employee Retirement Income Security Act of 1974) reasonably
incurred or suffered by such person in connection therewith, and
such indemnification shall continue as to a person who has ceased
to be a director, officer, employee, or agent, and shall inure to
the benefit of his or her heirs, executors, and
administrators.
At
present, we do not maintain directors’ and officers’
liability insurance in order to limit the exposure to liability for
indemnification of directors and officers, including liabilities
under the Securities Act of 1933; however, we are in the process of
obtaining such insurance.
Item 15. Recent Sales of Unregistered
Securities
On
October 1, 2018, we issued a total of 10,000,000 shares of our
common stock as follows:
●
100% of the
ownership interest in Hengfai International Pte. Ltd. was
transferred from Chan Heng Fai (an officer and director of our
company) to HF Enterprises Inc. in exchange for 8,500,000 shares of
our common stock to be held by HFE Holdings Limited. Hengfai
International Pte. Ltd., a Singapore limited company, is the sole
stockholder of Hengfai Business Development Pte. Ltd., which is the
owner of 761,185,294 ordinary shares of Singapore eDevelopment
Limited and warrants to purchase 359,834,471 ordinary shares of
Singapore eDevelopment Limited.
●
100% of the
ownership interest in Global eHealth Limited was transferred from
Chan Heng Fai to HF Enterprises Inc. in exchange for 1,000,000
shares of our common stock to be held by HFE
Holdings Limited. Global eHealth Limited, a Hong Kong
company, is the owner of 46,226,673 ordinary shares of Holista
CollTech Limited.
●
100% of the
ownership interest in Heng Fai Enterprises Pte. Ltd. was
transferred from Chan Heng Fai to HF Enterprises Inc. in exchange
for 500,000 shares of our common stock to be held by HFE
Holdings Limited. Heng Fai Enterprises Pte. Ltd., a
Singapore limited company, owns 2,480,000 shares of the common
stock of Vivacitas Oncology Inc.
The
shares of our common stock issued in the foregoing transactions
were not registered under the Securities Act of 1933 in reliance
upon the exemption from registration provided by Section 4(a)(2)
thereof, which exempts transactions by an issuer not involving any
public offering.
Item 16. Exhibits and Financial Statement
Schedules
(a)
Exhibits
The
exhibits listed in the following Exhibit Index are filed as part of
this Registration Statement.
|
Exhibit
Number
|
|
Description
|
|
1.1*
|
Form
of Underwriting Agreement.
|
|
1.2*
|
Form
of Underwriter Warrant (included in Underwriting Agreement filed as
Exhibit 1.1).
|
|
|
Certificate
of Incorporation of HF Enterprises Inc.
|
|
|
Bylaws
of HF Enterprises Inc.
|
|
|
Second Amended and Restated Certificate of Incorporation of HF
Enterprises Inc.
|
|
|
Specimen
Common Stock Certificate.
|
|
|
Opinion
of Olshan Frome Wolosky LLP, as to the legality of the common
stock.
|
|
|
HF
Enterprises Inc. 2018 Incentive Compensation Plan.
|
|
|
Office
Lease (Full-Service Gross), dated as of July 21, 2015, by and
between Hampden Square Corporation and SeD Home,
Inc.
|
|
|
Agreement of Limited Partnership of 150 CCM Black
Oak, Ltd., dated as of March 20, 2014, by and among 150 Black Oak
GP, Inc. and CCM Development USA Corporation, American Real Estate
Investments, LLC and the Fogarty Family Trust
II.
|
|
|
Amendment
of Agreement of Limited Partnership of 150 CCM Black Oak, Ltd.,
dated as of November 7, 2014, by and among 150 Black Oak GP, Inc.
and CCM Development USA Corporation, American Real Estate
Investments, LLC and the Fogarty Family Trust II.
|
|
|
Amendment No. 2 to
Agreement of Limited Partnership of 150 CCM Black Oak, Ltd., dated
as of February 24, 2015, by and among 150 Black Oak GP, Inc. and
CCM Development USA Corporation, American Real Estate Investments,
LLC and the Fogarty Family Trust II.
|
|
|
Amendment to Agreement of Limited Partnership of
150 CCM Black Oak, Ltd., dated as of September 25, 2014, by and
among 150 Black Oak GP, Inc. and CCM Development USA Corporation,
American Real Estate Investments, LLC and the Fogarty Family Trust
II.
|
|
|
Form of Lot Purchase Agreement for Ballenger Run,
by and between SeD Maryland Development, LLC and NVR, Inc. d/b/a
Ryan Homes.
|
|
|
Management Agreement, entered into as of July 15,
2015, by and between SeD Maryland Development, LLC and SeD
Development Management, LLC.
|
|
|
Amended and Restated Limited Liability Company
Agreement of SeD Maryland Development, LLC, dated as of September
16, 2015, by and between SeD Ballenger, LLC and CNQC Maryland
Development LLC.
|
|
|
Consulting Services Agreement, dated as of May 1,
2017, by and between SeD Development Management LLC and MacKenzie
Equity Partners LLC.
|
|
|
Project Development and Management Agreement,
dated as of February 25, 2015, by and among MacKenzie Development
Company, LLC, Cavalier Development Group, LLC and SeD Maryland
Development, LLC.
|
|
|
Assignment and Assumption Agreement, dated as of
September 15, 2017, by and between MacKenzie Development Company,
LLC and Adams-Aumiller Properties, LLC.
|
|
|
Acquisition
Agreement and Plan of Merger, dated as of December 29, 2017, by and
among SeD Intelligent Home Inc., SeD Acquisition Corp., SeD Home,
Inc. and SeD Home International, Inc.
|
|
|
Intentionally Omitted.
|
|
|
Lot
Purchase Agreement, dated as of July 20, 2016, by and between SeD
Maryland Development, LLC and Orchard Development
Corporation.
|
|
|
Partnership
Interest Purchase Agreement, dated as of July 23, 2018, by and
between SeD Development USA, Inc and 150 CCM Black Oak,
Ltd.
|
|
|
Partnership
Interest Purchase Agreement, dated as of July 23, 2018, by and
between SeD Development USA, Inc and 150 CCM Black Oak,
Ltd.
|
|
|
Loan Conversion Agreement, dated as of July 13,
2015, by and between HotApp International Inc. and Singapore
eDevelopment Limited.
|
|
|
Agreement
for Services, dated as of January 25, 2017, by and between HotApp
International Inc. and IGalen International Inc.
|
|
|
Loan Conversion Agreement, dated as of March 27,
2017, by and between HotApp International Inc. and Singapore
eDevelopment Limited.
|
|
|
Preferred Stock Cancellation Agreement, dated as
of March 27, 2017, by and between HotApp International Inc.
and Singapore eDevelopment Limited.
|
|
|
Outsource
Technology Development Agreement, dated as of March 1, 2018, by and
between Document Security Systems, Inc. and HotApp International
Ltd.
|
|
|
Term Sheet, dated as of September 14, 2018, by and
between HotApps International Pte Ltd and The Alpha Mind Pte
Ltd.
|
|
|
Construction
Loan Agreement, dated as of November 23, 2015, by and between SeD
Maryland Development, LLC and The Bank of Hampton
Roads.
|
|
|
Loan
Modification Commitment Letter, dated as of July 27, 2017, from
Xenith Bank, f/k/a The Bank of Hampton Roads to SeD Maryland
Development, LLC.
|
|
|
Loan
Modification Commitment Letter, dated as of August 30, 2017, from
Xenith Bank, f/k/a The Bank of Hampton Roads to SeD Maryland
Development, LLC.
|
|
|
Third
Loan Modification Agreement, dated as of September 18, 2017, by and
among SeD Maryland Development, LLC, SeD Ballenger, LLC, and Xenith
Bank, f/k/a The Bank of Hampton Roads.
|
|
|
Stock
Purchase Agreement, dated as of October 1, 2018, by and between HF
Enterprises Inc. and Heng Fai Chan as the sole shareholder of
Hengfai International Pte. Ltd.
|
|
|
Stock
Purchase Agreement, dated as of October 1, 2018, by and between HF
Enterprises Inc. and Heng Fai Chan as the sole shareholder of
Global eHealth Limited.
|
|
|
Stock
Purchase Agreement, dated as of October 1, 2018, by and between HF
Enterprises Inc. and Heng Fai Chan as the sole shareholder of Heng
Fai Enterprises Pte. Ltd.
|
|
|
Purchase and Sale Agreement, by and among 150 CCM Black Oak, Ltd.
and Houston LD, LLC, dated as of July 3, 2018.
|
|
|
Amended and Restated Purchase and Sale Agreement, by and among 150
CCM Black Oak, Ltd. and Houston LD, LLC, dated as of October 12,
2018.
|
|
|
Amendment
to Project Development and Management Agreement for Ballenger Run
PUD, dated as of October 16, 2019 by and between Adams-Aumiller Properties, LLC and
Cavalier Development Group,
LLC.
|
|
|
Development Loan Agreement, dated as of April 17, 2019, by and
between SeD Maryland Development, LLC and Manufacturers and Traders
Trust Company.
|
|
|
Code
of Conduct.
|
|
|
Code
of Ethics for the CEO and Senior Financial Officers.
|
|
|
Subsidiaries
of HF Enterprises Inc.
|
|
23.1
|
Consent
of Olshan Frome Wolosky LLP (included in the opinion filed as
Exhibit 5.1).
|
|
|
Consent
of Rosenberg Rich Baker Berman, P.A.
|
|
|
Consent of Wong Tat Keung.
|
|
|
Consent of Robert Trapp.
|
|
|
Consent of John Thatch.
|
|
|
Consent of Charles MacKenzie.
|
|
24.1
|
Power
of Attorney (contained on signature page).
|
*
To be filed by
amendment.
(b) Financial
Statement Schedules
None.
Item 17. Undertakings
The
undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each
purchaser.
Insofar
as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 14 or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such
issue.
The
undersigned Registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(l) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the
City of Bethesda, State of Maryland, on December 23, 2019.
|
|
HF
ENTERPRISES INC.
|
|
|
|
|
|
|
|
|
By:
|
/s/ Chan Heng
Fai
|
|
|
|
|
Chan Heng
Fai
|
|
|
|
|
Chairman of the
Board and Chief Executive Officer
|
|
POWER OF ATTORNEY
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Chan Heng Fai and Michael
Gershon, and each of them, as his true and lawful attorneys-in-fact
and agents, with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and to
sign any registration statement for the same offering covered by
the Registration Statement that is to be effective upon filing
pursuant to Rule 462 promulgated under the Securities Act of
1933, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and
each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in
connection therewith and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the
requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in
the capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Chan Heng Fai
|
|
|
|
|
|
Chan
Heng Fai
|
|
Chairman
of the Board and Chief Executive Officer
(principal
executive officer)
|
|
December
23, 2019
|
|
|
|
|
|
|
|
/s/ Lui
Wai Leung Alan
|
|
|
|
|
|
Lui Wai
Leung Alan
|
|
Co-Chief
Financial Officer
(co-principal
financial and accounting officer)
|
|
December
23, 2019
|
|
|
|
|
|
|
|
/s/
Rongguo Wei
|
|
|
|
|
|
Rongguo
Wei
|
|
Co-Chief
Financial Officer
(co-principal
financial and accounting officer)
|
|
December
23, 2019
|
|
/s/ Ang
Hay Kim Aileen
|
|
|
|
|
|
Ang Hay
Kim Aileen
|
|
Director
|
|
December
23, 2019
|
|
|
|
|
|
|
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HF ENTERPRISES INC.
HF
Enterprises Inc. (the “Corporation”), a
corporation organized and existing under the laws of the State of
Delaware, does hereby certify that:
A. The
Corporation’s original Certificate of Incorporation was filed
with the Secretary of State of Delaware on March 7,
2018.
B. This
Amended and Restated Certificate of Incorporation was duly adopted
in accordance with Sections 242 and 245 of the Delaware General
Corporation Law, as amended (the “DGCL”), and has been duly
approved by the written consent of the stockholders of the
Corporation in accordance with Section 228 of the
DGCL.
C. The
Certificate of Incorporation of the Corporation is hereby amended
and restated in its entirety to read as follows:
ARTICLE I
The
name of the corporation is HF Enterprises Inc. (the
“Corporation”).
ARTICLE II
The
registered office of the Corporation in the State of Delaware is to
be located at 16192 Coastal Highway, Lewes, Delaware 19958, County
of Sussex. The registered agent at such address in charge thereof
shall be Harvard Business Services, Inc.
ARTICLE III
The
purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware
General Corporation Law, as amended (the “DGCL”).
ARTICLE IV
4.1 Authorized
Capital Stock. The aggregate number of shares of capital
stock that the Corporation is authorized to issue is Twenty-Five
Million (25,000,000), of which Twenty Million (20,000,000) shares
are common stock having a par value of $0.001 per share (the
“Common
Stock”), and Five Million (5,000,000) shares are
preferred stock having a par value of $0.001 per share (the
“Preferred
Stock”).
4.2 Increase
or Decrease in Authorized Capital Stock. The number of
authorized shares of Preferred Stock or Common Stock may be
increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a
majority in voting power of the stock of the Corporation entitled
to vote generally in the election of directors, irrespective of the
provisions of Section 242(b)(2) of the DGCL (or any successor
provision thereto), voting together as a single class, without a
separate vote of the holders of the class or classes the number of
authorized shares of which are being increased or decreased, unless
a vote by any holders of one or more series of Preferred Stock is
required by the express terms of any series of Preferred Stock as
provided for or fixed pursuant to the provisions of Section 4.3 of
this Article IV.
4.3 Preferred
Stock.
(A) The
Board of Directors of the Corporation (the “Board”) is hereby
authorized, subject to any limitations prescribed by law, to
provide for the issuance of shares of Preferred Stock from time to
time in one or more series pursuant to a resolution or resolutions
providing for such issuance duly adopted by the Board. The Board is
further authorized, subject to limitations prescribed by law, to
file a certificate of designation pursuant to the applicable law of
the State of Delaware (any such certificate, a “Preferred Stock
Designation”), to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each
such series and the qualifications, limitations, and restrictions
thereof. The authority of the Board with respect to each series
shall include, but shall not be limited to and shall not require
(unless otherwise required by applicable law), determination of the
following:
(i) The
designation of the series, which may be by distinguishing number,
letter, or title;
(ii)
The number of shares of the series, which number the Board may
thereafter (except where otherwise provided in the applicable
Preferred Stock Designation) increase or decrease (but not below
the number of shares thereof then outstanding);
(iii)
The amounts payable on, and the preferences, if any, of, shares of
the series in respect of dividends, and whether such dividends, if
any, shall be cumulative or noncumulative;
(iv)
The dates on which dividends, if any, shall be
payable;
(v)
The redemption rights and price or prices, if any, for shares of
the series;
(vi)
The terms and amount of any sinking fund provided for the purchase
or redemption of shares of the series;
(vii)
The amounts payable on, and the preferences, if any, of, shares of
the series in the event of any voluntary or involuntary
liquidation, dissolution, or winding up of the affairs of the
Corporation;
(viii)
Whether the shares of the series shall be convertible into or
exchangeable for shares of any other class or series, or any other
security, of the Corporation or any other corporation, and, if so,
the specification of such other class or series or such other
security, the conversion or exchange price or prices or rate or
rates, any adjustments thereto, the date or dates at which such
shares shall be convertible or exchangeable, and all other terms
and conditions upon which such conversion or exchange may be
made;
(ix)
Restrictions on the issuance of shares of the same series or
of any other class or series; and
(x)
The voting rights, if any, of the holders of shares of the
series.
(B) Except
as may otherwise be provided in this Certificate of Incorporation,
in a Preferred Stock Designation, or by applicable law, only shares
of Common Stock shall be voted in elections of directors and for
all other purposes and shares of Preferred Stock shall not entitle
the holder thereof to vote at or receive notice of any meeting of
the stockholders of the Corporation.
4.4 Common
Stock.
(A) Common
Stock shall be subject to the express terms of any series of
Preferred Stock. Each holder of Common Stock shall be entitled to
one vote for each such share of Common Stock so held upon each
matter properly submitted to a vote of the
stockholders.
(B) Subject
to the rights of the holders of Preferred Stock, the holders of
shares of Common Stock shall be entitled to receive such dividends
and other distributions (payable in cash, property or capital stock
of the Corporation) when, as and if declared thereon by the Board
from time to time out of any assets or funds of the Corporation
legally available therefor and shall share equally on a per share
basis in such dividends and distributions.
(C) In
the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, after payment or provision for
payment of the debts and other liabilities of the Corporation, and
subject to the rights of the holders of Preferred Stock in respect
thereof, the holders of shares of Common Stock shall be entitled to
such amounts as provided under applicable law.
4.5 No
Preemptive Rights. No share of Common Stock or Preferred
Stock shall entitle any holder thereof any preemptive right to
subscribe for any shares of any class or series of stock of the
Corporation whether now or hereafter authorized.
ARTICLE V
Provisions for the
management of the business and for the conduct of the affairs of
the Corporation and provisions creating, defining, limiting, and
regulating the powers of the Corporation, the Board, and the
stockholders are as follows:
5.1 General
Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board. In addition to the
powers and authority herein or by statute expressly conferred upon
it, the Board is hereby expressly empowered to exercise all such
powers and to do all such acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the provisions
of the statutes of the State of Delaware and of this Certificate of
Incorporation as they may be amended, altered, or changed from time
to time, and to any bylaws from time to time made by the Board or
stockholders; provided, however, that no bylaw so made
shall invalidate any prior act of the Board that would have been
valid if such bylaw had not been made.
5.2 Number
of Directors; Election; Term.
(A) Subject
to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the total
number of authorized directors constituting the Board shall be
fixed solely by resolution of the Board.
(B) Subject
to the rights of holders of any series of Preferred Stock with
respect to the election of directors, each director shall serve
until his or her successor is duly elected and qualified or until
his or her earlier death, resignation or removal.
(C) Election
of directors of the Corporation need not be by written ballot
unless the bylaws so provide.
(D) No
stockholder will be permitted to cumulate votes at any election of
directors.
5.4
Vacancies and Newly
Created Directorships. Subject to the rights of holders of
any series of Preferred Stock, and except as otherwise provided in
the DGCL, vacancies occurring on the Board for any reason and newly
created directorships resulting from any increase in the authorized
number of directors shall be filled only by vote of a majority of
the remaining members of the Board, although less than a quorum, or
by a sole remaining director, at any meeting of the Board. A person
so elected by the Board to fill a vacancy or newly created
directorship shall hold office until his or her successor shall be
duly elected and qualified, or until such Director’s earlier
death, resignation, or removal.
5.5
Action by Written
Consent. Any action required or permitted to be taken by the
stockholders of the Corporation may be effected by written
consent.
5.6
Advance
Notice. Advance notice of stockholder nominations for
election of directors and other business to be brought by
stockholders at any meeting of stockholders shall be given in the
manner provided in the bylaws.
5.7
Special Meetings.
Except as otherwise expressly provided by the terms of any series
of Preferred Stock or applicable law, special meetings of
stockholders of the Corporation may be called by the Board, the
Chairman of the Board, the Chief Executive Officer and shall be
called by the Corporation if requested by one or more record
stockholders representing ownership of at least thirty-three and
one-third percent (33-1/3%) of the outstanding shares of the
Corporation’s stock entitled to vote and who has complied
with the requirements set forth in the bylaws. A special meeting of
stockholders may not be called by any other person.
5.8
Amendments to the
Bylaws. In furtherance and not in limitation of the powers
conferred by statute, the Board is hereby expressly authorized to
adopt, alter, amend or repeal the bylaws of the Corporation without
the assent or vote of the stockholders, including without
limitation the power to fix, from time to time, the number of
directors that shall constitute the whole Board, subject to the
right of the stockholders to alter, amend, or repeal the bylaws
made by the Board.
5.9
Submission of Contracts to
Stockholder Vote. The Board in its discretion may submit any
contract or act for approval or ratification at any annual meeting
of the stockholders or at any meeting of the stockholders called
for the purpose of considering any such contract or act, and any
contract or act that shall be approved or be ratified by the vote
of the holders of a majority of the stock of the Corporation that
is represented in person or by proxy at such meeting and entitled
to vote thereat (provided that a lawful quorum
of stockholders be there represented in person or by proxy) shall
be as valid and as binding upon the Corporation and upon all the
stockholders as though it had been approved or ratified by every
stockholder of the Corporation, whether or not the contract or act
would otherwise be open to legal attack because of directors’
interest or for any other reason.
ARTICLE VI
6.1
Limitation of Personal
Liability. To the fullest extent permitted by the DGCL, as
the same exists or may hereafter be amended, a director of the
Corporation shall not be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty
as a director. If the DGCL is amended after the effective date
hereof to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of
a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the DGCL as so amended. Any repeal or
modification of this Article VI by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification or with respect to events occurring prior to such
time.
6.2
Indemnification.
(A) Each
person who was or is made a party to, or is threatened to be made a
party to, or is involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative
(hereinafter, a “proceeding”), by reason
of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation
or of a partnership, joint venture, trust, or other enterprise,
including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official
capacity as such director, officer, employee, or agent, or in any
other capacity while serving as such director, officer, employee, or agent, shall
be indemnified and held harmless by the Corporation to the fullest extent
permitted by the DGCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than the DGCL permitted the Corporation to
provide prior to such amendment), against all expense, liability,
and loss (including attorneys’ fees, judgments, fines, other
expenses and losses, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement
Income Security Act of 1974) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer,
employee, or agent, and shall inure to the benefit of his or her
heirs, executors, and administrators; provided, however, that, except as
provided in paragraph (B) hereof, the Corporation shall indemnify
any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board. The right
to indemnification conferred in this Article VI shall be a contract
right and shall include the right of a director or officer to be
paid by the Corporation the expenses (including attorneys’
fees) incurred in defending any such proceeding in advance of its
final disposition; provided, however, that the payment of
such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an
undertaking, which undertaking shall itself be sufficient without
the need for further evaluation of any credit aspects of the
undertaking or with respect to such advancement, by or on behalf of
such director or officer, to repay all amounts so advanced if it
shall ultimately be determined by a final, non-appealable order of
a court of competent jurisdiction that such director or officer is
not entitled to be indemnified under this Article VI or
otherwise.
(B) If
a claim under paragraph (A) of this Article VI is not paid in full
by the Corporation within sixty (60) days after a written claim,
together with reasonable evidence as to the amount of such claim,
has been received by the Corporation, except in the case of a claim
for advancement of expenses (including attorneys’ fees), in
which case the applicable period shall be twenty (20) days, the
claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and, if
successful in whole or in part, the claimant shall also be entitled
to be paid the expense, including attorneys’ fees, of
prosecuting such suit. It shall be a defense to any such suit,
other than a suit brought to enforce a claim for expenses
(including attorneys’ fees) incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the
Corporation, that the claimant has not met the standards of conduct
that make it permissible under the DGCL for the Corporation to
indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including the Board or a committee
thereof, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by the Corporation
(including the Board or a committee thereof, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the suit or
create a presumption that the claimant has not met the applicable
standard of conduct. In any suit brought by an indemnitee to
enforce a right to indemnification or to advancement of expenses
hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to such
indemnification, or to such advancement of expenses, under this
Article VI or otherwise shall be on the Corporation.
(C) The
right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition
conferred in this Article VI shall not be exclusive of any other
right that any person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, bylaw,
agreement, or vote of stockholders or disinterested directors, or
otherwise.
(D) The
Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the
Corporation or another corporation, partnership, joint venture,
trust, or other enterprise against any such expense, liability, or
loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability, or loss
under the DGCL.
(E) In
the case of a claim for indemnification or advancement of expenses
against the Corporation under this Article VI arising out of acts,
events, or circumstances for which the claimant, who was at the
relevant time serving as a director, officer, employee, or agent of
any other entity at the request of the Corporation, may be entitled
to indemnification or advancement of expenses pursuant to such
other entity’s certificate of incorporation, bylaws, or other
governing document, or a contractual agreement between the claimant
and such entity, the claimant seeking indemnification or
advancement of expenses hereunder shall first seek indemnification
or advancement of expenses pursuant to any such governing document
or agreement. To the extent that amounts to be paid in
indemnification or advancement to a claimant hereunder are paid by
such other entity, the claimant’s right to indemnification
and advancement of expenses hereunder shall be
reduced.
(F) Neither
any amendment nor repeal of this Article VI, nor the adoption of
any provision of this Certificate of Incorporation inconsistent
with this Article VI, shall eliminate or reduce the effect of this
Article VI in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VI,
would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
ARTICLE VII
Whenever a
compromise or arrangement is proposed between the Corporation and
its creditors or any class of them and/or between the Corporation
and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or
receivers appointed for the Corporation under §291 of Title 8
of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
Corporation under §279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of the Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the court to which
the said application has been made, be binding on all the creditors
or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on
the Corporation.
ARTICLE VIII
Unless
the Corporation consents in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware
shall be the sole and exclusive forum for (A) any derivative
action or proceeding brought on behalf of the Corporation,
(B) any action asserting a claim of breach of a fiduciary duty
owed by any director, officer, or other employee of the Corporation
to the Corporation or the Corporation’s stockholders,
(C) any action asserting a claim arising pursuant to any
provision of the DGCL, or (D) any action asserting a claim
governed by the internal affairs doctrine as such doctrine exists
under the law of the State of Delaware.
ARTICLE IX
The
Corporation reserves the right to restate this Certificate of
Incorporation and to amend, alter, change, or repeal any provision
contained in this Certificate of Incorporation (including any
rights, preferences or other designations of Preferred Stock) in
the manner now or hereafter prescribed by law, and all rights and
powers conferred herein on stockholders, directors, and officers
are subject to this reserved power.
IN
WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by the
undersigned, a duly authorized officer of the Corporation, on
September 21, 2018.
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Rongguo
Wei
|
|
|
|
|
Rongguo
Wei
|
|
|
|
|
Co-Chief Financial
Officer
|
|
Exhibit 3.2
BYLAWS
OF
HF ENTERPRISES INC.
A
Delaware corporation
TABLE OF CONTENTS
|
Description
|
|
Page
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
3
|
|
|
|
|
4
|
|
|
|
|
8
|
|
|
|
|
8
|
|
|
|
|
9
|
|
|
|
|
9
|
|
|
|
|
9
|
|
|
|
|
9
|
|
|
|
|
9
|
|
|
|
|
10
|
|
|
|
|
10
|
|
|
|
|
10
|
|
|
|
|
10
|
|
|
|
11
|
|
|
|
|
11
|
|
|
|
|
11
|
|
|
|
|
11
|
|
|
|
|
12
|
|
|
|
|
12
|
|
|
|
|
12
|
|
|
|
|
12
|
|
|
|
|
12
|
|
|
|
|
13
|
|
|
|
|
14
|
|
|
|
|
14
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
15
|
|
|
|
|
16
|
|
|
|
|
17
|
BYLAWS
OF
HF ENTERPRISES INC.
A
Delaware corporation
OFFICES
Section 1.1.
Registered
Office. The address of the registered office of the
Corporation in Delaware shall be 16192 Coastal Highway, Lewes,
Delaware 19958, County of Sussex. The registered agent at such
address in charge thereof shall be Harvard Business Services, Inc.,
all of which shall be subject to change from time to time as
permitted by law.
Section 1.2.
Other
Offices. The Corporation may also have an office or offices
or place or places of business within or without the State of
Delaware as the Board may from time to time designate.
MEETINGS OF STOCKHOLDERS
Section 2.1.
Annual
Meeting. The annual meeting of the stockholders shall be
held at the principal place of business of the Corporation or at
such other place within or outside of Delaware (or may not be held
at any place, but may instead be held solely by means of remote
communication if so decided by the Board in its sole discretion),
on such date and at such time as shall be determined from time to
time by the Board, for the purpose of electing directors and for
transacting other proper business.
Section 2.2.
Special
Meetings.
(a)
Special meetings of the stockholders for any purpose or purposes,
other than those required by statute, may be called at any time by
the Board, the Chairman of the Board, or the Chief Executive
Officer and shall be called by the Corporation upon the request of
the stockholders as set forth in Section 2.2(b) below. Except as
set forth in this Section 2.2, no other person may call a special
meeting of stockholders. Special meetings of the stockholders shall
be held at the principal place of business of the Corporation or at
such other place within or outside of Delaware (or may not be held
at any place, but may instead be held solely by means of remote
communication if so decided by the Board in its sole discretion),
on such date and at such time as shall be determined from time to
time by the Board, for the purpose set forth in the Corporations
notice of meeting.
(b) A
special meeting of the stockholders shall be called by the
Corporation following the receipt by the Secretary of a written
request for a special meeting of the stockholders (a “Special
Meeting Request”) from one or more record stockholders
representing ownership of at least thirty-three and one-third
percent (33-1/3%) of the outstanding shares of the
Corporation’s stock entitled to vote (the “Requisite
Holders”) if such Special Meeting Request complies with the
requirements set forth in this Section 2.2(b). A Special Meeting
Request shall only be valid if it is signed and dated by each of
the Requisite Holders (or their duly authorized agents) and if such
request sets forth all information required in Section 2.3(a)(2).
If a Special Meeting Request complies with this Section 2.2, the
Board may fix a record date (in accordance with Section 2.5
herein), which shall not precede and shall not be more than ten
(10) days after the close of business on the date on which the
resolution fixing the record date is adopted by the Board. If the
Board, within ten (10) days after the date on which a valid Special
Meeting Request is received, fails to adopt a resolution fixing the
record date, the record date shall be the close of business on the
tenth (10th) day after the
first date on which the Special Meeting Request is received by the
Secretary. The Board shall also establish the place (if any), date
and time of the special meeting of stockholders requested in such
Special Meeting Request. The date of any such special meeting shall
not be more than ninety (90) days after the Secretary’s
receipt of the properly submitted Special Meeting Request;
provided,
however, that in
the event that a Special Meeting Request is received after the
expiration of the advance notice period set forth in Section
2.3(a)(2), but before the annual meeting of stockholders, the Board
may use its discretion to set the date of a special meeting no more
than ten (10) days following the annual meeting of stockholders.
Only matters that are stated in the Special Meeting Request shall
be brought before and acted upon during the special meeting of
stockholders called according to the Special Meeting Request;
provided,
however, that
nothing herein shall prohibit the Board from submitting any matters
to the stockholders at any special meeting of stockholders called
by the stockholders pursuant to this Section 2.2(b). Requisite
Holders may revoke a Special Meeting Request by written revocation
delivered to the Corporation at any time prior to the special
meeting of stockholders; provided, however, the Board shall have
the sole discretion to determine whether to proceed with the
special meeting of stockholders following such written revocation.
Additionally, a Requisite Holder whose signature (or authorized
agent’s signature) appears on a Special Meeting Request may
revoke such Requisite Holder’s participation in a Special
Meeting Request at any time by written revocation delivered to the
Secretary in the same manner as the Special Meeting Request and if,
following any such revocation, the remaining Requisite Holders
participating in the Special Meeting Request do not represent at
least the Requisite Percentage, the Special Meeting Request shall
be deemed revoked. Likewise, any reduction in percentage stock
ownership of the Requisite Holders below the Requisite Percentage
following delivery of the Special Meeting Request to the Secretary
shall be deemed to be a revocation of the Special Meeting Request.
If written revocations of requests for the special meeting have
been delivered to the Secretary and the result is that stockholders
(or their agents duly authorized in writing), as of the date of the
Special Meeting Request, entitled to cast less than the Requisite
Percentage have delivered, and not revoked, requests for a special
meeting to the Secretary, the Secretary shall refrain from mailing
the notice of the meeting and send to all requesting stockholders
who have not revoked such requests a written notice of any
revocation of a request for the special meeting or, if the notice
of meeting has been mailed, the Secretary shall send to all
requesting stockholders who have not revoked requests for a special
meeting a written notice of any revocation of a request for the
special meeting and of the Secretary’s intention to revoke
the notice of the meeting, and shall there thereafter revoke the
notice of the meeting at any time before ten days before the
commencement of the meeting. Any request for a special meeting
received after a revocation by the Secretary of a notice of a
meeting shall be considered a request for a new special meeting. A
Special Meeting Request shall not be valid (and thus the special
meeting of stockholders requested pursuant to the Special Meeting
Request will not be held) if (i) the Special Meeting Request
relates to an item of business that is not a proper subject for
stockholder action under applicable law; or (ii) the Special
Meeting Request was made in a manner that involved a violation of
Section 14(a) under the Exchange Act and the rules and regulations
thereunder. In addition, if none of the Requisite Holders appears
or sends a representative to present the business or nomination
submitted by the stockholders in the Special Meeting Request to be
conducted at the special meeting of stockholders, the Corporation
need not conduct any such business or nomination for a vote at such
special meeting of stockholders.
Section 2.3. Notice of Stockholder Business and
Nominations.
(a)
Annual Meetings of
Stockholders.
(1) At
an annual meeting of stockholders, only such business shall be
conducted as shall have been properly brought before the meeting.
To be properly brought before an annual meeting of stockholders,
nominations of persons for election to the Board of the Corporation
and the proposal of other business must be brought
(A) pursuant to the Corporation’s notice of meeting (or
any supplement thereto), (B) by or at the direction of the
Board or any committee thereof, or (C) by any stockholder of
the Corporation who is a stockholder of record at the time the
notice provided for in this Section 2.3(a) is delivered to the
Secretary of the Corporation and on the record date for the
determination of stockholders entitled to vote at the annual
meeting, who is entitled to vote at the meeting, and who complies
with the notice procedures set forth in this Section 2.3(a). For
the avoidance of doubt, clause (C) above shall be the exclusive
means for a stockholder to make nominations and submit other
business (other than matters properly included in the
Corporation’s notice of meeting of stockholders and proxy
statement under Rule 14a-8 of the Exchange Act) before an annual
meeting of stockholders.
(2) For
any nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(1) of this Section 2.3, the stockholder must have given timely
notice thereof in writing to the Secretary of the Corporation at
the Corporation’s principal executive offices, and any such
proposed business (other than the nominations of persons for
election to the Board) must constitute a proper matter for
stockholder action at such meeting. To be timely, a
stockholder’s notice shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than
the close of business on the ninetieth (90th) day, nor earlier than
the close of business on the one hundred twentieth (120th) day,
prior to the first anniversary of the preceding year’s annual
meeting; provided,
however, that in
the event that the date of the annual meeting is advanced or
delayed by more than thirty (30) days prior to such anniversary
date, notice by the stockholder must be so delivered not earlier
than the close of business on the one hundred twentieth (120th) day
prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such
annual meeting or the tenth (10th) day following the day on which
public announcement of the date of such meeting is first made by
the Corporation. In no event shall the public announcement of an
adjournment or postponement of an annual meeting commence a new
time period (or extend any time period) for the giving of a
stockholder’s notice as described above. Such
stockholder’s notice shall set forth (A) as to each
person whom the stockholder proposes to nominate for election as a
director (i) the name, age, business address and residence
address of such nominee, (ii) the principal occupation or
employment of such nominee, (iii) the class or series and number of
shares of stock that are owned beneficially and of record by such
nominee as well as any derivative or synthetic instrument,
convertible security, put, option, stock appreciation right, swap
or similar contract, agreement, arrangement or understanding the
value of or return on which is based on or linked to the value of
or return on any shares of stock, (iv) a description of any
agreement, arrangement, or understanding (including any derivative
or short positions, profit interests, options, warrants,
convertible securities, stock appreciation or similar rights,
hedging transactions, and borrowed or loaned shares) that has been
entered into as of the date of the stockholder’s notice by,
or on behalf of, such nominee, whether or not such instrument or
right shall be subject to settlement in underlying shares of stock,
the effect or intent of which is to mitigate loss to, manage risk
or benefit of share price changes for, or increase or decrease the
voting power of, such nominee with respect to securities of the
Corporation, (v) all information relating to such nominee that is
required to be disclosed in solicitations of proxies for election
of directors in an election contest (even if an election contest is
not involved), or is otherwise required, in each case pursuant to
and in accordance with Section 14(a) of the Exchange Act and the
rules and regulations promulgated thereunder, and (vi) such
nominee’s written consent to being named in the proxy
statement as a nominee and to serving as a director if elected;
(B) as to any other business that the stockholder proposes to
bring before the meeting, (i) a brief description of the business
desired to be brought before the meeting, (ii) the text of the
proposal or business (including the text of any resolutions
proposed for consideration and, in the event that such business
includes a proposal to amend the Bylaws, the language of the
proposed amendment), (iii) the reasons for conducting such business
at the meeting, and (iv) any material interest in such business of
such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (C) as to the stockholder giving the
notice and any beneficial owner, if any, on whose behalf the
nomination or proposal is made (i) the name and address of
such stockholder, as they appear on the Corporation’s books,
and of such beneficial owner, (ii) the class or series and
number of shares of stock that are owned beneficially and of record
by such stockholder and such beneficial owner as well as any
derivative or synthetic instrument, convertible security, put,
option, stock appreciation right, swap or similar contract,
agreement, arrangement or understanding the value of or return on
which is based on or linked to the value of or return on any shares
of stock, (iii) a description of any agreement, arrangement,
or understanding with respect to the nomination or proposal between
or among such stockholder and/or such beneficial owner, any of
their respective affiliates or associates, and any others acting in
concert with any of the foregoing, including, in the case of a
nomination, the nominee, (iv) a description of any agreement,
arrangement, or understanding (including any derivative or short
positions, profit interests, options, warrants, convertible
securities, stock appreciation or similar rights, hedging
transactions, and borrowed or loaned shares) that has been entered
into as of the date of the stockholder’s notice by, or on
behalf of, such stockholder and such beneficial owners, whether or
not such instrument or right shall be subject to settlement in
underlying shares of stock, the effect or intent of which is to
mitigate loss to, manage risk or benefit of share price changes
for, or increase or decrease the voting power of, such stockholder
or such beneficial owner, with respect to securities of the
Corporation, (v) a representation that the stockholder is a
holder of record of stock entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to propose
such business or nomination, (vi) a representation whether the
stockholder or the beneficial owner, if any, intends or is part of
a group that intends (I) to deliver a proxy statement and/or
form of proxy to holders of at least the percentage of the
outstanding stock required to approve or adopt the proposal or
elect the nominee and/or (II) otherwise to solicit proxies or
votes from stockholders in support of such proposal or nomination,
and (vii) any other information relating to such stockholder
and beneficial owner, if any, required to be disclosed in a proxy
statement or other filings required to be made in connection with
solicitations of proxies for, as applicable, the proposal and/or
for the election of directors in an election contest pursuant to
and in accordance with Section 14(a) of the Exchange Act and the
rules and regulations promulgated thereunder.
(3) At
the request of the Board, any person nominated by a stockholder for
election or reelection as a director must furnish to the Secretary
of the Corporation (A) that information required to be set forth in
the stockholder’s notice of nomination of such person as a
director as of a date subsequent to the date on which the notice of
such person’s nomination was given and (B) such other
information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as an
independent director or audit committee financial expert of the
corporation under applicable law, securities exchange rule or
regulation, or any publicly-disclosed corporate governance
guideline or committee charter of the Corporation and (C) that
could be material to a reasonable stockholder’s understanding
of the independence, or lack thereof, of such nominee; in the
absence of the furnishing of such information if requested, such
stockholder’s nomination shall not be considered in proper
form pursuant to this Section 2.3.
(4)
Notwithstanding anything in the second sentence of paragraph (a)(2)
of this Section 2.3 to the contrary, in the event that the number
of directors to be elected to the Board of the Corporation at the
annual meeting is increased effective after the time period for
which nominations would otherwise be due under paragraph (a)(2) of
this Section 2.3, and there is no public announcement by the
Corporation naming the nominees for the additional directorships at
least one hundred (100) days prior to the first anniversary of the
preceding year’s annual meeting, a stockholder’s notice
required by this Section 2.3 shall also be considered timely, but
only with respect to nominees for the additional directorships, if
it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on
the tenth (10th) day following the day on which such public
announcement is first made by the Corporation.
(b) Special
Meetings of Stockholders.
(1)
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant
to the Corporation’s notice of meeting. Nominations of
persons for election to the Board may be made at a special meeting
of stockholders at which directors are to be elected pursuant to
the Corporation’s notice of meeting (A) by or at the
direction of the Board or (B) provided that the Board has
determined that directors shall be elected at such meeting, by any
stockholder of the Corporation who is a stockholder of record at
the time the notice provided for in this Section 2.3(b) is
delivered to the Secretary of the Corporation and on the record
date for the determination of stockholders entitled to vote at the
special meeting, who is entitled to vote at the meeting and upon
such election and who complies with the notice procedures set forth
in this Section 2.3(b).
(2) In
the event the Corporation calls a special meeting of stockholders
for the purpose of electing one or more directors, any such
stockholder entitled to vote in such election of directors may
nominate a person or persons (as the case may be) for election to
such position(s) as specified in the Corporation’s notice of
meeting, if the stockholder delivers a notice in the form as is
required by paragraph (a)(2) of this Section 2.3 to the Secretary
at the principal executive offices of the Corporation not earlier
than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such
special meeting or the tenth (10th) day following the day on which
public announcement is first made of the date of the special
meeting and of the nominees proposed by the Board to be elected at
such meeting. In no event shall the public announcement of an
adjournment or postponement of a special meeting commence a new
time period (or extend any time period) for the giving of a
stockholder’s notice as described above.
(c) General.
(1)
Except as otherwise expressly provided in any applicable rule or
regulation promulgated under the Exchange Act, only such persons
who are nominated in accordance with the procedures set forth in
this Section 2.3 shall be eligible to be elected at an annual or
special meeting of stockholders to serve as directors, and only
such business shall be conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the
procedures set forth in this Section 2.3. Except as otherwise
provided by law, the chairman of the meeting shall have the power
and duty (A) to determine whether a nomination or any business
proposed to be brought before the meeting was made or proposed, as
the case may be, in accordance with the procedures set forth in
this Section 2.3, and (B) if any proposed nomination or
business was not made or proposed in compliance with this Section
2.3, to declare that such nomination shall be disregarded or that
such proposed business shall not be transacted. Notwithstanding the
foregoing provisions of this Section 2.3, unless otherwise required
by law, if the stockholder (or a qualified representative of the
stockholder) does not appear at the annual or special meeting of
stockholders to present a nomination or proposed business, such
nomination shall be disregarded and such proposed business shall
not be transacted, notwithstanding that proxies in respect of such
vote may have been received by the Corporation. For purposes of
this Section 2.3, to be considered a qualified representative of
the stockholder, a person must be a duly authorized officer,
manager or partner of such stockholder or must be authorized by a
writing executed by such stockholder or an electronic transmission
delivered by such stockholder to act for such stockholder as proxy
at the meeting of stockholders, and such person must produce such
writing or electronic transmission, or a reliable reproduction of
the writing or electronic transmission, at the meeting of
stockholders.
(2) A
stockholder providing written notice required by this Section 2.3
shall update and supplement such notice in writing, if necessary,
so that the information provided or required to be provided in such
notice is true and correct in all material respects as of (i) the
record date for the meeting and (ii) the date that is ten (10)
business days prior to the meeting and, in the event of any
adjournment or postponement thereof, ten (10) business days prior
to such adjourned or postponed meeting. In the case of an update
and supplement pursuant to clause (i) of this Section 2.3(c)(2),
such update and supplement shall be received by the Secretary at
the principal executive offices of the Corporation not later than
five (5) business days after the record date for the meeting. In
the case of an update and supplement pursuant to clause (ii) of
this Section 2.3(c)(2), such update and supplement shall be
received by the Secretary at the principal executive offices of the
Corporation not later than five (5) business days prior to the date
for the meeting, and, in the event of any adjournment or
postponement thereof, five (5) business days prior to such
adjourned or postponed meeting.
(3) For
purposes of this Section 2.3, “public announcement”
shall include disclosure in a press release reported by a national
news service, or in a document publicly filed by the Corporation
with the Securities and Exchange Commission pursuant to Section 13,
14, or 15(d) of the Exchange Act and the rules and regulations
promulgated thereunder.
(4)
Notwithstanding the foregoing provisions of this Section 2.3, a
stockholder shall also comply with all applicable requirements of
the Exchange Act and the rules and regulations promulgated
thereunder with respect to the matters set forth in this Section
2.3; provided,
however, that any
references in these Bylaws to the Exchange Act or the rules and
regulations promulgated thereunder are not intended to and shall
not limit any requirements applicable to nominations or proposals
as to any other business to be considered pursuant to this Section
2.3, and compliance with this Section 2.3 shall be the exclusive
means for a stockholder to make nominations or submit other
business (other than, as provided in the last sentence of (a)(1),
business other than nominations brought properly under and in
compliance with Rule 14a-8 of the Exchange Act, as may be amended
from time to time). Nothing in this Section 2.3 shall be deemed to
affect any rights (A) of stockholders to request inclusion of
proposals or nominations in the Corporation’s proxy statement
pursuant to applicable rules and regulations promulgated under the
Exchange Act, or (B) of the holders of any series of Preferred
Stock to elect directors pursuant to any applicable provisions of
the certificate of incorporation.
Section 2.4.
Notice
of Meetings. Notice of all stockholders’ meetings
shall be given in writing by the Secretary or another officer of
the Corporation authorized to give such notice, or (b) in case
of a special meeting duly requested by stockholders pursuant to
Section 2.2 and for which the Secretary has refused to give notice,
by the stockholders entitled to call such meeting. Notice of any
stockholders’ meeting shall state the date and hour when and
the place where it is to be held, if any (or, the means of remote
communication, if any, by which stockholders may be deemed to be
present in person and vote at such meeting), the record date for
determining the stockholders entitled to vote at such meeting if
such date is different from the record date for determining the
stockholders entitled to notice of such meeting, and, in the case
of a special meeting, the purpose or purposes for which such
meeting is called. Subject to Section 7.3, and unless otherwise
required by law, not more than sixty (60) nor less than ten (10)
days prior to any such meeting, such notice shall be given to each
stockholder entitled to vote at such meeting as of the record date
for determining the stockholders entitled to notice of the meeting,
directed by United States mail, postage prepaid, to such
stockholder’s address as it appears upon the records of the
Corporation.
Section 2.5.
Record
Date. The Board may fix a date, which date shall not precede
the date upon which the resolution fixing such date is adopted by
the Board and shall not be more than sixty (60) nor less than ten
(10) days preceding any meeting of stockholders, as the record date
for the determination of the stockholders entitled to notice of
such meeting. If the Board so fixes a date, such date shall also be
the record date for determining the stockholders entitled to vote
at such meeting unless the Board determines, at the time it fixes
such record date, that a later date on or before the date of such
meeting shall be the date for making such determination. If no
record date is fixed by the Board, the record date for determining
stockholders entitled to notice of and to vote at a meeting of
stockholders shall be at the close of business on the day next
preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day
on which such meeting is held. A determination of stockholders of
record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting;
provided,
however, that the
Board may fix a new record date for determination of stockholders
entitled to vote at the adjourned meeting, and in such case shall
also fix as the record date for stockholders entitled to notice of
such adjourned meeting the same or an earlier date as that fixed
for determination of stockholders entitled to vote in accordance
with the provisions of Section 213 of the DGCL and this Section 2.5
at the adjourned meeting. In order that the Corporation may
determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any
other lawful action, the Board may fix a record date, which record
date shall not precede the date upon which the resolution fixing
the record date is adopted, and which record date shall be not more
than 60 days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall
be at the close of business on the day on which the Board adopts
the resolution relating thereto.
Section 2.6.
List of
Stockholders. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting; provided, however, that if the record
date for determining the stockholders entitled to vote is less than
ten (10) days before the meeting date, the list shall reflect the
stockholders entitled to vote as of the tenth (10th) day before the
meeting date, arranged in alphabetical order, and showing the
address of each stockholder and the number of shares of stock
registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder for any purpose germane to
the meeting for a period of at least ten (10) days prior to the
meeting, during ordinary business hours, at the principal place of
business of the Corporation. A list of stockholders entitled to
vote at the meeting shall be produced and kept at the time and
place, if any, of the meeting during the whole time thereof and may
be examined by any stockholder who is present. If the meeting is to
be held solely by means of remote communication, then the list
shall also be open to the examination of any stockholder during the
whole time of the meeting on a reasonably accessible electronic
network, and the information required to access such list shall be
provided with the notice of the meeting. The stock ledger shall be
the only evidence as to who are the stockholders entitled to vote
in person or by proxy at any meeting of stockholders.
Section 2.7.
Voting.
Except as may be otherwise required by law, the Certificate of
Incorporation, or these Bylaws, (a) every stockholder of
record shall be entitled to one (1) vote for each share of stock
held of record by such stockholder on the record date for
determining the stockholders entitled to vote or act by written
consent; (b) in all matters other than a contested election of
directors, the affirmative vote of the majority of shares of stock
present in person or represented by proxy at a stockholders’
meeting having a quorum and entitled to vote on the subject matter
shall be the act of the stockholders; and (c) in a contested
election of directors, directors shall be elected by a plurality of
the votes of the shares of stock present in person or represented
by proxy at a stockholders’ meeting having a quorum and
entitled to vote on the election of directors. No stockholder will
be permitted to cumulate votes at any election of
directors.
Section 2.8.
Action
by Written Consent. Any action required or permitted to be
taken by the stockholders of the Corporation may be effected by
written consent.
Section 2.9.
Proxies. At
any meeting of the stockholders, any stockholder entitled to vote
thereat may authorize another person or persons to act for such
stockholder by proxy authorized by an instrument in writing or by
transmission permitted by law filed in accordance with the
procedure established for the meeting, but no proxy shall be voted
or acted upon after three years from its date, unless the proxy
provides for a longer period. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the
provisions of Section 212 of the DGCL. A written proxy may be in
the form of a telegram, cablegram, or other means of electronic
transmission which sets forth or is submitted with information from
which it can be determined that the telegram, cablegram, or other
means of electronic transmission was authorized by the
person.
Section 2.10.
Quorum.
Except as may be otherwise required by law or the Certificate of
Incorporation, at any meeting of the stockholders, the presence in
person or by proxy of the holders of record of shares of stock that
would constitute a majority of the votes if all the issued and
outstanding shares of stock entitled to vote at such meeting were
present and voted shall be necessary to constitute a quorum;
provided,
however, that,
where a separate vote by a class or series of stock is required, a
quorum shall consist of the presence in person or by proxy of the
holders of record of shares of stock that would constitute a
majority of the votes of such class or series if all issued and
outstanding shares of stock of such class or series entitled to
vote at such meeting were present and voted. In the absence of a
quorum and until a quorum is secured, either the chairman of the
meeting or a majority of the votes cast at the meeting by
stockholders who are present in person or by proxy may adjourn the
meeting, from time to time, without further notice if the time and
place of the adjourned meeting are announced at the meeting at
which the adjournment is taken. No business shall be transacted at
any such adjourned meeting except such as might have been lawfully
transacted at the original meeting.
Section 2.11.
Adjournment.
Any meeting of stockholders may be adjourned at the meeting from
time to time, either by the chairman of the meeting, for an
announced proper purpose, or by the stockholders, for any purpose,
to reconvene at a later time and at the same or some other place,
if any, and by the same or other means of remote communication, if
any, and, unless otherwise required by law, notice need not be
given of any such adjourned meeting if the time and place, if any,
or the means of remote communication, if any, thereof are announced
at the meeting at which the adjournment is taken. If the
adjournment is for more than 30 days, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to
vote at the meeting. If after the adjournment a new record date for
stockholders entitled to vote is fixed for the adjourned meeting,
the Board shall fix a new record date for notice of such adjourned
meeting in accordance with the DGCL and section 2.5 herein and
shall give notice of the adjourned meeting to each stockholder of
record entitled to vote at such adjourned meeting as of the record
date fixed for notice of such adjourned meeting. No business shall
be transacted at any such adjourned meeting except such as might
have been lawfully transacted at the original meeting.
Section 2.12.
Organization of
Meetings. Meetings of
stockholders shall be presided over by the chairman of the meeting,
who shall be one of the following, here listed in the order of
preference: (a) the Chairman of the Board; or (b) in the
Chairman’s absence, the Chief Executive Officer; or (c) in
the Chief Executive Officer’s absence, the President; or
(d) in the President’s absence, a Vice President; or
(d) in the absence of the foregoing officers, a chairman
chosen by the stockholders at the meeting. The Secretary shall act
as secretary of the meeting, but in such officer’s absence,
the chairman of the meeting shall appoint a secretary of the
meeting.
Section 2.13. Conduct
of Meetings. Subject to and to the extent
permitted by law, the Board may adopt by resolution such rules and
regulations for the conduct of meetings of stockholders as it shall
deem appropriate. Except to the extent inconsistent with law or
such rules and regulations as adopted by the Board, the chairman of
any meeting of stockholders shall have the right and authority to
prescribe such rules, regulations, and procedures, and to do all
such acts, as in the judgment of such chairman are appropriate for
the proper conduct of the meeting. Such rules, regulations, or
procedures, whether adopted by the Board or prescribed by the
chairman of the meeting, may include, without limitation, the
following: (a) the establishment of an agenda or order of
business for the meeting and announcement of the date and time of
the opening and closing of the polls for each matter upon which the
stockholders will vote at the meeting; (b) rules and
procedures for maintaining order at the meeting and the safety of
those present; (c) limitations on attendance at or
participation in the meeting to stockholders, their duly authorized
proxies, or such other persons as the chairman of the meeting shall
determine; (d) restrictions on entry to the meeting after the
time fixed for the commencement thereof; (e) limitations on
the time allotted to questions or comments by participants; and
(f) appointment of inspectors of election and other voting
procedures, including those procedures set out in Section 231 of
the DGCL. Unless and to the extent determined otherwise by the
Board or the chairman of the meeting, meetings of stockholders
shall not be required to be held in accordance with the rules of
parliamentary procedure.
Section 2.14.
Joint
Owners of Stock. If shares or other securities having voting
power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants,
tenants in common, tenants by the entirety, or otherwise, or if two
(2) or more persons have the same fiduciary relationship respecting
the same shares, unless the Secretary is given written notice to
the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so
provided, their acts with respect to voting shall have the
following effect: (a) if only one (1) votes, his act binds all; (b)
if more than one (1) votes, the act of the majority so voting binds
all; (c) if more than one (1) votes, but the vote is evenly split
on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in Section 217(b) of the DGCL. If
the instrument filed with the Secretary shows that any such tenancy
is held in unequal interests, a majority or even-split for the
purpose of subsection (c) shall be a majority or even-split in
interest.
BOARD OF DIRECTORS
Section 3.1.
Number.
Except as may be otherwise provided in the Certificate of
Incorporation and subject to the rights of holders of any series of
Preferred Stock, the entire Board shall consist of one (1) or more
directors, the total number thereof shall be authorized first by
the incorporator of the Corporation and thereafter from time to
time solely by resolution of the Board. Each director shall serve
until his or her successor is duly elected and qualified or until
his or her death, resignation, or removal. Directors need not be
stockholders of the Corporation.
Section 3.2.
Resignations and
Vacancies.
(a) Any
director may resign at any time upon notice given in writing or by
electronic transmission to the Corporation; provided, however, that if such notice is
given by electronic transmission, such electronic transmission must
either set forth or be submitted with information from which it can
be determined that the electronic transmission was authorized by
the director. A resignation is effective when the resignation is
delivered unless the resignation specifies a later effective date
or an effective date determined upon the happening of an event or
events. Acceptance of such resignation shall not be necessary to
make it effective. A resignation which is conditioned upon the
director failing to receive a specified vote for reelection as a
director may provide that it is irrevocable. Unless otherwise
provided in the Certificate of Incorporation or these Bylaws, when
one or more directors resign from the Board, effective at a future
date, a majority of the directors then in office, including those
who have so resigned, shall have power to fill such vacancy or
vacancies, the vote thereon to take effect when such resignation or
resignations shall become effective.
(b)
Subject to the rights of holders of any series of Preferred Stock
with respect to the election of directors, and except as otherwise
provided in the DGCL, vacancies occurring on the Board for any
reason and newly created directorships resulting from an increase
in the authorized number of directors shall be filled only by vote
of a majority of the remaining members of the Board, although less
than a quorum, or by a sole remaining director, at any meeting of
the Board. A person so elected by the Board to fill a vacancy or
newly created directorship shall hold office until the next
election of the class for which such director shall have been
assigned by the Board and until his or her successor shall be duly
elected and qualified, or until such director’s earlier
death, resignation, or removal.
Section 3.3.
Meetings.
The Board may by resolution provide for regular meetings to be held
at such times and places as it may determine, and such meetings may
be held without further notice. Special meetings of the Board may
be called by the Chairman, the Chief Executive Officer, the
President, or by not less than a majority of the directors then in
office. Subject to Section 7.3, notice of the time and place of
such meeting shall be given by or at the direction of the person or
persons calling the meeting, and shall be delivered personally,
telephoned, or sent by electronic mail or facsimile, to each
director at least twenty-four (24) hours prior to the time of the
meeting, or sent by First Class United States mail, postage
prepaid, to each director at such director’s address as shown
on the records of the Corporation, in which case such notice shall
be deposited in the United States mail no later than the fourth
(4th) business day preceding the day of the meeting. Unless
otherwise specified in the notice of a special meeting, any and all
business may be transacted at such meeting. Meetings of the Board,
both regular and special, may be held either within or outside the
State of Delaware. Unless otherwise restricted by the Certificate
of Incorporation or these Bylaws, members of the board of
directors, or any committee designated by the Board, may
participate in a meeting of the Board, or any committee, by means
of conference telephone or other communications equipment by means
of which all persons participating in the meeting can hear each
other, and such participation in a meeting shall constitute
presence in person at the meeting.
Section 3.4.
Action
Without a Meeting. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may
be taken without a meeting if all the directors or all members of
the committee, as the case may be, consent thereto in writing or by
electronic transmission, and such writings or electronic
transmissions are filed with the minutes of proceedings of the
Board or committee, as the case may be.
Section 3.5.
Quorum. At
any meeting of the Board, the presence of (a) a majority of
the directors then in office or (b) one-third (1/3) of the
total number of directors, whichever is greater, shall be necessary
to constitute a quorum for the transaction of business.
Notwithstanding the foregoing, if at any meeting of the Board there
shall be less than a quorum present, a majority of those present
may adjourn the meeting from time to time without further notice if
the time and place of the adjourned meeting are announced at the
meeting at which the adjournment is taken.
Section 3.6.
Vote
Necessary to Act and Participation by Conference Telephone.
The vote of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board, except as
may otherwise be provided by law, the Certificate of Incorporation,
or these Bylaws. Participation in a meeting by conference telephone
or similar means by which all participating directors can hear each
other shall constitute presence in person at such
meeting.
Section 3.7
Fees
and Compensation of Directors. Unless otherwise restricted
by the Certificate of Incorporation or these Bylaws, the Board
shall have the authority to fix the compensation of
directors.
Section 3.8.
Executive and Other
Committees.
(a) The
Board may by resolution designate an Executive Committee and/or one
or more other committees, each committee to consist of two (2) or
more directors, except that the Executive Committee, if any, shall
consist of not less than (3) directors. Any such committee, to the
extent provided in such resolution or in these Bylaws, shall have
and may exercise the powers and authority of the Board in the
management of the business and affairs of the Corporation, except
in reference to powers or authority expressly forbidden such
committee by law, and may authorize the seal of the corporation to
be fixed to all papers that may require it.
(b)
During the intervals between meetings of the Board, the Executive
Committee, unless restricted by resolution of the Board, shall
possess and may exercise, under the control and direction of the
Board, all of the powers of the Board in the management and control
of the business of the Corporation to the fullest extent permitted
by law. All action taken by the Executive Committee shall be
reported to the Board at its first meeting thereafter and shall be
subject to revision or rescission by the Board; provided, however, that rights of third
parties shall not be affected by any such action by the
Board.
(c) If
any member of any such committee other than the Executive Committee
is absent or disqualified, the member or members thereof present at
any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint
another director to act at the meeting in the place of any such
absent or disqualified member.
(d) Any
such committee shall meet at stated times or on notice to all of
its own number. It shall fix its own rules of procedure. A majority
shall constitute a quorum, but the affirmative vote of a majority
of the whole committee shall be necessary to act in every
case.
Section 3.9.
Indemnification.
(a)
Each person who was or is made a party to, or is threatened to be
made a party to, or is involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative
(hereinafter, a “proceeding”), by reason
of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation
or of a partnership, joint venture, trust, or other enterprise,
including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official
capacity as such director, officer, employee, or agent, or in any
other capacity while serving as such director, officer, employee, or agent, shall
be indemnified and held harmless by the Corporation to the fullest extent
permitted by the DGCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than the DGCL permitted the Corporation to
provide prior to such amendment), against all expense, liability,
and loss (including attorneys’ fees, judgments, fines, other
expenses and losses, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement
Income Security Act of 1974) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer,
employee, or agent, and shall inure to the benefit of his or her
heirs, executors, and administrators; provided, however, that, except as
provided in paragraph (b) hereof, the Corporation shall indemnify
any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board. The right
to indemnification conferred in this Section 3.9 shall be a
contract right and shall include the right of a director or officer
to be paid by the Corporation the expenses (including
attorneys’ fees) incurred in defending any such proceeding in
advance of its final disposition; provided, however, that the payment of
such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an
undertaking, which undertaking shall itself be sufficient without
the need for further evaluation of any credit aspects of the
undertaking or with respect to such advancement, by or on behalf of
such director or officer, to repay all amounts so advanced if it
shall ultimately be determined by a final, non-appealable order of
a court of competent jurisdiction that such director or officer is
not entitled to be indemnified under this Section 3.9 or
otherwise.
(b) If
a claim under Section 3.9(a) is not paid in full by the Corporation
within sixty (60) days after a written claim, together with
reasonable evidence as to the amount of such claim, has been
received by the Corporation, except in the case of a claim for
advancement of expenses (including attorneys’ fees), in which
case the applicable period shall be twenty (20) days, the claimant
may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim, and, if successful in whole
or in part, the claimant shall also be entitled to be paid the
expense, including attorneys’ fees, of prosecuting such suit.
It shall be a defense to any such suit, other than a suit brought
to enforce a claim for expenses (including attorneys’ fees)
incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has
been tendered to the Corporation, that the claimant has not met the
standards of conduct that make it permissible under the DGCL for
the Corporation to indemnify the claimant for the amount claimed,
but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including the Board or a
committee thereof, independent legal counsel, or the stockholders)
to have made a determination prior to the commencement of such suit
that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by the Corporation
(including the Board or a committee thereof, independent legal
counsel, or the stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the suit or
create a presumption that the claimant has not met the applicable
standard of conduct. In any suit brought by an indemnitee to
enforce a right to indemnification or to advancement of expenses
hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to such
indemnification, or to such advancement of expenses, under this
Section 3.9 or otherwise shall be on the Corporation.
(c) The
right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition
conferred in this Section 3.9 shall not be exclusive of any other
right that any person may have or hereafter acquire under any
statute, provision of the Certificate of Incorporation, Bylaw,
agreement, or vote of stockholders or disinterested directors, or
otherwise.
(d) The
Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the
Corporation or another corporation, partnership, joint venture,
trust, or other enterprise against any such expense, liability, or
loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability, or loss
under the DGCL.
(e) In
the case of a claim for indemnification or advancement of expenses
against the Corporation under this Section 3.9 arising out of acts,
events, or circumstances for which the claimant, who was at the
relevant time serving as a director, officer, employee, or agent of
any other entity at the request of the Corporation, may be entitled
to indemnification or advancement of expenses pursuant to such
other entity’s certificate of incorporation, bylaws, or other
governing document, or a contractual agreement between the claimant
and such entity, the claimant seeking indemnification or
advancement of expenses hereunder shall first seek indemnification
or advancement of expenses pursuant to any such governing document
or agreement. To the extent that amounts to be paid in
indemnification or advancement to a claimant hereunder are paid by
such other entity, the claimant’s right to indemnification
and advancement of expenses hereunder shall be reduced.
Section 3.10.
Removal.
Except as may be otherwise provided in the Certificate of
Incorporation and subject to the rights of holders of any series of
Preferred Stock, any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of
directors.
Section 3.11.
Chairman.
The Board shall elect a Chairman from among the directors. The
Chairman shall preside at all meetings of the Board and shall
perform such other duties as may be directed by resolution of the
Board or as otherwise set forth in these Bylaws.
OFFICERS
Section 4.1.
Officers
Generally. The Corporation shall have the Chief Executive
Officer, the President, the Chief Financial Officer, Chief
Operating Officer, the Secretary, the Treasurer and one or more
Vice Presidents, all of whom shall be chosen by the Board. The
Corporation may also have one or more Assistant Secretaries,
Assistant Treasurers, and other officers and agents as the Board
may deem advisable, all of whom shall be chosen by the Board. The
Board may assign such additional titles to one or more of the
officers as it shall deem appropriate. Any one person may hold any
number of offices of the Corporation at any one time unless
specifically prohibited therefrom by law. All officers shall hold
office for one (1) year and until their successors are selected and
qualified, unless otherwise specified by the Board; provided, however, that any officer shall
be subject to removal at any time by Board and the Board may fill
any vacant officer position. The officers shall have such powers
and shall perform such duties, executive or otherwise, as from time
to time may be assigned to them by the Board and, to the extent not
so assigned, as generally pertain to their respective offices,
subject to the control of the Board. The salaries and other
compensation of the officers of the corporation shall be fixed by
or in the manner designated by the Board.
Section 4.2.
Duties
of Officers.
(a)
Chief Executive Officer.
The Chief Executive Officer shall preside at all meetings of the
stockholders and at all meetings of the Board, unless the Chairman
of the Board has been appointed and is present. Unless an officer
has been appointed Chief Executive Officer of the Corporation, the
President shall be the chief executive officer of the Corporation
and shall, subject to the control of the Board, have general
supervision, direction and control of the business and officers of
the Corporation. To the extent that a Chief Executive Officer has
been appointed and no President has been appointed, all references
in these Bylaws to the President shall be deemed references to the
Chief Executive Officer. The Chief Executive Officer shall perform
other duties commonly incident to the office and shall also perform
such other duties and have such other powers, as the Board shall
designate from time to time.
(b)
President. The President
shall preside at all meetings of the stockholders and at all
meetings of the Board (if a director), unless the Chairman of the
Board or the Chief Executive Officer has been appointed and is
present. Unless another officer has been appointed Chief Executive
Officer of the corporation, the President shall be the chief
executive officer of the Corporation and shall, subject to the
control of the Board, have general supervision, direction and
control of the business and officers of the Corporation. The
President shall perform other duties commonly incident to the
office and shall also perform such other duties and have such other
powers, as the Board shall designate from time to
time.
(c)
Chief Financial Officer.
The Chief Financial Officer shall keep or cause to be kept the
books of account of the Corporation in a thorough and proper manner
and shall render statements of the financial affairs of the
Corporation in such form and as often as required by the Board or
the President. The Chief Financial Officer, subject to the order of
the Board, shall have the custody of all funds and securities of
the Corporation. The Chief Financial Officer shall perform other
duties commonly incident to the office and shall also perform such
other duties and have such other powers as the Board or the
President shall designate from time to time. To the extent that a
Chief Financial Officer has been appointed and no Treasurer has
been appointed, all references in these Bylaws to the Treasurer
shall be deemed references to the Chief Financial Officer. The
President may direct the Treasurer, if any, or any Assistant
Treasurer, or the Controller or any Assistant Controller to assume
and perform the duties of the Chief Financial Officer in the
absence or disability of the Chief Financial Officer, and each
Treasurer and Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to the
office and shall also perform such other duties and have such other
powers as the Board or the President shall designate from time to
time.
(d)
Chief Operating Officer.
The Chief Operating Officer shall preside at all meetings of the
stockholders and at all meetings of the Board (if a director),
unless the Chairman of the Board, the Chief Executive Officer or
the President has been appointed and is present. The Chief
Operating Officer shall perform other duties commonly incident to
the office and shall also perform such other duties and have such
other powers, as the Board, Chief Executive Officer or President
shall designate from time to time.
(e)
Secretary. The Secretary
shall attend all meetings of the stockholders and of the Board and
shall record all acts and proceedings thereof in the minute book of
the Corporation. The Secretary shall give notice in conformity with
these Bylaws of all meetings of the stockholders and of all
meetings of the Board and any committee thereof requiring notice.
The Secretary shall perform all other duties provided for in these
Bylaws and other duties commonly incident to the office and shall
also perform such other duties and have such other powers, as the
Board shall designate from time to time. The President may direct
any Assistant Secretary or other officer to assume and perform the
duties of the Secretary in the absence or disability of the
Secretary, and each Assistant Secretary shall perform other duties
commonly incident to the office and shall also perform such other
duties and have such other powers as the Board or the President
shall designate from time to time.
(f)
Treasurer. Unless another
officer has been appointed Chief Financial Officer of the
Corporation, the Treasurer shall be the chief financial officer of
the Corporation and shall keep or cause to be kept the books of
account of the Corporation in a thorough and proper manner and
shall render statements of the financial affairs of the corporation
in such form and as often as required by the Board, the Chief
Executive Officer or the President, and, subject to the order of
the Board, shall have the custody of all funds and securities of
the Corporation. The Treasurer shall perform other duties commonly
incident to the office and shall also perform such other duties and
have such other powers as the Board, the Chief Executive Officer or
the President shall designate from time to time.
(g)
Vice Presidents. The Vice
Presidents may assume and perform the duties of the President in
the absence or disability of the President or whenever the office
of President is vacant. The Vice Presidents shall perform other
duties commonly incident to their office and shall also perform
such other duties and have such other powers as the Board or the
Chief Executive Officer, or, if the Chief Executive Officer has not
been appointed or is absent, the President shall designate from
time to time.
(h)
Other Officers. Other
officers of the Corporation shall have such powers and shall
perform such duties as may be assigned by the Board.
Section 4.3.
Authority to
Sign. The Board may, in its discretion, determine the method
and designate the signatory officer or officers, or other person or
persons, to execute on behalf of the Corporation any corporate
instrument or document, or to sign on behalf of the Corporation the
corporate name without limitation, or to enter into contracts on
behalf of the corporation, except where otherwise provided by law
or these Bylaws, and such execution or signature shall be binding
upon the Corporation. All checks and drafts drawn on banks or other
depositaries on funds to the credit of the Corporation or in
special accounts of the Corporation shall be signed by such person
or persons as the Board shall authorize so to do. Unless authorized
or ratified by the Board or within the agency power of an officer,
no officer, agent or employee shall have any power or authority to
bind the Corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any
amount.
Section 4.4.
Voting
of Securities Owned by the Corporation. All stock and other
securities of other corporations owned or held by the Corporation
for itself, or for other parties in any capacity, shall be voted,
and all proxies with respect thereto shall be executed, by the
person authorized so to do by resolution of the Board, or, in the
absence of such authorization, by the Chairman of the Board, the
Chief Executive Officer, the President, or any Vice
President.
STOCK
Section 5.1.
Certificates.
Shares of stock shall be represented by certificates, provided that the Board may
provide by resolution that some or all of any or all classes or
series of stock shall be uncertificated shares. Any such resolution
shall not apply to shares represented by a certificate until such
certificate is surrendered to the Corporation. Every holder of
record of stock represented by certificates shall be entitled to
have a certificate signed by or in the name of the Corporation by
the Chairman, the Chief Executive Officer, the President, the Chief
Financial Officer, the Chief Operating Officer or a Vice President,
and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, certifying the number of shares of stock
owned by such holder. Any of or all the signatures on the
certificate may be a facsimile. In case any officer, transfer
agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as
if such person were such officer, transfer agent, or registrar at
the date of issue.
Section 5.2.
Lost,
Stolen, or Destroyed Stock Certificates; Issuance of New
Certificates. A new certificate or certificates shall be
issued in place of any certificate or certificates theretofore
issued by the corporation alleged to have been lost, stolen, or
destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen, or
destroyed. The corporation may require, as a condition precedent to
the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or the
owner’s legal representative, to agree to indemnify the
corporation in such manner as it shall require or to give the
corporation a surety bond in such form and amount as it may direct
as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been
lost, stolen, or destroyed.
Section 5.3.
Transfers.
Transfers of record of shares of stock of the Corporation shall be
made only upon its books by the holders thereof, in person or by
attorney duly authorized, and, in the case of stock represented by
certificate, upon the surrender of a properly endorsed certificate
or certificates for a like number of shares. The Corporation shall
have power to enter into and perform any agreement with any number
of stockholders of any one or more classes of stock of the
Corporation to restrict the transfer of shares of stock of the
Corporation of any one or more classes owned by such stockholders
in any manner not prohibited by the DGCL.
Section 5.4.
Registered
Stockholders. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner,
and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person
whether or not it shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE 6
DIVIDENDS
Section 6.1.
Declaration of
Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the
Board pursuant to law at any regular or special meeting. Dividends
may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the Certificate of
Incorporation and applicable law.
Section 6.2.
Dividend
Reserve. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends
such sum or sums as the Board from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for such other
purpose as the Board shall think conducive to the interests of the
corporation, and the Board may modify or abolish any such reserve
in the manner in which it was created.
GENERAL MATTERS
Section 7.1.
Seal. The
corporate seal shall have the name of the Corporation inscribed
thereon and shall be in such form as may be approved from time to
time by the Board.
Section 7.2.
Fiscal
Year. The fiscal year of the Corporation shall be determined
by resolution of the Board.
Section 7.3.
Waiver
of Notice of Meetings of Stockholders, Directors, and
Committees. Any waiver of notice given by the person
entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such
meeting, except when the person attends a meeting for the express
purpose of objecting, and does object, at the beginning of such
meeting, to the transaction of any business because the meeting is
not lawfully called or convened. Neither the business to be
transacted at nor the purpose of any regular or special meeting of
the stockholders, directors, or members of a committee of the Board
need be specified in a waiver of notice.
Section 7.4.
Amendments to the
Bylaws. Subject to
the provisions of the Certificate of Incorporation, the Board is
expressly empowered to adopt, amend or repeal the Bylaws of the
Corporation. The stockholders also shall have power to adopt, amend
or repeal the Bylaws of the Corporation; provided, however, that, in addition to
any vote of the holders of any class or series of stock of the
Corporation required by law or by the Certificate of Incorporation,
any amendment or modification of Section 2.2, Section 2.3, Section
2.7, Section 2.8, Section 3.1, Section 3.2, Section 3.9, Section
3.10 and this Section 7.4 shall require the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of
the voting power of all of the then outstanding shares of the
capital stock of the corporation entitled to vote generally in the
election of directors, voting together as a single
class.
CONSTRUCTION AND DEFINED TERMS
Section 8.1.
Construction.
As appropriate in context, whenever the singular number is used in
these Bylaws, the same includes the plural, and whenever the plural
number is used in these Bylaws, the same includes the singular. As
used in these Bylaws, each of the neuter, masculine, and feminine
genders includes the other two genders. As used in these Bylaws,
“include,” “includes,” and
“including” shall be deemed to be followed by
“without limitation”.
Section 8.2.
Defined
Terms. As used in these Bylaws,
“Affiliates”
and “associates”
shall have the meanings set forth in Rule 405 under the Securities
Act.
“Board”
means the board of directors of the Corporation.
“Bylaws”
means these bylaws of the Corporation, as the same may be amended
from time to time.
“Certificate of
Incorporation” means the Certificate
of Incorporation of the Corporation, as the same may be amended
from time to time.
“Common
Stock” means the common stock of the Corporation, par
value $0.01 per share.
“Corporation”
means HF Enterprises Inc.
“Exchange
Act” means the Securities Exchange Act of 1934, as
amended.
“DGCL”
means the General Corporation Law of the State of Delaware, as the
same may be amended from time to time.
“Securities
Act” means the Securities Act of 1933, as
amended.
Exhibit
3.3
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
HF ENTERPRISES INC.
HF
Enterprises Inc. (the “Corporation”), a
corporation organized and existing under the laws of the State of
Delaware, does hereby certify that:
A. The
Corporation’s original Certificate of Incorporation was filed
with the Secretary of State of Delaware on March 7,
2018.
B. The
Corporation’s Amended and Restated Certificate of
Incorporation was filed with the Secretary of State of Delaware on
September 21, 2018.
C. This
Second Amended and Restated Certificate of Incorporation was duly
adopted in accordance with Sections 242 and 245 of the Delaware
General Corporation Law, as amended (the “DGCL”), and has been duly
approved by the written consent of the stockholders of the
Corporation in accordance with Section 228 of the
DGCL.
D. The Certificate of
Incorporation of the Corporation is hereby amended and restated in
its entirety to read as follows:
ARTICLE I
The
name of the corporation is HF Enterprises Inc. (the
“Corporation”).
ARTICLE II
The
registered office of the Corporation in the State of Delaware is to
be located at 16192 Coastal Highway, Lewes, Delaware 19958, County
of Sussex. The registered agent at such address in charge thereof
shall be Harvard Business Services, Inc.
ARTICLE III
The
purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware
General Corporation Law, as amended (the “DGCL”).
ARTICLE IV
4.1 Authorized
Capital Stock. The aggregate number of shares of capital
stock that the Corporation is authorized to issue is Twenty-Five
Million (25,000,000), of which Twenty Million (20,000,000) shares
are common stock having a par value of $0.001 per share (the
“Common
Stock”), and Five Million (5,000,000) shares are
preferred stock having a par value of $0.001 per share (the
“Preferred
Stock”).
4.2 Increase
or Decrease in Authorized Capital Stock. The number of
authorized shares of Preferred Stock or Common Stock may be
increased or decreased (but not below the number of shares thereof
then outstanding) by the affirmative vote of the holders of a
majority in voting power of the stock of the Corporation entitled
to vote generally in the election of directors, irrespective of the
provisions of Section 242(b)(2) of the DGCL (or any successor
provision thereto), voting together as a single class, without a
separate vote of the holders of the class or classes the number of
authorized shares of which are being increased or decreased, unless
a vote by any holders of one or more series of Preferred Stock is
required by the express terms of any series of Preferred Stock as
provided for or fixed pursuant to the provisions of Section 4.3 of
this Article IV.
4.3 Preferred
Stock.
(A) The
Board of Directors of the Corporation (the “Board”) is hereby
authorized, subject to any limitations prescribed by law, to
provide for the issuance of shares of Preferred Stock from time to
time in one or more series pursuant to a resolution or resolutions
providing for such issuance duly adopted by the Board. The Board is
further authorized, subject to limitations prescribed by law, to
file a certificate of designation pursuant to the applicable law of
the State of Delaware (any such certificate, a “Preferred Stock
Designation”), to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each
such series and the qualifications, limitations, and restrictions
thereof. The authority of the Board with respect to each series
shall include, but shall not be limited to and shall not require
(unless otherwise required by applicable law), determination of the
following:
(i) The
designation of the series, which may be by distinguishing number,
letter, or title;
(ii) The
number of shares of the series, which number the Board may
thereafter (except where otherwise provided in the applicable
Preferred Stock Designation) increase or decrease (but not below
the number of shares thereof then outstanding);
(iii) The
amounts payable on, and the preferences, if any, of, shares of the
series in respect of dividends, and whether such dividends, if any,
shall be cumulative or noncumulative;
(iv) The
dates on which dividends, if any, shall be payable;
(v) The
redemption rights and price or prices, if any, for shares of the
series;
(vi) The
terms and amount of any sinking fund provided for the purchase or
redemption of shares of the series;
(vii) The
amounts payable on, and the preferences, if any, of, shares of the
series in the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the affairs of the
Corporation;
(viii) Whether
the shares of the series shall be convertible into or exchangeable
for shares of any other class or series, or any other security, of
the Corporation or any other corporation, and, if so, the
specification of such other class or series or such other security,
the conversion or exchange price or prices or rate or rates, any
adjustments thereto, the date or dates at which such shares shall
be convertible or exchangeable, and all other terms and conditions
upon which such conversion or exchange may be made;
(ix) Restrictions
on the issuance of shares of the same series or of any other class
or series; and
(x) The
voting rights, if any, of the holders of shares of the
series.
(B) Except
as may otherwise be provided in this Certificate of Incorporation,
in a Preferred Stock Designation, or by applicable law, only shares
of Common Stock shall be voted in elections of directors and for
all other purposes and shares of Preferred Stock shall not entitle
the holder thereof to vote at or receive notice of any meeting of
the stockholders of the Corporation.
4.4 Common
Stock.
(A) Common
Stock shall be subject to the express terms of any series of
Preferred Stock. Each holder of Common Stock shall be entitled to
one vote for each such share of Common Stock so held upon each
matter properly submitted to a vote of the
stockholders.
(B) Subject
to the rights of the holders of Preferred Stock, the holders of
shares of Common Stock shall be entitled to receive such dividends
and other distributions (payable in cash, property or capital stock
of the Corporation) when, as and if declared thereon by the Board
from time to time out of any assets or funds of the Corporation
legally available therefor and shall share equally on a per share
basis in such dividends and distributions.
(C) In
the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, after payment or provision for
payment of the debts and other liabilities of the Corporation, and
subject to the rights of the holders of Preferred Stock in respect
thereof, the holders of shares of Common Stock shall be entitled to
such amounts as provided under applicable law.
4.5 No
Preemptive Rights. No share of Common Stock or Preferred
Stock shall entitle any holder thereof any preemptive right to
subscribe for any shares of any class or series of stock of the
Corporation whether now or hereafter authorized.
ARTICLE V
Provisions for the
management of the business and for the conduct of the affairs of
the Corporation and provisions creating, defining, limiting, and
regulating the powers of the Corporation, the Board, and the
stockholders are as follows:
5.1 General
Powers. The business and affairs of the Corporation shall be
managed by or under the direction of the Board. In addition to the
powers and authority herein or by statute expressly conferred upon
it, the Board is hereby expressly empowered to exercise all such
powers and to do all such acts and things as may be exercised or
done by the Corporation; subject, nevertheless, to the provisions
of the statutes of the State of Delaware and of this Certificate of
Incorporation as they may be amended, altered, or changed from time
to time, and to any bylaws from time to time made by the Board or
stockholders; provided, however, that no bylaw so made
shall invalidate any prior act of the Board that would have been
valid if such bylaw had not been made.
5.2 Number
of Directors; Election; Term.
(A) Subject
to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, the total
number of authorized directors constituting the Board shall be
fixed solely by resolution of the Board.
(B) Subject
to the rights of holders of any series of Preferred Stock with
respect to the election of directors, each director shall serve
until his or her successor is duly elected and qualified or until
his or her earlier death, resignation or removal.
(C) Election
of directors of the Corporation need not be by written ballot
unless the bylaws so provide.
(D) No
stockholder will be permitted to cumulate votes at any election of
directors.
5.3
Vacancies and Newly Created
Directorships. Subject to the rights of holders of any
series of Preferred Stock, and except as otherwise provided in the
DGCL, vacancies occurring on the Board for any reason and newly
created directorships resulting from any increase in the authorized
number of directors shall be filled only by vote of a majority of
the remaining members of the Board, although less than a quorum, or
by a sole remaining director, at any meeting of the Board. A person
so elected by the Board to fill a vacancy or newly created
directorship shall hold office until his or her successor shall be
duly elected and qualified, or until such Director’s earlier
death, resignation, or removal.
5.4
Action by Written Consent. Any
action required or permitted to be taken by the stockholders of the
Corporation may be effected by written consent.
5.5
Advance Notice. Advance notice
of stockholder nominations for election of directors and other
business to be brought by stockholders at any meeting of
stockholders shall be given in the manner provided in the
bylaws.
5.6
Special Meetings. Except as
otherwise expressly provided by the terms of any series of
Preferred Stock or applicable law, special meetings of stockholders
of the Corporation may be called by the Board, the Chairman of the
Board, the Chief Executive Officer and shall be called by the
Corporation if requested by one or more record stockholders
representing ownership of at least thirty-three and one-third
percent (33-1/3%) of the outstanding shares of the
Corporation’s stock entitled to vote and who has complied
with the requirements set forth in the bylaws. A special meeting of
stockholders may not be called by any other person.
5.7
Amendments to the Bylaws. In
furtherance and not in limitation of the powers conferred by
statute, the Board is hereby expressly authorized to adopt, alter,
amend or repeal the bylaws of the Corporation without the assent or
vote of the stockholders, including without limitation the power to
fix, from time to time, the number of directors that shall
constitute the whole Board, subject to the right of the
stockholders to alter, amend, or repeal the bylaws made by the
Board.
5.8
Submission of Contracts to Stockholder
Vote. The Board in its discretion may submit any contract or
act for approval or ratification at any annual meeting of the
stockholders or at any meeting of the stockholders called for the
purpose of considering any such contract or act, and any contract
or act that shall be approved or be ratified by the vote of the
holders of a majority of the stock of the Corporation that is
represented in person or by proxy at such meeting and entitled to
vote thereat (provided that a lawful quorum
of stockholders be there represented in person or by proxy) shall
be as valid and as binding upon the Corporation and upon all the
stockholders as though it had been approved or ratified by every
stockholder of the Corporation, whether or not the contract or act
would otherwise be open to legal attack because of directors’
interest or for any other reason.
ARTICLE VI
6.1 Limitation
of Personal Liability. To the fullest extent permitted by
the DGCL, as the same exists or may hereafter be amended, a
director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. If the DGCL is amended after the
effective date hereof to authorize corporate action further
eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated
or limited to the fullest extent permitted by the DGCL as so
amended. Any repeal or modification of this Article VI by the
stockholders of the Corporation shall not adversely affect any
right or protection of a director of the Corporation existing at
the time of such repeal or modification or with respect to events
occurring prior to such time.
6.2 Indemnification.
(A) Each
person who was or is made a party to, or is threatened to be made a
party to, or is involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative
(hereinafter, a “proceeding”), by reason
of the fact that he or she is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation
as a director, officer, employee, or agent of another corporation
or of a partnership, joint venture, trust, or other enterprise,
including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official
capacity as such director, officer, employee, or agent, or in any
other capacity while serving as such director, officer, employee, or agent, shall
be indemnified and held harmless by the Corporation to the fullest extent
permitted by the DGCL, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than the DGCL permitted the Corporation to
provide prior to such amendment), against all expense, liability,
and loss (including attorneys’ fees, judgments, fines, other
expenses and losses, amounts paid or to be paid in settlement, and
excise taxes or penalties arising under the Employee Retirement
Income Security Act of 1974) reasonably incurred or suffered by
such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director, officer,
employee, or agent, and shall inure to the benefit of his or her
heirs, executors, and administrators; provided, however, that, except as
provided in paragraph (B) hereof, the Corporation shall indemnify
any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board. The right
to indemnification conferred in this Article VI shall be a contract
right and shall include the right of a director or officer to be
paid by the Corporation the expenses (including attorneys’
fees) incurred in defending any such proceeding in advance of its
final disposition; provided, however, that the payment of
such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in
which service was or is rendered by such person while a director or
officer including, without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an
undertaking, which undertaking shall itself be sufficient without
the need for further evaluation of any credit aspects of the
undertaking or with respect to such advancement, by or on behalf of
such director or officer, to repay all amounts so advanced if it
shall ultimately be determined by a final, non-appealable order of
a court of competent jurisdiction that such director or officer is
not entitled to be indemnified under this Article VI or
otherwise.
(B) If
a claim under paragraph (A) of this Article VI is not paid in full
by the Corporation within sixty (60) days after a written claim,
together with reasonable evidence as to the amount of such claim,
has been received by the Corporation, except in the case of a claim
for advancement of expenses (including attorneys’ fees), in
which case the applicable period shall be twenty (20) days, the
claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim, and, if
successful in whole or in part, the claimant shall also be entitled
to be paid the expense, including attorneys’ fees, of
prosecuting such suit. It shall be a defense to any such suit,
other than a suit brought to enforce a claim for expenses
(including attorneys’ fees) incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the
Corporation, that the claimant has not met the standards of conduct
that make it permissible under the DGCL for the Corporation to
indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Corporation. Neither the
failure of the Corporation (including the Board or a committee
thereof, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set
forth in the DGCL, nor an actual determination by the Corporation
(including the Board or a committee thereof, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the suit or
create a presumption that the claimant has not met the applicable
standard of conduct. In any suit brought by an indemnitee to
enforce a right to indemnification or to advancement of expenses
hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to such
indemnification, or to such advancement of expenses, under this
Article VI or otherwise shall be on the Corporation.
(C) The
right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition
conferred in this Article VI shall not be exclusive of any other
right that any person may have or hereafter acquire under any
statute, provision of the certificate of incorporation, bylaw,
agreement, or vote of stockholders or disinterested directors, or
otherwise.
(D) The
Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee, or agent of the
Corporation or another corporation, partnership, joint venture,
trust, or other enterprise against any such expense, liability, or
loss, whether or not the Corporation would have the power to
indemnify such person against such expense, liability, or loss
under the DGCL.
(E) In
the case of a claim for indemnification or advancement of expenses
against the Corporation under this Article VI arising out of acts,
events, or circumstances for which the claimant, who was at the
relevant time serving as a director, officer, employee, or agent of
any other entity at the request of the Corporation, may be entitled
to indemnification or advancement of expenses pursuant to such
other entity’s certificate of incorporation, bylaws, or other
governing document, or a contractual agreement between the claimant
and such entity, the claimant seeking indemnification or
advancement of expenses hereunder shall first seek indemnification
or advancement of expenses pursuant to any such governing document
or agreement. To the extent that amounts to be paid in
indemnification or advancement to a claimant hereunder are paid by
such other entity, the claimant’s right to indemnification
and advancement of expenses hereunder shall be
reduced.
(F) Neither
any amendment nor repeal of this Article VI, nor the adoption of
any provision of this Certificate of Incorporation inconsistent
with this Article VI, shall eliminate or reduce the effect of this
Article VI in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this Article VI,
would accrue or arise, prior to such amendment, repeal or adoption
of an inconsistent provision.
ARTICLE VII
Whenever a
compromise or arrangement is proposed between the Corporation and
its creditors or any class of them and/or between the Corporation
and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application
in a summary way of this Corporation or of any creditor or
stockholder thereof or on the application of any receiver or
receivers appointed for the Corporation under §291 of Title 8
of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the
Corporation under §279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the
case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in
value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any
reorganization of the Corporation as a consequence of such
compromise or arrangement, the said compromise or arrangement and
the said reorganization shall, if sanctioned by the court to which
the said application has been made, be binding on all the creditors
or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on
the Corporation.
ARTICLE VIII
Unless
the Corporation consents in writing to the selection of an
alternative forum, the Court of Chancery of the State of Delaware
shall be the sole and exclusive forum for (A) any derivative
action or proceeding brought on behalf of the Corporation,
(B) any action asserting a claim of breach of a fiduciary duty
owed by any director, officer, or other employee of the Corporation
to the Corporation or the Corporation’s stockholders,
(C) any action asserting a claim arising pursuant to any
provision of the DGCL or the Corporation’s Certificate of
Incorporation or bylaws, or (D) any action asserting a claim
governed by the internal affairs doctrine as such doctrine exists
under the law of the State of Delaware. However, this sole and
exclusive forum provision will not apply in those instances where
there is exclusive federal jurisdiction, including but not limited
to actions arising under the Securities Act or the Exchange
Act.
ARTICLE IX
The
Corporation reserves the right to restate this Certificate of
Incorporation and to amend, alter, change, or repeal any provision
contained in this Certificate of Incorporation (including any
rights, preferences or other designations of Preferred Stock) in
the manner now or hereafter prescribed by law, and all rights and
powers conferred herein on stockholders, directors, and officers
are subject to this reserved power.
IN
WITNESS WHEREOF, the Corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by the
undersigned, a duly authorized officer of the Corporation, on
December 20, 2019.
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Rongguo
Wei
|
|
|
|
|
Rongguo
Wei
|
|
|
|
|
Co-Chief Financial
Officer
|
|
|
No.
______
|
Incorporated under the Laws of the State of Delaware
|
_________
SHARES
|
HF ENTERPRISES INC.
COMMON
STOCK
AUTHORIZED CAPITAL,
20,000,000 SHARES, COMMON STOCK, PAR VALUE $0.001 PER
SHARE
SEE
REVERSE FOR CERTAIN DEFINITIONS
CUSIP
No. XXXXXXXXXX
THIS CERTIFIES THAT
___________________________________________________________________
IS THE OWNER
OF
_______________________________________________________________________________
fully-paid and non-assessable
shares of the above Corporation, transferable on the books of the
Corporation by said owner in person or by his duly authorized
attorney upon the surrender of this certificate properly endorsed.
This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar.
WITNESS, the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: ____________________
|
|
HF ENTERPRISES INC.
CORPORATE SEAL
Delaware 2018
|
|
|
President
|
Secretary
|
The
following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written
out in full according to applicable laws or
regulations:
|
TEN
COM
|
as
tenants in common
|
Unif
Gift Min Act -
|
________
Custodian __________
|
|
TEN
ENT
|
tenants
by the entireties
|
|
(Cust) (Minor)
|
|
JT
TEN
|
as
joint tenants with right of survivorship and not as tenants in
common
|
|
Under
Uniform Gifts to Minors Act:
____________________ (State)
|
Additional
abbreviations may also be used though not in the above
list.
HF ENTERPRISES INC.
The
Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative,
participating, option or other special rights of each class of
stock or series thereof of the Corporation and the qualifications,
limitations, or restrictions of such preferences and/or rights.
This certificate and the shares represented hereby are issued and
shall be held subject to the terms and conditions applicable to the
securities underlying and comprising the shares.
For Value Received, __________________________________ hereby sell,
assign and transfer unto
PLEASE
INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
|
|
|
(PLEASE
PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF
ASSIGNEE)
|
|
|
Shares represented by the within Certificate, and do hereby
irrevocably constitute and appoint _____________________________
Attorney, to transfer the said shares on the books of the within
named Corporation with full power of substitution in the
premises.
|
Dated
__________________
|
By:
___________________________________________________
|
|
|
|
|
|
By:
___________________________________________________
|
|
|
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.
|
|
Signature(s)
Guaranteed
|
|
|
|
|
|
By:
___________________________________________________
|
|
|
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
|
|
December 23,
2019
HF
Enterprises Inc.
4800
Montgomery Lane, Suite 210
Bethesda,
Maryland 20814
Ladies
and Gentlemen:
We are
acting as counsel to HF Enterprises, Inc. (the
“Company”) in connection with (a) the Registration
Statement on Form S-1, filed on December 23, 2019 (as it may be
amended, the “Registration Statement”) under the
Securities Act of 1933, as amended (the “Act”), and (b)
the Underwriting Agreement between the Company and WestPark
Capital, as the Underwriter (the “Underwriter”),
relating to the Shares (defined below)(the “Underwriting
Agreement”). The Registration Statement covers: (a) 2,600,000
shares (the “Shares”) of the Company’s common
stock, par value $0.001 per share (the “Common Stock”),
including an over-allotment option of up to 390,000 Shares, (b) a
warrant issued to the Underwriter in connection with acting as the
underwriter of the public offering (the “Underwriter
Warrant”), and (c) 260,000 shares of Common Stock issuable
upon the exercise of the Underwriter Warrant.
We have
examined the originals, or certified, conformed or reproduction
copies, of all such records, agreements, instruments and documents
as we have deemed relevant or necessary as the basis for the
opinion hereinafter expressed. In all such examinations, we have
assumed the genuineness of all signatures on original or certified
copies and the conformity to original or certified copies of all
copies submitted to us as conformed or reproduction copies. As to
various questions of fact relevant to such opinion, we have relied
upon, and assumed the accuracy of, certificates and oral or written
statements and other information of or from public officials,
officers or representatives of the Company, and
others.
Based
upon the foregoing, we are of the opinion that the Shares, the
Underwriter Warrant and the shares of Common Stock issuable upon
exercise of the Underwriter Warrant, have been duly authorized and,
when issued and delivered in accordance with the terms of the
Underwriting Agreement, and in accordance with the terms of the
Underwriter Warrant with respect to the shares of Common Stock
issuable upon exercise of the Underwriter Warrant, will be legally
issued, fully paid, non-assessable and binding obligations of the
Company under the laws of the state of Delaware.
We
hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the
caption “Legal Matters” in the Prospectus forming a
part of the Registration Statement. In giving this consent, we do
not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Act.
|
|
Very
truly yours,
|
|
|
/s/
Olshan Frome Wolosky LLP
|
|
|
OLSHAN
FROME WOLOSKY LLP
|
HF ENTERPRISES INC.
2018 INCENTIVE
COMPENSATION PLAN
HF ENTERPRISES INC.
2018 INCENTIVE
COMPENSATION PLAN
1. Purpose.
HF Enterprises Inc., a Delaware corporation (the
“Company”), hereby establishes the HF ENTERPRISES INC.
2018 INCENTIVE COMPENSATION PLAN (the “Plan”). The
purpose of the Plan is to assist the Company and its Related
Entities (as hereinafter defined) in attracting, motivating,
retaining and rewarding high-quality executives and other
employees, officers, directors, consultants and other persons who
provide services to the Company or its Related Entities by enabling
such persons to acquire or increase a proprietary interest in the
Company in order to strengthen the mutuality of interests between
such persons and the Company’s shareholders, and providing
such persons with performance incentives to expend their maximum
efforts in the creation of shareholder value.
2. Definitions.
For purposes of the Plan, the following terms shall be defined as
set forth below, in addition to such terms defined in Section 1
hereof.
(a) “Award”
means any Option, Stock Appreciation Right, Restricted Stock Award,
Restricted Stock Unit Award, Deferred Stock Award, Share granted as
a bonus or in lieu of another award, Dividend Equivalent, Other
Stock-Based Award or Performance Award, together with any other
right or interest, granted to a Participant under the
Plan.
(b) “Award
Agreement” means any written agreement, contract or
other instrument or document evidencing any Award granted by the
Committee hereunder.
(c) “Beneficiary”
means the person, persons, trust or trusts that have been
designated by a Participant in his or her most recent written
beneficiary designation filed with the Committee to receive the
benefits specified under the Plan upon such Participant’s
death or to which Awards or other rights are transferred if and to
the extent permitted under Section 10(b) hereof. If, upon a
Participant’s death, there is no designated Beneficiary or
surviving designated Beneficiary, then the term Beneficiary means
the person, persons, trust or trusts entitled by will or the laws
of descent and distribution to receive such benefits.
(d) “Beneficial
Owner” shall have the meaning ascribed to such term in
Rule 13d-3 under the Exchange Act and any successor to such
Rule.
(e) “Board”
means the Company’s Board of Directors.
(f) “Cause”
shall, with respect to any Participant have the meaning specified
in the Award Agreement. In the absence of any definition in the
Award Agreement, “Cause” shall have the equivalent
meaning or the same meaning as “cause” or “for
cause” set forth in any employment, consulting, or other
agreement for the performance of services between the Participant
and the Company or a Related Entity or, in the absence of any such
agreement or any such definition in such agreement, such term shall
mean (i) the failure by the Participant to perform, in a reasonable
manner, his or her duties as assigned by the Company or a Related
Entity, (ii) any violation or breach by the Participant of his or
her employment, consulting or other similar agreement with the
Company or a Related Entity, if any, (iii) any violation or breach
by the Participant of any non-competition, non-solicitation,
non-disclosure and/or other similar agreement with the Company or a
Related Entity, (iv) any act by the Participant of dishonesty or
bad faith with respect to the Company or a Related Entity, (v) use
of alcohol, drugs or other similar substances in a manner that
adversely affects the Participant’s work performance, or (vi)
the commission by the Participant of any act, misdemeanor, or crime
reflecting unfavorably upon the Participant or the Company or any
Related Entity. The good faith determination by the Committee of
whether the Participant’s Continuous Service was terminated
by the Company for “Cause” shall be final and binding
for all purposes hereunder.
(g)
“Change in
Control” means a Change in Control as defined with
related terms in Section 9(b) of the Plan.
(h)
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time, including regulations thereunder and successor provisions and
regulations thereto.
(i) “Committee”
means a committee designated by the Board to administer the Plan;
provided,
however, that if
the Board fails to designate a committee or if there are no longer
any members on the committee so designated by the Board, then the
Board shall serve as the Committee. The Committee shall consist of
at least two directors, and each member of the Committee shall be
(i) a “non-employee director” within the meaning
of Rule 16b-3 (or any successor rule) under the Exchange Act,
unless administration of the Plan by “non-employee
directors” is not then required in order for exemptions under
Rule 16b-3 to apply to transactions under the Plan and (ii) an
“independent director” under theNASDAQ listing
requirements, or any similar rule or listing requirement that may
be applicable to the Company from time to time.
(j) “Consultant”
means any person (other than an Employee or a Director, solely with
respect to rendering services in such person’s capacity as a
director) who is engaged by the Company or any Related Entity to
render consulting or advisory services to the Company or such
Related Entity.
(k)
“Continuous
Service” means the uninterrupted provision of services
to the Company or any Related Entity in any capacity of Employee,
Director, Consultant or other service provider. Continuous Service
shall not be considered to be interrupted in the case of (i) any
approved leave of absence, (ii) transfers among the Company, any
Related Entities, or any successor entities, in any capacity of
Employee, Director, Consultant or other service provider, or (iii)
any change in status as long as the individual remains in the
service of the Company or a Related Entity in any capacity of
Employee, Director, Consultant or other service provider (except as
otherwise provided in the Award Agreement). An approved leave of
absence shall include sick leave, military leave, or any other
authorized personal leave. For purposes of each Incentive Stock
Option granted under the Plan, if such leave exceeds three (3)
months, and reemployment upon expiration of such leave is not
guaranteed by statute or contract, then the Incentive Stock Option
shall be treated as a Non-Qualified Stock Option on the day three
(3) months and one (1) day following the expiration of such three
(3) month period.
(l) “Deferred
Stock” means a right to receive Shares, including
Restricted Stock, cash or a combination thereof, at the end of a
specified deferral period.
(m)
“Deferred Stock
Award” means an Award of Deferred Stock granted to a
Participant under Section 6(e) hereof.
(n) “Director”
means a member of the Board or the board of directors of any
Related Entity.
(o) “Disability”
means a permanent and total disability (within the meaning of
Section 22(e) of the Code), as determined by a medical doctor
satisfactory to the Committee. Notwithstanding the foregoing, for
Awards subject to Section 409A of the Code, Disability shall mean
that a Participant is disabled under Section 409A(a)(2)(C)(i) or
(ii) of the Code.
(p) “Dividend
Equivalent” means a right, granted to a Participant
under Section 6(g) hereof, to receive cash, Shares, other Awards or
other property equal in value to dividends paid with respect to a
specified number of Shares, or other periodic
payments.
(q) “Effective
Date” has the meaning set forth in Section
10(s).
(r)
“Eligible
Person” means each officer, Director, Employee,
Consultant and other person who provides services to the Company or
any Related Entity. The foregoing notwithstanding, only Employees
of the Company, or any parent corporation or subsidiary corporation
of the Company (as those terms are defined in Sections 424(e) and
(f) of the Code, respectively), shall be Eligible Persons for
purposes of receiving any Incentive Stock Options. An Employee on
leave of absence may be considered as still in the employ of the
Company or a Related Entity for purposes of eligibility for
participation in the Plan.
(s)
“Employee” means any
person, including an officer or Director, who is an employee of the
Company or any Related Entity. The payment of a director’s
fee by the Company or a Related Entity shall not be sufficient to
constitute “employment” by the Company.
(t) “Exchange
Act” means the Securities Exchange Act of 1934, as
amended from time to time, including rules thereunder and successor
provisions and rules thereto.
(u)
“Fair Market
Value” or “FMV” means, as of any
date, the value of a Share determined as follows:
(i) If
the Share is listed on one or more established stock exchanges or
national market systems, including without limitation, The NASDAQ
Global Select Market, The NASDAQ Global Market or The NASDAQ
Capital Market of The NASDAQ Stock Market LLC, its Fair Market
Value shall be the closing sales price for such Share (or the
closing bid, if no sales were reported) as quoted on the principal
exchange or system on which the Share is listed (as determined by
the Committee) on the date of determination (or, if no closing
sales price or closing bid was reported on that date, as
applicable, on the last immediately preceding trading date such
closing sales price or closing bid was reported), as reported in
The Wall Street Journal or
such other source as the Committee deems reliable;
(ii) If
the Share is regularly quoted on an automated quotation system
(including a marketplace operated by the OTC Markets Group, Inc.)
or by a recognized securities dealer, its Fair Market Value shall
be the closing sales price for such Share as quoted on such system
or by such securities dealer on the date of determination, but if
selling prices are not reported, the Fair Market Value of a Share
shall be the mean between the high bid and low asked prices for the
Share on the date of determination (or, if no such prices were
reported on that date, on the last date such prices were reported),
as reported in The Wall Street
Journal or such other source as the Committee deems
reliable; or
(iii)
In the absence of an established market for the Share of the type
described in (i) and (ii), above, the Fair Market Value thereof
shall be determined by the Committee in good faith using any
reasonable method of valuation, which method may be set forth with
greater specificity in the Award Agreement, (and, to the extent
necessary or advisable, in a manner consistent with Section 409A of
the Code and Section 422 of the Code for Incentive Stock Options),
which determination shall be conclusive and binding on all
interested parties. Such reasonable method may be determined by
reference to (i) the placing price of the latest private placement
of the Shares and the development of the Company’s business
operations and the general economic and market conditions since
such latest private placement; (ii) other third party transactions
involving the Shares and the development of the Company’s
business operation and the general economic and market conditions
since such sale; (iii) an independent valuation of the Shares (by a
qualified valuation expert) or (iv) such other methodologies or
information as the Committee determines to be indicative of Fair
Market Value.
(v) “Good
Reason” shall, with respect to any Participant, have
the meaning specified in the Award Agreement. In the absence of any
definition in the Award Agreement, “Good Reason” shall
have the equivalent meaning or the same meaning as “good
reason” or “for good reason” set forth in any
employment, consulting or other agreement for the performance of
services between the Participant and the Company or a Related
Entity or, in the absence of any such agreement or any such
definition in such agreement, such term shall mean (i) the
assignment to the Participant of any duties inconsistent in any
material respect with the Participant’s position, authority,
duties or responsibilities as assigned by the Company or a Related
Entity, or any other action by the Company or a Related Entity
which results in a material diminution in such position, authority,
duties or responsibilities, excluding for this purpose any action
not taken in bad faith and which is remedied by the Company or a
Related Entity promptly after receipt of notice thereof given by
the Participant, or any action taken with the consent of the
Participant; or (ii) any material failure by the Company or a
Related Entity to comply with its obligations to the Participant as
agreed upon, other than any failure not occurring in bad faith and
which is remedied by the Company or a Related Entity promptly after
receipt of notice thereof given by the Participant.
(w) “Incentive
Stock Option” means any Option intended to be
designated as an “incentive stock option” within the
meaning of Section 422 of the Code or any successor provision
thereto and that meets the requirements set out in the
Plan.
(x) “Independent,”
when referring to either the Board or members of the Committee,
shall have the same meaning as used in the rules of NASDAQ or any
national securities exchange on which any securities of the Company
are listed for trading and, if not quoted or listed for trading, by
the rules of NASDAQ.
(y) “Incumbent
Board” means the Incumbent Board as defined in Section
9(b)(ii) of the Plan.
(z) “Non-Qualified
Stock Option” means an Option that, by its terms, does
not qualify or is not intended to qualify as an Incentive Stock
Option.
(aa)
“Option” means a right
granted to a Participant under Section 6(b) hereof, to purchase
Shares or other Awards at a specified price during specified time
periods.
(bb)
“Optionee” means a person
to whom an Option is granted under this Plan or any person who
succeeds to the rights of such person under this Plan.
(cc)
“Other Stock-Based
Awards” means Awards granted to a Participant under
Section 6(i) hereof.
(dd)
“Outside
Director” means a member of the Board who is not an
Employee.
(ee) “Participant”
means a person who has been granted an Award under the Plan which
remains outstanding, including a person who is no longer an
Eligible Person.
(ff)
“Performance Award” shall
mean any Award of Performance Shares or Performance Units granted
pursuant to Section 6(h).
(gg)
“Performance
Period” means that period established by the Committee
at the time any Performance Award is granted or at any time
thereafter during which any performance goals specified by the
Committee with respect to such Award are to be
measured.
(hh)
“Performance
Share” means any grant pursuant to Section 6(h) of a
unit valued by reference to a designated number of Shares, which
value may be paid to the Participant by delivery of such property
as the Committee shall determine, including cash, Shares, other
property, or any combination thereof, upon achievement of such
performance goals during the Performance Period as the Committee
shall establish at the time of such grant or
thereafter.
(ii)
“Performance Unit” means
any grant pursuant to Section 6(h) of a unit valued by reference to
a designated amount of property (including cash) other than Shares,
which value may be paid to the Participant by delivery of such
property as the Committee shall determine, including cash, Shares,
other property, or any combination thereof, upon achievement of
such performance goals during the Performance Period as the
Committee shall establish at the time of such grant or
thereafter.
(jj)
“Person” shall have the
meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, and
shall include a “group” as defined in Section 13(d)
thereof.
(kk)
“Related
Entity” means any Subsidiary, and any business,
corporation, partnership, limited liability company or other entity
designated by Board in which the Company or a Subsidiary holds a
substantial ownership interest, directly or
indirectly.
(ll) “Restricted
Stock” means any Share issued with the restriction
that the holder may not sell, transfer, pledge or assign such Share
and with such risks of forfeiture and other restrictions as the
Committee, in its sole discretion, may impose (including any
restriction on the right to vote such Share and the right to
receive any dividends), which restrictions may lapse separately or
in combination at such time or times, in installments or otherwise,
as the Committee may deem appropriate.
(mm)
“Restricted Stock
Award” means an Award granted to a Participant under
Section 6(d) hereof.
(nn)
“Restricted Stock
Unit” means an Award granted to a Participant under
Section 6(d) hereof.
(oo)
“Rule
16b-3” means Rule 16b-3, as from time to time in
effect and applicable to the Plan and Participants, promulgated by
the Securities and Exchange Commission under Section 16 of the
Exchange Act.
(pp)
“Shares” means the shares
of common stock of the Company, par value $.001 per share, and such
other securities as may be substituted (or resubstituted) for
Shares pursuant to Section 10(c) hereof.
(qq)
“Stock Appreciation
Right” means a right granted to a Participant under
Section 6(c) hereof.
(rr)
“Subsidiary” means any
corporation or other entity in which the Company has a direct or
indirect ownership interest of 50% or more of the total combined
voting power of the then outstanding securities or interests of
such corporation or other entity entitled to vote generally in the
election of directors or in which the Company has the right to
receive 50% or more of the distribution of profits or 50% or more
of the assets on liquidation or dissolution.
(ss) “Substitute
Awards” shall mean Awards granted or Shares issued by
the Company in assumption of, or in substitution or exchange for,
awards previously granted, or the right or obligation to make
future awards, by a company acquired by the Company or any Related
Entity or with which the Company or any Related Entity
combines.
3. Administration.
(a) Authority
of the Committee. The Plan shall be administered by the
Committee, except to the extent the Board elects to administer the
Plan, in which case the Plan shall be administered by only those
directors who are Independent Directors, in which case references
herein to the “Committee” shall be deemed to include
references to the Independent members of the Board. The Committee
shall have full and final authority, subject to and consistent with
the provisions of the Plan, to select Eligible Persons to become
Participants, grant Awards, determine the type, number and other
terms and conditions of, and all other matters relating to, Awards,
prescribe Award Agreements (which need not be identical for each
Participant) and rules and regulations for the administration of
the Plan, construe and interpret the Plan and Award Agreements and
correct defects, supply omissions or reconcile inconsistencies
therein, and to make all other decisions and determinations as the
Committee may deem necessary or advisable for the administration of
the Plan. In exercising any discretion granted to the Committee
under the Plan or pursuant to any Award, the Committee shall not be
required to follow past practices, act in a manner consistent with
past practices, or treat any Eligible Person or Participant in a
manner consistent with the treatment of other Eligible Persons or
Participants.
(b) Manner
of Exercise of Committee Authority. The Committee, and not
the Board, shall exercise sole and exclusive discretion on any
matter relating to a Participant then subject to Section 16 of
the Exchange Act with respect to the Company to the extent
necessary in order that transactions by such Participant shall be
exempt under Rule 16b-3 under the Exchange Act. Any action of the
Committee shall be final, conclusive and binding on all persons,
including the Company, its Related Entities, Participants,
Beneficiaries, transferees under Section 10(b) hereof or other
persons claiming rights from or through a Participant, and
shareholders. The express grant of any specific power to the
Committee, and the taking of any action by the Committee, shall not
be construed as limiting any power or authority of the Committee.
The Committee may delegate to officers or managers of the Company
or any Related Entity, or committees thereof, the authority,
subject to such terms as the Committee shall determine, to perform
such functions, including administrative functions as the Committee
may determine to the extent that such delegation will not result in
the loss of an exemption under Rule 16b-3(d)(1) for Awards granted
to Participants subject to Section 16 of the Exchange Act in
respect of the Company. The Committee may appoint agents to assist
it in administering the Plan.
(c) Limitation
of Liability. The Committee and the Board, and each member
thereof, shall be entitled to, in good faith, rely or act upon any
report or other information furnished to him or her by any officer
or Employee, the Company’s independent auditors, Consultants
or any other agents assisting in the administration of the Plan.
Members of the Committee and the Board, and any officer or Employee
acting at the direction or on behalf of the Committee or the Board,
shall not be personally liable for any action or determination
taken or made in good faith with respect to the Plan, and shall, to
the extent permitted by law, be fully indemnified and protected by
the Company with respect to any such action or
determination.
4. Shares
Subject to Plan.
(a) Limitation
on Overall Number of Shares Available for Delivery Under
Plan. Subject to adjustment as provided in Section 10(c)
hereof, the total number of Shares reserved and available for
delivery under the Plan shall be Five Hundred Thousand (500,000),
all of which may be Incentive Stock Options. Any Shares delivered
under the Plan may consist, in whole or in part, of authorized and
unissued shares or treasury shares.
(b) Application
of Limitation to Grants of Award. No Award may be granted if
the number of Shares to be delivered in connection with such an
Award or, in the case of an Award relating to Shares but settled
only in cash (such as cash-only Stock Appreciation Rights), the
number of Shares to which such Award relates, exceeds the number of
Shares remaining available for delivery under the Plan, minus the
number of Shares deliverable in settlement of or relating to then
outstanding Awards. The Committee may adopt reasonable counting
procedures to ensure appropriate counting, avoid double counting
(as, for example, in the case of tandem or substitute awards) and
make adjustments if the number of Shares actually delivered differs
from the number of Shares previously counted in connection with an
Award.
(c) Share
Accounting. Without limiting the discretion of the Committee
under this section, the following rules will apply for purposes of
the determination of the number of Shares available for grant under
the Plan or compliance with the foregoing limits:
(i) If
an outstanding Award for any reason expires or is terminated or
canceled without having been exercised or settled in full, or if
Shares acquired pursuant to an Award subject to forfeiture are
forfeited under the terms of the Plan or the relevant Award, the
Shares allocable to the terminated portion of such Award or such
forfeited Shares shall again be available for issuance under the
Plan.
(ii)
Shares shall not be deemed to have been issued pursuant to the Plan
with respect to any portion of an Award that is settled in cash,
other than an Option.
(iii)
If the exercise price of an Option is paid by tender to the
Company, or attestation to the ownership, of Shares owned by the
Participant, or an Option is settled without the payment of the
exercise price, or the payment of taxes with respect to any Award
is settled by a net exercise, the number of shares available for
issuance under the Plan shall be reduced by the gross number of
shares for which the Option is exercised or other Awards that have
vested.
(iv)
Substitute Awards shall not reduce the Shares authorized for grant
under the Plan or authorized for grant to a Participant in any
period. Additionally, in the event that a company acquired by the
Company or any Related Entity or with which the Company or any
Related Entity combines has shares available under a pre-existing
plan approved by shareholders and not adopted in contemplation of
such acquisition or combination, the shares available for delivery
pursuant to the terms of such pre-existing plan (as adjusted, to
the extent appropriate, using the exchange ratio or other
adjustment or valuation ratio or formula used in such acquisition
or combination to determine the consideration payable to the
holders of common stock of the entities party to such acquisition
or combination) may be used for Awards under the Plan and shall not
reduce the Shares authorized for delivery under the Plan; provided
that Awards using such available shares shall not be made after the
date awards or grants could have been made under the terms of the
pre-existing plan, absent the acquisition or combination, and shall
only be made to individuals who were not Employees or Directors
prior to such acquisition or combination.
(v)
Any Shares that again become available for delivery pursuant to
this Section 4(c) shall be added back as one (1)
Share.
(vi)
Notwithstanding anything in this Section 4(c) to the contrary and
solely for purposes of determining whether Shares are available for
the delivery of Incentive Stock Options, the maximum aggregate
number of shares that may be granted under this Plan shall be
determined without regard to any Shares restored pursuant to this
Section 4(c) that, if taken into account, would cause the Plan to
fail the requirement under Code Section 422 that the Plan designate
a maximum aggregate number of shares that may be
issued.
(d) Limitation
on Number of Shares Granted to Outside Directors.
Notwithstanding any provision in the Plan to the contrary, the sum
of the grant date Fair Market Value of equity-based Awards and the
amount of any cash-based Awards granted to an Outside Director
during any calendar year shall not exceed Five Hundred Thousand
dollars ($500,000).
5. Eligibility
and Participation. Individuals eligible to participate in
the Plan include all Employees, Directors, and all Consultants and
advisers to the Company and Related Entities, as determined by the
Committee. Subject to the provisions of the Plan, the Committee
may, from time to time, select from all Eligible Persons, those to
whom Awards shall be granted and shall determine, in its sole
discretion, the nature of, any and all terms permissible by law,
and the amount of each Award. In making this determination, the
Committee may consider any factors it deems relevant, including
without limitation, the office or position held by a Participant or
the Participant’s relationship to the Company, the
Participant’s degree of responsibility for and contribution
to the growth and success of the Company or any Related Entity, the
Participant’s length of service, promotions and
potential.
6. Specific
Terms of Awards.
(a) General.
Awards may be granted on the terms and conditions set forth in this
Section 6. In addition, the Committee may impose on any Award or
the exercise thereof, at the date of grant or thereafter (subject
to Section 10(e)), such additional terms and conditions, not
inconsistent with the provisions of the Plan, as the Committee
shall determine, including terms requiring forfeiture of Awards in
the event of termination of the Participant’s Continuous
Service and terms permitting a Participant to make elections
relating to his or her Award. The Committee shall retain full power
and discretion to accelerate, waive or modify, at any time, any
term or condition of an Award that is not mandatory under the Plan.
Except in cases in which the Committee is authorized to require
other forms of consideration under the Plan, or to the extent other
forms of consideration must be paid to satisfy the requirements of
applicable law, no consideration other than services may be
required for the grant (but not the exercise) of any
Award.
(b) Options.
The Committee is authorized to grant Options to any Eligible Person
on the following terms and conditions:
(i) Exercise
Price. Other than in connection with Substitute Awards, the
exercise price per Share purchasable under an Option shall be
determined by the Committee, provided that such exercise price
shall not be less than 100% of the Fair Market Value of a Share on
the date of grant of the Option and shall not, in any event, be
less than the par value of a Share on the date of grant of the
Option. If an Employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more
than 10% of the combined voting power of all classes of stock of
the Company (or any parent corporation or subsidiary corporation of
the Company, as those terms are defined in Sections 424(e) and (f)
of the Code, respectively) and an Incentive Stock Option is granted
to such employee, the exercise price of such Incentive Stock Option
(to the extent required by the Code at the time of grant) shall be
no less than 110% of the Fair Market Value a Share on the date such
Incentive Stock Option is granted.
(ii) Time
and Method of Exercise. The Committee shall determine the
time or times at which or the circumstances under which an Option
may be exercised in whole or in part (including based on
achievement of performance goals and/or future service
requirements), the time or times at which Options shall cease to be
or become exercisable following termination of Continuous Service
or upon other conditions, the methods by which the exercise price
may be paid or deemed to be paid (including in the discretion of
the Committee a cashless exercise procedure), the form of such
payment, including, without limitation, cash, Shares, other Awards
or awards granted under other plans of the Company or a Related
Entity, or other property (including notes or other contractual
obligations of Participants to make payment on a deferred basis
provided that such deferred payments are not in violation of
Section 409A of the Code, or any rule or regulation adopted
thereunder or any other applicable law), and the methods by or
forms in which Shares will be delivered or deemed to be delivered
to Participants.
(iii) Incentive
Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the
provisions of Section 422 of the Code. If an Option is intended to
be an Incentive Stock Option, and if, for any reason, such Option
(or any portion thereof) shall not qualify as an Incentive Stock
Option, then, to the extent of such nonqualification, such Option
(or portion thereof) shall be regarded as a Non-Qualified Stock
Option appropriately granted under the Plan; provided that such
Option (or portion thereof) otherwise complies with the
Plan’s requirements relating to Non-Qualified Stock Options.
Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options (including any Stock
Appreciation Right issued in tandem therewith) shall be
interpreted, amended or altered, nor shall any discretion or
authority granted under the Plan be exercised, so as to disqualify
either the Plan or any Incentive Stock Option under Section 422 of
the Code, unless the Participant has first requested, or consents
to, the change that will result in such disqualification. Thus, if
and to the extent required to comply with Section 422 of the Code,
Options granted as Incentive Stock Options shall be subject to the
following special terms and conditions:
(A) an
Incentive Stock Option shall not be exercisable more than ten years
after the date such Incentive Stock Option is granted; provided, however, that if a Participant
owns or is deemed to own (by reason of the attribution rules of
Section 424(d) of the Code) more than 10% of the combined voting
power of all classes of stock of the Company (or any parent
corporation or subsidiary corporation of the Company, as those
terms are defined in Sections 424(e) and (f) of the Code,
respectively) and the Incentive Stock Option is granted to such
Participant, the term of the Incentive Stock Option shall be (to
the extent required by the Code at the time of the grant) for no
more than five years from the date of grant; and
(B) The
aggregate Fair Market Value (determined as of the date the
Incentive Stock Option is granted) of the Shares with respect to
which Incentive Stock Options granted under the Plan and all other
option plans of the Company (and any parent corporation or
subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f) of the Code, respectively) during any
calendar year exercisable for the first time by the Participant
during any calendar year shall not (to the extent required by the
Code at the time of the grant) exceed $100,000. To the extent that
Incentive Stock Options are first exercisable by a Participant in
excess of such limitation, the excess shall be considered
Non-Qualified Stock Options.
(C) Each
person exercising any Incentive Stock Option granted under the Plan
shall be deemed to have covenanted with the Company to report to
the Company any disposition of such Shares prior to the expiration
of the holding periods specified by Section 422(a)(1) of the Code
and, if and to the extent that the realization of income in such a
disposition imposes upon the Company federal, state, local or other
withholding tax requirements, or any such withholding is required
to secure for the Company an otherwise available tax deduction, to
remit to the Company an amount in cash sufficient to satisfy those
requirements.
(c) Stock
Appreciation Rights. The Committee may grant Stock
Appreciation Rights to any Eligible Person in conjunction with all
or part of any Option granted under the Plan or at any subsequent
time during the term of such Option (a “Tandem Stock
Appreciation Right”), or without regard to any Option (a
“Freestanding Stock Appreciation Right”), in each case
upon such terms and conditions as the Committee may establish in
its sole discretion, not inconsistent with the provisions of the
Plan, including the following:
(i) Right
to Payment. A Stock Appreciation Right shall confer on the
Participant to whom it is granted a right to receive, upon exercise
thereof, the excess of (A) the Fair Market Value of one Share on
the date of exercise over (B) the grant price of the Stock
Appreciation Right as determined by the Committee. The grant price
of a Stock Appreciation Right shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, in the case of a
Freestanding Stock Appreciation Right, or less than the associated
Option exercise price, in the case of a Tandem Stock Appreciation
Right.
(ii)
Other Terms. The Committee
shall determine at the date of grant or thereafter, the time or
times at which and the circumstances under which a Stock
Appreciation Right may be exercised in whole or in part (including
based on achievement of performance goals and/or future service
requirements), the time or times at which Stock Appreciation Rights
shall cease to be or become exercisable following termination of
Continuous Service or upon other conditions, the method of
exercise, method of settlement, form of consideration payable in
settlement, method by or forms in which Shares will be delivered or
deemed to be delivered to Participants, whether or not a Stock
Appreciation Right shall be in tandem or in combination with any
other Award, and any other terms and conditions of any Stock
Appreciation Right.
(iii)
Tandem Stock Appreciation
Rights. Any Tandem Stock Appreciation Right may be granted
at the same time as the related Option is granted or, for Options
that are not Incentive Stock Options, at any time thereafter before
exercise or expiration of such Option. Any Tandem Stock
Appreciation Right related to an Option may be exercised only when
the related Option would be exercisable and the Fair Market Value
of the Shares subject to the related Option exceeds the exercise
price at which Shares can be acquired pursuant to the Option. In
addition, if a Tandem Stock Appreciation Right exists with respect
to less than the full number of Shares covered by a related Option,
then an exercise or termination of such Option shall not reduce the
number of Shares to which the Tandem Stock Appreciation Right
applies until the number of Shares then exercisable under such
Option equals the number of Shares to which the Tandem Stock
Appreciation Right applies. Any Option related to a Tandem Stock
Appreciation Right shall no longer be exercisable to the extent the
Tandem Stock Appreciation Right has been exercised, and any Tandem
Stock Appreciation Right shall no longer be exercisable to the
extent the related Option has been exercised.
(d) Restricted
Stock Awards. The Committee is authorized to grant
Restricted Stock Awards to any Eligible Person on the following
terms and conditions:
(i) Grant
and Restrictions. Restricted Stock Awards shall be subject
to such restrictions on transferability, risk of forfeiture and
other restrictions, if any, as the Committee may impose, or as
otherwise provided in this Plan, covering a period of time
specified by the Committee (the “Restriction Period”).
The terms of any Restricted Stock Award granted under the Plan
shall be set forth in a written Award Agreement which shall contain
provisions determined by the Committee and not inconsistent with
the Plan. The restrictions may lapse separately or in combination
at such times, under such circumstances (including based on
achievement of performance goals and/or future service
requirements), in such installments or otherwise, as the Committee
may determine at the date of grant or thereafter. Except to the
extent restricted under the terms of the Plan and any Award
Agreement relating to a Restricted Stock Award, a Participant
granted Restricted Stock shall have all of the rights of a
shareholder, including the right to vote the Restricted Stock and
the right to receive dividends thereon (subject to any mandatory
reinvestment or other requirement imposed by the Committee). During
the Restriction Period, subject to Section 10(b) below, the
Restricted Stock may not be sold, transferred, pledged,
hypothecated, margined or otherwise encumbered by the
Participant.
(ii) Forfeiture.
Except as otherwise determined by the Committee, upon termination
of a Participant’s Continuous Service during the applicable
Restriction Period, the Participant’s Restricted Stock that
is at that time subject to a risk of forfeiture that has not lapsed
or otherwise been satisfied shall be forfeited and reacquired by
the Company; provided that the Committee may provide, by rule or
regulation or in any Award Agreement, or may determine in any
individual case, that forfeiture conditions relating to Restricted
Stock Awards shall be waived in whole or in part in the event of
terminations resulting from specified causes.
(iii)
Certificates for Stock.
Restricted Stock granted under the Plan may be evidenced in such
manner as the Committee shall determine. If certificates
representing Restricted Stock are registered in the name of the
Participant, the Committee may require that such certificates bear
an appropriate legend referring to the terms, conditions and
restrictions applicable to such Restricted Stock, that the Company
retain physical possession of the certificates, and that the
Participant deliver a stock power to the Company, endorsed in
blank, relating to the Restricted Stock.
(iv)
Dividends and Splits. As a
condition to the grant of a Restricted Stock Award, the Committee
may require or permit a Participant to elect that any cash
dividends paid on a Share of Restricted Stock be automatically
reinvested in additional Shares of Restricted Stock or applied to
the purchase of additional Awards under the Plan. Unless otherwise
determined by the Committee, Shares distributed in connection with
a stock split or stock dividend, and other property distributed as
a dividend, shall be subject to restrictions and a risk of
forfeiture to the same extent as the Restricted Stock with respect
to which such Shares or other property have been
distributed.
(v) Restricted
Stock Units. In lieu of or in addition to Restricted Stock,
the Committee is authorized to grant Restricted Stock Units to any
Eligible Person. Restricted Stock Units shall be subject to the
same terms and conditions under this Plan as Restricted Stock
except as otherwise provided in this Plan or as otherwise provided
by the Committee. Except as otherwise provided by the Committee,
the award shall be settled and paid out promptly upon vesting (to
the extent permitted by Section 409A of the Code), and the
Participant holding such Restricted Stock Units shall receive, as
determined by the Committee, Shares (or cash equal to the Fair
Market Value of the number of Shares as of the date the Award
becomes payable) equal to the number of such Restricted Stock
Units. Restricted Stock Units shall not be transferable, shall have
no voting rights, and, unless otherwise determined by the
Committee, shall not receive dividends or Dividend Equivalents
(which in any event shall only be paid out to the extent that the
Restricted Stock Units vest).
(e) Deferred
Stock Award. The Committee is authorized to grant Deferred
Stock Awards to any Eligible Person on the following terms and
conditions:
(i) Award
and Restrictions. Satisfaction of a Deferred Stock Award
shall occur upon expiration of the deferral period specified for
such Deferred Stock Award by the Committee (or, if permitted by the
Committee, as elected by the Participant). In addition, a Deferred
Stock Award shall be subject to such restrictions (which may
include a risk of forfeiture) as the Committee may impose, if any,
which restrictions may lapse at the expiration of the deferral
period or at earlier specified times (including based on
achievement of performance goals and/or future service
requirements), separately or in combination, in installments or
otherwise, as the Committee may determine. A Deferred Stock Award
may be satisfied by delivery of Shares, cash equal to the Fair
Market Value of the specified number of Shares covered by the
Deferred Stock, or a combination thereof, as determined by the
Committee at the date of grant or thereafter. Prior to satisfaction
of a Deferred Stock Award, a Deferred Stock Award carries no voting
or dividend or other rights associated with Share
ownership.
(ii)
Forfeiture. Except as
otherwise determined by the Committee, upon termination of a
Participant’s Continuous Service during the applicable
deferral period or portion thereof to which forfeiture conditions
apply (as provided in the Award Agreement evidencing the Deferred
Stock Award), the Participant’s Deferred Stock Award that is
at that time subject to a risk of forfeiture that has not lapsed or
otherwise been satisfied shall be forfeited; provided that the
Committee may provide, by rule or regulation or in any Award
Agreement, or may determine in any individual case, that forfeiture
conditions relating to a Deferred Stock Award shall be waived in
whole or in part in the event of terminations resulting from
specified causes, and the Committee may in other cases waive in
whole or in part the forfeiture of any Deferred Stock
Award.
(f) Bonus
Stock and Awards in Lieu of Obligations. The Committee is
authorized to grant Shares to any Eligible Persons as a bonus, or
to grant Shares or other Awards in lieu of obligations to pay cash
or deliver other property under the Plan or under other plans or
compensatory arrangements, provided that, in the case of Eligible
Persons subject to Section 16 of the Exchange Act, the amount of
such grants remains within the discretion of the Committee to the
extent necessary to ensure that acquisitions of Shares or other
Awards are exempt from liability under Section 16(b) of the
Exchange Act. Shares or Awards granted hereunder shall be subject
to such other terms as shall be determined by the
Committee.
(g) Dividend
Equivalents. The Committee is authorized to grant Dividend
Equivalents to any Eligible Person entitling the Eligible Person to
receive cash, Shares, other Awards, or other property equal in
value to the dividends paid with respect to a specified number of
Shares, or other periodic payments. Dividend Equivalents may be
awarded on a free-standing basis or in connection with another
Award. The Committee may provide that Dividend Equivalents shall be
paid or distributed when accrued or shall be deemed to have been
reinvested in additional Shares, Awards, or other investment
vehicles, and subject to such restrictions on transferability and
risks of forfeiture, as the Committee may specify. Unless otherwise
determined by the Committee at date of grant, any Dividend
Equivalents that are granted with respect to any Deferred Stock
Award shall be either (A) paid with respect to such Deferred Stock
Award at the dividend payment date in cash or in Shares of
unrestricted stock having a Fair Market Value equal to the amount
of such dividends, or (B) deferred with respect to such Deferred
Stock Award and the amount or value thereof automatically deemed
reinvested in additional Deferred Stock, other Awards or other
investment vehicles, as the Committee shall determine or permit the
Participant to elect.
(h) Performance
Awards. The Committee is authorized to grant Performance
Awards to any Eligible Person payable in cash, Shares, or other
Awards, on terms and conditions established by the Committee. The
performance criteria to be achieved during any Performance Period
and the length of the Performance Period shall be determined by the
Committee upon the grant of each Performance Award. Except as
provided in Section 9 or as may be provided in an Award Agreement,
Performance Awards will be distributed only after the end of the
relevant Performance Period. The performance goals to be achieved
for each Performance Period shall be conclusively determined by the
Committee and may be based on any criteria that the Committee, in
its sole discretion, shall determine should be used for that
purpose. The amount of the Award to be distributed shall be
conclusively determined by the Committee. Performance Awards may be
paid in a lump sum or in installments following the close of the
Performance Period or, in accordance with procedures established by
the Committee, on a deferred basis.
(i) Other
Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant to any Eligible Person
such other Awards that may be denominated or payable in, valued in
whole or in part by reference to, or otherwise based on, or related
to, Shares, as deemed by the Committee to be consistent with the
purposes of the Plan. Other Stock-Based Awards may be granted to
Participants either alone or in addition to other Awards granted
under the Plan, and such Other Stock-Based Awards shall also be
available as a form of payment in the settlement of other Awards
granted under the Plan. The Committee shall determine the terms and
conditions of such Awards. Payment pursuant to an Award granted
under this Section 6(i) shall be made at such times, by such
methods and in such forms, including, without limitation, cash,
Shares, other Awards or other property, as the Committee shall
determine.
7. Certain
Provisions Applicable to Awards.
(a) Stand-Alone,
Additional, Tandem and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution
or exchange for, any other Award or any award granted under another
plan of the Company, any Related Entity, or any business entity to
be acquired by the Company or a Related Entity, or any other right
of a Participant to receive payment from the Company or any Related
Entity. Such additional, tandem, and substitute or exchange Awards
may be granted at any time. If an Award is granted in substitution
or exchange for another Award or award, the Committee shall require
the surrender of such other Award or award in consideration for the
grant of the new Award. In addition, Awards may be granted in lieu
of cash compensation, including in lieu of cash amounts payable
under other plans of the Company or any Related Entity, in which
the value of Shares subject to the Award is equivalent in value to
the cash compensation, or in which the exercise price, grant price
or purchase price of the Award in the nature of a right that may be
exercised is equal to the Fair Market Value of the underlying
Shares minus the value of the cash compensation surrendered. Awards
granted pursuant to the preceding sentence shall be designed,
awarded and settled in a manner that does not result in additional
taxes under Section 409A of the Code.
(b) Term
of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided that in no event
shall the term of any Option or Stock Appreciation Right exceed a
period of ten years (or in the case of an Incentive Stock Option
such shorter term as may be required under Section 422 of the
Code).
(c) Form
and Timing of Payment Under Awards; Deferrals. Subject to
the terms of the Plan and any applicable Award Agreement, payments
to be made by the Company or a Related Entity upon the exercise of
an Option or other Award or settlement of an Award may be made in
such forms as the Committee shall determine, including, without
limitation, cash, Shares, other Awards or other property, and may
be made in a single payment or transfer, in installments, or on a
deferred basis. Any installment or deferral provided for in the
preceding sentence shall, however, be subject to the
Company’s compliance with the provisions of Section 409A of
the Code and other applicable law, rules and regulations adopted by
the Securities and Exchange Commission, and all applicable rules of
any national securities exchange on which the Company’s
securities are listed for trading and, if not listed for trading on
a national securities exchange, then the rules of the NASDAQ Stock
Market. The settlement of any Award may be accelerated, and cash
paid in lieu of Shares in connection with such settlement, in the
discretion of the Committee or upon occurrence of one or more
specified events (in addition to a Change in Control), subject to
compliance with the provisions of Section 409A of the Code.
Installment or deferred payments may be required by the Committee
(subject to Section 10(e) of the Plan, including the consent
provisions thereof in the case of any deferral of an outstanding
Award not provided for in the original Award Agreement) or
permitted at the election of the Participant on terms and
conditions established by the Committee. Payments may include,
without limitation, provisions for the payment or crediting of a
reasonable interest rate on installment or deferred payments or the
grant or crediting of Dividend Equivalents or other amounts in
respect of installment or deferred payments denominated in
Shares.
(d) Exemptions
from Section 16(b) Liability. It is the intent of the
Company that the grant of any Awards to or other transaction by a
Participant who is subject to Section 16 of the Exchange Act shall
be exempt from Section 16 pursuant to an applicable exemption
(except for transactions acknowledged in writing to be non-exempt
by such Participant). Accordingly, if any provision of this Plan or
any Award Agreement does not comply with the requirements of Rule
16b-3 then applicable to any such transaction, such provision shall
be construed or deemed amended to the extent necessary to conform
to the applicable requirements of Rule 16b-3 so that such
Participant shall avoid liability under Section 16(b).
8. Successors.
All obligations of the Company under the Plan, with respect to
Awards granted hereunder, shall be binding on any successor to the
Company, whether the existence of such successor is the result of a
direct or indirect purchase, merger, consolidation, or otherwise,
of all or substantially all of the business and/or assets of the
Company.
9. Change
in Control.
(a) Effect
of “Change in Control.” Subject to Section
9(a)(iv), and if and only to the extent provided in the Award
Agreement, or to the extent otherwise determined by the Committee,
upon the occurrence of a “Change in Control,” as
defined in Section 9(b):
(i) Any
Option or Stock Appreciation Right that was not previously vested
and exercisable as of the time of the Change in Control, shall
become immediately vested and exercisable, subject to applicable
restrictions set forth in Section 10(a) hereof.
(ii)
Any restrictions, deferral of settlement, and forfeiture conditions
applicable to a Restricted Stock Award, Restricted Stock Unit
Award, Deferred Stock Award or an Other Stock-Based Award subject
only to future service requirements granted under the Plan shall
lapse and such Awards shall be deemed fully vested as of the time
of the Change in Control, except to the extent of any waiver by the
Participant and subject to applicable restrictions set forth in
Section 10(a) hereof.
(iii)
With respect to any outstanding Award subject to achievement of
performance goals and conditions under the Plan, the Committee may,
in its discretion, deem such performance goals and conditions as
having been met as of the date of the Change in
Control.
(iv)
Notwithstanding the foregoing, if in the event of a Change in
Control the successor company assumes or substitutes for an Option,
Stock Appreciation Right, Restricted Stock Award, Restricted Stock
Unit Award, Deferred Stock Award or Other Stock-Based Award, then
each outstanding Option, Stock Appreciation Right, Restricted Stock
Award, Deferred Stock Award or Other Stock-Based Award shall not be
accelerated as described in Sections 9(a)(i), (ii) and (iii). For
the purposes of this Section 9(a)(iv), an Option, Stock
Appreciation Right, Restricted Stock Award, Restricted Stock Unit
Award, Deferred Stock Award or Other Stock-Based Award shall be
considered assumed or substituted for if following the Change in
Control the award confers the right to purchase or receive, for
each Share subject to the Option, Stock Appreciation Right,
Restricted Stock Award, Restricted Stock Unit Award, Deferred Stock
Award or Other Stock-Based Award immediately prior to the Change in
Control, the consideration (whether stock, cash or other securities
or property) received in the transaction constituting a Change in
Control by holders of Shares for each Share held on the effective
date of such transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a
majority of the outstanding shares); provided, however, that if such
consideration received in the transaction constituting a Change in
Control is not solely common stock of the successor company or its
parent or subsidiary, the Committee may, with the consent of the
successor company or its parent or subsidiary, provide that the
consideration to be received upon the exercise or vesting of an
Option, Stock Appreciation Right, Restricted Stock Award,
Restricted Stock Unit Award, Deferred Stock Award or Other
Stock-Based Award, for each Share subject thereto, will be solely
common stock of the successor company or its parent or subsidiary
substantially equal in fair market value to the per share
consideration received by holders of Shares in the transaction
constituting a Change in Control. The determination of such
substantial equality of value of consideration shall be made by the
Committee in its sole discretion and its determination shall be
conclusive and binding.
(b) Definition
of “Change in Control.” Unless otherwise
specified in an Award Agreement, a “Change in Control”
shall mean the occurrence of any of the following:
(i) The
acquisition by any Person of Beneficial Ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of more
than fifty percent (50%) of either the then outstanding shares of
common stock of the Company (the “Outstanding Company Common
Stock”) or the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting
Securities”) (the foregoing Beneficial Ownership hereinafter
being referred to as a “Controlling Interest”);
provided,
however, that for
purposes of this Section 9(b), the following acquisitions shall not
constitute or result in a Change of Control: (v) any acquisition
directly from the Company; (w) any acquisition by the Company; (x)
any acquisition by any Person that as of the Effective Date owns
Beneficial Ownership of a Controlling Interest; (y) any acquisition
by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary; or (z) any acquisition
by any corporation pursuant to a transaction which complies with
clauses (A), (B) and (C) of subsection (iii) below; or
(ii)
During any period of two (2) consecutive years (not including any
period prior to the Effective Date) individuals who constitute the
Board on the Effective Date (the “Incumbent Board”)
cease for any reason to constitute at least a majority of the
Board; provided,
however, that any
individual becoming a director subsequent to the Effective Date
whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened
election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board;
or
(iii)
Consummation of a reorganization, merger, statutory share exchange
or consolidation or similar corporate transaction involving the
Company or any of its Subsidiaries, a sale or other disposition of
all or substantially all of the assets of the Company, or the
acquisition of assets or stock of another entity by the Company or
any of its Subsidiaries (each a “Business
Combination”), in each case, unless, following such Business
Combination, all or substantially all of the individuals and
entities who were the Beneficial Owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than fifty percent
(50%) of the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business
Combination, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be, no
Person (excluding any employee benefit plan (or related trust) of
the Company or such corporation resulting from such Business
Combination or any Person that as of the Effective Date owns
Beneficial Ownership of a Controlling Interest) beneficially owns,
directly or indirectly, fifty percent (50%) or more of the then
outstanding shares of common stock of the corporation resulting
from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and at least a majority of the members of the Board of
Directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval
by the shareholders of the Company of a plan of complete
liquidation or dissolution of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of
the Company’s assets.
Notwithstanding the
foregoing, if a Change in Control constitutes a payment event with
respect to any Award (or any portion of an Award) that provides for
the deferral of compensation that is subject to Section 409A of the
Code, to the extent required to avoid the imposition of additional
taxes under Section 409A of the Code, the transaction or event
described in subsection (i) (ii), (iii) or (iv) with respect to
such Award (or portion thereof) shall only constitute a Change in
Control for purposes of the payment timing of such Award if such
transaction also constitutes a “change in control
event,” as defined in Treasury Regulation Section
1.409A-3(i)(5).
10. General
Provisions.
(a) Compliance
With Legal and Other Requirements. The Company may, to the
extent deemed necessary or advisable by the Committee, postpone the
issuance or delivery of Shares or payment of other benefits under
any Award until completion of such registration or qualification of
such Shares or other required action under any federal or state
law, rule or regulation, listing or other required action with
respect to any stock exchange or automated quotation system upon
which the Shares or other Company securities are listed or quoted,
or compliance with any other obligation of the Company, as the
Committee, may consider appropriate, and may require any
Participant to make such representations, furnish such information
and comply with or be subject to such other conditions as it may
consider appropriate in connection with the issuance or delivery of
Shares or payment of other benefits in compliance with applicable
laws, rules, and regulations, listing requirements, or other
obligations.
(b) Limits
on Transferability; Beneficiaries. No Award or other right
or interest granted under the Plan shall be pledged, hypothecated
or otherwise encumbered or subject to any lien, obligation or
liability of such Participant to any party, or assigned or
transferred by such Participant otherwise than by will or the laws
of descent and distribution or to a Beneficiary upon the death of a
Participant, and such Awards or rights that may be exercisable
shall be exercised during the lifetime of the Participant only by
the Participant or his or her guardian or legal representative,
except that Awards and other rights (other than Incentive Stock
Options and Stock Appreciation Rights in tandem therewith) may be
transferred to one or more Beneficiaries or other transferees
during the lifetime of the Participant, and may be exercised by
such transferees in accordance with the terms of such Award, but
only if and to the extent such transfers are permitted by the
Committee pursuant to the express terms of an Award Agreement
(subject to any terms and conditions which the Committee may impose
thereon). A Beneficiary, transferee, or other person claiming any
rights under the Plan from or through any Participant shall be
subject to all terms and conditions of the Plan and any Award
Agreement applicable to such Participant, except as otherwise
determined by the Committee, and to any additional terms and
conditions deemed necessary or appropriate by the
Committee.
(c) Adjustments.
(i) Adjustments
to Awards. In the event that any extraordinary dividend or
other distribution (whether in the form of cash, Shares, or other
property), recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination,
repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the Shares and/or
such other securities of the Company or any other issuer such that
a substitution, exchange, or adjustment is determined by the
Committee to be appropriate, then the Committee shall, in such
manner as it may deem equitable, substitute, exchange or adjust any
or all of (A) the number and kind of Shares which may be
delivered in connection with Awards granted thereafter, (B) the
number and kind of Shares subject to or deliverable in respect of
outstanding Awards, (C) the exercise price, grant price or
purchase price relating to any Award and/or make provision for
payment of cash or other property in respect of any outstanding
Award, and (D) any other aspect of any Award that the Committee
determines to be appropriate.
(ii) Adjustments
in Case of Certain Corporate Transactions. In the event of
any merger, consolidation or other reorganization in which the
Company does not survive, or in the event of any Change in Control,
any outstanding Awards may be dealt with in accordance with any of
the following approaches, as determined by the agreement
effectuating the transaction or, if and to the extent not so
determined, as determined by the Committee: (a) the continuation of
the outstanding Awards by the Company, if the Company is a
surviving corporation, (b) the assumption or substitution for, as
those terms are defined in Section 9(b)(iv) hereof, the outstanding
Awards by the surviving corporation or its parent or subsidiary,
(c) full exercisability or vesting and accelerated expiration of
the outstanding Awards, or (d) settlement of the value of the
outstanding Awards in cash or cash equivalents or other property
followed by cancellation of such Awards (which value, in the case
of Options or Stock Appreciation Rights, shall be measured by the
amount, if any, by which the Fair Market Value of a Share exceeds
the exercise or grant price of the Option or Stock Appreciation
Right as of the effective date of the transaction). The Committee
shall give written notice of any proposed transaction referred to
in this Section 10(c)(ii) a reasonable period of time prior to the
closing date for such transaction (which notice may be given either
before or after the approval of such transaction), in order that
Participants may have a reasonable period of time prior to the
closing date of such transaction within which to exercise any
Awards that are then exercisable (including any Awards that may
become exercisable upon the closing date of such transaction). A
Participant may condition his exercise of any Awards upon the
consummation of the transaction.
(iii)
Other Adjustments. The
Committee is authorized to make adjustments in the terms and
conditions of, and the criteria included in, Awards (including
Performance Awards, or performance goals relating thereto) in
recognition of unusual or nonrecurring events (including, without
limitation, acquisitions and dispositions of businesses and assets)
affecting the Company, any Related Entity or any business unit, or
the financial statements of the Company or any Related Entity, or
in response to changes in applicable laws, regulations, accounting
principles, tax rates and regulations or business conditions or in
view of the Committee’s assessment of the business strategy
of the Company, any Related Entity or business unit thereof,
performance of comparable organizations, economic and business
conditions, personal performance of a Participant, and any other
circumstances deemed relevant.
(d)
Taxes. The Company and any
Related Entity are authorized to withhold from any Award granted
any payment relating to an Award under the Plan, including from a
distribution of Shares, or any payroll or other payment to a
Participant, amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an
Award, and to take such other action as the Committee may deem
advisable to enable the Company or any Related Entity and
Participants to satisfy obligations for the payment of withholding
taxes and other tax obligations relating to any Award. This
authority shall include authority to withhold or receive Shares or
other property and to make cash payments in respect thereof in
satisfaction of a Participant’s tax obligations, either on a
mandatory or elective basis in the discretion of the Committee. The
withholding of taxes is intended to comply with the requirements of
Rule 10b5-1(c)(1)(i)(B) of the Exchange Act to the extent permitted
by law.
(e) Changes
to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan, or the Committee’s
authority to grant Awards under the Plan, without the consent of
shareholders or Participants, except that any amendment or
alteration to the Plan shall be subject to the approval of the
Company’s shareholders not later than the annual meeting next
following such Board action if such shareholder approval is
required by any federal or state law or regulation (including,
without limitation, Rule 16b-3 or Section 422 of the Code) or the
rules of any stock exchange or automated quotation system on which
the Shares may then be listed or quoted), and the Board may
otherwise, in its discretion, determine to submit other such
changes to the Plan to shareholders for approval; provided that,
without the consent of an affected Participant, no such Board
action may materially and adversely affect the rights of such
Participant under any previously granted and outstanding Award. The
Committee may waive any conditions or rights under, or amend,
alter, suspend, discontinue or terminate any Award theretofore
granted and any Award Agreement relating thereto, except as
otherwise provided in the Plan; provided that, without the consent
of an affected Participant, no such Committee or the Board action
may materially and adversely affect the rights of such Participant
under such Award.
(f) Limitation
on Rights Conferred Under Plan. Neither the Plan nor any
action taken hereunder shall be construed as (i) giving any
Eligible Person or Participant the right to continue as an Eligible
Person or Participant or in the employ or service of the Company or
a Related Entity; (ii) interfering in any way with the right
of the Company or a Related Entity to terminate any Eligible
Person’s or Participant’s Continuous Service at any
time, (iii) giving an Eligible Person or Participant any claim
to be granted any Award under the Plan or to be treated uniformly
with other Participants and Employees, or (iv) conferring on a
Participant any of the rights of a shareholder of the Company
unless and until the Participant is duly issued or transferred
Shares in accordance with the terms of an Award.
(g) Unfunded
Status of Awards; Creation of Trusts. The Plan is intended
to constitute an “unfunded” plan for incentive and
deferred compensation. With respect to any payments not yet made to
a Participant or obligation to deliver Shares pursuant to an Award,
nothing contained in the Plan or any Award shall give any such
Participant any rights that are greater than those of a general
creditor of the Company; provided that the Committee may authorize
the creation of trusts and deposit therein cash, Shares, other
Awards or other property, or make other arrangements to meet the
Company’s obligations under the Plan. Such trusts or other
arrangements shall be consistent with the “unfunded”
status of the Plan unless the Committee otherwise determines with
the consent of each affected Participant. The trustee of such
trusts may be authorized to dispose of trust assets and reinvest
the proceeds in alternative investments, subject to such terms and
conditions as the Committee may specify and in accordance with
applicable law.
(h) Code
Section 409A. It is intended that all Awards issued under
the Plan be in a form and administered in a manner that will comply
with the requirements of Section 409A of the Code, or the
requirements of an exception to Section 409A of the Code, and the
Award Agreement and this Plan will be construed and administered in
a manner that is consistent with and gives effect to such intent.
The Committee is authorized to adopt rules or regulations deemed
necessary or appropriate to qualify for an exception from or to
comply with the requirements of Section 409A of the Code. With
respect to an Award that constitutes a deferral of compensation
subject to Section 409A of the Code: (i) if any amount is payable
under such Award upon a termination of service, a termination of
service will be treated as having occurred only at such time the
Participant has experienced a “separation from service”
as such term is defined for purposes of Section 409A of the Code;
(ii) if any amount is payable under such Award upon a disability, a
disability will be treated as having occurred only at such time the
Participant has experienced a “disability” as such term
is defined for purposes of Section 409A of the Code; (iii) if any
amount is payable under such Award on account of the occurrence of
a Change in Control, a Change in Control will be treated as having
occurred only at such time a “change in the ownership or
effective control of the corporation or in the ownership of a
substantial portion of the assets of the corporation” has
occurred as such terms are defined for purposes of Section 409A of
the Code, (iv) if any amount becomes payable under such Award on
account of a Participant’s separation from service at such
time as the Participant is a “specified employee”
within the meaning of Section 409A of the Code, then no payment
shall be made, except as permitted under Section 409A of the Code,
prior to the first business day after the earlier of (y) the date
that is six months after the date of the Participant’s
separation from service or (z) the Participant’s death, (v)
any right to receive any installment payments under this Plan shall
be treated as a right to receive a series of separate payments and,
accordingly, each installment payment hereunder shall at all times
be considered a separate and distinct payment, and (vi) no
amendment to or payment under such Award will be made except and
only to the extent permitted under Section 409A of the
Code.
Notwithstanding the
foregoing, the tax treatment of the benefits provided under the
Plan or any Award Agreement is not warranted or guaranteed, and in
no event shall the Company be liable for all or any portion of any
taxes, penalties, interest or other expenses that may be incurred
by the Participant on account of non-compliance with Section 409A
of the Code.
(i) Nonexclusivity
of the Plan. Neither the adoption of the Plan by the Board
nor its submission to the shareholders of the Company for approval
shall be construed as creating any limitations on the power of the
Board or a committee thereof to adopt such other incentive
arrangements as it may deem desirable including incentive
arrangements and awards which do not qualify under Section 162(m)
of the Code.
(j) Payments
in the Event of Forfeitures; Fractional Shares. Unless
otherwise determined by the Committee, in the event of a forfeiture
of an Award with respect to which a Participant paid cash or other
consideration, the Participant shall be repaid the amount of such
cash or other consideration. No fractional Shares shall be issued
or delivered pursuant to the Plan or any Award. The Committee shall
determine whether cash, other Awards or other property shall be
issued or paid in lieu of such fractional shares or whether such
fractional shares or any rights thereto shall be forfeited or
otherwise eliminated.
(k)
Investment Representations.
The Company shall be under no obligation to issue any Shares
covered by any Award unless the Shares to be issued pursuant to
Awards granted under the Plan have been effectively registered
under the Securities Act of 1933, as amended, or the Participant
shall have made such written representations to the Company (upon
which the Company believes it may reasonably rely) as the Company
may deem necessary or appropriate for purposes of confirming that
the issuance of such Shares will be exempt from the registration
requirements of that Act and any applicable state securities laws
and otherwise in compliance with all applicable laws, rules and
regulations, including but not limited to that the Participant is
acquiring the Shares for his or her own account for the purpose of
investment and not with a view to, or for sale in connection with,
the distribution of any such Shares.
(l) Registration.
If the Company shall deem it necessary or desirable to register
under the Securities Act of 1933, as amended, or other applicable
statutes any Shares issued or to be issued pursuant to Awards
granted under the Plan, or to qualify any such Shares for exemption
from the Securities Act of 1933, as amended, or other applicable
statutes, then the Company shall take such action at its own
expense. The Company may require from each recipient of an Award,
or each holder of Shares acquired pursuant to the Plan, such
information in writing for use in any registration statement,
prospectus, preliminary prospectus or offering circular as is
reasonably necessary for that purpose and may require reasonable
indemnity to the Company and its officers and directors from that
holder against all losses, claims, damage and liabilities arising
from use of the information so furnished and caused by any untrue
statement of any material fact therein or caused by the omission to
state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances under which they were made. In addition, the Company
may require of any such person that he or she agree that, without
the prior written consent of the Company or the managing
underwriter in any public offering of Shares, he or she will not
sell, make any short sale of, loan, grant any option for the
purchase of, pledge or otherwise encumber, or otherwise dispose of,
any Shares during the 180 day period commencing on the effective
date of the registration statement relating to the underwritten
public offering of securities. Without limiting the generality of
the foregoing provisions of this Section 10(l), if in connection
with any underwritten public offering of securities of the Company
the managing underwriter of such offering requires that the
Company’s directors and officers enter into a lock-up
agreement containing provisions that are more restrictive than the
provisions set forth in the preceding sentence, then (a) each
holder of Shares acquired pursuant to the Plan (regardless of
whether such person has complied or complies with the provisions of
clause (b) below) shall be bound by, and shall be deemed to have
agreed to, the same lock-up terms as those to which the
Company’s directors and officers are required to adhere; and
(b) at the request of the Company or such managing underwriter,
each such person shall execute and deliver a lock-up agreement in
form and substance equivalent to that which is required to be
executed by the Company’s directors and
officers.
(m)
Placement of Legends; Stop Orders;
etc. Each Share to be issued pursuant to Awards granted
under the Plan may bear a reference to the investment
representation made in accordance with Section 10(k) in addition to
any other applicable restriction under the Plan, the terms of the
Award and to the fact that no registration statement has been filed
with the Securities and Exchange Commission in respect to such
Share. All Shares or other securities delivered under the Plan
shall be subject to such stock transfer orders and other
restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of any stock exchange upon
which the Share is then listed, and any applicable federal or state
securities law, and the Committee may cause a legend or legends to
be put on any certificates or recorded in connection with
book-entry accounts representing the shares to make appropriate
reference to such restrictions.
(n) Uncertificated
Shares. To the extent that the Plan provides for issuance of
certificates to reflect the transfer of Shares, the transfer of
such Shares may be effected on a noncertificated basis, to the
extent not prohibited by applicable law.
(o)
Governing Law. The
validity, construction and effect of the Plan, any rules and
regulations under the Plan, and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware
without giving effect to principles of conflict of laws, and
applicable federal law.
(p) Elections
and Notices. Notwithstanding anything to the contrary
contained in this Plan, all elections and notices of every kind
shall be made on forms prepared by the Company or the General
Counsel, Secretary or Assistant Secretary, or their respective
delegates or shall be made in such other manner as permitted or
required by the Company or the General Counsel, Secretary or
Assistant Secretary, or their respective delegates, including but
not limited to elections or notices through electronic means, over
the Internet or otherwise. An election shall be deemed made when
received by the Company (or its designated agent, but only in cases
where the designated agent has been appointed for the purpose of
receiving such election), which may waive any defects in form. The
Company may limit the time an election may be made in advance of
any deadline.
Where
any notice or filing required or permitted to be given to the
Company under the Plan, it shall be delivered to the principal
office of the Company, directed to the attention of the General
Counsel of the Company or his or her successor. Such notice shall
be deemed given on the date of delivery.
Notice
to the Participant shall be deemed given when mailed (or sent by
telecopy) to the Participant’s work or home address as shown
on the records of the Company or, at the option of the Company, to
the Participant’s e-mail address as shown on the records of
the Company.
It is
the Participant’s responsibility to ensure that the
Participant’s addresses are kept up to date on the records of
the Company. In the case of notices affecting multiple
Participants, the notices may be given by general distribution at
the Participants’ work locations.
(q)
Non-U.S. Laws. The
Committee shall have the authority to adopt such modifications,
procedures, and subplans as may be necessary or desirable to comply
with provisions of the laws of foreign countries in which the
Company or its Subsidiaries may operate to assure the viability of
the benefits from Awards granted to Participants performing
services in such countries and to meet the objectives of the
Plan.
(r) Venue.
The Company and the Participant to whom an award under this Plan is
granted, for themselves and their successors and assigns,
irrevocably submit to the exclusive and sole jurisdiction and venue
of the state or federal courts of Delaware with respect to any and
all disputes arising out of or relating to this Plan, the subject
matter of this Plan or any awards under this Plan, including but
not limited to any disputes arising out of or relating to the
interpretation and enforceability of any awards or the terms and
conditions of this Plan. To achieve certainty regarding the
appropriate forum in which to prosecute and defend actions arising
out of or relating to this Plan, and to ensure consistency in
application and interpretation of the Governing Law to the Plan,
the parties agree that (a) sole and exclusive appropriate venue for
any such action shall be an appropriate federal or state court in
Delaware, and no other, (b) all claims with respect to any such
action shall be heard and determined exclusively in such Delaware
court, and no other, (c) such Delaware court shall have sole and
exclusive jurisdiction over the person of such parties and over the
subject matter of any dispute relating hereto and (d) that the
parties waive any and all objections and defenses to bringing any
such action before such Delaware court, including but not limited
to those relating to lack of personal jurisdiction, improper venue
or forum non conveniens.
(s) Plan
Effective Date and Shareholder Approval; Termination of
Plan. The Plan shall become effective on September 25, 2018
(“Effective Date”), subject to subsequent approval,
within 12 months of its adoption by the Board, by shareholders of
the Company eligible to vote in the election of directors, by a
vote sufficient to meet the requirements of Section 422 of the
Code, Rule 16b-3 under the Exchange Act (if applicable), applicable
requirements under the rules of any stock exchange or automated
quotation system on which the Shares may be listed or quoted, and
other laws, regulations, and obligations of the Company applicable
to the Plan. Awards may be granted subject to shareholder approval,
but may not be exercised or otherwise settled in the event the
shareholder approval is not obtained. The Plan shall terminate at
the earliest of (a) such time as no Shares remain available for
issuance under the Plan, (b) termination of this Plan by the Board,
or (c) the tenth anniversary of the Effective Date. Awards
outstanding upon expiration of the Plan shall remain in effect
until they have been exercised or terminated, or have
expired.
Adopted
September 2018
Exhibit 10.2
OFFICE LEASE (FULL-SERVICE GROSS)
BETWEEN
HAMPDEN
SQUARE CORPORATION,
a
Delaware corporation,
AS
LANDLORD,
AND
SeD
HOME, INC.,
a
Delaware corporation,
AS
TENANT,
FOR
HAMPDEN
SQUARE
SUMMARY OF BASIC LEASE INFORMATION
This
Summary of Basic Lease Information (the "Lease Summary") is hereby
incorporated into and made a part of the attached Office Lease
(Full-Service Gross) (this Lease Summary and the Office Lease
(Full-Service Gross) to be known collectively as the "Lease"). In
the event of a conflict between the terms of this Lease Summary and
the Office Lease (Full-Service Gross), the terms of the Office
Lease (Full-Service Gross) shall prevail. Any capitalized terms
used herein and not otherwise defined herein shall have the meaning
as set forth in the Office Lease (Full-Service Gross).
|
1.
Date:
|
July
21, 2015.
|
|
|
|
|
2.
Landlord:
|
HAMPDEN
SQUARE CORPORATION, a Delaware corporation.
|
|
|
|
|
3.
Address of
Landlord:
|
American
Realty Advisors
801
North Brand Blvd., Suite 800
Glendale,
California 91203
Attention:
Stanley Iezman
Phone:
(818) 545-1152
Telecopy:
(818) 545-8460
|
|
|
|
|
4.
Tenant:
|
SeD
HOME, INC., a Delaware corporation
|
|
|
|
|
5.
Address of
Tenant:
|
4800
Montgomery Lane, Suite 450
Bethesda,
Maryland 20814
Attention:
Mohamed Osman
Phone:
(860) 970-1272
(Prior
to Commencement Date)
|
|
|
|
|
|
and
4800
Montgomery Lane, Suite 210
Bethesda,
Maryland 20814
Attention:
Mohamed Osman
Phone:
(860) 970-1272
(After
Commencement Date)
|
|
|
|
|
6.
Guarantor(s):
|
None.
|
|
|
|
|
7.
Premises:
|
Suite
No. 210, which the parties agree contains 2,059 rentable square
feet, on the second (2nd) floor of the
Building. The Premises are outlined on the plan attached to the
Lease as Exhibit A.
|
|
|
|
|
8.
Building:
|
The
building of which the Premises are a part is located at 4800
Montgomery Lane, Bethesda, Maryland 20814, as shown on Exhibit B
(the "Building") and is located on the real property described on
Exhibit C (the "Property"). The Building is known as "Hampden
Square." The parties agree that the Building contains 143,885
rentable square feet as of the date hereof.
|
|
|
|
|
9
Term:
|
|
|
|
|
|
(a) Lease
Term:
|
Sixty-five
(65) complete calendar months.
|
|
(b) Commencement
Date:
|
The
earlier of (a) the date on which Tenant occupies any portion of the
Premises and begins conducting business therein; or (b) August 1,
2015.
|
|
|
|
|
(c)
Expiration Date:
|
The
date immediately preceding the sixty-fifth (65th) monthly
anniversary of the Commencement Date, unless the Commencement Date
is not the first day of the month, in which case the Expiration
Date shall be the last day of the month in which the sixty-fifth
(65th)
monthly anniversary of the Commencement Date occurs.
|
|
|
|
|
10.
Base Rent:
|
|
|
Months
of Term
|
|
Annual
Base Rent
|
|
Monthly
Installmentof Base Rent
|
|
1-12*
|
|
$85,963.20**
|
|
$7,163.60**
|
|
13-24
|
|
$88,331.16
|
|
$7,360.93
|
|
25-36
|
|
$90,760.68
|
|
$7,563.39
|
|
37-48
|
|
$93,252.12
|
|
$7,771.01
|
|
49-60
|
|
$95,825.88
|
|
$7,985.49
|
|
61-65
|
|
$98,461.44
|
|
$8,205.12
|
*
Plus
any partial month if the Commencement Date is not the first day of
the month.
**
Provided that
Tenant has faithfully performed all of the terms and conditions of
this Lease, Landlord agrees to abate the obligation of the Tenant
named in this Lease Summary (“Named Tenant”) to pay
Base Rent for the first five (5) complete calendar months of the
initial Term (the “Conditional Rent”). Notwithstanding
the foregoing, however, during such abatement period, Tenant shall
still be responsible for the payment of all Additional Rent payable
under this Lease. In the event of a Default at any time during the
Term, in addition to any other remedies to which Landlord may be
entitled, Landlord shall be entitled to recover the Conditional
Rent (i.e., the amount of the Conditional Rent shall not be deemed
to have been abated, but shall become immediately due and payable
as unpaid Rent earned, but due at the time of such Default). The
right to the abatement set forth above shall be personal to Named
Tenant and shall not be transferable to any assignee, sub-lessee or
other transferee of Named Tenant’s interest in this
Lease.
Notwithstanding the
foregoing, in lieu of the abatement set forth above, Landlord shall
have the right, upon written notice to Tenant given at any time
prior to the first (1st) day of the fifth
(5th)
complete calendar month of the initial Term, to pay to Tenant an
amount equal to the remaining Conditional Rent to which Tenant
would otherwise be entitled, in which case Tenant shall commence
the payment of Base Rent on the first (1st) day of the first
(1st)
complete calendar month following the date of such
notice.
|
11.
Additional
Rent:
|
|
|
|
|
|
(a)
Base Year:
|
Calendar
year 2015.
|
|
|
|
|
(b) Tenant’s
Proportionate Share of Project Operating Costs:
|
1.43%.
|
|
|
|
|
12.
Construction:
|
|
|
|
|
|
(a)
Allowance:
|
None.
|
|
|
|
|
13.
Initial
Payments:
|
|
|
|
|
|
(a)
Security Deposit:
|
$21,490.80.
|
|
|
|
|
(b)
Prepaid Rent:
|
$7,163.60.
|
|
|
|
|
14.
Permitted Use:
|
General
office use consistent with the character of a Class “A”
office building.
|
|
|
|
|
15.
Parking:
|
Non-reserved
Parking Spaces: Five (5), based upon 2.5 non-reserved parking
spaces per 1,000 rentable square feet of the Premises.
Initial
Monthly Parking Rate: $125.00 per non-reserved space.
|
|
|
|
|
16.
Brokers:
|
|
|
|
|
|
(a)
Tenant’s Broker:
|
Master
of Real Estate, LLC
4800
Montgomery Lane, Suite 450Bethesda, MD 20814
Attention:
Anne Butler
|
|
|
|
|
|
|
|
(b)
Landlord’s Broker:
|
Transwestern
6700
Rockledge Drive, Suite 500ABethesda, MD 20817
Attention:
Phil McCarthy
|
|
|
|
|
17. Exhibits:
|
The
exhibits listed below are incorporated by reference in this
Lease.
|
|
|
|
|
|
Exhibit
A Floor Plan of
Premises
Exhibit
B Site Plan of
Building
Exhibit
C Legal
Description
Exhibit
D Term
Certification
Exhibit
E Intentionally
Omitted
Exhibit
E-1 Tenant Improvement Work
Exhibit
E-2 Construction Rules and
Regulations
Exhibit
F Building
Services
Exhibit
G Rules and
Regulations
Exhibit
H Parking
Agreement
|
Landlord and Tenant
hereby agree to the foregoing terms of this Lease
Summary.
|
LANDLORD:
|
HAMPDEN
SQUARE CORPORATION,
a
Delaware corporation
|
|
|
|
|
|
By:
/s/ Michael
Gelber
Printed
Name: Michael
Gelber
Title:
Senior Asset
Manager
Date:
July 29,
2015
|
|
|
|
|
TENANT:
|
SeD
HOME, INC.,
a
Delaware corporation
|
|
|
|
|
|
By:
/s/ Jeffrey
Busch
Printed
Name: Jeffrey M.
Busch
Title:
President
Date:
July 24,
2015
Taxpayer
ID No.: W13936588
|
OFFICE LEASE (FULL-SERVICE GROSS)
THIS
OFFICE LEASE (FULL-SERVICE GROSS) (the “Lease”) is made
effective as of July 21, 2015, by and between HAMPDEN SQUARE
CORPORATION, a Delaware corporation (“Landlord”), and
SeD HOME, INC., a Delaware corporation (“Tenant”), with
reference to the following facts and circumstances:
A. Landlord
is the owner of the Project, as defined herein.
B. The
Premises covered by this Lease are defined on the Lease Summary and
are located in the Building, as defined on the Lease
Summary.
C. American
Realty Advisors (and its affiliates; collectively,
“Advisor”) is the real estate investment manager for
Landlord.
D. The
parties desire to enter into this Lease, all on the terms and
conditions set forth herein.
NOW,
THEREFORE, in consideration of the foregoing facts and
circumstances, the mutual covenants and promises contained herein
and other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by each of the parties, the
parties do hereby agree to the following:
ARTICLE 1
LEASE OF
PREMISES
In
consideration of the Rent and the provisions of this Lease,
Landlord leases to Tenant and Tenant leases from Landlord the
Premises. In addition, Tenant shall have the non-exclusive right
(unless otherwise provided herein) in common with Landlord, other
tenants, subtenants, and invitees to use the Common
Areas.
ARTICLE 2
Except
as otherwise defined in this Lease, capitalized terms shall have
the meanings set forth on the Lease Summary. As used in this Lease,
the following terms shall have the following
definitions:
2.1. Additional
Rent . All amounts,
costs and expenses that Tenant assumes, agrees or is otherwise
obligated to pay to Landlord under this Lease other than Base
Rent.
2.2. Affiliate
. An
entity that is controlled by, controls, or is under common control
with a party. “Control” shall mean the ownership,
directly or indirectly, of at least fifty-one percent (51%) of the
voting securities of, or possession of the right to vote, in the
ordinary direction of its affairs, of at least fifty-one percent
(51%) of the voting interest in any entity.
2.3. Bankruptcy
Code . Title 11 of the
United States Code, as amended from time to time.
2.4. Base
Rent . As set forth on
the Lease Summary.
2.5. Base
Year . As set forth on
the Lease Summary.
2.6. Building
Services . As set forth in
Exhibit
F.
2.7. Building
Systems . Any plant,
machinery, transformers, duct work, cable, wires, and other
equipment and facilities, and any systems designed to supply heat,
ventilation, air conditioning and humidity or any other services or
utilities, or comprising or serving as any component or portion of
the electrical, gas, steam, plumbing, sprinkler, communications,
alarm, security, or fire/life safety systems or equipment, any
Telecommunications System serving the Building and any other
mechanical, electrical, electronic, computer or other systems or
equipment that serves the Building in whole or in
part.
2.8. Business
Days . Days other than
Saturdays, Sundays and Holidays. If any item must be accomplished
or delivered hereunder on a day that is not a Business Day, it
shall be timely to accomplish or deliver the same on the next
following Business Day.
2.9. Business
Hours . As set forth in
Exhibit
F.
2.10. Claims
.
Actions, causes of action, charges, claims, contribution costs,
damages, demands, expenses (including, without limitation,
attorneys’ fees and fees and costs of consultants and other
professionals), fines, liabilities, liens, losses, obligations,
penalties, proceedings, response costs, or suits. All references in
this Lease to Landlord’s “attorneys’ fees”
shall mean and refer to all of Landlord’s fees and costs for
attorneys, including in-house attorneys.
2.11. Commencement
Date . As set forth on
the Lease Summary.
2.12. Common
Areas . The building
lobbies, common corridors, common restrooms (as opposed to
restrooms for the exclusive use of any tenant), passageways,
elevators, stairways, unrestricted parking areas, entrances, exits,
driveways and walkways, loading facilities, freight elevators,
terraces and landscaped areas in and around the Building, and other
public or common areas in the Project designated as such by
Landlord.
2.13. Environmental
Laws . All Laws
regulating or controlling Hazardous Materials, including, without
limitation, the Comprehensive Environmental Response, Compensation,
and Liability Act of 1980, as amended, 42 U.S.C. 9601, et seq.; the Hazardous Material
Transportation Act, 49 U.S.C. 1801 et seq.; and the Resource
Conservation and Recovery Act, 42 U.S.C. 6901 et seq.
2.14. Expiration
Date . As set forth on
the Lease Summary, unless otherwise sooner terminated in accordance
with the provisions of this Lease.
2.15. Force
Majeure . Strikes, labor
disputes, lockouts, inability to obtain labor, materials,
equipment, or reasonable substitutes therefor, acts of God,
governmental restrictions, regulations, or controls, judicial
orders, enemy or hostile government actions, civil commotion, war,
terrorism (foreign or domestic), fire, accident, explosion, falling
objects or other casualty, or other causes beyond the reasonable
control of the party obligated to perform hereunder.
2.16. Guarantor(s)
. The
parties set forth on the Lease Summary and any other party liable
for or required by Landlord to guaranty Tenant’s obligations
under the Lease.
2.17. Hazardous
Materials . Any hazardous
waste or hazardous substance as defined in any Laws applicable to
the Project, including, without limitation, the Environmental Laws.
“Hazardous Materials” shall also include asbestos or
asbestos-containing materials, radon gas, petroleum or petroleum
fractions, urea formaldehyde foam insulation, transformers
containing levels of polychlorinated biphenyls greater than 50
parts per million, medical waste, biological materials (including
without limitation blood and blood products), electromagnetic
fields, mold and chemicals known to cause cancer or reproductive
toxicity, whether or not defined as a hazardous waste or hazardous
substance in any statute, ordinance, rule or
regulation.
2.18. Holidays
. All
federally observed holidays, including New Year’s Day, Martin
Luther King, Jr. Day, President’s Day, Memorial Day,
Independence Day, Labor Day, Veteran’s Day, Thanksgiving Day
and Christmas Day.
2.19. Insurance
. All
costs incurred by Landlord for insurance with respect to the
Project, including but not limited to the insurance required under
Section 18.1 below.
2.20. Interest
Rate . The average prime
loan rate published by the board of governors of the Federal
Reserve System of the United States, as the same may change from
time to time, plus four percent (4%) per annum, but not in excess
of the maximum rate, if any, allowed by Law for the transaction on
which interest is being calculated.
2.21. Landlord
Related Parties . Landlord,
Landlord’s Affiliates, and the members, principals,
beneficiaries, partners, trustees, shareholders, directors,
officers, employees, mortgagees, investment managers, property
managers, brokers, contractors, attorneys, and agents of Landlord
and Landlord’s Affiliates, and the successors of such
parties.
2.22. Law
or Laws . All federal,
state, county and local governmental and municipal laws, statutes,
ordinances, rules, regulations, requirements, codes, decrees,
orders, and decisions by courts and cases, when the decisions are
considered binding precedent in the State, and decisions of federal
courts applying the Law of the State; including but not limited to
The Americans With Disabilities Act of 1990 (42 U.S.C. § 12101
et seq.), and any regulations and guidelines promulgated
thereunder, as all of the same may be amended and supplemented from
time to time.
2.23. Lease
Year . Each twelve (12)
month period or portion thereof during the Term, commencing with
the Commencement Date, without regard to calendar years; provided,
however, if the Commencement Date is not the first day of the
month, then the first (1st) Lease Year shall
commence on the first day of the first calendar month after the
Commencement Date and be deemed to include the partial month at the
beginning of the Term.
2.24. Mortgagee
. The
lessor under any present and future ground or underlying lease of
the Property and the holder of any mortgage, deed to secure debt or
trust deed now or hereafter in force against the Property or the
Building.
2.25. Operating
Costs . All costs
incurred by Landlord or its agents in the ownership, management,
maintenance, repair, replacement, improvement, alteration and
operation of the Building and Project, which may include, without
limitation, any or all of the following: (a) utilities; (b)
supplies, tools, equipment and materials used in the operation,
repair and maintenance of the Building or the Project; (c)
landscaping; (d) parking area repair, restoration, and maintenance,
including, but not limited to, resurfacing, repainting,
re-striping, and cleaning; (e) reasonable reserves for operation,
maintenance and repair of the Project and for covering uninsured
damage and liability claims relating to the Project, including,
without limitation, deductible amounts (provided that if Landlord
incurs an expense for which a reserve is held, Landlord shall apply
the applicable reserves to the expense prior to including the
balance of the expense in Operating Costs); (f) fees, charges and
other costs, including, without limitation, reasonable consulting
fees, legal fees and accounting fees, of all contractors engaged by
Landlord or otherwise reasonably incurred by Landlord in connection
with the management, operation, maintenance and repair of the
Building or the Project; (g) compensation (including, without
limitation, employment taxes and fringe benefits) of all persons
who perform duties in connection with the operation, maintenance,
repair, or overhaul of the Building or the Project, and equipment,
improvements, and facilities located within the Project; (h)
operation and maintenance of a room for delivery and distribution
of mail to tenants of the Building or the Project as required by
the U. S. Postal Service, along with any space Landlord provides
for non-exclusive use by tenants, such as conference centers,
exercise facilities and other building amenities (including,
without limitation, an amount equal to the fair market rental value
of the space used for such purposes); (i) payments under any
easement, license, operating agreement, declaration, restrictive
covenant, underlying or ground lease (excluding rent), or
instrument pertaining to the sharing of costs by the Building or
the Project; (j) operation, repair, maintenance and replacement of
the Building’s structure and all Building Systems, including,
without limitation, the cost to replace or retrofit as required by
Laws; (k) janitorial service, alarm and security service, window
cleaning, trash removal; (l) repair and replacement of building
standard surfaces, including but not limited to wall and floor
coverings, ceiling tiles, window coverings and fixtures; (m)
maintenance and replacement of curbs and walkways; (n) repair to
and replacement of the roof; (o) Building signage and directories;
(p) management of the Building or the Project, whether by Landlord
or an independent contractor (including, without limitation, an
amount equal to the fair market value of any manager’s
office; provided, that if such manager’s office is located
off-site, the fair market value of such office shall be equitably
allocated among all buildings managed by such office); (q) rental
expenses for (or a reasonable depreciation allowance on) personal
property used in maintenance, operation or repair of the Building
or the Project; (r) licenses, certificates, permits and inspections
and the cost of contesting the validity or applicability of any
governmental enactments that may affect Operating Costs; (s) the
cost of monitoring, investigating, testing and remediation of
Hazardous Materials; (t) the costs incurred in connection with the
implementation and operation of any transportation system
management program or similar program; (u) any costs, expenditures,
or charges (whether capitalized or not) required by any
governmental or quasi-governmental authority; and (v) amortization
of capital expenses (including, without limitation, financing
costs) (A) that are intended as a labor saving device or to effect
other economies in the operation or maintenance of the Building or
the Project, or any portion thereof, (B) that are required under
any Law, or (C) that are in Landlord’s opinion necessary to
maintain the Building or the Project, or any portion thereof, in
good condition and repair; provided that any such cost shall be
amortized (including interest on the unamortized cost) over its
useful life or any other appropriate amortization period, as
Landlord shall reasonably determine. Notwithstanding the foregoing,
for purposes of this Lease, “Operating Costs” shall not
include:
2.25.1.
Costs
(including permit, license and inspection costs) incurred in
renovating or otherwise improving, decorating or redecorating
rentable space for other tenants or vacant rentable
space;
2.25.2. Utilities or
services sold to Tenant or others for which Landlord is entitled to
and actually receives reimbursement (other than through any
operating cost reimbursement provision similar to the provisions
set forth in this Lease);
2.25.3. Except as otherwise
specifically provided in this Section, alterations to the Building
that are considered capital improvements or replacements of such
capital improvements under sound real estate management
principles;
2.25.4. Depreciation and
amortization, except on materials, small tools and supplies
purchased by Landlord to enable Landlord to supply services
Landlord might otherwise contract for with a third party, where
such depreciation and amortization would otherwise have been
included in the charge for such third party services, all as
determined in accordance with sound real estate management
principles;
2.25.5. Services or other
benefits that are not available to Tenant, but which are provided
to other tenants of the Building;
2.25.6. Overhead or any
profit increment paid to Landlord or to subsidiaries or affiliates
of Landlord for services in or in connection with the Building to
the extent the same exceeds the cost of such services that could be
obtained from equally qualified third parties on a competitive
basis or at market rates;
2.25.7. Except as otherwise
specifically provided in this Section, interest on debt or
amortization on any mortgages, other charges, costs and expenses
payable under any mortgage, if any, and costs for financing and
refinancing the Project;
2.25.8. Ground
rents;
2.25.9. Compensation and
employee benefits paid to clerks, attendants or other persons in
any commercial concession operated by Landlord, except the Building
parking facility;
2.25.10. Rentals and other
related expenses incurred in leasing equipment, the cost of which
would otherwise be excluded capital expenses hereunder, except
equipment used (a) in performing repairs and replacements and/or in
providing janitorial or similar services and which is not affixed
to the Building, or (b) in case of emergency;
2.25.11. Electrical power
for which Tenant directly contracts with and pays an electrical
service company;
2.25.12. Marketing costs,
including leasing commissions, attorneys’ fees in connection
with the negotiation and preparation of letters, deal memos,
letters of intent, leases, subleases and/or assignments, space
planning costs, and other costs and expenses incurred in connection
with lease, sublease or assignment negotiations and transactions
with present or prospective tenants or other occupants of the
Building, including attorneys’ fees and other costs and
expenditures incurred in connection with disputes with present or
prospective tenants or other occupants of the Building unless
related to the operation or maintenance of the Common
Areas;
2.25.13. Costs covered by
insurance, to the extent of the insurance proceeds actually
received by Landlord;
2.25.14. Costs covered by
warranties, to the extent of the amount actually paid under the
warranty;
2.25.15. Any service
provided directly to and paid directly by any tenant;
and
2.25.16.
Wages
and benefits of any employee who does not devote substantially all
of his or her employed time to the Building unless such wages and
benefits are prorated to reflect time spent on operating and
managing the Building vis-à-vis time spent on matters
unrelated to operating and managing the Building.
2.26. Permitted
Use. As set forth on
the Lease Summary.
2.27.
Permitted
Transfer. The day-to-day
sale and exchange of ownership interests in a publicly traded
entity on a recognized, domestic, national securities exchange or
over-the-counter in the ordinary course of business or an
assignment or subletting of all or a portion of the Premises to an
Affiliate of Tenant, where (a) the transferee assumes, in full, the
obligations of Tenant under this Lease; (b) Tenant remains fully
liable under this Lease; (c) the use of the Premises remains
unchanged; (d) after such transaction is effected, the tangible net
worth of the tenant hereunder is equal to or greater than the
tangible net worth of Tenant as of the date of this Lease; (e)
Landlord shall have received an executed copy of all documentation
effecting such transfer on or before its effective date; and (f)
the same is not a subterfuge by Tenant to avoid its obligations
under this Lease.
2.28. Permitted
Transferee. The Transferee
pursuant to a Permitted Transfer.
2.29. Project.
The Property, the Building and any other improvements on the
Property.
2.30. Project
Operating Costs. Operating Costs,
Taxes and Insurance.
2.31. Rent.
Base Rent and Additional Rent.
2.32. Rentable Area.
2.32.1. Rentable Area shall
be the measurement of rentable area or rentable square feet as
calculated by Landlord using the BOMA Standard Method for Measuring
Floor Area in Office Buildings as a guideline, as the same may be
modified and adopted by Landlord in its sole discretion from time
to time.
2.32.2. Except as provided
expressly to the contrary herein, Landlord reserves the right to
alter the Project, and in such event, the Rentable Area of the
Premises and the Project could likewise be revised. In addition,
the Rentable Area of the Project may from time to time be subject
to recalculation, as determined by Landlord. In the event of any
change in the Rentable Area of the Premises, the Base Rent and
other sums payable based on square footage shall be adjusted
accordingly.
2.33.
Rules and Regulations. As set forth in
Exhibit G.
2.34. State.
The state in which the Project is located.
2.35. Taxes.
All taxes and assessments (whether special or general, ad valorem
or non-ad valorem, voluntary or non-voluntary and regardless of
whether the same are deductible for Landlord’s income tax
purposes), water and sewer charges, and other similar government
charges levied on or attributable to the Building or Project or
their operation, including, without limitation (a) real property
taxes or assessments levied or assessed against the Building or
Project; (b) assessments or charges levied or assessed against the
Building or Project by any redevelopment agency, municipality or
governmental or quasi-governmental agency, including but not
limited to any assessments or the Project’s contribution
towards a governmental or private cost-sharing agreement for the
purpose of augmenting or improving the quality of services and
amenities normally provided by governmental agencies, and any
assessments resulting from Landlord’s participation in a
“PACE” program; (c) any tax, assessment, levy, license
fee or charge measured by or based, in whole or in part, by Rent
received from the leasing of the Premises, the Building, or the
Project, or any portions thereof; (d) general or special, ad
valorem, non-ad valorem or specific, excise, capital levy, or other
tax, assessment, levy, or charge directly on the Rent received
under this Lease or on the rent received under any other leases of
space in the Building or Project; (e) any transfer, transaction, or
similar tax, assessment, levy, or charge based directly or
indirectly upon the transaction represented by this Lease or other
leases in the Project; (f) any franchise or margin tax imposed by
any governmental entity; (g) any possessory interest, occupancy,
use, per capita, or other tax, assessment, levy, or charge based
directly or indirectly upon the use or occupancy of the Premises or
other premises within the Building or the Project; (h) interest on
installments as charged by the taxing authority; and (i) the
reasonable costs and expenses of any contest or protest of Taxes
prosecuted by Landlord, including, without limitation, any
appraisal fees and attorneys’ fees. Taxes shall not include
(i) any net income, capital stock, estate or inheritance taxes
imposed by the State or Federal Government or their agencies,
branches, or departments; and (ii) tax penalties, interest or late
charges incurred as a result of Landlord’s failure to make
timely payment of Taxes. Notwithstanding the foregoing, if at any
time during the Term, the present method of taxation or assessment
shall be so changed that the whole or any part of the taxes,
assessments, levies, impositions or charges now levied, assessed or
imposed on the Project shall be discontinued or reduced and as a
substitute therefor, or in lieu of or in addition thereto, taxes,
assessments, levies, impositions or charges shall be levied,
assessed or imposed, wholly or partially, as a capital levy or
otherwise (a “Substitute Tax”), then such Substitute
Tax shall be included within the definition of Taxes. Tenant hereby
waives, and assigns, transfers and conveys to Landlord, any and all
rights to contest or protest any Taxes. At Landlord’s option,
Landlord shall pay assessments in installments over the longest
period of time permitted by the applicable
jurisdiction.
2.36. Telecommunications
Systems. All
telecommunications systems including but not limited to voice,
video, data, and any other telecommunications services provided
over wire, fiber optic, microwave, wireless, satellite and any
other transmission systems, for part or all of any
telecommunications within the Building or from the Building to any
other location.
2.37. Tenant
Related Parties. Tenant, its
Affiliates, agents, contractors, subcontractors, employees,
invitees, subtenants, transferees, and any other party claiming by,
through or under Tenant.
2.38. Tenant’s
Cost Allocation. The sum of the
following: (a) Tenant’s Proportionate Share of Operating
Costs for the year in question in excess of Tenant’s
Proportionate Share of Operating Costs incurred during the Base
Year; (b) Tenant’s Proportionate Share of Taxes for the year
in question in excess of Tenant’s Proportionate Share of
Taxes incurred during the Base Year; and (c) Tenant’s
Proportionate Share of Insurance for the year in question in excess
of Tenant’s Proportionate Share of Insurance incurred during
the Base Year. If at any time during the Term Operating Costs,
Taxes and/or Insurance are not based on a completed and fully
assessed Project having at least ninety-five percent (95%) of the
Rentable Area occupied, then Operating Costs, Taxes and/or
Insurance shall be adjusted by Landlord in order to fairly and
reasonably approximate the variable components of Operating Costs,
Taxes and/or Insurance for such year or applicable portion thereof,
employing sound accounting and management principles, that would
have been payable if the Project were completed, fully assessed and
at least ninety-five percent (95%) occupied. If any expense
(including without limitation any tax or insurance premium)
included within the Operating Costs, Taxes or Insurance incurred
during the Base Year is thereafter reduced or eliminated (an
“Expense Reduction”), then for the purpose of
calculating Tenant’s Cost Allocation, the applicable Base
Year amount shall be reduced to reflect the Expense
Reduction.
2.39. Tenant’s
Property. All movable
partitions, business and trade fixtures, machinery and equipment,
communications equipment, and office equipment located in the
Premises and acquired by or for the account of Tenant, without
expense to or reimbursement by Landlord, that can be removed
without damage to the Building, and all furniture, furnishings,
records, files and other articles of movable personal property
owned by Tenant and located in the Premises; however, in no event
shall Tenant’s Property include any equipment or other
property that Landlord reasonably determines is a leasehold
improvement (e.g., rooftop or supplemental air conditioning
units).
2.40. Tenant’s
Proportionate Share. As set forth on
the Lease Summary. Such share is a fraction, the numerator of which
is the Rentable Area of the Premises, and the denominator of which
shall be the Rentable Area of the Project. Tenant’s
Proportionate Share is subject to recalculation in accordance with
changes in the Rentable Area of the Premises or the Project.
Landlord reserves the right to create pools of similarly situated
tenants for the purpose of allocating certain Operating Costs that
benefit only the tenants in such pool (“Specialized Operating
Costs”). For the purpose of allocating Specialized Operating
Costs for any pool of which Tenant is a member, Tenant’s
Proportionate Share shall be a fraction, the numerator of which
shall be the Rentable Area of the Premises, and the denominator of
which shall be the Rentable Area of the premises of all tenants in
such pool.
2.41. Term.
As set forth on the Lease Summary, as the same may be extended from
time to time; however, the terms and provisions of this Lease shall
be effective as of the date of the full execution and delivery of
this Lease except for the provisions of this Lease relating to the
payment of Rent.
2.42. Transfer.
An assignment, mortgage, pledge, hypothecation, encumbrance, lien
or other transfer of this Lease or any interest hereunder, a
transfer by operation of law, a sublease or license of the Premises
or any part thereof, or the use of the Premises by any party other
than Tenant and its employees (including any assignment, mortgage,
pledge, hypothecation, encumbrance, lien or other transfer of this
Lease or any interest hereunder or a sublease of the Premises or
any part thereof by Tenant’s heirs and/or executors).
“Transfer” shall also include (a) if Tenant is a
partnership, limited liability company or any other non-corporate
entity, the withdrawal or change, voluntary, involuntary or by
operation of law, of twenty-five percent (25%) or more of the
partners, members or owners, or transfer of twenty-five percent
(25%) or more of partnership, membership or ownership interests,
within a twelve (12)-month period, or the dissolution of the
partnership or company without immediate reconstitution thereof,
(b) if Tenant is a corporation, the dissolution, merger,
consolidation or other reorganization of Tenant, the sale or other
transfer of more than an aggregate of twenty-five percent (25%) of
the voting shares of Tenant (other than to immediate family members
by reason of gift or death), within a twelve (12)-month period; and
(c) the sale, mortgage, hypothecation or pledge of more than an
aggregate of twenty-five percent (25%) of the value of the
unencumbered assets of Tenant within a twelve (12) month
period.
2.43. Transferee.
Any person or entity to whom or which any Transfer is
made.
ARTICLE 3
PREMISES AND
DELIVERY OF POSSESSION
3.1. Delivery
of Possession. Except as
otherwise provided herein, Landlord shall use commercially
reasonable efforts to deliver possession of the Premises on or
before the date in subsection (b) of Section 9(b) of the Lease
Summary. If for any reason, Landlord is delayed in delivering
possession of the Premises to Tenant, Landlord shall not be subject
to any liability for such failure, and the validity of this Lease
shall not be impaired, but (except in the case of delays caused by
Tenant, including Tenant’s failure to provide a certificate
of insurance evidencing the insurance required to be carried by
Tenant under this Lease) the date in subsection (b) of Section 9(b)
of the Lease Summary shall be extended for the period of such
delay.
3.2. Commencement
Date. If the
Commencement Date is not fixed on the Lease Summary, once the
Commencement Date is fixed, within ten (10) days following request
by Landlord, Tenant will execute and deliver to Landlord a
certificate substantially in the form of Exhibit D attached hereto
and made a part hereof, indicating thereon any exceptions thereto
that may exist at that time. Failure of Tenant to execute and
deliver such certificate within ten (10) days following its request
by Landlord shall constitute binding and conclusive acceptance of
the Premises and acknowledgment by Tenant that the statements
included in Exhibit D, as prepared by Landlord, are true and
correct.
ARTICLE 4
RENT
Tenant
agrees to pay to Landlord all Rent payable hereunder, without
set-off or deduction, in lawful money of the United States of
America. Tenant shall pay the Rent as follows:
4.1. Base
Rent. Tenant shall pay
to Landlord the Base Rent without notice, demand or offset, in
installments due and payable in advance on the first (1st) day of
each calendar month during the Term. Along with and in addition to
each monthly Base Rent payment under the Lease, Tenant shall pay to
Landlord any sales or privilege tax required under applicable Law.
In the event of any fractional calendar month, Tenant shall pay for
each day in such partial month a rental equal to 1/30 of the Base
Rent. Concurrent with Tenant’s execution of this Lease,
Tenant will deliver to Landlord the prepaid rent set forth in
Section 13 of the Lease Summary, which Landlord shall apply to the
sixth month’s Base Rent.
4.2. Tenant’s
Cost Allocation. For each calendar
year after the Base Year, in addition to the Base Rent and all
other payments due under this Lease, Tenant shall pay
Tenant’s Cost Allocation as follows:
4.2.1. Estimated
Payments. Tenant shall pay
Landlord’s reasonable estimate of Tenant’s Cost
Allocation for each calendar year of the Term (the “Estimated
Payment”) in advance, in monthly installments, commencing on
the first (1st) day of the month following the month in which
Landlord notifies Tenant of the amount it is to pay hereunder and
continuing until the first (1st) day of the month following the
month in which Landlord notifies Tenant of any revised Estimated
Payment. Landlord shall estimate from time to time the amount of
Tenant’s Cost Allocation for each calendar year of the Term,
make an adjustment to the Estimated Payment due for such calendar
year and notify Tenant of the revised Estimated Payment in writing.
Within fifteen (15) days after Tenant’s receipt of notice of
such adjustment and the revised Estimated Payment, Tenant shall pay
Landlord a fraction of such revised Estimated Payment for such
calendar year (reduced by any amounts paid pursuant to the first
sentence of this Section 4.2.1). Such fraction shall have as its
numerator the number of months which have elapsed in such calendar
year to the date of such payment, both months inclusive, and shall
have twelve (12) as its denominator. All subsequent payments by
Tenant for such calendar year shall be based upon such adjustment
and the revised Estimated Payment. In the event of any fractional
calendar month, Tenant shall pay for each day in such partial month
a rental equal to 1/30 of the Estimated Payment.
4.2.2. Reconciliation.
Within a reasonable period after the end of each calendar year,
Landlord shall deliver to Tenant a statement (the
“Statement”) setting forth Tenant’s Cost
Allocation for such year. If Tenant’s Cost Allocation for
such year exceeds the total of the Estimated Payment made by Tenant
for such year, Tenant shall pay Landlord the amount of the
deficiency within fifteen (15) days of the receipt of the Statement
and any amount payable by Tenant that would not otherwise be due
until after the termination of this Lease, shall, if the exact
amount is uncertain at the time that this Lease terminates, be paid
by Tenant to Landlord upon such termination in an amount to be
estimated by Landlord with an adjustment to be made once the exact
amount is known. If the Estimated Payment made by Tenant exceeds
Tenant’s Cost Allocation for such year, then Landlord shall
credit against Tenant’s next ensuing Estimated Payment(s) an
amount equal to the difference until the credit is exhausted. If a
credit is due from Landlord after the Expiration Date, Landlord
shall pay Tenant the amount of the credit after deducting therefrom
any amounts then owed by Tenant to Landlord. The obligations of
Tenant and Landlord to make payments required under this Section
shall survive the expiration or termination of this Lease, and
Landlord’s failure to deliver the Statement shall not be
deemed a waiver of Landlord’s right to make the adjustments
set forth herein.
4.2.3. Landlord’s
Records. Landlord shall
maintain records respecting Project Operating Costs and determine
the same in accordance with sound accounting and management
practices, consistently applied. Provided Tenant is not in Default,
Tenant or its representative experienced in auditing such records
(which may not be an accountant or other consultant compensated on
a contingency basis) shall have the right to examine such records
(which shall in no event include any other tenants’ leases or
Landlord’s tax returns or financial statements) upon
reasonable prior notice (except that no such examination may occur
during the months of December or April or during Landlord’s
fiscal year end, if other than December 31) specifying which
records Tenant desires to examine, during normal business hours at
a time mutually agreed upon by Landlord and Tenant and at the place
or places where such records are normally kept, by sending such
notice no later than sixty (60) days following the furnishing of
the Statement. Notwithstanding the foregoing, Tenant shall only
have the right to review Landlord’s records one (1) time
during any twelve (12) month period and may audit Landlord’s
records with respect to any given calendar year only once. Tenant
may take exception to matters included in Project Operating Costs
or Landlord’s computation of Tenant’s Proportionate
Share by sending notice specifying such exception and the reasons
therefor to Landlord (including any reports prepared by
Tenant’s representative and any accompanying data) no later
than thirty (30) days after Landlord makes such records available
for examination. If Tenant takes exception to any matter contained
in the Statement as provided herein, Landlord shall refer the
matter to an independent certified public accountant of
Landlord’s choice, subject to Tenant’s reasonable
approval, whose certification as to the proper amount shall be
final and conclusive as between Landlord and Tenant. Tenant shall
promptly pay the cost of such certification, including, without
limitation, any reasonable attorneys’ fees incurred by
Landlord in connection therewith, unless such certification
determines that Project Operating Costs were overstated by more
than five percent (5%) in the aggregate for the applicable year, in
which event Landlord shall pay the cost of such certification.
Pending resolution of any such exceptions in the foregoing manner,
Tenant shall continue paying Tenant’s Cost Allocation in the
amounts determined by Landlord, subject to adjustment after any
such exceptions are so resolved. Tenant acknowledges that any
information gathered through an audit is strictly confidential and
shall not disclose such confidential information to any person or
entity other than Tenant’s financial and legal consultants.
The Statement shall be considered final, except as to matters to
which exception is taken in the manner and within the times
specified herein.
4.3. Other
Taxes Payable by Tenant. In addition to
the Base Rent and any other charges to be paid by Tenant hereunder,
Tenant shall, as an element of Rent, reimburse Landlord upon demand
for any and all taxes payable by Landlord (other than net income
taxes) that are not otherwise reimbursable under this Lease,
whether or not now customary or within the contemplation of the
parties, where such taxes are upon, measured by, or reasonably
attributable to (a) the cost or value of Tenant’s equipment,
furniture, fixtures, and other personal property located at the
Premises, or the cost or value of any leasehold improvements made
in or to the Premises by or for Tenant, regardless of whether title
to such improvements is held by Tenant or Landlord; or (b) this
transaction or any document to which Tenant is a party creating or
transferring an interest or an estate in the Premises, including
but not limited to any sales tax on the Rent paid hereunder. If it
becomes unlawful for Tenant to reimburse Landlord for any taxes or
other charges as required under this Lease, the Base Rent shall be
revised to net Landlord the same net Rent after imposition of any
tax or other charge upon Landlord as would have been payable to
Landlord but for the reimbursement being unlawful.
4.4. Place
of Payment. All Rent shall be
paid at the address Landlord may from time to time designate in
writing and in no event shall Landlord’s acceptance of Rent
from any party other than the Tenant named in the Lease Summary
create a tenancy between Landlord and such party.
4.5. Interest
and Late Charges. If Tenant fails
to pay any Rent within five (5) days from when due, the unpaid
amounts shall bear interest at the Interest Rate. Tenant
acknowledges that the late payment of any Rent will cause Landlord
to incur costs and expenses not contemplated under this Lease,
including, without limitation, administrative and collection costs
and processing and accounting expenses, the exact amount of which
is extremely difficult to ascertain. Therefore, in addition to
interest, if any such payment is not received by Landlord within
five (5) days from when due, Tenant shall pay Landlord a late
charge equal to five percent (5%) of such payment. Landlord and
Tenant agree that this late charge represents a reasonable estimate
of such costs and expenses and is fair compensation to Landlord for
loss resulting from Tenant’s nonpayment. The late charge
shall be deemed Additional Rent and the right to require it shall
be in addition to all of Landlord’s other rights and remedies
hereunder or at law and shall not be construed as liquidated
damages for any default of Tenant or as limiting Landlord’s
remedies in any manner. In addition, any check returned by the bank
for any reason will be considered late and will be subject to all
late charges, plus a Fifty Dollar ($50.00) fee. After two (2)
returned checks in any twelve (12) month period, Landlord will have
the right to receive payment by a cashier’s check or money
order. Nothing contained herein shall be construed as to compel
Landlord to accept any payment of Rent in arrears or late charges
should Landlord elect to apply its rights and remedies available
under this Lease or at law or in equity in the event of a
Default.
ARTICLE 5
SECURITY
DEPOSIT
Upon
Tenant’s execution of this Lease, Tenant shall deposit with
Landlord the Security Deposit, as shown on the Lease Summary. The
Security Deposit shall serve as security for the prompt, full, and
faithful performance by Tenant of its obligations under this Lease.
In the event that Tenant is in Default hereunder, or in the event
that Tenant owes any amounts to Landlord upon the expiration of
this Lease, Landlord may use or apply the whole or any part of the
Security Deposit for the payment of Tenant’s obligations
hereunder. The use or application of the Security Deposit or any
portion thereof shall not prevent Landlord from exercising any
other right or remedy provided hereunder or under any Law and shall
not be construed as liquidated damages. In the event the Security
Deposit is reduced by such use or application, Tenant shall deposit
with Landlord, within ten (10) days after notice, an amount
sufficient to restore the full amount of the Security Deposit.
Landlord shall not be required to keep the Security Deposit
separate from Landlord’s general funds or pay interest on the
Security Deposit. Provided Tenant has performed all of its
obligations under this Lease, any remaining portion of the Security
Deposit shall be returned to Tenant within thirty (30) days
subsequent to the Expiration Date. If the Premises shall be
expanded at any time, or if the Term shall be extended at any
increased rate of Rent, the Security Deposit shall thereupon be
proportionately increased. No trust or fiduciary relationship is
created herein between Landlord and Tenant with respect to the
Security Deposit. If Landlord transfers the Premises during the
Term of this Lease, Landlord may pay the Security Deposit to
Landlord’s successor-in-interest, in which event the
transferring Landlord shall be released from all liability for the
return of the Security Deposit. Tenant waives the provisions of all
Laws now in force or that become in force after the date of
execution of this Lease, that require return of any remaining
Security Deposit within a specified period or limiting the costs,
expenses or damages for which Landlord may use a security deposit,
including any provisions of such Laws providing that Landlord may
claim from a security deposit only those sums reasonably necessary
to remedy defaults in the payment of Rent, to repair damage caused
by Tenant, or to clean the Premises. Landlord and Tenant agree that
Landlord may, in addition, claim those sums reasonably necessary to
compensate Landlord for any other foreseeable or unforeseeable loss
or damage caused by the acts or omissions of Tenant or any Tenant
Related Party.
ARTICLE 6
USE
6.1. Permitted
Use. Tenant shall use
the Premises solely for the Permitted Use as shown on the Lease
Summary, and for no other purpose without Landlord’s consent
(which consent may be withheld in Landlord’s sole
discretion). Tenant shall comply with all recorded covenants,
conditions, and restrictions, and the provisions of all ground or
underlying leases, now or hereafter affecting the Project. Tenant
shall, at Tenant’s expense, comply with all insurance company
and/or Mortgagee requirements pertaining to the use of the
Premises. Tenant shall not (a) do or permit anything to be done in
or about the Premises that would in any way obstruct or interfere
with the rights of other tenants or occupants of the Building or
Project or violate any restrictions or exclusive uses set forth in
any other tenants’ leases; (b) injure, annoy or interfere
with the business of any other tenants or occupants of the Project
or any of their invitees; (c) cause, maintain or permit any
nuisance arising out of Tenant’s use or occupancy of the
Premises; or (d) commit or suffer to be committed any waste in or
upon the Premises, the Building or the Project. Tenant acknowledges
that the Building and/or Project has, or in the future may seek, a
USGBC or other “green agency” rating and, as a result,
the Building and/or Project will be operated pursuant to
Landlord’s sustainable practices (as the same may be modified
by Landlord from time to time) and, in connection therewith, Tenant
(i) shall comply with such practices, and (ii) shall not do or
permit anything to be done in or about the Premises that would in
any way jeopardize any such rating.
6.2. Compliance
with Law. Tenant
acknowledges and agrees that, except as may otherwise be
specifically provided in this Lease, Landlord has made no
representation or warranty as to whether the Premises, the Building
or the Project conforms to the requirements of Law. Tenant shall be
responsible for compliance of the non-structural portions of the
Premises with applicable Law and shall bear all costs necessary to
maintain the non-structural portions of the Premises in compliance
with Law. Tenant shall also be responsible for the cost of any
structural work in the Premises and/or any alterations to other
portions of the Building or the Project necessitated by any
Alterations or any change in use of the Premises initiated by
Tenant after the Commencement Date. Tenant shall not use or occupy
the Premises in violation of any Law or the certificate of
occupancy issued for the Building or the Project and shall, upon
notice from Landlord, immediately discontinue any use of the
Premises that is declared by any governmental authority having
jurisdiction to be a violation of Law or the certificate of
occupancy. A judgment of any court of competent jurisdiction or the
admission by Tenant in any action or proceeding against Tenant that
Tenant has violated any such Laws in the use of the Premises shall
be deemed to be a conclusive determination of that fact as between
Landlord and Tenant. Should any obligation be imposed by Law, then
Tenant agrees, at its sole cost and expense, to comply promptly
with such obligations to the extent the same relate to the Premises
or Tenant’s use of the Premises, the Building or the
Project.
Landlord
represents and warrants to Tenant that, to Landlord’s actual
knowledge (without investigation) as of the date of this Lease,
Landlord has not received any written notice that the Premises is
currently in violation of any applicable Laws.
6.3. Effect
on Landlord’s Insurance. Tenant shall not
do or permit to be done anything that will invalidate or increase
the cost of any property coverage, or other insurance policy
covering the Building, the Project or any property located therein.
Tenant shall promptly, upon demand, reimburse Landlord for any
additional premium charged for such policy by reason of
Tenant’s failure to comply with the provisions of this
Section.
6.4. Intentionally
Omitted
6.5. Use
of Common Areas. Use of all Common
Areas by any Tenant Related Parties shall at all times be subject
to the Rules and Regulations and the exclusive control and
management of Landlord.
ARTICLE 7
HAZARDOUS
MATERIALS
7.1. Indemnity.
Tenant shall indemnify, defend and hold harmless all Landlord
Related Parties from and against all Claims directly or indirectly
arising out of the existence, use, generation, migration, storage,
transportation, release, threatened release, or disposal of
Hazardous Materials (including, without limitation, the Permitted
Materials (hereinafter defined)) in, on, or under the Premises, the
Building or the Project or in the groundwater under the Project and
the migration or transportation of Hazardous Materials to or from
the Premises, the Building or the Project or the groundwater
underlying the Project, to the extent that any of the foregoing is
caused by any Tenant Related Parties. This indemnity extends to the
costs incurred by any Landlord Related Party to investigate,
remediate, monitor, treat, repair, clean-up, dispose of, or remove
such Hazardous Materials in order to comply with the Environmental
Laws; provided that if Tenant is not otherwise in Default, Landlord
shall give Tenant not less than thirty (30) days’ advance
notice of Landlord’s intention to incur such
costs.
7.2. Restriction
on Hazardous Materials. Tenant shall not
permit any Tenant Related Parties to use, generate, manufacture,
store, transport, release, threaten release, or dispose of
Hazardous Materials in, on, or about the Premises, the Building or
the Project or transport Hazardous Materials from the Premises, the
Building or the Project unless Tenant shall have received
Landlord’s prior consent therefor, which Landlord may revoke
at any time, and shall not cause or permit the release or disposal
of Hazardous Materials from the Premises, the Building or the
Project except in compliance with applicable Environmental
Laws; provided, however,
Tenant shall be permitted to use and store at the Premises de
minimis amounts of customary office and cleaning supplies in
compliance with applicable Environmental Laws (the “Permitted
Materials”). Tenant shall promptly deliver notice to Landlord
if Tenant obtains knowledge sufficient to infer that Hazardous
Materials are located on the Premises, the Building or the Project
that are not in compliance with applicable Environmental Laws or if
any third party, including without limitation, any governmental
agency, claims a significant disposal of Hazardous Materials
occurred on the Premises, the Building or the Project or is being
or has been released from the Premises, the Building or the
Project.
7.3. Investigation
of Contamination. Upon reasonable
written request of Landlord, Tenant, through its appropriately
qualified and licensed professional engineers, and at
Tenant’s cost, shall thoroughly investigate suspected
Hazardous Materials contamination of the Premises, the Building or
the Project that would arguably come within the scope of
Tenant’s indemnification and hold harmless obligations as set
forth above. Tenant, using duly licensed and insured contractors
approved by Landlord, shall promptly commence and diligently
complete the removal, repair, clean-up, and detoxification of any
Hazardous Materials from the Premises, the Building and the Project
as may be required by applicable Environmental Laws that comes
within the scope of Tenant’s indemnification and hold
harmless obligations as set forth above. The provisions of this
Article shall survive the expiration or earlier termination of this
Lease.
ARTICLE 8
SERVICES AND
UTILITIES
8.1. Furnishing
of Building Services. Landlord agrees
to furnish the Building Services as set forth on Exhibit F. Within five (5) days
of Landlord’s request, Tenant shall provide to Landlord all
requested information regarding Tenant’s utility and energy
usage at the Premises during the Term (which requested information
may include number of computers used in the Premises, operating
hours, number of employees per shift and other similar
information). Tenant acknowledges that such information may be
disclosed to third parties, including governmental agencies and
current, potential or future Mortgagees and/or prospective
purchasers. Tenant’s obligation to provide any of the
foregoing with respect to any period of time during the Term shall
survive the expiration or earlier termination of this
Lease.
8.2. Interruption
in Services. Landlord shall
not be in default hereunder nor be liable for any damages directly
or indirectly resulting from, nor shall the Rent be abated, for any
interruption of or diminution in the quality or quantity of
Building Services, including, without limitation, when the same is
occasioned, in whole or in part, by (a) repairs, replacements, or
improvements; (b) by inability to secure or limitation,
curtailment, or rationing of, or restrictions on, use of
electricity, gas, water, or other form of energy serving the
Premises, the Building or the Project; (c) by any accident or
casualty; (d) by act or Default by Tenant or other parties; or (e)
by Force Majeure. No failure, delay or diminution in Building
Services shall ever be deemed to constitute an eviction or
disturbance of Tenant’s use and possession of the Premises or
relieve Tenant from paying Rent or performing any of its
obligations under this Lease. Furthermore, Landlord shall not be
liable under any circumstances for loss of, or injury to, property
or for injury to, or interference with, Tenant’s business,
including, without limitation, loss of profits, however occurring,
through or in connection with or incidental to a failure, delay or
diminution of any Building Services.
8.3. Extraordinary
Demand. If Landlord
determines that Tenant’s use of the Premises, Building and/or
Project requires Landlord to provide increased levels of any
Building Services (including security services), including but not
limited to Tenant’s use of heat generating machines or
equipment in the Premises that affect the temperature otherwise
maintained by the heating, ventilation and air-conditioning system,
Landlord reserves the right to provide increased levels of such
Building Services (including security services) as a result
thereof, including the right to install supplementary
air-conditioning units in the Premises; and the cost of any and all
such increased Building Services (including, without limitation,
the cost of installation, operation, and maintenance of any such
supplementary air-conditioning units) shall be paid by Tenant upon
demand by Landlord.
8.4. Customary
Quantities. Tenant shall not
consume water or electric current in excess of that usually
furnished or supplied for the use of the Premises as general office
space (as determined by Landlord) without first procuring the
consent of Landlord, and in the event of consent, Landlord may
install a water meter or electrical meter in the Premises to
measure the amount of water or electric current consumed. Tenant
shall bear the cost of any such meter and of its installation,
maintenance, and repair, and Tenant agrees to pay to Landlord
promptly, upon demand, for all water and electric current consumed
as shown by said meters at the rates charged for such services by
the local public utility plus any additional reasonable expense
incurred in keeping account of the water and electric current so
consumed. If a separate meter is not installed, the excess cost for
water and electric current shall be established by an estimate made
by a utility company or electrical engineer hired by Landlord at
Tenant’s expense. Tenant shall not use any apparatus or
device in the Premises that uses in excess of 120 volts. Tenant
shall not connect any apparatus with electric current except
through existing electrical outlets in the Premises.
8.5. Separate
Metering. Nothing in this
Article shall restrict Landlord’s right to require at any
time separate metering of utilities furnished to the Premises at
Tenant’s sole cost. In the event utilities are separately
metered, Tenant shall be responsible for the maintenance, repair
and replacement of any such meters at its sole cost and
expense.
8.6. Safety
and Security Devices, Services, and Programs. The parties
acknowledge that safety and security devices, services, and
programs provided by Landlord, if any, while intended to deter
crime and ensure safety, may not in given instances prevent theft
or other criminal acts or ensure safety of persons or property. The
risk that any safety or security device, service, or program may
not be effective, or may malfunction, or be circumvented by a
criminal, is assumed by Tenant with respect to Tenant’s
property and interests; and Tenant shall obtain insurance coverage
to the extent Tenant desires protection against such criminal acts
and other losses. Tenant agrees to cooperate in any reasonable
safety or security program developed by Landlord or required by
Law.
8.7. Utility
Deregulation. If permitted by
applicable Law at any time in the future, Landlord shall have the
right at any time and from time to time during the Term to either
contract for electricity service from different companies providing
electricity service (each such company shall hereinafter be
referred to as an “Alternate Service Provider”), and
the costs, charges or expenses reasonably incurred by Landlord to
change such service shall be an Operating Cost hereunder. Tenant
agrees to cooperate with Landlord and any Alternate Service
Provider at all times and, as reasonably necessary, to provide
reasonable access to any electric facilities within the Premises.
Tenant may not elect to use any electricity service provider other
than the one designated by Landlord for the Building without the
prior consent of Landlord, which consent may be withheld in
Landlord’s sole discretion.
8.8. Government
Energy or Utility Controls. In the event of
imposition of any government controls, rules, regulations, or
restrictions on the use or consumption of energy or other utilities
during the Term, both Landlord and Tenant shall be bound thereby,
and the same shall not constitute a constructive eviction of
Tenant. In the event of a difference in interpretation by Landlord
and Tenant of any such controls, Landlord’s interpretation
shall prevail, and Landlord shall have the right to enforce
compliance therewith, including, without limitation, the right of
entry into the Premises to effect compliance.
8.9. Telecommunications.
Tenant and Tenant’s telecommunications companies, including
but not limited to local exchange telecommunications companies and
alternative access vendor services companies
(“Telecommunications Companies”), shall have no right
of access to or within the Project for the installation and
operation of Tenant’s Telecommunications System without
Landlord’s prior consent. All work with respect to
Tenant’s Telecommunications System shall be subject to the
terms of Article 11 of this Lease and such work shall be deemed to
be an Alteration (except that the requirement to request consent
thirty (30) days prior to commencement of any work shall not apply
with respect to Tenant’s initial telecommunications work in
the Premises). Without in any way limiting Landlord’s right
to withhold its consent to a proposed request for access, Landlord
shall have the right to consider whether a Telecommunications
Company is willing to pay reasonable monetary compensation for the
use and occupation of the Building for the Telecommunications
System.
ARTICLE 9
CONDITION OF THE
PREMISES
Tenant
acknowledges that Tenant is leasing the Premises on an “as
is, where is” basis. Tenant’s taking possession of the
Premises shall be deemed conclusive evidence that, as of the date
of taking possession, the Premises were in good order and
satisfactory condition. No promise of Landlord to alter, remodel,
repair, or improve the Premises, the Building or the Project, and
no representation, express or implied, respecting any matter or
thing relating to the Premises, the Building, the Project or this
Lease (including, without limitation, the condition thereof) have
been made to Tenant by Landlord or its broker or sales agent, other
than as may be expressly contained in this Lease.
ARTICLE 10
REPAIRS AND
MAINTENANCE
10.1. Landlord’s
Obligations. Landlord shall
maintain in good order, condition, and repair the portions of the
Building, the Project and the Premises that are not the obligation
of Tenant or any other tenant in the Building. Tenant shall give
Landlord prompt notice of any damage to or defective condition in
any part or appurtenance of the Building Systems serving, located
in, or passing through the Premises or any other damage that
Landlord is obligated to repair. Tenant hereby waives and
relinquishes any right Tenant may have under any applicable Law now
or hereafter in effect to make any repairs at Landlord’s
expense.
10.2. Tenant’s
Obligations. Tenant, at
Tenant’s sole expense, shall maintain, repair and replace the
Premises as needed to keep all interior, non-structural portions of
the Premises in good order, condition, and repair, including,
without limitation, the following: (a) all plumbing and sewage
facilities, including but not limited to all plumbing fixtures,
pipes, fittings, or other parts of the plumbing system that
exclusively serve the Premises; (b) all fixtures, interior walls,
floors, carpets, draperies, window coverings, and ceilings; (c) all
interior windows, doors, entrances, and plate glass; (d) all
electrical wiring, facilities and equipment, including, without
limitation, any non-standard light fixtures, lamps, bulbs, tubes,
fans, vents, exhaust equipment, and systems; and (e) any fire
detection or extinguisher equipment that Landlord does not
maintain.
10.3. Damage
by Tenant. Except for
ordinary wear and tear, Tenant shall promptly reimburse Landlord
for any costs that Landlord may incur in making repairs and
alterations in and to the Premises, the Building, Building Systems,
the Project or facilities, systems or equipment of the Project (and
in no event shall the provisions of Section 18.7 apply to such
reimbursement obligation), where the need for such repairs or
alterations is caused by any of the following: (a) Tenant’s
use or occupancy of the Premises in a fashion that contravenes any
provision of this Lease; (b) the installation, removal, use, or
operation of Tenant’s Property; (c) the moving of
Tenant’s Property into or out of the Building; or (d) any
misuse, tortious act, omission, or negligence of any Tenant Related
Parties.
10.4. Load
and Equipment Limits. Tenant shall not
place a load upon the Premises that exceeds the load per square
foot that the structural portions of the Premises were designed to
carry, as determined by Landlord or Landlord’s structural
engineer. If Landlord or Landlord’s structural engineer
determines that any improvement or load placed upon the Premises
exceeds the load per square foot that the structural portions of
the Premises were designed to carry, then Tenant shall remove such
load or otherwise remedy such fact to Landlord’s
satisfaction. Upon demand, Tenant shall pay the cost of any such
determination.
ARTICLE 11
ALTERATIONS AND
ADDITIONS
11.1. Tenant’s
Alterations. Tenant shall not
make any additions, alterations, or improvements (the
“Alterations”) to the Premises without the prior
consent of Landlord, which consent shall be requested by Tenant at
least thirty (30) days prior to the commencement of any work and
such request for consent shall include (A) Tenant’s proposed
plans and specifications for the Alterations, (B) a detailed
critical path construction schedule containing the major components
of the Alterations and the time required for each, including the
scheduled construction commencement date, milestone dates and the
estimated completion date, (C) an itemized statement of estimated
construction costs, including fees for permits and architectural
and engineering fees, (D) evidence satisfactory to Landlord of
Tenant’s ability to pay the cost of the Alterations, (E) the
names and addresses of Tenant’s contractors (and said
contractors’ subcontractors) and materialmen to be engaged by
Tenant for the Alterations (individually, a “Tenant
Contractor,” and collectively, “Tenant’s
Contractors”); however, Landlord may designate a list of
approved contractors for any portions of the Alterations involving
the Building’s structure or the Building Systems, from which
Tenant must select its contractors for such portions of the
Alterations (“Approved Contractors”), and (F)
certificates of insurance, evidencing the insurance required under
this Article 11. Landlord’s consent to the Alterations (and
Landlord’s approval of Tenant’s plans and
specifications therefor) shall not be unreasonably withheld,
conditioned or delayed and any changes or modifications to the
Alterations or such plans or specifications thereafter shall
require Landlord’s approval (which shall not be unreasonably
withheld). Landlord’s review and approval of the plans and
specifications for the Alterations shall create no responsibility
or liability on the part of Landlord for their completeness, design
sufficiency, or compliance with all Laws. Notwithstanding the
foregoing, Tenant shall have the right during the Term to make
cosmetic Alterations as Tenant may reasonably deem desirable or
necessary (the “Cosmetic Alterations”), without
Landlord’s consent, provided that such Alterations (i) are
not visible from outside of the Premises; (ii) do not affect the
Building’s structure or any Building System; (iii) do not
trigger any legal requirement which would require any alteration or
improvements to the Building or Project; (iv) do not, in the
aggregate, exceed $5,000 (for Alterations other than floor and wall
covering) in any twelve (12) month period; and (v) do not require
any license, permit or approval under applicable Law and do not
result in the voiding of Landlord’s insurance, the increasing
of Landlord’s insurance risk or the disallowance of sprinkler
credits. Tenant shall give Landlord at least ten (10) days prior
written notice of such Cosmetic Alterations, which notice shall be
accompanied by reasonably adequate evidence that such changes meet
the foregoing criteria. Except as otherwise provided, the term
“Alterations” shall include Cosmetic
Alterations.
11.2. Construction
Requirements. All Alterations
shall be (a) performed under a valid permit when required, a
copy of which shall be furnished to Landlord before commencement of
construction, (b) performed in a good and workmanlike manner using
only new, first class materials and Tenant shall obtain
contractors’ warranties for a period of at least one (1) year
against defects in materials and workmanship; (c) performed in
compliance with all applicable Laws, all applicable standards of
the American Insurance Association (formerly, the National Board of
Fire Underwriters), the National Electrical Code,
manufacturer’s specifications and Landlord’s
construction rules and regulations attached hereto as Exhibit E-2 (the
“Construction Rules”); (d) performed so as not to
cause or create any jurisdictional or other labor disputes;
(e) performed in such manner as not to obstruct access to the
Project or the Common Areas or the conduct of business by Landlord
or other tenants in the Project and coordinated with any other work
in the Project by Landlord or its tenants in order to minimize
interference with such work; (f) diligently prosecuted to
completion; (g) if applicable, performed in a manner that will not
adversely affect the Building’s and or Project’s
“LEED” certification, Energy Star rating or other
“green agency” rating, and (i) performed (A) in
compliance with USGBC indoor air quality standards and waste
management specifications, and (B) if to the extent applicable,
utilizing plumbing fixtures that comply with the EPA’s
“Water Sense” program and Energy Star compliant
equipment, and (h) performed by Tenant’s Contractors that are
approved by Landlord and, at Landlord’s election, Landlord
shall have the right to have at least one (1) additional contractor
selected by Landlord (“Landlord’s
Contractors”), submit a bid for the Alterations and
Landlord shall notify Tenant of any Landlord’s Contractors it
elects to have submit a bid for the Alterations at the time
Landlord approves Tenant’s Contractors. If Landlord
elects to have any Landlord’s Contractors submit a bid for
the Alterations, then promptly after Tenant receives all bids, and
based upon the bids submitted by Tenant’s Contractors and
Landlord’s Contractor(s), Tenant shall notify Landlord in
writing of its recommendation for the contractor to perform the
Alterations, which notice shall include copies of all bids (the
“Bid
Package”). If Tenant’s recommendation for
a contractor for the Alterations is not a Landlord’s
Contractor, then within five (5) Business Days after
Landlord’s receipt of the Bid Package, Landlord shall either
(A) allow Tenant to use its recommended contractor for the
Alterations, or (B) require Tenant to use a Landlord’s
Contractor for the Alterations. If Landlord elects to proceed under
subsection (B) and the bid of the required Landlord’s
Contractor (excluding costs incurred for any change orders) for the
Alterations exceeds one hundred ten percent (110%) of the bid of
Tenant’s recommended contractor for the Alterations, then
Landlord shall reimburse Tenant for the cost of the work performed
by Landlord’s Contractor in excess of one hundred ten percent
(110%) of the bid of Tenant’s recommended contractor within
thirty (30) days of Tenant’s completion of the Alterations
and Landlord’s receipt of unconditional lien releases
therefor.
Tenant
agrees to (1) carry (or cause its general contractor to carry)
Causes of Loss-Special Form Builder’s Risk or Installation
Floater insurance with a limit of not less than the total cost of
the Alterations, in such form and including such terms, conditions
and deductibles as are acceptable to Landlord in its sole but
reasonable discretion, covering the construction of such
Alterations, and (2) cause all of Tenant’s Contractors to
agree, in their construction contracts with Tenant, to meet all of
the insurance requirements applicable to Tenant pursuant to Article
18 (including providing the certificates of insurance required
thereunder). Tenant shall pay to Landlord a percentage of the cost
of the Alterations (such percentage, which shall vary depending
upon whether or not Tenant orders the work directly from Landlord,
to be established by Landlord on a uniform basis for the Project)
sufficient to compensate Landlord for all overhead, general
conditions, fees and other costs and expenses arising from
Landlord’s supervision of or involvement with the
Alterations. Additionally, Tenant shall engage the services of an
on-site project manager reasonably acceptable to Landlord, who
shall perform daily supervision of the Alterations and who shall be
familiar with Landlord’s construction procedures for the
Project (including the Rules and Regulations and the Construction
Rules). Landlord may require, at Landlord’s sole option, that
Tenant provide to Landlord such security as reasonably determined
by Landlord to protect Landlord against any liability in connection
with the Alterations, including but not limited to a lien and
completion bond naming Landlord as a co-obligee. Promptly after
completion of any Alterations, Tenant shall deliver to Landlord
“as-built” plans and specifications (including all
working drawings) for the Alterations.
Landlord shall have
the right to inspect the construction of the Alterations; however,
Landlord’s failure to inspect any portion of the Alterations
shall in no event constitute a waiver of any of Landlord’s
rights under this Article 11, nor shall Landlord’s inspection
of any portion of the Alterations constitute Landlord’s
approval thereof. If, as a result of Landlord’s inspection,
Landlord disapproves of any portion of the construction of the
Alterations, Landlord shall notify Tenant in writing of such
disapproval and shall specify the items disapproved. In the event
Landlord disapproves of any matter that might adversely affect any
Building System, the structure or exterior appearance of the
Building or any other tenant, Landlord may take such action as
Landlord deems necessary, at Tenant’s expense and without
incurring any liability on Landlord’s part, to correct any
such matter, including, without limitation, causing the cessation
of the applicable work.
11.3. Landlord’s
Property; Removal. All fixtures,
equipment, leasehold improvements (including any Alterations), and
appurtenances attached to or built into the Premises at the
commencement of or during the Term, whether or not by or at the
expense of Tenant, other than Tenant’s Property, shall be and
remain a part of the Premises, shall be the property of Landlord,
and shall not be removed by Tenant, unless: (i) such removal is
necessary to ensure that the Premises and Building comply with
applicable code at the time of surrender, including but not limited
to removal of wires located in risers and plenums without raceways
or conduits; or (ii) Landlord notified Tenant in writing that
removal would be required at least thirty (30) days prior to the
Expiration Date (however, if this Lease terminates prior to the
Expiration Date, such thirty (30) day period shall not apply). In
each of the foregoing circumstances, Tenant shall perform such
removal and repair any damage caused thereby at Tenant’s sole
cost and expense prior to the expiration or earlier termination of
this Lease, unless Landlord notifies Tenant in writing that
Landlord will perform such removal on Tenant’s behalf and at
Tenant’s sole cost and expense, in which case Tenant shall
reimburse Landlord for all of Landlord’s costs incurred for
such removal within ten (10) days of demand.
11.4. Lien
Free Completion. Tenant shall use
its best efforts to obtain or cause to be obtained and delivered to
Landlord written, unconditional waivers of mechanics' and
materialman’s liens against the Premises, the Building and
the Project from each of Tenant’s contractors and
subcontractors. Subcontractor waivers shall be separate from the
construction contract and shall be provided prior to the
commencement of construction. If Tenant is unable to obtain or
cause to be obtained any such waiver prior to commencement of the
construction, Tenant shall give written notice of such fact to
Landlord, and Landlord at its option shall have the right to
disapprove such contractor or subcontractor or to require Tenant to
furnish security or make other arrangements satisfactory to
Landlord to assure payment for the completion of all Alterations
free and clear of liens. Upon completion of the Alterations, Tenant
shall deliver to Landlord sworn statements setting forth the names
of all material suppliers and contractors and subcontractors who
did work on the Alterations and full and final lien waivers from
all such contractors, subcontractors and material suppliers.
Additionally, if Tenant fails to make any payment relating to the
Alterations, Landlord, at its option, may complete the Alterations
and/or make such payment and Tenant shall reimburse Landlord for
all costs incurred therefor within five (5) days of
Landlord’s demand.
11.5. Notices
and Liens. Tenant agrees not
to suffer or permit any lien of any mechanic or materialman to be
placed or filed against the Premises, the Building or the Project.
In case any such lien shall be filed, Tenant shall satisfy and
release such lien of record within twenty (20) days (or such
shorter period as may be required by any Mortgagee) after the
earlier to occur of (a) receipt of notice thereof from
Landlord; or (b) Tenant’s actual knowledge or notice of
such lien filing. If Tenant shall fail to have such lien satisfied
and released of record as provided herein, Landlord may, on behalf
of Tenant, without being responsible for making any investigation
as to the validity of such lien and without limiting or affecting
any other remedies Landlord may have, pay the same and Tenant shall
reimburse Landlord on demand for such amount together with any
other reasonable costs of Landlord, including, without limitation,
reasonable attorneys’ fees and/or Landlord shall have the
right to deduct such costs from the Allowance (if any).
Notwithstanding the foregoing, Tenant shall have the right to
contest any such lien claim diligently and in good faith, and
during such contest shall not be obligated to pay such lien claim,
provided that Tenant is not in breach of any of its obligations
under this Lease and provided, Tenant, at its sole cost and
expense, bonds the lien, or transfers the lien from the Property to
a bond, thereby freeing the Project from any claim of lien.
Notwithstanding any such contest or title insurance, Tenant shall
pay any such claim in full within five (5) days following the entry
of an unstayed judgment or order of sale. All materialmen,
contractors, artisans, mechanics, laborers and any other person now
or thereafter furnishing any labor, services, materials, supplies
or equipment to Tenant with respect to Premises or any portion
thereof, are hereby charged with notice that they must look
exclusively to Tenant to obtain payment for the same. Notice is
hereby given that Landlord shall not be liable for any labor,
services, materials, supplies, skill, machinery, fixtures or
equipment furnished to or to be furnished to Tenant upon credit and
that no mechanic’s lien or any other lien for any such labor,
services, materials, supplies, machinery, fixtures or equipment
shall attach to or affect the estate or interest of Landlord in and
to the Premises or the Project, or any portion thereof. Before the
actual commencement of any work for which a claim or lien may be
filed, Tenant shall give Landlord notice of the intended
commencement date a sufficient time before that date to enable
Landlord to post notices of nonresponsibility or any other notices
that Landlord deems necessary for the protection of
Landlord’s interest in the Premises, Building or the Project,
and Landlord shall have the right to enter the Premises and post
such notices at any reasonable time.
ARTICLE 12
CERTAIN RIGHTS
RESERVED BY LANDLORD
Landlord reserves
the following rights, exercisable without liability to Tenant for
(a) damage or injury to property, person, or business;
(b) causing an actual or constructive eviction from the
Premises; or (c) disturbing Tenant’s use, possession, or
beneficial and quiet enjoyment of the Premises:
12.1. Name.
To change the name or street address of the Building or the
Project.
12.2. Signage.
To install and maintain signs on the exterior and interior of the
Building and the Project.
12.3. Keys.
To have passkeys to the Premises and all doors within the Premises,
excluding Tenant’s vaults and safes.
12.4. Inspection
and Entry. Landlord may
enter the Premises on reasonable prior notice to Tenant (except in
the event of an emergency, in which case no notice shall be
required) (a) to inspect the Premises; (b) to show the
Premises to any prospective purchaser or Mortgagee of the Project,
or to others having an interest in the Project or Landlord;
(c) during the existence of a Default; (d) during the
last six (6) months of the Term, to show the Premises to
prospective tenants; (e) to make inspections, repairs,
alterations, additions, or improvements to the Premises or the
Building (including, without limitation, checking, calibrating,
adjusting, or balancing controls and other parts of the heating,
ventilation and air-conditioning system); and (f) to take all
steps as may be necessary or desirable for the safety, protection,
maintenance, or preservation of the Premises or the Building or
Landlord’s interest therein, or as may be necessary or
desirable for the operation or improvement of the Building or in
order to comply with Laws.
12.5. Renovations.
Landlord may during the Term renovate, improve, alter, or modify
(collectively, the “Renovations”) the Building, the
Premises, or the Project, including without limitation, Common
Areas, Building Systems, roof, and structural portions of the
Building. Renovations may include, without limitation,
(a) modifying the Common Areas and tenant spaces to comply
with applicable Laws, including, without limitation, regulations
relating to the physically disabled, seismic conditions, and
building safety and security; and (b) installing new
carpeting, lighting, and wall coverings in the Common Areas. In
connection with such Renovations, Landlord may, among other things,
erect scaffolding or other necessary structures in the Building,
limit or eliminate access to portions of the Building or Project,
including, without limitation, portions of the Common Areas, or
perform work in the Building that may create noise, dust or leave
debris. Tenant hereby agrees that such Renovations and
Landlord’s actions in connection with such Renovations shall
in no way constitute a constructive eviction of Tenant nor entitle
Tenant to any abatement of Rent. Landlord shall have no
responsibility or for any reason be liable to Tenant for any direct
or indirect injury to or interference with Tenant’s business
arising from the Renovations, nor shall Tenant be entitled to any
compensation or damages from Landlord for inconvenience, annoyance
or loss of the use of any part of the Premises or of Tenant’s
Property resulting from the Renovations.
12.6. Common
Areas. Landlord shall
have the right to eliminate or change the size, location and
arrangement of the Common Areas; to enter into, modify and
terminate easements and other agreements pertaining to the use and
maintenance of the Common Areas; to close all or any portion of the
Common Areas as may be necessary to prevent a dedication thereof or
the accrual of any rights to any person or to the public therein;
to close temporarily any or all portions of the Common Areas; and
to do and perform such other acts in and to the Common Areas as
Landlord shall determine to be advisable for the convenience and
use thereof by owners, occupants, tenants and invitees of the
Building.
12.7. Minimize
Interference. In the exercise
of the rights set forth in this Article 12, Landlord shall (except
in an emergency) take reasonable steps to minimize any interference
with Tenant’s business.
ARTICLE 13
RULES AND
REGULATIONS
Tenant
shall comply with (and cause all Tenant Related Parties to comply
with) the Rules and Regulations. Landlord shall not be responsible
for any violation of the Rules and Regulations by other tenants or
occupants of the Building or Project. All Rules and Regulations,
whether now existing or hereafter adopted by Landlord, shall be
non-discriminatory in nature.
ARTICLE 14
TRANSFERS
Except
as provided in this Article, Tenant shall not, without the prior
consent of Landlord, make any Transfer.
14.1. Notice.
Tenant shall notify Landlord of any proposed Transfer (a
“Transfer Notice”). The date of the proposed Transfer
must be not less than forty-five (45) days or more than one hundred
eighty (180) days after the date of the Transfer Notice. The
Transfer Notice shall include (a) the proposed effective date
of the Transfer; (b) a description of the portion of the
Premises to be transferred (the “Subject Space”);
(c) all of the terms of the proposed Transfer and the
consideration therefor, including, without limitation, a
calculation of the Transfer Premium (as defined below);
(d) the name and address of the Transferee; (e) current
financial statements of the Transferee certified by an officer,
partner or owner thereof; (f) any other information that will
enable Landlord to determine the financial responsibility,
character, and reputation of the Transferee and the nature of such
Transferee’s business; and (g) the proposed use of the
Subject Space. Landlord shall respond to any properly delivered
Transfer Notice within thirty (30) days.
14.2. Fees.
Whether or not Landlord shall grant consent, Tenant shall pay
Landlord, concurrently with any request for consent a $1,000
administrative review and processing fee, and Tenant shall
reimburse Landlord, within thirty (30) days after written request
by Landlord for any legal fees incurred by Landlord in connection
with any request for consent.
14.3. Consent.
Landlord’s consent shall not be required for any Permitted
Transfer. Landlord shall not unreasonably withhold or delay its
consent to any other proposed Transfer; however, Landlord may
withhold its consent to any other proposed Transfer in its sole and
absolute discretion at any time Tenant is in Default hereunder
(unless the same would invalidate any remedy available to Landlord
as a result of such Default, in which case Landlord’s consent
shall not be unreasonably withheld regardless of whether or not
Tenant is in Default hereunder). It shall be reasonable under this
Lease and under any applicable Law for Landlord to withhold consent
to any proposed Transfer where one or more of the following apply,
without limitation as to other reasonable grounds for withholding
consent:
14.3.1. The Transferee is
of a character or reputation or engaged in a business that is not
consistent with the quality of the Building.
14.3.2. The Transferee
intends to use the Subject Space for purposes that are not
permitted under this Lease.
14.3.3. The Transferee is
either a governmental agency or instrumentality
thereof.
14.3.4. The Transfer will
result in more than a reasonable and safe number of occupants per
floor within the Subject Space.
14.3.5. The Transferee is
not a party of acceptable financial worth or financial stability in
light of the responsibilities involved under the Lease on the date
consent is requested, as determined by Landlord.
14.3.6. The Transfer would
cause a violation of another lease or any agreement to which
Landlord is a party, or would give an occupant of the Building a
right to cancel its lease.
14.3.7 The Transfer would
occur at a time when Landlord has similarly-sized space available
in the Building and the rent charged by Tenant to such Transferee
during the term of such Transfer, calculated using a present value
analysis, is less than the greater of (a) ninety-five percent (95%)
of the rent that would be quoted by Landlord at the time of such
Transfer for such similarly-sized space for a comparable term, or
(b) the then-current Rent due under this Lease, each calculated
using a present value analysis.
14.3.8. Either the
Transferee or an Affiliate of the Transferee (a) occupies space in
the Building at the time of the request for consent; (b) is
negotiating with Landlord to lease space in the Building at such
time; or (c) has negotiated with Landlord during the twelve
(12)-month period immediately preceding the Transfer
Notice.
14.4.
Completion of Transfer If Landlord
consents to any Transfer (and does not exercise any recapture
rights Landlord may have under this Lease), Tenant may within six
(6) months after Landlord’s consent, enter into the approved
Transfer, upon substantially the same terms and conditions as are
set forth in the Transfer Notice. If there are any material changes
in the terms and conditions from those specified in the Transfer
Notice (a) such that Landlord would initially have been entitled to
refuse its consent to such Transfer; or (b) that would cause the
proposed Transfer to be more favorable to the Transferee than the
terms set forth in the Transfer Notice, Tenant shall again submit
the Transfer to Landlord for its approval and other action under
this Article (including, without limitation, exercise any of
recapture rights Landlord may have under this Lease).
14.5. Transfer
Premium. If Landlord
consents to a Transfer, Tenant shall pay to Landlord fifty percent
(50%) of any Transfer Premium received by Tenant.
“Transfer Premium” shall mean (a) all rent,
additional rent or other consideration payable by such Transferee
in excess of the Rent payable by Tenant under this Lease on a per
rentable square foot basis; (b) all key money and bonus money
paid by Transferee; and (c) any payment in excess of fair
market value for services rendered by Tenant to Transferee. The
“Transfer Premium” shall (i) be reduced by all
out-of-pocket expenses incurred by Tenant in connection with the
Transfer, such as customary brokerage commissions and reasonable
attorneys’ fees; and (ii) shall not include any
compensation for the fair market value of Tenant’s Property
nor reasonable compensation for the sale of Tenant’s business
that is not attributable to the value of Tenant’s leasehold
interest hereunder. Tenant shall pay the Transfer Premium to
Landlord within five (5) days following receipt by Tenant. Tenant
shall furnish upon Landlord’s request a complete statement,
certified by an independent certified public accountant, or
Tenant’s chief financial officer, setting forth in detail the
computation of any Transfer Premium. Within one (1) year following
the date of the Transfer, Landlord shall have the right at all
reasonable times to audit the books, records and papers of Tenant
relating to any Transfer as necessary to confirm the calculation of
the Transfer Premium. If the Transfer Premium shall be found
understated, Tenant shall, within thirty (30) days after demand,
pay the deficiency, together with interest thereon at the Interest
Rate and Landlord’s costs of such audit. If the Transfer
Premium has been understated by more than ten percent (10%),
Landlord shall have the right to cancel this Lease upon thirty (30)
days’ notice to Tenant and Tenant shall indemnify Landlord
from and against any and all Claims associated with such
termination, including but not limited to any Claims by the
Transferee.
14.6. Recapture.
Notwithstanding anything to the contrary contained in this Article,
Landlord shall have the option, by giving notice to Tenant within
twenty (20) days after receipt of any Transfer Notice, to recapture
the Subject Space. Such recapture notice shall cancel and terminate
this Lease with respect to the Subject Space as of the effective
date of the proposed Transfer (or upon the demise of the Subject
Space separate from the Premises if the Subject Space being
recaptured is less than the entire Premises). In the event of a
recapture by Landlord, if this Lease shall be canceled with respect
to less than the entire Premises, (i) the Rent reserved herein
shall be prorated on the basis of the Rentable Area retained by
Tenant in proportion to the Rentable Area of the Premises, and this
Lease as so amended shall continue thereafter in full force and
effect, and (ii) Tenant shall reimburse Landlord for the costs
incurred by Landlord to separately demise the Subject Space from
the remainder of the Premises. Upon request of either party, the
parties shall execute written confirmation of the
foregoing.
14.7. Effect
of Transfer. If Landlord
consents to a Transfer, (a) no terms or conditions of this
Lease shall be deemed to have been waived or modified;
(b) such consent shall not be deemed consent to any further
Transfer; (c) no Transfer shall be valid, and no Transferee
shall take possession of the Premises, until an executed
counterpart of all documentation pertaining to the Transfer has
been delivered to Landlord; and (d) no Transfer shall relieve
Tenant or any Guarantor from primary liability under this Lease.
The acceptance of Rent by Landlord from any party shall not be
deemed to be a waiver of Landlord of any provision hereof. In the
event of Default by a Transferee in the performance of any of the
terms hereof, Landlord may proceed directly against Tenant without
the necessity of exhausting remedies against such Transferee.
Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease by
Transferees without notifying Tenant, and without obtaining its
consent thereto, and any such actions shall not relieve Tenant of
liability under this Lease and Tenant hereby consents to all or any
of the foregoing. Any Transfer for which Landlord’s consent
is required but not obtained pursuant hereto shall constitute a
Default under this Lease.
14.8. Tenant
Remedy for Landlord Refusal to Consent. Notwithstanding
any provision of this Lease or any applicable Laws to the contrary,
Landlord and Tenant hereby expressly agree that if a court of
competent jurisdiction determines that Landlord unreasonably
withheld consent to a proposed Transfer, then Tenant’s sole
and exclusive remedy for such breach by Landlord shall be limited
to termination of this Lease as of the date of such court
determination. Tenant hereby expressly waives the right to recover
monetary damages of any kind whatsoever and attorney’s fees
incurred on account of any such breach.
14.9. Desk
Sharing
14.10.Tenant shall have
the right to allow up to five percent (5%) of the Premises to be used by
persons with whom Tenant has a bonafide business relationship
(each, a “Permitted User”). Notwithstanding anything to
the contrary set forth in this Section 14.9, each Permitted User
shall be allowed such use, without Landlord’s consent, upon
at least three (3) days’ prior written notice to Landlord but
only if the following conditions are satisfied: (i) Landlord and
any Landlord Related Party shall not have litigated against any
such proposed Permitted User; (ii) the Permitted User shall not be
entitled, directly or indirectly, to diplomatic or sovereign
immunity and shall be subject to service of process in and subject
to the jurisdiction of, the courts of the State; (iii) there will
be no separate entrances or demising walls for any Permitted User;
(iv) the Permitted User shall operate in a manner consistent with
the character of the Building as a first-class office project and
in compliance with all applicable Laws, including zoning
ordinances, to which the Building is subject; (v) concurrent with
Tenant’s delivery of its notice of a Permitted User, Tenant
shall supply Landlord with a certificate of insurance from the
Permitted User evidencing that the Permitted User carries the
insurance required of Tenant under this Lease; and (vi) no such
occupancy by a Permitted User shall be deemed to be a tenancy or
subtenancy hereunder and any such occupancy shall be pursuant to a
license which shall be automatically revoked upon the expiration or
sooner termination of the Term of this Lease.
ARTICLE 15
DESTRUCTION OR
DAMAGE
15.1. Landlord
Termination Rights. If the Premises
or any portion of the Building or the Project is damaged by fire,
earthquake, terrorism, act of war, act of God, the elements or
other casualty, then Landlord may terminate this Lease upon notice
given to Tenant within sixty (60) days after the date of such
casualty, effective as of the date of the casualty if (a) in
Landlord’s opinion, repairs to the Premises cannot be
completed within ninety (90) days; (b) any other portion of
the Building or the Project is damaged to the extent that, in
Landlord’s opinion, repair thereof cannot be completed within
ninety (90) days; (c) the Premises or any portion of the
Building or the Project necessary for Tenant’s occupancy is
damaged during the final twelve (12) months of the Term, unless
Tenant shall exercise its next available renewal option (if
any) within ten (10) days following receipt of
Landlord’s termination notice and Landlord does not elect to
terminate this Lease pursuant to one of the other subsections
herein within ten (10) days of such exercise; (d) the
insurance proceeds available to Landlord are not sufficient to
complete repair or restoration; (e) Landlord’s lender
does not elect to make insurance proceeds available to Landlord for
repair and restoration; or (f) Tenant has vacated the Premises
or is in Default under this Lease.
15.2. Repairs.
If this Lease is not terminated as provided above, it shall
continue in full force and effect, and Landlord shall promptly and
diligently, subject to reasonable delays for insurance adjustment,
and subject to all other terms of this Article, restore the
Premises, the Common Areas and the portions of the Project serving
the Premises and Tenant shall assign to Landlord all insurance
proceeds payable to Tenant as to any Alterations; provided that if
the cost of the restoration of any Alterations by Landlord exceeds
the amount of Tenant’s insurance proceeds therefor, as
assigned by Tenant to Landlord, such excess shall be paid by Tenant
to Landlord prior to Landlord’s restoration thereof. Such
restoration shall be to substantially the same condition of such
items as prior to the casualty, except for modifications
(a) required by Law; (b) required by the holder of a
mortgage on the Building, or the lessor of a ground or underlying
lease with respect to the Property; or (c) to the Common Areas
reasonably deemed desirable by Landlord, and which are consistent
with the character of the Project. No such modifications shall
materially impair access to the Premises and any Common Areas
serving the Premises. Tenant shall be responsible, at its sole cost
and expense, for the repair, restoration, and replacement of
Tenant’s Property. Landlord shall not be liable for any loss
of business, inconvenience, or annoyance arising from any casualty
or any repair or restoration of any portion of the Premises, the
Building, or the Project as a result of any damage from any
casualty. All work by Tenant shall be subject to the terms and
conditions of Article 11.
15.3. Tenant’s
Termination Rights. If Landlord does
not elect to terminate this Lease pursuant to Landlord’s
termination right as provided above, and the repairs cannot be
completed within three hundred sixty five (365) days after being
commenced (the “Repair Period”) as determined by an
architect or contractor designated by Landlord, Tenant may elect,
no earlier than sixty (60) days after the date of the casualty and
not later than ninety (90) days after the date of such casualty, to
terminate this Lease by notice to Landlord, effective as of the
date specified in the notice, which date shall not be less than
thirty (30) days nor more than sixty (60) days after such notice.
In addition, in the event that the Premises or the Building is
destroyed or damaged to any substantial extent during the last
twelve (12) months of the Term, then Tenant shall have the option
to terminate this Lease by giving notice to Landlord within thirty
(30) days after such casualty, in which event this Lease shall
cease and terminate as of the date of such notice. Tenant shall
also have the right to terminate this Lease if Landlord does not
complete repairs within the Repair Period by thirty (30)
days’ notice to Landlord after the expiration of the Repair
Period; provided however, if Landlord completes repair within such
thirty (30) day period, such termination shall be nullified and
this Lease shall continue in full force and effect.
15.4. Apportionment
of Rent. Upon any
termination of this Lease pursuant to this Article, Tenant shall
pay the Rent, properly apportioned up to such date of termination,
and both parties hereto shall thereafter be freed and discharged of
all further obligations hereunder, except as provided for in
provisions of this Lease that by their terms survive the expiration
or earlier termination of this Lease.
15.5. Abatement.
The Rent shall abate on an equitable basis to the extent
Tenant’s use of the Premises is impaired, commencing with the
date of the casualty and continuing until completion of the repairs
required of Landlord; provided that if the damage is due to the
negligence or willful misconduct of any Tenant Related Party, Rent
shall only abate to the extent the same is covered by rent loss
insurance, if any, carried by Landlord.
15.6. Express
Agreement. This Lease shall
be considered an express agreement governing any case of damage to
or destruction of the Premises, the Building, or the Project by
fire or other casualty; and any present or future Law that purports
to govern the rights of Landlord and Tenant in such circumstances
in the absence of express agreement is hereby waived by the parties
and shall have no application.
ARTICLE 16
EMINENT
DOMAIN
16.1. Entire
Premises. If the whole of
the Building or the Premises is lawfully taken by condemnation or
in any other manner for any public or quasi-public purpose, this
Lease shall terminate as of the earlier of the date of the date
title vests or the date possession is given, and Rent shall be
prorated to such date.
16.2. Partial
Condemnation. If less than the
whole of the Building or the Premises is so taken, this Lease shall
be unaffected by such taking, except that (a) Tenant shall have the
right to terminate this Lease by notice to Landlord given within
ninety (90) days after the date of such taking if twenty-five
percent (25%) or more of the Premises is taken and the remaining
area of the Premises is not reasonably sufficient for Tenant to
continue operation of its business; and (b) Landlord shall have the
right to terminate this Lease by notice to Tenant given within
ninety (90) days after the date of such taking. If either Landlord
or Tenant so elects to terminate this Lease, this Lease shall
terminate on the thirtieth (30th) day after either such notice.
Rent shall be prorated to the date of such termination. If this
Lease continues in force upon such partial taking, the Base Rent
and Tenant’s Proportionate Share shall be equitably adjusted
according to the remaining Rentable Area of the Premises and the
Project.
16.3. Proceeds
of Award. In the event of
any taking, partial or whole, all of the proceeds of any award,
judgment, or settlement payable by the condemning authority shall
be the exclusive property of Landlord, whether awarded as
compensation for the damages to Landlord’s or Tenant’s
interest in the Premises and whether or not awarded as compensation
for diminution in value of the leasehold or to the fee of the
Premises, and Tenant hereby assigns to Landlord all of its right,
title, and interest in any award, judgment, or settlement from the
condemning authority. Tenant, however, shall have the right, to the
extent that Landlord’s award is not reduced or prejudiced, to
claim from the condemning authority (but not from Landlord) such
compensation as may be recoverable by Tenant in its own right for
relocation expenses and damage to Tenant’s
Property.
16.4. Repairs.
In the event of a partial taking of the Premises that does not
result in a termination of this Lease, Landlord shall restore the
remaining portion of the Premises as nearly as practicable to its
condition prior to the condemnation or taking. Tenant shall be
responsible at its sole cost and expense for the repair,
restoration, and replacement of Tenant’s
Property.
ARTICLE 17
INDEMNIFICATION,
WAIVER, RELEASE AND LIMITATION OF
LIABILITY
17.1. Tenant’s
Indemnity. Except for any
injury or damage to persons or property on the Premises that is
proximately caused by or results proximately from the gross
negligence, sole negligence or willful misconduct of Landlord,
Tenant will and does hereby indemnify, defend and hold harmless the
Landlord Related Parties against and from any and all Claims that
may be imposed upon, incurred by, or asserted against Landlord or
any of the Landlord Related Parties and arising, directly or
indirectly, out of or in connection with Tenant’s use,
occupancy or maintenance of the Premises, the Building or the
Project, including, without limitation, any of the following:
(a) any act in, on or about the Premises, the Building or the
Project or any part thereof by any Tenant Related Party;
(b) any injury or damage to any person or property (provided
that such provision shall not have the effect of indemnifying
Landlord for any injury, loss, damage, or liability arising from
any omission, fault, negligence, or other misconduct of the
Landlord on or about the Premises, Building or Project or any
elevators, stairways, hallways, or other appurtenances used in
connection therewith, and not within the exclusive control of
Tenant); (c) any failure on the part of Tenant to perform or
comply with any of the covenants, agreements, terms or conditions
contained in this Lease; and (d) the negligence or willful
misconduct of any Tenant Related Party. At Landlord’s
request, Tenant shall, at Tenant’s expense and by counsel
selected by Landlord, defend Landlord in any action or proceeding
arising from any such Claim and shall indemnify Landlord against
all costs, reasonable attorneys’ fees, expert witness fees,
and any other expenses incurred in such action or
proceeding.
17.2. Assumption
of Risk. Tenant hereby
assumes all risk of damage or injury to any person or property in,
on, or about the Premises from any cause other than the gross
negligence, sole negligence or willful misconduct of Landlord.
Tenant agrees that, unless expressly provided herein, no Landlord
Related Parties will be liable for any loss, injury, death, or
damage to persons or property resulting from any of the following,
regardless of whether the same is due to the active or passive act
of any Landlord Related Party: (a) theft; (b) Force
Majeure; (c) any accident or occurrence in the Premises or any
other portion of the Building or the Project caused by the Premises
or any other portion of the Building or the Project being or
becoming out of repair or by the obstruction, breakage or defect in
or failure of equipment, pipes, sprinklers, wiring, plumbing,
heating, ventilation and air-conditioning or lighting fixtures of
the Building or the Project or by broken glass or by the backing up
of drains, or by gas, water, steam, electricity or oil leaking,
escaping or flowing into or out of the Premises;
(d) construction, repair or alteration of any other premises
in the Building or the Premises, unless due solely to the gross
negligence, sole negligence or willful misconduct of Landlord;
(e) business interruption or loss of use of the Premises;
(f) any diminution or shutting off of light, air or view by
any structure erected on the Land or any land adjacent to the
Project, even if Landlord is the adjacent land owner; (g) mold
or indoor air quality; or (h) any acts or omissions of any
other tenant, occupant or visitor of the Building or the Project.
In no event shall Landlord be liable for indirect, consequential,
or punitive damages, including, without limitation, any damages
based on lost profits. None of the foregoing shall be considered a
constructive eviction of Tenant, nor shall the same entitle Tenant
to an abatement of Rent.
17.3. Limitation
of Landlord Liability. Neither Landlord
nor any Landlord Related Party shall have any personal liability
with respect to any of the provisions of the Lease, or the
Premises. If Landlord is in breach or default with respect to
Landlord’s obligations under the Lease, Tenant shall look
solely to the equity interest of Landlord in the Building
(including any insurance proceeds) for the satisfaction of
Tenant’s remedies or judgments. No other real, personal, or
mixed property of any Landlord Related Parties, wherever situated,
shall be subject to levy to satisfy such judgment. Upon any
Transfer of Landlord’s interest in this Lease or in the
Project, the transferring Landlord shall have no liability or
obligation for matters arising under this Lease from and after the
date of such Transfer.
ARTICLE 18
INSURANCE
18.1. Landlord
Required Coverage. Landlord shall
procure and maintain during the Term, (i) a policy or policies of
commercial property insurance covering the Project (excluding
portions of the Project Tenant is required to insure under Section
18.2.2), (ii) commercial general liability insurance, (iii)
business income/rental value insurance, and (iv) any other
insurance deemed appropriate by Landlord or its Mortgagee. Such
insurance shall be in such amounts, from such companies, and on
such terms and conditions as Landlord or its Mortgagee may deem
appropriate from time to time, so long as such amounts, terms and
conditions shall be generally consistent with the amounts, terms
and conditions carried by other institutional landlords of projects
similar to the Project in the Bethesda area. All insurance
maintained by Landlord shall be in addition to, and not in lieu of,
the insurance required to be maintained by Tenant hereunder.
Landlord shall cause its respective insurance policy(ies) to be
endorsed, if necessary, to waive subrogation.
18.2. Tenant
Required Coverage. Tenant shall
maintain the following coverages in the following
amounts.
18.2.1. Commercial General
Liability Insurance covering Tenant against any claims or suits
arising out of bodily injury, death, personal injury or property
damage arising out of Tenant's operations, assumed liabilities or
use of the Premises, for limits of liability not less than Two
Million and No/100 Dollars ($2,000,000.00) per occurrence and Five
Million and No/100 Dollars ($5,000,000.00) annual general aggregate
(these limits may be achieved by a combination of a primary policy
and a “follow form” excess or umbrella liability
policy). Such insurance shall include a waiver of subrogation
endorsement in favor of Landlord.
18.2.2. Commercial Property
Insurance covering (a) Tenant’s Property, and (b) any
improvements and Alterations made by Tenant or at Tenant’s
request. Such insurance shall include a waiver of subrogation
endorsement in favor of Landlord and shall be written on a
“Causes of Loss – Special Form” basis (or its
equivalent), for the full replacement cost (as reasonably approved
by Landlord) without deduction for depreciation, and shall include
coverage for theft, vandalism, malicious mischief and sprinkler
leakage. Such policy shall have a deductible not greater than Five
Thousand and No/100 Dollars ($5,000.00). The proceeds of such
insurance shall be used for the repair or replacement of the
property so insured. Upon termination of this Lease following a
casualty as set forth herein any proceeds under (a) shall be paid
to Tenant and any proceeds under (b) in excess of Tenant’s
unamortized cost associated therewith shall be paid by Tenant to
Landlord. Notwithstanding the foregoing, Landlord shall have the
option at any time, upon three (3) months’ notice to Tenant,
to procure property insurance covering leasehold improvements on
all the premises throughout the Building, and Tenant shall
thereafter pay Tenant’s Proportionate Share of the premium of
such policy as an element of Project Operating Costs.
18.2.3. Business Income and
Extra Expense insurance (or its equivalent) in such amounts as will
reimburse Tenant for direct or indirect loss of earnings
attributable to all perils commonly insured against by prudent
tenants or attributable to prevention of access to the Premises or
to the Building as a result of such perils, for a period of not
less than twelve (12) months. Such insurance shall include a waiver
of subrogation endorsement in favor of Landlord.
18.2.4. Statutory
worker’s compensation (which policy shall include a waiver of
subrogation endorsement in favor of Landlord. Tenant shall provide
Landlord with a copy of such endorsement concurrent with providing
its evidence of insurance required under Section 18.4 below),
together with employer’s liability/employer’s indemnity
coverage at limits of:
$1,000,000 Each
Accident
$1,000,000 Each
Employee by Disease
$1,000,000 Policy
Limit by Disease
18.3. Form
of Policies. The insurance
required by Section 18.2.1 above shall (a) name Landlord,
Landlord’s property management agent, the Advisor, and at
Landlord’s request, any Mortgagee, each as an additional
insured by endorsement(s) reasonably acceptable to Landlord; (b)
cover, to the extent insurable, Tenant’s indemnity
obligations under this Lease; (c) be issued by an insurance company
having an A.M. Best rating of not less than A- IX or that is
otherwise reasonably acceptable to Landlord; (d) be primary, not
contributing with, and not in excess of, coverage that Landlord may
carry; and (e) contain a separation of insureds provision and no
insured vs. insured exclusion or limitation. Tenant agrees that it
shall (x) cause such policies to be endorsed to provide thirty (30)
days’ prior written notice by the insurer(s) to Landlord in
the event said insurance is cancelled (ten (10) days’ prior
written notice in the event of cancellation for non-payment of
premium), and (y) provide thirty (30) days’ prior written
notice to Landlord in the event said insurance shall be canceled,
non-renewed or coverage reduced.
18.4. Evidence
of Insurance. Tenant shall
deliver a copy of each paid-up policy or, at Landlord’s
option, a certificate of insurance, together with additional
insured and waiver of subrogation endorsements, all of which shall
be reasonably acceptable to Landlord, evidencing the existence and
amount of each insurance policy required hereunder on or before the
Commencement Date. Landlord may, at any time and from time to time,
inspect or copy any insurance policies that this Lease requires
Tenant to maintain. Tenant shall furnish Landlord with renewals,
certificates, or “binders” at least ten (10) days prior
to the expiration thereof. Tenant agrees that, if Tenant does not
obtain and maintain such insurance, Landlord may (but shall not be
required to) after five (5) Business Days’ notice to Tenant
during which time Tenant does not supply Landlord evidence of the
required insurance, at Landlord’s option, either (a) procure
said insurance on Tenant’s behalf and charge Tenant the
premiums therefor, payable upon demand, or (b) charge Tenant a
non-compliance fee equal to five percent (5%) of the then-current
monthly Base Rent for each month, or portion thereof, that Tenant
fails to provide such evidence of the required insurance. Tenant
shall have the right to provide the insurance required hereunder
pursuant to blanket policies obtained by Tenant, provided such
blanket policies afford coverage as required by this
Lease.
18.5. Additional
Insurance Obligations. Landlord may
require (a) that Tenant obtain additional types of insurance,
including but not limited to earthquake, sprinkler leakage by
earthquake, environmental and terrorism insurance to the extent
such coverages are either (i) standard for similar properties
in the same geographic area as the Property and are available at
commercially reasonable rates, or (ii) are otherwise
reasonably required by Landlord or the Mortgagee; and (b) from
time to time, but not more frequently than every three (3) years
during the Term, increases in the policy limits for all insurance
to be carried by Tenant as set forth herein, in order to reflect
standard limits for similar properties.
18.6. Independent
Obligations. Tenant
acknowledges and agrees that Tenant’s insurance obligations
under this Lease are independent of Tenant’s indemnity
obligations, liabilities and duties under this Lease.
18.7. Waiver
of Subrogation. Anything in this
Lease to the contrary notwithstanding (other than as provided in
Section 10.3 above), Landlord and Tenant each hereby waives any and
all rights of recovery, claim, action or cause of action against
the other for any loss or damage to any property of Landlord or
Tenant, arising from any cause that (a) would be insured against
under the terms of any property insurance or business interruption
insurance required to be carried hereunder; or (b) is insured
against under the terms of any property insurance or business
interruption insurance actually carried, regardless of whether the
same is required hereunder. The foregoing waiver shall apply
regardless of the cause or origin of such claim, including but not
limited to the negligence of a party, or such party’s agents,
officers, employees or contractors. The foregoing waiver shall not
apply if it would have the effect, but only to the extent of such
effect, of invalidating any insurance coverage of Landlord or
Tenant. The foregoing waiver shall also apply to any deductible
and/or self-insured retention, as if the same were a part of the
insurance recovery.
ARTICLE 19
DEFAULT
19.1. Tenant’s
Default. A
“Default” shall mean the occurrence of any one or more
of the following events:
19.1.1.
Tenant’s
failure to pay any Rent within five (5) days of when
due.
19.1.2.
If any
representation or warranty made by Tenant or any Guarantor to
Landlord is false in any material respect when made.
19.1.3.
Tenant fails to deliver any estoppel certificates or subordination
agreements within the periods set forth in this Lease.
19.1.4.
The levy of a writ of attachment or execution on this Lease or on
any of Tenant’s property or that of any
Guarantor.
19.1.5.
Tenant’s or any Guarantor’s general assignment for the
benefit of creditors or arrangement, composition, extension, or
adjustment with its creditors.
19.1.6.
Tenant or any Guarantor becomes insolvent or bankrupt or admits in
writing its inability to pay its debts as they mature.
19.1.7.
Proceedings for the appointment of a trustee, custodian or receiver
of Tenant or any Guarantor or for all or a part of Tenant’s
or such Guarantor’s property are filed by or against Tenant
or any Guarantor, and, if filed against Tenant or such Guarantor
involuntarily, are not dismissed within sixty (60) days of
filing.
19.1.8. Proceedings in
bankruptcy, or other proceedings for relief under any law for the
relief of debtors, are instituted by or against Tenant or any
Guarantor, and, if instituted against Tenant or such Guarantor
involuntarily, are not dismissed within sixty (60) days of
filing.
19.1.9.
Tenant
makes an anticipatory breach of this Lease. “Anticipatory
breach” shall mean either (a) Tenant’s repudiation
of this Lease in writing; or (b) the combination of
(i) Tenant’s desertion or vacation of the Premises or
removal of all or a substantial amount of Tenant’s equipment,
furniture and fixtures from the Premises; and
(ii) Tenant’s failure to pay any Rent under this Lease
when due.
19.1.10.
Tenant
fails to perform any other covenant, condition or agreement
contained in this Lease not covered by the preceding subsections,
where such failure continues for thirty (30) days after notice
thereof from Landlord to Tenant, or such additional period as is
reasonably necessary to effect cure, provided Tenant commences cure
within such thirty (30) day period and diligently pursues the same
to completion within ninety (90) days following Landlord’s
notice.
19.1.11.
Tenant
shall repeatedly fail to pay Rent when due or any other charges
required to be paid, or shall repeatedly default in keeping,
observing or performing any other covenant, agreement, condition or
provision of this Lease, whether or not Tenant shall timely cure
any such payment or other default. For the purposes of this
subsection, the occurrence of similar defaults two (2) times during
any twelve (12) month period shall constitute a repeated
default.
Any
notice periods provided for under this Section shall run
concurrently with any statutory notice periods and any notice given
hereunder may be given simultaneously with or incorporated into any
such statutory notice.
19.2. Landlord’s
Default. Tenant shall
promptly notify Landlord of the need for any repairs or action with
respect to other matters that are Landlord’s obligation under
this Lease. If Landlord fails to perform any covenant, condition,
or agreement contained in this Lease within thirty (30) days after
receipt of notice from Tenant, or if such default cannot reasonably
be cured within thirty (30) days, and if Landlord fails to commence
to cure within such thirty (30) day period or to diligently
prosecute the same to completion, then subject to the other
limitations set forth elsewhere in this Lease, Landlord shall be
liable to Tenant for any damages sustained by Tenant as a result of
Landlord’s breach; provided that in no event shall
(a) Landlord be liable for indirect, consequential or punitive
damages, including without limitation, any damages based on lost
profits; or (b) Tenant have the right to terminate this Lease
on account of a Landlord default. Tenant shall not have the right
to withhold, reduce or offset any amount against any payments of
Rent or any other charges due and payable under this Lease unless
Tenant has obtained a final, non-appealable judgment against
Landlord for the amount due.
ARTICLE 20
LANDLORD REMEDIES
AND DAMAGES
20.1. Remedies.
In the event of a Default, then in addition to any other rights or
remedies Landlord may have at law or in equity, Landlord shall have
the right, at Landlord’s option, without further notice or
demand of any kind, to do any or all of the following without
prejudice to any other remedy that Landlord may have:
20.1.1. Terminate this
Lease and Tenant’s right to possession of the Premises by
giving notice to Tenant. Tenant shall immediately surrender the
Premises to Landlord, and if Tenant fails to do so, Landlord may
re-enter the Premises and take possession thereof and expel or
remove Tenant and any other party who may be occupying the
Premises, or any part, thereof, whereupon Tenant shall have no
further claim to the Premises or under this Lease.
20.1.2. Continue this Lease
in full force and effect, whether or not Tenant has vacated or
abandoned the Premises, and sue upon and collect any unpaid Rent or
other charges, that have or thereafter become due and
payable.
20.1.3.
Continue this Lease
in effect, but terminate Tenant’s right to possession of the
Premises and re-enter the Premises and take possession thereof,
whereupon Tenant shall have no further claim to the Premises
without the same constituting an acceptance of
surrender.
20.1.4.
In the
event of any re-entry or retaking of possession by Landlord,
Landlord shall have the right, but not the obligation, (a) to
expel or remove Tenant and any other party who may be occupying the
Premises, or any part thereof; and (b) to remove all or any
part of Tenant’s or any other occupant’s property on
the Premises and to place such property in storage at a public
warehouse at the expense and risk of Tenant.
Landlord may relet
the Premises without thereby avoiding or terminating this Lease (if
the same has not been previously terminated), and Tenant shall
remain liable for any and all Rent and other charges and expenses
hereunder. For the purpose of reletting, Landlord is authorized to
make such repairs or alterations to the Premises as may be
necessary in the sole discretion of Landlord for the purpose of
such reletting, and if a sufficient sum is not realized from such
reletting (after payment of all costs and expenses of such repairs,
alterations and the expense of such reletting (including, without
limitation, reasonable attorney and brokerage fees) and the
collection of rent accruing therefrom) each month to equal the
Rent, then Tenant shall pay such deficiency each month upon demand
therefor. Actions to collect such amounts may be brought from time
to time, on one or more occasions, without the necessity of
Landlord’s waiting until the expiration of the
Term.
20.1.5. Without any further
notice or demand, Landlord may enter upon the Premises, if
necessary, without being liable for prosecution or claim for
damages therefor, and do whatever Tenant is obligated to do under
the terms of the Lease. Tenant agrees to reimburse Landlord on
demand for any reasonable expenses that Landlord may incur in
effecting compliance with Tenant’s obligations under the
Lease. Tenant further agrees that Landlord shall not be liable for
any damages resulting to Tenant from such action, unless caused by
the gross negligence or willful misconduct of Landlord (but subject
to the other limitations on Landlord’s liability set forth in
this Lease). Notwithstanding anything herein to the contrary,
Landlord will have no obligation to cure any Default of
Tenant.
20.1.6.
Landlord shall at
all times have the right, without prior demand or notice except as
required by Law, to seek any declaratory, injunctive or other
equitable relief, and specifically enforce this Lease, or restrain
or enjoin a violation or breach of any provision hereof, without
the necessity of proving the inadequacy of any legal remedy or
irreparable harm.
20.1.7.
To the
extent permitted by applicable Law, Landlord shall have the right,
without notice to Tenant, to change or re-key all locks to
entrances to the Premises, and Landlord shall have no obligation to
give Tenant notice thereof or to provide Tenant with a key to the
Premises.
20.1.8.
The
rights given to Landlord in this Article are cumulative and shall
be in addition and supplemental to all other rights or remedies
that Landlord may have under this Lease and under applicable Laws
or in equity.
20.2.
Damages Should Landlord
elect to terminate this Lease or Tenant’s right to possession
under the provisions above, Landlord may at Landlord's option, in
addition to any other remedy or right given hereunder or at law or
in equity, recover the following damages from Tenant:
20.2.1. Past
Rent. The worth at the
time of the award of any unpaid Rent that had been earned at the
time of termination; plus
20.2.2. Rent
Prior to Award. The worth at the
time of the award of the unpaid Rent that would have been earned
after termination, until the time of award; plus
20.2.3. Rent
After Award. At
Landlord’s option, either (a) an amount equal to the Rent
that would have become due for the balance of the term, less the
amount of rent, if any, which Landlord receives during such period
from others to whom the Premises may be rented, which damages shall
be computed and payable in monthly installments, in advance, on the
first day of each calendar month following the award and continuing
until the date on which the term would have expired but for
Tenant's default or (b) the worth at the time of the award of the
amount by which the unpaid Rent for the balance of the term after
the award exceeds the amount of rental loss that Tenant proves
could have been reasonably avoided, if any; plus
20.2.4. Proximately
Caused Damages. Any other amount
necessary to compensate Landlord for all detriment proximately
caused by Tenant’s failure to perform its obligations under
this Lease or that in the ordinary course of things would be likely
to result therefrom, including, but not limited to, any costs or
expenses (including, without limitation, reasonable
attorneys’ fees), incurred by Landlord in (a) retaking
possession of the Premises; (b) maintaining the Premises after
Default; (c) preparing the Premises or any portion thereof for
reletting to a new tenant, including, without limitation, any
repairs or alterations, whether for the same or a different use;
(d) reletting the Premises, including but not limited to,
advertising expenses, brokers’ commissions and fees; and
(e) any special concessions made to obtain a new
tenant.
20.2.5. Other
Damages. At
Landlord’s election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by
Law.
As used
in Sections 20.2.1
and 20.2.2, the
phrase “worth at the time of the award” shall be
computed by adding interest on all such sums from the date when
originally due at the Interest Rate. As used in Section 20.2.3, the phrase
“worth at the time of the award” shall be computed by
discounting the sum in question at the Federal Reserve rate
promulgated by the Federal Reserve office for the district in which
the Project is located, plus one percent (1%).
20.3. Rent
after Termination. Tenant
specifically acknowledges and agrees that Landlord shall have the
right to continue to collect Rent after any termination (whether
said termination occurs through eviction proceedings or as a result
of some other early termination pursuant to this Lease) for the
remainder of the Term, less any amounts collected by Landlord from
the reletting of the Premises, but in no event shall Tenant be
entitled to receive any excess of any such rents collected over the
Rent.
20.4. No
Termination. A termination of
this Lease by Landlord or the recovery of possession of the
Premises by Landlord or any voluntary or other surrender of this
Lease by Tenant or a mutual cancellation thereof, shall not work a
merger and shall at the option of Landlord, terminate all or any
existing franchises or concessions, licenses, permits, subleases,
subtenancies or the like between Tenant and any third party with
respect to the Premises, or may, at the option of Landlord, operate
as an assignment to Landlord of Tenant’s interest in same.
Following a Default, Landlord shall have the right to require any
subtenants to pay all sums due under their subleases directly to
Landlord.
20.5. Waiver
of Demand and Notice. All demands for
Rent and all other demands, notices and entries, whether provided
for under common law or otherwise, that are not expressly required
by the terms hereof, are hereby waived by Tenant. Notwithstanding
the foregoing waiver of notices, Landlord may elect to serve such
notices (including statutory notices) and combine such notices with
any notices required under the provisions of this Lease. Without
limiting the foregoing, the provisions of this Article shall
operate as a notice to quit, any other notice to quit or of
Landlord's intention to reenter the Premises or to terminate this
Lease being hereby expressly waived.
20.6. Waiver
of Redemption. Tenant hereby
waives, relinquishes and releases for itself and for all those
claiming under Tenant any right of occupancy of the Premises
following termination of this Lease, and any right to redeem or
reinstate this Lease by order or judgment of any court or by any
legal process or writ under present or future Laws, including,
without limitation, Maryland Real Property Section
8-401(e).
20.7. Deficiency.
If it is necessary for Landlord to bring suit in order to collect
any deficiency, Landlord shall have the right to allow such
deficiencies to accumulate and to bring an action on several or all
of the accrued deficiencies at one time. For the purposes of any
suit brought or based hereon, this Lease shall be construed to be a
divisible contract, to the end that successive actions may be
maintained on this Lease as successive periodic sums mature
hereunder. Any such suit shall not prejudice in any way the right
of Landlord to bring a similar action for any subsequent deficiency
or deficiencies.
20.8. Counterclaim.
Tenant hereby waives any right to plead any counterclaim, offset or
affirmative defense in any action or proceedings brought by
Landlord against Tenant for possession of the Premises or
otherwise, for the recovery of possession based upon the
non-payment of Rent or any other Default. The foregoing shall not,
however, be construed as a waiver of Tenant’s right to assert
any claim in a separate action brought by Tenant against Landlord.
In the event Tenant must, because of applicable court rules or
statutes, interpose any counterclaim or other claim against
Landlord in such proceedings, Landlord and Tenant agree that, in
addition to any other lawful remedy of Landlord, upon motion of
Landlord, such counterclaim or other claim asserted by Tenant shall
be severed from the proceedings instituted by Landlord (and, if
necessary, transferred to a court of different jurisdiction), and
the proceedings instituted by Landlord may proceed to final
judgment separately and apart from and without consolidation with
or reference to the status of any such counterclaim or any other
claim asserted by Tenant.
20.9. Mitigation
of Damages. Both Landlord and
Tenant shall each use commercially reasonable efforts to mitigate
any damages resulting from a default of the other party under this
Lease; provided that any failure by Landlord to mitigate damages in
accordance with the foregoing shall not give rise to any liability
of Landlord for breach of this Lease, but shall only serve to
reduce the recovery by Landlord by the amount of damages that
Tenant proves could reasonably have been avoided. Subject to the
foregoing, Landlord’s obligation to mitigate damages after a
Default shall only arise after Landlord has unconditionally
recovered possession of the Premises and shall be satisfied in full
if Landlord undertakes to lease the Premises to another tenant (a
“Substitute Tenant”) in accordance with the following
criteria:
20.9.1. Landlord shall have
no obligation to solicit or entertain negotiations with any
Substitute Tenant until Landlord obtains full and complete
possession of the Premises including, without limitation, the final
and unappealable legal right to relet the Premises free of any
claim of Tenant.
20.9.2.
Landlord shall not
be obligated to offer the Premises to a Substitute Tenant when
other premises in the Project suitable for that tenant’s use
are (or soon will be) available.
20.9.3.
Landlord shall not
be obligated to lease the Premises to a Substitute Tenant for a
rental amount less than the current fair market rental then
prevailing for similar uses in comparable buildings in the same
market area as the Project, nor shall Landlord be obligated to
enter into a new lease under other terms and conditions that are
unacceptable to Landlord under Landlord’s then current
leasing policies for comparable space in the Project.
20.9.4.
Landlord shall not
be obligated to enter into a lease with any Substitute Tenant whose
use would:
1.
Disrupt the tenant mix or balance of the Project;
2.
Violate any restriction, covenant, or requirement contained in the
lease of another tenant of the Project or any other agreement to
which Landlord is a party;
3. Be
incompatible with the operation of the Project as a first-class
project.
20.9.5. Landlord shall not
be obligated to enter into a lease with any Substitute Tenant that
does not have, in Landlord’s reasonable opinion, sufficient
financial resources or operating experience to operate the Premises
in a first-class manner.
20.9.6.
Landlord shall not
be required to expend any amount of money to alter, remodel, or
otherwise make the Premises suitable for use by a Substitute Tenant
unless:
1. Tenant
pays any such sum to Landlord in advance of Landlord’s
execution of a lease with such Substitute Tenant (which payment
shall not be in lieu of any damages or other sums to which Landlord
may be entitled as a result of Tenant’s Default);
or
2. Landlord
determines that any such expenditure is financially justified in
connection with entering into any such lease.
20.9.7. Upon compliance
with the above criteria regarding the releasing of the Premises
after a Default, Landlord shall be deemed to have fully satisfied
Landlord’s obligation to mitigate damages under this Lease
and under any Law, and Tenant waives and releases, to the fullest
extent legally permissible, any right to assert in any action by
Landlord to enforce the terms of this Lease, any defense,
counterclaim, or rights of setoff or recoupment respecting the
mitigation of damages by Landlord, unless and to the extent
Landlord maliciously or in bad faith fails to act in accordance
with the requirements of this Section. Until Landlord is able,
through such efforts, to relet the Premises, Tenant must pay to
Landlord, on or before the first day of each calendar month, the
monthly Rent and any other charges provided in this Lease. No such
reletting shall be construed as an election on the part of Landlord
to terminate this Lease unless Landlord gives Tenant a notice of
such intention. Notwithstanding any such reletting without
termination, Landlord may at any time thereafter elect to terminate
this Lease for such previous breach.
ARTICLE
21
BANKRUPTCY
21.1. In the event a
petition is filed by or against Tenant under the Bankruptcy Code,
Tenant, as debtor and debtor in possession, and any trustee who may
be appointed agree to adequately protect Landlord as
follows:
21.1.1. to pay monthly in
advance on the first day of each month as reasonable compensation
for use and occupancy of the Premises an amount equal to all Rent
due pursuant to this Lease;
21.1.2. to perform each and
every obligation of Tenant under this Lease until such time as this
Lease is either rejected or assumed by order of a court of
competent jurisdiction;
21.1.3. to determine within
one hundred twenty (120) days after the filing of such petition
whether to assume or reject this Lease;
21.1.4. to give Landlord at
least thirty (30) days’ prior notice, unless a shorter period
is agreed to in writing by the parties, of any proceeding relating
to any assumption of this Lease;
21.1.5. to give at least
thirty (30) days’ prior notice of any vacation or abandonment
of the Premises, any such vacation or abandonment to be deemed a
rejection of this Lease; and
21.1.6. to do all other
things to benefit Landlord otherwise required under the Bankruptcy
Code.
This
Lease shall be deemed rejected in the event of the failure to
comply with any of the above.
21.2. In order to provide
Landlord with the assurance contemplated by the Bankruptcy Code,
the following obligations must be fulfilled, in addition to any
other reasonable obligations that Landlord may require, before any
assumption of this Lease is effective: (a) all monetary
Defaults under this Lease must be cured within ten (10) days after
the date of assumption; (b) all other Defaults (other than
those arising solely on account of the bankruptcy filing) must
be cured within fifteen (15) days after the date of assumption;
(c) all actual monetary losses incurred by Landlord
(including, but not limited to, reasonable attorneys’
fees) must be paid to Landlord within ten (10) days after the
date of assumption; and (d) Landlord must receive within ten
(10) days after the date of assumption a security deposit in the
amount of six (6) months’ Base Rent and an advance prepayment
of three (3) months’ Base Rent.
21.3. In the event this
Lease is assumed in accordance with the requirements of the
Bankruptcy Code and this Lease, and is subsequently assigned, then,
in addition to any other reasonable obligations that Landlord may
require and in order to provide Landlord with the assurances
contemplated by the Bankruptcy Code, Landlord must be provided with
(a) a financial statement of the proposed assignee prepared in
accordance with generally accepted accounting principles
consistently applied, though on a cash basis, which reveals a net
worth in an amount sufficient, in Landlord’s reasonable
judgment, to assure the future performance by the proposed assignee
of Tenant’s obligations under this Lease; or (b) a written
guaranty by one or more guarantors with financial ability
sufficient to assure the future performance of Tenant’s
obligations under this Lease, such guaranty to be in form and
content satisfactory to Landlord and to cover the performance of
all of Tenant’s obligations under the Lease.
21.4. Neither Tenant nor
any trustee who may be appointed in the event of the filing of a
petition under the Bankruptcy Code shall conduct or permit the
conduct of any “fire,” “bankruptcy,”
“going out of business” or auction sale in or from the
Premises.
ARTICLE 22
LIEN FOR
RENT
In
consideration of the mutual benefits arising under this Lease,
Tenant hereby grants to Landlord a lien and security interest on
all property of Tenant now or hereafter placed in or upon the
Premises, and such property shall be and remain subject to such
lien and security interest of Landlord for payment of all Rent. The
provisions of this Article relating to such lien and security
interest shall constitute a security agreement under the Uniform
Commercial Code in force in the State (the “UCC”) so
that Landlord shall have and may enforce a security interest on all
property of Tenant now or hereafter placed in or on the Premises,
including, but not limited to, all fixtures, machinery, equipment,
furnishings and other articles of personal property now or
hereafter placed in or upon the Premises by Tenant. Landlord, as
secured party, shall be entitled to all of the rights and remedies
afforded a secured party under the UCC in addition to and
cumulative of Landlord’s liens and rights provided by law or
by the other terms and provisions of this Lease, and Landlord shall
have the right to file a Financing Statement reflecting such
lien.
ARTICLE 23
HOLDING
OVER
If,
after expiration of the Term, Tenant remains in possession of the
Premises, Landlord may, at its option, serve notice upon Tenant
that such hold over constitutes either: (a) a month-to-month
tenancy upon all the provisions of this Lease (except as to Term
and Base Rent); or (b) a tenancy at sufferance. If Landlord does
not give said notice, Tenant’s hold over shall create a
tenancy at sufferance, subjecting Tenant to all the covenants and
obligations of this Lease. In either event, the monthly
installments of Base Rent shall be increased to one hundred fifty
percent (150%) of the monthly installments of Base Rent in effect
at the expiration of the Term. If a month-to-month tenancy is
created, either party may terminate such tenancy by giving the
other party at least thirty (30) days advance notice of the date of
termination. Additionally, if Tenant shall hold over without the
consent of Landlord, then Tenant shall also protect, defend,
indemnify and hold Landlord harmless from all Claims resulting from
retention of possession by Tenant, including, without limiting the
generality of the foregoing, any Claims made by any succeeding
tenant founded upon such failure to surrender and any lost rents
and profits to Landlord resulting therefrom. The provisions of this
Article shall not constitute a waiver by Landlord of any right of
re-entry as otherwise available to Landlord, nor shall receipt of
any rent or any other act appearing to affirm the tenancy operate
as a waiver of the right to terminate this Lease for a breach by
Tenant hereof.
ARTICLE 24
SURRENDER OF
PREMISES
Upon
the expiration or earlier termination of this Lease, Tenant shall
peaceably surrender the Premises to Landlord broom-clean and in the
same condition as on the date Tenant took possession (a) except for
reasonable wear and tear, loss by fire or other casualty
and loss by condemnation, and (b) with all removal,
restoration and/or repairs required pursuant to Section 11.3 above
and this Article 24 completed. Tenant’s Property shall be and
shall remain the property of Tenant and may be removed by Tenant at
any time during the Term; provided that, if any of Tenant’s
Property is removed, Tenant shall promptly repair any damage to the
Premises or to the Building resulting from such removal. If Tenant
abandons or surrenders the Premises or is dispossessed by process
of law or otherwise, any of Tenant’s Property left on the
Premises shall be deemed abandoned, and, at Landlord’s
option, title shall pass to Landlord under this Lease as by a bill
of sale. If Landlord elects to remove all or any part of such
Tenant’s Property, the reasonable cost of removal, storage
and disposal of Tenant’s Property, including, without
limitation, repairing any damage to the Premises or Building caused
by such removal, shall be paid by Tenant. On the Expiration Date,
Tenant shall surrender all keys, parking cards and other means of
entry to the Premises, the Building and the Project, and shall
inform Landlord of the combinations and access codes for any locks
and safes located in the Premises. It is specifically agreed that
any and all telephonic, coaxial, ethernet, or other computer, word
processing, facsimile, or electronic wiring (“Telecom
Wiring”) and any other components of Tenant’s
Telecommunications System shall be removed at Tenant’s cost
at the expiration of the Term, unless Landlord has specifically
requested in writing that the Telecom Wiring shall remain,
whereupon the Telecom Wiring shall be surrendered with the Premises
as Landlord’s property.
ARTICLE 25
BROKERAGE
FEES
Tenant
warrants and represents that it has not dealt with any real estate
broker or agent in connection with this Lease or its negotiation
except as set forth on the Lease Summary. Tenant shall indemnify,
defend and hold Landlord harmless from any Claims for any
compensation, commission, or fees claimed by any other real estate
broker or agent in connection with this Lease (including but not
limited to any expansions of the Premises and renewals) or its
negotiation.
ARTICLE 26
NOTICES
Any
notice, demand, request, consent, covenant, approval or other
communication to be given by one party to the other must be in
writing and (except for statements and invoices to be given in the
ordinary course hereunder, which may be sent by regular U.S.
Mail) (a) delivered personally; (b) mailed by
certified United States mail, postage prepaid, return receipt
requested (except for statements and invoices to be given in the
ordinary course hereunder, which may be sent by regular U.S. Mail);
(c) sent by nationally recognized overnight courier; or
(d) sent by telecopy and confirmed by one of the other methods
set forth herein. The effective date of notice shall be
(i) for any notice delivered in person, the date of delivery;
(ii) for any notice by U.S. mail, three (3) days after the
date of certification thereof; (iii) for any notice by
overnight courier, the next Business Day after deposit with the
courier; and (iv) for any notice by telecopy, the date of
confirmation of receipt, if before 5:00 p.m. at the location
delivered, or the next day if after 5:00 p.m. All notices shall be
delivered or addressed to the parties at their respective addresses
set forth on the Lease Summary. Either party may change the address
at which it desires to receive notice upon giving notice of such
request to the other party in the manner provided
herein.
ARTICLE 27
RELOCATION OF
PREMISES
If the
Premises contain less than 10,000 square feet, Landlord shall have
the right to relocate the Premises to another part of the Project
in accordance with the following: (a) Landlord shall give Tenant at
least thirty (30) days’ notice of Landlord’s intention
to relocate the Premises; (b) the new premises shall be
substantially the same in size, dimensions, configuration, and
decor as the Premises and, if the relocation occurs after the
Commencement Date, shall be placed in that condition by Landlord at
its cost; (c) as nearly as practicable, the physical relocation of
the Premises shall take place on a weekend and shall be completed
before the following Monday and if the physical relocation has not
been completed in that time, Rent shall abate from the time the
physical relocation commences to the time it is completed, but not
to exceed three (3) Business Days from the time that Landlord makes
the new premises available to Tenant with all work to be performed
by Landlord thereon substantially complete; (d) upon completion of
such relocation, the new premises shall become the
“Premises” under this Lease; (e) all reasonable out of
pocket costs incurred by Tenant as a result of the relocation shall
be paid by Landlord; (f) if the new premises are smaller than the
Premises as they existed before the relocation, the Base Rent and
Tenant’s Proportionate Share shall be reduced
proportionately; and (g) the parties hereto shall immediately
execute an amendment to this Lease setting forth the relocation of
the Premises and the reduction of the Base Rent and Tenant’s
Proportionate Share, if any. Tenant hereby waives any claim against
Landlord for loss of business on account of any
relocation.
ARTICLE 28
SIGNAGE
28.1. Tenant shall be
entitled, at its sole cost and expense, to identification signage
outside of the Premises on the floor on which the Premises are
located. The location, quality, design, style, lighting and size of
such signage shall be consistent with the Landlord’s Building
standard signage program and shall be subject to Landlord’s
prior written approval.
28.2. Landlord shall pay
all costs of fabrication and installation of one (1) line on the
Building directory to display Tenant’s name and location in
the Building, which shall be consistent with the Landlord’s
Building standard signage program and shall be subject to
Landlord’s prior written approval. Any changes to the signage
initially provided by Landlord shall be at Tenant’s
expense.
28.3. No other signage
shall be permitted without the prior consent of Landlord, which
consent may be withheld in Landlord’s sole discretion. If
Landlord grants such consent, the signage will be at Tenant’s
expense. Tenant shall not affix, paint, erect, or inscribe any
sign, projection, awning, signal, or advertisement of any kind to
any part of the Premises, the Building or the Project, including,
without limitation, the inside or outside of windows or doors,
without the consent of Landlord, which consent may be withheld in
Landlord’s sole discretion. Landlord shall have the right to
remove any signs or other matter installed without Landlord’s
permission without being liable to Tenant by reason of such removal
and to charge the reasonable cost of removal to Tenant, payable
within ten (10) days of written demand by Landlord.
28.4. Any damage to any
portion of the Project upon installation, maintenance, or removal
of Tenant signage shall be Tenant’s sole responsibility. Upon
removal of Tenant’s signage, the area affected thereby shall
be repaired and restored pursuant to Landlord’s
specifications to a condition acceptable to Landlord, at
Tenant’s sole expense. Upon the expiration or earlier
termination of this Lease, Tenant will remove all of its
signage.
ARTICLE 29
LENDER
PROVISIONS
29.1. Subordination.
This Lease is subject and subordinate to all present and future
ground or underlying leases of the Property and to the lien,
operation and effect of any mortgages, deeds to secure debt or
trust deeds, now or hereafter in force against the Property or the
Building, if any, and to all renewals, extensions, modifications,
consolidations and replacements thereof (collectively,
“Mortgages”), and to all advances made or hereafter to
be made upon the security of such Mortgages. In the event any
proceedings are brought for the foreclosure of any mortgage, deed
to secure debt or trust deed, or if any ground or underlying lease
is terminated, Tenant shall attorn, without any deductions or
set-offs whatsoever, to the purchaser upon any such foreclosure
sale, or to the lessor of such ground or underlying lease, as the
case may be (the “Purchaser”), and recognize the
Purchaser as the lessor under this Lease, which attornment shall be
effective as of the date that the Purchaser acquires title to the
Property; however, the Purchaser shall have the right to accept or
reject such attornment upon written notice to Tenant and in no
event shall such attornment be negated by a foreclosure. In no
event shall Tenant have a right of offset against amounts due any
Purchaser on account of any defaults by Landlord under this Lease
that pre-date the time the Purchaser becomes the lessor hereunder,
nor shall any Purchaser be liable for any such defaults by
Landlord. Tenant shall, within ten (10) Business Days of request by
Landlord or the Purchaser (as applicable), execute such further
instruments or assurances as Landlord may reasonably deem necessary
to evidence or confirm the subordination or superiority of this
Lease to any Mortgages or Tenant’s attornment to the
Purchaser (as applicable). Tenant waives the provisions of any
current or future statute, rule or law that may give or purport to
give Tenant any right or election to terminate or otherwise
adversely affect this Lease and the obligations of Tenant hereunder
in the event of any foreclosure proceeding or sale. Notwithstanding
the provisions hereof, should any Mortgagee require that this Lease
be prior rather than subordinate to its Mortgage, or require that
Tenant attorn to any Purchaser, then in such event, this Lease
shall become prior and superior to such Mortgage, or Tenant shall
so attorn, upon notice to that effect to Tenant from such
Mortgagee. The aforesaid superiority of this Lease to any Mortgage
shall be self-operative upon the giving of such notice and no
further documentation other than such notice shall be required to
effectuate such superiority or attornment. In the event Landlord or
such Mortgagee desires confirmation of such superiority or
attornment, Tenant shall, promptly upon request therefor by
Landlord or such Mortgagee, and without charge therefor, execute a
document acknowledging such priority or attornment obligation to
the Mortgagee as Landlord in the event of foreclosure or deed in
lieu thereof or termination of a ground lease.
29.2. Estoppel
Certificates. Within ten (10)
days after written request from Landlord, Tenant shall execute and
deliver to Landlord, or Landlord’s designee, a written
statement certifying (a) that this Lease is unmodified and in full
force and effect or is in full force and effect as modified and
stating the modifications; (b) the amount of Base Rent and the date
to which Base Rent and Additional Rent have been paid in advance;
(c) the amount of any security deposit with Landlord; (d) that
Landlord is not in default hereunder or, if Landlord is claimed to
be in default, stating the nature of any claimed default; and (e)
such other matters as may be requested. Landlord and, any
purchaser, assignee or Mortgagee may rely upon any such statement.
Tenant’s failure to execute and deliver such statement within
the time required shall be conclusive against Tenant (1) that this
Lease is in full force and effect and has not been modified except
as represented by Landlord; (2) that there are no uncured defaults
in Landlord’s performance and that Tenant has no right of
offset, counterclaim, or deduction against Rent; (3) not more than
one (1) month’s Rent has been paid in advance; and (4) as to
the truth and accuracy of any other matters set forth in the
statement as submitted to Tenant.
29.3. Notice
and Cure Rights. Tenant agrees to
notify any Mortgagee whose address has been furnished to Tenant, of
any notice of default served by Tenant on Landlord. If Landlord
fails to cure such default within the time provided for in this
Lease, such Mortgagee shall have an additional thirty (30) days to
cure such default; provided that, if such default cannot reasonably
be cured within that thirty (30) day period, then such Mortgagee
shall have such additional time to cure the default as is
reasonably necessary under the circumstances.
29.4. Changes
Requested by Mortgagee. Tenant shall not
unreasonably withhold its consent to changes or amendments to this
Lease requested by a Mortgagee, so long as such changes do not
alter the basic business terms of this Lease or otherwise
materially diminish any rights or materially increase any
obligations of Tenant.
29.5. Mortgagee
Approval. Notwithstanding
anything to the contrary contained in this Lease, to the extent the
consent of any Mortgagee is required under the applicable Mortgage
in order for Landlord to enter into this Lease, Landlord may
terminate this Lease by written notice to Tenant if such consent is
not obtained (in which event this Lease shall be of no force or
effect).
ARTICLE 30
MISCELLANEOUS
30.1. Parking.
Tenant shall be permitted to park automobiles as set forth in
Exhibit H. In addition to the provisions of Exhibit H, Tenant shall
comply with all parking rules and regulations established by
Landlord for the Building, as the same may be revised from time to
time.
30.2. Quiet
Enjoyment. Tenant, upon
paying the Rent and performing all of its obligations under this
Lease, shall peaceably and quietly enjoy the Premises, subject to
the terms of this Lease and to any mortgage, deed of trust, lease,
or other agreement to which this Lease may be
subordinated.
30.3. No
Air Rights. This Lease does
not grant Tenant any rights to any view or to light or air over any
property, whether belonging to Landlord or any other person. If at
any time any windows of the Premises are temporarily darkened or
the light or view therefrom is obstructed by reason of any repairs,
improvements, maintenance or cleaning in or about the Building, the
same shall be without liability to Landlord and without any
reduction or diminution of Tenant’s obligations under this
Lease.
30.4. Force
Majeure. Any prevention,
delay, or stoppage of work to be performed by Landlord or Tenant
that is due to Force Majeure shall excuse performance of the work
by that party for a period equal to the duration of that
prevention, delay, or stoppage. Nothing in this Section shall
excuse or delay Tenant’s obligation to pay Rent or other
charges under this Lease.
30.5. Accord
and Satisfaction; Allocation of Payment. No payment by
Tenant or receipt by Landlord of a lesser amount than the Rent
provided for in this Lease shall be deemed to be other than on
account of the earliest due Rent; nor shall any endorsement or
statement on any check or letter accompanying any check or payment
as Rent be deemed an accord and satisfaction. Landlord may accept
such check or payment without prejudice to Landlord’s right
to recover the balance of the Rent or pursue any other remedy
provided for in this Lease. In connection with the foregoing,
Landlord shall have the absolute right in its sole discretion to
apply any payment received from Tenant to any account or other
payment of Tenant then not current and due or
delinquent.
30.6. Attorneys’
and Other Fees. Should either
party institute any action or proceeding to enforce or interpret
this Lease or any provision hereof, for damages by reason of any
alleged breach of this Lease or of any provision hereof, or for a
declaration of rights hereunder, the prevailing party in any such
action or proceeding shall be awarded from the other party all
costs and expenses, including, without limitation, attorneys’
and other fees, reasonably incurred in good faith by the prevailing
party in connection with such action or proceeding. The term
“attorneys’ and other fees” shall mean and
include reasonable attorneys’ fees, accountants fees, expert
witness fees and any and all consultants and other similar fees
incurred in connection with the action or proceeding and
preparations therefor. The term “action or proceeding”
shall mean and include actions, proceedings, suits, arbitrations,
appeals and other similar proceedings.
30.7. Construction.
Headings at the beginning of each Article, Section and subsection
are solely for the convenience of the parties only and in no way
define, limit, or enlarge the scope or meaning of this Lease.
Except as otherwise provided in this Lease, all exhibits referred
to herein are attached hereto and are incorporated herein by this
reference. This Lease shall not be construed as if either Landlord
or Tenant had prepared it, but rather as if both Landlord and
Tenant had prepared it. Any deletion of language from this Lease
prior to its execution by Landlord and Tenant shall not be
construed to raise any presumption, canon of construction or
implication, including, without limitation, any implication that
the parties intended thereby to state the converse of the deleted
language.
30.8. Confidentiality.
Tenant acknowledges that the content of this Lease and any related
documents are confidential information. Tenant shall keep such
confidential information strictly confidential and shall not
disclose such confidential information to any person or entity
other than Tenant’s financial, legal, and space planning
consultants or as required by Law. In addition to any other
remedies to which Landlord may be entitled if Tenant breaches the
foregoing covenant, Landlord shall have the right to increase the
Rent to then current market rent for the Building.
30.9. Governing
Law. This Lease shall
be governed by, interpreted under, and construed and enforced in
accordance with the Laws of the State applicable to agreements made
and to be performed wholly within the State.
30.10. Consent.
Unless otherwise expressly set forth herein, all consents and
decisions required or permitted of Landlord hereunder shall be
granted, withheld and made in Landlord’s reasonable
discretion. Except for consent to a Transfer, which shall be
governed by the provisions of Article 14 above, all consents and
approvals required from Landlord hereunder or any request by Tenant
which causes Landlord to actually incur attorneys’ and/or
consultants’ fees shall be subject to the requirement that
Landlord be reimbursed within fifteen (15) days of Landlord’s
written demand for attorneys’ and consultants’ fees and
costs incurred in connection therewith. Except for consent to a
Transfer, which shall be governed by Article 14 above, Tenant shall
have no claim and hereby waives the right to any claim against
Landlord for money damages by reason of any refusal, withholding,
or delaying by Landlord of any consent, approval, statement, or
satisfaction that Landlord has agreed shall be subject to a
standard of reasonableness. In such event, Tenant’s only
remedy therefor shall be an action for specific performance,
injunction, or declaratory judgment to enforce any right to such
consent, approval, statement, or satisfaction.
30.11. Authority.
Tenant shall, at Landlord’s request, deliver a certified copy
of a resolution of its board of directors, if Tenant is a
corporation, or other satisfactory documentation, if Tenant is
another type of entity, authorizing execution of this
Lease.
30.12. Duplicate
Originals; Counterparts; Fax/Email Signatures. This Lease may be
executed in any number of duplicate originals, all of which shall
be of equal legal force and effect. Additionally, this Lease may be
executed in counterparts, but shall become effective only after
each party has executed a counterpart hereof; all said
counterparts, when taken together, shall constitute the entire
single agreement between the parties. This Lease may be executed by
a party’s signature transmitted by facsimile
(“fax”) or email, and copies of this Lease executed and
delivered by means of faxed or emailed copies of signatures shall
have the same force and effect as copies hereof executed and
delivered with original wet signatures. All parties hereto may rely
upon faxed or emailed signatures as if such signatures were
original wet signatures. Any party executing and delivering this
Lease by fax or email shall promptly thereafter deliver a
counterpart signature page of this Lease containing said
party’s original signature. All parties hereto agree that a
faxed or emailed signature page may be introduced into evidence in
any proceeding arising out of or related to this Lease as if it
were an original wet signature page.
30.13. Offer.
The submission and negotiation of this Lease shall not be deemed an
offer to enter the same by Landlord but the solicitation of such an
offer by Tenant. Tenant agrees that its execution of this Lease
constitutes a firm offer to enter the same which may not be
withdrawn for a period of thirty (30) days after delivery to
Landlord (or such other period as may be expressly provided in any
other agreement signed by the parties). During such period and in
reliance on the foregoing, Landlord may, at Landlord’s
option, proceed with any plans, specifications, alterations, or
improvements, and permit Tenant to enter the Premises; but such
acts shall not be deemed an acceptance of Tenant’s offer to
enter this Lease, and such acceptance shall be evidenced only by
Landlord’s signing and delivering this Lease to
Tenant.
30.14. Further
Assurances. Landlord and
Tenant each agree to execute any and all other documents and to
take any further actions reasonably necessary to consummate the
transactions contemplated hereby.
30.15. Financial
Statements. In order to
induce Landlord to enter into this Lease, Tenant agrees that it
shall promptly furnish Landlord, from time to time, upon
Landlord’s written request (including in connection with
Tenant’s exercise of any Renewal Option granted under this
Lease), with financial statements reflecting Tenant’s current
financial condition. Tenant represents and warrants that all
financial statements, records, and information furnished by Tenant
to Landlord in connection with this Lease are true, correct, and
complete in all material respects.
30.16. Recording.
Tenant shall not record this Lease without the prior consent of
Landlord, which consent may be withheld in Landlord’s sole
discretion.
30.17. Right
to Lease. Landlord reserves
the absolute right to create such other tenancies in the Building
as Landlord shall determine to best promote the interests of the
Building and the Project. Tenant does not rely on the fact, nor
does Landlord represent, that any specific tenant or type or number
of tenants shall, during the Term, occupy any space in the Building
or the Project.
30.18. Severability.
In the event any portion of this Lease shall be declared by any
court of competent jurisdiction to be invalid, illegal or
unenforceable, such portion shall be deemed severed from this
Lease, and the remaining parts hereof shall remain in full force
and effect, as fully as though such invalid, illegal or
unenforceable portion had never been part of this
Lease.
30.19. Survival.
All indemnity and other unsatisfied obligations set forth in this
Lease shall survive the termination or expiration
hereof.
30.20. WAIVER
OF TRIAL BY JURY. TO THE EXTENT
PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING
OUT OF OR RELATING TO THIS LEASE, OR THE TRANSACTIONS OR MATTERS
RELATED HERETO OR CONTEMPLATED HEREBY. THE PARTIES FURTHER HEREBY
WAIVE THE RIGHT TO CONSOLIDATE ANY ACTION IN WHICH A JURY HAS BEEN
WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL HAS NOT BEEN
WAIVED.
30.21. Successors
and Assigns. Subject to the
terms and conditions of Article 14 of this Lease, this Lease shall
apply to and bind the heirs, personal representatives, and
permitted successors and assigns of the parties.
30.22. Integration
of Other Agreements; Amendments. This Lease sets
forth the entire agreement and understanding of the parties with
respect to the matters set forth herein and supersedes all previous
written or oral understandings, agreements, contracts,
correspondence and documentation with respect thereto. Any oral
representations or modifications concerning this Lease shall be of
no force or effect. No provisions of this Lease may be amended or
added to except by an agreement in writing signed by the parties or
their respective successors in interest.
30.23. TIME
OF THE ESSENCE. TIME IS OF THE
ESSENCE OF THIS LEASE AND EACH AND EVERY TERM AND PROVISION
HEREOF.
30.24. Waiver.
The waiver by a party of any breach of any term, covenant, or
condition of this Lease shall not be deemed a waiver of such term,
covenant, or condition or of any subsequent breach of the same or
any other term, covenant, or condition. No delay or omission in the
exercise of any right or remedy of a party shall impair such right
or remedy or be construed as a waiver of any default of the other
party. Consent to or approval of any act by a party requiring
consent or approval of the other party shall not be deemed to waive
or render unnecessary such consent to or approval of any subsequent
act. Any waiver must be in writing and shall not be a waiver of any
other matter concerning the same or any other provision of this
Lease.
30.25. No
Surrender. No act or conduct
of Landlord, including, without limitation, the acceptance of keys
to the Premises, shall constitute an acceptance of the surrender of
the Premises by Tenant before the expiration of the Term. Only a
written notice from Landlord to Tenant shall constitute acceptance
of the surrender of the Premises and accomplish a termination of
the Lease.
30.26. Number
and Gender. As used in this
Lease, the neuter includes masculine and feminine, the singular
includes the plural and use of the word “including”
shall mean “including without limitation.”
30.27. Days.
The term “days,” as used herein, shall mean actual days
occurring, including Saturdays, Sundays and Holidays.
30.28. Joint
and Several Liability. If Tenant
consists of two (2) or more parties, each of such parties shall be
liable for Tenant’s obligations under this Lease, and all
documents executed in connection herewith, and the liability of
such parties shall be joint and several. Additionally, the act or
signature of, or notice from or to, any one or more of such parties
with respect to this Lease shall be binding upon each and all of
the parties executing this Lease as Tenant with the same force and
effect as if each and all of them had so acted or signed, or given
or received such notice and, in the event more than one (1) entity
comprising Tenant so acts, signs or gives or receives such notice,
Landlord shall be entitled to rely on the first such act,
signature, or giving or receiving of notice and any subsequent act,
signature or giving or receiving of notice by any additional Tenant
entity(ies) shall be null and void.
30.29. No
Third Party Beneficiaries. Except as
otherwise provided herein, no person or entity shall be deemed to
be a third party beneficiary hereof, including but not limited to
any brokers, and nothing in this Lease (either expressed or
implied) is intended to confer upon any person or entity, other
than Landlord and Tenant (and their respective nominees, successors
and assigns), any rights, remedies, obligations or liabilities
under or by reason of this Lease.
30.30. No
Other Inducements. It is expressly
warranted by each of the undersigned parties that no promise or
inducement has been offered except as herein set forth and that
this Lease is executed without reliance upon any statement or
representation of any person or party or its representatives
concerning the nature and extent of damages, costs and/or legal
liability therefor.
30.31. Independent
Covenants. This Lease shall
be construed as though the covenants herein between Landlord and
Tenant are independent and not dependent. Tenant hereby expressly
waives the benefit of any Laws to the contrary and agrees that if
Landlord fails to perform any of its obligations set forth herein,
Tenant shall not be entitled to make any repairs or perform any
acts hereunder at Landlord’s expense or to any setoff of
Rent.
30.32. No
Discrimination. Tenant covenants
by and for itself, its heirs, executors, administrators and
assigns, and all persons claiming under or through Tenant, and this
Lease is made and accepted upon and subject to the condition that
there shall be no discrimination against or segregation of any
person or group of persons, on account of race, color, creed, sex,
religion, marital status, ancestry or national origin or any other
classification protected under applicable federal, state or local
Laws in the leasing, subleasing, transferring, use, or enjoyment of
the Premises, nor shall Tenant itself, or any person claiming under
or through Tenant, establish or permit such practice or practices
of discrimination or segregation with reference to the selection,
location, number, use or occupancy, of tenants, lessees,
sublessees, subtenants or vendees in the Premises.
30.33. OFAC
Compliance.
30.33.1. As used herein
“Blocked Party” shall mean any party or nation that (a)
is listed on the Specially Designated Nationals and Blocked Persons
List maintained by the Office of Foreign Asset Control, Department
of the U.S. Treasury (“OFAC”) pursuant to Executive
Order No. 13224, 66 Fed. Reg. 49079 (Sept. 25, 2001) or other
similar requirements contained in the rules and regulations of OFAC
(the “Order”) or in any enabling legislation or other
Executive Orders in respect thereof (the Order and such other
rules, regulations, legislation, or orders are collectively called
the “Orders”) or on any other list of terrorists or
terrorist organizations maintained pursuant to any of the rules and
regulations of OFAC or pursuant to any other applicable Orders
(such lists are collectively referred to as the
“Lists”); or (b) has been determined by competent
authority to be subject to the prohibitions contained in the
Orders.
30.33.2. As a material
inducement for Landlord entering into this Lease, Tenant warrants
and represents that none of Tenant, any Affiliate of Tenant, any
partner, member or stockholder in Tenant or any Affiliate of
Tenant, or any beneficial owner of Tenant, any Affiliate of Tenant
or any such partner, member or stockholder of Tenant (collectively,
a “Tenant Owner”): (a) is a Blocked Party; (b) is owned
or controlled by, or is acting, directly or indirectly, for or on
behalf of, any Blocked Party; or (c) has instigated, negotiated,
facilitated, executed or otherwise engaged in this Lease, directly
or indirectly, on behalf of any Blocked Party. Tenant shall
immediately notify Landlord if any of the foregoing warranties and
representations becomes untrue during the Term.
30.33.3. Tenant shall not:
(a) transfer or permit the transfer of any interest in Tenant or
any Tenant Owner to any Blocked Party; or (b) make a Transfer to
any Blocked Party or party who is engaged in illegal
activities.
30.33.4.
If at
any time during the Term (a) Tenant or any Tenant Owner becomes a
Blocked Party or is convicted, pleads nolo contendere, or is
indicted, arraigned, or custodially detained on charges involving
money laundering or predicate crimes to money laundering; (b) any
of the representations or warranties set forth in this Section
become untrue; or (c) Tenant breaches any of the covenants set
forth in this Section, the same shall constitute a Default. In
addition to any other remedies to which Landlord may be entitled on
account of such Default, Landlord may immediately terminate this
Lease and refuse to pay any Allowance or other disbursements due to
Tenant under this Lease.
30.34. ERISA.
Tenant has been informed that one or more pension plans have an
interest in the Project. Tenant hereby represents and warrants that
it is not a party in interest to any pension plan, within the
meaning of Section 3(14) of the Employee Retirement Income Security
Act of 1974, as amended.
30.35. Unrelated
Business Income/Rents from Real Property. Landlord shall
have the right at any time and from time to time to unilaterally
amend the provisions of this Lease with respect to monies to be
paid to Landlord, if Landlord is advised by its counsel or its
accounting firm that all or any portion of the monies paid by
Tenant to Landlord hereunder (A) are, or may be deemed to be,
unrelated business income within the meaning of the United States
Internal Revenue Code of 1986, as amended, or regulations issued
thereunder (the “Code”), and/or (B) no longer qualify,
or there is risk that any such monies may not qualify, as
“rent from real property” under the Code, and Tenant
agrees that it will execute all documents or instruments necessary
to effect such amendment or amendments, provided that (i) no
such amendment shall result in Tenant having to pay, in the
aggregate, more money on account of its occupancy of the Premises
under the terms of this Lease, as so amended, (ii) no such
amendment shall result in any interference with Tenant’s use
and enjoyment of the Premises, (iii) no such amendment shall result
in any amendment, alteration or impact on Tenant’s
non-monetary rights or obligations under this Lease (including, but
not limited to, Tenant’s use of the Premises for the
Permitted Use), and (iv) no such amendment shall result in
Tenant receiving less services than it was then entitled to receive
under this Lease, or services of a lesser quality. Any services
which Landlord is required to furnish pursuant to the provisions of
this Lease may, at Landlord’s option, be furnished from time
to time, in whole or in part, by employees of Landlord or its
property manager or its employees or by one or more third persons
hired by Landlord or its property manager. Tenant agrees that upon
Landlord’s written request it will enter into direct
agreements with Landlord’s property manager or other parties
designated by Landlord for the furnishing of any such services
required to be furnished by Landlord hereunder, in form and content
approved by Landlord and Tenant, provided however that no such
contract shall result in (a) Tenant having to pay, in the
aggregate, more money on account of its occupancy of the Premises
under the terms of this Lease, (b) any interference with
Tenant’s use and enjoyment of the Premises; (c) any
amendment, alteration or impact on Tenant’s non-monetary
rights or obligations under this Lease (including, but not limited
to, Tenant’s use of the Premises for the Permitted Use), and
(d) Tenant, receiving less services than it was then entitled to
receive under this Lease, or services of a lesser
quality.
[SIGNATURE PAGE FOLLOWS]
IN
WITNESS WHEREOF the parties have executed this Lease, under seal,
as of the date first-above written.
|
Witness:
____________________________
Date:
_______________________
|
LANDLORD:
HAMPDEN
SQUARE CORPORATION,
a
Delaware corporation
By:
/s/ Michael
Gelber
Printed
Name: Michael
Gelber
Title:
Senior Asset
Manager
Date:
July 29,
2015
|
|
Witness:
____________________________
Date:
_______________________
|
TENANT:
SeD
HOME, INC.,a Delaware corporation
By:
/s/Jeffrey
Busch
Printed
Name: Jeffrey M.
BuschTitle: President
Date:
July 24,
2015
Taxpayer
ID No.: W13936588
|
EXHIBIT A
FLOOR PLAN OF PREMISES
EXHIBIT B
SITE PLAN OF BUILDING
EXHIBIT C
LEGAL DESCRIPTION
EXHIBIT D
TERM CERTIFICATION
The
undersigned, as Tenant, under that certain lease dated
[______________________] (the “Lease”), with
[_________________________________], as Landlord, hereby certifies
as follows:
1. That
the undersigned has entered into occupancy of the Premises
described in the Lease.
2. That
the Lease is in full force and effect and has not been assigned,
modified, supplemented or amended in any way, except as follows:
_______________________________.
3. That
the Lease represents the entire agreement between the parties as to
said leasing.
4. That
the Commencement Date of the Lease is: __________________________.
The Lease expires on __________________________.
5. That
all improvements to have been constructed or completed by Landlord
have been substantially completed in a satisfactory manner and all
conditions of the Lease to be performed by Landlord and necessary
to the enforceability of the Lease have been
satisfied.
6. That
there are no defaults by either Tenant or Landlord under the
Lease.
7. That
no rents have been prepaid, other than as provided in the
Lease.
8. That
on this date there are no existing defenses or offsets, which the
undersigned has against the enforcement of the Lease by
Landlord.
9. That
the undersigned has received ________ set(s) of keys to the
Premises on this date.
EXECUTED this
________ day of ___________________________, 20___.
TENANT:
[ ],
a
[ ]
EXHIBIT E
INTENTIONALLY OMITTED
EXHIBIT E-1
TENANT IMPROVEMENT WORK
Tenant
hereby accepts the Premises in their “AS-IS” condition,
and Landlord shall have no obligation to perform any work therein
(including, without limitation, demolition of any improvements
existing therein or construction of any tenant finish-work or other
improvements therein), and shall not be obligated to reimburse
Tenant or provide an allowance for any costs related to the
demolition or construction of improvements therein. Any additions,
alterations or improvements desired to be made by Tenant shall be
subject to the terms of Article 11 of this Lease.
EXHIBIT E-2
CONSTRUCTION RULES AND REGULATIONS
1. All
contractors, subcontractors, and materialmen (“Contractor
Parties”) will check in and out with Building
management.
2. All
Contractor Parties will be appropriately dressed to work in an
office environment: shirts with sleeves (T-shirts with company name
are acceptable), pants (no shorts), work shoes with socks, and
whatever other clothing as may be appropriate. No torn or worn-out
clothing is permitted. Contractor Parties will display a courteous
demeanor towards tenants, customers, visitors and general public.
No Contractor Parties shall remain in the Building after work
hours.
3. All
Contractor Parties shall clean the job site after meals are eaten.
Alcoholic beverages and drugs are not to be brought into, or
consumed in the Building. Personnel appearing to be under the
influence of either alcoholic beverages or drugs will not be
allowed into the Building.
4. Parking
for all personnel must be arranged prior to commencement of work,
and will be provided in designated areas only. Vehicles in
unapproved areas will be subject to citation and towing without
notice. Any parking charges are the sole responsibility of the
Contractor Parties.
5. Access
to the Building shall be by freight elevator only.
6. Delivery
of materials, use of loading dock, freight and passenger elevators
must be scheduled with Landlord prior to receipt of
materials.
Delivery Dock
Hours: Monday
–
Friday 7:00
A.M. to 5:00 P.M.
Freight
Elevator
Hours: Monday
–
Friday 7:00
A.M. to 5:00 P.M.
Other
hours of access are available with prior arrangement.
7. All
Contractor Parties shall maintain the condition of docks, elevators
and corridors used.
8. All
materials are to be stored at the job site or in designated storage
areas. No materials are to be stored in corridors or in public
areas. Landlord may provide minimum secured storage for materials
with prior arrangement.
9. Contractor
Parties must arrange access to areas other than job site at least
24 hours in advance.
10. All
work areas are to be visually and materially protected from the
tenants and general public. If required by Landlord, the job site
shall be sealed off from the balance of the adjoining space so as
to minimize the disbursement of dirt, debris and
noise.
11. Radios
or other excessive noise are not permitted.
12. The
use of toxic materials or odor-causing liquids must be scheduled
with Landlord in advance and prior notice must be given to the
tenants adjacent to the job site.
13. All
non-job site areas are to be kept clean and dust free. No material
residue shall be tracked through corridors or public
areas.
14. Contractor
Parties shall ensure the job site is left clean and secure at the
completion of each work day. Trash and excess materials shall (a)
not remain on, in, or at the job site; (b) be disposed of in bins
or by truck promptly; (c) not be staged in storage at the job site
in any public or adjacent areas; and (d) shall not be disposed of
in the Building’s trash receptacles.
EXHIBIT F
BUILDING SERVICES
Subject
to all Laws applicable thereto and the Rules and Regulations,
Landlord agrees to furnish the following services in a manner that
such services are customarily furnished to comparable projects in
the area:
1. Electrical
power for normal general office use, as determined by
Landlord.
2. Heating,
ventilation, and air-conditioning (“HVAC”), when
necessary for normal comfort for normal office use of the Premises
during Business Hours, except that, at Landlord’s option,
HVAC during Business Hours on Saturdays (if any) shall be upon
Tenant’s request only. If Tenant desires HVAC at any time
outside of Business Hours, Landlord shall use reasonable efforts to
furnish such service upon reasonable notice from Tenant, and Tenant
shall pay Landlord’s then-standard charges therefor on
demand.
3. City
water from the regular Building outlets for drinking, lavatory and
toilet purposes.
4. Maintenance
of the Common Areas.
5. Non-exclusive
automatic passenger elevator service, provided that the number of
elevators available after Business Hours may be limited as Landlord
deems reasonably necessary.
6. Replacement
for building standard lights bulbs. Tenant shall bear the cost of
replacement of non standard bulbs, and all fixtures, starters and
ballasts within the Premises.
7. Restroom
supplies.
8. Janitorial
services five (5) days per week, except for Holidays, in and about
the Premises and window washing services in a manner consistent
with other comparable buildings in the vicinity of the
Building.
9. Landlord
may, from time to time, provide such on-premises courtesy personnel
(who will not necessarily have any responsibilities for any
security), the cost of which shall be an Operating Cost hereunder;
but Landlord makes no representation or warranty, written or oral,
express or implied, that any security will be provided to the
Project, or if provided, what the level of that security may be.
Landlord does not guarantee any level of security and is released
from any responsibility for any Claims based upon assertions that
Landlord failed to provide adequate security to the Project, the
Premises, or otherwise.
“Business
Hours” shall mean Monday through Friday, from 8:00 a.m. to
6:00 p.m. and Saturdays from 8:00 a.m. to 12:00 p.m., excluding
Holidays, which hours shall be subject to change by Landlord from
time to time.
EXHIBIT G
RULES AND REGULATIONS
1. The
Common Areas shall not be obstructed by any of the tenants or used
by them for any purpose other than for ingress to and egress from
their respective premises. The Common Areas are not for the general
public, and Landlord shall in all cases retain the right to control
and prevent access thereto of all persons whose presence in the
judgment of Landlord would be prejudicial to the safety, character,
reputation, and interest of the Building and its tenants; provided
that nothing herein contained shall be construed to prevent such
access to persons with whom any tenant normally deals in the
ordinary course of its business, unless such persons are engaged in
illegal activities. If the responsibility for the HVAC system is
not a tenant’s, no tenant and no employee or invitee of any
tenant shall go upon the roof of the Building except in the case of
maintenance of the HVAC system.
2. The
Premises shall not be used for the storage of merchandise held for
sale to the general public or for lodging. No cooking shall be done
or permitted on the Premises except that private use by Tenant of
approved microwave ovens, equipment for brewing coffee, tea, hot
chocolate, and similar beverages shall be permitted, provided that
such use is in accordance with all Laws.
3. No
tenant shall employ any person or persons other than the janitor of
Landlord for the purpose of cleaning its Premises unless otherwise
agreed to by Landlord in writing. Except with the consent of
Landlord (which consent may be withheld in Landlord’s sole
discretion), no person or persons other than those approved by
Landlord shall be permitted to enter the Building for the purpose
of cleaning the same. No tenant shall cause any unnecessary labor
by reason of such tenant’s carelessness or indifference in
the preservation of good order and cleanliness. Tenant shall
promptly notify Landlord of any carpet or wall stains requiring
attention. Janitor service will not be furnished on nights when
rooms are occupied after 6:00 p.m. unless, by agreement in writing,
service is extended to a later hour for specifically designated
rooms.
4. Landlord
will furnish each tenant free of charge with two (2) keys to each
door provided in the premises by Landlord. Landlord may make a
reasonable charge for additional keys. No tenant shall have any
such keys copied. No tenant shall alter any lock or install a new
or additional lock or any bolt on any door of its premises. Each
tenant upon the termination of its lease shall deliver to Landlord
all keys to doors in the Building. Should Tenant install a locking
system that requires a code, such code shall be provided to
Landlord in writing, and all subsequent changes to the code will be
provided in writing twenty-four (24) hours prior to such change
taking place.
5. Landlord
shall designate appropriate entrances for deliveries or other
movement to or from the Premises of equipment, materials, supplies,
furniture, or other property, and Tenant shall not use any other
entrances for such purposes. Landlord must have approved all means
or methods used to move equipment, materials, supplies, furniture,
or other property in or out of the Building prior to any such
movement. Landlord will not be responsible for loss of or damage to
any such property from any cause, and all damage done to the
Building by moving or maintaining such property shall be repaired
at the expense of Tenant. Tenant shall move all freight, supplies,
furniture, fixtures, and other personal property only at such times
as Landlord may designate. Unattended vehicles will be towed at the
vehicle owner’s expense.
6. No
tenant shall use any method of heating or ventilation or air
conditioning other than that supplied by Landlord.
7. No
animals (except for service animals) shall be brought or kept in
the Premises or the Building.
8. Landlord
shall in no case be liable for damages for any error with regard to
the admission to or exclusion from the Building of any person in
the case of invasion, mob, riot, public excitement, or other
circumstances rendering such action advisable in Landlord’s
opinion. Landlord reserves the right to prevent access to the
Building during the continuance of the same by such action as
Landlord may deem appropriate, including closing
doors.
9. No
curtains, draperies, blinds, shutters, shades, screens, or other
coverings, hangings, or decorations shall be attached to, hung, or
placed in, or used in connection with, any window of the Building.
Such items shall be installed on the office side of
Landlord’s standard window covering and shall in no way be
visible from the exterior of the Building. Tenant shall keep window
coverings closed when the effect of sunlight (or the lack thereof)
would impose unnecessary loads on the Building’s heating or
air condition systems.
10. Tenant
shall ensure that the doors of the Premises are closed and locked
and that all water faucets, water apparatus, and utilities are shut
off before Tenant or Tenant’s employees leave the Premises so
as to prevent waste or damage, and for any default or carelessness
in this regard, Tenant shall make good all injuries sustained by
other tenants or occupants of the Building or Landlord. On
multiple-tenancy floors, all tenants shall keep the doors to the
Building corridors closed at all times except for ingress and
egress.
11. The
toilet rooms, toilets, urinals, wash bowls, and other apparatus
shall not be used for any purpose other than that for which they
are constructed, no foreign substance of any kind whatsoever shall
be thrown therein, and the expense of any breakage, stoppage, or
damage resulting from the violation of this rule shall be borne by
the tenants who, or whose employees or invitee, shall have caused
it.
12. No
tenant shall sell at retail newspapers, magazines, periodicals,
theater or travel tickets, or any other goods or merchandise to the
general public in or on the Premises, nor shall any tenant carry on
or permit any employee or other person to carry on the business of
stenography, typewriting, printing, or photocopying or any similar
business in or from the Premises for the service or accommodation
of occupants of any other portion of the Building; nor shall the
premises of any tenant be used for manufacturing of any kind, or
any business or activity other than that specifically provided for
in such tenant’s lease.
13. No
tenant shall install any radio or television antenna, loudspeaker,
or other device on the roof or exterior walls of the Building. No
TV or radio or recorder shall be played in such a manner as to
cause a nuisance to any other tenant.
14. There
shall not be used in any space, or in the public halls of the
Building, either by any tenant or others, any hand trucks except
those equipped with rubber tires and side guards or such other
material handling equipment as Landlord may approve. No other
vehicles of any kind shall be brought by any tenant into the
Building or kept in or about its premises.
15. Each
tenant shall store all its trash and garbage within its premises.
No material shall be placed in the hallways or in the trash boxes
or receptacles if such material is of such nature that it may not
be disposed of in the ordinary and customary manner of removing and
disposing of office building trash and garbage in the locale
without being in violation of any law or ordinance governing such
disposal. All garbage and refuse disposal shall be made only
through entryways provided for such purposes and at such times as
Landlord shall designate. Each tenant shall comply with any and all
Laws regarding recycling.
16. Canvassing,
soliciting, distribution of handbills, or any other written
material and peddling in the Building are prohibited, and each
tenant shall cooperate to prevent the same.
17. Except
in a case of emergency, the requirements of tenants will be
attended to only upon application in writing at the office of the
Building or by facsimile transmitted to the office of the Building
manager. Employees of Landlord shall not perform any work or do
anything outside of their regular duties unless under special
instructions from Landlord.
18. Tenant
shall not occupy the Building or permit any portion of the Building
to be occupied for the manufacture, distribution, or direct sale of
liquor, narcotics, or tobacco in any form, or as a medical office,
barber shop, manicure shop, music or dance studio, or employment
agency. Tenant shall not conduct in or about the Building any
auction, public or private, without the prior written approval of
Landlord, which approval may be withheld in Landlord’s sole
discretion.
19. Tenant
shall not use in the Building any machines, other than standard
office machines, such as typewriters, calculators, desktop
computers, copying machines, and similar machines, without the
prior written approval of Landlord. All office equipment and any
other device of any electrical or mechanical nature shall be placed
by Tenant in the Premises in settings approved by Landlord, so as
to absorb or prevent any vibration, noise, or annoyance. Tenant
shall not cause improper noises, vibrations, or odors within the
Building.
20. Tenant
shall not enter the mechanical rooms, air conditioning rooms,
electrical closets, janitorial closets, or similar areas or go upon
the roof of the Building.
21. Tenant
shall not mark, paint, drill into, cut, string wires within, or in
any way deface any part of the Building, without the prior consent
of Landlord, and as Landlord may direct.
22. Tenant
will not place objects on window sills or otherwise obstruct the
exterior wall window covering.
23. Tenant
will keep all doors opening to the exterior of the Building, all
fire doors, and all smoke doors closed at all times.
24. Tenant
shall not obstruct, alter, or in any way impair the efficient
operation of Landlord’s heating, ventilating, electrical,
fire, safety, or lighting systems, nor shall Tenant tamper with or
change the setting of any thermostat or temperature control valves
in the Building.
25. If
Tenant uses the Premises after regular business hours or on
non-business days Tenant shall lock any entrance doors to the
Building or to the Premises used by Tenant immediately after using
such doors.
26. Tenant
shall not use any portion of the Premises for lodging.
27. Landlord
reserves the right to exclude or expel from the Building any person
who, in the judgment of Landlord is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act
in violation of any of these Rules and Regulations.
28. Tenant
shall not park or attach any bicycle or motor driven cycle on or to
any part of the Premises or Building.
29. Tenant
shall not install any artwork that could give an artist or any
other party a right under applicable Law to prevent removal of the
same.
30. This
is a non-smoking facility. Smoking is prohibited within the
confines of the building in all public areas, which includes
interior common area hallways and restrooms.
31. Provided
Landlord acts in good faith pursuant to sound operating procedures,
Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such
waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant or tenants, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the Building.
32. These
Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the
agreements, covenants, conditions, and provisions of any lease of
premises in the Building.
33. Landlord
reserves the right to modify the foregoing and promulgate such
other rules and regulations as Landlord may from time to time
decide are needed for the safety, care, or cleanliness of the
Building, for the preservation of good order therein, or as changed
conditions or particular circumstances may require.
EXHIBIT H
PARKING AGREEMENT
Tenant
shall be provided the number of non-exclusive parking spaces as set
forth on the Lease Summary, in such areas or spaces as Landlord
shall determine from time to time (the “Non-exclusive
Parking”). The Non-exclusive Parking shall be available for
use by Tenant on a “non-reserved” and “space
available” basis during Business Hours.
During
the Term, the monthly rate per vehicle for any parking spaces
granted Tenant shall be the then prevailing rate generally charged
for such parking (and the current prevailing rate is set forth in
the Lease Summary). The parking rates charged by Landlord for
Tenant’s parking passes shall be exclusive of any parking tax
or other charges imposed by governmental authorities in connection
with the use of such parking, which taxes and/or charges shall be
paid directly by Tenant or the parking users, or, if directly
imposed against Landlord, Tenant shall reimburse Landlord for all
such taxes and/or charges concurrent with its payment of the
parking rates described herein.
Tenant’s use
of the parking areas serving the Building shall be subject to the
following:
1. Parking
shall not be permitted for Tenant or its employees in the Project
over and above the number of spaces designated on the Lease Summary
and any parking by Tenant or its employees in excess of such number
of spaces shall be a Default under this Lease.
2. All
parking areas shall be under the control of Landlord, and Tenant
agrees that all Tenant Related Parties shall conform to such
reasonable written parking regulations, conditions and provisions
as may from time to time be prescribed by Landlord, provided the
same do not increase Tenant’s obligations or decrease
Tenant’s rights.
3. If
Tenant is not permitted to utilize any parking space in the parking
areas at any time through no direct intentional act of Landlord,
such facts shall never be deemed to be a default by Landlord so as
to permit Tenant to terminate this Lease (either in whole or in
part) or pursue other remedies; provided, however, so long as
Tenant is not able to utilize any such parking space (for reasons
other than as a result of the negligence of any Tenant Related
Party) and Landlord does not provide reasonable alternate parking,
Tenant’s obligation to pay rental for any such parking space
that is not provided shall be abated for so long as Tenant does not
have the use of such parking space. Such abatement shall constitute
full settlement of all Claims that Tenant might otherwise have
against Landlord by reason of such failure or inability to provide
Tenant with such parking space. Landlord agrees to use reasonable
efforts to provide alternate parking for use by Tenant in
reasonable proximity to the Building. Landlord shall not be
responsible for enforcing Tenant’s parking rights against any
third parties.
4. Restricted
and unrestricted parking areas shall include only those areas
designated by Landlord as such.
5. Landlord
will be entitled to utilize whatever access device Landlord deems
necessary (including but not limited to the issuance of parking
stickers or access cards) to assure that only those persons
contracting for the use of spaces in the parking areas are using
the parking spaces therein. In the event any Tenant Related Parties
wrongfully park in any parking spaces, Landlord will be entitled
and is hereby authorized to impose upon Tenant a charge of $25.00
for each such occurrence. Tenant hereby agrees to pay all amounts
becoming due hereunder as Additional Rent upon demand therefor, and
the failure to pay any such amount will additionally be deemed a
Default.
6. All
vehicles are to be currently licensed, in good operating condition,
parked for business purposes having to do with Tenant’s
business operated in the Premises, parked within designated parking
spaces, one (1) vehicle to each space. No vehicle shall be parked
as a “billboard” vehicle in the parking lot. Any
vehicle parked improperly may be towed away. Any Tenant Related
Parties who do not operate or park their vehicles as required shall
subject the vehicle to being towed at the expense of the owner or
driver. Landlord may place a “boot” on the vehicle to
immobilize it and may levy a charge of $50.00 to remove the
“boot.” Tenant shall indemnify, hold and save harmless
Landlord of any Claims arising from the towing or booting of any
unauthorized vehicles.
7. Tenant
acknowledges and agrees that Landlord may, without incurring any
liability to Tenant and without any abatement of Rent under this
Lease, from time to time, close-off or restrict access to the
parking area, or relocate Tenant’s parking spaces to other
parking areas within a reasonable distance of the Premises, for
purposes of permitting or facilitating any such construction,
alteration or improvements with respect to the parking area or to
accommodate or facilitate renovation, alteration, construction or
other modification of other improvements or structures located on
the Property.
8. Landlord
may delegate its responsibilities hereunder or lease the parking
facilities to a parking operator in which case such parking
operator shall have all the rights of control attributed hereby to
Landlord but Landlord shall not be responsible or liable for the
acts or omissions of such parking operator.
TABLE OF CONTENTS
Page
|
ARTICLE
1 LEASE OF PREMISES
|
5
|
|
ARTICLE
2 DEFINITIONS
|
5
|
|
ARTICLE
3 PREMISES AND DELIVERY OF POSSESSION
|
12
|
|
ARTICLE
4 RENT
|
13
|
|
ARTICLE
5 SECURITY DEPOSIT
|
15
|
|
ARTICLE
6 USE
|
15
|
|
ARTICLE
7 HAZARDOUS MATERIALS
|
16
|
|
ARTICLE
8 SERVICES AND UTILITIES
|
17
|
|
ARTICLE
9 CONDITION OF THE PREMISES
|
18
|
|
ARTICLE
10 REPAIRS AND MAINTENANCE
|
19
|
|
ARTICLE
11 ALTERATIONS AND ADDITIONS
|
19
|
|
ARTICLE
12 CERTAIN RIGHTS RESERVED BY LANDLORD
|
22
|
|
ARTICLE
13 RULES AND REGULATIONS
|
23
|
|
ARTICLE
14 TRANSFERS
|
23
|
|
ARTICLE
15 DESTRUCTION OR DAMAGE
|
26
|
|
ARTICLE
16 EMINENT DOMAIN
|
27
|
|
ARTICLE
17 INDEMNIFICATION, WAIVER, RELEASE AND LIMITATION OF
LIABILITY
|
28
|
|
ARTICLE
18 INSURANCE
|
29
|
|
ARTICLE
19 DEFAULT
|
31
|
|
ARTICLE
20 LANDLORD REMEDIES AND DAMAGES
|
32
|
|
ARTICLE
21 BANKRUPTCY
|
36
|
|
ARTICLE
22 LIEN FOR RENT
|
37
|
|
ARTICLE
23 HOLDING OVER
|
37
|
|
ARTICLE
24 SURRENDER OF PREMISES
|
37
|
|
ARTICLE
25 BROKERAGE FEES
|
38
|
|
ARTICLE
26 NOTICES
|
38
|
|
ARTICLE
27 RELOCATION OF PREMISES
|
38
|
|
ARTICLE
28 SIGNAGE
|
38
|
|
ARTICLE
29 LENDER PROVISIONS
|
39
|
|
ARTICLE
30 MISCELLANEOUS
|
40
|
Exhibit 10.3
AGREEMENT
OF
LIMITED
PARTNERSHIP
OF
150
CCM BLACK OAK, LTD.
THIS AGREEMENT OF
LIMITED PARTNERSHIP (the “Agreement”) is made and
entered into effective the 20th day of March, 2014 by and between
150 Black Oak GP, Inc., a Texas corporation, whose address is 340
North Sam Houston Parkway East, Suite 140, Houston, Texas 77060, as
general partner (“General Partner”), and each of the
individuals or entities whose names are set forth on Exhibit
“A” attached to this Agreement as limited partners
(“Limited Partners”).
ARTICLE
I
ORGANIZATION
OF THE PARTNERSHIP
1.1
Formation of Limited
Partnership. The parties hereby form, pursuant to the Texas
Revised Limited Partnership Act, Article 6132a-1 of the Revised
Civil Statutes of the State of Texas, (the “Act”), a
Limited Partnership (the “Partnership”). The rights and
liabilities of the Partners shall be as provided for in this
Agreement and in the Act.
1.2
Certificate of Limited
Partnership. The parties shall execute and file a
Certificate of Limited Partnership (the “Certificate”),
and other relevant documents ancillary to the Certificate, with the
office of the Secretary of State of the State of Texas as required
by the Act, and take all other appropriate action to comply with
all legal requirements for the formation and operation of a limited
partnership under the Act.
1.3
Partnership Name. The name
of the Partnership shall be 150 CCM Black Oak, Ltd. If considered
necessary in the opinion of counsel to the Partnership to preserve
the limited liability of the Limited Partners, the business
conducted by the Partnership shall be conducted under that name or
under such other name or names as the General Partner may select
and might be necessary to preserve such limited
liability.
1.4
Location of Office. The
principal business office of the Partnership shall be at 340 North
Sam Houston Parkway East, Suite 140, Houston, Texas
77060.
1.5
Purpose of Partnership. The purpose of
the Partnership shall be as to buy, develop, manage and sell, as
appropriate, the real property acquired by the Partnership,
including improvements and personal property located thereon, such
real property to include the tracts or parcels of land more
particularly described in Exhibit “B” attached to this
Agreement (the “Project”).
1.6
Term of Partnership. The
Partnership shall become effective as of the date hereof and shall
remain effective until December 31, 2030, or until such earlier
date as the Partnership is dissolved pursuant to the Act or the
provisions of this Agreement.
ARTICLE
II
DEFINITIONS
The following terms
used in this Agreement shall, unless otherwise expressly provided
in this Agreement or unless the context otherwise requires, have
the following respective meanings:
2.1
Agreement shall mean this
Agreement of Limited Partnership.
2.2 Annual Budget shall mean a budget
prepared by the General Partner and approved by a Majority Interest
of Limited Partners in accordance with the provisions of Section
9.12 of this Agreement. The first Annual Budget shall include
obtaining owner financing for the acquisition of the Property
(hereinafter defined) by the Partnership, which financing shall
include separate notes and deeds of trust covering the tracts or
parcels comprising the Property.
2.3 Budget and Development Plan shall mean
the budget and initial development plan for the development of the
Property. The General Partner shall periodically update the Budget
and Development Plan, as provided in Section 9.5 of this
Agreement.
2.4
Budgets shall mean, jointly,
the Annual Budget and the Budget and Development Plan.
2.5
Class A Limited Partner shall mean
CCM Development USA Corporation. Duties charged in this
Agreement to the Class A Limited Partner may be performed by its
designee.
2.6
Consultants shall mean,
collectively, CCM Development USA Corporation, a Delaware
corporation, American Real Estate Investments, LLC, a Missouri
limited liability company, and Arete Real Estate and Development
Company, a Texas corporation.
2.7
Effective Date shall mean
the date the Certificate is filed with the Secretary of State of
Texas.
2.8
General Partner shall mean
150 Black Oak GP, Inc., a Texas corporation, or such substitute or
different General Partner as may be subsequently named pursuant to
the terms of this Agreement.
2.9
Initial Capital
Contributions shall mean the amount contributed to the
Partnership on or after the date hereof by any
Partner.
2.10
Limited Partners shall mean
those persons who execute this Agreement or any counterpart of this
Agreement as Limited Partners and whose names and residence
addresses appear on Exhibit “A”, which is attached to
this Agreement and made a part of this Agreement for all
purposes.
2.11
Major Decisions shall mean
the actions as set forth in paragraph 9.12 of this
Agreement.
2.12
Majority in Interest of Limited Partners shall mean
those Limited Partners who at the time of any determination of a
majority have 59.5% or more of the combined Partnership Interest of
the Partnership.
2.13
Partner shall mean the
reference to the General Partner or any one of the Limited
Partners.
2.14
Partners shall mean the
collective reference to the General Partner and the Limited
Partners.
2.15
Partnership Interest shall
mean, as to any Partner, all of the interests of that Partner in
the Partnership, expressed as a percentage and set opposite his or
her name in Exhibit “A.”
2.16
Person shall mean any
individual, corporation, partnership, trust, or other
entity.
2.17
Preferred Return shall mean
with respect to the Class A Limited Partner (i) a sum that
accrues and accumulates at the rate of five percent (5%) per annum
on the unreturned Capital Contributions made by such Class A
Limited Partner to the Partnership, less (ii) any
distributions paid to such Class A Limited Partner under Section
5.1 hereof, as determined by the General Partner.
2.18
Property shall mean that
certain tract(s) or parcel(s) of land described on Exhibit
“B”, which is attached to this Agreement and made a
part hereof for all purposes.
2.19
Winding Up shall mean the
period following dissolution of the Partnership after which its
business is not continued as set forth in Article XII.
ARTICLE
III
CAPITAL
CONTRIBUTIONS AND
PARTNERSHIP
INTERESTS
3.1
Initial Contributions. The
capital to be contributed to the Partnership by the General Partner
and all the Limited Partners shall be cash, property, goods or
services as the General Partner shall agree. The initial capital to
be contributed by each Partner, General and Limited, shall be the
sum set opposite his or her name in the attached Exhibit "A." Each
Partner shall be personally liable to the Partnership for the full
amount of his or her initial capital contribution in the amounts
set forth on Exhibit “A”.
3.2
Additional Contributions. If
additional capital is needed for the purposes of the Partnership as
determined by the General Partner, subject to any limitations as
may be hereinafter provided, after contributions have been made by
the Partners pursuant to Section 3.1 hereof, then the General
Partner shall attempt to borrow such additional capital on behalf
of the Partnership first from any one or more of the Partners and
then from any third party. Any such loans shall be on commercially
reasonably terms, and if from any one or more of the Partners, such
loan or loans shall bear interest at the rate of fifteen percent
(15%) per annum.
ARTICLE
IV
PROFITS
AND LOSSES
4.1
Allocations. Allocations of
income, gains, deductions, losses and credits among the General
Partner and the Limited Partners shall be determined by the
percentage set opposite his or her name in Exhibit
“A”.
4.2
Transfer - Transferee
Allocations. If a Partnership Interest is transferred in
accordance with Article X during any year, the income, gains,
losses, and deductions allocable in respect to that Partnership
Interest shall be prorated between the transferor and the
transferee on the basis of the number of days in the year that each
was the holder of that Interest, without regard to the results of
the Partnership operations during the period before and after the
transfer, unless the transferor and transferee agree to an
allocation based on the result as of the record date of transfer
and agree to reimburse the Partnership for the cost of making and
reporting their agreed allocation.
4.3
Recapture. In the event that
the Partnership recognizes income, gain, or addition to tax by
virtue of the recapture of any previously deducted or credited
item, such recaptured income or gain or addition to tax shall be
allocated to the Partners in the same percentage as allocated at
the time of its deduction.
ARTICLE
V
CASH
DISTRIBUTIONS
5.1
Cash Distributions. In
accordance with the Budgets, or subject to the approval of the
Consultants, the General Partner shall determine the amount of net
cash flow and/or capital proceeds of the Partnership after payment
of expenses and the establishment of appropriate and reasonable
reserves determined by the General Partner in accordance with any
Partnership loan (collectively, the “Distributable Cash”),
such Distributable Cash to be distributed, subject to withholding
required by federal, state, local, or foreign authority, to the
Partners in amounts and at such times as provided in the Budgets,
or determined to be appropriate by the General Partner and the
Consultants to be no less frequently than quarterly in the
following manner and order of priority:
(1)
First, any loans to
the Partnership made by a mortgagee or any third party, whether or
not secured by a mortgage on the Property shall be
paid;
(2)
Second, any loans
to the Partnership made by any Partner shall be paid;
(3)
Third, the
Preferred Return to the Class A Limited Partner shall be paid to
such Partner:
(4)
Fourth, the initial
capital and any additional capital contributions of the Class A
Limited Partner shall be repaid to such Class A Limited Partner:
and
(5)
Fifth, the
remainder shall be distributed to the Partners in accordance with
their respective Partnership Interest, pari passu, as they may
exist from time to time.
ARTICLE
VI
OWNERSHIP OF PARTNERSHIP PROPERTY
6.1
The Property and all other real property, including all
improvements placed or located thereon, and all personal property
acquired by the Partnership shall be owned by the Partnership, such
ownership being subject to the other terms and provisions of this
Agreement. Each Partner hereby expressly waives the right to
require partition of any Partnership property or any part
thereof.
ARTICLE
VII
BOOKS
AND RECORDS
7.1
Elections. The Partnership
shall elect as a fiscal year the calendar year. The Partnership
shall elect to be taxed on such method of accounting as a Majority
in Interest of Limited Partners shall determine. The Partnership
shall not elect to be taxed other than as a
partnership.
7.2
Capital Accounts of
Partners. The Partnership shall maintain a capital account
for each Partner, the initial balance of each of which shall be
zero. Each Partner's capital account shall be increased (1) by any
income and gains allocated to that Partner for federal income tax
purposes pursuant to Article IV of this Agreement, and (2) by the
amount of cash contributed to the Partnership by that Partner. The
Partner's capital account shall be decreased (1) by any deductions
and losses allocated to that Partner for federal income tax
purposes pursuant to Article 4 of this Agreement, and (2) by the
amount of cash distributed by the Partnership to that
Partner.
7.3
Financial Statements. The
General Partner shall cause to be prepared on a timely basis
quarterly and annual statements showing the financial condition of
the Partnership, copies of which shall be transmitted to all
Partners.
7.4
Tax Returns. The General
Partner shall cause the Partnership to file all tax and information
returns required of the Partnership and to furnish to the Limited
Partners the tax information required by them for federal, state
and local tax purposes in a timely fashion.
7.5
Maintenance and Inspection of
Books. The Partnership shall maintain a complete and
accurate set of books, records, and supporting documents. The books
of account and all other financial records of the Partnership shall
be kept at the Partnership's principal place of business, and may
be inspected at any reasonable time by the Limited Partners or
their representatives.
7.6
Bank Accounts, Funds and
Assets. The funds of the Partnership shall be deposited in
such bank or banks as the General Partner shall deem appropriate.
Subject to the provisions of this Agreement, the funds may be
withdrawn only by the General Partner or its duly authorized
agents. The General Partner shall have a fiduciary responsibility
for the safekeeping and use of all funds of the Partnership,
whether or not in its immediate possession or control, and it shall
not employ, or permit another to employ, the funds or assets in any
manner, except for the exclusive benefit of the Partnership. The
General Partner shall not commingle or permit the commingling of
the funds of the Partnership with the funds of any other
person.
ARTICLE
VIII
RIGHTS
AND OBLIGATIONS OF LIMITED PARTNERS
8.1
Admission of Limited
Partners. No additional Limited Partners shall be admitted
to the Partnership except upon amendment of this Agreement,
although substituted Limited Partners may be admitted pursuant to
Section 10 below.
8.2
Participation in Management.
Subject to the Major Decisions, no Limited Partner shall have the
right, power, or authority to take any part in the control or
management of, or to transact any business for, the Partnership, or
to sign for or bind the Partnership in any manner.
8.3
Limited Liability. No
Limited Partner shall be liable for losses, debts, or obligations
of the Partnership in excess of his or her Initial Capital
Contribution, plus his or her undistributed share of the
Partnership profits.
8.4
Participation in Other
Activities. No Limited Partner, or any officer, director,
shareholder, or other person holding a legal or beneficial interest
in any Limited Partner, shall, by virtue of the interest in the
Partnership, be in any way prohibited or restricted from engaging
in, investing in, or possessing an interest in any business
activity of any nature or description, including those which may be
equivalent to or in competition with the Partnership. Neither the
Partnership nor any Partner shall have any right by virtue of this
Agreement or any relationship created by this Agreement in or to
such other ventures or activities or to the income or proceeds
derived from them.
8.5
General Rights and Limitations of
the Limited Partners. A Limited Partner shall not
be:
(1) Personally
liable because of his or her Interest in the Partnership for
any losses of any other Limited Partner:
(2)
Entitled to be paid
any salary or to have a Partnership drawing account;
(3)
Entitled to any
interest on his or her Initial Capital Account or balance in his or
her capital account.
(4)
Unless specifically
provided herein, entitled to priority over any otherLimited
Partners.
8.6
Voting. Each Limited Partner
shall be entitled to a vote in all matters for which this Agreement
gives Limited Partners the right to vote, consent, or agree. Each
Limited Partner's vote shall be equal in percentage to the ratio
that his or her Partnership Interest bears to one hundred percent
(100%).
8.7
Limitations on
Transferability. The ownership interest in the Partnership
owned by a Limited Partner shall not be transferable except under
the conditions set forth in Article X of this
Agreement.
ARTICLE
IX
MANAGEMENT
BY THE GENERAL PARTNER
9.1
Management. The powers of
the Partnership shall be exercised by or under the authority of,
and the business and affairs of the Partnership shall be managed
under the direction of the General Partner. The General Partner
need not be a resident of the State of Texas. Any Person dealing
with the Partnership, other than a Limited Partner, may rely on the
authority of the General Partner and its officers in taking any
action in the name of the Partnership without inquiry into the
provisions hereof or compliance herewith, regardless of whether
that action is actually taken in accordance with the provisions of
this Partnership Agreement.
9.2 Powers
and Duties of the General Partner. Subject to the other
provisions of this Agreement, the General Partner shall have all
the powers and duties necessary or incidental to the proper
administration of the affairs of the Partnership and may, at the
Partnership’s expense, do all such acts and things deemed by
it to be necessary or appropriate in furtherance of the
Partnership’s purpose. Except as otherwise provided in this
Agreement, the General Partner shall have sole authority to cause
the development of the Property and otherwise take actions on
behalf of the Partnership. Notwithstanding anything to the contrary
herein, the General Partner shall have complete authority to
operate and manage the business of the Partnership so long as such
operation and management is in accordance with the Budgets.
Further, notwithstanding anything to the contrary herein, the
General Partner is not guaranteeing the completion of the Property
in accordance with the Budgets, and the General Partner shall not
be liable if such becomes unfeasible due to causes not within its
reasonable control or not caused by its negligence or greater
fault, including, but not limited to, economic or market
conditions.
9.3 Insurance.
At the expense of the Partnership, the General Partner shall cause
the Partnership to maintain adequate and reasonable insurance
covering the injury or death of employees or others, as well as
insurance against fire and other risks, and to adjust all losses
and claims pertaining to or arising out of such
insurance.
9.4 Employment
of Others. The General Partner shall be authorized to
appoint, employ, or contract with, at the expense of the
Partnership, generally any Person it may deem necessary or
desirable for the transaction of the business of the Partnership.
Specifically, the General Partner shall appoint, employ or contract
with a project manager (the “Project Manager”) to
provide field supervision of the development and contraction of the
Project. The Project Manager shall be compensated as provided in
the Budgets.
9.5 Budget
and Development Plan. The General Partner shall periodically
update the Budget and Development Plan, as approved by a Majority
in Interest of Limited Partners, and provide copies thereof to the
other Limited Partners.
9.6 Annual
Budget. The General Partner agrees to prepare and deliver to
the Partners within forty-five (45) days after the execution of
this Agreement with respect to the initial Fiscal Year, and at
least forty-five (45) days prior to the beginning of each
subsequent Fiscal Year, a proposed Annual Budget for such Fiscal
Year for the management and operation of the Partnership and the
acquisition, development, management, operation, financing and sale
of the Property, setting forth (a) any proposed expenditures and
reserves for the forthcoming Fiscal Year, (b) any discretionary
expenditures which the General Partner determines to be necessary
or advisable to maintain the Property or facilitate the development
and sale of lots developed on the Property, and (c) a projected
cash flow analysis for the forthcoming Fiscal Year setting forth
the estimated receipts and expenditures of the Partnership. Each
Partner shall have a period of twenty (20) days to review and
approve the proposed Annual Budget for the forthcoming Fiscal Year.
Once approved by a Majority in Interest of Limited Partners, such
approved Annual Budget for the period of time covered thereby shall
be binding upon the Partners unless otherwise mutually agreed.
Notwithstanding the foregoing, (i) should any Partner fail to
notify the General Partner of its disapproval of the proposed
Annual Budget prior to the expiration of the twenty (20) day review
period described above, the proposed Annual Budget shall be deemed
to be approved by such Partner, and (ii) should any Partnership
lender require that the Partnership make expenditures or establish
reserves during any Fiscal Year, all such required expenditures and
reserves shall be deemed Approved by a Majority in Interest of
Limited Partners after such lender requirements are sent to the
Partners. The General Partner may, from time to time, submit
proposed revisions to the Annual Budget, and the Partners shall
consider and review such proposed revisions in the manner and time
frames set forth above in order to determine whether to approve
same, or to make such revisions thereto as they may mutually agree,
or to agree not to revise the Annual Budget.
9.7 Approval
of Budget and Development Plan and Annual Budget.
Notwithstanding anything to the contrary provided in this
Agreement, the Budget and Development and each Annual Budget shall
be submitted to the Consultants prior to submitting same to the
Partners for approval. If approved by the Consultants as providing
in the Consultant Agreement, then the General Partner shall submit
same to the Partners for approval as provided in Sections 9.5 and
9.6 hereof.
9.8 Licenses.
The General Partner shall, at its own expense, qualify to do
business and obtain and maintain such licenses as may be required
for the performance by the General Partner of its services
hereunder.
9.9 Third
Party Obligations. All debts and liabilities to any third
Persons incurred by the General Partner in the authorized course of
its operation and management of the Property shall be the debts and
liabilities of the Partnership only and the General Partner shall
not be liable for any such obligations by reason of its management,
supervision and direction of the Property for the Partnership. The
General Partner may so inform third parties with whom it deals on
behalf of the Partnership and may take any other reasonable steps
to carry out the intent of this Section 9.9.
9.10 Indemnification.
The Partnership shall indemnify, save harmless and pay all
judgments arising against the General Partner and its shareholders,
directors, employees and agents from any cost, expense, claim,
liability or damage incurred by reason of such Person’s
relationship to the Partnership or any act performed or omitted to
be performed by them in connection with this Article IX or the
business of the Partnership, including attorney’s fees and
costs incurred by them in connection with the defense of any action
based on any such act or omission, which attorneys’ fees and
costs may be paid as incurred, [including all such liabilities
under any Federal or state securities act (including the Securities
Act of 1933, as amended)] as permitted by law, except that the
Partnership shall have no indemnification obligation hereunder with
respect to any act or omission of any Person that constitutes
willful misconduct, gross negligence, or was outside the scope of
such Person’s authority under this Article VI. All judgments
against the Partnership with respect to which any Person is
entitled to indemnification may only be satisfied from the
Partnership’s assets. Any Person entitled to be indemnified
hereunder shall also be entitled to recover its attorney’s
fees and costs of enforcing this indemnity from the
Partnership’s assets.
9.11 Power
of Attorney. By the execution of this Agreement, each
Limited Partner and any assignee or transferee of a Limited
Partner's Partnership Interest irrevocably constitutes and appoints
the General Partner his or her true and lawful attorney-in-fact and
agent to execute, acknowledge, verify, swear to, deliver, record,
and file in that Partner's or assignee's name, place and stead, all
documents which may from time to time be required by any federal or
state law, including the execution, verification, acknowledgment,
delivery, filing and recording of this Agreement, as well as all
authorized amendments to any such document, all assumed name
certificates, documents, bills of sale, assignments, and other
instruments or conveyances, leases, contracts, loan documents
and/or counterparts of any such document, and all other documents
that may be required to effect a continuation of the Partnership
and that the General Partner deems necessary or reasonably
appropriate. The power of attorney granted in this paragraph shall
be deemed to be coupled with an interest, shall be irrevocable and
survive the death, bankruptcy, incompetency or legal disability of
a Limited Partner, and shall extend to that Limited Partner's heirs
successors and assigns. Each Limited Partner agrees to be bound by
any representations made by the General Partner acting in good
faith pursuant to the Power of Attorney, and each Limited Partner
waives any and all defenses that may be available to contest,
negate, or disaffirm any action of the General Partner taken in
good faith under this Power of Attorney.
9.12 Limitations
on Power and Authority of the General Partner. It is hereby
understood and agreed by the General Partner that it shall not take
any of the following actions on behalf of the Partnership, the
Partners or the Property, which actions shall be deemed Major
Decisions for purposes of this Agreement, unless such Major
Decisions have been approved by a Majority in Interest of the
Limited Partners:
(a) Any act which would
make it impossible to carry on the purpose and ordinary business of
the Partnership;
(b) Confession of a
judgment against the Partnership;
(c) Borrow or contract
for or otherwise create any indebtedness for which any Limited
Partner shall be personally liable;
(d) Acquire any
property other than the Property, except as provided in the Budget
and Development Plan;
(e) Settle any claim
for insurance proceeds if the loss thereunder exceeds Twenty
Thousand and No/100 Dollars ($20,000.00);
(f) Settle any claims
for payment of awards or damages arising out of the exercise of
eminent domain by any public or governmental
authority;
(g) Lend funds
belonging to the Partnership or another Partner to a Partner or to
any third party, or extend to any person, firm or corporation
credit on behalf of the Partnership except in accordance with the
terms of this Agreement, or guarantee the debt or obligations of
any Person;
(h) Other than in
connection with the development of the Property into lots to be
sold individually or in groups, partition all or any portion of the
Property or any other property of the Partnership, or file any
complaint or institute any proceeding at law or in equity seeking
such partition;
(i) Do any act in
contravention of this Agreement;
(j) Do any act or take
any action which is required herein to be approved by a Majority
Interest of Limited Partners or by unanimous consent of the Limited
Partners unless and until such act and/or action is approved by a
Majority Interest of Limited Partners or by unanimous consent of
the Limited Partners, as the case may be;
(k) Possess the
Property or any other Partnership assets or assign its rights in
the Property or any other Partnership assets for other than a
Partnership purpose, or use the Property or any other Partnership
assets except for the account and benefit of the
Partnership;
(l) Settle, or cause
the settlement of, any claims, suits, debts, demands or judgments
against the Partnership in excess of $10,000;
(m) Cause the sale by
the Partnership of any portion of the Property, other than the sale
of lots in the ordinary course of business;
(n) Admit, or cause the
admission, of any additional Limited Partners to the
Partnership;
(o) Incur any
indebtedness on behalf of the Partnership in excess of amounts as
provided in the Budget and Development Plan;
(p) Revise the Budget
and Development Plan if the resulting changes would cause the costs
of any line item on the Budget and Development Plan to be increased
by more than 10%;
(q) Withhold, as
reserves, more than 25% of the portion of the proceeds from the
sale of any portion of the Property;
(r) Incur any
obligation or make any expenditure on behalf of the Partnership,
which, when added to other expenditures, exceeds the amounts set
forth therefore in the appropriate line item of the Budget and
Development Plan by more than 10%;
(s) Any revision to or
deviation from the Budget and Development Plan which decreases by
more than 10% the proposed selling price for any lot or shall
otherwise cause the gross income of the Partnership projected in
the Budget and Development Plan to decrease by more than 10% for
any period;
(t) The institution, or
causing the institution of, any legal action by the Partnership,
including without limitation, any lawsuit, arbitration proceeding,
or bankruptcy or similar filing;
(u) Making payments to
or entering into any contracts with the General Partner or any
affiliate of the General Partner other than as specified herein or
the Budget and Development Plan;
(v) Any act or
transaction outside the ordinary course of the Partnership’s
business;
(w) Making any other
decision or taking any other action which, by the provisions of
this Agreement, is required to be approved by a Majority in
Interest of Limited Partners; and
(x) Modify or amend any
agreement, contract or other action involving a Major Decision, as
defined below (previously approved by a Majority in Interest of
Limited Partners), without the prior written approval of the other
Limited Partners.
9.13
Inquiries. In no event shall
any person dealing with the General Partner or any of its
representatives with respect to any business or property of the
Partnership be obligated to ascertain that the provisions of this
Agreement have been complied with or be obligated to inquire into
the necessity or expedience of any act or action of such persons.
Every contract, agreement, security agreement, promissory note, or
other instrument or document executed by either the General Partner
or its representatives with respect to any business or property of
the Partnership shall be conclusive evidence in favor of any and
every person relying on or claiming thereunder that (1) at the time
of the execution and/or delivery of the instrument or document this
Agreement was in full force and effect; (2) the instrument or
document was duly executed in accordance with the terms and
provisions of this Agreement and is binding upon the Partnership
and all of the Partners, and (3) the General Partner or its
representatives were duly authorized and empowered to execute and
deliver any such instrument or document for and on behalf of the
Partnership.
9.14
Tax Matters Partner. The
General Partner is hereby designated as a Tax Matters Partner as
defined in Section 6231 of the Internal Revenue Code. In the event
that an audit of the Partnership occurs, and the Tax Matters
Partner does not reach a settlement agreement with the Internal
Revenue Service, the Tax Matters Partner shall in its sole
discretion choose whether to file a petition for readjustment of
the Partnership items with either the Tax Court, the District Court
of the United States for the district for which the Partnership's
place of business is located, or the Court of Claims.
9.15
Obligations Not Exclusive.
The General Partner shall be required to devote only such time as
is reasonably necessary to manage the Partnership's business, it
being understood that the General Partner has other business
activities and therefore shall not devote their time exclusively to
the Partnership. Neither the General Partner, or any officer,
director, shareholder, or other person holding a legal or
beneficial interest in the General Partner, shall, by virtue of the
interest in the Partnership, be in any way prohibited or restricted
from engaging in, investing in, or possessing an interest in any
business activity of any nature or description, including those
which may be equivalent to or in competition with the Partnership.
Neither the Partnership nor any Partner shall have a right by
virtue of this Agreement or any relationship created by this
Agreement in or to such other ventures or activities or to the
income or proceeds derived from them.
9.16
Liability of General Partner to
Limited Partners. The General Partner, its representatives,
employees, and agents shall not be liable to the Partnership or to
the Limited Partners for losses sustained or liabilities incurred
as a result of any error in judgment or mistake of law or fact,
including simple negligence, or for any act done or omitted to be
done in good faith in conducting the Partnership business, unless
the error, mistake, act, or omission was performed or omitted
fraudulently or constituted gross negligence or willful
misconduct.
9.17
Consultants. The General
Partner shall consult with and obtain the advice of the Consultants
in the development and construction of the Project until such time
as the Project is completed or as otherwise determined by the
General Partner. Each Consultant shall be paid by the Partnership a
monthly fee of $10,000 during the development and construction of
the Project and as long as such as such person is actively
participating in the oversight and supervision of the construction
of the Project.
ARTICLE
X
TRANSFERS
OF PARTNERSHIP INTEREST
10.1
Transfer of General Partner’s
Interest. The General Partner may not, without the approval
of a Majority in Interest of Limited Partners, transfer its
Partnership Interest or any part thereof.
10.2
Withdrawal or Removal of General Partner.
(1)
The General Partner
may:
(a)
resign or withdraw
from the Partnership as General Partner without the consent of the
Limited Partners; or
(b)
be removed at any
time, for cause, by the affirmative vote of a Majority in Interest
of Limited Partners. For the purposes of this provision,
“cause” shall mean action or inaction by the General
Partner amounting to gross negligence or wilful fraudulent
misconduct.
(2)
Immediately on
withdrawal or removal of the General Partner, a successor General
Partner shall be selected by an affirmative vote or written consent
of a Majority in Interest of Limited Partners. The removed or
withdrawing General Partner shall turn over all Partnership books
and records to the new General Partner within ten (10) days of
removal or departure.
(3)
A General Partner
departing voluntarily or having been removed shall become a Limited
Partner upon the selection of a successor General Partner, as
provided above, and shall continue to receive its share of any
Partnership distributions arising out of its interest in the
Partnership.
10.3
Substituted Limited Partner.
Each Limited Partner hereby consents to the admission as a
substituted Limited Partner of any person complying with Section
10.8. When compliance with this Agreement has been shown, the
General Partner shall cause the necessary amendments to be filed as
required by law.
10.4
Transfer On Death of a Limited
Partner. On the death of a Limited Partner, his or her
successor in interest shall succeed to the decedent's Partnership
Interest, and shall be liable for the obligations of the decedent,
but shall not become a substituted Limited Partner until compliance
with Section 10.6 and 10.8.
10.5
Withholding of
Distributions. From the date of the receipt of any
instrument relating to the transfer of a Partnership Interest, or
at any time the General Partner is in doubt as to the person
entitled to receive distributions in respect of any such
Partnership Interest, the General Partner may withhold any such
distributions until the transfer is completed or abandoned or any
dispute is resolved.
10.6
Prohibition Against
Transfer by Limited
Partners. Except as set forth below, no Limited Partner
shall sell, assign, transfer, encumber, or otherwise dispose of any
interest in the Partnership without the written consent of the
General Partner and a Majority in Interest of Limited Partners.
Notwithstanding the foregoing, and subject to Section 10.8 below, a
Limited Partner may sell or otherwise transfer all or any portion
of a Partnership Interest to the spouse or any direct ascendants or
descendants of the Limited Partner or to a trust, corporation,
partnership, or other entity in which all of the beneficial
interest is held by or for the Limited Partner, spouse, ascendants,
or descendants, provided the transfer would not result in a
termination of the Partnership.
10.7
Permitted Sales
(1)
In the event a
Limited Partner receives a bona fide offer (the
“Offer”) for the purchase of all or a part of his or
her interest in the Partnership (the “Offered
Interest”), the Limited Partner shall either refuse the Offer
or give the General Partner written notice setting out full details
of the Offer, which notice shall, among other things, specify the
name of the offeror, specify the Offered Interest covered by the
Offer, terms of payment, including whether the Offer is for cash or
credit, and, if on credit, the time and interest rate, as well as
any and all other consideration being received or paid in
connection with the proposed transaction, as well as any and all
other terms, conditions, and details of the Offer.
(2)
Upon receipt of the
notice with respect to the Offer, the General Partner shall notify
in writing the other members of the Limited Partnership regarding
the terms of the Offer. The Partners shall have the option to match
the Offer and purchase the Offered Interest as hereinafter
provided. Should any individual Partner or group of Partners decide
to exercise the option of purchase, notification of this decision
shall be given in writing to the General Partner to be transmitted
to the selling Limited Partner within ten (10) days of notification
by the General Partner, and the sale and purchase of the Offered
Interest shall be closed within thirty (30) days thereafter. The
entire Offered Interest must be purchased and shall be purchased
prorata among the willing Partners, except as otherwise agreed by
the willing Partners. If none of the Partners decide to exercise
this option of purchase, the selling Limited Partner shall be so
notified in writing by the General Partner and shall be free to
sell the Offered Interest. The sale, if permitted, shall be made
strictly upon the terms and conditions of the Offer and to the
person described in the required notice from the selling Limited
Partner to the General Partner.
(3)
Any assignment made
to anyone not already a Partner shall be effective only to give the
assignee the right to receive the share of profits to which the
assignor would otherwise be entitled, shall not relieve the
assignor from liability for additional contributions of capital,
shall not relieve the assignor from liability under the provisions
of this Agreement, and shall not give the assignee the right to
become a substituted Limited Partner. Neither the General Partner
nor the Partnership shall be required to state the tax consequences
to a Limited Partner or to a Limited Partner or to a Limited
Partner’s assignee arising from the assignment of a Limited
Partners Interest.
10.8
Conditions of Effective
Transfer. A purported transfer of a Partnership Interest by
a Limited Partner shall be valid as to the Partnership and the
General Partner on the first day of the month following the month
in which (1) the General Partner has consented in writing to the
transfer; and (2) the General Partner is satisfied that the
following conditions, any of which may be waived by the General
Partner, have been met:
(a)
The transferor and
transferee have agreed to provide the Partnership with the
information in their possession required to permit the Partnership
to make any basis adjustments required by the Internal Revenue Tax
Code;
(b)
The transferee has
delivered an instrument satisfactory to the General Partner by
which the transferee accepts and adopts the terms and provisions of
this Agreement, including the assumption of any obligations of the
transferor to the Partnership;
(c)
The transferor has
agreed to pay a reasonable fee to reimburse the Partnership for the
costs incurred in connection with the admission of the transferee
as a substitute limited partner, including any costs incurred or to
be incurred by the Partnership in connection with the basis
adjustments and additional accounting operations
required;
(d)
The transferor has
delivered to the General Partner an opinion of counsel in form and
substance satisfactory to the General Partner to the effect that
neither the transfer nor any offering in connection with the
transfer violates any provision of any federal or state securities
or comparable law;
(e)
The General Partner
has determined that the transfer would not cause a termination of
the Partnership, within the provisions of the Internal Revenue
Code;
(f)
The transfer is
evidenced by an instrument in writing signed by the transferor and
transferee stating, among other things, that the transferor has the
right to transfer, and the transferee has the right to acquire, the
transferor's Partnership Interest, and acknowledging that the
transferee is bound by the terms of this Agreement;
and
(g)
The transferee has
delivered a statement in form and substance reasonably satisfactory
to the General Partner making appropriate representation and
warranties with respect to the satisfaction of applicable federal
and state securities laws.
10.9
Assignments by Operation of
Law. If any Limited Partner shall die, with or without
leaving a will, become non compos mentis, or become bankrupt or
insolvent, or if a corporate or partnership Limited Partner
dissolves during the Partnership term, the legal representatives,
heirs, and legatees, and the spouse, if the Partnership Interest of
the Limited Partner has been community property of the Partner and
the Partner's spouse, bankruptcy assignees, or corporate or
partnership distributees shall not become substitute Limited
Partners but shall have, subject to the other terms and provisions
thereof, such rights as are provided with respect to such persons
under the Act; provided, however, such legal representatives, heirs
and legatees, bankruptcy assignees and corporate or partnership
distributees may become substitute Limited Partners with the
consent of the General Partner.
10.10
Expenses of Transfer. The
person acquiring Partnership Interest pursuant to any of the
provisions of this Article X shall bear all costs and expenses
necessary to effect a transfer of that Partnership Interest
including, without limitation, reasonable attorney's fees incurred
in preparing amendments to this Agreement and Certificate of
Limited Partnership to reflect the transfer or acquisition and the
cost of filing the amendments with the appropriate governmental
officials.
10.11
Amendment of Certificate and
Agreement of Limited Partnership. For the admission to the
Partnership of any Partner, the General Partner shall take all
steps necessary and appropriate to prepare and record an amendment
of the Certificate and the Agreement of Limited Partnership. For
this purpose, the General Partner may exercise the powers of
attorney granted pursuant to Article 9.11. An amendment of this
Agreement required to add a new Limited or General Partner need
only be filed at the end of the month in which each new Limited or
General Partner is to be added.
10.12
Survival of Liabilities. No
sale or assignment of a Partnership Interest, even if it results in
substitution of the assignee or vendee as a Limited Partner, shall
release the assignor or vendor from those liabilities to the
Partnership that survive the assignment or sale as a matter of
law.
ARTICLE
XI
AMENDMENTS
11.1
Procedure. Amendments to
this Agreement may be proposed by the General Partner or by a
Majority in Interest of Limited Partners. The General Partner shall
submit any such proposed amendment to all of the Partners, and, if
within such reasonable period of time as may be specified in the
proposal, a Majority in Interest of Limited Partners and the
General Partner shall have given their written consent to the
amendment, the proposed amendment shall become effective as of the
date specified in the proposal. Each Limited Partner shall promptly
execute or cause to be executed one or more amendments to this
Agreement and such other documents as may be required under the
laws of the jurisdictions in which the Partnership does business at
the time.
11.2
Effect. Any amendment to this Agreement
that increases the liability of any Partner, or changes the
contributions required by any Partner or the rights of any Partner
in interest in the profits, losses, deductions, credits, revenues,
or distributions of the Partnership, rights upon dissolution, or
any voting rights specifically set forth in this Agreement, shall
become effective as to that Partner only on his or her written
acceptance of the amendment.
ARTICLE
XII
DISSOLUTION
AND TERMINATION
12.1
Dissolution and Termination of the
Partnership. The Partnership shall be dissolved upon the
occurrence of any of the following:
(1)
The bankruptcy or
insolvency of the General Partner or the occurrence of any other
event that would permit a trustee or receiver to acquire control of
the affairs of General Partner and the failure of a Majority of
Interest of limited Partners to elect another General
Partner;
(2)
The withdrawal from
the Partnership, death, or insanity of the General Partner and
failure of a Majority in Interest of Limited Partners to select a
successor General Partner;
(3)
Agreement of the
General Partner and a Majority in Interest of Limited Partners to
dissolve;
(4)
Any disposition of
all of the property of the Partnership;
(5)
The termination of
the Partnership pursuant to Section 1.6; or
(6)
The occurrence of
any other circumstances that by law would require the Partnership
to be dissolved.
The dissolution
shall be effective on the day on which the event causing
dissolution occurs, but the Partnership shall not terminate until
its assets have been distributed in accordance with the provisions
of this Agreement.
12.2
Continuation of Business Enterprise.
(1)
On dissolution of
the Partnership pursuant to Section 12.1 (1) or (2), the Partners
may elect to continue the Partnership by the vote of the Majority
in Interest of the Limited Partners taken within ninety (90) days
of any event of dissolution, with any election to continue being
binding on all the Partners. If they elect to continue the
Partnership, the Partners shall also by vote of the Majority in
Interest of Limited Partners elect a new general
partner.
(2)
On dissolution of
the Partnership after which the business enterprise of the
Partnership is not continued, the liquidating trustee, which shall
be a General Partner if the dissolution is one described in Section
12.1 (3), (4) or (5) and otherwise shall be a person selected by a
Majority in Interest of Limited Partners or by a court having
jurisdiction over the affairs of the Partnership, shall proceed
diligently to wind up the affairs of the Partnership and distribute
its assets. The liquidating trustee shall use its best efforts to
sell the equipment and otherwise convert Partnership assets into
cash as promptly as possible but in an orderly and businesslike
manner so as not to involve undue sacrifice. No Partner shall have
any right to demand or receive property other than cash during
Winding Up.
12.3
Winding Up. The cash
proceeds of the Partnership shall be applied or distributed on the
winding up of the Partnership in the following order of
priority:
(1)
In payment of all
liabilities of the Partnership to creditors other than Partners. If
any liability is contingent or uncertain in amount, a reserve equal
to the maximum amount for which the Partnership could be reasonably
held liable shall be established. On the satisfaction or other
discharge of that contingency, the amount of the reserve remaining,
if any, will be treated as income to the extent previously treated
as a deduction.
(2)
In payment of any
loans to the Partnership by the Partners.
(3)
The priority
detailed in Section 5.1.
ARTICLE
XIII
MISCELLANEOUS
13.1
Meetings of Partners.
Meetings of the Partners may be called by the General Partner or
the Limited Partners holding more than fifty percent (50%) of the
then outstanding Partnership Interest for any matters for which the
Partners may vote as set forth in this Agreement, or for a report
from the General Partner on matters pertaining to the Partnership
business and activities. A list of the names and addresses and
percentage interest of all Limited Partners shall be furnished each
Limited Partner and shall be maintained as a part of the books and
records of the Partnership. Within seven (7) days after receipt of
a written request in compliance with the above terms, either in
person or by registered or certified mail, stating the purpose of
the meeting, the General Partner shall mail to all Partners written
notice of the place and purpose of such meeting to be held on a
date not less than fourteen (14) nor more than twenty-eight (28)
days after receipt of the request. When a vote of the Limited
Partners is called, the Limited Partners may vote at the meeting in
person or by proxy.
13.2
Action without Meeting. Any
matter as to which the Limited Partners are authorized to take
action under this Agreement or by law may be taken by the Limited
Partners without a meeting and shall be as valid and effective as
action taken by the Limited Partners at a meeting assembled, if
written consents to the action by the Limited Partners (1) approve
the action and (2) are delivered to the General
Partner.
13.3
Tax Returns. Each Partner
hereby agrees to execute promptly, together with acknowledgment or
affidavit, if requested by the General Partner, all such
agreements, certificates, tax statements, tax returns, and other
documents as may be required of the Partnership or its Partners by
the laws of the United States of America, the State of Texas, or
any other state in which the Partnership conducts or plans to
conduct business, or any political subdivision or agency
thereof.
13.4
Notices. All notices,
offers, or other communications required or permitted to be given
pursuant to this Agreement shall be in writing and either delivered
by messenger, including overnight delivery services such as Federal
Express, Airborne Express, etc., or deposited in the United States
Mail, postage prepaid, addressed to the respective Partners at the
addresses appearing in the records of the General Partner. Notice
shall be deemed received on the earlier of actual receipt or three
(3) days after deposit into the care and custody of the United
States Mail. Any Limited Partner may change his or her address for
notice by giving notice in writing to the General Partner stating
the new address. The General Partner may change its address for
notice by giving written notice of the change to the Limited
Partners.
13.5
Effective Law. This
Agreement and the rights of the Partners shall be governed by and
interpreted in accordance with the laws of the State of
Texas.
13.6
Assigns. This Agreement
shall be binding on and shall inure to the benefit of the Partners
and their spouses as well as their respective legal
representatives, heirs, successors and assigns.
13.7
Counterpart Execution. This
Agreement may be executed in multiple counterparts, each of which
shall be considered an original, but all of which shall constitute
one (1) instrument.
13.8
Gender and Number. Whenever
the context requires, the singular shall include the plural and the
masculine shall include the feminine and neuter, as the
identification of the person, corporation, or other entity may
require.
13.9
Severability. This Agreement is intended
to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules, and
regulations of the State of Texas. If any provision of this
Agreement or its application to any person or circumstances shall,
for any reason and to any extent, be held invalid or unenforceable,
the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected
thereby, but rather shall be effective and in force to the greatest
extent permitted by law.
13.10
Confidentially. Except such disclosure
as requires by the laws of the State of Texas, the Partners and
their agents and employees shall keep confidential any and all
business affairs of the Partnership. The Partnership shall be
entitled to any remedy available at law should a Partner or his
agent or employee violate the terms hereof, including injunctive
relief by a court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have
executed this Agreement to be effective as of the date and year
first above written.
|
|
GENERAL
PARTNER:
|
|
|
|
|
|
|
|
150 BLACK OAK GP, INC.,
|
|
|
|
a
Texas corporation
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jeffrey
Busch
|
|
|
|
|
Jeffrey
Busch, President and
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
By:
|
/s/
Joe
Fogarty
|
|
|
|
|
Joe Fogarty, Vice
President and
|
|
|
|
|
Chief Operating
Officer
|
|
|
|
|
|
|
|
|
LIMITED
PARTNERS:
|
|
|
|
|
|
|
|
|
CCM
DEVELOPMENT USA CORPORATION
|
|
|
|
a Delaware corporation
|
|
|
|
|
|
|
|
|
By:
|
/s/ Jeffrey
Busch
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
facsimile:
|
|
|
|
|
e-mail:
|
|
|
|
AMERICAN REAL ESTATE INVESTMENTS.
LLC,
|
|
|
|
a Missouri Limited
Liability Company
|
|
|
|
|
|
|
|
|
By:
|
/s/ Tracy
Weaver
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
facsimile:
|
|
|
|
|
e-mail:
|
|
|
|
|
|
|
|
|
WOODROW
A. HOLLAND, TRUSTEE FOR THE FOGARTY FAMILY TRUST II
|
|
|
|
|
|
|
|
|
|
/s/ Woodrow H.
Holland
|
|
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
facsimile:
|
|
|
|
|
e-mail:
|
|
|
|
|
|
|
EXHIBIT
“A”
TO
150
CCM BLACK OAK, LTD. PARTNERSHIP AGREEMENT
General
Partner
|
Names
and Address of
General
Partner
|
Partnership
Interest
|
Capital
Contribution
|
|
|
|
|
150 Black Oak GP,
Inc.
340 North Sam
Houston Parkway East
Suite
140
Houston, Texas
77060
|
1%
|
$100.00
|
Limited
Partners
|
Names
and Addresses of
|
|
|
|
Limited
Partners
|
Partnership
Interest
|
Capital
Contribution
|
|
|
|
|
|
CCM
DEVELOPMENT USA
|
|
|
|
CORPORATION
|
59.5%
|
$4,300,000.00
|
|
|
|
|
|
|
|
|
|
AMERICAN
REAL ESTATE
contribution
|
13%
|
property
|
|
INVESTMENTS
LLC
|
|
|
|
|
|
|
|
|
|
|
|
WOODROW
A. HOLLAND, TRUSTEE
|
|
|
|
FOR
THE FOGARTY FAMILY TRUST II
|
26.5%
contribution
|
property
|
EXHIBIT
“B”
TO
150
CCM BLACK OAK, LTD. PARTNERSHIP AGREEMENT
Legal
Description of Partnership Real Property
Exhibit 10.4
November 7,
2014
This Binding Term
Sheet is between the Limited Partners of the 150 CCM Black
Oak LP. The Limited Partners are Fogarty Family Trust II, CCM
Development USA Corp, and American Real Estate Investments, LLC
(“Partners”). Upon execution of this Binding Term
Sheet, the Limited Partnership Agreement (“LPA”)
between the Partners, dated March 20, 2014, will be amended to
incorporate the changes addressed below. All Partners understand
that this Binding Term Sheet is an amendment to the LPA in
accordance with Article XI of the LPA. As the General Partner is
comprised of two limited partners, the signatures of the applicable
limited partners will signify consent of the General
Partner.
CCM
Funding and Bank Refinancing
CCM shall fund the
immediate equity needs of Black Oak, defined as $7,440,697.29, as
outlined below (the “Additional Contribution”). This is
the total funding requirement. Under section 3.2 of the LPA, this
Additional Contribution will accrue interest at a 15% annual rate.
This Additional Contribution will be a loan with a standard
1st lien
note and deed of trust securing the repayment of the Additional
Contribution. The Partners will continue to work towards
refinancing the Additional Contribution with third party bank
financing. If refinancing the
Additional Contribution does not occur by January 1, 2015, CCM
will receive an additional equity interest of 5% (five
percent) in the form of a contribution of 5% from Fogarty Family
Trust II’s current ownership and no contribution from
American Real Estate Investments, LLC. If necessary, CCM will
guarantee repayment of any loan that refinances the Additional
Contribution, but the refinancing must be on reasonable and
competitive lending terms.
Repayment of the
Additional Contribution will occur upon the earliest of: 1)
refinancing with a third party bank loan; or 2) sale of Black Oak
Section One lots (expected in the 2nd Quarter of 2015).
In the event the Additional Contribution is not repaid from third
party bank refinancing or the sale of section one lots, and the
partnership has Distributable Cash, the Additional Contributions
shall be paid as provided in Section 5.1 (2) of the
LPA.
Use
of Proceeds of Additional Contribution
|
Current
Liabilities
|
$76,887.26
|
|
Account
Payable
|
$87,597.09
|
|
A/P F&R
Professional Engineering
|
$70,443.90
|
|
N/P Gina
Gatto
|
$452,439.00 (Due
10/22/14)*
|
|
N/P Ferrell &
Holmes
|
$496,864.66
(Subject to extension)
|
|
N/P Doughtie/
Gipson
|
$477,707.05
(Subject to extension)
|
|
N/P
Webb
|
$1,159,725.00
(Subject to extension)
|
|
N/P
Revere
|
$2,219,033.33
|
|
Development
Cost
|
$2,400,000.00
**
|
|
|
|
|
Total
Funding
|
$7,440,697.29
|
|
Expected Builder
Contribution
|
$1,300,000.00
|
|
Net
Funding
|
$6,140,697.29
|
* Unless
Extended.
** Development
costs on the above list will be paid as expenses (which shall be
approved by IAD), will be delivered directly to IAD, and will be
paid (when due) directly from an IAD bank account.
Partnership
Contributions
As of November 7,
2014, the Partnership Contributions shall be adjusted to the
following amounts:
|
CCM
|
|
63.5%
|
|
Fogarty Family
Trust II
|
|
28.5%
|
|
AREI
|
|
7.0%
|
|
General
Partner
|
|
1.0%
|
Partnership
Distributions
Shall remain the
same. Return of Initial Capital and Preferred Return are not
affected.
Reimbursements
For partnership
costs that are reimbursable, the reimbursed costs shall be
distributed to the Partners per the above updated percentage
partnership contributions. The Partners acknowledge that the
attached September 12, 2014 pro-forma financial statements estimate
a total of $13,581,115 of reimbursable costs to the partnership.
[This number is comprised of the estimates of $11,776,115 from land
sale to the improvement district (streets, drainage and parks) and
$1,805,000 of Aqua Reimbursements (W & S)].
Development
Costs to Consultants
ARETE will also
receive 3% of development costs and IAD will receive 2% of
development costs. Development costs are costs of the partnership,
excluding the cost to purchase the land.
Oversight
Fees
1)
The consulting and
oversight fees in section 9.17 of the LPA prior to this Binding
Term Sheet shall be waived.
2)
Beginning November
1, 2014:
a.
Consultants
appointed by Fogarty Family Trust and CCM (currently ARETE and
Inter-American Development, LLC respectively) will each begin
receiving a $10,000 per month consulting and oversight fee;
and
b.
Consultant
appointed by AREI shall receive $2,000 per month consulting and
oversight fee.
3)
Consulting and
oversight fees shall only be payable after Outside Financing is
achieved (Outside Financing is refinancing of at least 65% of the
Additional Contribution and excludes financing from CCM, or
Inter-American Development, or affiliates of either); all
consulting and oversight fees shall be deferred until Outside
Financing.
4)
Upon Outside
Financing, the partnership shall pay AREI a one-time $40,000 fee to
represent reimbursement of all AREI expenses incurred on behalf of
partnership and acknowledgement that AREI will receive reduce
consulting and oversight fees for the life of the LPA.
AGREED:
/s/ Joe
Fogarty______________
/s/ Tracy
Weaver______________
Fogarty
Family Trust
II
American Real
Estate Investments, Inc.
/s/ Conn
Flanigan____________
CCM Development USA
Corporation
(signature page for
Binding Term Sheet, November 7, 2014)
Exhibit
10.5
AMENDMENT
TO
AGREEMENT
OF LIMITED PARTNERSHIP
OF
150
CCM BLACK OAK, LTD.
This Amendment No.
2 (this “Amendment No. 2”; the Binding Term Sheet of
November 7, 2014 is Amendment No. 1)) to the Agreement of Limited
Partnership of 150 CCM Black Oak, Ltd (the “Partnership
Agreement”) is hereby adopted by 150 Black Oak GP, Inc., a
Texas corporation, whose address is 340 North Sam Houston Parkway
East, Suite 140, Houston, Texas 77060, as general partner
(“General Partner”), and each of the individuals or
entities whose names are set forth on the Amended Exhibit
“A” attached to this Agreement as limited partners
(“Limited Partners”). Capitalized terms used but not
defined herein are used as defined in the Partnership
Agreement.
Exhibit A to the LPA: Name Change
WHEREAS certain versions of the Limited
Partnership Agreement incorrectly referred to CCM Property USA PTE
LTD as the limited partner instead of the accurate name of CCM
Development USA Corp; and
WHEREAS, on November 18,
2014, CCM Development
USA Corp properly changed its name to SeD Development USA, Inc.;
and
WHEREAS, neither name change is a change
in ownership interest in violation of Section 10 of the Partnership
Agreement; and
Exhibit A to the LPA: Capital Contribution
WHEREAS, under accounting rules, the
capital contribution shall be a contribution to the partnership of
cash and not contracts to purchase property; and
WHEREAS, the Capital Contribution table
shall be adjusted to show “zero” for capital
contribution from American Real Estate Investments, Inc. and
Fogarty Family Trust II, but also noting their respective
contributions of contracts to purchase real estate;
Exhibit A to the LPA: Ownership Percentages
WHEREAS, the Partners entered into that
Binding Term Sheet on November 7, 2014 that among other things
adjusted the percentage of partnership allocations as of November
7, 2014 to the following:
|
SeD
|
63.5%
|
|
Fogarty Family
Trust II
|
28.5%
|
|
AREI
|
7.0%
|
|
General
Partner
|
1.0%;
and
|
WHEREAS, the Binding Term Sheet also
provided for an adjustment in ownership percentage if the Partners
could not refinance the Additional Contribution. If the Additional
Contribution could not be refinanced by January 1, 2015, SeD will
receive an additional equity interest of 5% (five percent) in the
form of a contribution of 5% from Fogarty Family Trust II’s
current ownership and no contribution from American Real Estate
Investments, LLC. Since the refinancing did not take place, the
equity ownership of the Partnership shall be adjusted to the
following:
|
SeD
|
68.5%
|
|
Fogarty Family
Trust II
|
23.5%
|
|
AREI
|
7.0%
|
|
General
Partner
|
1.0%;
and
|
WHEREAS, the Partners desire to amend
the Partnership Agreement with regards to the consulting and
oversight fees and to make certain adjustments to the names of
certain Partners and certain allocation provisions related thereto,
which adjustments shall be effective as of November 7,
2014;
NOW THEREFORE, the Partners do hereby
amend the Partnership Agreement as follows:
1.
Amendment Section 9.17 of the
Operating Agreement shall be amended and replaced in its entirety
as follows:
1)
Beginning November
1, 2014:
(a)
Consultants
appointed by Fogarty Family Trust and SeD (currently ARETE and
Inter-American Development, LLC respectively) will each begin
receiving a $10,000 per month consulting and oversight fee;
and
(b)
Consultant
appointed by AREI shall receive $2,000 per month consulting and
oversight fee.
2)
Consulting and
oversight fees shall only be payable after Outside Financing is
achieved (Outside Financing is refinancing of at least 65% of the
Additional Contribution and excludes financing from SeD, or
Inter-American Development, or affiliates of either); all
consulting and oversight fees shall be deferred until Outside
Financing.
3)
Upon Outside
Financing, the partnership shall pay AREI a one-time $40,000 fee to
represent reimbursement of all AREI expenses incurred on behalf of
partnership and acknowledgement that AREI will receive reduced
consulting and oversight fees for the life of the LPA.
2.
Amendment Exhibit
“A” to 150 CCM Black Oak, Ltd. Partnership Agreement is
amended and replaced in its entirety as follows:
EXHIBIT
“A”
TO
150
CCM BLACK OAK, LTD. PARTNERSHIP AGREEMENT
(Reflecting
Changes as of January 1, 2015)
General
Partner
|
Names
and Address of
|
|
|
|
General
Partner
|
Partnership
Interest
|
Capital
Contribution
|
|
|
|
|
|
150 Black Oak GP,
Inc.
|
1%
|
$100.00
|
|
340 North Sam
Houston Parkway East
|
|
|
|
Suite
140
|
|
|
|
Houston, Texas
77060
|
|
|
Limited
Partners
|
Names
and Addresses of
|
|
|
|
Limited
Partners
|
Partnership
Interest
|
Capital
Contribution
|
|
|
|
|
|
SeD
DEVELOPMENT USA, INC
|
|
|
|
(f/k/a)
CCM DEVELOPMENT USA
|
|
|
|
CORPORATION
|
68.5%
|
$4,300,000.00
|
|
|
|
|
|
|
|
|
|
AMERICAN
REAL ESTATE INVESTMENTS
LLC
|
7%
|
Zero*
|
|
|
|
|
|
|
|
|
|
WOODROW
A. HOLLAND, TRUSTEE
|
|
|
|
FOR
THE FOGARTY FAMILY TRUST II
|
23.5%
|
Zero*
|
*Limited partner
contributed contracts to purchase property
IN WITNESS WHEREOF, the parties have
executed this Amendment No. 2 to be effective as of the date and
year first above written.
|
|
GENERAL
PARTNER:
|
|
|
|
|
|
|
|
150 BLACK OAK GP, INC.,
|
|
|
|
a
Texas corporation
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jeffrey Busch
|
|
|
|
|
Jeffrey
Busch, President and
|
|
|
|
|
Chief Executive
Officer
|
|
|
|
|
|
|
|
|
By:
|
/s/ Joe
Fogarty
|
|
|
|
|
Joe Fogarty, Vice
President and
|
|
|
|
|
Chief Operating
Officer
|
|
|
|
|
|
|
|
|
LIMITED
PARTNERS:
|
|
|
|
|
|
|
|
SED DEVELOPMENT USA, INC
|
|
|
|
a
Delaware corporation
|
|
|
|
|
|
|
|
|
By:
|
/s/ Jeffrey
Busch
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
AMERICAN REAL ESTATE INVESTMENTS.
LLC,
|
|
|
|
a Missouri Limited
Liability Company
|
|
|
|
|
|
|
|
|
By:
|
/s/ Tracey Weaver
|
|
|
|
|
Name:
|
|
|
|
|
Title:
|
|
|
|
|
|
|
|
|
WOODROW
A. HOLLAND, TRUSTEE FOR THE FOGARTY FAMILY TRUST
II
|
|
|
|
|
|
|
|
|
|
/s/ Woodrow H.
Holland
|
|
Exhibit
10.6
AMENDMENT
TO
AGREEMENT
OF LIMITED PARTNERSHIP
OF
150
CCM BLACK OAK, LTD.
This Amendment
(this “Amendment”) to the Agreement of
Limited Partnership (the “Partnership Agreement”) of 150 CCM Black Oak,
Ltd. (the “Company”), dated as of September
25, 2017, is hereby adopted by 150 Black Oak GP, Inc., a Texas
corporation, whose address is 340 North Sam Houston Parkway East,
Suite 140, Houston, Texas 77060, as general partner
(“General
Partner”), and each of the individuals or entities
whose names are set forth on the Amended Exhibit A attached to this
Amendment as limited partners (the “Limited Partners”). Capitalized
terms used but not defined herein are used as defined in the
Partnership Agreement.
WHEREAS, the General Partner presently
owns One Percent (1%) of the partnership interests of the
Company;
WHEREAS, the Fogarty Family Trust II
presently owns Fifty Percent (50%) of the issued and outstanding
common stock of the General Partner;
WHEREAS, the Fogarty Family Trust II is
presently the owner of limited partnership interests representing
Twenty-Three and One Half Percent (23.5%) of the Company’s
partnership interests; and
WHEREAS, Fogarty Family Trust II has
agreed to tender for surrender any and all common stock or right to
other equity interest it may have or be entitled to receive at time
in the future in the General Partner in exchange for the increase
of its ownership of the limited partnership interests of the
Company from Twenty-Three and One Half Percent (23.5%) of the
Company to Twenty-Four Percent (24%) of the Company’s
partnership interests;
NOW, THEREFORE, on the basis of the
mutual covenants and agreements made herein, which are expressly
deemed to constitute adequate and sufficient consideration in all
respects, the General Partner and the Limited Partners do hereby
agree as follows:
1.
Cancellation of Shares of 150 Black Oak GP,
Inc. The Fogarty Family Trust II hereby agrees to tender for
cancellation any and all shares of the common stock of the General
Partner that it presently owns and surrenders all of its right,
title and interest in such common stock or any other equity
interest in the General Partner that it may have or be entitled to
receive at a future date. In connection therewith the Fogarty
Family Trust II hereby agrees to execute and deliver the stock
power attached hereto as Exhibit B, and shall execute
any and all other instrument as shall be necessary and proper to
effectuate the cancellation of any and all equity interest it may
own in the General Partner or may have the right to
receive.
2.
Cancellation of Certain Partnership
Interests. The General Partner hereby agrees to the
cancellation of One-Half (1/2) of its general partner interests in
the Company.
AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
3.
Issuance of Certain Partnership
Interests. The General Partner and the Limited Partners
agree that the Fogarty Family Trust II shall be entitled to receive
an additional One-Half of One Percent (.5%) of the partnership
interests of the Company in consideration for the cancellation of
its ownership interest in the General Partner.
4.
Amendment to Exhibit A of the Partnership
Agreement. The General Partner and the Limited Partners do
hereby amend the Partnership Agreement as follows, to reflect the
adjustments described herein: Exhibit A to the Partnership
Agreement is amended and replaced in its entirety as set forth on
Exhibit A
hereto.
5.
No Additional Modifications. Other than
as set forth herein, all other terms and conditions of the
Partnership Agreement shall remain unchanged and in full force and
effect.
6.
Successors and Assigns. This Amendment
shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, executors, administrators,
personal representatives, successors and assigns.
7.
No Third Party Beneficiaries. This
Amendment is intended for the benefit of the parties hereto and
their respective successors and permitted assigns and is not for
the benefit of, nor may any provision hereof be enforced by, any
other person.
8.
Counterparts. This Amendment may be
executed in any number of counterparts (including by fax or any
other means of electronic transmission each of which shall be an
original for all purposes), and all of which taken together shall
constitute one and the same instrument.
[Signature
Page Follows]
AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
IN WITNESS WHEREOF, the parties hereto
have executed this Amendment as of the date and year first above
written.
GENERAL
PARTNER:
150
BLACK OAK GP, INC.
A Texas
corporation
By: /s/
Jeffrey
Busch
Name:
Title:
LIMITED
PARTNERS:
SED
DEVELOPMENT USA, INC.
A Delaware
corporation
By:
/s/ Jeffrey
Busch
Name:
Title:
AMERICAN
REAL ESTATE INVESTMENTS LLC
A Missouri Limited
Liability Company
By:
/s/ Tracy
Weaver
Name:
Title:
WOODROW
A. HOLLAND, TRUSTEE FOR
THE
FOGARTY FAMILY TRUST II
By:
/s/ Woodrow H.
Holland
Name:
Title:
AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
EXHIBIT
“A”
TO
150
CCM BLACK OAK, LTD. PARTNERSHIP AGREEMENT
General
Partner
|
Name
and Address of
General
Partner
|
Partnership
Interest
|
Capital
Contribution
|
|
150 Black Oak GP,
Inc.
340 North Sam
Houston Parkway East
Suite 140 Houston,
Texas 77060
|
.5%
|
$100.00
|
Limited
Partners
|
Names
and Addresses of
Limited
Partners
|
Partnership
Interest
|
Capital
Contribution
|
|
SeD
DEVELOPMENT USA, INC. (f/k/a) CCM DEVELOPMENT USA
CORPORATION
|
68.5%
|
$4,300,000.00
|
|
AMERICAN
REAL ESTATE INVESTMENTS LLC
|
7%
|
Zero*
|
|
WOODROW
A. HOLLAND, TRUSTEE FOR THE FOGARTY FAMILY TRUST II
|
24.0%
|
Zero*
|
*Limited partner
contributed contracts to purchase property
AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
EXHIBIT B
STOCK
POWER
AMENDMENT TO
AGREEMENT OF LIMITED PARTNERSHIP
IRREVOCABLE STOCK
POWER
FOR VALUE RECEIVED,
The Fogarty Family Trust II does hereby transfer to:
150 Black Oak GP,
Inc.
500 common shares
of 150 Black Oak GP, Inc. (the “Company”) represented
in the Company’s books and records as maintained by the
Company.
These shares are
tendered for cancellation pursuant to the Amendment to Agreement of
Limited Partnership of 150 CCM Black Oak, Ltd, dated September 25,
2017 (the “Amendment”). The undersigned does hereby
irrevocably constitute and appoint the Company as attorney to
transfer the said stock on the books of the Company as provided in
the Amendment.
The Fogarty Family Trust II
/s/ Woodrow H.
Holland
Name: Woodrow A.
Holland
Title:
Trustee
Dated: September
26, 2017
Exhibit 10.7
LOT
PURCHASE AGREEMENT
BALLENGER
RUN
THIS
LOT PURCHASE AGREEMENT (the "Agreement") is entered into as of
__________, 2014 but effective as of the Effective Date (as
hereinafter defined) by and between a SeD Maryland Development,
LLC, a Delaware limited liability company (the "Seller") and NVR,
INC., a Virginia corporation d/b/a RYAN HOMES (the
"Purchaser").
RECITALS:
A. Seller
is the contract purchaser under that certain Real Estate Sales
Contract dated May 28, 2014 between RBG Family, LLC, as seller
("Contract Seller") and Purchaser, as purchaser (the "Raw Land
Contract") with regard to certain real property located in
Frederick County, Maryland (the "County") which is more
particularly described in the legal description set forth on
Exhibit A-I (the "Project"). A copy of the proposed development
plan for the Project is attached hereto as Exhibit A-2 (the
"Development Plan"). The Project consists of a five-phase
development which shall be improved by five home types: large
single-family dwellings, small single-family dwellings,
neo-traditional single-family dwellings, single-family attached
villas, and two sizes of townhomes (the "Home Types"). This
Agreement sets forth the parties' obligations with regard to the
home type described on Exhibit B. Concurrently with the execution
of this Agreement, Seller and Purchaser are executing four other
Lot Purchase Agreements with regard to the other Home Types (the
"Related LPAs").
B. The
Raw Land Contract was terminated pursuant to its terms. This
Agreement is contingent upon Purchaser and Contract Seller entering
into a Second Amendment to the Raw Land Contract which conforms to
the terms and conditions of the Assignment Agreement (defined
below) (the "Second Amendment") reinstating the Raw Land Contract
(the "Contingency"). If the Contingency is not satisfied by
December 12, 2014, this Agreement shall be null and void, unless
otherwise agreed in writing by the parties to this
Agreement.
C.
Concurrently with the execution of this Agreement, Seller is
acquiring the rights of the contract purchaser under the Raw Land
Contract pursuant to that certain Assignment and Assumption
Agreement between Purchaser, as assignor, and Seller, as assignee
(the "Assignment Agreement"), a copy of which is attached hereto as
Exhibit C.
D. In
the event that either party defaults under either this Agreement or
the Assignment Agreement prior to Seller acquiring the Property (as
hereinafter defined), the Assignment Agreement shall control the
disposition of the Deposit.
E. Seller
desires to sell, and Purchaser desires to purchase, the lots which
are described on Exhibit D and depicted on the Development Plan
(collectively, the "Lots" or the "Property", individually, a "Lot")
in accordance with the terms and conditions of this Agreement. The
Lots constitute part of the Project. The terms "Lots", "Property"
and "Lot" refer to the parcels of land that are the subject of this
Agreement. The terms "lots" and "lot" refer to the subdivided lots
that are contained within the entire Project.
NOW,
THEREFORE, for and in consideration of the mutual covenants of the
parties as set forth herein, Seller does hereby grant to Purchaser
the right to purchase and Purchaser agrees to purchase in fee
simple the Property pursuant and subject to the following
covenants, conditions, terms and obligations.
1.
EFFECTIVE DATE; STUDIES.
1(a)
Effective Date. This Agreement and any modification hereto will
only be effective if signed by the Area President of Purchaser, or
its designee, Vice President of Operations, and at least two (2)
other officers of Purchaser. In the event that Purchaser fails to
deliver the entire Deposit as required hereunder, this Agreement
automatically, without any action required by either party, shall
become null and void. The "Effective Date" of this Agreement is the
date on which the Second Amendment is signed by Purchaser and
Contract Seller. If the Second Amendment is not signed by Purchaser
and Seller by December 12, 2014, this Agreement shall automatically
be null and void.
1b)
Studies. Purchaser shall have a study period commencing upon the
Effective Date and terminating on the date that is three (3)
business days before the last day of the study period under the Raw
Land Contract, (the "Study Period"), to undertake such engineering,
development, marketing and other studies as Purchaser may desire.
Seller does not have any plans or reports related to the Property
that were not provided to Seller by Purchaser. Purchaser agrees and
acknowledges that Purchaser has had the opportunity to investigate
the Project during the due diligence period under the Raw Land
Contract. Pursuant to the Assignment Agreement, Purchaser has
provided Seller with copies of the results of Purchaser's
investigation, including, but not limited to, a Phase I
Environmental Assessment prepared by Geo-Technology Associates,
Inc. dated June 26, 2014 (the "Environmental Study"). The parties
acknowledge that there is an underground storage tank on the
Property. Seller shall remove the underground storage tank, and
request that the Maryland Department of the Environment issue a No
Further Action letter with regard thereto. Issuance of such No
Further Action letter shall be a condition precedent to Purchaser's
first acquisition of a Lot hereunder. If Purchaser is not satisfied
with the Property or the transaction for any reason, or no reason
at all, Purchaser may as a matter of right, terminate this
Agreement by delivering written notice to Seller at any time prior
to the end of the Study Period. In such event, the Deposit shall be
returned to Purchaser in accordance with the Assignment Agreement,
and thereafter the parties shall be relieved of further liability
from performing hereunder.
2.
PURCHASE OF LOTS; DEVELOPMENT PHASING SCHEDULE.
2(a)
The "Model Lot" is the Lot upon which Purchaser shall construct a
model home (the "Model Home") to facilitate marketing of the
Project. The Model Lot is denoted as such on the Development Plan.
The parties agree and acknowledge that the County requires that
less development be completed in order for the County to issue a
building permit for the Model Home. Purchaser, at its sole cost,
shall apply for and in good faith obtain a building permit for
construction of the Model Home on the Model Lot as soon as Seller
completes all development work necessary for the issuance of the
Model Home building permit. Purchaser shall purchase the Model Lot
within five (5) business days after the date that Purchaser may
obtain, upon application and payment of required fees, a building
permit for the Model Home. The date upon which Purchaser acquires
the Model Lot shall be referred to herein as the "Model Lot Closing
Date". The purchase of the Model Lot shall not be counted toward
the minimum Lot purchase requirement hereunder.
2(b)
Attached hereto as Exhibit E is the schedule for development of the
Project (as such may be modified by mutual agreement of the parties
from time to time, the "Phasing Plan"). The Phasing Plan
contemplates that Seller shall develop the Project in four phases.
Each phase may contain lots for one or more Home Types. A phase may
not contain any lots for a particular Home Type. The Lot purchase
schedule set forth in Paragraph 2(c) below shall be subject to the
availability of Lots in accordance with the Phasing
Plan.
2(c)
Seller shall deliver written notice to Purchaser (the "Completion
Notice") to advise Purchaser that Lots are available for purchase
(the "Available Lots") and the Conditions Precedent (defined below)
for such Lots are fulfilled. The first Completion Notice delivered
by Seller after the Model Lot Closing Date may be referred to
herein as the "Initial Completion Notice" and shall be delivered on
or before December 31, 2016. Each Completion Notice shall identify
the location of the Available Lots and Purchaser may select which
of the
Available
Lots that it will purchase. The total number of Available Lots at
any time under this Agreement and the Related LPAs shall be
twenty-four (24) lots. Such total Available Lots under this
Agreement and the Related LPAs may consist of lots for one or more
of the Home Types. In the event that Seller does not meet the
Available Lots requirement of twenty-four (24) lots, Purchaser
shall deliver written notice to Seller and:
(i)
So long as Seller is, and before the date of Purchaser's notice
was, diligently pursuing the fulfillment of its obligations
hereunder in order to create Available Lots, Seller shall be
entitled additional time to prepare the Lots for purchase. In no
event shall the additional time be more than six (6) months.
Purchaser may elect to defer the Lot purchase schedule and any
escalation of the Purchase Price by the same number of days until
Seller meets the Available Lots requirement. The parties agree to
document the commencement and termination of such additional time
period and the effect upon the purchase schedule and Purchase Price
escalation.
(ii)
In the event that Seller is not, or before the date of Purchaser's
notice was not, diligently pursuing the fulfillment of its
obligations hereunder in order to create Available Lots, or in the
event that Seller does not meet the Available Lots requirement
within the six (6) months described in Subparagraph 2(c)(i) above,
the terms and conditions of Paragraph 8, regarding Seller default,
shall control.
2(d)
After the Model Lot Closing Date, provided Seller has delivered a
Completion Notice to Purchaser and the Conditions Precedent
(defined below) are fulfilled with regard to the Lots to be
purchased, Purchaser shall purchase the minimum number of Lots per
quarter which is set forth on Exhibit D. Except for the first
quarter, a "quarter" shall consist of three (3) full calendar
months. The "first quarter" shall commence ninety (90) days after
the Model Lot Closing Date and end on the last day of the third
full calendar month thereafter. Purchaser shall have the right in
any quarter to settle on more than the minimum number of Lots
required to be purchased in such quarter at the Purchase Price then
in effect and shall receive cumulative credits toward the minimum
number of Lots required to be purchased in succeeding quarters.
Purchaser shall be entitled to more than one (1) settlement per
month. Purchaser may purchase more than one Lot at a settlement.
Purchaser may purchase more than one single-family lot at a
settlement. In the event that the Lots which are the subject of
this Agreement and are described on Exhibit D are townhouse or
attached villa lots, then Purchaser must purchase at one settlement
the lots that will be improved by attached dwellings.
2(e)
All settlements shall be held at the offices of NVR Settlement
Services, 3701 Pender Drive, Suite 210, Fairfax, VA 22030, at such
time or times as Purchaser shall designate.
2(f)
Seller shall provide a location on the Property, at no cost to
Purchaser, within one hundred feet (100') of the entrance to the
Property, for the installation by Purchaser of a sales trailer. The
location shall be selected by Purchaser, subject to Seller's
reasonable approval. Purchaser shall maintain the trailer and the
site on which it is located in good repair and free of debris. The
trailer shall be locked at all times that it is vacant. Upon
vacating the site, Purchaser shall remove the trailer and restore
the Property to evenly graded, clean and good
condition.
2(g)
Purchaser's right to purchase Lots hereunder shall be in full force
and effect so long as Purchaser fulfills its obligations hereunder.
In the event that Purchaser fails to purchase the minimum number of
Lots as required herein during any one quarter, then Seller may
deliver a default notice to Purchaser and exercise remedies in
accordance with Paragraph 8 below.
2(h)
The purchase price for each Lot purchased hereunder shall be in the
amount set forth on Exhibit B (as applicable, the "Purchase
Price"). Commencing on the first (1st) day of the third (3rd)
quarter hereunder (see subparagraph 2(d) above for determination of
quarters) and continuing on the first day of each and every quarter
thereafter the Purchase Price for each Lot shall increase by 0.75%.
By way of example and not of limitation, in the event that the
Model Lot Closing Date is July 15, 2015, then the following dates
shall apply:
|
First
quarter thereafter
|
October
16, 2015 — January 31, 2016
|
|
Second
quarter thereafter
|
February
1, 2016 - April 30, 2016
|
|
Third
quarter thereafter
|
May
1, 2016 - July 31, 2016
Purchase
Price increases by 0.75% on May 1,
2016
|
|
|
|
On
the first day of each quarter thereafter the Purchase Price shall
increase by 0.75%.
2(i)
With regard to this Agreement and the Related LPAs, the total sum
of Five Million Six Hundred Thousand and No/ 100 Dollars
($5,600,000.00) as a good-faith deposit (the "Deposit") will be
delivered by Purchaser in accordance with the terms of this
Agreement, as follows:
Purchaser previously delivered $200,000.00 to the
Contract Seller under the Raw Land Contract; such $200,000.00 shall
be applied as a portion of the Deposit
hereunder;
in accordance with the Assignment Agreement,
Purchaser shall deliver $1,300,000.00 to Commonwealth Land Title
Insurance Company ("Commonwealth") two (2) business days before the
expiration of the study period under the Raw Land Contract,
Commonwealth shall deliver such $1,300,000.00 to the Contract
Seller under the Raw Contract prior to the expiration of the study
period thereunder, and such $1,300,000.00 shall be applied as a
portion of the Deposit hereunder; and
(iii)
Purchaser shall deliver $4,100,000.00 to the closing agent which
will handle Seller's acquisition of the Project no later than two
business days before the closing under the Raw Land Contract, but
in no event prior to Purchaser's receipt and approval of Seller's
Certificate of Insurance in accordance with Subparagraph 3(p)
below, and such $4,100,000.00 shall be applied as a portion of the
Deposit hereunder.
The
Deposit shall be returned to Purchaser in the form of a credit
toward the Purchase Price payable for each Lot at the time of each
settlement (the "Deposit Credit"). Exhibit B sets forth the
allocation of the Deposit and Deposit Credits among all of the lots
subject to this Agreement and the Related LPAs. Notwithstanding
anything herein to the contrary, in the event of an uncured default
by Purchaser beyond any applicable cure periods, it is the intent
of the parties that, Seller shall only be entitled to the portion
of the Deposit allocated to this particular Agreement as liquidated
damages in accordance with Subparagraph 8(b) below.
2(j)
At the closing under the Raw Land Contract, Seller shall execute
and deliver an indemnity deed of trust to trustees for the benefit
of Purchaser (the "Deed of Trust") which shall secure the return of
the Deposit to Purchaser as provided in this Agreement. The form of
Deed of Trust is attached hereto as Exhibit F. The Deed of Trust
shall be subordinate only to the first priority position of
Seller's institutional acquisition and development loan(s) and
shall be recorded after the deed conveying title to the Project to
Seller from the Contract Seller. References to the Deposit shall
mean the amount paid to date or remaining after any credits as
provided in this Agreement. The Deposit, or any portion thereof,
shall be used by Seller solely for the acquisition and development
of the Property and for no other purpose. Further, Seller hereby
authorizes Purchaser to communicate directly with Seller's
lender(s) about any and all matters relating to their respective
loans, including, after an event of default under either such loan,
communication between said lender(s) and Purchaser relating to any
default remedies that may be pursued or possible loan
restructurings or workout arrangements. Seller hereby authorizes
such communications but requires that Purchaser deliver to Seller
prior written notice of such communications. Any subordination
agreement or other document Seller's lender desires for Purchaser
to execute, join or consent to shall contain non-disturbance
language as to this Agreement and allow Purchaser the right, in its
sole discretion, to cure any default of Seller under the senior
financing.
3.
SELLER'S OBLIGATION TO PREPARE LOTS. Before Seller commences
development of any phase set forth on the Phasing Plan, Purchaser
shall deliver to Seller a plan which shall depict the location and
grading of each Home Type on the lots located in such phase (the
"House Location Plan"). Seller shall have the right to disapprove
of the House Location Plan in its reasonable discretion, for
reasons including but not limited to, the plan is detrimental to
the remainder of the Project, requires a zoning variance, or is not
in conformance with Seller's overall grading plan. In such event,
Seller and Purchaser shall cooperate to generate a mutually
acceptable House Location Plan. All references herein to the "House
Location Plan" shall be the mutually acceptable plan. Seller shall,
in accordance with local government requirements and as required
herein, at its own cost and expense, promptly and diligently
develop and improve the Property into fully improved and finished
building lots by performing the following:
3(a)
Grading. Seller shall perform over-lot clearing and rough grading
of the Property in accordance with the House Location Plan. Subject
to the provisions below regarding controlled fill house pads,
Seller shall cut, fill and grade each Lot as necessary for the
proper and lawful drainage of such Lot before erection of the Home
Type designed for the Lot on the House Location Plan. It is
intended that each group of contiguous Lots shall be as compatible
as possible with the existing topography of such Lots, within the
parameters of customary lot drainage and slope practices and/or
regulations. Purchaser and Seller agree to cooperate to assure the
accomplishment of the foregoing. Seller will notify Purchaser at
such time as grading is completed on any section(s) or phase(s). A
"walk through" inspection will be made by a representative of both
Purchaser and Seller, and a list of discrepancies, if any, will be
prepared. Seller will promptly correct any discrepancies. When part
or all of the foundation, at the design elevation of a house sited
on a given Lot, cannot be placed at natural grade capable of
supporting such foundation, Seller will supply controlled fill
house pads with the following dimensions: overall length and width
of the building envelope, plus ten feet (10') on each side as
measured from the minimum set-back line designated by the
applicable governmental authority or as designated in the House
Location Plan. Each such fill Lot must have a pad that is certified
by a registered engineer who is approved by Purchaser to have
adequate load bearing capacity to support a footing/foundation of
either standard Purchaser house design and specifications or an
engineered footing design approved for use by said engineer. Each
such pad shall have clean fill, free of organic matter and other
debris. In instances where intermediate or final grading plans
require slopes, the pad design and installation shall take into
account whether slopes need to benched or otherwise stabilized to
ensure an adequate influence zone of foundation bearing in order to
meet the above-described load bearing capacity. For eighteen (18)
months after a Lot closing and provided the Purchaser or its
grading contractor does not "over dig" or "over cut" the foundation
for such fill Lot, Seller shall be responsible and liable for
failure of the controlled fill house pad, notwithstanding the
engineer's certification of same. Any claim that a controlled fill
house pad has failed must be made within eighteen (18) months after
the Lot settlement. Lots shall be delivered free of rubbish and
debris.
3(b)
Water and Sewer Mains. Seller shall install water and sewer mains
in the street or in the rear of each Lot with laterals to Lot lines
and shall clearly mark same. Seller shall use reasonable efforts to
place the sanitary sewer lateral at a depth to allow Purchaser to
construct gravity flow basement homes on each Lot. With regard to
the five lots noted on the Development Plan, Seller shall be
responsible for the installation of water and sewer on pipestem (or
flag lots) from the main to the flare in the Lot (or to the
building restriction line). Purchaser shall pay any allocation, tap
or connection fees. Seller shall furnish written evidence of the
paid fees, if any, and written evidence that such are transferable
from Seller to Purchaser at no cost to Purchaser. Notwithstanding
anything herein inconsistent or to the contrary, there shall be no
covenants, declarations, easements, liens or encumbrances affecting
any of the Lots which will have a priority over subsequent recorded
purchase money mortgage liens, or any refinance of same,
encumbering the Property until such lien has been legally perfected
following default. In the event such a lien or encumbrance is found
to exist, Seller will, at Seller's sole expense, promptly cause
such lien or encumbrance to be subordinated to any purchase money
lien or encumbrance or any refinancing of same.
3(c)
Bonds. Seller shall post and maintain all forms of surety bonds as
may be required by the applicable governmental authorities for
development of the Lots and the drainage facilities contemplated by
this Agreement, whether such facilities are on or off the
Lots.
3(d)
Dedication to Public/Acceptance by Homeowners Association. Seller
shall cause all streets, roads, driveways, parking areas and other
public and private improvements to be dedicated to public use and
accepted for maintenance by the applicable governmental authorities
or Homeowners Association, whichever applies, at the earliest
practical date. Seller shall not top coat any surfaces prior to
Purchaser's completion of home construction in a given section or
phase of the Property.
3(e)
Rock. In the event that rock is encountered on the Lots by Seller
during its grading operation, Seller shall blast and/or excavate
rock to cause the finished Lot to conform to the House Location
Plan. This will not include any foundation or below finished Lot
grading. However, only if contemporaneous with Seller's grading
operations, Seller shall blast for foundations and utility trenches
upon request by Purchaser. Purchaser shall reimburse Seller within
thirty (30) days after receipt of Seller's written demand for the
costs of such blasting, provided Purchaser pre-approves such work
and costs.
3(f)
Infrastructure. Seller shall (a) complete paving of common area
streets and common driveways including alleys, (b) construct
sidewalks within all common areas, but not on any Lots, (c)
construct all curbs and gutters, (d) provide water and sewer
distribution systems, (e) install street lighting; and (f) install
street signs. Purchaser shall construct sidewalks on all
Lots.
3(g)
Quality of Work. Seller warrants that all work, materials and
improvements performed or to be performed under this Agreement
shall be of good and workmanlike quality, free of defects, and
compliant with all applicable plans, specifications, specific
conditions, and this Agreement, and shall be in accordance with and
acceptable under the rules, regulations, laws and ordinances of the
applicable governmental authorities. Seller shall use all due
diligence and best faith efforts to promptly complete all work and
improvements required by Seller under this Agreement. Seller
further warrants and guarantees that all such work and material
shall remain free from defects for a period of time ending two
years after the date of the last settlement on the last Lot
purchased by Purchaser pursuant to this Agreement (the "Warranty
Period"). Seller agrees to repair any defect to improvements made
by Seller pursuant to this Agreement, which manifests itself during
the Warranty Period, at its cost and expense immediately after
being notified of any such defect by Purchaser. Notification by
Purchaser need not be given during the Warranty Period provided the
defect involved is covered by the terms of this Subparagraph.
Seller shall also repair or replace, at no cost to Purchaser, all
work of third parties damaged or destroyed in the process of
performing warranty service under the terms of this
Subparagraph.
3(h)
Green Space, Property Maintenance. In accordance with the
County-approved landscaping plan, (i) Seller shall be responsible
for landscaping and tree planting in all areas outside the
boundaries of the individual Lots, and (ii) Purchaser shall be
responsible for landscaping and tree planting in all areas inside
the boundaries of the individual Lots. Seller shall use reasonable
efforts to install a permanent entry sign including landscaping on
or about the date on which Purchaser commences its marketing
activities on the Property from either its sales trailer or Model
Home, but in no event later than six (6) months following Model Lot
purchase. Seller shall maintain the entry sign and surrounding
landscaping. Seller shall also be responsible for meeting any state
or local requirements for tree conservation or reforestation. Until
the establishment of the Homeowners' Association and assumption of
obligations by such Homeowners' Association, Seller shall maintain
the common areas and all other areas of the Property, including,
but not limited to, all areas not subdivided into Lots and all Lots
that may be subdivided but not purchased by Purchaser; said
maintenance shall include, but not be limited to, mowing the grass.
Further, Seller shall be responsible for seeding or sodding, at
Seller's election, all portions of the Property which are not
subdivided into the Lots, including, but not limited to, grass
within cul-de-sacs, traffic circles, boulevard entrances and
boulevard medians.
3(i) Amenities. Seller shall be responsible for
the construction and installation of all amenities required
pursuant to the County-approved development plans for the Property
(the "Amenities"). Seller shall deliver to Purchaser, as soon as
available, a proposed plan and schedule for the construction of the
Amenities (the "Amenity Plan"). Purchaser shall have the right to
approve the Amenity Plan and any proposed changes to the Amenity
Plan. Seller shall provide Purchaser with recorded and or
unrecorded copies of the plans approved by the local jurisdiction
with regard to the Amenities. Seller shall commence construction of
the pool and clubhouse prior to Purchaser's acquisition of the
150th lot within the Project (under this Agreement and the Related
LPAs). Seller shall complete construction of the Amenities located
in the constructed phases of the Project within one hundred (100)
days after Purchaser's acquisition of the three hundredth
(300th)
lot within the Project (under this Agreement and the Related
LPAs).
3(j)
Utilities. Seller shall provide underground telephone, electrical
and gas utility lines and cable television adjacent to the Lot
lines. Each utility line shall be stubbed to run to the Lot line
rather than the street or alley.
3(k)
Poor Soil Conditions. When expandable soils, poorly drained soils,
soils containing organic materials or trash, or sink holes are
encountered on a Lot, Seller shall remove any such material and
replace such soils with proper soils suitable to the circumstances,
including, and as applicable, for supporting a footing/foundation
as described in Subparagraph 3(a) and backfill. Replacement soils
must be certified by a registered engineer approved by Purchaser in
its reasonable discretion. If any unsuitable soils are encountered
on a Lot, Seller shall provide soil engineer's certifications on
all building pads impacted by such soils. Seller shall be
responsible and liable for failed control fill house pads for
eighteen (18) months after a Lot closing as set forth in
Subparagraph 3(a) above.
3(l)
Hazardous Materials. For purposes of this Agreement, the following
terms shall have the definitions set forth below:
"Environmental Requirement" means any law now
existing or hereafter created, issued or enacted and all amendments
thereto, modifications thereof and substitutions therefor, which in
any way pertains to human health, safety or welfare, Hazardous
Materials, Hazardous Materials Contamination or the environment
(including but not limited to ground, air, water or noise pollution
or contamination, and underground or above ground tanks) and shall
include without limitation, the Resource Conservation and Recovery
Act (the Solid Waste Disposal Act), 42 U.S.C. § 6901
et
seq.; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. § 9601 et
seq. ("CERCLA"), as amended by
the Superfund Amendments and Reauthorization Act of 1986 ("SARA");
the Hazardous Materials Transportation Act, 49 U.S.C. §
1801 et
seq.; the Federal Water
Pollution Control Act, 33 U.S.C. § 1251 et
seq., the Clean Air Act, 42
U.S.C. § 7401 et
seq.; the Toxic Substances
Control Act, 15 U.S.C. § 2601 et
seq.; and the Safe Drinking
Water Act, 42 U.S.C. § 300f et
seq.
"Hazardous
Materials" means any and all hazardous or toxic substances, wastes
or materials which, because of their quantity, concentration, or
physical, chemical or infectious characteristics, may cause or pose
a present or potential hazard or nuisance to human health, safety
or welfare or to the environment when used, treated, stored,
disposed of, generated, manufactured, transported or otherwise
handled, including without limitation, any substance, waste or
material which is or contains asbestos, radon, polychlorinated
biphenyls, urea formaldehyde, explosives, radioactive materials or
petroleum products.
"Hazardous
Materials Contamination" means the contamination of the soil,
ground water, air or other elements on, in or constituting a part
of, the Property by Hazardous Materials.
Seller
and Purchaser agree and acknowledge that the Environmental Study
discloses the current environmental condition of the Property. In
the event that, within thirty (30) days after Purchaser has
completed the excavation of the footings and foundation, Purchaser
discovers Hazardous Materials Contamination on such Lot and such
Hazardous Materials Contamination was not caused by Purchaser,
Purchaser shall deliver written notice to Seller (within such
thirty-day period) together with reasonably sufficient supporting
evidence. Within thirty (30) days after receipt of such notice,
Seller shall elect to do one of the following: (i) use commercially
reasonable efforts to remediate the Hazardous Materials
Contamination in accordance with all applicable Environmental
Requirements, or (ii) repurchase the Lot for the Purchase Price
paid by Purchaser, plus the costs of such transaction, plus the
costs of any improvements installed on such Lot by
Purchaser.
3(m)
Seller/Purchaser Responsibility Checklist. Attached hereto as
Exhibit G is a list of obligations of Seller and Purchaser with
regard to the Property (the "Checklist"). In the event of any
discrepancy between the Checklist and this Agreement, the terms and
conditions of this Agreement shall control.
3(n)
Completion of Work. In the event Seller shall fail to make repairs
or to otherwise complete any improvements to the Property (i)
relative to storm water management or erosion and sediment control
or (ii) which prevent Purchaser from obtaining permits for
construction of a dwelling unit on the Lot or affect Purchaser's
intended construction on the Lot(s), Purchaser shall have the right
(but not the obligation) to make such repairs and to either (i)
setoff its reasonable out-of-pocket costs incurred from the
Purchase Price of any Lots remaining to be purchased, or (ii)
receive reimbursement from Seller for its costs incurred within
five (5) days of demand therefor.
3(p)
Claims. Seller agrees to indemnify Purchaser from any actual
liability, loss or damage to a third person's personal property or
personal injury, including reasonable attorneys' fees and related
costs and expenses arising out of, or resulting from Seller
performing its obligations under this Agreement, except that this
indemnification shall not cover the negligence or intentional
misconduct of Purchaser or its subcontractors, employees and agents
or apply to any violations issued by any governmental authority,
which violations shall be governed by said authority. Seller shall
maintain in full force and effect liability insurance covering
damage to property and persons resulting from or connected with
Seller's performance of its obligations under this
Agreement.
In
order to ensure the fulfillment of the foregoing, and throughout
the term of this Agreement, Seller (and all permitted
sub-contractors) shall obtain and maintain insurance policies which
meet or exceed the following requirements: Seller's policy shall
name Purchaser as an "additional insured" for both ongoing and
completed operations and shall meet or exceed the following
requirements: Commercial General Liability insurance in the minimum
amount of One Million Dollars ($1,000,000.00) per occurrence, and
Two Million Dollars ($2,000,000.00) in the aggregate, that is (1)
written on an occurrence basis, (2) includes contractual liability
coverage insuring the obligations assumed by Seller under this
Agreement (including, without limitation, the indemnities set forth
herein) and referring expressly to this Agreement, premises and
operations coverage, broad form property damage coverage (including
theft, vandalism and malicious mischief, written at replacement
cost value, with replacement cost endorsement), Seller's protective
liability coverage, independent contractors coverage, completed and
ongoing operations coverage, (3) containing endorsement for
personal injury, and (4) deleting the "underground exclusion".
Seller's Certificate of Insurance shall be attached hereto as
Exhibit H-1.
4.INSPECTION
- BONDED IMPROVEMENTS.
4(a)
Prior to settlement on any of the Lots pursuant to this Agreement
other than the Model Lot, representatives of Seller and Purchaser
shall inspect the improvements relating to this Agreement and
establish a list of deficiencies in the "Lot Inspection Report"
(Exhibit I).
Weather
permitting, Seller shall repair all deficiencies (except final
paving and any deficiencies resulting from any act or omission of
Purchaser, its contractors, employees, sub-contractors and agents)
within thirty (30) days of said Lot Inspection Report or complete
said deficiencies upon conclusion of Purchaser's house construction
in a timely manner to insure issuance of occupancy permits as
agreed by and between Purchaser and Seller. Subsequent to
settlement, Purchaser shall be responsible for damages to the
improvements serving Lot(s) that were caused by Purchaser. Upon
completion of home construction activity in each phase of the
Project, Purchaser and Seller, upon notification of the other,
shall meet to complete the "Lot Completion Report" (Exhibit J) to
list all deficiencies for which Purchaser is responsible to repair.
Purchaser shall repair all deficiencies listed on the Lot
Completion Report within thirty (30) days after notification,
weather permitting, at its expense, or at such other time as shall
be agreed upon between Purchaser and Seller. In the event Purchaser
shall fail to make repairs, then Seller shall make such repairs and
receive reimbursement from the Damage Escrow (defined below). If
the Damage Escrow is insufficient to pay the reasonable cost of the
repairs, Purchaser shall pay such deficiencies to Seller within
thirty (30) days after receipt of written demand by Seller. If
Purchaser fails to pay any amounts due pursuant to this Paragraph
4, Seller may pursue collection against Purchaser. With regard to
any damage, Purchaser's obligations under this Paragraph 4(a) shall
cease upon the first to occur of completion of its repairs or
reimbursement of Seller's costs, as provided above.
4(b) At the time of settlement on each Lot
pursuant to this Agreement, Purchaser will deliver the sum of Five
Hundred Dollars ($500.00) per Lot (the "Damage Escrow") to Shulman,
Rogers, Gandal, Pordy & Ecker, P.A. 12505 Park Potomac Avenue,
6th Floor, Potomac, 20854, Attention: Sean P. Sherman, Esq. ("Damage
Deposit Escrow Agent"), to be used solely for damages to Seller's
improvements during Purchaser's construction activities on the Lots
as further provided below. At Purchaser's option, the source for
payment of the Damage Escrow may be the Deposit Credit allocable to
such Lot.
4(c)
Purchaser's responsibilities under this Paragraph 4 shall cease
upon the first to occur of (i) Purchaser's repair of any and all
damage to Seller's improvements caused by Purchaser, its employees,
agents or subcontractors, to Seller's satisfaction in accordance
with the terms of Paragraph 4(a) or (ii) payment by Purchaser of
any amounts due and owing to Seller by Purchaser under this
Paragraph 4. Damage Deposit Escrow Agent shall return the Damage
Escrow, or any amounts remaining, to Purchaser within ten (10) days
after receipt of joint written instructions from Seller and
Purchaser, but in no event later than six (6) months after the
purchase of the last Lot under this Agreement and all of the
Related LPAs.
4(d)
In the event of any dispute between Purchaser and Seller regarding
the disbursement or disposition of the Damage Escrow, or in the
event Damage Deposit Escrow Agent shall receive conflicting demands
or instructions with respect thereto, Damage Deposit Escrow Agent
shall withhold such disbursement or disposition until otherwise
instructed by both of the patties or until directed by a court of
competent jurisdiction. Purchaser and Seller hereby jointly and
severally agree that, except as provided herein, Damage Deposit
Escrow Agent shall incur no liability whatsoever in connection with
its performance under this Agreement. Purchaser and Seller hereby
jointly and severally release and waive any claims they may have
against Damage Deposit Escrow Agent that may result from its
performance of its functions under this Agreement. Damage Deposit
Escrow Agent shall be liable only for gross negligence or loss or
damage caused by any of its officers' or employees' acts of wanton
or willful misconduct while performing as Damage Deposit Escrow
Agent. Purchaser and Seller acknowledge and consent that Damage
Deposit Escrow Agent is Purchaser's attorney and each waive all
claims as to an apparent, perceived or actual conflict of interest.
Seller and Purchaser each acknowledge and agree that Shulman,
Rogers, Gandal, Pordy & Ecker, P.A. shall have the right to
represent Purchaser and/or Damage Deposit Escrow Agent in
connection with this Agreement, the transaction contemplated
hereby, disputes and in any other matter. The parties hereby waive
and shall not assert that there exists any conflict of interest
arising out of such representation.
4(e)
This Agreement will constitute escrow instructions to the Damage
Deposit Escrow Agent in its capacity as escrow agent for the
purposes of administering the Damage Escrow and as otherwise
provided in this Agreement. The parties agree to execute for the
benefit of the Escrow Agent such additional escrow instructions as
the Damage Deposit Escrow Agent may require; provided, however,
that such instructions will be construed as applying only to Escrow
Agent's employment as escrow agent and will not alter the terms of
this Agreement.
4(f)
In the event that the parties shall be unable to agree upon the
completion of the items described in Subparagraph 4(a), or upon the
defects in such completions, Harris, Smariga, and Associates, Inc.
(or its successor, the "Site Engineer") shall resolve any such
disputes. If either Seller or Purchaser shall in good faith
determine that the Site Engineer is not acting objectively, then
such party may require that any disputes be resolved by a court of
competent jurisdiction.
5(a)
Seller shall cause to be prepared and approved a plan or plans
designed to manage (i) construction period erosion and sediment
control ("E&S Plan") and (ii) post construction storm water
management ("PCSWM Plan"), which approved plan(s) shall comply with
all applicable federal, state and local laws and regulations
relating to storm water management and control (the "SWM Plans").
Seller shall construct and complete all necessary storm drainage
structures, pipes, facilities and sediment control devices related
to its land development activities in accordance with the SWM Plans
and shall obtain and comply with all federal, state and local
permits that are required and regulations related thereto including
any National Pollutant Discharge Elimination System Permit or state
or local equivalent ("NPDES Permit", together with the SWM Plans,
the Clean Water Act and all relevant EPA, state, federal and
municipal storm water statutes and regulations with respect to the
Property the "Storm Water Regulations"). Seller shall provide a
complete set of signed and stamped copies of the SWM Plans and the
NPDES Permit for the Property no later than ninety (90) days prior
to the first Lot settlement in each phase shown on the Phasing
Plan. Seller shall further obtain and record proper instruments
establishing easements and rights-of-way needed for off-site storm
drainage and other utilities, the same to be unencumbered if so
required by the local municipal authority. Seller is responsible
for the maintenance of all storm water structures, pipes and all
sediment control devices and facilities per the approved, or to be
approved, construction drawings. Seller is responsible for the
removal of temporary sediment traps or storm water management
facilities as required under the SWM Plans and NPDES Permit,
whether such facilities are located on or off Lot. Additionally,
the responsibility and liability for the retention facilities rests
with Seller. Further, Seller shall keep any permits and
applications required under the Storm Water Regulations in good
standing and current during the term of this
Agreement.
5(b)
Seller shall grant any and all easements as may be required by
Purchaser across, over and through the Property for control of
on-site storm water relating to the Lot. Said easements shall be
free from liens and shall allow for the construction, maintenance
and use of drainage facilities and all uses incidental thereto,
including silt ponds, swales and riprap. Purchaser shall have the
right to dedicate any and all of said easements to public use and
to have same accepted for maintenance by the applicable
governmental agencies. Upon request, Seller (and all other parties
having an interest in such easement) will join in the dedication
and execute such instruments as may be reasonably required to
affect same. Said easements may be used by Purchaser, its agents,
customers, invitees, designees, successors and assigns. Said
provisions shall be set forth in full in the deeds of easement and
shall be deemed covenants running with the Lot. Title to said
easements and Purchaser's rights therein shall be fully insurable
under the same requirements with respect to title as are applicable
to the Lots.
5(c)
Upon Purchaser's acquisition of a Lot, Purchaser shall be
responsible for the installation of on-lot erosion and sediment
control facilities pertaining to Purchaser's house construction
activities, proper maintenance of such facilities with respect to
such Lot and for ensuring compliance with the NPDES Permit insofar
as it pertains to such Lot. Purchaser's responsibility for such on
lot controls shall continue until final or temporary stabilization
of such Lot and Purchaser transfers the Lot to a homebuyer.
Purchaser shall be responsible for the removal of on lot erosion
and sediment control facilities (specifically excluding temporary
traps and storm water management ponds) at the time of
stabilization of such Lot.
5(d)
Seller represents and warrants that it shall take such necessary
actions to comply with the Storm Water Regulations. Seller
covenants and agrees to do any and all further acts and to execute,
acknowledge, seal and deliver any and all other and further
instruments and documents (not otherwise inconsistent herewith) in
order to ensure Seller's compliance with the Storm Water
Regulations. The parties hereto shall cooperate with each other in
every reasonable manner, other than peculiarity, in order to
fulfill each party's obligations relative to the Storm Water
Regulations.
6. CONDITIONS
PRECEDENT TO SETTLEMENT.
The
obligation of Purchaser to purchase any Lot shall be conditioned
upon the satisfaction of the following with regard to such Lot, any
of which may be waived by Purchaser in its sole and absolute
discretion (the "Conditions Precedent"):
6(a)
Except for the Model Lot, Seller has completed the improvements
described in Paragraph 3 above.
6(b)
All conditions of title have been met pursuant to Subparagraph
7(b).
6(c)
Seller is not in default of this Agreement.
6(d)
The Homeowners Association shall be established and recorded in the
land records of the County pursuant to Paragraph 10.
6(e)
Seller is in compliance with and has provided Purchaser with copies
of the NPDES Permit and SWM Plans pursuant to Subparagraph
5(a).
6(f)
The representations and warranties by Seller set forth in this
Agreement must be true and correct as of the date of each
settlement.
6(g)
Seller shall have provided Purchaser with all Conservation
Easements (defined below) that have been recorded with regard to
the phase in which the Lot is located. "Conservation Easement"
means an easement, covenant, restriction, or condition on real
property, including an amendment to an easement, covenant,
restriction, or condition: (i) Owned by: l. The Maryland
Environmental Trust; 2. The Maryland Historical Trust; 3. The
Maryland Agricultural Land Preservation Foundation; 4. The Maryland
Department of Natural Resources; 5. A county or municipal
corporation and is funded by the Maryland Department of Natural
Resources, the Rural Legacy Program, or a local agricultural
preservation program; or 6. A land trust; or (ii) Required by a
permit issued by the Department of the Environment. SEE MD. CODE.
ANN., REAL PROP. § 10-705(a)(2).
6(h)
To Seller's actual knowledge, the Lots shall be free from Hazardous
Materials; provided that this condition shall be deemed to be
waived in the event that the existence of Hazardous Materials on a
Lot is caused solely by Purchaser.
7.SETTLEMENT,
CONVEYANCE AND TITLE, DEPOSIT CREDITS.
7(a)
At settlement, Purchaser shall deliver to Seller immediately
available funds in the amount of the Purchase Price, less the
Deposit Credit, for each Lot being purchased. The amount of the
Deposit Credit for each House Type is set f01th on Exhibit
B.
7(b)
Indefeasible fee simple title to the Lots are to be conveyed
hereunder, free of liens, encumbrances, judgments, tenancies,
reservations, easements and rights-of-way, subject, however, to the
Permitted Exceptions. The "Permitted Exceptions" shall be (i) those
matters set forth on Exhibit K which is attached hereto and made a
part hereof, (ii) easements, rights-of-way and restrictions
required by public utilities and/or the local governmental
authority, (iii) other matters requested by or consented to by
Purchaser. Title is to be marketable and insurable at standard
rates by a recognized title insurance company of Purchaser's
choice, licensed to do business in the State of Maryland, without
exceptions except as afore said subject only to the Permitted
Exceptions. At each settlement, Seller shall deliver such lien
waivers as may be reasonably required by Purchaser.
7(c)
Examination of title, title insurance, title certificate,
preparation of deeds and individual Lot surveys are to be at the
sole cost of Purchaser, provided, however, that if, upon
examination, title is found to be defective, Seller agrees to
reimburse Purchaser for reasonable costs incurred not to exceed One
Thousand Two Hundred and No/100 Dollars ($1,200.00) per Lot. Cost
of Lot transfer taxes, recordation taxes, filing and recording fees
are to be shared equally by Purchaser and Seller. Purchaser shall
pay any closing fee imposed by the closing agent. Each party shall
pay its own consultants' fees.
7(d)
Real Estate Taxes are to be prorated to the date of settlement on a
calendar year basis. Any and all other assessments, payments,
impositions or other charges with respect to the Lots, including
any charges made, or to be made, for any and all public
improvements, agricultural roll-back tax and transfer taxes due in
connection with the conveyance or deed, whether on-site or
off-site, shall not be adjusted at the time of settlement, and
shall be borne solely by Seller for work performed by Seller
hereunder, including, but not limited to, capital facilities
charges and inspection fees. Any sewer or water charges that are
placed on a front-foot benefit charge basis and are deferrable to
the ultimate purchaser shall not be adjusted at settlement, but
shall be assumed by the Purchaser. The parties also shall prorate
water and sewer usage invoices as of the settlement
date.
7(e)
At settlement(s), the Lots being acquired shall be conveyed by
Seller to Purchaser or Purchaser's designee by Special Warranty
Deed with covenants of further assurances in proper form for
recording in the County. Possession of the Lots shall be given to
Purchaser, or its agents and assigns, at the time of settlement,
free from any parties in possession subject only to the Permitted
Exceptions.
7(f)
Seller shall pay any agricultural roll-back tax and transfer taxes
due in connection with the conveyance or deed under any state,
county, township, municipal or local law, regulation or ordinance
(or any similar tax or assessment) to the date of conveyance.
Purchaser shall be responsible for any roll-back attributed to the
period of time after the date of conveyance.
7(g)
Prior to any Lot settlements, Seller shall deliver to Purchaser a
"Certification of Non-Foreign Status" which meets the requirements
of Section 1445 of the Internal Revenue Code and Internal Revenue
Regulations for the purpose of informing the transferee that
withholding of Federal taxes is not required.
7(h)
At each settlement, Seller and Purchaser shall apportion between
them all fees allocable to each Lot being purchased as follows:
Purchaser shall be responsible for school impact fees, library
fees, and water and sewer tap and connection fees, and any other
fees typically due at the time of building permit application.
Seller shall be responsible for all other fees, including, but not
limited to moderately priced dwelling unit fees in lieu, and school
construction mitigation fees.
8(a)
Default by Purchaser. In the event that Purchaser fails to acquire
Lots in accordance with the terms and conditions of this Agreement
and such failure continues for ten (10) days after the receipt of
written notice from Seller, Purchaser shall be deemed to be in
default hereunder and Seller may exercise the remedy described
below. In the event that Purchaser fails to fulfill any other of
its obligations hereunder, then Purchaser shall be deemed to be in
default hereunder if such failure continues for fifteen (15) days
after receipt of written notice from Seller, or if the failure
cannot be cured within fifteen (15) days, then a reasonable period
of time not to exceed an additional thirty (30) days provided
Purchaser diligently and continuously pursues such cure. Either of
the foregoing shall be referred to herein as a "Purchaser
Default".
8(b)
Seller's Remedy. In the event of a Purchaser Default, Seller's sole
and exclusive right and remedy shall be to retain the Deposit as
full, fixed and liquidated damages, not as a penalty, whereupon
this Agreement shall terminate. Thereafter, Purchaser and Seller
shall be relieved of further liability hereunder, at law or in
equity, it being the agreement of the parties that Purchaser shall
have no liability or obligation for default hereunder or otherwise
arising out of the transaction contemplated herein except to the
extent of the Deposit made herein, and in no event shall
Purchaser’s liability or responsibility for any failure,
breach or default hereunder or otherwise arising out of the
transaction contemplated herein exceed the Deposit, and in no event
shall Seller be entitled to specific performance of this Agreement,
or any other equitable remedies. Notwithstanding the foregoing,
Purchaser's indemnity obligations provided for in Subparagraph
10(b) (for construction related activities) shall not be subject to
the limitations provided above, rather Seller shall have the right,
after Purchaser's failure to cure as provided in above, as its sole
and exclusive remedy, to enforce such indemnifications in the court
of law permitted under this Agreement.
8(c)
Default by Seller. In the event that Seller fails to fulfill any of
its obligations hereunder, then Seller shall be deemed to be in
default hereunder if such failure continues for fifteen (15) days
after receipt of written notice from Purchaser, or if the failure
cannot be cured within fifteen (15) days, then a reasonable period
of time not to exceed an additional thirty (30) days provided
Seller diligently and continuously pursues such cure. The foregoing
shall be referred to herein as a "Seller Default".
8(d)
Purchaser's Remedies. In the event of a Seller Default, Purchaser
may (i) terminate this Agreement and receive a refund of the
remainder of the Deposit that has not been applied toward Lots
acquired by Purchaser, or (ii) seek specific performance of
Seller's obligations hereunder, provided that, if specific
performance is not available to Purchaser because Seller has
conveyed fee simple title to the Property or any portion thereof,
Purchaser shall be entitled to all rights and remedies available at
law or in equity. So long as Purchaser is not in default of this
Agreement beyond any and all applicable cure periods, Purchaser
shall be entitled to seek injunctive relief to prevent Seller from
conveying or agreeing to convey fee simple title to the Property or
any portion thereof. The parties agree that this provision shall
not be effective in connection with Seller's dedication of any
portion of the Property to governmental or quasi-governmental
entities required as part of the development process.
9.
SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS.
Seller
hereby represents, warrants and covenants to Purchaser
that:
9(a)
Seller's execution of this Agreement will not violate any other
third party's contract entitlements and no other person or entity
claims, has claimed and/or could justifiably claim any retained
rights in the Property under an earlier-in-time purchase
contract.
9(b)
All contractors, subcontractors, laborers and materialmen
performing work upon, or furnishing labor or materials to improve
or benefit, the Lots at Seller's request will be paid in full by
Seller before any applicable Lot settlement. Seller will execute
the necessary affidavits and indemnification agreements required by
the Purchaser's title insurance company or closing agent to
eliminate from its owner's title policies any exceptions to unfiled
mechanics' liens.
9(c)
All necessary dedications to public use with respect to the Lots
shown or implied from the subdivision plats or otherwise will be
made to the applicable governmental authorities, and Purchaser will
incur no legal liability or expense whatsoever with respect to any
such dedications.
9(d)
Seller will, during the term of this Agreement, keep any
mortgage(s) against the Property current and not in default, and
pay taxes, other public charges and/or any other assessments
against the Property.
9(f)
So long as Purchaser has paid all required fees and delivered all
required materials, Seller has done nothing to prevent Purchaser
from obtaining building, plumbing connection, and other permits
required for the erection of residences on each Lot, and has done
nothing to prevent Purchaser from obtaining use and occupancy
permits for finished residences on previously settled
Lots.
9(g)
Seller represents and warrants to Purchaser that Seller is a
limited liability company, duly organized and validly existing,
licensed under the laws of the State of Maryland, and qualified to
do business in the State of Maryland, in good standing, and that
Seller has the authority to execute and perform this Agreement.
Copies of resolutions shall be provided to Purchaser upon
request.
9
(h) In addition to any other warranty made in connection with this
Agreement, Seller represents and warrants as of the date of each
Lot settlement that (i) Seller owns the Lot to be sold by it under
this Agreement, in fee simple,; (ii) such Lot is subject only to
the Permitted Exceptions; (iii) such Lot is stable, graded pursuant
to this Agreement, and otherwise is suitable for the construction
of a residential structure by customary means and without
extraordinary site preparation measures; (iv) all of the streets,
sewers, water lines and utility facilities installed by Seller or
its subcontractors or agents are in compliance with the applicable
requirements of law, of good quality and suitable for their
intended purpose; (v) the Lot, as laid out by Seller, are in
compliance with the applicable zoning and subdivision requirements;
(vi) none of the development site preparation and construction work
performed by Seller hereunder concentrates or diverts surface water
or percolating water improperly onto any of the Lots or surrounding
property; (vii) no person has any contract or other right to the
use of any portion of the Lots or to the furnishing or use of any
facility or amenity on, or relating to, the Lots; and (viii) it has
done nothing to introduce any Hazardous Materials onto the Property
and to the best of Seller's knowledge, no Hazardous Materials exist
on the Property or affect the Property.
Notwithstanding
that certain Seller's representations and warranties contained in
this Paragraph 9 may be limited to the extent of Seller's knowledge
of the facts stated therein, a condition precedent to Purchaser's
obligation to close hereunder shall not be so limited, and the
satisfaction of said condition shall depend upon the actual
correctness as of the time of closing and post-closing of the facts
stated in all such representations and warranties.
10. PURCHASER'S
REPRESENTATIONS, WARRANTIES AND COVENANTS.
10(a)
Purchaser hereby represents, warrants and covenants to Seller that
Purchaser is a duly organized and validly existing corporation
under the laws of the Commonwealth of Virginia, qualified to do
business in the State of Maryland; that Purchaser has the power to
execute and perform this Agreement; that all necessary consents and
approvals from Purchaser have been obtained; and that the persons
executing this Agreement on behalf of Purchaser are duly empowered
to bind Purchaser to perform its obligations
hereunder.
10(b) Purchaser agrees to indemnify Seller from
any actual liability, loss or damage to a third person's personal
property or personal injury, including reasonable attorneys’
fees and related costs and expenses arising out of, or resulting
from Purchaser performing its construction activities under this
Agreement, except that this indemnification shall not cover the
negligence of the Seller or its subcontractors, employees and
agents or apply to any violations issued by any governmental
authority, which violations shall be governed by said
authority. Purchaser
shall maintain in full force and effect liability insurance
covering damage to property and persons resulting from or connected
with such activity which meet or exceed the following
requirements:
Commercial
General Liability insurance in the minimum amount of One Million
Dollars ($1,000,000.00) per occurrence, and Two Million Dollars
($2,000,000.00) in the aggregate, that is (1) written on an
occurrence basis, (2) includes contractual liability coverage
insuring the obligations assumed by Purchaser under this Agreement
(including, without limitation, the indemnities set forth herein)
and referring expressly to this Agreement, premises and operations
coverage, broad form property damage coverage (including theft,
vandalism and malicious mischief, written at replacement cost
value, with replacement cost endorsement), Purchaser's protective
liability coverage, independent contractors coverage, completed and
ongoing operations coverage, (3) containing endorsement for
personal injury, and (4) deleting the "underground" exclusion. A
certificate evidencing such insurance is attached hereto as Exhibit
H-2.
11. HOMEOWNERS
ASSOCIATION.
11(a)
Seller shall prepare, at Seller's expense, such protective
covenants and declarations as required by Purchaser and shall
record the same in the Land Records of the County. Seller shall
form a homeowners association (the "Homeowners Association") for
the Property. Seller shall subject all of the Property to a
declaration of covenants, conditions and restrictions (the
"CC&Rs"), under which Seller shall serve as the "Declarant" and
the architectural review committee, and shall deliver to Purchaser
copies of the CC&Rs, bylaws, articles of incorporation, budget
and any other documents required by law to establish the
Homeowners' Association (collectively, the "Organizational
Documents"). All Organizational Documents shall comply with
applicable FHA/VA regulations. Purchaser shall have the opportunity
to approve the Organizational Documents and upon request by
Purchaser, Seller shall promptly make any reasonable changes
thereto. The CC&Rs shall provide that Purchaser shall not pay
any assessments and further that Seller shall solely fund any
deficit of the Homeowners Association. In no event shall Purchaser
be required to pay any capital contribution.
11(b)
Seller shall, at Seller's sole expense, be responsible for the
proper annexation of any Lots purchased pursuant to this Agreement
into the Homeowners Association and to subject any Lots purchased
hereunder to any protective covenants and declarations requested by
Purchaser pursuant to this Agreement.
11(c)
Seller, through its designees, shall administer the affairs of the
Homeowners Association until such time as control is assumed by the
individual members of the Homeowners Association who have purchased
dwelling units from Purchaser. Seller shall employ a professional
management company for budget, preparation and management of the
Homeowners Association; said management company shall be reasonably
acceptable to Purchaser. Seller shall be responsible for the
maintenance of the cluster common area until such time as
maintenance is assumed by the Homeowners Association.
11(d)
Seller shall convey to the Homeowners Association the common areas,
which are not subdivided into Lots, free from any Hazardous
Materials or environmental contamination of any kind. The
conveyance shall be subject to rights of ingress and egress and
common usage of each Lot owner in the Homeowners Association's
common area. Purchaser agrees that each Lot purchased will be
required to become a member of the Homeowners Association. Seller
shall bear the cost of preparing and recording the deed conveying
the common area(s) to the Homeowners Association.
11(e)
If required, Seller shall grant and convey, by special warranty
deed to the Homeowners Association, the common areas set forth on
the subdivision plat(s) to be recorded among the Land Records of
the County, not later than one year after recordation of a
subdivision plat which includes such common areas. Furthermore, at
the time of the first conveyance to Purchaser, the common area(s)
as shown on the subdivision plat(s) shall be free and clear of any
mortgages, deeds of trust, judgment liens or similar liens or
encumbrances.
11(f)
Seller agrees to cooperate with Purchaser in the preparation of an
FHA/VA Application. Seller further agrees to implement changes (to
the extent that such changes do not affect the economics of the
Seller's project) to subdivision plans and documents at the
Seller's expense, if required, to gain FHA/VA approval; provided,
however, that the plans or plats already approved by the local
governmental authorities shall not be subject to redesign and
resubmission of approval. The time required for obtaining said
FHA/VA approval shall not defer the Lot purchase schedule contained
herein.
11(g)
Seller acknowledges that Purchaser is required to furnish to its
new home purchasers of Lots certain information as required by the
Maryland Homeowners Association Act in order to enter into binding
contracts with such buyers. Seller agrees to furnish to Purchaser,
prior to the date on which Purchaser opens sales within the
project, with final, signed and complete copies of the
Organizational Documents, Rules and Regulations and a set of
recorded subdivision plats for the Property. In the event that
final copies are not available, Seller agrees to furnish draft
copies, which draft copies will be replaced by final, executed and
recorded copies as soon as they are available. As well Seller shall
provide copies of any amendments to the Organizational Documents
concurrently with any such amendment. Seller shall also obtain
Purchaser's consent in the event any modifications are contemplated
to the amenities or other facilities within the Property or affect
Purchaser's or Purchaser's homebuyers monetary obligations, such
consent not to be unreasonably withheld. The parties acknowledge
that Seller's performance of this obligation is important to
Purchaser's ability to market and sell Lots. In the event that, at
the time of the first settlement hereunder, such materials have not
been furnished to Purchaser, the date of such settlement shall be
delayed until Purchaser is in receipt of such
materials.
12.
MISCELLANEOUS.
12(a)
Seller and Purchaser warrant that they have made no commitments of
any kind regarding brokerage fees, finder's fees or commissions
relative to this Agreement which could incur liability to either
party hereto. Seller and Purchaser agree to indemnify and hold each
other harmless from any and all liability, loss or damage,
including reasonable attorneys' fees and related costs and expenses
arising out of, or resulting from, any and all brokerage claims
that may be made against Seller or Purchaser or their successors or
assigns arising from this Agreement.
12(b)
Purchaser shall be responsible for the removal within a reasonable
time period of dirt, mud, and debris only from the streets fronting
the Lots where dwellings are under construction by Purchaser or
where Purchaser, its agents or contractors have deposited any such
material. Seller shall be responsible for performing those tasks
and snow removal on all streets until public dedication or
acceptance by the applicable Homeowners Association thereof. The
terms “streets" and "roads" shall mean all streets and roads
shown on the Record Plat, as well as any access roads connecting
those roads shown on the subdivision plats to any other road,
highway or thoroughfare.
12(c)
All notices hereunder shall be in writing, and be deemed to have
been received (i) immediately upon personal delivery or confirmed
fax receipt, (ii) one (1) business day after being sent by
confirmed overnight mail, (iii) three (3) days after mailing, if
mailed by certified mail, return receipt requested, postage
prepaid, or (iv) immediately upon delivery by electronic mail with
active confirmed receipt, provided that such active confirmed
receipt is not required for Purchaser's notice of termination
during the Study Period:
|
If
to Purchaser:
NVR,
Inc.
656
Quince Orchard Road, Suite 500
Gaithersburg,
20878
Attn:
T. Kent LaMotta and Matt Beck
Fax:
240-912-3281
Email:
klamotta@nvrinc.com and mbeck@nvrinc.com
with
a copy to:
|
If
to Seller:
MacKenzie
Equity Partners
312
3rd Street
Suite
102
Annapolis,
MD 21403
Attn:
Charles W. S. MacKenzie
Fax:
410-832-2937
Email:
cmackenzie@mackenzieequity.com
with
a copy to:
|
|
NVR,
Inc.
4991
New Design Road, Suite 105
Frederick,
21703
Attn:
David J. Peterson Fax: 240-566-1038
Email:
dpeterso@nvrinc.com
NVR,
INC.
656
Quince Orchard Road, Suite 500
Gaithersburg,
MD 20878
Attn:
John McConnell and Jessica Falleroni
Facsimile
No.: 240-912-3281
Email:
jmcconne@nvrinc.com and jfalleron@nvrinc.com
and:
Shulman,
Rogers, Gandal, Pordy & Ecker, P.A.
12505
Park Potomac, Sixth Floor
Potomac,
MD 20854
Attn:
Lawrence M. Kramer and Sean P.
Sherman
Fax:
301-230-2891
Email:
nvr@shulmanrogers.com
|
MacKenzie
Communities
2328
West Joppa Road
Suite
200
Lutherville,
MD 21093
Attn:
Robert J. Aumiller, Jr.
Fax:
401-427-0429
Email:
RJAumiller@MacKenzieCommercial.com and
DLA
Piper LLP (US)
6225
Smith Avenue
Baltimore,
MD 21209
Attn:
Pamela McDade Johnson, Esq.
Fax:
410-580-3819
Email:
pam.johnson@dlapiper.com
|
The
parties hereto shall be responsible for notifying each other of any
change of address or facsimile number in accordance with this
Subparagraph 11 (c).
12(d)
Purchaser shall have the right to review and approve or disapprove
(not to be unreasonably withheld, conditioned or delayed) any and
all changes made to the proposed, submitted and/or approved
development documents, including, but not limited to, plans,
designs and drawings, including site plans, construction (all
types), landscape improvements (trees, shrubs, fences and walls)
and covenants, restrictions and easements of record. The parties
agree that any revised Lot configuration and/or change in the Lot
yield arising from any such revised development documents shall, if
modifying the anticipated Record Plat, constitute the Lots that are
the subject of this Agreement. Seller shall meet and confer with
Purchaser on a regular basis to review the anticipated schedule and
sequence of development of the Property.
12(e)
If any term, covenant or condition of this Agreement, or the
application thereof to any party or circumstance, shall be invalid
or unenforceable, this Agreement shall not be affected thereby, and
each term shall be valid and enforceable to the fullest extent
permitted by law.
12(f)
Any date specified in this Agreement which is a Saturday, Sunday or
legal holiday shall be extended to the first regular business day
after such date, which is not a Saturday, Sunday or legal holiday
in the State of Maryland.
12(g)
This Agreement and the Exhibits which are attached hereto contain
the final and entire agreement between the parties hereto. The
recitals set forth in the beginning of this Agreement are
incorporated herein as if restated in full. No change or
modification of this Agreement, or any waiver of the provisions
hereof, shall be valid unless the same is in writing and signed by
the parties hereto. Waiver from time to time of any provision
hereunder will not be deemed to be a full waiver of such provision,
or a waiver of any other provisions hereunder. The terms of this
Agreement are mutually agreed to be clear and unambiguous, shall be
considered the workmanship of all of the patties and shall not be
construed against the drafting party.
12(h)
This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which shall
constitute one and the same instrument. Titles to Paragraphs and
Subparagraphs are for convenience only, and are not intended to
limit or expand the covenants and obligations expressed
thereunder.
12(i)
It is the intention of the parties hereto that all questions with
respect to the construction of this Agreement, and the rights or
liabilities of the parties hereunder, shall be determined in
accordance with the laws of the jurisdiction in which the Property
is located, without regard to conflict of law rules. Time is hereby
declared to be of the essence in the performance of each of
Seller's obligations hereunder. In the event of any dispute or
controversy arising out of or relating to this Agreement or the
patties' compliance therewith, it is agreed that the exclusive
forum for determination of any and all such disputes or
controversies shall be the appropriate trial court for the
jurisdiction in which the Property is located. THE PARTIES WAIVE
THEIR RESPECTIVE RIGHTS OF TRIAL BY JURY.
12(j)
This Agreement shall be binding upon the parties hereto and each of
their respective heirs, executors, administrators, successors and
assigns. All of the provisions of this Agreement and the
obligations of the parties shall survive each settlement and the
execution and delivery of the deed(s) executed hereunder, and shall
not be merged therein.
13. ATTORNEYS'
FEES. In addition to any other relief to which a party may be
entitled under this Agreement, the prevailing party in any action
shall be entitled to recover its attorneys' fees and costs incurred
in regard to a dispute or controversy.
14. ASSIGNMENT.
Neither party may assign its rights or obligations under this
Agreement. Seller may not sell a majority of its ownership
interests without the Purchaser's prior written
consent.
15. RULE
AGAINST PERPETUITIES. To avoid the rule against perpetuities, all
of the obligations of the parties shall be fully performed no later
than twenty-one (21) years from the Effective Date.
16. FORCE
MAJEURE. In the event that either party hereto shall be delayed or
hindered in or prevented from the performance of any act required
hereunder by reason of labor difficulties, inability to procure
materials, restrictive governmental laws or regulations,
insurrection, war, acts of God, acts of terrorism, or other reason
of like nature not the fault of the party delayed in performing
work or doing acts required under the terms of this Agreement then
performance of such act shall be excused for the period of the
delay, and thereafter the period for the performance of any such
act shall be extended for the lesser of (i) a period equivalent to
the period of such delay, or (ii) twenty four (24) months.
Beginning with the expiration of the extension period, if the
required performance remains unperformed, Purchaser may either
waive said performance in writing, or Purchaser may at its option
either continue to wait out Seller's performance or declare this
Agreement null and void and in such event the Deposit shall be
returned to Purchaser within ten (10) days and there shall be no
further liability on the part of either party to the other except
as to Lots already settled.
17. NO
CROSS DEFAULT. The parties affirm that a default by either party in
this Agreement shall not constitute a default under the Related
LPAs.
18. EXHIBITS.
This Agreement governs the parties rights and obligations with
regard to the Lots for the Home Type which is denoted under the
title of this Agreement on page one. Many of the Exhibits to this
Agreement include information with regard to all of the Home Types.
The same exhibits are attached to the Related LPAs. For purposes of
this Agreement, the information that relates to the Home Type
specified on page one shall govern.
[SIGNATURES
COMMENCE ON FOLLOWING PAGE]
WITNESS,
the following signatures and seals.
|
WITNESS:
|
SELLER:
|
|
|
SeD
Maryland Development, LLC
|
|
|
|
|
_________________________
|
By:
_____________________
|
|
|
Name:
_________________
|
|
|
Title:
__________________
|
|
|
Date:
_________________
|
[SIGNATURES
CONTINUED ON NEXT PAGE]
|
WITNESS:
|
PURCHESER:
NVR,
INC
By: ____________________
Name:
T. Kent LaMotta
Title:
Vice President of Operations
Date:
__________________
|
|
WITNESS:
|
|
|
_____________________
|
By:
____________________
Name:
Matt Beck
Title:
Vice President of Operations
Date:
__________________
|
|
|
|
|
|
|
|
WITNESS:
|
|
|
_____________________
|
By:
_____________________
Name:
David Greminger
Title:
Regional Manager
Date:
___________________
|
|
|
|
LIST
OF EXHIBITS
A-1
Legal
Description of the Project
A-2
Development
Plan for the Project
B
Home
Types, Purchase Prices, Deposits, Deposit Credits
D
Description
of Lots Subject to this Agreement
G
Responsibility
Checklist
H-1
Seller
Certificate of Insurance
H-2
Purchaser
Certificate of Insurance
K
List
of Title Exceptions
RESTATEMENT
AND REINSTATEMENT OF AND FIRST AMENDMENT TO LOT PURCHASE
AGREEMENT
BALLENGER
RUN
THIS RESTATEMENT AND REINSTATEMENT OF AND FIRST
AMENDMENT TO LOT PURCHASE AGREEMENT ("First Amendment") is made
this day of
2015
by and between SeD Maryland Development, LLC ("Seller") and NVR,
Inc. d/b/a Ryan Homes ("Purchaser").
WHEREAS, Seller and Purchaser entered into a Lot
Purchase Agreement dated December 10, 2014 (the "Agreement")
whereby Seller agreed to sell and Purchaser agreed to purchase
eighty-five (85) single family Lots located in Frederick County,
Maryland and as more particularly described in the Agreement;
and
WHEREAS,
the parties now wish to restate and reinstate the Agreement and to
otherwise amend certain terms and conditions, all as more fully set
forth herein.
NOW,
THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
l. Recitals
and Controlling Terms. The foregoing Recitals are hereby
incorporated by reference
as if fully restated. All capitalized terms used herein which are
not specifically defined shall have the meanings provided in the
Agreement. From and after the First Amendment Date (as hereinafter
defined), references to the Agreement shall refer to the Agreement
as amended by this First Amendment.
2. Reinstatement.
The Agreement, a copy of which is attached hereto as
Exhibit
"A", and incorporated by reference as if fully
restated, is reinstated. Accordingly, Subparagraph I (a) of the
Agreement is hereby deleted in its entirety. The Effective Date of
the Agreement shall be
this First Amendment Date.
3. Contingency.
Recital B of the Agreement is hereby amended to reflect that the
Agreement and this First Amendment are contingent upon Purchaser
and Contract Seller entering into a Second Amendment to the Raw
Land Contract reinstating the Raw Land Contract and
thereby satisfying the Contingency
contemporaneously with the execution of this First Amendment. The
reference to a specific date for the Contingency to be satisfied is
hereby deleted.
4.
Deposit. Exhibit "B" of the Agreement is hereby deleted in its
entirety and replaced with the attached Exhibit Subparagraph 2(i)
of the Agreement is hereby deleted in its entirety and with the
following:
"2(i)
With regard to this Agreement and the Related LPAs, the total sum
of Five Million Six Hundred Thousand and No/100 Dollars
($5,600,000.00) as a good-faith deposit (the "Deposit") will be
delivered by Purchaser in accordance with the terms of this
Agreement, as follows:
(i)
Seller is providing
Purchaser with a Four Hundred Thirty Four Thousand One Hundred
Fourteen Dollars ($434,114.00) credit, which shall be applied as a
portion of the Deposit hereunder, as reimbursement for Purchaser's
due diligence costs incurred to date.
(ii)
in accordance with
the Assignment Agreement, Purchaser shall deliver One Million Five
Hundred Thousand Dollars ($1,500,000.00) to Commonwealth Land
Title Insurance Company ("Commonwealth") by 5:00 P.M. Eastern
Standard Time on January 12, 2015, Commonwealth shall deliver
such One Million Five Hundred Thousand Dollars ($1,500,000.00) to
the Contract Seller under the Raw Contract thereunder, and
such One Million Five Hundred Thousand Dollars ($1,500,00.00) shall
be applied as a portion of the Deposit hereunder; and
(iii)
Purchaser shall
deliver Three Million Six Hundred Sixty Five Thousand Eight Hundred
Eighty Six Dollars ($3,665,886.00) to the closing agent which
will handle Seller's acquisition of the Project no later than two
business days before the closing under the Raw Land Contract, but
in no event prior to Purchaser's receipt and approval of Seller's
Certificate of Insurance in accordance with Subparagraph 3(p)
below, and such Three Million Six Hundred Sixty Five Thousand Eight
Hundred Eighty Six Dollars ($3,665,886.00) shall be applied as a
portion of the Deposit hereunder.
The Deposit shall be returned to Purchaser in the
form of a credit toward the Purchase Price payable for each Lot at
the time of each settlement (the "Deposit Credit"). Exhibit
"B" sets forth the
allocation of the Deposit and Deposit Credits among all of the lots
subject to this Agreement and the Related LPAs. Notwithstanding
anything herein to the contrary, in the event of an uncured default
by Purchaser beyond any applicable cure periods, it is the intent of the parties that,
Seller shall only be entitled to the portion of the
Deposit allocated to this particular
Agreement as liquidated damages in accordance with Subparagraph
8(b)."
5.
Phasing Plan. Exhibit "E" of the Agreement is hereby deleted and
replaced with Phasing Plan attached hereto as Exhibit
“E”.
6.
Notices. Subparagraph 12(c) of the Agreement is hereby amended by
deleting the notices to Seller in their entirety and replacing them
with the following in lieu thereof:
Inter-American
Development, LLC
312
3rd Street
Suite
102
Annapolis,
MD 21403
Attn:
Charles W. S. MacKenzie
Fax:
410-832-2937
Email: cmackenzie@mackenzieequity.com
Inter-American
Management, LLC
Hampden
Square, 4800 Montgomery Lane
Suite
450
Bethesda,
MD 20814
Attn:
Jeff Busch
Email:
jeff@185hk.com
Singapore
eDevelopment Limited
24/F,
Wyndham Place,
40-44
Wyndham Street, Central Hong Kong
Attn:
Chan Heng Fai
Email:
fai@185hk.com
Singapore
eDevelopment Limited
9
Temasek Boulevard #09-02A,
Suntec
Tower 2, Singapore 038989
Attn:
Chew Sien Lup
Email:
sienlup@sed.com.sg
Inter-American
Development, LLC
7 Temasek Boulevard
#43-03A,
Suntec Tower l,
Singapore 038987
Attn:
Chan Tung Moe
Email:
moe@185hk.com
DLA
Piper LLP (US) 6225 Smith Avenue
Baltimore,
MD 21209
Attn:
Pamela McDade Johnson, Esq.
Fax:
410-580-3819
Email:
pam.johnson@dlapiper.com"
7. Contingency. This First Amendment is contingent
on the parties entering into the Restatement and Reinstatement of and First
Amendment to Assignment and Assumption Agreement and the Second
Amendment to Assignable Real Estate Sales Contract by and between
Assignor and RBG Family, LLC contemporaneously herewith (the
"Current Contingency"), In the event the Current Contingency is not
met, this First Amendment shall be null and
void.
8. Counterpart Copies. This First Amendment may be
executed in any number of counterpart copies, all of which counterparts
shall have the same force and effect as if all parties hereto had
executed a single copy hereof.
9. Entire
Agreement, Ratification and Reconciliation. The Agreement
(including the Exhibits) and this First Amendment contain the final
and entire agreement between the parties with respect to the sale
and purchase of the Lots, and are intended to be an integration of
all prior negotiations and understandings. Except as modified in
this First Amendment, the Agreement is hereby ratified and remains in full force and
effect. The terms and provisions of this First Amendment shall be
reconciled with the terms and provisions of the Agreement to the
fullest extent reasonably possible; provided, however, in the event
of any irreconcilable conflict between any term or provision of
this First Amendment and any term or provision of the Agreement,
such term or provision of this First Amendment shall
control.
10. First
Amendment Date. This First Amendment shall become effective on the
date last signed (the "First Amendment Date"). In addition, this
First Amendment and any waiver or modification hereto will only be effective if
signed by the Area President of Purchaser or its
designee, Vice President of
Operations, and at least two (2) other officers of
Purchaser.
IN
WITNESS WHEREOF, the parties have set their hands and seals as of
the date written below each signature.
|
WITNESS:
|
SELLER:
|
|
|
|
|
|
SeD
Maryland Development, LLC
|
|
|
|
|
|
By:
Name:
Title:
Date:
|
[SIGNATURES
CONTINUED ON NEXT PAGE]
|
PURCHASER:
|
|
|
|
|
|
WITNESS:
|
NVR,
INC.
|
|
|
|
|
|
By:
_________________________________
Name:
T. Kent LaMotta
Title:
Vice President of Operations
Date:
_______________________________
|
|
WITNESS:
|
|
|
|
|
|
|
By:__________________________________
Name:
Matt Beck
Title: Regional Vice President of
Land
Date:________________________________
|
|
WITNESS:
|
|
|
|
|
|
|
By:
_________________________________
Name:
David J. Peterson
Title:
Vice President and Division
Manager
Date:
_____________________________
|
SECOND
AMENDMENT TO LOT PURCHASE AGREEMENT
BALLENGER
RUN
THIS SECOND AMENDMENT TO LOT
PURCHASE AGREEMENT ("Second Amendment") is made this ___ day
of ________2017, by and between SeD Maryland
Development, LLC ("Seller") and NVR, Inc. d/b/a Ryan Homes
("Purchaser").
WHEREAS, Seller and Purchaser entered into a Lot
Purchase Agreement dated December 10, 2014, and that certain First
Amendment to Lot Purchase Agreement dated January 9, 2015
(collectively, the "Agreement"), whereby Seller agreed to sell and
Purchaser agreed to purchase eighty-five (85) single family Lots
located in Frederick County, Maryland, all as more particularly
described in the Agreement; and
WHEREAS, the parties have agreed to amend the
Agreement by assigning the cost of mailbox installation, adding
front foot benefit charge provisions, changing the Completion
Notice deadline, substituting the phasing plan exhibit, and to
otherwise amended certain terms and conditions, all as more particularly set forth
herein.
NOW, THEREFORE, in consideration of the foregoing
and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as
follows:
1 Recitals and
Controlling Terms. The
foregoing Recitals are hereby incorporated by reference as if fully
restated. All capitalized terms used herein which are not
specifically defined shall have the meanings provided in the
Agreement From and after the Second Amendment Date (as hereinafter
defined), references to the Agreement shall refer to the Agreement
as amended by this Second Amendment.
2. Phasing
Plan. Exhibit "E" of the
Agreement is hereby deleted and replaced with Phasing Plan attached
hereto as Exhibit
3. Mailbox.
The Agreement is hereby amended to reflect that the postmaster has
required cluster mailboxes to be installed at the community.
Purchaser and Seller hereby agree to share equally in the costs of
the cluster mailboxes, including the costs of installation for
same.
4. Front
Foot Benefit Charges. Purchaser acknowledges that
Seller has the option to establish front foot benefits charges by
encumbering the Lots with a Declaration of Water and Sewer Charges
(the "Declaration") to be imposed on homeowners related for the
development of the Property. Seller hereby agrees that any such
front foot benefit charge shall not last for more than thirty (30)
years and shall not exceed Four Hundred Fifty Dollars ($450) per
year for each SFD Large Lot, Four Hundred Fifty Dollars ($450) per
year for each SFD Small Lot, Four Hundred Twenty Five Dollars
($425) per year for each SFD Neo-traditional Lot, Three
Hundred Seventy Five
Dollars ($375) per year for each SFA Villa Lot, and Three Hundred
Twenty Five Dollars ($325) per year for each SFA Townhouse Lot (the
"Water and Sewer Charges") In the event the front foot benefit is
established, Seller agrees (i) to credit Purchaser with an amount
equal to one year’s assessment at each Lot settlement, and
(ii) that Subparagraph 2(h) shall be automatically amended to
reflect that the escalation of the Purchase Price shall commence on
the first (1st)
day of the fourth (4th)
quarter.
Concurrently upon recordation of the Declaration,
Seller will provide Purchaser with a document entitled "Notice to
Purchaser of Deferred Water and Sewer Charges" that discloses the
Water and Sewer Charges to purchasers of Lots from Purchaser (the
"Notice to Buyer"). The Notice to Buyer will be attached to and
made part of this Agreement as Exhibit
"L". Purchaser agrees to
incorporate the Notice to Buyer into each contract with a purchaser
of a Lot from Purchaser (each, an "Initial Lot Purchaser") and to
return an original Notice to Buyer executed by each Initial Lot
Purchaser to Seller within 30 days after settlement on the Lot with
the Initial Lot Purchaser.
The
failure of Purchaser to obtain an executed Notice to Buyer and
timely provide a copy of executed Notice to Buyer to the Seller in
accordance with this Agreement from any person who purchases a Lot
from Purchaser shall obligate Purchaser to at a maximum pay the
Water and Sewer charges for such Lot. Seller agrees that the
foregoing shall not be effective unless and until Seller timely
provides Purchaser with the Notice to Buyer. Seller shall indemnify
and hold harmless Purchaser for any claims arising from Seller's
failure to provide the Notice to Buyer.
5. Completion
Notice. Subparagraph 2(c) of
the Agreement is hereby deleted in its entirety and the following
is inserted in lieu thereof:
2(c) Seller shall deliver written notice to
Purchaser (the "Completion Notice") to advise Purchaser that Lots
are available for purchase (the "Available Lots") and the
Conditions Precedent (defined below) for such Lots are fulfilled.
The first Completion Notice delivered by Seller after the Model Lot
Closing Date may be referred to herein as the "Initial Completion
Notice" and shall be delivered on or before June 30, 2017. Each
Completion Notice shall identify the location of the Available Lots
and Purchaser may select which of the Available Lots that it will
purchase. The total number of Available Lots at any time under this
Agreement and the Related LPAs shall be twenty-four (24) lots and
shall consist of Lots for one or more of the Home Types under this
Agreement and the Related LPAs. Commencing on the first
(1st)
day of the second quarter and continuing thereafter, in the event
that a particular Home Type is not an Available Lot, then
Purchaser's purchase obligation for that particular Home Type shall
be deferred the same number of days until that Home Type is an
Available Lot, If the delay in providing that Home Type as an
Available Lot exceeds sixty (60) days, then Purchaser's purchase
obligation for that particular Home Type shall be deferred the same
number of days until that Home Type is an Available Lot plus an
additional forty-five (45) days. In the event that Seller does not
meet the Available Lots requirement of twenty-four (24) lots,
Purchaser shall deliver written notice to Seller
and:
(i) So long as Seller
is, and before the date of Purchaser's notice was, diligently
pursuing the fulfillment of its obligations hereunder in order to
create Available Lots, Seller shall be entitled additional time to
prepare the Lots for purchase. In no event shall the additional
time be more than six (6) months. Purchaser may elect to defer the
Lot purchase schedule and any escalation of the Purchase Price by
the same number of days until Seller meets the Available Lots
requirement. The parties agree to document the commencement and
termination of such additional time period and the effect upon the
purchase schedule and Purchase Price escalation. Notwithstanding
the foregoing, in the event that Seller fails to complete the work
necessary for the Initial Completion Notice to be issued on or
before June 30, 2017, the terms and conditions of Paragraph 8,
regarding Seller default, shall control and the six (6) month
extension in this Subparagraph 2(c)(i) shall not
apply.
(ii) In the event that Seller is not, or before the
date of Purchaser's notice was not, diligently pursuing the
fulfillment of its obligations hereunder in order to create
Available Lots, or in the event that Seller does not meet the
Available Lots requirement within the six (6) months described in
Subparagraph 2(c)(i) above, the terms and conditions of Paragraph
8, regarding Seller default, shall control.
6, Responsibility
Checklist. Exhibit "G"
of the Agreement is hereby deleted and
replaced with the Responsibility Checklist attached hereto
as Exhibit
"G".
7. Notices.
Subparagraph 20(b) of the Agreement is amended to reflect that the
notices to Purchaser are deleted in their entirety replaced with
the following in lieu thereof:
"If
to Purchaser:
NVR,
INC.
656
Quince Orchard Road, Suite 500
Gaithersburg,
MD 20878
Attn:
Matt Beck and John McConnell Facsimile: 240-912-3281
NVR,
INC.
4991
New Design Road, Suite 105
Frederick,
21703
Attn:
Ryan Borleis
Facsimile:
240-566-1038
Shulman,
Rogers, Gandal, Pordy & Ecker, P.A.
12505
Park Potomac, Sixth Floor
Potomac,
MD 20854
Attn:
Lawrence M. Kramer and Sean P. Sherman
Facsimile:
301-230-2891
If to Seller:
SeD
Maryland Development, LLC
C/O
MacKenzie Equity Partners
312 3rd
Street
Suite
102
Annapolis,
MD 21403
Attn:
Charles W.S. MacKenzie
Fax:
410-832-2937
Email: cmackenzie@mackenzieequity.com
MacKenzie
Communities, LLC
2328
W. Joppa Road, Ste. 200
Lutherville,
MD 21093
Attn.:
Robb Aumiller
Facsimile:
410-427-0429
Linowes
& Blocher
31
West Patrick Street, Suite 130
Frederick,
MD 21701 Attn: Bruce Dean Facsimile:301-694-2754
SeD
Development Management, LLC c/o
SeD
Maryland Development, LLC 4800
Montgomery
Lane, Suite 210
Bethesda,
MD 20814
Attn:
Charles W.S. MacKenzie
Facsimile:
443-482-3993
SeD
Ballenger, LLC c/o Singapore
eDevelop1nent
Limited 9 Temasek
Boulevard
#09-02A
Suntec
Tower 2
Singapore
038989
Attn:
Moe Chan
Facsimile:
+65 6333 9164"
8. Counterpart Copies. This Second
Amendment may be executed in any number of counterpart copies, all
of which counterparts shall have the same force and effect as if
all parties hereto had executed a single copy hereof,
9. Entire Agreement,
Ratification and Reconciliation. The Agreement (including the Exhibits) and this
Second Amendment contain the final and entire agreement between the
parties with respect to the sale and purchase of the Lots, and are
intended to be an integration of all prior negotiations and
understandings. Except as modified in this Second Amendment, the
Agreement is hereby ratified and remains in full force and effect.
The terms and provisions of this Second Amendment shall be
reconciled with the terms and provisions of the Agreement to the
fullest extent reasonably possible; provided, however, in the event
of any irreconcilable conflict between any term or provision of
this Second Amendment and any term or provision of the Agreement,
such term or provision of this Second Amendment shall
control.
10. Second Amendment
Date. This Second Amendment
shall become effective on the date last signed (the "Second
Amendment Date"). In addition, this Second Amendment and any waiver
or modification hereto will only be effective if signed by the Area
President of Purchaser (Or Purchaser's designee Vice President of
Operations), and at least two (2) other officers of
Purchaser.
IN WITNESS WHEREOF, the parties have set their
hands and seals as of the date written below each signature.
|
WITNESS:
|
SELLER:
|
|
|
|
|
|
SeD
Maryland Development, LLC
|
|
|
By:
SeD Development Management, LLC, Manager
By:
________________________________
Name:
Charley MacKenzie
Title;
Chief Development Officer
Date:
_______________________________
|
[SIGNATURES
CONTINUED ON NEXT PAGE]
|
|
PURCHASER:
|
|
WITNESS:
|
|
|
|
NVR,
INC.
|
|
|
By:
________________________
Name:
T. Kent LaMotta
Title:
Vice President of Operations
Date:
______________________
|
|
WITNESS:
|
|
|
|
By:
_______________________
|
|
|
Name:
Matt Beck
Title:
Senior Vice President of Land
Date:
_______________________
|
|
WITNESS:
|
|
|
|
By:
_______________________
|
|
|
Name:
David Greminger
Title:
Reginal Manager
Date:
_______________________
|
|
WITNESS:
|
|
|
|
By:
_______________________
|
|
|
Name:
Ryan Borleis
Title:
Vice President and Division Manager
Date:
_______________________
|
Exhibit
10.8
MANAGEMENT
AGREEMENT
This MANAGEMENT
AGREEMENT is made and entered into as of July 15, 2015 (this
“Agreement”),
by and between SeD MARYLAND
DEVELOPMENT, LLC, a Maryland limited liability company (the
“Developer”)
and SeD DEVELOPMENT MANAGEMENT,
LLC, a Delaware limited liability company (the
“Manager”).
RECITALS
WHEREAS, the
Developer is developing 197 acres of land located in Frederick
County, Maryland, into 853 units, consisting of single family lots,
townhomes, multi-family units, and assisted living units (the
“Project”);
WHEREAS, the
Developer wishes to engage the Manager to manage the Project
including the assets, operations and affairs of the Developer;
and
WHEREAS, the
Manager desires to accept such engagement on the terms and
conditions hereinafter set forth.
AGREEMENT
NOW, THEREFORE, in
consideration of the mutual agreements herein set forth, the
parties hereto agree as follows:
(a) The following terms
shall have the meanings set forth in this
Section 1(a):
“Affiliate” shall mean,
with respect to any Person, any Person controlling, controlled by,
or under common Control with, such Person.
“Agreement” has the meaning
assigned in the first paragraph.
“Base Management Fee” means
5% (five percent) of the gross revenue (including reimbursements)
of the Project. The Base Management Fee shall be earned and paid in
the following manner:
●
USD$38,650.00
(thirty eight thousand six hundred fifty United States dollars)
monthly, beginning on the Commencement Date. The Base Management
Fees accrued from the Commencement Date through the Closing Date
shall be payable in arrears in cash on the first day of the month
after the Closing Date, or on October 1, 2015, whichever date is
sooner. Thereafter, until termination of this Agreement, the Base
Management Fee shall be payable in cash in monthly installments on
the first day of the month. If applicable, the initial and final
installments of the Base Management Fee shall be pro-rated based on
the number of days during the initial and final month,
respectively, that this Agreement is in effect.
●
When the gross
revenue of the Project shall be determined, the parties will make
adjustments as necessary to ensure proper payment of the Base
Management Fee. To the extent there was an underpayment of the Base
Management Fee, the additional amounts shall be paid by Developer
to Manager. To the extent there was an overpayment of the Base
Management Fee, the additional amounts shall be returned by Manager
to Developer. Reimbursements pursuant to this provision shall be
made with 60 days of the revenue determination.
“Commencement Date” means the
effective date of this Agreement.
“Closing” means the acquisition by Developer (or its
transferee) of the land underlying the Project and entitlements for
the 853 units which make up the Project.
“Closing Date” means on or
before August 31, 2015.
“Developer Indemnified
Party” has the meaning assigned in
Section 11(b).
“Confidential Information”
means all non-public information, written or oral, obtained by the
Manager in connection with the services rendered
hereunder.
“Compliance Policies” means
the compliance policies and procedures of the Manager, as in effect
from time to time.
“Control” shall mean the
possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of another Person,
whether by contract, voting equity, legal right or
otherwise.
“Date of Termination” means
the date in which this Agreement is terminated or expires without
renewal.
“Dedicated Employees” has
the meaning assigned in Section 3(a).
“Developer” has the meaning
assigned in the first paragraph of this Agreement.
“Development Guidelines”
means the general criteria, parameters and policies relating to the
Project as established by the Developer with the assistance of the
Manager, as the same may be modified from
time-to-time.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder.
“Final Quarter” means the
last fiscal quarter ending prior to the effective date of any
termination or non-renewal of this Agreement.
“GAAP” means generally
accepted accounting principles in effect in the U.S. on the date
such principles are applied consistently.
“Governing Instruments”
means, with respect to any Person, the charter and bylaws in the
case of a corporation, the certificate of limited partner (if
applicable) and partnership agreement in the case of a general or
limited partner, or the articles or certificate of formation and
operating agreement in the case of a limited liability company, in
each case, as amended, restated or supplemented from time to
time.
“Incentive Compensation”
means a performance incentive fee, payable to the Manager upon any
profit distributions to the Developer, and calculated as 20% of all
profit distributed to Developer above a 30% Internal Rate of Return
on the Project. The Internal Rate of Return shall be calculated on
a pre-tax basis.
“Indemnification
Obligations” has the meaning assigned in
Section 11(b).
“Indemnitee” has the
meaning assigned in Section 11(d).
“Indemnitor” has the
meaning assigned in Section 11(d).
“Judicially Determined” has
the meaning assigned in Section 11(a).
“Manager” has the meaning
assigned in the first paragraph of this Agreement.
“Operating Agreement”
means an Operating Agreement adopted by the Developer, as amended
from time to time.
“Person” means any
individual, corporation, partner, joint venture, limited liability
partner, estate, trust, unincorporated association, any federal,
state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf
of any of the foregoing.
“Principal Transaction” has
the meaning assigned in Section 3(d).
“Records” has the meaning
assigned in Section 6(a).
“Representatives” means
collectively the Manager’s Affiliates, officers, directors,
employees, agents and representatives.
“SEC” means the United
States Securities and Exchange Commission.
“Securities Act” means the
Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Subsidiary” means
any subsidiary of the Developer.
“Tax Preparer” has the
meaning assigned in Section 7(c).
2.
Appointment and Duties of the
Manager.
(a) Appointment. The Developer hereby
appoints the Manager to manage, operate and administer the Project,
operations and affairs of the Developer and its Subsidiaries
subject to the further terms and conditions set forth in this
Agreement, and the Manager hereby agrees to use its commercially
reasonable efforts to perform each of the duties set forth herein
in accordance with the provisions of this Agreement.
(b) Duties. The Manager shall manage,
operate and administer the Developer’s day-to-day operations,
business and affairs, subject to the supervision of the Developer,
and shall have only such functions and authority as the Developer
may delegate to it, including, without limitation, the authority
identified and delegated to the Manager herein. Without limiting
the foregoing, the Manager shall oversee and conduct all the
Developer’s development activities for the Project, as
amended from time to time, and other policies adopted and
implemented by the Developer. Subject to the foregoing, the Manager
will perform (or cause to be performed) such services and
activities relating to the management, operation and administration
of the Project and assets, liabilities and business of the
Developer as is appropriate, including, without
limitation:
(i) serving as the
Developer’s consultant with respect to the periodic review of
the Project and other policies and criteria;
(ii) with respect to the
Project, any sale, exchange or other disposition of any asset by
the Developer, conducting negotiations on the Developer’s
behalf with sellers and purchasers and their respective agents,
representatives and investment bankers, and owners of privately and
publicly held real estate companies;
(iii) engaging and
supervising, on the Developer’s behalf and at the
Developer’s sole cost and expense, third party service
providers who provide legal, accounting, due diligence, transfer
agent, registrar, property management and maintenance services,
leasing services, master servicing, special servicing, banking,
investment banking, mortgage brokerage, real estate brokerage,
securities brokerage and other financial services and such other
services as may be required relating development of the Project and
to the Developer’s other business and operations as
necessary;
(iv) coordinating and
supervising, on behalf of the Developer and at the
Developer’s sole cost and expense, other third party service
providers to the Developer;
(v) providing executive
and administrative personnel, office space and office services
required in rendering services to the Developer;
(vi) administering the
Developer’s day-to-day operations and performing and
supervising the performance of such other administrative functions
necessary to the Developer’s management as may be agreed upon
by the Manager and the Developer, including, without limitation,
the collection of revenues and the payment of the Developer’s
debts and obligations and maintenance of appropriate computer
services to perform such administrative functions;
(vii) communicating on
the Developer’s behalf with the holders of any of the
Developer’s equity or debt securities as required to satisfy
the reporting and other requirements of any governmental bodies or
agencies or trading markets and to maintain effective relations
with such holders;
(viii) counseling the
Developer in connection with policy decisions to be made by the
Developer;
(ix) furnishing such
reports to the Developer that the Manager reasonably determines to
be responsive to reasonable requests for information from the
Developer regarding the Developer’s activities and services
performed for the Developer or any of its Subsidiaries by the
Manager;
(x) monitoring the
operating performance of the Project and providing periodic reports
with respect thereto to the Developer, including comparative
information with respect to such operating performance and budgeted
or projected operating results;
(xi) causing the
Developer to retain, at the sole cost and expense of the Developer,
qualified independent accountants and legal counsel, as applicable,
to assist in developing appropriate accounting procedures,
compliance procedures and testing systems with respect to financial
reporting obligations and compliance with the provisions of the
Code and the Treasury Regulations, and to conduct quarterly
compliance reviews with respect thereto;
(xii) causing the
Developer to qualify to do business in all applicable jurisdictions
and to obtain and maintain all appropriate licenses;
(xiii) assisting the
Developer in complying with all regulatory requirements applicable
to the Developer in respect of the Developer’s business
activities, including preparing or causing to be prepared all
financial statements required under applicable regulations and
contractual undertakings and all reports and documents, if any,
required under the Exchange Act and the Securities
Act;
(xiv) taking all
necessary actions to enable the Developer to make required tax
filings and reports and compliance with the provisions of the Code,
and Treasury Regulations applicable to the Developer;
(xv) handling and
resolving all claims, disputes or controversies (including all
litigation, arbitration, settlement or other proceedings or
negotiations) in which the Developer may be involved or to which
the Developer may be subject arising out of the Developer’s
day-to-day operations, subject to such limitations or parameters as
may be imposed from time to time by the Developer;
(xvi) using commercially
reasonable efforts to cause expenses incurred by or on behalf of
the Developer to be commercially reasonable or commercially
customary and within any budgeted parameters or expense guidelines
set by the Developer from time to time;
(xvii) advising on, and
obtaining on behalf of the Developer, appropriate credit facilities
or other financings for the Project consistent with the Development
Guidelines;
(xviii) advising the
Developer with respect to and structuring long-term financing
vehicles for the Developer’s portfolio of assets, and
offering and selling securities, if any, publicly or privately in
connection with any such structured financing;
(xix) performing such
other services as may be required from time to time for management
and other activities relating to the Developer’s assets as
the Developer shall reasonably request or the Manager shall deem
appropriate under the particular circumstances; and
(xx) using commercially
reasonable efforts to cause the Developer to comply with all
applicable laws.
(c) Service Providers. The Manager may
engage Persons who are non-Affiliates, for and on behalf, and at
the sole cost and expense, of the Developer to provide to the
Developer sourcing, acquisition, disposition, asset management,
property management, leasing, financing, development, disposition
of real estate and/or similar services customarily provided in
connection with the management, operation and administration of a
business similar to the business of the Developer, pursuant to
agreement(s) that provide for market rates and contain standard
market terms.
(d) Reporting Requirements.
(i) As frequently as
the Manager may deem necessary or advisable, or at the direction of
the Developer, the Manager shall prepare, or cause to be prepared,
with respect to the Project (A) reports and information on the
Developer’s operations and asset performance and
(B) other information reasonably requested by the
Developer.
(ii) The Manager shall
prepare, or cause to be prepared, at the sole cost and expense of
the Developer, all reports, financial or otherwise, with respect to
the Developer reasonably required in order for the Developer to
comply with its Governing Instruments or any other materials
required to be filed with any governmental entity or agency, and
shall prepare, or cause to be prepared, at the sole cost and
expense of the Developer, all materials and data necessary to
complete such reports and other materials including, without
limitation, an annual audit of the Developer’s books of
account by a nationally recognized independent accounting
firm.
(e) Reliance by Manager. In
performing its duties under this Section 2(c), the Manager
shall be entitled to rely on qualified experts and professionals
(including, without limitation, accountants, legal counsel and
other professional service providers) hired by the Manager at the
Developer’s sole cost and expense.
(f) Use of the Manager’s
Funds. The Manager shall not be required to
expend money in connection with any expenses that are required to
be paid for or reimbursed by the Developer pursuant to
Section 9 of this Agreement in excess of that contained in any
applicable Developer Account or otherwise made available by the
Developer to be expended by the Manager hereunder.
(g) Payment and Reimbursement of
Expenses. The Developer shall pay all expenses,
and reimburse the Manager for the Manager’s expenses incurred
on its behalf, in connection with any such services to the extent
such expenses are payable or reimbursable by the Developer to the
Manager pursuant to Section 9.
3.
Dedication;
Other Activities.
(a) Devotion of Time. The
Manager, directly or indirectly through its Affiliates, will in
line with the needs of the progress of the project, provide a
management team (including, without limitation, a chief executive
officer and president, a chief financial officer, a chief
Development officer, a controller and a secretary) along with
appropriate support personnel, to deliver the management services
to the Developer hereunder. The members of such management team
shall devote such of their working time and efforts to the
management of the Developer as the Manager deems reasonably
necessary and appropriate for the proper performance of all of the
Manager’s duties hereunder, commensurate with the level of
activity of the Developer from time to time; provided, however, that the Manager
shall have the right, but not the obligation, to provide a
dedicated or partially dedicated chief financial officer, chief
operating officer, controller, internal legal counsel, property
managers and/or property management oversight professionals to the
Developer. To the extent the Manager elects to provide the
Developer with a dedicated or partially dedicated chief financial
officer, controller, internal legal counsel, property managers
and/or property management oversight professionals, each of whom
will be an employee of the Manager or one of its Affiliates, such
personnel are referred to herein as “Dedicated Employees.” The
Developer shall have the benefit of the Manager’s reasonable
judgment and effort in rendering services and, in furtherance of
the foregoing, the Manager shall not undertake activities which, in
its reasonable judgment, will materially adversely affect the
performance of its obligations under this Agreement.
(b) Other Activities. Except to the extent
set forth in Section 3(a) above, and subject to the
Developer’s conflicts of interest policy as it may exist from
time to time, and the Developer’s Development Guidelines,
nothing herein shall prevent the Manager or any of its Affiliates
or any of the officers, directors or employees of any of the
foregoing, from engaging in other businesses or from rendering
services of any kind to any other Person, including, without
limitation, investing in, or rendering advisory services to others
investing in, any type of real estate, real estate related
Development or non-real estate related Development or other
mortgage loans (including, without limitation, Developments that
meet the principal Development objectives of the Developer),
whether or not the Development objectives or policies of any such
other Person are similar to those of the Developer or in any way
bind or restrict the Manager, or any of its Affiliates, officers,
directors or employees from buying, selling or trading any
securities or commodities for their own accounts or for the account
of others for whom the Manager or any of its Affiliates, officers,
directors or employees may be acting; provided, however, none of the Manager,
or any of its Affiliates, for so long as this Agreement is in
effect, will sponsor or manage any permanent capital vehicle that
invests primarily in single-family residential properties as rental
properties.
(c) Cross Transactions. Cross transactions
are transactions between the Developer or one of its subsidiaries,
on the one hand, and an account (other than the Developer or one of
its subsidiaries) that is managed or advised by the Manager, or one
of the Managers’ or Affiliates, on the other hand (each a
“Cross
Transaction”). The Manager is authorized to execute
Cross Transactions for the Developer in accordance with applicable
law and the Manager’s Compliance Policies. The Developer
acknowledges that the Manager has a potentially conflicting
division of loyalties and responsibilities regarding each party to
a Cross Transaction. The Developer may at any time, upon written
notice to the Manager, revoke its consent to the Manager to execute
Cross Transactions.
(d) Principal Transactions. Principal
transactions are transactions between the Developer or one of its
subsidiaries, on the one hand, and the Manager, or any of their
Affiliates (or any of the related parties of the foregoing (each a
“Principal
Transaction”). The Manager is only authorized to
execute Principal Transactions with the prior approval of the
Developer and in accordance with applicable law. Such prior
approval shall include approval of the pricing methodology to be
used, including with respect to assets for which there are no
readily available market prices.
(e) Officers, Employees, Etc. The
Manager’s or its Affiliates’ members, partners,
officers, employees and agents may serve as directors, officers,
employees, agents, nominees or signatories for the Developer or any
Subsidiary, to the extent permitted by their Governing Instruments,
as may be amended from time to time, or by any resolutions duly
adopted by the Developer pursuant to the Developer’s
Governing Instruments. When executing documents or otherwise acting
in such capacities for the Developer or such other Subsidiary, such
Persons shall use their respective titles with respect to the
Developer or such Subsidiary.
(a) The Manager shall
act as the agent of the Developer in originating, acquiring,
structuring, financing, managing, renovating, disbursing and
collecting the Developer’s funds, paying the debts and
fulfilling the obligations of the Developer, supervising the
performance of professionals engaged by or on behalf of the
Developer and handling, prosecuting and settling any claims of or
against the Developer, or the Developer’s representatives or
assets.
(b) In performing the
services set forth in this Agreement, as an agent of the Developer,
the Manager shall have the right to exercise all powers and
authority which are reasonably necessary and customary to perform
its obligations under this Agreement, including the following
powers, subject in each case to the terms and conditions of this
Agreement, including, without limitation, the Development
Guidelines: to purchase, exchange or otherwise acquire and to sell,
exchange or otherwise dispose of, the Project in a public or
private sale; to execute Cross Transactions; to execute Principal
Transactions; to borrow and, for the purpose of securing the
repayment thereof, to pledge, mortgage or otherwise encumber the
Project; to purchase, take and hold Project subject to mortgages,
liens or other encumbrances; to extend the time of payment of any
liens or encumbrances which may at any time be encumbrances upon
the Project,
irrespective of by whom the same were made; to foreclose, to reduce
the rate of interest on, and to consent to the modification and
extension of the maturity of any Project, or to accept a deed in
lieu of foreclosure; to join in a voluntary partition of the
Project; to cause to be demolished any structures on the Project;
to cause renovations and capital improvements to be made to the
Project; to abandon any Project deemed to be worthless; to enter
into joint ventures or otherwise participate in investment vehicles
investing in Project; to cause the Project to be leased, operated,
developed, constructed or exploited; to cause the Developer to
indemnify third parties in connection with contractual arrangements
between the Developer and such third parties; to obtain and
maintain insurance in such amounts and against such risks as are
prudent in accordance with customary and sound business practices
in the appropriate geographic area; to cause any property to be
maintained in good state of repair and upkeep; and to pay the
taxes, upkeep, repairs, carrying charges, maintenance and premiums
for insurance; to use the personnel and resources of its Affiliates
in performing the services specified in this Agreement; to hire
third party service providers subject to and in accordance with
Section 2; to designate and engage all third party
professionals and consultants to perform services (directly or
indirectly) on behalf of the Developer or its Subsidiaries,
including, without limitation, accountants, legal counsel and
engineers; and to take any and all other actions as are necessary
or appropriate in connection with the Developer’s
Project.
(c) The Manager shall
be authorized to represent to third parties that it has the power
to perform the actions which it is authorized to perform under this
Agreement.
At the direction of
the Developer, the Manager may establish and maintain as an agent
on behalf of the Developer one or more bank accounts in the name of
the Developer or any other Subsidiary (any such account, a
“Developer
Account”), collect and deposit funds into any such
Developer Account and disburse funds from any such Developer
Account, under such terms and conditions as the Developer may
approve. The Manager shall from time-to-time render appropriate
accountings of such collections and payments to the Developer and,
upon request, to the auditors of Developer.
6.
Books and Records;
Confidentiality.
(a) Books and Records. The Manager shall
maintain appropriate books of account, records data and files
(including without limitation, computerized material)
(collectively, “Records”) relating to the
Developer and the Project generated or obtained by the Manager in
performing its obligations under this Agreement, and such Records
shall be accessible for inspection by representatives of the
Developer or any Subsidiary at any time during normal business
hours upon ten business days advance written notice. The Manager
shall have full responsibility for the maintenance, care and
safekeeping of all Records. The Manager agrees that the Records are
the property of the Developer and the Manager agrees to deliver the
Records to the Developer within 14 days after receipt of a written
request of the Developer.
(b) Confidentiality. The Manager shall keep
confidential any and all non-public information, written or oral,
obtained by it in connection with the services rendered hereunder
and shall not disclose Confidential Information, in whole or in
part, to any Person other than to its Affiliates, officers,
directors, employees, agents or representatives who need to know
such Confidential Information for the purpose of rendering services
hereunder or with the consent of the Developer, except: (i) to
Singapore eDevelopment Limited and its Affiliates; (ii) in
accordance with any advisory agreement; (iii) to legal
counsel, accountants and other professional advisors; (iv) to
appraisers, creditors, financing sources, trading counterparties,
other counterparties, third party service providers to the
Developer, and others (in each case, both those actually doing
business with the Developer and those with whom the Developer seeks
to do business) in the ordinary course of the Developer’s
business; (v) to governmental or regulatory officials having
jurisdiction over the Developer; (vi) in connection with any
governmental or regulatory filings of the Developer ; or
(vii) to respond to requests from judicial or regulatory or
self-regulatory organizations and as required by law or legal
process to which the Manager or any Person to whom disclosure is
permitted hereunder is a party. If, failing the entry of a
protective order or the receipt of a waiver hereunder, the Manager
is, in the opinion of counsel, required to disclose Confidential
Information, the Manager may disclose only that portion of such
information that its counsel advises is legally required without
liability hereunder; provided, that the Manager agrees to exercise
commercially reasonable efforts to obtain reliable assurance that
confidential treatment will be accorded such information.
Notwithstanding anything herein to the contrary, each of the
following shall be deemed to be excluded from provisions hereof:
any Confidential Information that (A) is available to the
public from a source other than the Manager not resulting from the
Manager’s violation of this Section 6, (B) is
released in writing by the Developer to the public or to persons
who are not under similar obligation of confidentiality to the
Developer, or (C) is obtained by the Manager from a
third-party not known by the Manager to be in breach of an
obligation of confidence with respect to the Confidential
Information disclosed. The Manager agrees to inform each of its
Representatives of the non-public nature of the Confidential
Information and to direct such Persons to treat such Confidential
Information in accordance with the terms hereof. The provisions of
this Section 6 shall survive the expiration or earlier
termination of this Agreement for a period of one
year.
7.
Obligations
of Manager; Restrictions.
(a) Internal Control. The Manager shall
(i) establish and maintain a system of internal accounting and
financial controls designed to provide reasonable assurance of the
reliability of financial reporting, the effectiveness and
efficiency of operations and compliance with applicable laws,
(ii) maintain records for the Project on a GAAP basis,
(iii) develop accounting entries and reports required by the
Developer to meet its reporting requirements under applicable laws,
(iv) consult with the Developer with respect to proposed or
new accounting/reporting rules identified by the Manager or the
Developer and (v) prepare quarterly and annual financial
statements as soon as practicable after the end of each such period
as may be reasonably requested and general ledger journal entries
and other information necessary for the Developer’s
compliance with applicable laws and in accordance with GAAP and
cooperate with the Developer’s independent accounting firm in
connection with the auditing or review of such financial
statements, the cost of any such audit or review to be paid by the
Developer.
(b) Insurance. At the cost of the
Developer, the Manager shall obtain, as soon as reasonably
practicable, and shall thereafter maintain insurance coverage which
is customarily carried by managers performing functions similar to
those of the Manager under this Agreement with respect to assets
similar to the assets of the Developer, in an amount which is
comparable to that customarily maintained by other managers or
servicers of similar assets.
(c) Tax Filings. The Manager shall
(i) assemble, maintain and provide to the firm designated by
the Developer to prepare tax returns on behalf of the Developer and
its subsidiaries (the “Tax
Preparer”) information and data required for the
preparation of federal, state, local and foreign tax returns, any
audits, examinations or administrative or legal proceedings related
thereto or any contractual tax indemnity rights or obligations of
the Developer and its subsidiaries and supervise the preparation
and filing of such tax returns, the conduct of such audits,
examinations or proceedings and the prosecution or defense of such
rights, (ii) provide factual data reasonably requested by the
Tax Preparer or the Developer with respect to tax matters,
(iii) assemble, record, organize and report to the Developer
data and information with respect to the Project relative to taxes
and tax returns in such form as may be reasonably requested by the
Developer, (iv) supervise the Tax Preparer in connection with
the preparation, filing or delivery to appropriate persons, of
applicable tax information reporting forms with respect to the
Project and the Common Shares (including, without limitation,
information reporting forms, whether on Form 1099 or otherwise with
respect to sales, interest received, interest paid, dividends paid
and other relevant transactions); it being understood that, in the
context of the foregoing, the Developer shall rely on its own tax
advisers in the preparation of its tax returns and the conduct of
any audits, examinations or administrative or legal proceedings
related thereto and that, without limiting the Manager’s
obligation to provide the information, data, reports and other
supervision and assistance provided herein, the Manager will not be
responsible for the preparation of such returns or the conduct of
such audits, examinations or other proceedings.
(a) For the
services rendered under this Agreement, the Developer shall pay the
Base Management Fee and the Incentive Compensation to the Manager.
The Manager will not receive any compensation for the period prior
to the Commencement Date other than expenses incurred and
reimbursed pursuant to Section 9 hereof.
(b) The Base
Management Fees shall be payable in cash as provided in the
definition of “Base Management Fee”.
(c) The Incentive
Compensation shall be payable in cash as provided in the definition
of “Incentive Compensation”.
(a) The Developer shall
bear all of its operating expenses, except those specifically
required to be borne by the Manager under this Agreement. The
expenses required to be borne by the Developer include, but are not
limited to:
(i) issuance and
transaction costs incident to the origination, acquisition,
disposition and financing of the Project;
(ii) legal, regulatory,
compliance, tax, accounting, consulting, auditing, administrative
fees and expenses and fees and expenses for other similar services
rendered to the Developer by third-party service providers retained
by the Manager;
(iii) the costs
associated with the establishment and maintenance of any credit
facilities and other indebtedness of the Developer (including
commitment fees, accounting fees, legal fees, closing costs,
etc.);
(iv) expenses associated
with securities offerings of the Developer;
(v) expenses relating
to the payment of distributions;
(vi) expenses connected
with communications and in complying with the continuous reporting
and other requirements of the Exchange Act, the SEC and other
governmental bodies;
(vii) transfer agent,
registrar and exchange listing fees, if applicable;
(viii) the costs of
printing and mailing reports and other materials to the
Developer;
(ix) costs associated
with any computer software or hardware, electronic equipment, or
purchased information technology services from third party vendors
that is used solely for the Developer;
(x) costs and out of
pocket expenses incurred by directors, officers, employees or other
agents of the Manager for travel on the Developer’s
behalf;
(xi) the portion of any
costs and expenses incurred by the Manager or its Affiliates with
respect to market information systems and publications, research
publications and materials that are allocable to the
Developer;
(xii) settlement,
clearing, and custodial fees and expenses;
(xiii) all taxes and
license fees;
(xiv) all insurance costs
incurred with respect to insurance policies obtained in connection
with the operation of the Developer’s business, including but
not limited to insurance covering activities of the Manager, its
Affiliates and any of their employees relating to the performance
of the Manager’s duties and obligations under this
Agreement;
(xv) costs and expenses
incurred in contracting with third parties for the servicing,
special servicing and property management of assets of the
Developer;
(xvi) all other actual
out of pocket costs and expenses relating to the Developer’s
business and operations, including, without limitation, the costs
and expenses of originating, acquiring, owning, rehabilitating,
protecting, maintaining, developing and disposing of Developer
assets, including appraisal, reporting, audit and legal
fees;
(xvii) any judgment or
settlement of pending or threatened proceedings (whether civil,
criminal or otherwise) against the Developer or any Subsidiary, or
against any trustee, director or officer of the Developer or of any
Subsidiary in his capacity as such for which the Developer or any
Subsidiary is required to indemnify such trustee, director or
officer by any court or governmental agency, or settlement of
pending or threatened proceedings;
(xviii) the costs of
maintaining compliance with all federal, state and local rules and
regulations, including securities regulations, or any other
regulatory agency, all taxes and license fees and all insurance
costs incurred on the Developer’s behalf;
(xix) expenses relating
to any office or office facilities, including disaster backup
recovery sites and facilities, maintained expressly for the
Developer and separate from offices of the Manager;
(xx) the costs of the
wages, salaries and benefits incurred by the Manager with respect
to any Dedicated Officers that the Manager elects to provide to the
Developer pursuant to Section 3(a) above; provided that (A) if the Manager elects
to provide a partially dedicated chief financial officer, chief
operating officer, controller, internal legal counsel, property
managers and/or property management oversight professionals to the
Developer rather than a fully dedicated chief financial officer,
chief operating officer, controller, internal legal counsel,
property managers and/or property management oversight
professionals, the Developer shall be required to bear only a
pro rata portion of the
costs of the wages, salaries and benefits incurred by the Manager
with respect to such personnel based on the percentage of their
working time and efforts spent on matters related to the Developer
and (B) the amount of such wages, salaries and benefits paid or
reimbursed with respect to the Dedicated Employees shall be subject
to the approval of the Developer; and
(xxi) all other costs and
expenses approved by the Developer.
(b) Other than as
expressly provided above, the Developer will not be required to pay
any portion of the rent, telephone, utilities, office furniture,
equipment, machinery and other office, internal and overhead
expenses of the Manager and its Affiliates. In particular, the
Manager is not entitled to be reimbursed for wages, salaries and
benefits of its officers and employees, other than as described in
Section 9(a)(xx) above.
(c) Subject to any
required approval, the Manager may retain, for and on behalf, and
at the sole cost and expense, of the Developer, such services of
non-Affiliate third party accountants, legal counsel, appraisers,
insurers, brokers, transfer agents, registrars, developers,
investment banks, financial advisors, banks and other lenders and
others as the Manager deems necessary or advisable in connection
with the management and operations of the Developer. The provisions
of this Section 9 shall survive the expiration or earlier
termination of this Agreement to the extent such expenses have
previously been incurred or are incurred in connection with such
expiration or termination.
10.
Expense Reports and
Reimbursements.
The Manager shall
prepare a statement documenting the operating expenses of the
Developer incurred during each month, and deliver the same to the
Developer within 30 days following the end of the applicable month.
Such expenses incurred by the Manager on behalf of the Developer
shall be reimbursed by the Developer within 30 days following
delivery of the expense statement by the Manager; provided,
however, that such reimbursements may be offset by the Manager
against amounts due to the Developer from the Manager. The
provisions of this Section 10 shall survive the expiration or
earlier termination of this Agreement.
11.
Limits of Manager Responsibility;
Indemnification.
(a) Pursuant to this
Agreement, the Manager will not assume any responsibility other
than to render the services called for hereunder in good faith and
will not be responsible for any action of the Developer in
declining to follow its advice or recommendations. The Manager, its
Affiliates and the officers, directors, members, shareholders,
managers, committee members, employees, agents, successors and
assigns of any of them (each, a “Manager Indemnified
Party”) shall not be liable to the Developer for any
acts or omissions arising out of or in connection with the
Developer, this Agreement or the performance of the Manager’s
duties and obligations hereunder, except by reason of acts or
omissions found by a court of competent jurisdiction upon entry of
a final judgment rendered and unappealable or not timely appealed
(“Judicially
Determined”) to be due to the bad faith, gross
negligence, willful misconduct or fraud of the Manager Indemnified
Party. Notwithstanding any of the foregoing to the contrary, the
provisions of this Section 11 shall not be construed so as to
provide for the exculpation of any Manager Indemnified Party for
any liability (including liability under Federal securities laws
which, under certain circumstances, impose liability even on
Persons that act in good faith), to the extent (but only to the
extent) that such liability may not be waived, modified or limited
under applicable law, but shall be construed so as to effectuate
the provisions of this Section 11 to the fullest extent
permitted by law.
(b) To the fullest
extent permitted by law, the Developer shall indemnify, defend and
hold harmless each Manager Indemnified Party from and against any
and all costs, losses, claims, damages, liabilities, expenses
(including reasonable legal and other professional fees and
disbursements), judgments, fines and settlements (collectively,
“Indemnification
Obligations”) suffered or sustained by such Manager
Indemnified Party by reason of (i) any acts, omissions or
alleged acts or omissions arising out of or in connection with the
Developer or this Agreement, or (ii) any and all claims,
demands, actions, suits or proceedings (civil, criminal,
administrative or investigative), actual or threatened, in which
such Manager Indemnified Party may be involved, as a party or
otherwise, arising out of or in connection with such Manager
Indemnified Party’s service to or on behalf of, or management
of the affairs or assets of, the Developer, or which relate to the
Developer; except to the extent such Indemnification Obligations
are Judicially Determined to be due to such Manager Indemnified
Party’s bad faith, gross negligence, willful misconduct or
fraud or to constitute a material breach or violation of the
Manager’s duties and obligations under this Agreement. The
termination of a proceeding by settlement or upon a plea of
nolo contendere, or its
equivalent, shall not, of itself, create a presumption that such
Manager Indemnified Party’s conduct constituted bad faith,
gross negligence, willful misconduct or fraud.
(c) The Manager hereby
agrees to indemnify the Developer, its Afilliates, and its
Subsidiaries and each of their respective directors and officers
(each a “Developer
Indemnified Party”) with respect to all costs, losses,
claims, damages, liabilities, expenses (including reasonable legal
and other professional fees and disbursements), judgments, fines
and settlements (collectively, “Indemnification
Obligations”) suffered or sustained by such Developer
Indemnified Party by reason of (i) acts or omissions or
alleged acts or omissions of the Manager Judicially Determined to
be due to the bad faith, willful misconduct or gross negligence of
the Manager, its Affiliates or their respective officers or
employees or the reckless disregard of the Manager’s duties
under this Agreement or (ii) claims by the Manager’s or
its Affiliates’ employees relating to the terms and
conditions of their employment with the Manager or its
Affiliates.
(d) The party seeking
indemnity (“Indemnitee”) will promptly
notify the party against whom indemnity is claimed (“Indemnitor”) of any claim
for which it seeks indemnification; provided, however, that the failure to
so notify the Indemnitor will not relieve Indemnitor from any
liability which it may have hereunder, except to the extent such
failure actually prejudices the Indemnitor. The Indemnitor shall
have the right to assume the defense and settlement of such claim;
provided that, Indemnitor
notifies Indemnitee of its election to assume such defense and
settlement within (30) days after the Indemnitee gives the
Indemnitor notice of the claim. In such case the Indemnitee will
not settle or compromise such claim, and the Indemnitor will not be
liable for any such settlement made without its prior written
consent. If Indemnitor is entitled to, and does, assume such
defense by delivering the aforementioned notice to Indemnitee,
Indemnitee will (i) have the right to approve
Indemnitor’s counsel (which approval will not be unreasonably
withheld or delayed), (ii) be obligated to cooperate in
furnishing evidence and testimony and in any other manner in which
Indemnitor may reasonably request and (iii) be entitled to
participate in (but not control) the defense of any such action,
with its own counsel and at its own expense.
(e) Reasonable expenses
(including attorney’s fees) incurred by an Indemnitee in
defense or settlement of a claim that may be subject to a right of
indemnification hereunder may be advanced by the Developer to such
Indemnitee as such expenses are incurred prior to the final
disposition of such claim; provided that, Indemnitee undertakes to
repay such amounts if it shall be Judicially Determined that
Indemnitee was not entitled to be indemnified
hereunder.
(f) The Manager
Indemnified Parties shall remain entitled to exculpation and
indemnification from the Developer pursuant to this Section 11
(subject to the limitations set forth herein) with respect to any
matter arising prior to the termination of this Agreement and shall
have no liability to the Developer in respect of any matter arising
after such termination unless such matter arose out of events or
circumstances that occurred prior to such termination.
The Developer and
the Manager are not partners or joint venturers with each other and
nothing in this Agreement shall be construed to make the Developer
and the Manager partners or joint venturers or impose any liability
as such on either of them.
(a) Term. This Agreement shall remain in
full force through December 31, 2021 unless (1) both parties agree
in writing to terminate the Agreement sooner, or (2) the Agreement
is terminated by the Developer or Manager as set forth below, and
shall be renewed automatically for successive one year periods
thereafter, unless this Agreement is sooner terminated in
accordance with the terms hereof.
(b) Non-Renewal. Either party may elect not
to renew this Agreement at the expiration of the initial term or
any renewal term for any or no reason by notice to the other party
at least 180 days, but not more than 270 days, prior to the end of
the term.
(c) Termination
by the Developer.
(i) Termination by the
Developer With Cause. At the option of the Developer and at any
time during the term of this Agreement, this Agreement shall be and
become terminated upon 30 days written notice of termination from
the Developer to the Manager if any of the following events shall
occur:
A. the Manager
shall commit a material breach of any provision of this Agreement
(including the failure of the Manager to use reasonable efforts to
comply with the Developer’s Development Guidelines), which
such material breach continues and a plan to cure has not been
developed by Manager within a period of 30 days after written
notice of such breach;
B. the Manager in
its corporate capacity (as distinguished from the acts of any
employees of the Manager which are taken without the complicity of
the Developer or executive officers of the Manager) shall commit
any act of fraud, misappropriation of funds, or embezzlement
against the Developer;
(ii) Termination
by the Developer Without Cause. At the option of the Developer and
at any time during the term of this Agreement, the Developer may
terminate the Agreement without cause sixty (60) days after
Developer provides written notice of termination to the
Manager.
(d) Termination by Manager. The Manager may
terminate this Agreement effective upon 60 days’ prior
written notice of termination to the Developer in the event that
the Developer shall default in the performance or observance of any
material term, condition or covenant in this Agreement and such
default shall continue for a period of 30 days after written
notice thereof specifying such default and requesting that the same
be remedied in such 30-day period.
(e) Survival. If this Agreement is
terminated pursuant to this Section 13, such termination shall
be without any further liability or obligation of either party to
the other, except as otherwise expressly provided
herein.
14.
Action
Upon Termination or Expiration of Term.
From and after the
effective date of termination of this Agreement pursuant to
Section 13 herein, the Manager shall not be entitled to
compensation for further services under this Agreement but shall be
paid all compensation accruing to the date of termination,
reimbursement for all Expenses. For the avoidance of doubt, if the
date of termination occurs other than at the end of a month,
compensation to the Manager accruing to the date of termination
shall also include: base management fees equal to the Base
Management Fee for such final month, taking into account only the
portion of such final month that this Agreement was in effect, and
with appropriate adjustments to all relevant definitions. Upon such
termination or expiration, the Manager shall reasonably
promptly:
(a) after deducting any
accrued compensation and reimbursement for Expenses to which it is
then entitled, pay over to the Developer all money collected and
held for the account of the Developer pursuant to this
Agreement;
(b) deliver to the
Developer a full accounting, including a statement showing all
payments collected and all money held by it, covering the period
following the date of the last accounting furnished to the
Developer with respect to the Developer and through the termination
date; and
(c) deliver to the
Developer all property and documents of and material to the
Developer provided to or obtained by the Manager pursuant to or in
connection with this Agreement, including all copies and extracts
thereof in whatever form, then in the Manager’s possession or
under its control.
The Manager may not
assign its duties under this Agreement unless such assignment is
consented to in writing by Developer. However, the Manager may
assign to one or more of its Affiliates performance of any of its
responsibilities hereunder without the approval of the Developer so
long as the Manager remains liable for any such Affiliate’s
performance.
16.
Release of Money or other Property
Upon Written Request.
The Manager agrees
that any money or other property of the Developer or any Subsidiary
held by the Manager under this Agreement shall be held by the
Manager as custodian for the Developer or any Subsidiary, and the
Manager’s records shall be clearly and appropriately marked
to reflect the ownership of such money or other property by the
Developer. Upon the receipt by the Manager of a written request
signed by a duly authorized officer of the Developer requesting the
Manager to release to the Developer any money or other property
then held by the Manager for the account of the Developer under
this Agreement, the Manager shall release such money or other
property to the Developer within a reasonable period of time, but
in no event later than thirty (30) days following such
request. The Manager and its Affiliates, directors, officers,
managers and employees will not be liable to the Developer, any
Subsidiary, the Manager or any of their directors, officers,
shareholders, managers, employees, owners or partners for any acts
or omissions by the Developer in connection with the money or other
property released to the Developer in accordance with the terms
hereof. The Developer shall indemnify the Manager and its
Affiliates, officers, directors, Development and Risk Management
Committee members, employees, agents and successors and assigns
against any and all expenses, losses, damages, liabilities,
demands, charges and claims of any nature whatsoever which arise in
connection with the Manager’s release of such money or other
property to the Developer in accordance with the terms of this
Section 16. Indemnification pursuant to this Section 16
shall be in addition to any right of the Manager to indemnification
under Section 16.
Unless expressly
provided otherwise in this Agreement, all notices, requests,
demands and other communications required or permitted under this
Agreement shall be in writing and shall be deemed to have been duly
given, made and received when delivered against receipt or upon
actual receipt of (a) personal delivery, (b) delivery by
a reputable overnight courier, (c) delivery by facsimile
transmission but only if such transmission is confirmed,
(d) delivery by email but only if receipt of such transmission
is confirmed, or (e) delivery by registered or certified mail,
postage prepaid, return receipt requested, addressed as set forth
below:
|
The
Developer:
|
|
SeD Maryland
Development, LLC
9 Temasek Boulevard
#09-02A,
Suntec Tower
2
Singapore
038989
Attn: Chew Sien
Lup, Singapore eDevelopment, Limited
Email: sienlup@sed.com.sg
9 Temasek Boulevard
#09-02A,
Suntec Tower
2
Singapore
038989
Attn: Moe
Chan
Email:
moe@sed.com.sg
|
|
The
Manager:
|
|
SeD Development
Management, LLC
312 3rd
Street
Suite
102
Annapolis, MD
21403
Attn: Charles
W. S. MacKenzie
Fax: 410-832-2937
Email: cmackenzie@mackenzieequity.com
Hampden Square,
4800 Montgomery Lane
Suite
450
Bethesda, MD
20814
Attn: Jeff Busch
Email: jeff@185hk.com
with a copy
to:
Conn Flanigan,
Esq.
1601 Blake Street,
Suite 310
Denver, CO
80202
Conn@185hk.com
303-953-4245
|
Any party may
change the address to which communications or copies are to be sent
by giving notice of such change of address in conformity with the
provisions of this Section 17 for the giving of
notice.
18.
Binding
Nature of Agreement; Successors and Assigns.
This Agreement
shall be binding upon and inure to the benefit of the parties
hereto and their respective heirs, personal representatives,
successors and permitted assigns as provided in this
Agreement.
19.
Entire
Agreement; Amendments.
This Agreement
contains the entire agreement and understanding among the parties
hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements, understandings, inducements
and conditions, express or implied, oral or written, of any nature
whatsoever with respect to the subject matter of this Agreement.
The express terms of this Agreement control and supersede any
course of performance and/or usage of the trade inconsistent with
any of the terms of this Agreement. This Agreement may not be
modified or amended other than by an agreement in writing signed by
the parties hereto.
20.
Governing
Law; Jurisdiction.
This Agreement and
all questions relating to its validity, interpretation, performance
and enforcement shall be governed by and construed, interpreted and
enforced in accordance with the laws of the State of Delaware
without giving effect to such state’s laws and principles
regarding the conflict of interest laws. Each of the parties hereto
irrevocably submits to the exclusive jurisdiction of the courts of
the State of Delaware and the United States District Court in
Delaware for the purpose of any action or judgment relating to or
arising out of this Agreement or any of the transactions
contemplated hereby and to the lay of venue in such
court.
21.
Waiver
of Jury Trial.
EACH PARTY HERETO
ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER
THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER
OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
22.
Indulgences,
Not Waivers.
Neither the failure
nor any delay on the part of a party to exercise any right, remedy,
power or privilege under this Agreement shall operate as a waiver
thereof, nor shall any single or partial exercise of any right,
remedy, power or privilege preclude any other or further exercise
of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with
respect to any occurrence be construed as a waiver of such right,
remedy, power or privilege with respect to any other occurrence. No
waiver shall be effective unless it is in writing and is signed by
the party asserted to have granted such waiver.
23.
Titles
Not to Affect Interpretation.
The titles of
sections, paragraphs and subparagraphs contained in this Agreement
are for convenience only, and they neither form a part of this
Agreement nor are they to be used in the construction or
interpretation of this Agreement.
24.
Execution
in Counterparts.
This Agreement may
be executed in any number of counterparts, each of which shall be
deemed to be an original as against any party whose signature
appears thereon, and all of which shall together constitute one and
the same instrument. This Agreement shall become binding when one
or more counterparts of this Agreement, individually or taken
together, shall bear the signatures of all of the parties reflected
hereon as the signatories.
The provisions of
this Agreement are independent of and separable from each other,
and no provision shall be affected or rendered invalid or
unenforceable by virtue of the fact that for any reason any other
or others of them may be invalid or unenforceable in whole or in
part.
26.
Principles
of Construction.
Words used herein
regardless of the number and gender specifically used, shall be
deemed and construed to include any other number, singular or
plural, and any other gender, masculine, feminine or neuter, as the
context requires. All references to recitals, sections, paragraphs
and schedules are to the recitals, sections, paragraphs and
schedules in or to this Agreement unless otherwise
specified.
[SIGNATURE PAGE
FOLLOWS]
IN WITNESS WHEREOF,
the parties hereto have executed this Agreement as of the date
first above written.
|
|
THE
DEVELOPER:
|
|
|
|
SeD MARYLAND
DEVELOPMENT, LLC
|
|
|
|
|
|
|
|
|
By:
|
/s/ Chew Sien
Lup
|
|
|
|
Name:
|
Chew Sien
Lup
|
|
|
|
Title:
|
CFO
|
|
|
|
THE
MANAGER:
|
|
|
|
SeD MARYLAND
DEVELOPMENT, LLC
|
|
|
|
|
|
|
|
|
By:
|
/s/
Jeffrey
Busch
|
|
|
|
Name:
|
Jeffrey
Busch
|
|
|
|
Title:
|
President
|
|
EXHIBIT
10.9
AMENDED
AND RESTATED
LIMITED
LIABILITY COMPANY AGREEMENT
OF
SeD
MARYLAND DEVELOPMENT, LLC
This Amended and
Restated Limited
Liability Company Agreement (together with the schedules attached
hereto, this “Agreement”) of SeD
MARYLAND DEVELOPMENT, LLC, a Delaware limited liability company
(the “Company”), is entered
into on September 16, 2015, by the parties identified on
Schedule B attached
hereto (the “Members” and each a
“Member”). Capitalized
terms used and not otherwise defined herein have the meanings set
forth on Schedule A attached hereto.
RECITALS
WHEREAS, the
Company was formed as a limited liability company pursuant to and
in accordance with the Delaware Limited Liability Company Act (6
Del. C.
§ 18-101 et seq.), as amended from time to
time (the “Act”), pursuant to that
certain Certificate of Formation of the Company filed with the
Delaware Secretary of State on October 16, 2014 (the
“Certificate of
Formation”).
WHEREAS, SeD
Ballenger, LLC (“SeD
Ballenger”) was the original member of the
Company.
WHEREAS, SeD Ballenger entered into that
certain Limited Liability Company Agreement dated January 8, 2015
(the “Original LLC
Agreement”).
WHEREAS, as of
September 25, 2015, SeD Ballenger shall have contributed
$12,697,568 to the capital of the Company.
WHEREAS, pursuant
to the terms and conditions of that certain Membership Interest
Purchase Agreement, dated as of the date hereof (the
“Purchase
Agreement”), by and among the Company, SeD Ballenger
and CNQC Maryland Development LLC, a Delaware limited liability
company (“CNQC”), CNQC has
purchased from the Company a newly issued Interest in the Company
(the “Purchased
Interest”) representing 16.45% of the outstanding
Interests in the Company, in exchange for the payment by CNQC to
the Company of US$2,500,000 in cash on September 25,
2015.
WHEREAS, the
Members wish to enter into this Agreement to amend and restate the
Original LLC Agreement in its entirety and to set forth the terms
and conditions that will govern their relationship with respect to
the Company and operation of the Company’s
business.
NOW, THEREFORE, in
consideration of the mutual promises herein contained and other
good and valuable consideration, the receipt and legal sufficiency
of which are hereby acknowledged, the Company and undersigned
Members hereby agree that the Original LLC Agreement is amended and
restated in its entirety as follows:
AGREEMENT
1. Name.
The name of the limited liability company is
“SeD Maryland
Development, LLC.”
2. Principal Business
Office. The principal office of
the Company in the United States shall be at such place as the
Company may designate, which need not be in the State of Delaware,
and the Company shall maintain records there as required by the
Delaware Act and shall keep the street address of such principal
office at the registered office of the Company in the State of
Delaware. The Company may have such other offices as the Board of
Managers may designate from time to time, upon approval of at least
a majority of the Managers.
3. Registered
Office. The address of the
registered office of the Company in the State of Delaware is 16182
Coastal Highway, Lewes, DE 19958.
4. Registered
Agent. The name and address of
the registered agent of the Company for service of process on the
Company in the State of Delaware is Harvard Business Service, 16182
Coastal Highway, Lewes, DE 19958.
5. Members.
(a) The mailing address of each Member is set forth
on Schedule B
attached hereto.
(b) The
Members may act by unanimous written consent in lieu of a
meeting.
6. Certificates.
The Certificate of Formation of the Company, and each other
certificate of or relating to the Company, filed on or prior the
date hereof with the Secretary of State of the State of Delaware,
have been executed, delivered and filed by an “authorized
person” of the Company within the meaning of the Act. The
execution, delivery and filing of the Certificate of Formation of
the Company and each other certificate of or relating to the
Company filed on or prior the date hereof with the Secretary of
State of the State of Delaware are hereby expressly approved,
ratified and confirmed in all respects. Upon the execution of this
Agreement, each of Charles Mackenzie, Tung Moe Chan and Jeffrey
Busch shall be designated as an “authorized person” and
shall continue as a designated “authorized person”
within the meaning of the Act, unless the Board of Managers
authorize, upon approval of at least a majority of the Managers, a
change in the authorized persons. An “authorized
person” shall execute, deliver and file any other
certificates (and any amendments and/or restatements thereof)
necessary for the Company to qualify to do business in any other
jurisdiction in which the Company may wish to conduct
business.
The existence of
the Company as a separate legal entity shall continue until
cancellation of the Certificate of Formation as provided in the
Act.
7. Purposes.
(a) The business
of the Company shall be to acquire, own, develop, hold, operate,
maintain, manage, sell, mortgage, finance, pledge, convey, lease
and otherwise encumber and in any manner deal with that certain
land consisting of approximately 197 acres known as Parcels 53, 54
and 243 on Tax Map 86 in Frederick County, Maryland, together with
the buildings, structures, and improvements thereon erected and/or
to be erected thereon and all appurtenances thereof and interests
therein, and any personal property located thereon or used in
connection therewith, known as Ballenger Run, and being more
particularly described in Exhibit A attached hereto and made a part
hereof (collectively, the “Property”),
and to carry on all such other business incidental to and not
inconsistent with the general purposes herein set
forth.
(b) Subject to the approval rights of the SeD
Ballenger set forth herein and the Board of Managers set forth
in Section 10(f)
below, the Management Company or any
authorized person designated or appointed pursuant to a resolution
adopted by the Board of Managers, upon approval of at least a
majority of the Managers, (individually an “Authorized
Signatory”), may enter into, execute and perform (i) the
Basic Documents and all documents, agreements, certificates, or
financing statements contemplated thereby or related thereto and
any resolution relating to the Basic Documents, and (ii) any and
all agreements, documents, instruments and any additions to,
deletions from, changes in, or amendments thereto and do or cause
to be done any and all acts and things, as such Authorized
Signatory shall deem necessary, appropriate or desirable, in the
best interests of the Company. Any Authorized Signatory executing
documents on behalf of the Company may execute such documents using
such person’s title, or in lieu of any title, the designation
“Authorized
Signatory.” The foregoing
shall not be deemed a restriction on the power and authority of the
Board of Managers to execute documents or take other actions on
behalf of the Company so long as duly approved by at least a
majority of the Managers.
8. Development of
Project.
(a) Development of the
Project. The Board of Managers
shall take such actions as shall be required to cause either the
Company or the Management Company (as defined in
Section
9(b)
below) to perform and complete the
construction and other development work as contemplated and/or
required under the NVR Purchase and Sale Agreements, or any other
construction company selected by the Board of Managers (the
“Development
Work”), substantially in
accordance with the Project Plan, at a cost to the Company not
exceeding the total cost set forth in the Budget, in a manner
consistent with this Agreement and all applicable laws, ordinances,
rules, regulations or requirements (including, without limitation,
those with respect to discrimination) of governmental authorities,
and in compliance with any covenants, conditions or restrictions
affecting all or any portion of the Property.
(b) Project Plan and
Budget. The Board of Managers
shall take such actions as shall be required to cause either the
Company or the Management Company to prepare (i) a project plan for
the acquisition and development of the Property and the timely
performance and completion of the Development Work in accordance
with the Budget (the “Project
Plan”), and (ii) a budget
of the hard and soft costs of the Development Work and the other
costs to complete the development of the Property (the
“Budget”),
which Budget shall be prepared not later than thirty (30) days prior to the
commencement of each Fiscal Year. The Board of
Managers shall use commercially
reasonable efforts to operate in all material respects in
accordance with the Budget,
and shall review the Budget
periodically and make any
recommendations with respect to the Project Plan and the Budget.
The Project Plan and Budget, and any amendments, revisions or
modifications thereto, shall be approved by the Board of Managers
pursuant to Section 10(f)
below.
(c) Project
Financing. It is anticipated by
the Members that funding for Development Work and other capital
needs of the Company (“Project
Financing”) will be
provided by a third party institutional lender
(“Institutional
Lender”). Subject to the
terms hereof, the Board of Managers shall oversee and make all
final determinations with respect to obtaining all Project
Financing for the Project and the Company’s business,
including, without limitation (i) the final selection of the
Institutional Lender or other final financing source that will
provide the Project Financing; (ii) the final approval of all terms
and conditions of the Project Financing; and (iii) the negotiation
of all final terms and conditions contained in the loan documents
evidencing and securing all Project Financing. As soon as
reasonably practicable, the Board of Managers shall: (A) arrange
for Project Financing which is sufficient to permit the Company to
develop, construct, complete, market and sell the Development Work
on terms acceptable to the Board of Managers; (B) cause such
Project Financing to close and be available to the Company for the
purposes described herein; and (C) provide the Institutional Lender
or other lending source providing the Project Financing (the
“Project Financing
Lender”) with, or causing
the Project Financing Lender to be provided with, such guaranties
of payment and performance with respect to the Project Financing as
may be reasonably required by the Project Financing Lender.
Notwithstanding anything to the contrary in this Agreement, none of
the Members, nor any of the principals or equity holders of any of
the Members, shall have any obligation or duty of any kind to
provide any guaranty or other credit support with respect to any
Project Financing.
9. Management.
(a) Board of Managers.
Subject to any limitations
specifically imposed by the Act or this Agreement,
the Board of Managers shall have the
sole right to make all
decisions relating to the business, affairs and properties of the
Company, and any and all other acts or activities customary or
incident to the management of the Company’s business and
objectives. The Board of Managers may delegate any of its rights or
responsibilities to (i) an Authorized Signatory pursuant to
Section
7(b)
above, (ii) the Management Company,
pursuant to Section
9(b)
below, or (iii) any officer of the
Company pursuant to Section
10
below. Any delegation pursuant to
this Section
9(a)
may be revoked at any time by the
Board of Managers in its sole discretion.
(b) Management
Company. Pursuant
and subject to the terms and
conditions of that certain Management Agreement, dated as of July
15, 2015, by and between the Company and SeD Development
Management, LLC, a Delaware limited liability company (the
“Management
Company”) attached hereto
as Exhibit B (the
“Management
Agreement”), and subject
to the approval rights of the Board of Managers set forth in
Section
10(f)
below, the daily business and affairs
of the Company shall be managed by the Management Company. The
Management Company shall be entitled to be paid the fees and shall
have the other rights, benefits and obligations as are set forth in
the Management Agreement. The Management Company shall be a
“manager” within the meaning of and for purposes of the
Act. The Board of Managers
shall act on behalf of the Company with respect to the Management
Company, the terms and provisions of the Management Agreement,
including, without limitation, the right to remove the Management
Company. Subject to the
foregoing, the Management Company has the authority to bind the
Company.
10. Board of Managers;
Officers. A Board of Managers of the Company shall be
established pursuant to this Section
10. Notwithstanding the last sentence of Section
18-402 of the Act, no Manager, acting individually in its capacity
as such, nor each of the Members, acting individually in its
capacity as such, shall have any right or authority to act for,
bind or otherwise assume any obligation or responsibility on behalf
of, the Company, except as specifically authorized in accordance
with this Agreement. Except as otherwise specifically provided
herein, the Company may only act and bind itself through (i) the
collective action of the Managers in accordance with this Agreement
or (ii) the action of the Officers of the Company, if and to the extent
authorized by this Agreement or by the Board of Managers in
accordance with this Agreement. The Board of Managers may, from
time to time as it deems advisable, appoint officers of the Company
(the “Officers”)
and assign in writing titles (including, without limitation,
President, Vice President, Secretary, Treasurer or
attorney-in-fact) to any such individual. The Board of Managers may
remove any Officer at any time with or without cause. No Officer
shall be paid any compensation or other remuneration solely for
serving as an Officer of the Company. Unless the Board of Managers
decides otherwise, if the title is one commonly used for officers
of a business corporation formed under the Delaware General
Corporation Law, the assignment of such title shall constitute the
delegation to such person of the authorities and duties that are
normally associated with that office.
(a) Number and Initial
Managers. The number of
Managers constituting the Board of Managers shall be as determined
by the Members in accordance with this Agreement, but in no
instance shall there be less than one Manager. The initial number
of Managers constituting the Board of Managers shall be three. The
Members, by unanimous
vote, may from time to time change the number of
Managers constituting the Board of Managers by adopting resolutions
to that effect. The Board of Managers shall be comprised as
follows:
(i) Two
individuals designated by SeD Ballenger, who shall initially be
Chan Heng Fai and Chan Tung Moe, one of which will be the Chairman
of the Board of Managers; and
(ii) one
individual designated by CNQC, who shall initially be Li Gen
Zhong.
(b) Duties of the
Manager. Each Manager shall be
obliged to devote only as much of their time to the Company’s
business as shall be reasonably required in light of the
Company’s business and objectives. Each Manager shall perform
his or her duties as a Manager in good faith, in a manner he or she
reasonably believes to be in the best interests of the Company, and
with such care as an ordinarily prudent Person in a like position
would use under similar circumstances.
(c) Election of Managers;
Vacancies; Term. Managers shall
be appointed from time to time by the Members. In the event of a
vacancy in the Board of Managers, including vacancies created by an
increase in the number of Managers pursuant to Section 10(a),
the Member(s) who are entitled to appoint the initial managers
pursuant to Section 10(a)
above shall have the right to fill
such vacancy (by way of example only, if there is a vacancy by one
of the Managers appointed by SeD Ballenger, then SeD Ballenger
shall have the right to appoint the successor manager). Each member
of the Board of Managers, including each Manager appointed to fill
a vacancy on the Board of Managers, shall hold office until the
earlier of his or her resignation, removal, retirement or death or
the appointment and qualification of his or her
successor.
(d) Resignation and Removal of
Managers. A Manager may
resign upon delivery of written notice thereof to the Chairman of
the Board of Managers or, in case of the Chairman’s
resignation, to an Authorized Signatory, provided that any Manager
who receives written notice of the resignation from the Chairman
shall promptly forward such written notice to the other members of
the Board of Managers. A Manager may be removed from office with or
without cause by unanimous consent of the
Members.
(e) Meetings of the Board of
Managers.
(i) Location. The Board of Managers may hold meetings, both
regular and special, either within or without the State of
Delaware.
(ii) Regular
Meetings. Regular meetings of
the Board of Managers may be held without notice at such time and
at such place as shall, from time to time, be determined by the
Board of Managers.
(iii) Special
Meetings. Special meetings of
the Board of Managers may be called by any
Manager.
(iv) Notice of
Meetings. Regular meetings of
the Board of Managers may be held without notice. The person(s)
calling a special meeting of the Board of Managers shall, at least
two days (or, in the case of notice given by mail, not less than
three days) before such meeting, give or cause to be given notice
thereof to each Manager by any usual means of communication. Such
notice need not specify the purpose for which the meeting is
called. Any duly convened regular or special meeting may be
adjourned by the Board of Managers to a later time without further
notice. Any Manager may waive notice of any meeting either before
or after such meeting. The waiver must be signed in writing by the
Manager entitled to notice and delivered to the Company for
inclusion in the Company’s records. A Manager’s
attendance at or participation in a meeting shall constitute a
waiver of notice of such meeting, except when such Manager attends
a meeting for the express purpose of objecting, at the beginning of
the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting
of the Board of Managers need be specified in any written waiver of
notice.
(v) Quorum, Adjournments and Acts of the
Board of Managers. At all
meetings of the Board of Managers, the presence of at least one
member nominated by SeD Ballenger and one member nominated by CNQC,
if applicable, shall constitute a quorum for the transaction of
business. Each member of the Board of Managers may appoint an
Officer or any other Person to act on his behalf in case such
Manager is unavailable to attend the meeting. Each member of the
Board of Managers, or its representative, as applicable, shall be
entitled to one vote, and the affirmative vote of a majority of the
members of the Board of Managers present at any meeting at which
there is a quorum shall be the act of the Board of Managers, except
as may be otherwise specifically provided by the Act. If a quorum
is not present at a meeting of the Board of Managers, the Managers
present at such meeting may adjourn the meeting from time to time,
without notice other than announcement at the meeting. After two
adjourned meetings at which a quorum was not present or
represented, the presence of any members of the Board of Managers,
or their representatives, at the third adjourned meeting shall be
sufficient to constitute a quorum for the transaction of business.
At any adjourned meetings, any business may be transacted which
might have been transacted at the meeting as originally
notified.
(vi) Action Without Meeting.
Unless otherwise restricted by the
Act, any action required or permitted to be taken at any meeting of
the Board of Managers may be taken without a meeting, if a written
consent thereto is signed by all members of the Board of Managers
before or after such action, describing the action to be taken or
previously taken, and included in the minutes of the Board of
Managers or filed with the Company’s
records.
(vii) Organization.
There may be a Chairman of the Board of Managers elected by the
Managers from their number at any meeting of the Board of Managers.
The Chairman shall preside at all meetings of the Board of Managers
and perform such other duties as may be directed by the Board of
Managers, and shall serve as Chairman at the pleasure of the Board
of Managers. Until a Chairman of the Board of Managers is elected,
the President of the Company shall preside at the meetings of the
Board of Managers. The Secretary or an Assistant Secretary of the
Company, if any, shall act as Secretary of any meeting of the Board
of Managers, but if neither has been appointed or in their absence,
the Chairman may appoint any person to act as Secretary of the
meeting.
(viii) Meeting by Conference
Telephone. Any member of the
Board of Managers may participate in any meeting of the Board of
Managers by means of conference telephone or similar communications
equipment by means of which all persons participating in the
meeting can hear, and be heard by, each other, and such
participation shall constitute presence in person at such
meeting.
(f) Greater Than Fifty Percent
Majority Approval. Certain
major decisions involving the Company shall require approval of a
majority of the Managers. Without limiting the generality of the
preceding sentence, the following actions shall require approval of
at least a majority percent of the Managers:
(i) to
borrow money (other than trade payables) in excess of $500,000 (in
one or a related series of transactions) and/or grant security
interests in Company property to secure such loans;
(ii) to make all
decisions and determinations with respect to the Project Financing
in accordance with the terms of Section 8(c) above;
(iii) to guarantee the
debts of any Person, or to provide any credit or to grant any loan
or advance to (A) any employee or similar person of the Company, or
(B) any third party in an amount in excess of $50,000;
(iv) to enter into any
new line of business;
(v) to amend, modify,
waive or terminate the Management Agreement;
(vi) to approve the
Project Plan and Budget, and any revisions or changes
thereto;
(vii) to require the
Members to make any Member Loans;
(viii) to exercise the
right of first refusal pursuant to Section 22(c) below or to make the
rights under Section 22(g) below;
(ix) to designate a Tax
Matters Partner (as defined herein);
(x) to delegate any of
the powers, authority rights or obligations of the Board of
Managers to (i) an Authorized Signatory pursuant to Section 7(b), (ii) the Management
Company, pursuant to Section 9(b), or (3) any officer of the
Company pursuant to Section 10;
(xi) to appoint or
remove any Officer;
(xii) removal and
replacement of a Manager from office;
(xiii) to appoint a new
Management Company, in accordance with the terms of the Management
Agreement;
(xiv) to amend, modify or
terminate the NVR Purchase Agreements (or any of
them);
(xv) to sell, transfer,
assign or otherwise dispose of, or encumber, any major asset of the
Company;
(xvi) to organize or
acquire any subsidiary or to subscribe for or acquire shares in, or
other securities of, or interest in, any other corporate body or
Person;
(xvii) to register or
qualify any securities of the Company under the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended,
or any other applicable laws;
(xviii) to determine the
maximum and minimum working capital requirements of the
Company;
(xix) any merger of the
Company with or into another Person;
(xx) any acquisition of
another Person, whether by merger, consolidation, purchase of stock
or assets, or otherwise;
(xxi) to
borrow money from a Member or Members;
(xxii) to
implement any plan or arrangement for the issuance of, or to issue,
membership interests or other security convertible into membership
interests;
(xxiii) to
issue or sell any new membership interests to any Person or admit
any new Member;
(xxiv) to
register or qualify any securities of the Company under the
Securities Act of 1933, as amended, the Securities Exchange Act of
1934, as amended, or any other applicable laws;
(xxv) to
pay any distributions to the Members, whether in cash or in kind;
and
(xxvi) to
acquire any major asset or make any major expenditure with any
Company funds, except in accordance with the Budget.
Subject to the
power and authority provided above in Section 10 (f)(x), unless
authorized by at more than fifty percent of the Managers, no
attorney-in-fact, employee, or other agent of the Company shall
have any power or authority to bind the Company in any way, to
pledge its credit, or to render it liable pecuniarily for any
purpose.
(g) Unanimous Approval. Certain major
decisions involving the Company shall require unanimous approval of
the Managers. Without limiting the generality of the preceding
sentence, the following actions shall require unanimous approval of
the Managers:
(i) amending the
Certificate of Formation of the Company;
(iii) amending the terms
of this Agreement;
(iii) increasing of the
number of Managers beyond three (3);
(iv) instituting any
proceedings under bankruptcy laws or other law of general
application to debtors seeking relief from claims of creditors, or
having a receiver or trustee appointed for the benefit of the
Company, the undertaking of any action that would render the
Company insolvent or unable to pay its debts as they become due,
making a general assignment for the benefit of creditors, or
causing a dissolution, liquidation or winding-up of the
Company.
(h) No Exclusive Duty to Company;
Compensation. Members of the Board of Managers shall not be
required to manage the Company as their sole and exclusive
function, and they may have other business interests and may engage
in other activities in addition to those relating to the Company.
Neither the Company nor the Members shall have any right, by virtue
of this Agreement, to share or participate in such other
investments or activities of members of the Board of Managers
acting in a capacity other than as a member of the Board of
Managers or to the income or proceeds derived therefrom. No member
of the Board of Managers shall be compensated for serving as a
Manager, unless compensation shall be duly authorized by SeD
Ballenger. Notwithstanding the foregoing, the Board of Managers
shall provide for the payment or reimbursement of any or all
reasonable expenses incurred by any Manager in connection with the
authorized services performed by such Manager on behalf of the
Company.
(i) Conflicts of
Interest. No contract or transaction between the
Company and one or more of its Managers, or between the Company and
an Affiliate of any Manager, shall be void or voidable: (a) solely
for that reason; (b) solely because such Manager is present at or
participates in the meeting of the Board of Managers or committee
thereof which authorizes, approves or ratifies the contract or
transaction; (c) solely because the votes of such Manager are
counted for such purpose; or (d) if the transaction is fair as to
the Company as of the time it is authorized, approved or ratified
by the Board of Managers or the Members. Common or interested
Managers may be counted in determining the presence of a quorum at
a meeting of the Board of Managers.
(a) Subject to the terms and provisions hereof, if the
Members or the Managers are unable to agree on any of the matters
described in this Agreement, including, but not limited to
Section
10(f) and Section 10(g) hereof and such disagreement
continues for [thirty (30)] days despite good faith deliberations
by the Members or the Managers, as applicable
(“Deadlock”),
then either Member shall be entitled to exercise the buy-sell
rights set forth in this Section 11(a)
by delivering a Buy-Sell Offer Notice
(as defined herein). The
provisions of this Section 11(a) shall
not apply with respect to any disagreement regarding the CNQC
Option.
(b) If a Member wishes to exercise the buy-sell right
provided in this Agreement, such Member (the
“Initiating
Member”) shall deliver to
the other Member (the “Responding
Member”) written notice
(the “Buy-Sell Offer
Notice”) of such
election, which notice shall include (i) a description of the
circumstances that triggered the buy-sell right, and (ii) the
purchase price (which shall be payable exclusively in cash (unless
otherwise agreed)) at which the Initiating Member shall purchase
all of the Interests owned by the Responding Member (the
“Buy-out
Price”) or sell all of
its Interests to the Responding Member (the
“Sell-out
Price”), with any
difference between the Buy-out Price and the Sell-out Price based
solely on each Member’s Interest in the Company, without
regard to any market discount or premium from differences in such
proportionate interests. The Member who first delivers the Buy-Sell
Offer Notice to the other Member shall be the Initiating
Member.
(c) Within [thirty (30)] days after the Buy-Sell Offer
Notice is received (the “Buy-Sell Election
Date”), the Responding
Member shall deliver to the Initiating Member a written notice (the
“Response
Notice”) stating whether
it elects to sell all of its Interests to the Initiating Member for
the Buy-out Price or buy all of the Interests owned by the
Initiating Member for the Sell-out Price. The failure of the
Responding Member to deliver the Response Notice by the Buy-Sell
Election Date shall be deemed to be an election to sell all of its
Interests to the Initiating Member at the Buy-out
Price.
(d) The closing of any purchase and sale of Interests
pursuant to this Section 11
shall take place [fifteen (15)] days
after the Response Notice is delivered or deemed to have been
delivered or some other date mutually agreed upon by the parties.
The Buy-out Price or the Sell-out Price, as the case may be, shall
be paid at closing by wire transfer of immediately available funds
to an account designated in writing by the selling Member (the
“Selling
Member”). At the closing,
the Selling Member shall deliver to the purchasing Member (the
“Purchasing
Member”) good and
marketable title to its Interests, free and clear of all liens and
encumbrances. Each Member agrees to cooperate and take all actions
and execute all documents reasonably necessary or appropriate to
reflect the purchase of the Selling Member’s Interest by the
Purchasing Member.
(e) If the Purchasing Member defaults in any of its
material closing obligations, then the Selling Member shall have
the option to purchase the Purchasing Member’s entire
Interest at a price that is equal to [85]% of the purchase
price of the Purchasing
Member’s Interest determined in accordance with
Section
11(b)
above.
12. Limited
Liability. Except as otherwise
expressly provided by the Act, the debts, obligations and
liabilities of the Company, whether arising in contract, tort or
otherwise, shall be the debts, obligations and liabilities solely
of the Company, and no Member, Manager, authorized person or
Authorized Signatory shall be obligated personally for any such
debt, obligation or liability of the Company solely by reason of
being a Member, Management Company, Manager, authorized person or
Authorized Signatory of the Company.
13. Initial Capital
Contributions. Each Member has
contributed to the capital of the Company cash in the amount set
forth next to such Member’s name on Schedule B
hereto (an “Initial Capital
Contribution”). Each
Member’s Interest in the Company is expressed as a percentage
and is set forth next to such Member’s name on
Schedule
B hereto. Each Member acknowledges that its
percentage Interest in the Company may change over the life of the
Company and, in the event of any such change in its percentage
Interest in the Company, the Management Company shall revise
Schedule
B hereto to reflect any such change. A separate
capital account (“Capital
Account”) has been or
will be established and maintained for each member in accordance
with Section 1.704-1(b)(2)(iv) of the Treasury
Regulations.
14. Capital Contributions;
Member Loans.
(a) Voluntary Capital
Contributions. Except
for the Members’ obligation to
make its respective Initial
Capital Contribution, the
Members shall not be required
to make any additional capital contribution to the Company.
To the extent that any
operating revenue and the proceeds of any loans to the Company are
insufficient to fully fund the development costs set forth in the
Budget, any additional capital
requirements shall be fulfilled by one or more member loans
(“Member
Loans”)
in accordance with this Section
14.
(b) Member
Loans. Subject to the terms
hereof, Member Loans shall be made by the Members
in an amount equal to their pro rata
portion of the Member Loan
amount based on their
respective percentage Interests in the Company at that time.
In the event the Board of Managers
determines to require Member Loans, the Board of Managers
shall provide written notice to the
Members of such election at least fifteen (15) Business Days prior to the date such
loans will be made to the Company,
together with the amount of the Member Loans required and terms of
repayment of such Member Loans (“Member Loan
Notice”). Each Member
shall have ten (10) Business Days after receipt of the Member Loan
Notice to either agree or decline to make its respective Member
Loan; provided that if a Member fails or otherwise elects to
decline to make the Member Loan, then the other Member shall have
the option to make 100% of the Member Loan amount on the terms set
forth in the Member Loan Notice. Such Member Loans shall have a
two-year term and will be made in exchange for a 15% interest rate
per annum to be paid annually, or any other terms approved by at
least a majority of the Board of Managers.
(c) Member Loan
Cap. If a any time the Board of
Managers determined to require additional capital contribution to
the Company in an aggregate amount greater than $5.0 million (USD),
CNQC shall have the option to sell its entire Interest to SeD
Ballenger (the “CNQC
Option”), at a purchase
price equal to the lesser of (i) the fair market value of the CNQC Interest
as determined pursuant to Section
22(d)(ii),
and (ii) CNQC’s Initial Capital Contribution minus any
distributions made to CNQC; which shall be paid in up to 90
Business Days from the receipt of the Election Notice (as defined
below) by SeD Ballenger. CNQC shall have ten (10) Business Days
from receipt of the Member Loan Notice to elect in writing to
exercise the CNQC Option (the “Election
Notice”); provided that
if a CNQC fails or otherwise elects to decline to make such option,
then it shall be understood that CNQC waives its right to exercise
the CNQC Option and the terms of Section
14(b)
above shall apply.
(d) Revaluing Capital
Accounts. If (i) a new or
existing Member acquires additional Interests in the Company in
exchange for more than a de minimis contribution of property or services, (ii) the
Company distributes to a Member more than a de minimis amount of Company property as consideration for
such Interests, or (iii) the Company is liquidated within the
meaning of Section 1.704-1(b)(2)(ii)(g) of the Treasury
Regulations, the Board of
Managers shall revalue the property of the Company to its fair
market value (as determined by the Board of Managers, in its sole and absolute
discretion, and taking into account Section 7701(g) of the Code) in
accordance with Section 1.704-1(b)(2)(iv)(f) of the Treasury
Regulations; provided, however, that the adjustments pursuant to
clauses (i) and (ii) above shall be made only if the Manager
determines, it is reasonable discretion, that such adjustments are
necessary or appropriate to reflect the relative economic interests
of the Members of the Company. When the Company’s property is
revalued by the Manager, the Capital Accounts of the Company shall
be adjusted in accordance with Sections 1.704-1(b)(2)(iv)(f) and
(g), which generally require such Capital Accounts to be adjusted
to reflect the manner in which the unrealized gain or loss inherent
in such property (that has not been reflected in the Capital
Accounts previously) would be allocated among the Members pursuant
to Sections 15
and 16 if there were a taxable disposition of such
property for its fair market value (as determined by the Managers,
in their sole and absolute discretion, and taking into account
Section 7701(g) of the Code) on the date of the
revaluation.
15. Allocation of Profits
and Losses; Tax
Characterization.
(a) Profit and loss of the Company for each 12-month
period ending December 31 of each year or such other taxable year
as may be required by Section 706(b) of the Code
(“Fiscal
Year” or
“Taxable
Year”) shall be allocated
to the Members in accordance with their respective
Interests.
(b) Notwithstanding any provision to the contrary, (i)
any expense of the Company that is a “nonrecourse
deduction” within the meaning of Treasury Regulations Section
1.704-2(b)(1) shall be allocated in accordance with the
Members’ respective Interests, (ii) any expense of the
Company that is a “partner nonrecourse deduction”
within the meaning of Treasury Regulations Section 1.704-2(i)(2)
shall be allocated in accordance with Treasury Regulations Section
1.704-2(i)(1), (iii) if there is a net decrease in Partnership
Minimum Gain within the meaning of Treasury Regulations Section
1.704-2(f)(1) for any Taxable Year, items of gain and income shall
be allocated among the Members in accordance with Treasury
Regulations Section 1.704-2(f) and the ordering rules contained in
Treasury Regulations Section 1.704-2(j), and (iv) if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain within the
meaning of Treasury Regulations Section 1.704-2(i)(4) for any
Taxable Year, items of gain and income shall be allocated among the
Members in accordance with Treasury Regulations Section
1.704-2(i)(4) and the ordering rules contained in Treasury
Regulations Section 1.704-2(j). A Member’s “interest in
partnership profits” for purposes of determining its share of
the nonrecourse liabilities of the Company within the meaning of
Treasury Regulations Section 1.752-3(a)(3) shall be the percentage
of all outstanding Membership Units held by such
Member.
(c) If a Member receives in any Taxable Year an
adjustment, allocation, or distribution described in subparagraphs
(4), (5), or (6) of Treasury Regulations Section
1.704-1(b)(2)(ii)(d) that causes or increases a negative balance in
such Member’s Capital Account that exceeds the sum of such
Member’s shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain, as determined in accordance with
Treasury Regulations Sections 1.704-2(g) and 1.704-2(i), such
Member shall be allocated specially for such Taxable Year (and, if
necessary, later Taxable Years) items of income and gain in an
amount and manner sufficient to eliminate such negative Capital
Account balance as quickly as possible as provided in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d). After the occurrence of
an allocation of income or gain to a Member in accordance with
this Section 15(c),
to the extent permitted by Regulations Section 1.704-1(b)
and Section 15(c)
hereof, items of expense or loss shall
be allocated to such Member in an amount necessary to offset the
income or gain previously allocated to such Member under
this Section 15(c).
(d) Loss shall not be allocated to a Member to the
extent that such allocation would cause a deficit in such
Member’s Capital Account (after reduction to reflect the
items described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6)) to exceed the sum of such
Member’s shares of Partnership Minimum Gain and Partner
Nonrecourse Debt Minimum Gain. Any loss in excess of that
limitation shall be allocated to all the other Members in
accordance with their respective Interests. After the occurrence of
an allocation of loss to a Member in accordance with this
Section 15(c),
to the extent permitted by Treasury Regulations Section 1.704-1(b),
profit shall be allocated to such Member in an amount necessary to
offset the loss previously allocated to such Member under
this Section 15(c).
(e) If a Member transfers any part or all of its
Interests and the transferee is admitted as provided herein (a
“New
Member”), the
distributive shares of the various items of profit and loss
allocable among the Members during such Fiscal Year shall be
allocated between the transferor and the New Member (at the
election of the Board) either (i) as if the Fiscal Year had ended
on the date of the transfer or (ii) based on the number of days of
such Fiscal Year that each was a Member without regard to the
results of Company activities in the respective portions of such
Fiscal Year in which the transferor and New Member were
Members.
(f) “Profit” and “loss”
and any items of income, gain, expense or loss referred to in
this Section
15
shall be determined in accordance with
federal income tax accounting principles as modified by Treasury
Regulations Section 1.704-1(b)(2)(iv), except that profits and
losses shall not include items of income, gain, and expense that
are specially allocated pursuant to Section 15(b),
15(c) or 15(d) hereof.
All allocations of income, profits, gains, expenses, and losses
(and all items contained therein) for federal income tax purposes
shall be identical to all allocations of such items set forth in
this Section 15,
except as otherwise required by Section 704(c) of the Code and
Section 1.704-1(b)(4) of the Treasury
Regulations.
(g) The
parties hereby agree to treat the purchase by CNQC of the Purchased
Interest as a contribution of cash to the Company in exchange for
the Purchased Interest on a basis consistent with Revenue Ruling
99-5, 1999-1 C.B. 434 (Situation 2). Each of the Members shall file
all tax returns and tax informational statements on a basis
consistent with such characterization.
(a) Distributions
shall be made to the Members at the times and in the aggregate
amounts approved by the Board of Managers, but always (i) after any
Member Loan is repaid in its totality and there are no Member Loans
outstanding, and (ii) in amounts proportional to their then-current
respective Interests in the Company.
Notwithstanding
any provision to the contrary contained in this Agreement, the
Company shall not make a distribution to the Members on account of
their Interests in the Company if such distribution would violate
Section 18-607 of the Act or any other applicable law or any Basic
Document. Distributions shall be calculated and paid subject to the
rights of the Management Company under the Management
Agreement.
(b) Notwithstanding
anything to the contrary herein, the Company shall withhold all
amounts required to be withheld pursuant to Section 1446 of the
Code or any other provision of federal, state, or local tax law,
and any such withholdings shall be treated as amounts actually
distributed to the affected Members for all purposes under this
Agreement.
17. Books and
Records. The
Board of Managers shall keep or cause
to be kept complete and accurate books of account and records with
respect to the Company’s business. The books of the Company
shall at all times be maintained by the Board of Managers. The Company, and the
Board of Managers on behalf of the
Company, shall not have the right to keep confidential from the
Members any information that the Board of Managers would otherwise be permitted to
keep confidential from the Members pursuant to Section 18-305(c) of
the Act. The Company’s independent auditor, if any, shall be
an independent public accounting firm selected by the
Board of Managers.
18. Reports.
At the Company’s expense, the Board of Managers shall prepare and deliver, or
cause to be prepared and delivered, to the Company, and the Company
shall approve and deliver to the Members no later than 75 days
after the close of each Fiscal Year, a Schedule K-1, a copy of the
Company’s informational tax return (IRS Form 1065), and such
other reports (collectively, the “Annual Tax
Reports”) setting forth
in sufficient detail all such information and data with respect to
the transactions effected by or involving the Company during such
Fiscal Year as shall enable the Company, each Member to prepare its
federal, state, and local income tax returns in accordance with the
laws, rules, and regulations then prevailing. No later than 90 days
after the end of a Fiscal Year or 45 days after the end of each
quarter in a Fiscal Year, the Board of Managers shall prepare or cause the
preparation of, and shall deliver or cause to be delivered to the
Members, statements of the Company’s (i) assets, liabilities
and capital as of the end of the year or quarter, as applicable,
and (ii) revenues and expenses for the year or the quarter and
year-to-date, as applicable.
19. Other Business. Notwithstanding
any duty otherwise existing at law or in equity, any Member and any
Affiliate of any Member may engage in or possess an interest in
other business ventures (unconnected with the Company) of every
kind and description, independently or with others. The Company
shall not have any rights in or to such independent ventures or the
income or profits therefrom by virtue of this
Agreement.
20. Option to Purchase Lots. SeD
Ballenger, or any of its Affiliates (including, but not limited to,
Mr. Heng Fai Chan and any companies controlled by, or affiliated
with, Mr. Heng Fai Chan), shall, at any time during the duration of
the Development Work, have the sole and absolute option to purchase
(i) the CCRC Multifamily Parcel at the appraised price of $2.8
million and/or (ii) the MF Multifamily Parcel at the appraised
price of $5.25 million; as described in the development plan
attached as Exhibit
C.
21. Exculpation and
Indemnification.
(a) The Managers,
any Member, any employee, representative, authorized person,
Authorized Signatory, or agent of the Company, the Manager or any
Member, any officer, manager, employee, representative, agent or
Affiliate of the Manager or any Member (or any officer, employee,
representative or agent of any such Affiliate) (collectively, the
“Covered
Persons”), to the fullest
extent permitted by law, shall not be liable to the Company or any
other Person that is a party to or is otherwise bound by this
Agreement for any loss, damage or claim incurred by reason of any
act or omission performed or omitted by such Covered Person in good
faith on behalf of the Company and in a manner reasonably believed
to be within the scope of the authority conferred on such Covered
Person by this Agreement, except that a Covered Person shall be
liable for any such loss, damage or claim incurred by reason of
such Covered Person’s gross negligence or willful
misconduct.
(b) To the fullest extent permitted by applicable law,
a Covered Person shall be entitled to indemnification from the
Company for any loss, damage or claim incurred by such Covered
Person by reason of any act or omission performed or omitted by
such Covered Person in good faith on behalf of the Company and in a
manner reasonably believed to be within the scope of the authority
conferred on such Covered Person by this Agreement, except that no
Covered Person shall be entitled to be indemnified in respect of
any loss, damage or claim incurred by such Covered Person by reason
of such Covered Person’s gross negligence or willful
misconduct with respect to such acts or omissions;
provided,
however,
that any indemnity under this Section 21
by the Company shall be provided out
of and to the extent of Company assets only, and the Members shall
not have personal liability on account thereof.
(c) To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by a Covered Person
defending any claim, demand, action, suit or proceeding shall, from
time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of the
Covered Person to repay such amount if it shall be determined that
the Covered Person is not entitled to be indemnified as authorized
in this Section 21.
(d) A
Covered Person shall be fully protected in relying in good faith
upon the records of the Company and upon such information,
opinions, advice, reports or statements presented to the Company by
any Person as to matters the Covered Person reasonably believes are
within such other Person’s professional or expert competence
and who has been selected with reasonable care by or on behalf of
the Company, including, without limitation, information, opinions,
advice and reports of legal counsel, accountants and other
professional advisors, and statements as to the value and amount of
the assets, liabilities, or any other facts pertinent to the
existence and amount of assets from which distributions to the
Members might properly be paid.
(e) To
the extent that, at law or in equity, a Covered Person has duties
(including fiduciary duties) and liabilities relating thereto to
the Company or to any other Covered Person, a Covered Person acting
under this Agreement shall not be liable to the Company or to any
other Covered Person for its good faith reliance on the provisions
of this Agreement or any approval or authorization granted by the
Company or any other Covered Person. The provisions of this
Agreement, to the extent that they restrict the duties and
liabilities of a Covered Person otherwise existing at law or in
equity, are agreed by the Members to replace such other duties and
liabilities of such Covered Person.
(f) The foregoing provisions of this
Section 21
shall survive any termination of this
Agreement.
(a) Restrictions on Assignment of
Interests. No Member shall make
or effect an Assignment of all, or any part of, such Member’s
Interest, except as provided in this Section 22.
Notwithstanding anything contained in
this Section 22 to the contrary, but subject to compliance with the
provisions of Section 22(g) below, the Right of First Refusal
contained in Section 22(c) below
shall not apply to an assignment of CNQC Member Interest (i) to an
Affiliate of CNQC, or (ii) pursuant to the exercise of the CNQC
Option under Section 14(c).
(b) Assignment in a Permitted
Transfer. Subject to
Section 22(c),
a Member may at any time Assign any part of such Member’s
Interest in a Permitted Transfer and the assignee of such
Member’s Interest shall be deemed to be admitted as a Member
of the Company without any further action or consent by the Members
if such Permitted Transferee has sufficient knowledge and
experience in financial and business matters so as to be capable of
evaluating the merits and risks of its investment in the assigned
Interest.
(c) Right of First
Refusal. A Member who wishes to
make an Assignment of such Member’s Interest to any Person,
may make such an Assignment only after complying with the
provisions of this Section 22(c).
(i) Any such Member shall promptly send a notice (the
“Offer
Notice”) to the Company
and each other Member and be deemed to have offered to sell his or
her Interest (the “Offered
Interest”) otherwise
subject to the proposed Assignment to the Company and to the other
Members at the price and on the terms determined in accordance with
this Section 22.
The Offer Notice shall include a statement of the type of proposed
Assignment, the name, address (both home and business address in
the case of a natural person), and business or occupation of the
person to whom such Interest would be transferred, the
consideration for the proposed Assignment, the payment terms and
any other facts that are or would reasonably be deemed material to
the proposed Assignment.
(ii) Upon notice of a proposed Assignment, the Company
shall have the first right and the other Members shall have the
second right to purchase all, but not less than all, of the Offered
Interest for the purchase price determined pursuant to
Section 22(d)
and upon the payment terms set forth
in Section 22(e).
The Company shall exercise its right to purchase, if at all, by
irrevocable notice to the Members and the selling Member within
thirty (30) days of the date of the Offer Notice, and the remaining
Members shall exercise their right to purchase, if at all, by
irrevocable notice to the Company and the selling Member within
forty five (45) days of the date of the Offer Notice. The Members
may purchase in such proportion as they may agree or, absent
agreement, in accordance with their respective percentage Interests
(where the percentage Interests of all Members other than the
proposed assignee equals 100%). The Company shall promptly give the
remaining Members notice of the exercise by any other Members of
their right to purchase.
(iii) If the Company and the other Members do not agree
to buy in the aggregate all of the Offered Interest within the
applicable exercise periods, such Assignment may be completed on
terms no more favorable to the transferee than those set forth in
the Offer Notice. If an Assignment is not consummated within
sixty (60) days after the expiration
of the applicable exercise periods, the provisions of this
Agreement will again apply to such Offered Interest as if no such
Assignment had been contemplated and no notice had been given. An
Assignment is consummated when the Company has been given notice by
the parties involved that they have transferred the Interest
subject to the Assignment to their satisfaction, subject to
recordation by the Company on its books.
(d) Determination of Purchase
Price.
(i) The price to be paid for the Interest of a selling
Member shall be the price set forth in the Offer Notice. If the
proposed Assignment is a pledge or gift then the price to be paid
for the Interest shall be the fair market value as determined
pursuant to Section
22(d)(ii).
(ii) If the non-assigning Member and the Member cannot
agree on the price to be paid for an Interest within thirty (30)
days of the date of the Offer Notice, then the independent
certified public accountants then employed by the Company (the
“Accountants”)
shall determine the fair market value of the assigning
Member’s Interest, taking into account minority or
controlling interests discounts. If the Accountants are unable or
unwilling to perform such an appraisal, the Accountants shall
appoint an independent third party with not less than five (5)
years’ experience appraising similar businesses to conduct
the appraisal. The appraiser shall have thirty (30) days from the
date of appointment to report the fair market value of the
assigning Member’s Interest, and such appraisal shall be
binding. The costs of appraisal shall be evenly divided between the
Company and the assigning Member.
(e) Payment
Terms. The purchase price to be
paid upon the purchase of all or a part a Member’s Interest
under the provisions of Section 22(c)
shall be paid in cash or by wire
transfer of immediately available funds upon closing, together with
any instruments of transfer and Assignment reasonably requested by
the purchaser.
(f) Closing; Payment of Purchase
Price. Whenever a right of
first refusal under Section 22(c)
of this Agreement is exercised, the
purchase of the Offered Interest will take place at a closing, to
be held at 10 a.m. thirty (30) days after the date on which the
last option to buy is exercised or lapses, or after the date on
which the last buyer becomes obligated to buy, at the
Company’s office or at any other time, date and place to
which the parties agree. At the closing, the selling Member or his
or her legal representative shall execute such documents of
Assignment and transfer as the purchasers may reasonably request.
Each Member appoints the Company as such Member’s agent and
attorney-in-fact to execute and deliver all documents needed to
convey such Member’s Interest, if the selling Member is not
present at the closing. This power of attorney does not terminate
on the Member’s disability, and continues for so long as this
Agreement is in effect except as otherwise required by
law.
(g) Manner of
Assignment.
(i) No
Assignment shall be effective unless all of the following
conditions shall have been satisfied or waived by the
Company:
(1) the assignee shall have furnished to the
Board of Managers an executed and
delivered Assignment of the assignor’s Interest in form and
substance satisfactory to the Board of Managers;
(2) the assignee shall have executed and delivered to
the Board of Managers an
undertaking of the assignee to be bound by all the terms and
provisions of this Agreement, in form and substance satisfactory to
the Board of Managers, and such
other instruments as may be required by law;
(3) the
Assignment shall not result in the termination of the Company for
federal income tax purposes;
(4) the
Assignment shall comply with applicable federal and state
securities laws;
(5) the assignee shall have paid to the Company the
amount determined by the Board
of Managers to be equal to the costs and expenses incurred in
connection with such Assignment;
(6) the
assignee shall acknowledge that the Interest has not been
registered under the Securities Act of 1933, or any applicable
state securities laws, in reliance upon exemptions therefrom, and
shall covenant, represent, and warrant that the assignee is
acquiring the Interest for investment only and not with a view to
the resale or distribution thereof; and
(7) the assignee shall furnish the Board of Managers with such other similar
information or documentation as the Board of Managers may reasonably
request.
(ii) No purported Assignment or other act of a Member
in contravention of the provisions of this Section 22(g)
shall be or constitute an effective
Assignment of an Interest, or otherwise be binding upon or
recognized by the Company unless the assignor and the assignee
shall have complied with the requirements of this
Section 22(g).
(iii) Each Member hereby agrees to indemnify and hold
harmless the Company, and the other Members, from and against all
loss, damage or expense, including, without limitation, tax
liabilities or loss of tax benefits, arising directly or indirectly
as a result of any Assignment or purported Assignment in
contravention of the provisions of this Section 22(g).
(iv) Involuntary Assignment by a
Member. In the event a
Member’s Interest, or any portion thereof, is taken by levy,
foreclosure, charging order, execution or other similar involuntary
proceeding, the Company shall not dissolve, but the statutory or
other involuntary assignee of said Interest, or any portion
thereof, shall be entitled only to the right to participate in
allocations of profits and losses of the Company and the right to
receive distributions from the Company.
(v) Admission of New
Members. Except as provided
in Section 22(b),
no Person shall be admitted as a Member of the Company after the
date of this Agreement without approval of at least a majority of
the Managers.
(vi) Members’ Representative
and Successors. If a Member who
is a natural person dies or a court of competent jurisdiction
adjudges the Member to be incompetent to manage his or her person
or property, the Member’s executor, administrator, guardian,
conservator or other legal representative may exercise all the
Member’s rights for the purpose of settling the
Member’s estate or administering the Member’s
property.
(vii) Withdrawal of
Members. No Member shall have
the right to withdraw from the Company without the consent of a
Majority in Interest (excluding the withdrawing
Member).
23. Resignation.
A Member may not resign from the Company except with the prior
written consent of the other Members. If a Member is permitted to
resign pursuant to this Section 23,
and an additional member of the Company is to be admitted as a
substitute member of the Company, such admission shall be subject
to Section 22
hereof. Such admission shall be deemed
effective immediately prior to the resignation and, immediately
following such admission, the resigning Member shall cease to be a
member of the Company.
24. Forfeiture of
Interests. Any Member who
commits an act of fraud against the Company or materially breaches
its fiduciary duties to the Company, as determined by a court of
competent jurisdiction, shall forfeit its Interest in the Company,
and such Interest shall immediately become null and void and shall
no longer be outstanding without any further action on the part of
the Company or any other Member.
25. Dissolution.
(a) The Company shall be dissolved, and its affairs
shall be wound up upon the first to occur of the following:
(i) the termination of the legal existence of the last
remaining member of the Company or the occurrence of any other
event which terminates the continued membership of the last
remaining member of the Company in the Company unless the Company
is continued without dissolution in a manner permitted by this
Agreement or the Act, (ii) the entry of a decree of judicial
dissolution under Section 18-802 of the Act or (iii) the
approval by at least a majority of the Managers. Upon the
occurrence of any event that causes the last remaining member of
the Company to cease to be a member of the Company (other than
(a) upon an assignment by the Member of all of its limited
liability company interest in the Company and the admission of the
transferee pursuant to Sections 22
and 24, or (b) the resignation of the current
Members and the admission of one or more additional members of the
Company pursuant to Sections
23
and 24) to the fullest extent permitted by law, the
personal representative of such member is hereby authorized to, and
shall, within 90 days after the occurrence of the event that
terminated the continued membership of such member in the Company,
agree in writing (A) to continue the Company and (B) to
the admission of the personal representative or its nominee or
designee, as the case may be, as a substitute member of the
Company, effective as of the occurrence of the event that
terminated the continued membership of the last remaining member of
the Company.
(b) Notwithstanding
any other provision of this Agreement to the contrary, the
Bankruptcy of a Member shall not cause such Member to cease to be a
member of the Company and upon the occurrence of such an event, the
business of the Company shall continue without
dissolution.
(c) Notwithstanding
any other provision of this Agreement, each Member waives any right
it might have to agree in writing to dissolve the Company upon its
Bankruptcy, or the occurrence of an event that causes such Member
to cease to be a member of the Company.
(d) In
the event of dissolution, the Company shall conduct only such
activities as are necessary to wind up its affairs (including the
sale of the assets of the Company in an orderly manner), and the
assets of the Company shall be applied in the manner, and in the
order of priority, set forth in Section 18-804 of the
Act.
(e) The
Company shall terminate when (i) all of the assets of the
Company, after payment of or due provision for all debts,
liabilities and obligations of the Company shall have been
distributed to the Members in the manner provided for in this
Agreement, and (ii) the Certificate of Formation shall have
been canceled in the manner required by the Act.
26. Tax Matters
Partner. SeD Ballenger, LLC, or
such other Member as the Board
of Managers may designate from time to time, shall be the Tax
Matters Partner for the Company within the meaning of Section
6231(a)(7) of the Code (the “Tax Matters
Partner”). The Tax
Matters Partner shall have the right and obligation to take all
actions authorized and required, respectively, by the Code for the
Tax Matters Partner. The Tax Matters Partner shall have the right
to retain professional assistance in respect of any audit or
controversy proceeding initiated with respect to the Company by the
IRS or any state or local taxing authority, and all expenses and
fees incurred by the Tax Matters Partner on behalf of the Company
shall constitute expenses of the Company. In the event the Tax
Matters Partner receives notice of a final partnership adjustment
under Section 6223(a)(2) of the Code, the Tax Matters Partner shall
either (i) file a court petition for judicial review of such
adjustment within the period provided under Section 6226(a) of the
Code, a copy of which petition shall be mailed to all other Members
on the date such petition is filed, or (ii) mail a written notice
to all other Members, within such period, that describes the Tax
Matters Partner’s reasons for determining not to file such a
petition.
(a) Except as otherwise provided in this
Section 27,
the Board of Managers shall, in
its sole discretion, decide whether to make any available elections
under the Code or any applicable state or local tax law on behalf
of the Company.
(b) The
Tax Matters Partner may, upon receiving the written consent of each
other Member, make or revoke, on behalf of the Company, an election
in accordance with Section 754 of the Code, so as to adjust
the basis of Company property in the case of a distribution of
property within the meaning of Section 734 of the Code, and in
the case of a transfer of an Interest within the meaning of
Section 743 of the Code. Each Member shall, upon request of
the Tax Matters Partner, supply the information necessary to give
effect to such an election.
(c) No
election shall be made by the Company or any Member for the Company
to be treated as a corporation, or an association taxable as a
corporation, under the Code or any provisions of any state or local
tax laws. The Company shall be treated as a partnership for U.S.
federal income tax purposes.
28. Waiver of Partition;
Nature of Interest. Except as
otherwise expressly provided in this Agreement, to the fullest
extent permitted by law, each Member hereby irrevocably waives any
right or power that such Person might have to cause the Company or
any of its assets to be partitioned, to cause the appointment of a
receiver for all or any portion of the assets of the Company, to
compel any sale of all or any portion of the assets of the Company
pursuant to any applicable law or to file a complaint or to
institute any proceeding at law or in equity to cause the
dissolution, liquidation, winding up or termination of the Company.
No Member shall have any interest in any specific assets of the
Company, and no Member shall have the status of a creditor with
respect to any distribution pursuant to Section 16
hereof. The interest of each Member in
the Company is personal property.
29. Benefits of Agreement;
No Third-Party Rights. None of
the provisions of this Agreement shall be for the benefit of or
enforceable by any creditor of the Company or by any creditor of
any Member. Nothing in this Agreement shall be deemed to create any
right in any Person (other than as a Covered Person) not a party
hereto, and this Agreement shall not be construed in any respect to
be a contract in whole or in part for the benefit of any third
Person.
30. Severability of
Provisions. Each provision of
this Agreement shall be considered severable and if for any reason
any provision or provisions herein are determined to be invalid,
unenforceable or illegal under any existing or future law, such
invalidity, unenforceability or illegality shall not impair the
operation of or affect those portions of this Agreement which are
valid, enforceable and legal.
31. Entire
Agreement. This Agreement
constitutes the entire agreement of the parties with respect to the
subject matter hereof.
32. Binding
Agreement. Notwithstanding any
other provision of this Agreement, each Member agrees that this
Agreement constitutes a legal, valid and binding agreement of the
Members and is enforceable against the Members in accordance with
its terms.
33. Governing
Law. This Agreement shall be
governed by and construed under the laws of the State of Delaware
(without regard to conflict of laws principles), all rights and
remedies being governed by said laws.
34. Amendments.
This Agreement may be modified, altered, supplemented or amended
pursuant to a written document executed and delivered by the
Members.
35. Counterparts.
This Agreement may be executed in any number of counterparts, each
of which shall be deemed an original of this Agreement and all of
which together shall constitute one and the same instrument
notwithstanding the fact that not all signatures appear on the same
page.
36. Notices.
Any notices required to be delivered hereunder shall be in writing
and personally delivered, mailed or sent by telecopy, electronic
mail or other similar form of rapid transmission, and shall be
deemed to have been duly given upon receipt (a) in the case of
the Company, to the Company at its address in Section 2,
(b) in the case of the Members, to each Member at its address
as listed on Schedule B
attached hereto and (c) in the
case of either of the foregoing, at such other address as may be
designated by written notice to the other
party.
37. Effectiveness.
Pursuant to Section 18-201(d) of the Act, this Agreement shall be
effective as of the date hereof. Other than this Agreement, any
other limited liability company agreement, operating agreement, or
any other form of ownership agreement of the Company, of any nature
whatsoever, shall be null and void with no force and
effect.
38. Definitions and Rules
of Construction. Capitalized
terms used and not otherwise defined herein have the meanings set
forth on Schedule A
hereto, the terms and provisions of
which are incorporated herein. The rules of construction to be
applied herein are as set forth on Schedule A
hereto.
39. No
Recourse. Notwithstanding
anything to the contrary contained in this Agreement, to the
fullest extent permitted by law, none of the direct or indirect
partners, shareholders, members, Managers, officers, managers,
trustees, agents or employees in or of any Member shall be
personally liable in any manner or to any extent under or in
connection with this Agreement and the Company shall not have any
recourse to any assets of any such parties.
IN WITNESS WHEREOF, the undersigned,
intending to be legally bound hereby, has duly executed this
Agreement as of the date first written above.
|
|
MEMBERS:
SeD Ballenger,
LLC
By: /s/ Charles
Mackenzie
Name:
Title: Chief
Development Officer, SeD Development Management, LLC,
Manager
CNQC Maryland
Development LLC
By: /s/
Genzhong
Li
Name:
Title: Vice
President
|
[Signature Page to
Limited Liability Company Agreement]
SCHEDULE A
DEFINITIONS AND RULES
OF CONSTRUCTION
When used in this
Agreement, the following terms not otherwise defined herein have
the following meanings:
“Act”
has the meaning set forth in the second paragraph of this
Agreement.
“Additional
Required Capital” has the meaning set forth in Section 14(a) hereof.
“Affiliate”
means, with respect to any Person, any other Person directly or
indirectly Controlling or Controlled by or under direct or indirect
common Control with such Person (including, without limitation, any
Person holding a direct or indirect equity interest in such
Person).
“Agreement”
means this Limited Liability Company Agreement of the Company,
together with all schedules attached hereto, as amended, restated,
supplemented or otherwise modified from time to time.
“Annual Tax
Reports” has the meaning set forth in Section 18 hereof.
“Applicable
Law” means all existing and future federal, state and local
laws, orders, ordinances, governmental rules and regulations and
court orders and is expressly deemed to include all zoning laws and
environmental laws.
“Assign”
means to effect an Assignment, by whatever means.
“Assignment”
means any sale, inter vivos transfer or gift, assignment, pledge,
grant of security interest, or transfer by will or trust, by
operation of law or otherwise, in or of all or any part of an
Interest.
“Authorized
Signatory” shall have the meaning set forth in Section 7(b) hereof.
“Bankruptcy”
means, with respect to any Person, if such Person (i) makes an
assignment for the benefit of creditors, (ii) files a
voluntary petition in bankruptcy, (iii) is adjudged bankrupt
or insolvent, or has entered against it an order for relief, in any
bankruptcy or insolvency proceedings, (iv) files a petition or
answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation or similar relief under any
statute, law or regulation, (v) files an answer or other
pleading admitting or failing to contest the material allegations
of a petition filed against it in any proceeding of this nature,
(vi) seeks, consents to or acquiesces in the appointment of a
trustee, receiver or liquidator of the Person or of all or any
substantial part of its properties, or (vii) 120 days after
the commencement of any proceeding against the Person seeking
reorganization, arrangement, composition, readjustment, liquidation
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 such Person’s consent or acquiescence of
a trustee, receiver or liquidator of such Person or of all or any
substantial part of 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. The foregoing definition of
“Bankruptcy” is intended to replace and shall supersede
and replace the definition of “Bankruptcy” set forth in
Sections 18-101(1) and 18-304 of the Act.
“Basic
Documents” means this Agreement, the Certificate of
Formation, and all documents and certificates contemplated thereby
or delivered in connection therewith.
“Board of
Managers” shall mean a board consisting of the Managers of
the Company appointed by the Members, which Board of Managers shall
manage the business and affairs of the Company in accordance with
the provisions of this Agreement.
“Budget”
has the meaning set forth in Section 8(b) hereof.
“Business
Day” means a day other than a Saturday, Sunday or other day
on which commercial banks in the City of New York are authorized or
required to close.
“Buy-out
Price” has the meaning set forth in Section 11(b) hereof.
“Buy-Sell
Election Date” has the meaning set forth in Section 11(c) hereof.
“Buy-Sell
Offer Notice” has the meaning set forth in Section 11(b) hereof.
“Capital
Account” has the meaning set forth in Section 13 hereof.
“CCRC
Multifamily Parcel” shall mean the “Land Bay D,”
described in the development plan attached as Exhibit C, consisting of
approximately six acres of land for 200 multifamily senior units
and associated parking, located in Ballenger Run, Frederick County,
MD.
“Certificate
of Formation” means the Certificate of Formation of the
Company filed with the Secretary of State of Delaware on October
16, 2014 as amended or amended and restated from time to
time.
“CNQC
Option” has the meaning set forth in Section 14(c) hereof.
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time (or any corresponding provisions of succeeding
law).
“Company”
shall mean SeD Maryland Development, LLC, a Delaware limited
liability company.
“Control”
means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a
Person (although the same may be subject to the approval of other
partners, members or other Persons), whether through the ownership
of voting securities or general partnership or managing member
interests, by contract or otherwise. “Controlling” and
“Controlled” shall have correlative meanings. Without
limiting the generality of the foregoing, a Person shall be deemed
to Control any other Person in which it owns, directly or
indirectly, a majority of the ownership interests.
“Covered
Persons” has the meaning set forth in Section 21(a) hereof.
“Deadlock”
has the meaning set forth in Section 11(a) hereof.
“Development
Work” has the meaning set forth in Section 8(a) hereof.
“Election
Notice” has the meaning set forth in Section 14(c) hereof.
“Fiscal
Year” has the meaning set forth in Section 15 hereof.
“Initiating
Member” has the meaning set forth in Section 11(b) hereof.
“Institutional
Lender” has the meaning set forth in Section 8(c) hereof.
“Interest”
means the entire ownership interest of a Member in the
Company.
“IRS”
means the Internal Revenue Service.
“Majority in
Interests” means Members holding fifty-one percent (51%) or
more of the Interests.
“Management
Agreement” has the meaning set forth in Section 9(a) hereof.
“Management
Company” has the meaning set forth in Section 9(a) hereof.
“Manager”
shall mean a Person or Persons selected from time to time to manage
the affairs of the Company under Section 10 hereof as a member of the
Board of Managers. Each Manager is hereby designated as a
“manager” within the meaning of the Act. References to
the Manager in the singular or as him, her, it, itself or other
like references, shall also be deemed, where the context so
requires, to include the plural or the masculine or feminine
reference, as the case may be.
“Member
Loan” has the meaning set forth in Section 14(a) hereof.
“Member Loan
Notice” has the meaning set forth in Section 14(b) hereof.
“MF
Multifamily Parcel” shall mean the “Land Bay B,”
described in the development plan attached as Exhibit C, consisting of
approximately 15 acres of land for 210 all-age multifamily units
and associated parking, located in Ballenger Run, Frederick County,
MD.
“New
Member” has the meaning set forth in Section 15(e) hereof.
“NVR Purchase
and Sale Agreements” means collectively:
(i) That certain Assignment and Assumption Agreement
– Ballenger Run
between NVR, Inc., as assignor
(“NVR”), and the Company, dated December 10,
2014, and amended by that certain Restatement and Reinstatement of
and First Amendment to Assignment and Assumption Agreement, dated
January 9, 2015;
(ii) That certain Lot Purchase Agreement –
Ballenger Run
– Single Family Attached Villa between the Company, as seller, and NVR, as
purchaser, dated December 10, 2014, as amended by that certain
Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run – Single
Family Attached Villa, dated
January 9, 2015;
(iii) That certain Lot Purchase Agreement –
Ballenger Run
–Townhouse between the
Company, as seller, and NVR, as purchaser, dated December 10, 2014,
as amended by that certain Restatement and Reinstatement of and
First Amendment to Lot Purchase Agreement –
Ballenger Run
– Townhouse, dated
January 9, 2015;
(iv) That certain Lot Purchase Agreement –
Ballenger Run
– Large Single Family Dwelling between the Company, as seller, and NVR, as
purchaser, dated December 10, 2014, as amended by that certain
Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run – Large
Single Family Dwelling, dated
January 9, 2015;
(v) That certain Lot Purchase Agreement –
Ballenger Run
–Neo-Traditional Single Family Dwelling between the Company, as seller, and NVR, as
purchaser, dated December 10, 2014, as amended by that certain
Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run –
Neo-Traditional Single Family Dwelling, dated January 9, 2015; and
(vi) That certain Lot Purchase Agreement
– Ballenger
Run –Small Single Family Dwelling between the Company, as seller, and NVR, as
purchaser, dated December 10, 2014, as amended by that certain
Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run – Small
Single Family Dwelling, dated
January 9, 2015.
“Officer”
has the meaning set forth in Section 10 hereof.
“Partnership
Minimum Gain” shall have the meaning set forth in Treasury
Regulations Section 1.704-2(d) and any corresponding provision or
provisions of succeeding Regulations. In accordance with Treasury
Regulations Section 1.704-2(d), the amount of Partnership Minimum
Gain is determined by first computing, for each nonrecourse
liability of the Company, any gain the Company would realize if it
disposed of the property subject to that liability for no
consideration other than full satisfaction of the liability, and
then aggregating the separately computed gains. A Member’s
share of Partnership Minimum Gain shall be determined in accordance
with Treasury Regulations Section 1.704-2(g)(1).
“Partner
Nonrecourse Debt Minimum Gain” shall have the meaning set
forth in Treasury Regulations Section 1.704-2(i). A Member’s
share of Partner Nonrecourse Debt Minimum Gain shall be determined
in accordance with Treasury Regulations Section
1.704-2(i)(5).
“Permitted
Transfer” means (1) a gift, bequest, sale or other transfer
of an Interest or a part thereof to a member of the immediate
family of a Member (defined for purposes of this Agreement as a
Member’s spouse, descendants (either by birth or adoption
prior to age twelve (12) and ancestors) or to an express trust for
the benefit of one or more members of the immediate family of a
Member or to the beneficiaries of any trust that is a Member; or
(2) a gift, sale, or transfer of an Interest (or a part thereof) to
an Affiliate.
“Permitted
Transferee” means any Person who acquires an Interest in the
Company in a Permitted Transfer as set forth in Section 22 hereof.
“Person”
means any individual, corporation, partnership, joint venture,
limited liability company, partnership, limited partnership,
limited liability partnership, association, joint stock company,
trust, unincorporated organization, or other organization, whether
or not a legal entity, and any governmental authority.
“Project
Financing” has the meaning set forth in Section 8(c) hereof.
“Project
Financing Lender” has the meaning set forth in Section 8(c) hereof.
“Project
Plan” has the meaning set forth in Section 8(a) hereof.
“Property”
has the meaning set forth in Section 7(a) hereof.
“Purchase
Agreement” has the meaning set forth in the Recitals
hereof.
“Purchasing
Member” has the meaning set forth in Section 11(d) hereof.
“Responding
Member” has the meaning set forth in Section 11(b) hereof.
“Response
Notice” has the meaning set forth in Section 11(c) hereof.
“Selling
Member” has the meaning set forth in Section 11(d) hereof.
“Sell-out
Price” has the meaning set forth in Section 11(b) hereof.
“Tax Matters
Partner” has the meaning set forth in Section 26 hereof.
“Taxable
Year” has the meaning set forth in Section 15 hereof.
“Treasury
Regulations” means the Treasury regulations issued under the
Code, as amended and as hereafter amended from time to time.
Reference to any particular provision of the Treasury Regulations
shall mean that provision of the Treasury regulations on the date
hereof and any successor provision of the Treasury
Regulations.
B.
Rules of
Construction.
Definitions in this
Agreement apply equally to both the singular and plural forms of
the defined terms. The words “include” and
“including” shall be deemed to be followed by the
phrase “without limitation.” The terms
“herein,” “hereof” and
“hereunder” and other words of similar import refer to
this Agreement as a whole and not to any particular Section,
paragraph or subdivision. The Section titles appear as a
matter of convenience only and shall not affect the interpretation
of this Agreement. All Section, paragraph, clause, Exhibit or
Schedule references not attributed to a particular document
shall be references to such parts of this Agreement
.
SCHEDULE B
|
Name
|
Mailing
Address
|
Amount of Cash
or Agreed
Value of
Property Contributed
|
Percentage
Interest
|
|
|
|
|
|
|
SeD Ballenger,
LLC
|
4800 Montgomery
Lane, Suite 210, Bethesda MD, 20814
|
$12,697,568
|
83.55%
|
|
CNQC Maryland
Development LLC
|
4800 Montgomery
Lane Suite 210, Bethesda, MD 20814
|
$2,500,000
|
16.45%
|
EXHIBIT
A
PROPERTY DESCRIPTION
EXHIBIT
B
MANAGEMENT AGREEMENT
EXHIBIT
C
DEVELOPMENT PLAN
CONSULTING SERVICE AGREEMENT
This Consulting Service
Agreement (the
"Agreement") is made effective as of May
1st,
2017 between SeD Development Management, LLC
(“Company”) and MacKenzie Equity Partners, LLC
(“Consultant”).
NEW AGREEMENT: This Agreement shall supersede all contracts
of service between the Company and the Consultant (including but
not limited to the Agreement for Consultancy Services and addendums
dated July 1, 2015 and Supplemental Letter to Agreement dated
December 9, 2015); which shall be deemed to have been terminated by
mutual consent of the parties as from the date of this
Agreement.
SERVICES, DELIVERABLES: Company hereby engages Consultant
and Consultant hereby agrees to hold himself available on a
full-time basis to render, and to render at the request of the
Company, independent advisory and consulting services attached to
this Agreement as Exhibit A (the "Services"), to the best of his ability,
in compliance with all applicable laws, the Company's Articles of
Incorporation and Bylaws, and the terms and conditions set forth
herein. All Services will be performed solely by Consultant and are
not assignable without Company's written approval.
TITLE, REPORTING, WORK HOURS: Consultant, shall report to
the management team of SeD Development Management, LLC or whoever
the Company may further designate Consultant to work with or for
other individuals. Consultant may not engage in outside activities
that are in any conflict with Consultant's work for Company and
Company's interest will take precedence and not be
compromised.
TERM: This Agreement will commence on May 1, 2017 and shall
continue until terminated by either party in his sole discretion by
giving the other party, one (1) month’s written notice. In
the event of death, disability, or other incapacity resulting in
the inability of Consultant to perform the duties set forth herein,
this Agreement may be terminated and all compensation due hereunder
shall cease as of the date of death, disability or other
incapacity.
LOCATION, TRAVEL, EXPENSES: Consultant shall work from our
office in Bethesda or at any of our project locations and shall
travel as need be to perform the Services. Company shall reimburse
Consultant for travel expenses pre-approved by Company in writing
(email will suffice), and for other pre-approved expenses
reasonably incurred in providing the Services. Payments made to
Consultant shall be made payable to Consultant.
COMPENSATION: In full and complete consideration of
Consultant’s satisfactory performance of the Services,
Company will pay Consultant a monthly consultancy fees of USD20,000
payable monthly in arrears commencing from May 1,
2017.
Consultant
shall provide an invoice on a monthly basis and Company shall pay
Consultant on a monthly basis. Such compensation shall be payable
without deduction, including no deduction for federal income,
social security, or state income taxes. Consultant shall be
responsible for his own taxes and the Company shall not be held
accountable for any of Consultant’s tax liabilities. All
payments shall be made payable to MacKenzie Equity Partners,
LLC.
OWNERSHIP: The Company shall be the sole owner of any and
all results, proceeds and data resulting from the
Services.
CONFIDENTIALITY: In performance of the Services, Consultant
may acquire confidential information, specified as confidential by
Company either orally or in writing ("Confidential Information"), and
Consultant agrees that he will not disclose or permit any other
person or entity to disclose any of the Confidential Information to
any other person or entity. Consultant will use the Confidential
Information only for the purpose of performing Services.
Confidential Information shall not include information, if any,
which was or becomes generally available to the public other than
as a result of a disclosure by Consultant or by other persons to
whom Consultant has disclosed the Confidential
Information.
INDEPENDENT CONSULTANT RELATIONSHIP: Consultant understands
and agrees that as an independent consultant, Consultant will not
be treated as an employee of the Company. Consultant agrees he is
responsible to pay all applicable taxes on the Compensation and
will have no right to claim or receive any employee benefits
including but not limited to health or life insurance benefits,
worker's compensation and/or unemployment benefits.
AUTHORITY: Consultant will have no authority whatsoever to
engage other person or to assume or create any obligation,
liability, or undertake any responsibility whatsoever, express or
implied on behalf of and in the name of the Company or any
affiliate without the specific approval from Mr. Fai Chan, Mr. Moe
Chan or the Company’s designated officer. Such authority
shall be in writing or email will suffice.
INDEMNITY: Consultant and Company each indemnify the other
against all claims, actions, liability and expenses (including
court costs and reasonable attorney's fees) resulting from a
party's breach of this Agreement. In no event shall either party be
liable for any incidental or consequential damages, whether
foreseeable or not, occasioned by any breach of any obligation
under this Agreement, whether based on negligence or
otherwise.
GOVERNING LAW: This Agreement
is governed by the internal laws of the state of Maryland without
reference to conflict of laws. Consultant and Company consent to
the jurisdiction of the courts to the state of
Maryland.
MISCELLANEOUS: This Agreement contains the entire
understanding of the parties and supersedes all prior written or
oral understandings relating to the Services. This Agreement can be
amended or modified only in a written document signed by both
parties. All notices hereunder shall be in writing and delivered by
an email which must be confirmed by the other party as received or
overnight delivery service to the receiving party at its address
set forth below:
Company: 4800 Montgomery Lane, Suite 210, Bethesda,
Maryland 20814
Consultant: 312 Third Street, Suite 101, Annapolis, MD
21403
IN WITNESS WHEREOF Consultant and Company have executed this
Agreement as of the date first written above.
CONSULTANT:
By:
MacKenzie Equity Partners, LLC
/s/ Charles W.S. MacKenzie
Name: Charles
W.S. MacKenzie
Passport
No.
COMPANY:
By:
/s/ Chan Tung
Moe
Name:
Chan Tung Moe
For and
on behalf of SeD Development Management, LLC.
Exhibit A
(the "Services")
Your
services will include (but not be limited) to the following
–
(1)
Acting as a
strategic advisor for U.S. real estate assets (“U.S. RE Assets”) to the Company
and its’ officers and majority owner of the Company’s
network of businesses.
(2)
Communicating with,
managing and assessing the senior management in the Company’s
network of businesses that relate to U.S. RE Assets.
(3)
Advising on the
management of U.S. RE Assets, including sourcing opportunities,
leading and management the real estate development, advising on
cash requirements and investment of the cash into
opportunities.
(4)
Assisting the
development and management of the Company’s network of
businesses that relate to U.S. RE Assets as requested.
(5)
Attend progress
meetings in addition to any other tasks relevant to management of
the projects.
(6)
Manage partners,
buyers, general contractors, subcontractors and vendors throughout
the development process.
(7)
Ensure adherence to
project budgets and schedules.
(8)
Develop and review
cash flows and rigorous management of budgets.
(9)
Run sensitivity
analyses on various scenarios.
(10)
Analyze the overall
viability of new projects.
(11)
Assist in due
diligence of a project.
(12)
Summarize and
develop a “package” for internal review / approval for
potential investors.
(13)
Provide frequent
reports on project status and progress.
(14)
Conduct fund
raising activities, such as procuring loans from financial
institutions, conducting presentations and road shows, and
performing other investor activities.
(15)
Perform any actions
necessary towards a listing of the Company and / or its
affiliates.
(16)
Other projects
related to the Company or SeD as may be assigned to
you.
Exhibit 10.11
PROJECT
DEVELOPMENT
AND
MANAGEMENT AGREEMENT FOR
BALLENGER
RUN PUD
THIS PROJECT
DEVELOPMENT AND MANAGEMENT AGREEMENT (the “Agreement”)
is made as of this 25th day of February,
2015, by and between MacKenzie Development Company, LLC
(“MacKenzie”) and Cavalier Development Group, LLC
(“Cavalier”) (together MacKenzie and Cavalier are
referred to as the “Developers”) and SeD Maryland
Development, LLC (the “Owner”).
EXPLANATORY STATEMENT
The Owner is the
contract purchaser of the Project (hereinafter defined). The Owner
has requested that the Developers work together to provide various
services relating to the development, construction and sale of the
Project. Developers are jointly willing to provide such services
upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in
consideration of the mutual covenants hereinafter set forth and
other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, and in consideration of the
Explanatory Statement, which shall be deemed to be a part of this
Agreement, the parties hereto do hereby covenant, agree, represent,
and warrant as follows:
The Project
consists of approximately 197± acres of developable land zoned
PUD located in Frederick County, Maryland. The property is further
defined as “Ballenger Run PUD” identified as Parcels
53, 54 and 243 on Tax Map 86. The Project has conditional Phase II
approvals for the subdivision of 443 residential lots plus
remainder parcels dedicated for multi-family development, parkland,
a schools site and amenity space.
2.
Services To Be Provided By
Developers.
Owner hereby
employs Developers, and Developers hereby accept the employment by
Owner, to provide various Services for the development,
construction and sale of the Project. These Services include all
reasonable tasks necessary to timely develop, construct and sell
the Project in accordance with Owner’s goals. A list of these
Services is attached hereto as Exhibit A (the
“Services”). The Developers agree to provide these
Services pursuant to the terms of this Agreement. The Developers
will represent the Owner in all matters related to the Project.
Robert J. Aumiller Jr. of MacKenzie will act as the primary point
of contact for the Owner and as the “owner’s
representative”. Stephen P. Oder of Cavalier will act as the
primary on-site manager and local Frederick County
specialist.
The term of this
Agreement and the employment of Developers by Owner pursuant hereto
shall be for an initial term of seventy-eight (78) months and shall
commence as of the execution of this Agreement. The parties
understand and agree that the initial term represents the
Owner’s estimate of the completion time for the Project. If
the Project cannot be completed prior to the end of the initial
term, then the parties may agree to extend the term and the monthly
fees paid hereunder by an amendment to this Agreement.
4.
Compensation for
Services.
In consideration
for the Services to be rendered by Developers, Owner agrees to pay
to Developers the following fees:
a.
A preliminary
development fee (“Pre-Development Fee”) of $22,000 per
month for the development entitlement work required to obtain
unconditional approval of the improvements plans for the first
phase of the Project. It is projected by the Owner it will take
seven (7) months to obtain such approvals. The first monthly
Pre-Development Fee shall be paid upon the execution of this
Agreement and shall be paid monthly for the first seven (7) months
of the initial term of this Agreement.
b.
Subsequent to the
payment of the last monthly Pre-Development Fee, a development fee
(“Development Fee”) of $14,667 per month for the land
development and project management of the Project. The monthly
Development Fee shall be paid one month after the last payment of
the Pre-Development Fee. The monthly Development Fee shall be paid
through the month that the last of all the single-family and
townhome lots have been sold and settled to third party purchasers.
It is projected by the Owner that it will take seventy (70) months
from the date of execution of this Agreement sell and settle all
such lots.
c.
Subsequent to the
payment of the last monthly Development Fee, a close-out fee
(“Close-Out Fee”) of $11,000 per month for the
close-out of the Project and the release of guarantees and
securities as required by the government authorities. Close-out
shall be deemed complete at such time as the Developers are able to
cause the release of any and all guaranties or posted securities or
bonds provided by the Owner to develop the Project. It is projected
by the Owner that it will take eight (8) months after the sale and
settlement of the last lot provided for under 4(b) above to
close-out the Project.
d.
A fee of $1,200 per
every single-family lot sold and settled to a third party. This fee
shall be paid to the Developers at the time of settlement and shall
be paid from the lot settlement proceeds.
e.
A fee of $500 for
every townhouse lot sold and settled to a third party. This fee
shall be paid to the Developers at the time of settlement and shall
be paid from the lot settlement proceeds.
f.
A fee of $50,000
for every multi-family parcel or lot sold and settled to a third
party. This fee shall be paid to the Developer at the time of
settlement and shall be paid from the parcel settlement proceeds.
Developers and Owner acknowledge that presently there are two (2)
multi-family parcels which are part of the Project; a 210±
unit multi-family parcel and a 200± unit CCRC parcel. The
Owner shall pay this fee to the Developers so long as settlement of
the parcel(s) occurs within ten (10) years of the execution of this
Agreement and regardless of the expiration of the initial term of
this Agreement.
The Owner
acknowledges that the fees payable by Owner herein are fair and
reasonable for the services provided by the Developers hereunder.
Developers will submit separate monthly invoices to the Owner on or
about the 1st day of each month
for the monthly fees and the Owner shall make payment on the
monthly invoice no later than the 10th day of each month
following the initial payment. Lot settlement fees are due at the
time of settlement of each lot or parcel as described above. All
unpaid invoices are subject to 1.0% interest per month on the
balance due. Developers will be permitted to allocate monthly fees
and lot settlement fees between MacKenzie and Cavalier and submit
separate monthly invoices to be paid directly by the Owner.
Reimbursable expenses will be billed at cost plus 15% and include,
but are not limited to, print reproduction, mileage outside of
Frederick County or outside of Developers’ normal commute
from its office to the Project, postage or commercial delivery
fees, parking fees, or any other expense reasonably related to
Developers’ services. Developers will take reasonable efforts
to keep all reimbursable expenses to a minimum.
Developers shall
have no responsibility whatsoever for the payment of any costs
incurred in connection with the development of the Project
(including architectural, engineering, legal and construction costs
and fees). All such costs and charges shall be borne solely by
Owner. Developers shall be responsible for its own overhead
expenses incurred in the pursuit of its obligations under this
Agreement.
6.
Owner’s
Responsibility.
Owner hereby agrees
that it shall cooperate with Developers in expediting the
development of the Project. Charles W.S. MacKenzie, or his
designee, is hereby recognized as the authorized representative of
Owner in making all decisions related to the Project and in
executing all documents on behalf of Owner in connection with the
Project and this Agreement. Developers shall, at all times during
the term of this Agreement, keep Owner fully advised on the
progress of development of the Project.
Owner shall keep in
full force and effect, at its expense, so long as this Agreement
remains in effect, public liability insurance with respect to the
Property, naming Developers as an additional insured, with minimum
limits of $1,000,000 on account of bodily injuries or death and
$1,000,000 for property damage; and such policy or policies of
insurance shall contain a provision that they will not be modified
or canceled except upon at least thirty (30) days’ advance
written notice to Developers; and a copy of such policy or policies
shall be delivered to Developers by Owner promptly following the
execution of this Agreement.
(a)
Developers hereby
agree to indemnify and save Owner harmless from and against any and
all claims, actions, damages, losses and expense of any kind
whatsoever (including reasonable attorneys’ fees) arising out
of or in connection with the negligent or willful acts and
omissions of Developers, its employees and agents with respect to
the performance of their respective obligations and duties
hereunder.
(b)
Owner hereby agrees
to indemnify and save Developers harmless from and against any and
all claims, actions, damages, losses and expenses of any kind
whatsoever (including reasonable attorneys’ fees) arising out
of or in connection with Owner’s negligent or willful acts
and omissions in connection with the development and construction
of the Project.
This Agreement may
be terminated as follows:
(a)
Owner may terminate
this Agreement immediately for cause. “For cause” means
Owner has demonstrable evidence of either (i) fraud committed by
Developers, (ii) insubordination by Developers, or (iii) repeated
failure by Developers to meet reasonable deadlines, if and only if
the failure to meet deadlines is within the reasonable control of
the Developers. Events caused by nature or acts of God, even if
anticipated by the parties, are deemed outside the reasonable
control of the Developers. If Owner terminates this Agreement for
cause, Owner shall within ten days pay any remaining balance of the
monthly fee and per lot fee earned to date, as
applicable.
(b)
Owner may terminate
this Agreement for reasons other than cause with 30 days written
notice to Developers. If this agreement is terminated for reasons
other than for cause, within 30 days of the termination date, Owner
shall pay (i) any remaining balance of the monthly fee and per lot
fee earned to date, (ii) any outstanding reimbursable expenses, and
(iii) a fee of $100,000 representing an early termination
fee.
(c)
Developers man
terminate this Agreement immediately in the event of failure of the
Owner to pay Developer any of the compensation under Section 4
hereof.
10.
Notices. All notices, demands,
requests, consents, or approvals required or permitted under this
Agreement to be in writing shall be deemed to have been properly
given if and when mailed by certified mail, return receipt
requested, postage prepaid, or by electronic mail
(“Email”), at the following addresses indicated for
each party:
|
(a) if to
Owner:
|
c/o Charles W.S.
MacKenzie
|
|
|
312 Third Street,
Suite 101
|
|
|
Annapolis, MD
21403
|
|
|
cmackenzie@mackenzieequity.com
|
|
|
|
|
(b) and if to
Mackenzie:
|
MacKenzie
Development Company, LLC
|
|
|
2328 West Joppa
Road, Suite 200
|
|
|
Lutherville,
Maryland 21093
|
|
|
Attn: Robert J.
Aumiller, Jr.
|
|
|
rjaumiller@mackenziecommercial.com
|
|
|
|
|
(c) and if to
Cavalier:
|
Cavalier
Development Group, LLC
|
|
|
8114 Dam Number 4
Road
|
|
|
Williamsport, MD
21795
|
|
|
Attn: Stephen P.
Oder
|
|
|
soder@cavdev.com
|
|
|
|
|
(d) such other
addresses by any party to the other parties by notice in
writing pursuant to the provisions of this Section.
|
11.
Governing Law. This Agreement
shall be governed by, and shall be construed, in accordance with
the laws of the State of Maryland.
12.
Burden; Benefit. This Agreement
shall be binding upon, and shall inure to the benefit of, the
parties hereto and, except as stated herein to the contrary, their
successors and assigns.
13.
Gender. As provided herein and
as the context requires, the masculine gender shall be deemed the
feminine and neuter genders and vice versa; and the singular shall
be deemed to include the plural and vice versa.
14.
Relationship. Nothing contained
in this Agreement shall be construed to create a relationship of
employer and employee between Developers and Owner, it being the
intent of the parties hereto that the relationship created hereby
is, in fact and intent, that of an independent contractor. Nothing
contained herein shall be deemed to constitute Owner and Developers
as partners or joint ventures. Furthermore, Developers hereby
certify that Charles W.S. MacKenzie is not an officer, member or
employee of Developers or MacKenzie Development Company, LLC and in
no way receives any compensation, fees or equity from
Developers.
15.
Severability. If any provision
of this Agreement or application to any part or circumstances shall
be determined by any court of competent jurisdiction to be invalid
and unenforceable to any extent, the remainder of this Agreement or
the application of such provision to such personal circumstances,
other than those as to which it is so determined invalid or
unenforceable, shall not be affected thereby, and each provision
hereof shall be valid and shall be enforced to the fullest extent
permitted by law.
[Signatures follow
on next page]
IN WITNESS WHEREBY,
the parties hereto have executed this Agreement as of the day and
year first above written.
|
WITNESS:
|
|
MacKenzie
Development Company, LLC
|
|
|
|
|
|
|
|
By: /s/ Robert J. Aumiller,
Jr (SEAL)
|
|
|
|
Robert J. Aumiller,
Jr., Vice President
|
|
|
|
|
|
WITNESS:
|
|
Cavalier
Development Group, LLC
|
|
|
|
|
|
|
|
By: /s/ Stephen P.
Oder (SEAL)
|
|
|
|
Stephen P. Oder,
Manager
|
|
|
|
|
|
WITNESS:
|
|
SeD Maryland
Development, LLC
|
|
|
|
Inter-American
Development, its Manager
|
|
|
|
|
|
|
|
By: /s/ Charles W. S.
MacKenzie (SEAL)
|
|
|
|
Charles W. S.
MacKenzie, Chief Development Officer
|
|
|
|
|
EXHIBIT A
JOINT
PROJECT DEVELOPMENT AND MANAGEMENT SERVICES
The role of the
Developers is to act as the “Owner’s
Representative” in the development, construction and sale of
the Project. The Developers will act with integrity and honesty and
will use all commercially reasonable efforts to maximize the
investment objectives of the Owner. The Developers will perform all
reasonable tasks as necessary to this end including but not limited
to the following:
1.
Reporting: Report to the Owner
on the status of the Project through formal scheduled reports and
on an informal basis as the Owners requests. Maintain an updated
proforma, budgets and schedule for the Project reflecting current
conditions. Represent the Owner at all Project meetings. Provide
all necessary paperwork for monthly lender draws and letters of
credits as needed.
2.
Financing Assistance: Work with
Owner’s selected capital broker and lending institutions to
facilitate financing for the Project. Furnish required underwriting
and due diligence documents to lenders, review and recommend
underwriting assumptions, facilitate closing by providing required
land development documents and managing the Project according to
the terms and conditions of the loan documents. Provide ongoing
compliance reporting to lender and its selected inspectors and
auditors.
3.
Engineering and Development
Entitlements: Manage the civil engineering process to ensure
the timely and accurate completion of all required development
approvals and entitlements for each phase of construction. Ensure
the recordation of the subdivision plats and secure all required
permits, variances, public works agreements and approvals from
Town, County, State or Federal levels (including the stream
crossing). Provide value engineering along with the general
contractor, geo-tech and environmental consultants. Coordinate the
ongoing civil engineer and geo-tech engineer involvement during the
construction process and through close out. Represent Owner at all
public meetings and meetings with government staff and elected
officials.
4.
Dry Utilities and Amenities:
Coordinate efficient and timely installation of all dry utilities
(electric, gas, cable, etc.) with local gas, electric, cable and
phone providers. Oversee the engineering and construction of all
amenities including the clubhouse, pool, entrance monuments, street
lights, street trees, signage, reforestation, walking paths, parks,
playgrounds and cluster mailboxes. Marketing support will be
required for the design of amenities such as the clubhouse, entry
monuments and signage and is typically provided by the homebuilder
or an outside marketing firm.
5.
Construction: Conduct the
bidding process for all contractor work, recommend contractors to
the Owner and supervise all contractor work including that of the
general contractor. In association with Owner’s attorney,
negotiate and review building contracts with contractor to clearly
define construction responsibilities in order to minimize conflicts
in the field. Manage contractors to ensure fair pricing, quality
control and timely delivery of lots. Problem-solve all contractor
issues that may arise during construction (e.g. constructability
issues, scheduling issues, third-party claims, change order
negotiation, subcontractor disputes, lien actions, cost overruns).
Ensure compliance with all permits and regulatory requirements
including State discharge permits and erosion control
permits.
6.
Home Owners Association: Along
with Owner’s selected attorney, establish the required Home
Owners Association (“HOA”) and ensure its compliance
with the NVR lot purchase agreements. Act as HOA leadership and as
an Architectural Review Committee member until the association is
turned over to the residents at the required time. Represent Owner
at all HOA meetings and votes. Make recommendations for Owner to
hire a professional property management company to run the HOA
under Developers’ direction and supervision. The management
company will handle billing, collections, routine architectural
requests, conduct regular homeowners meetings and other daily
management duties. Fees for the management company are not a part
of this Agreement.
7.
Off-Site Requirements:
Coordinate all off-site development requirements for the Project
including the acquisition of required right-of-ways, the
construction improvements to Ballenger Creek Pike and negotiation
and payment of all fees-in-lieu required by governmental
authorities (medium priced dwelling units, school construction
fees, road escrow payments, etc.). Along with Owner’s
selected attorney oversee the negotiations with the Frederick
County Board of Education for the dedication of a school site and
the acquisition of an easement to Phase 4.
8.
Close-Out: Manage the close-out
process which includes dedicating all roads to the County or HOA,
obtaining certification and inspection of all stormwater management
devices, insuring compliance with all reforestation and landscaping
requirements, and ultimately obtaining a full release from all
permits and all posted construction bonds and letters of credit and
release from improvements imposed under all public works
agreements.
9.
LPA Compliance: Manage the lot
purchase agreements (“LPAs”) with NVR, Inc. and develop
and maintain the Project in compliance with the LPAs. Enforce
Owner’s rights under the LPAs and monitor lot purchase pace
and price. At Owner’s request, act as Owner’s agent to
settle all lots purchased under the LPAs. Design lot phasing
schedules to meet the timelines under the LPAs.
10.
Multi-Family Parcels: Assist
Owner’s selected broker with the marketing and sale of the
multi-family parcels to third parties including assemblage of
marketing materials, due diligence facilitation and entitlement
consultation. Coordinate construction with future multi-family
parcel purchasers.
11.
Costs Approvals: Review,
approve and code all invoices and costs for the Project and advise
Owner on the sufficiency and administration of all contracts
related to the Project. Solicit proposals for all contracted work
and recommend contractors to Owner for hire. Basic accounting for
the project will be the responsibility of the Owner.
12.
Manage Consultants: Manage all
consultants and contractors throughout the Project including
general contractors, subcontractors, landscapers, property
management companies, accountants, attorneys, engineers, geo-techs,
consultants, etc.
13.
Other: Any other reasonable
development services requested by the Owner or required to complete
the Project in accordance with the development plan and necessary
to maximize the value of the Project for the Owner.
Please note that
some of the above Services require the assistance of a local real
estate attorney. Developers are not attorneys and any tasks which
must be performed by an attorney are not included in the scope of
the Services. Developers will recommend attorneys to the Owner and
work with the Owner’s selected attorney(s) to complete the
Services requiring legal assistance.
Additionally,
marketing responsibilities are not included in the scope of the
Services provided by the Developers. Many times the marketing
responsibilities are handled by the homebuilder and we recommend
that option for this Project. Developers will assist in all aspects
of marketing that relate to land development and will provide
recommendation whenever proposals are presented. This would include
review of community brochures, entry monument and clubhouse design
and signage.
MacKenzie Development Company, LLC
Qualifications
MacKenzie
Development Company, LLC is development subsidiary of the MacKenzie
Companies, a full-service real estate firm focused on Maryland.
Together with its sister company, MacKenzie Communities, LLC,
MacKenzie has been developing residential and commercial projects
in and around the Baltimore Metro markets for over 45 years. We
develop projects for our own account and offer our development
services to select third parties for a fee. Not only are we experts
in land development but we also are experienced owners who
understand how decisions made at the land development level affect
the bottom line. We manage projects with a focus on meeting
investor expectations and maximizing returns. The following is a
list of our recent residential development projects:
Baltimore County,
Maryland
61 Single-Family
lots in 2 phases
NVR (Ryan Homes) is
the builder for both phases
Currently 80% sold
out
Baltimore County,
Maryland
36 Single-Family
Villa lots
NVR (Ryan Homes) is
the builder
Currently in land
development; full sellout projected in 2016
Baltimore County,
MD
41 Single-Family
lots – homes sold for $1.5 – $3.0 million
Sold to multiple
custom home builders and end-users
Sold last lots in
2012
Baltimore County,
MD
70 Townhome
lots
Currently in
entitlement approval process
Will select
homebuilder in 2015 and sell finished lots starting in
2016
5.
Preserve
at Windlass Run
Baltimore County,
MD
412 lots, mix of
Single-Family and Townhome
Obtained all
Planned Unit Development (“PUD”) approvals
Terminated purchase
contract due to deal economics
6.
Granite
View Apartments
Baltimore County,
MD
318 unit market
rate apartment development
Currently in the
entitlement approval process
Limited partner
responsible for financial projections and due
diligence
Cavalier Development Group, LLC
Qualifications
Our focus since
inception of the original Cavalier Development company in 1993 has
been the development of residential land in Frederick County. The
amount of residential development that we have managed over the
years is evidenced in our list of major projects that we have
participated in. We have a good local base of subcontractors who
are knowledgeable and dependable. The subcontractors we use are
very competitive in their bidding and are very responsive to us
because of the significant amount of work that we have solicited
and managed over the years.
We understand the
Frederick County process for development approvals and permitting.
Our excellent relationships with Frederick County staff and elected
officials enables us to accomplish tasks and gain approvals under
extremely tight timeframes. Our reputation for professionalism and
integrity are our keys to success.
The following is a
list of the major projects we are currently or have completed
developing:
1.
WESTWINDS: A
four-hundred forty-five (445) unit golf course community along Gas
House Pike in Frederick County, Maryland. Owner - Potomac
Frederick, LLC.
2.
RIVER OAKS: An
eighty-eight (88) unit single family community off of Route 144
east in Frederick County, Maryland. Owner - River Oaks Limited
Partnership.
3.
OVERLOOK PND: A
three hundred twenty-nine (329) unit Planned Neighborhood
Development in Frederick City, Frederick Maryland. Owner - Marvin
R. Blumberg Company.
4.
BALLENGER CROSSING
PUD: A four hundred seventy-five (490) unit Planned Unit
Development located off of Ballenger Creek Pike just south of
Frederick City. Owner - Marvin R. Blumberg Co.
5.
WALNUT RIDGE PND: A
five hundred fifty (550) unit Planned Neighborhood Development in
Frederick City, Maryland. Owner - Mr. & Mrs. Joseph Free.
Developer - Security Development Corporation.
6.
CANAL RUN PUD: A
five hundred seventy-five (575) unit Planned Unit Development in
Point of Rocks, MD. Owner – PV I, LLC.
7.
TILGHMAN PROPERTY: A
forty-four (44) lot single family community in Frederick City,
Maryland. Owner - Milton Henderickson.
8.
WILLOWBROOK: A
four-hundred two (402) lot single family and townhome community in
Frederick City, Maryland. Owner – Adler
Financial.
9.
TILGHMANTON HEIGHTS:
A sixty-two (62) lot single family community in Washington County,
Maryland. Owner – Dr. William Schneider.
|
Robert J. Aumiller,
Jr.
|
Stephen P.
Oder
|
|
Vice
President
|
Manager
|
|
MacKenzie
Development Company, LLC
|
Cavalier
Development Group, LLC
|
|
2328 West Joppa
Road, Suite 200
|
8114 Dam Number 4
Road
|
|
Lutherville, MD
21093
|
Williamsport, MD
21795
|
February 23,
2015
SeD Maryland
development, LLC
c/o Charles W.S.
MacKenzie
312 Third Street,
Suite 101
Annapolis, MD
21403
RE: Project
Development and Management Agreement for Ballenger Run
PUD
Dear
Charley,
Pursuant to the
project development and management agreement for Ballenger Run PUD
dated February 25th, 2015, this letter
serves to clarify the process of how invoices will be sent to you
for the Services. Section 4 of the Agreement states that the
"Developers will submit separate monthly invoices to the Owner".
These invoices will be sent by email to you at cmackenzie@
mackenzieequity.com. An outline of how the invoices will divide the
fees between the Developers is below:
A. The
Pre-Development Fee of $22,000 per month will be invoiced as
$10,000 due to MacKenzie and $12,000 due to Cavalier.
B. The Development
Fee of $14,667 per month will be invoiced as $6,667 due to
MacKenzie and $8,000 due to Cavalier.
C. The Close-Out
Fee of $11,000 per month will be invoiced as $5,000 due to
MacKenzie and $6.000 due to Cavalier.
D. The $1,200 fee
for every single-family lot sale shall be payable in the amount of
$540 due to MacKenzie and $660 due to Cavalier. An invoice will not
be issued for these fees as you should instruct the settlement
agent to make the payments as lot settlement.
E. The $500 fee for
every single-family lot sale shall be payable in the amount of $225
due to MacKenzie and $275 due to Cavalier. An invoice will not be
issued for these fees as you should instruct the settlement agent
to make payments as lot settlement.
F. The $50,000 fee
for every multi-family parcel lot sale shall be payable in the
amount of $22,500 due to MacKenzie and $27,500 due to Calalier. An
invoice will not be issued for these fees as you should instruct
the settlement agent to make payments at lot
settlement.
G. Any reimbursable
expenses incurred by the Developers will be invoiced by the
Developers separately.
H. Any late fees on
unpaid balances will accrue and be invoices by the Developers
separately.
I. The termination
fee, if incurred, will be invoiced as $50,000 due to MacKenzie and
$50,000 due to Cavalier.
Should you have any
questions regarding these fees or any other aspects of the
Agreement, please don't
hesitate to ask. Again, we thank you for selecting our team as the
Developers and we look forward to
working with you to make this a successful project.
Sincerely,
MacKenzie
Development Company. LLC
/s/ Robert Aumiller
Robert J. Aumiller,
Jr.
Vice
President
Cc: Stephen P.
Oder
Acknowledged and
Agreed
/s/ Charley MacKenzie
Charles W.S.
MackKenzie, Inter-American Development, LLC
On behalf of SeD
Maryland Development, LLC
Exhibit
10.12
ASSIGNMENT
AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND
ASSUMPTION AGREEMENT (hereinafter referred to as the
“Assignment Agreement”), made as of this 15th day of September
2017 (the “Effective Date”) by and between MacKenzie
Development Company, LLC (“Assignor”) and
Adams-Aumiller Properties, LLC
(“Assignee”).
RECITALS
WHEREAS, Assignor,
Cavalier Development Group, LLC (“Cavalier”) and SeD
Maryland Development, LLC (“Owner”) entered into a
Project Development and Management Agreement for Ballenger Run PUD
dated February 25, 2015 (the “Contract”), a copy of
which is attached as Exhibit A hereto and made part of hereof by
reference; and
WHEREAS, the
Assignor now desires to assign and transfer all of its rights,
obligations, and interests in the Contract to the Assignee pursuant
to this Assignment Agreement; the Assignee desires to accept the
assignment of all the Assignor’s rights, obligations, and
interests in the Contract pursuant to this Assignment Agreement;
and Cavalier and Owner desire to consent to the assignment from the
Assignor to the Assignee.
NOW, THEREFORE, FOR
AND IN CONSIDERATION of the mutual entry into this Agreement by the
parties hereto, and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged by each party
hereto, the parties hereto hereby agree as follows:
Section 1.
Assignment. The Assignor
hereby assigns to the Assignee, and the Assignee hereby accepts and
assumes from the Assignor, all of the Assignor’s rights,
obligations and interest in and to the Contract from and after the
date hereof. Assignee represents it has reviewed the Contract,
including Exhibit A and the addendum to Exhibit A titled
“MacKenzie Development Company, LLC Qualifications”.
Assignee represents that Adams-Aumiller Properties, LLC has the
same qualifications as the qualifications listed in
“MacKenzie Development Company, LLC
Qualifications”.
Section 2.
Consent. Cavalier and Owner
hereby consent to the assignment from the Assignor to the Assignee
of all of Assignor’s rights, obligations, and interest in the
Contract and agree to permit Assignor to assign to Assignee all its
rights, obligations, and interest in the Contract, and permit
Assignee to assume from Assignor all its rights, obligations, and
interest in the Contract.
Section 3.
Compensation. Under the
Contract, including but not limited to Section 4 and Section 5,
there is no compensation, fees, reimbursements, or any amounts due
to Assignor from Owner as of the Effective Date. Any compensation
due under the Contract for services provided on or after the
Effective Date shall be due to Assignee.
Section 4.
Indemnification. The
Assignor shall, and by its execution of this Assignment Agreement,
does indemnify and hold harmless Assignee from and against any and
all loss, damage, expense, liability or claim of liability which
Assignee may incur at any time hereafter resulting from any action
taken by the Assignor under the Contract prior to the date of this
Assignment Agreement. The Assignee shall, and by its execution of
this Assignment Agreement, does indemnify and hold harmless
Assignor from and against any and all loss, damage, expense,
liability or claim of liability which Assignor may incur resulting
from any action taken by the Assignee under the Contract after the
date of this Assignment Agreement.
Section 5. Specific
Amendments.
a)
The sixth sentence
of Section 2 of the Contract ([Robert J. Aumiller Jr. of MacKenzie
will act as the primary point of contact for the Owner and as the
“owner’s representative”]) shall be amended to
read: “Robert J. Aumiller of Adams-Aumiller Properties, LLC
will act as the primary point of contact for the Owner and as the
Owner’s representative.
b)
The following
sentence in Section 4, “Developers will be permitted to
allocate monthly fees and lot settlement fees between MacKenzie and
Cavalier and submit separate monthly invoices to be paid directly
by the Owner.”, shall be amended to read: “Developers
will be permitted to allocate monthly fees and lot settlement fees
between Adams-Aumiller Properties, LLC and Cavalier and submit
separate monthly invoices to be paid directly by the
Owner.”
c)
Section 14 of the
Contract: “Furthermore, Developers hereby certify that
Charles W.S. MacKenzie is not an officer, member or employee of
Developers or MacKenzie Development Company, LLC and in no way
receives any compensation, fees or equity from Developers”
shall be deleted.
d)
The addendum to the
Exhibit A title “MacKenzie Development Company, LLC
Qualifications” shall be deleted.
Section 6.
Notices. The Notice
requirement to MacKenzie is deleted in its entirely and replaced
with the following Notice to Assignee:
Adams-Aumiller
Properties, LLC
6247 Falls Road,
Building H
Baltimore, MD
21209
Attn: Robb
Aumiller
robb@adams-aumiller.com
IN WITNESS WHEREOF,
each party hereto has executed and sealed this Agreement by its
duly authorized representative, as of the day and year first above
written.
|
WITNESS:
|
|
ASSIGNOR
|
|
|
|
|
MacKenzie
Development Company, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Gary T.
Gill
|
(SEAL)
|
|
|
|
|
Gary T. Gill,
Executive Vice President
|
|
|
|
|
|
|
|
|
WITNESS:
|
|
ASSIGNEE
|
|
|
|
|
Adams-Aumiller
Properties, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Robert
J. Aumiller, Jr.
|
(SEAL)
|
|
|
|
|
Robert J. Aumiller,
Jr., Manager
|
|
|
|
|
|
|
|
Consent to this
Assignment and Assumption Agreement:
|
WITNESS:
|
|
CAVALIER
|
|
|
|
|
Cavalier
Development Group, LLC
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Stephen P.
Oder
|
(SEAL)
|
|
|
|
|
Stephen P. Oder,
Manager
|
|
|
|
|
|
|
|
|
WITNESS:
|
|
OWNER
|
|
|
|
|
SeD Maryland
Development, LLC
|
|
|
|
|
By: SeD Development
Management, LLC, Manager
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Charles
W.S. MacKenzie
|
(SEAL)
|
|
|
|
|
Charles W.S.
MacKenzie, Manager
|
|
|
|
|
|
|
|
EXHIBIT
A
Project
Development and Management Agreement dated February 25,
2015
ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS ACQUISITION AGREEMENT AND PLAN OF
MERGER (this “Agreement”) is made and entered
into on this 29th day of December,
2017, by and among SeD Intelligent Home Inc., a Nevada corporation
(the “Public Company”), SeD Acquisition Corp., a
Delaware corporation (the “Merger Sub”), SeD Home
International, Inc., a Delaware corporation (“SeD Home
International”), and SeD Home, Inc., a corporation
incorporated under the laws of the State of Delaware (“SeD
Home”).
W I T N E S S E T H:
WHEREAS, the Public Company is the sole
shareholder of the Merger Sub;
WHEREAS, SeD Home International, Inc. is
the sole shareholder of SeD Home;
WHEREAS, SeD Home International, Inc. is
the owner of the majority of the shares of the common stock of the
Public Company, and owns 74,015,730 of the 74,043,324 issued and
outstanding shares of the common stock of the Public
Company;
WHEREAS, the board of directors of each
of the Public Company and the Merger Sub have each determined that
a merger of the Merger Sub with and into SeD Home (the
“Merger”), upon the terms and subject to the conditions
set forth in this Agreement, is in the best interests of the Merger
Sub, the Public Company, and the shareholders thereof, and
accordingly, their respective boards of directors have each
approved the Merger;
WHEREAS, the board of directors of each
of SeD Home and its sole shareholder SeD Home International have
determined that the Merger, upon the terms and subject to the
conditions set forth in this Agreement, is in the best interests of
the shareholders of SeD Home and SeD Home International, and
accordingly each board of directors has approved the
Merger;
WHEREAS, each of the Public Company,
Merger Sub, SeD Home International and SeD Home acknowledge that
the Public Company is a “shell” company, as that term
is defined in Rule 12b-2 under the Exchange Act of 1934, as
amended (17 CFR 240.12b-2), and accordingly has nominal activities
and assets;
WHEREAS, SeD Home International has
determined that it is advisable to transfer the ownership of all of
the issued and outstanding shares of SeD Home to the Public
Company, with the understanding that the Public Company’s
ownership of SeD Home will be beneficial to SeD Home
International;
WHEREAS, each of the Public Company,
Merger Sub, SeD Home International and SeD Home acknowledge that
SeD Home International has agreed to the transfer of all of the
issued and outstanding shares of SeD Home only as a result of its
present ownership of 74,015,730 shares of the Public
Company’s common stock;
WHEREAS, the Public Company has agreed
to issue 630,000,000 shares of the Public Company’s common
stock to SeD Home International;
WHEREAS, each of the Public Company,
Merger Sub, SeD Home International and SeD Home desire to make
certain representations, warranties, covenants and agreements in
connection with the Merger; and
WHEREAS, for federal income tax
purposes, the parties intend that the Merger shall qualify as a
reorganization under the provisions of Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the “Code”)
and shall be a tax free exchange;
NOW, THEREFORE, in consideration of the
representations, warranties, covenants and agreements contained
herein, the parties agree as follows:
ARTICLE I.
DEFINITIONS
When
used in this Agreement, the following terms shall have the
following meanings:
1.01
Certificate of Merger. “Certificate of Merger” shall
mean a Certificate of Merger in substantially the form attached to
this Agreement as Exhibit
A and to be filed with the Secretary of State of the State
of Delaware.
1.02
Closing. “Closing” and “Closing Date” shall
mean the closing of the transactions contemplated by this
Agreement.
1.03
Effective Time. “Effective Time” shall mean the date of
which the Certificate of Merger is properly filed with the
Secretary of State of the State of Delaware, as required under the
applicable provisions of the law of such jurisdiction, or at such
other time as is permissible in accordance with the
DGCL.
1.04
SeD Home Shares. “SeD Home Share(s)” shall mean the
shares of common stock, par value $0.0001 per share, of SeD Home,
Inc.
1.05
Material Adverse Change; Material Adverse Effect. “Material
Adverse Change” or “Material Adverse Effect”
means, when used in connection with SeD Home, the Public Company or
Merger Sub, any change or effect that either individually or in the
aggregate with all other such changes or effects is materially
adverse to the business, assets, properties, condition (financial
or otherwise) or results of operations of such party taken as a
whole.
1.06
Person. “Person” means an individual, corporation,
partnership, joint venture, association, trust, unincorporated
organization or other entity.
1.07
Subsidiary. A “Subsidiary” of any person means another
person, an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect at
least a majority of its Board of Directors or other governing body
(or, if there are no such voting interests, fifty percent (50%) or
more of the equity interests) is owned directly or indirectly by
such first person.
1.08
Surviving Corporation. “Surviving Corporation” shall
have the meaning set forth in Section 2.01.
ARTICLE II.
THE MERGER
2.01
The Merger. Upon the terms and subject to the conditions set forth
in this Agreement, the Certificate of Merger and in accordance with
the Delaware General Corporation Law (the “DGCL”), at
the Effective Time of the Merger, the Merger Sub shall merge with
SeD Home, and SeD Home shall continue as a subsidiary of the Public
Company and shall continue its corporate existence under the laws
of the State of Delaware (the “Surviving
Corporation”).
2.02
Effective Time. The Merger shall become effective on the date and
at the time the Certificate of Merger is filed with the Secretary
of State of Delaware in accordance with provisions of the DGCL, or
at such other time as is permissible in accordance with the DGCL.
The time at which the Merger shall become effective as aforesaid is
referred to hereinafter as the “Effective
Time.”
2.03
Closing. The closing of the Merger (the “Closing”)
shall occur concurrently with the Effective Time (the
“Closing Date”). The Closing shall occur at 4800
Montgomery Lane, Suite 210, Bethesda, MD 20814, unless another
place is agreed to in writing by the parties hereto.
2.04
Manner and Basis of Converting Shares. At the Effective Time, the
500,000,000 SeD Home Shares that shall be outstanding immediately
prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted
into 630,000,000 shares of the common stock of the Public Company
to be held by SeD Home International. As of the Effective Time, all
of the common stock of the Merger Sub issued and outstanding
immediately prior to the Effective Time shall no longer be
outstanding and shall automatically be exchanged for 500,000,000
shares of SeD Home, all of which shares of SeD Home shall be held
by the Public Company as the sole shareholder of the Surviving
Corporation following the Effective Time. Accordingly, SeD Home
International shall have received an aggregate total of 630,000,000
shares of the common stock of the Public Company and the Public
Company shall own all of the issued and outstanding shares of SeD
Home. All shares to be issued hereby shall be issued as of the
Effective Time of the Merger, by virtue of the Merger and without
any action on the part of SeD Home International. The 630,000,000
shares of the Public Company’s common stock to be issued to
SeD Home International pursuant to this Agreement shall upon
issuance be duly authorized, validly issued, fully paid and
non-assessable. The 500,000,000 shares of the Surviving Corporation
to be issued to the Public Company shall be duly authorized,
validly issued, fully paid and non-assessable. The certificates
representing the shares of common stock to be issued pursuant to
this Agreement shall bear an appropriate legend indicating that
such shares have not been registered pursuant to the Securities Act
of 1933, as amended.
2.05
Effective Date of Merger. As soon as practicable, the parties shall
file the Certificate of Merger with the Secretary of State of the
State of Delaware executed in accordance with the relevant
provisions of the DGCL and shall make all other filings or
recordings required thereunder. The Merger shall become effective
at such date as the Certificate of Merger is duly filed with the
Secretary of State of Delaware, or at such other time as is
permissible in accordance with the DGCL (the time the Merger
becomes effective being the “Effective Time of the
Merger”). The Public Company shall use reasonable efforts to
have the Closing Date and the Effective Time of the Merger to be
the same day.
2.06
Effects of the Merger. The Merger shall have the effects set forth
in the applicable provisions of the DGCL.
2.07
Articles of Incorporation; Bylaws; Purposes.
(a) The
Articles of Incorporation of SeD Home in effect immediately prior
to the Effective Time of the Merger shall be the Articles of
Incorporation of the Surviving Corporation until thereafter changed
or amended as provided therein or by applicable law. SeD Home shall
be a wholly-owned subsidiary of the Public Company. The Public
Company’s Articles of Incorporation shall not be amended or
changed hereby.
(b)
The Bylaws of SeD Home in effect at the Effective Time of the
Merger shall be the Bylaws of the Surviving Corporation until
thereafter changed or amended as provided therein or by applicable
law. The Public Company’s Bylaws shall not be amended or
changed hereby.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.01
Representations and Warranties of SeD Home. SeD Home represents and
warrants to the Public Company as follows:
(a)
Organization, Standing and Corporate Power. SeD Home is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware.
(b)
Capital Structure. The issued and outstanding shares of SeD Home
consists of 500,000,000 shares that are held by one (1)
shareholder. SeD Home has no other securities of any nature issued
or outstanding. All outstanding SeD Home Shares are duly
authorized, validly issued, fully paid and
non-assessable.
(c) Authority;
Non-contravention. SeD Home has the requisite power and authority
to enter into this Agreement and to consummate the Merger. The
execution and delivery of this Agreement by SeD Home and the
consummation by SeD Home of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the
part of SeD Home. This Agreement has been duly executed and
delivered by SeD Home and constitutes a valid and binding
obligation of SeD Home, enforceable against SeD Home in accordance
with its terms.
3.02
Representations and Warranties of the Public Company and Merger
Sub. The Public Company and the Merger Sub each represent and
warrant to each of SeD Home and SeD Home International as
follows:
(a)
Organization, Standing and Corporate Power. The Public Company and
Merger Sub are duly incorporated, validly existing and in good
standing under the laws of the State of Nevada and Delaware,
respectively, and each has the requisite corporate power and
authority to carry on its business as now being conducted. The
Public Company and Merger Sub are duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the
nature of its business makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would
not have a Material Adverse Effect.
(b) Subsidiaries.
The Public Company has no Subsidiaries other than the Merger Sub.
Merger Sub is an entity duly organized, validly existing and in
good standing under the laws of the jurisdiction of its
organization. The Merger Sub was formed solely to effectuate the
Merger and has not conducted any business operations since its
organization. The Public Company has delivered or made available to
SeD Home complete and accurate copies of the charter, bylaws or
other organizational documents of the Merger Sub. The Merger Sub
has no assets, it has no liabilities or other obligations, and it
is not in default under or in violation of any provision of its
charter, bylaws or other organizational documents. All shares of
the Merger Sub are owned by the Public Company free and clear of
any restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), claims, security
interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to
which the Public Company or the Merger Sub is a party or which are
binding on any of them providing for the issuance, disposition or
acquisition of any capital stock of the Merger Sub (except as
contemplated by this Agreement).
(c) Capital
Structure. The authorized capital stock of the Public Company
consists of 1,000,000,000 shares of common stock, $.001 par value,
of which 74,043,324 shares are issued and outstanding as of the
date hereof. There are no outstanding bonds, debentures, notes or
other indebtedness or other securities of the Public Company having
the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which
shareholders of the Public Company may vote. There are no
outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind
to which the Public Company is a party or by which it is bound
obligating the Public Company to issue, deliver or sell, or cause
to be issued, delivered or sold, additional common stock of the
Public Company or other equity or voting securities of the Public
Company or obligating the Public Company to issue, grant, extend or
enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. There are no
outstanding contractual obligations, commitments, understandings or
arrangements of the Public Company to repurchase, redeem or
otherwise acquire or make any payment in respect of any common
stock of the Public Company or any other securities of the Public
Company. Those 74,015,730 shares of the Public Company’s
common stock presently owned by SeD Home International were validly
issued by the Public Company.
(d) Authority;
Non-contravention. The Public Company and the Merger Sub have all
requisite authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by the Public Company and Merger Sub and
the consummation by the Public Company and Merger Sub of the
transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the
Public Company and Merger Sub. This Agreement has been duly
executed and delivered by and constitutes a valid and binding
obligation of the Public Company and Merger Sub, enforceable in
accordance with its terms. The execution and delivery of this
Agreement does not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions
of this Agreement will not, conflict with, or result in any breach
or violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination,
cancellation or acceleration of or “put” right with
respect to any obligation or to loss of a material benefit under,
or result in the creation of any lien upon any of the assets of the
Public Company or Merger Sub under, (i) the Articles of
Incorporation or bylaws of the Public Company or Merger Sub or the
comparable charter or organizational documents of any other
Subsidiary of the Public Company or Merger Sub, (ii) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument, permit, concession, franchise or license
applicable to the Public Company, Merger Sub or their respective
properties or assets, or (iii) subject to the governmental filings
and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule, regulation
or arbitration award applicable to the Public Company, Merger Sub
or their respective assets other than, in the case of clauses (ii)
and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or liens that individually or in the aggregate could
not have a Material Adverse Effect with respect to the Public
Company or Merger Sub or could not prevent, hinder or materially
delay the ability of the Public Company or Merger Sub to consummate
the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration
or filing with, or notice to, any governmental entity is required
by or with respect to the Public Company or Merger Sub in
connection with the execution and delivery of this Agreement by the
Public Company or Merger Sub or the consummation by the Public
Company or Merger Sub, as the case may be, of any of the
transactions contemplated by this Agreement, except for the filing
of the Certificate of Merger with the Secretary of State of the
State of Delaware, as required.
(e) SEC
Documents; Undisclosed Liabilities. The Public Company has filed
all reports, schedules, forms, statements and other documents as
required by the U.S. Securities and Exchange Commission (the
“SEC”) and the Public Company has delivered or made
available to SeD Home all reports, schedules, forms, statements and
other documents filed with the SEC (collectively, and in each case
including all exhibits and schedules thereto and documents
incorporated by reference therein, the “Public Company SEC
Documents”). The Public Company SEC Documents complied in all
material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such Public Company
SEC documents, and none of the Public Company SEC Documents
(including any and all consolidated financial statements included
therein) as of such date contained any untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. None of the Public Company SEC Documents contains
any untrue statement of a material fact or omits to state any
material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements of the Public
Company included in such Public Company SEC Documents comply as to
form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with
generally accepted accounting principles (except, in the case of
unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of the Public
Company and its consolidated subsidiaries as of the dates thereof
and the consolidated results of operations and changes in cash
flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments as
determined by the Public Company’s independent accountants).
Except as set forth in the Public Company SEC Documents, at the
date of the most recent audited financial statements of the Public
Company included in the Public Company SEC Documents, neither the
Public Company nor any of its subsidiaries had, and since such date
neither the Public Company nor any of such subsidiaries has
incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or
in the aggregate, could reasonably be expected to have a Material
Adverse Effect with respect to the Public Company.
(f)
Absence of Certain Changes or Events. Except as disclosed in the
Public Company SEC Documents, since the date of the most recent
financial statements included in the Public Company SEC Documents,
there is not and has not been: (i) any Material Adverse Change with
respect to the Public Company or Merger Sub; or (ii) any condition,
event or occurrence which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect or give
rise to a Material Adverse Change with respect to the Public
Company or Merger Sub.
(g)
Litigation; Compliance with Laws.
(i)
There is no suit, action or proceeding or investigation pending or
threatened against or affecting the Public Company or Merger Sub or
any basis for any such suit, action, proceeding or investigation
that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect with respect to the
Public Company or Merger Sub or prevent, hinder or materially delay
the ability of the Public Company or Merger Sub to consummate the
transactions contemplated by this Agreement, nor is there any
judgment, decree, injunction, rule or order of any governmental
entity or arbitrator outstanding against the Public Company or
Merger Sub having, or which, insofar as reasonably could be
foreseen by the Public Company or Merger Sub, in the future could
have, any such effect.
(ii)
The conduct of the business of the Public Company has complied with
all statutes, laws, regulations, ordinances, rules, judgments,
orders, decrees or arbitration awards applicable
thereto.
(h) Material
Contract Defaults. The Public Company and Merger Sub are not, or
have not, received any notice or have any knowledge that any other
party is, in default in any respect under any Material Contract;
and there has not occurred any event that with the lapse of time or
the giving of notice or both would constitute such a material
default. For purposes of this Agreement, a “Material
Contract” means any contract, agreement or commitment that is
effective as of the Closing Date to which the Public Company or
Merger Sub is a party (i) with expected receipts or expenditures in
excess of $25,000, (ii) requiring the Public Company or Merger Sub
to indemnify any person, (iii) granting exclusive rights to any
party, (iv) evidencing indebtedness for borrowed or loaned money in
excess of $25,000 or more, including guarantees of such
indebtedness, or (v) which, if breached by the Public Company or
Merger Sub in such a manner would (A) permit any other party to
cancel or terminate the same (with or without notice of passage of
time) or (B) provide a basis for any other party to claim money
damages (either individually or in the aggregate with all other
such claims under that contract) from the Public Company or Merger
Sub or (C) give rise to a right of acceleration of any material
obligation or loss of any material benefit under any such contract,
agreement or commitment.
(i) Financial
Statements. The audited financial statements and unaudited interim
financial statements of the Public Company included in the SEC
Documents (i) complied as to form in all material respects with
applicable accounting requirements and, as appropriate, the
published rules and regulations of the SEC with respect thereto
when filed, (ii) were prepared in accordance with GAAP applied on a
consistent basis throughout the periods covered thereby (except as
may be indicated therein or in the notes thereto, and in the case
of quarterly financial statements, as permitted by Form 10-Q under
the Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Public
Company as of the respective dates thereof and for the periods
referred to therein, and (iv) are consistent with the books and
records of the Public Company.
(j) Undisclosed
Liabilities. Neither of the Public Company nor the Merger Sub has
any liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or
to become due), except for (a) liabilities shown on the balance
sheet contained in the most recent Form 10-Q filed with the SEC,
(b) liabilities which have arisen since the date of the balance
sheet contained in the most recent Form 10-Q filed with the SEC in
the ordinary course of business which do not exceed $25,000.00 in
the aggregate and (c) contractual and other liabilities incurred in
the ordinary course of business which are not required by GAAP to
be reflected on a balance sheet.
ARTICLE IV.
INDEMNIFICATION AND RELATED MATTERS
4.01
Survival of Representations and Warranties. The representations and
warranties of the parties made in Article III of this Agreement
shall not survive beyond the ten (10) year anniversary of the
Effective Time.
4.02
Indemnification by the Public Company. The Public Company shall
indemnify SeD Home International in respect of, and hold it
harmless against, loss, liability, deficiency, damages, expense or
cost (including without limitation amounts paid in settlement,
interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and
other expenses of litigation, arbitration or otherwise)
(“Damages”) incurred or suffered by SeD Home
International resulting from:
(a) any
misrepresentation, inaccurate representation, including but not
limited to any inaccurate representation regarding the validity of
shares previously issued or to be issued to SeD Home International
or any predecessor in interest thereof, breach of warranty or
failure to perform any covenant or agreement of Public Company or
Merger Sub contained in this Agreement;
(b) any
claim by a stockholder or former stockholder of the Public Company
or any other person or entity, seeking to assert, or based upon:
(i) ownership or rights to ownership of any shares of the common
stock of the Public Company; (ii) any rights under the certificate
of incorporation or bylaws of the Public Company or Merger Sub;
(iii) any claim that his, her or its shares of common stock lost
value as a result of the transactions contemplated hereby; or (iv)
any claim that any shares of the Public Company’s common
stock are not validly owned by SeD Home International, including
but not limited to those 74,015,730 shares of the Public
Company’s common stock owned by SeD Home International prior
to the Closing Date or the 630,000,000 shares of the Public
Company’s common stock to be issued hereby or any challenge
to any issuance of shares of the Public Company’s common
stock to any predecessor to SeD Home International.
ARTICLE V.
GENERAL PROVISIONS
5.01
Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i)
personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, or facsimile,
addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting
facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such
notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal
business hours where such notice is to be received) or (b) on the
first business day following the date of mailing by express courier
service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses
for such communications shall be:
(a) if
to the Public Company or Merger Sub:
SeD
Intelligent Home Inc.
4800
Montgomery Lane, Suite 210
Bethesda,
MD 20814
(b) if
to SeD Home and SeD Home International, Inc.:
SeD
Home, Inc.
4800
Montgomery Lane, Suite 210
Bethesda,
MD 20814
5.02
Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words
“include”, “includes” or
“including” are used in this Agreement, they shall be
deemed to be followed by the words “without
limitation”.
5.03
Entire Agreement. This Agreement constitutes the entire agreement,
and supersede all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter of
this Agreement.
5.04
Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to
principles of conflicts of laws. Any action brought by either party
hereto against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of
Delaware or in the federal courts located in the state of Delaware.
The parties to this Agreement hereby irrevocably waive any
objection to jurisdiction and venue of any action instituted
hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens. The
parties hereto agree to submit to the in person am jurisdiction of
such courts and hereby irrevocably waive trial by jury. The
prevailing party shall be entitled to recover from the other party
its reasonable attorney’s fees and costs.
5.05
Assignment. Neither this Agreement nor any of the rights, interests
or obligations under this Agreement shall be assigned, in whole or
in part, by operation of law or otherwise by any of the parties
without the prior written consent of the other parties, except that
SeD Home International may assign its rights hereunder without the
consent of the other parties hereto. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective
successors and assigns.
5.06
Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as
to be effective and valid under applicable law but if any provision
or portion of any provision of this Agreement is held to be
invalid, illegal or unenforceable in any respect under any
applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision
or portion of any provision had never been contained
herein.
5.07
Counterparts. This Agreement may be executed in one or more
identical counterparts, all of which shall be considered one and
the same instrument and shall become effective when one or more
such counterparts shall have been executed by each of the parties
and delivered to the other parties.
[signature
page follows]
IN WITNESS WHEREOF, the undersigned have
caused their duly authorized officers to execute this Agreement as
of the date first above written.
|
|
SED
INTELLIGENT HOME INC., as Public Company
By:
/s/ Rongguo Wei
Name: Rongguo
Wei
Title:
Chief Financial Officer
SED
ACQUISITION CORP., as Merger Sub
By:
/s/ Rongguo Wei
Name: Rongguo
Wei
Title:
Chief Financial Officer
SED
HOME INTERNATIONAL, INC.
By: /s/ Fai H. Chan
Name: Fai H. Chan
Title: Chairman
SED
HOME, INC.
By: /s/ Fai H. Chan
Name: Fai H. Chan
Title: Chairman and
Co-Chief Executive Officer
|
EXHIBIT A
FORM OF CERTIFICATE OF MERGER
CERTIFICATE OF MERGER
OF
SED ACQUISITION CORP.
INTO
SED HOME, INC.
Pursuant to Section 251 of the Delaware General Corporation
Law
The
undersigned, being the surviving corporation, hereby sets forth as
follows:
FIRST:
The name of the surviving corporation is SeD Home, Inc.; its state
of incorporation is Delaware.
SECOND:
The name of the non-surviving corporation is SeD Acquisition Corp.;
its state of incorporation is Delaware.
THIRD:
An Agreement of Merger has been approved, adopted, certified,
executed and acknowledged by each constituent corporation in
accordance with Section 251 of the State of Delaware General
Corporation Law.
FOURTH:
The Certificate of Incorporation of SeD Home, Inc. shall be the
Certificate of Incorporation of the surviving
corporation.
FIFTH:
The executed Agreement of Merger is on file at a place of business
of the surviving corporation; the address of said place of business
is c/o SeD Home, Inc., 4800 Montgomery Lane, Suite 210, Bethesda,
MD 20814.
SIXTH:
A copy of the Agreement of Merger will be furnished by the
surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.
IN WITNESS WHEREOF, this certificate is
hereby executed this 29th day of December, 2017.
|
|
SeD
Home, Inc.
/s/ Rongguo Wei
Name: Rongguo
Wei
Title:
Co-Chief Financial Officer
|
EXHIBIT 10.14
PURCHASE AND SALE AGREEMENT
This
Purchase and Sale Agreement (“Agreement”) is made between
150 CCM Black Oak, Ltd. a Texas
limited partnership (collectively “Seller” and/or “Developer”, whether one or more)
and Houston LD, LLC
(“Buyer”).
1. Sale
of Property/Lots. Seller agrees to sell and Buyer agrees to
purchase, subject to the terms and conditions of this Agreement,
certain property more particularly described as
follows:
124
Lots located in the Lakes at Black Oak Subdivision, Magnolia,
Montgomery County, Texas, as more particularly referenced and
described on the “Plat” attached hereto as Exhibit A, and specifically
including the Lot Numbers listed on Exhibit A.
together
with all improvements thereon and all appurtenant rights of Seller
including, without limitation, any rights of ingress and egress
through the adjacent streets, roads, infrastructure, alleys and
right-of-ways and such other rights as may be specified in this
Agreement (collectively the “Property”, which may refer also to
the lots included therein). Buyer and Seller acknowledge and
understand the location and description of the Property referenced
and described herein, regardless of the sufficiency of any legal
description.
2. Purchase
Price. The Purchase Price for
Property shall be $6,175,000.00
and allocated as
follows:
|
50 lf
Lot
|
$44,000
|
Number of lots:
53
|
$2,332,000
|
|
60 lf
Lot
|
$54,000
|
Number of lots:
70
|
$3,780,000
|
|
70 lf
Lot
|
$63,000
|
Number of lots:
1
|
$63,000
|
The
Purchase Price shall be payable as follows:
a.
Within two (2) business days of the Effective
Date, Buyer shall deliver $50,000 to Texas State Title,
attn. Cody Sobieski, Pres. 281-640-7660
(“Escrow Agent”) as earnest money to be credited toward
the Purchase Price at the Closing. In addition, Buyer shall deliver
along with the earnest money the independent consideration for the
inspection period in Paragraph 4
below.
b.
Within two (2) business days after the expiration
of the Inspection Period, Buyer shall deliver to the Escrow Agent
an additional $100,000 non-refundable earnest money deposit, which
shall be considered earnest money for all purposes under this
Agreement, except that it is non-refundable unless
Seller defaults.
c.
The
remaining balance of the Purchase Price shall be paid in cash or
its equivalent at Closing as specified below, as adjusted for
prorations and closing costs described below, and subject to
exceptions contained herein.
d.
In addition to the Purchase Price, Buyer agrees to
pay $2,500 per lot at Closing as a “community enhancement
fee” which Seller will apply exclusively towards funding an
amenity package on the Property. The current proposed amenity
package is attached on Exhibit B
hereto.
The
Purchase Price to be paid by Buyer for the Property is conditioned
upon Seller’s delivery of the Property in compliance with the
terms and conditions of this Agreement.
3. Effective
Date. The Effective Date shall
be the date when the last one of the Buyer or Seller executes this
Agreement.
4. Due
Diligence Inspection Period.
For the independent consideration of $500 paid to the Escrow Agent
in accordance with Paragraph 2.a
above, Buyer shall have forty-five
(45) days from the Effective Date (“Inspection
Period”) in which the
Buyer may perform inspections and non-invasive testing, at its sole
expense, to determine if the Property and lots located therein, in
its sole discretion, is suitable for Buyer’s proposed
development, use and business purposes and that the lots within
Property are in compliance with all standards, conditions and terms
hereof and herein. Buyer and its representatives shall have access
to the Property during this Inspection Period and up until Closing.
Buyer agrees to restore the Property substantially to its original
condition after completion of such inspection and testing, which
obligation shall survive termination of this Agreement. Buyer may
cancel or terminate this Agreement at any time during the
Inspection Period for any reason by delivering written notice of
termination to Seller prior to the expiration of the Inspection
Period and the parties shall be released from any further rights,
obligations, and liabilities hereunder (except for those which
expressly survive termination) and all earnest money on deposit
shall be returned to the Buyer.
Buyer
shall indemnify, defend, and hold Seller and its employees,
representatives, and agents harmless from and against all claims,
liabilities, liens, costs, fees, and expenses, including, without
limitation, court costs, litigation expenses, and attorneys’
fees, related to or anyway arising from any of the inspections,
tests, or entry on the Property. This obligation to indemnify and
hold harmless shall survive the termination of this
Agreement.
Within
ten (10) days of the Effective Date, Seller agrees to disclose and
provide to Buyer copies of any third party materials that Seller
identifies in its possession that relate to the Property, which may
include (but Seller does not represent that it has all of these
materials) a current survey, boundary and topographical surveys,
plats, HOA, restrictive covenants and conditions, engineering
reports by electronic format in PDF, CAD (including but not limited
to .dwg and/or .dgn format) or other media, environmental reports,
flood zone certifications, soils reports, easement agreements,
encroachments or encumbrances, municipal zoning related documents,
improvement/management district information, requirements and fees,
mineral leases, oil/gas wells/lines, property line discrepancies,
and homeowners or community association documents, but Seller is
under no obligation to disclose or provide documents of record in
the real property records. Buyer may perform Phase I (but not Phase
II environmental assessments on Property during the Inspection
Period at its own expense.
If
Buyer does not terminate this Agreement prior to the expiration of
the Inspection Period, then the earnest money deposit shall become
non-refundable (subject only to Seller’s ability to convey
clear title and deliver the Property in compliance with the terms
and conditions of this Agreement), and which shall be applied
towards the Purchase Price at closing.
5. Title
Commitment. Within seven (7)
days after the Effective Date, Seller, at its expense, shall order
and deliver to Buyer a title commitment for the Property in the
amount of the Purchase Price from Escrow Agent and obtain a copy of
all documents which constitute exceptions to the title commitment.
Buyer shall give Seller written notice within twenty (20) days
following receipt of the Title Commitment of any condition of title
(exceptions or requirements) that is not satisfactory to Buyer.
Seller may, but shall not be obligated, to resolve such matters;
provided, however, that mortgage liens may be resolved at closing.
If Seller is unable or unwilling to resolve such matters before the
expiration of the Inspection Period as defined above, then Buyer
may, at Buyer’s sole option, either (1) accept title subject
to the objections raised by Buyer and such accepted objections
shall become Permitted Exceptions (“Permitted
Exceptions”) without any
adjustment in the Purchase Price, or (2) terminate this Agreement
prior to the expiration of the Inspection Period pursuant to
Paragraph
4 above, whereupon the earnest
monies shall be immediately returned to Buyer by Escrow Agent, or
(3) work with Seller, if mutually agreeable, to satisfy
unacceptable matters and postpone the end of the Inspection Period
and/or Closing Date to satisfy these matters. At Closing, Seller
shall provide Buyer with an owner’s policy of title insurance
in the amount of the Purchase Price. Seller shall pay the cost for
the basic cost of the owner’s policy of title insurance, and
Buyer shall pay the cost for all endorsements, changes, and
modifications to the owner’s policy of title
insurance.
6. Closing.
Closing shall occur within thirty (30) days after the expiration of
the Inspection Period (“Closing Date”) subject to the Property being delivered
in compliance with all terms herein.
7. Title
& Deliveries. At or prior
to Closing, Seller shall deliver to the Escrow Agent and/or Buyer
the following items for the Property, duly executed and
acknowledged where required:
A. Conveyance
Deed. A special warranty deed
in the form satisfactory to Buyer, specifically stating all
approved exceptions to title, if any, subject but not limited to,
zoning or deed restrictions, easements and encumbrances of record
by either Buyer or Seller, or future assessments if
applicable.
B. Foreign
Person Tax Withholding.
Documentation or information required for compliance with Section
1445 of the Internal Revenue Code.
C. Additional
Documents. Such additional
documents as might be reasonably required by the Buyer,
Buyer’s Lender, or the Escrow Agent to consummate the sale of
the Property and convey clear title to the Buyer with all
appurtenant rights.
D. Insurance
Policy and Costs. Seller will
pay the costs of Seller’s counsel, preparation of any deeds
and any bill of sale, deliver and pay the basic costs for a title
insurance policy in an amount equal to the Purchase Price, transfer
taxes for the conveyance, and one half of the escrow or closing
fees. Buyer will pay the cost of Buyer’s counsel, all loan
costs required by Buyer’s lender, including title policy cost
in excess of owner’s policy, Buyer’s portion of the
cost of the owner’s policy of title insurance, one half of
any escrow or closing fee, and recording fees for any deeds and
mortgage, and any applicable mortgage tax.
E. Tax
Prorations. All taxes and assessments (including pending
assessments if the related improvement is substantially completed
as of the Closing Date), whether payable in installments or not,
for the year of closing will be prorated to the Closing Date based
on the latest available tax rate and assessment valuation (with the
parties signing a proration agreement as to adjustments when actual
taxes are known).
8. Obligations
of Seller & Conditions Precedent to Closing. Seller shall complete and deliver the Property
in compliance with all terms and requirements stated herein, if not
already done so. Buyer’s obligation to close on the Property
or any lots within same is subject to and conditioned upon the
compliance and satisfaction, as of the Closing Date, of each of the
requirements described herein and below. Unless specifically stated
otherwise, the satisfaction of these conditions shall be at
Seller’s expense. Buyer shall cooperate with Seller to
satisfy these conditions as needed.
A. Correctness of Representations
and Warranties. Seller
represents and warrants that (i) to its knowledge it holds good and marketable
title in fee simple to the Property, (ii) all closing documents signed by Seller will be
valid, authorized and binding upon Seller, (iii) to its knowledge no outstanding contracts,
fees, debts or liens exist on the Property (except mortgage liens
to be satisfied at closing and other items related to the
development of the Property); and (iv) to Seller’s knowledge
there are no leases or third-party rights/interests on the Property
and Seller is in sole possession. These representations and warranties of Seller
shall be evaluated by Buyer
during its title review and the Inspection Period and shall not
create any obligations of Seller or rights of Buyer, outside of
those specified in Paragraphs 4 and 5 of this
Agreement.
B. Final
Plat Recording & 911 Addresses. Finalization and recording of the proposed plat
and Seller’s delivering a copy thereof to Buyer on or before
the Closing Date. The plat shall be deemed finalized after all
required governmental approvals have been obtained, said plat has
been duly recorded in the real property records of the applicable
County Clerk’s office, corresponding 911 addresses have been
provided by the Seller to the Buyer.
C. Covenants,
Conditions, and Restrictions
(“CC&Rs”).
Seller shall draft CC&Rs for Buyer’s review prior to the
expiration of the Inspection Period, and Buyer shall approve the
CC&Rs so long as they are reasonable. If buyer does not believe
that the CC&Rs are reasonable, it shall give Seller written
notice specifying its objections and Seller and Buyer shall attempt
to negotiate a final set of CC&Rs prior to the expiration of
the Inspection Period. If Seller or its affiliate is the declarant
and/or governing architectural review authority under the
CC&Rs, then upon Buyer’s submittal from time to time,
Seller shall approve Buyer’s submittals so long as they are
in accordance with the CC&Rs.
D. Completion/Compliance.
The Property and lots therein have
been completed in full compliance with all terms hereof. All
requirements by applicable local, state and federal governmental
authorities will have been met or exceeded for the Property and
each lot therein, including but not limited to, preliminary and
final plat approval, proper construction and availability of fully
operational utilities including roads, water, sanitary sewer,
storm, sewer with all necessary permits and fully compliant (no
violations) with all applicable rules, regulations, and ordinances
of applicable authorities, and a written statement from the
engineer of record that building permits are obtainable from the
appropriate governmental agencies for the construction of
single-family houses on the lots. A preliminary and final plat of
the development, approved construction drawings from the municipal
authority and an “AS BUILT” survey will be provided in
“PDF” and “CAD” format to the Buyer as they
become available. Each lot pin shall have a flagged wooden lathe to
mark the pin location. Provided
that Buyer provides Seller adequate and appropriate utility
easements over and under the Property, as reasonably determined by
Seller, Seller will cause permanent underground electric power and
telecommunication facilities (collectively, the
“Permanent
Utilities”) to be
installed and available to the perimeter of each lot within the
Property within ninety (90) days after Buyer has poured the slab
for a residence on a lot and has given Seller written notice that
Buyer is ready for the Permanent Utilities for the
lot. This post-closing
obligation of Seller to provide Permanent Utilities shall expressly
survive Closing for twenty-four (24) months.
E. Permits and Environmental
Concerns. Seller will obtain
and complete all requirements related to Storm Water Pollution
Prevention Plans (“SWPPP”) as required by applicable local, state
and federal authorities and maintain the same during the
development of the lots within the Property. Upon Closing, Seller
will deliver to Buyer satisfactory approval from the appropriate
authority/agency regarding storm water quality that all BMP’s
are installed and maintained per the SWPPP. Upon Closing, Seller
shall transfer (to the extent transferrable) the stormwater permit
to Buyer and Buyer shall assume all responsibility for future
maintenance and installation and Seller shall be released from
liability thereon. Seller shall have caused all FEMA requirements
to have been met for a home on any lot to be exempted from
purchasing flood insurance and no portion of any house pad site (it
being understood that some portions of some lots are within a flood
plain) is to be located in a FEMA defined flood plain.
Seller’s principals have no
actual knowledge that the Property has been or is presently used
for handling, storage, manufacturing, refining, transportation or
disposal of “toxic material”, “hazardous
substances”, or “hazardous waste”.
If “hazardous wastes”,
“hazardous substances”, or “hazardous
material” is located on the Property, as determined by a
Phase I or permitted Phase II environmental assessment obtained by
the Buyer, then Buyer shall have the right to terminate this
Agreement during the Inspection Period pursuant to Paragraph 4
above.
F. Trash, Trees, Brush &
Debris. The Property is being
sold “as-is” and Buyer shall be responsible for mowing,
brush hogging, and removing, clearing, and disposing of all trees,
trash and debris on the Property, except that Seller will remove
any construction debris of which Buyer notifies Seller in writing
prior to the expiration of the Inspection
Period.
9. Offsite Water
Flow. Seller will deliver the Property at Closing
with proper offsite
water flow on and to the Property and which will
be managed through the
appropriate infrastructure.
10. Subsurface
Rock. Prior to expiration of
the Inspection Period, Buyer may terminate this Agreement pursuant
to Paragraph
4 above and recover the earnest money
upon the discovery of subsurface rock underlying the Property in
any quantity deemed excessive by the Buyer, unless Seller has
remedied the same to Buyer’s
satisfaction.
11. Assessments.
So long as Developer is in control
under the CC&Rs, Buyer shall be exempt from paying any and all
applicable assessments (but will have to pay TAP fees and the
amenity assessment) in the CC&Rs to the Developer during the
Seller’s period of ownership, including, but not limited to
regular and special assessments. Seller also agrees to exempt bona fide home
builders from assessments in the CC&Rs, during the same time
period.
12. Notice.
All notices will be in writing and served by electronic
transmission to the addresses shown below, until notification of a
change of such addresses. All such notices shall be deemed
delivered on the date initiated.
|
For
Buyer:
|
For
Seller:
|
|
|
|
|
David
C. Frye, Manager
|
Charley
MacKenzie
|
|
David.frye@rauschcoleman.com
|
charley@sed.com.sg
|
|
479.455.9090
|
|
|
|
Daryl
Robinson
|
|
Dana
Danvers, Director of Acquisitions
|
drobinson@newquestcrosswell.com
|
|
Dana.danvers@rauschcoleman.com
|
|
|
|
Moe
Chan
|
|
John
Maberry
|
moe@sed.com.sg
|
|
John.maberry@rauschcoleman.com
|
|
|
|
Shamar
O’Bryant
|
|
Josh
Carson
|
shamar@sed.com.sg
|
|
Josh.carson@rauschcoleman.com
|
|
|
|
Frank
Heuszel
|
|
Julie
Bias, Financial Coordinator
|
fheuszel@yahoo.com
|
|
Julie.bias@rauschcoleman.com
|
|
|
|
Randy
Farber
|
|
|
rfarber@jw.com
|
13. Disclosure
by Buyer and Seller. One or
more individuals representing the Buyer or Seller may hold real
estate licenses from multiple states.
14. Default.
If Seller has performed all of Seller’s obligations and
fulfilled the conditions under this Agreement and, if within five
(5) days after the date specified for Closing, the Buyer fails to
make payment as required herein, through no fault of Seller, then
Seller may, as its sole and exclusive remedy, cancel and terminate
this Agreement and keep the earnest money deposit paid by the Buyer
as liquidated damages. If Seller breaches this Agreement or fails
to perform any of Seller’s obligations hereunder, then Buyer
may as its sole remedy, (i) terminate this Agreement and receive a
refund of all of the earnest money, or (ii) seek specific
performance of this Agreement pursuant to the remainder of
this Paragraph
14.
a.
Buyer may enforce specific performance of
Seller’s obligation to execute the documents required to
convey the Property to Buyer but waiving any uncured title or
survey objections or matters and without any offset against,
deduction from, or reduction in the Purchase Price
(except for the costs Buyer will incur
to complete the Property in accordance with the terms
hereof), and Seller’s
warranty of title in the special warranty deed and the owner policy
of title insurance to be delivered under this Agreement shall be
subject to the permitted title exceptions and all uncured title or
survey objections or matters, and Buyer expressly waives its rights
to seek damages if it files a lawsuit for specific
performance.
b.
Buyer shall be deemed to have elected to terminate
this Agreement under clause (i) above if Buyer fails to file suit
for specific performance in accordance with Sub-Paragraph a
above (against
Seller in a court having jurisdiction in the county and state in
which the Property is located, on or before 60 days after the date
upon which closing was to have occurred.
15. Binding
Effect/Assignment. This
Agreement will inure to the benefit of and bind the respective
successors of the parties. Seller may not assign this Agreement or
any obligations hereunder. Buyer may assign this Agreement and any
and all rights and obligations hereunder at any time prior to
closing to any person or entity controlling, controlled by, or
under common control with Buyer. For purposes of this Paragraph a
person or entity shall control an entity, if it, directly or
indirectly, holds a majority interest in the entity to be
controlled.
16. No
Waiver. Failure of either party
to exercise any rights under this Agreement shall not constitute a
waiver of any right, nor excuse the other party’s full
performance. No express waiver of any matter shall affect any other
matter under this Agreement. Express waivers are only effective if
in writing.
17. Brokerage.
Buyer represents that it has not contracted with any real estate
broker in connection with the transaction contemplated by this
Agreement. Seller shall be responsible for paying a 4%
Broker’s commission based on the Purchase Price to Dave
Ramsey with Home Asset, Inc. Each party shall indemnify and hold
the other party harmless from all claims, losses, liabilities,
costs, fees, and expenses (including, but not limited to, court
costs, litigation expenses, and attorneys’ fees) related to
or incurred in connection with any claims for brokerage commissions
arising by, through, or under the indemnifying
party.
18. Entire
Agreement. This document
constitutes the entire agreement between the parties, incorporating
all prior agreements, and may only be amended in writing executed
by both parties. The exhibits attached to this Agreement are
incorporated into this Agreement for all
purposes.
19. Attorney’s
Fees. If either party prevails
against the other in a legal action concerning any part of this
Agreement, the successful party shall be entitled to its reasonable
attorney’s fees and costs connected with such action, through
appellate and bankruptcy proceedings, in addition to all other
recovery or relief. Costs shall include all deposition costs and
expert fees, even if not used at trial.
20. Governing
Law. This Agreement shall be
governed and enforced in accordance with the law of the state where
the Property is located.
21. Time.
Buyer and Seller understand that “Time is of the
Essence” for this Agreement.
22. ADA
Compliant Ramps. Seller shall
be responsible for installation of any and all required ADA
sidewalk ramps for sidewalks installed by Seller. Said ramps shall
meet all the ADA Guidelines, Code and Specifications for such
ramps.
23. Special
Stipulations.
a.
Within 30 days after Closing, Seller shall
commence construction of the Black Oak Community Entry on Black Oak
Drive, including the landscaping and amenities in
Paragraph
1. This provision shall
expressly survive Closing and remain a continuing obligation of
Seller until complete.
b.
During
the Inspection Period, Buyer shall propose its signage to Seller
for approval, as to type, size, appearance, and placement. Seller
shall not unreasonably withhold its approval of the signage, so
long as the signage meets all applicable governmental requirements
and is limited so as not to clutter the Property. After approval by
Seller, Buyer may place the signage in the agreed locations prior
to closing.
c.
Seller’s obligations under this
Paragraph
23 and any liabilities
therefore shall survive Closing.
d.
The
terms of this Agreement shall be kept confidential by both parties
except as otherwise required by legal process, and except that the
terms may be disclosed to the parties’ respective counselors,
attorneys, accountants, brokers, and other persons with a need to
know.
24. AS-IS. Subject to
the representations and covenants, stated herein to expressly
survive Closing, the parties
intend that the sale of the Property will be made on an “As
Is, Where Is” basis with all faults, in accordance with the
terms and provisions of Exhibit C.
25. Statutory
Notices. To the extent
applicable, Seller gives Buyer the
notices set forth in Exhibit
D.
|
SELLER:
|
|
BUYER:
|
|
|
|
|
|
|
|
150 CCM BLACK OAK LP,
|
|
HOUSTON
LD, LLC
|
|
|
a Texas limited
partnership
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
150 Black Oak GP,
Inc.,
|
|
By:
|
/s/
|
|
|
|
a Texas
corporation
|
|
|
David C.
Frye,
|
|
|
Its:
|
General
Partner
|
|
|
Manager
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
|
|
Date:
|
|
|
|
|
Charley
MacKenzie,
|
|
|
|
|
|
|
Chief Development
Officer
|
|
|
|
|
|
Date:
|
|
|
|
|
|
EXHIBIT
A
Description and Plat of Property
and List of Lots
EXHIBIT
B
Proposed Amenity Package
EXHIBIT
C
As-Is, Where-Is
1.
BUYER
ACKNOWLEDGES AND AGREES THAT SELLER AND ITS AGENTS HAVE NOT MADE,
DO NOT MAKE, WILL NOT MAKE AND SPECIFICALLY NEGATE AND DISCLAIM ANY
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS,
IMPLIED, OR STATUTORY, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE,
OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE NATURE, QUALITY,
OR CONDITION OF THE PROPERTY OR ANY PART THEREOF, INCLUDING,
WITHOUT LIMITATION, THE WATER, SOIL, AND GEOLOGY; (B) THE ECONOMIC
FEASIBILITY OF THE PROPERTY OR THE INCOME TO BE DERIVED FROM THE
PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) EXCEPT FOR
ANY WARRANTIES OF TITLE CONTAINED IN THE SPECIAL WARRANTY DEED TO
BE DELIVERED BY SELLER AT THE CLOSING, THE NATURE AND EXTENT OF ANY
RIGHT-OF-WAY; (E) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS
OPERATION WITH ANY LAWS, RULES, ORDINANCES, OR REGULATIONS OF ANY
APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, INCLUDING, WITHOUT
LIMITATION, THE STATUS OF ANY PERMITS AND GOVERNMENTAL APPROVAL;
(F) THE RENTABILITY, HABITABILITY, MARKETABILITY, MERCHANTABILITY,
OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (G) THE
PRESENCE OF ANY ENDANGERED OR THREATENED SPECIES ON THE PROPERTY,
AS WELL AS THE SUITABILITY OF THE PROPERTY AS HABITAT FOR ANY OF
THOSE SPECIES; OR (H) ANY OTHER MATTER WITH RESPECT TO THE
PROPERTY. WITHOUT LIMITING THE FOREGOING, SELLER AND ITS AGENTS
HAVE NOT MADE, DO NOT MAKE, WILL NOT MAKE AND SPECIFICALLY NEGATE
AND DISCLAIM ANY REPRESENTATION OR WARRANTY REGARDING THE PRESENCE
OR ABSENCE OF ANY HAZARDOUS MATERIALS (AS HEREINAFTER DEFINED) ON,
UNDER, OR ABOUT THE PROPERTY OR THE COMPLIANCE OF THE PROPERTY WITH
ANY OF THE ENVIRONMENTAL LAWS (AS HEREINAFTER DEFINED). THE TERM
“HAZARDOUS MATERIALS” MEANS ANY SUBSTANCE, COMPOUND,
MATERIAL OR WASTE, WHETHER SOLID, LIQUID OR GASEOUS: (1) THE
PRESENCE OF WHICH REQUIRES INVESTIGATION, MONITORING OR REMEDIATION
UNDER ANY ENVIRONMENTAL LAW (DEFINED BELOW); (2) WHICH IS OR
BECOMES DEFINED AS A “HAZARDOUS SUBSTANCE”,
“HAZARDOUS MATERIAL”, “HAZARDOUS WASTE”,
“EXTREMELY HAZARDOUS WASTE”, “SOLID WASTE”,
“TOXIC SUBSTANCE”, “CHEMICAL SUBSTANCE”,
“REGULATED SUBSTANCE”, “POLLUTANT”, OR
“CONTAMINANT”, OR IS OTHERWISE CLASSIFIED AS HAZARDOUS
OR TOXIC, IN OR PURSUANT TO ANY ENVIRONMENTAL LAW; (3) WHICH IS
EXPLOSIVE, CORROSIVE, FLAMMABLE, RADIOACTIVE, OR OTHERWISE
HAZARDOUS AND IS OR BECOMES REGULATED BY ANY GOVERNMENTAL
AUTHORITY, AGENCY, DEPARTMENT, COMMISSION, BOARD, AGENCY OR
INSTRUMENTALITY OF THE UNITED STATES, THE STATE OF TEXAS OR ANY
POLITICAL SUBDIVISION THEREOF; (4) THE PRESENCE OF WHICH ON THE
PROPERTY CAUSES OR THREATENS TO CAUSE A NUISANCE UPON THE PROPERTY
OR TO ADJACENT PROPERTIES OR POSES OR THREATENS TO POSE A HAZARD TO
THE HEALTH OR SAFETY OF PERSONS ON OR ABOUT THE PROPERTY; (5) THAT
CONTAINS PETROLEUM HYDROCARBONS, ASBESTOS, RADON, POLYCHLORINATED
BIPHENYLS, UREA FORMALDEHYDE FOAM INSULATION, LEAD, OR MOTOR FUEL
OR OTHER VOLATILE ORGANIC COMPOUNDS; (6) WHICH CAUSES OR POSES A
THREAT TO CAUSE A HAZARD TO THE ENVIRONMENT OR TO THE HEALTH,
SAFETY OR WELFARE OF PERSONS ON OR ABOUT THE PROPERTY, OR (7) WHICH
IS A SHARP (E.G. NEEDLE) OR AN INFECTIOUS, MEDICAL OR RADIOACTIVE
WASTE. THE TERM “ENVIRONMENTAL LAWS” MEANS ANY FEDERAL,
STATE OR LOCAL LAW, STATUTE, GUIDANCE OR POLICY STATEMENT,
ORDINANCE, CODE, RULE, REGULATION, LICENSE, AUTHORIZATION,
DECISION, ORDER, INJUNCTION OR DECREE, WHICH PERTAINS TO HEALTH,
SAFETY OR THE ENVIRONMENT (INCLUDING, BUT NOT LIMITED TO, GROUND,
AIR, WATER OR NOISE POLLUTION OR CONTAMINATION, AND UNDERGROUND OR
ABOVEGROUND TANKS) AND SHALL INCLUDE WITHOUT LIMITATION, THE CLEAN
WATER ACT, 33 U.S.C. § 1251 ET SEQ.; THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT, 42 U.S.C.
§ 9601 ET SEQ.; THE RESOURCE CONSERVATION AND RECOVERY ACT, 42
U.S.C. § 6901 ET SEQ.; THE TOXIC SUBSTANCE CONTROL ACT, 15
U.S.C. §§ 2601 ET SEQ; THE OCCUPATIONAL HEALTH AND SAFETY
ACT; THE TEXAS WATER CODE; AND THE TEXAS SOLID WASTE DISPOSAL ACT,
TEXAS HEALTH AND SAFETY CODE CHAPTER 361, ALL AS
AMENDED.
2.
BUYER
AGREES THAT IT HAS EXAMINED AND INVESTIGATED THE PROPERTY PRIOR TO
EXECUTION HEREOF OR THAT IT WILL INVESTIGATE THE PROPERTY PRIOR TO
THE EXPIRATION OF THE INSPECTION PERIOD AND THAT IN PURCHASING THE
PROPERTY BUYER WILL RELY SOLELY UPON ITS INDEPENDENT EXAMINATION,
STUDY, INSPECTION AND KNOWLEDGE OF THE PROPERTY, AND BUYER IS
RELYING SOLELY UPON ITS OWN EXAMINATION, STUDY, INSPECTION, AND
KNOWLEDGE OF THE PROPERTY AND BUYER’S DETERMINATION OF THE
VALUE OF THE PROPERTY AND USES TO WHICH THE PROPERTY MAY BE PUT,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY
SELLER.
3.
BUYER
AGREES TO PAY FOR AND HAS MADE OR CAUSED TO BE MADE (OR WILL MAKE
OR CAUSE TO BE MADE) ALL INSPECTIONS, INVESTIGATIONS AND ANALYSES
NECESSARY OR APPROPRIATE FOR THE PURPOSE OF DETERMINING COMPLIANCE
OR NON-COMPLIANCE BY THE PROPERTY WITH ALL BUILDING, HEALTH,
ENVIRONMENTAL, ZONING AND LAND USE LAWS, ORDINANCES, RULES AND
REGULATIONS, AND SELLER MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, CONCERNING THE PROPERTY’S COMPLIANCE WITH
SUCH BUILDING, HEALTH, ENVIRONMENTAL, ZONING AND LAND USE LAWS,
ORDINANCES, RULES AND REGULATIONS.
4.
BUYER
FURTHER ACKNOWLEDGES THAT THE INFORMATION, IF ANY, PROVIDED AND TO
BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A
VARIETY OF SOURCES AND SELLER (A) HAS NOT MADE AND WILL NOT BE
OBLIGATED TO MAKE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF
SUCH INFORMATION AND (B) DOES NOT MAKE ANY REPRESENTATIONS AS TO
THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. BUYER
ACKNOWLEDGES AND AGREES THAT ALL MATERIALS, DATA AND INFORMATION
DELIVERED AT ANY TIME BY SELLER TO BUYER IN CONNECTION WITH THE
TRANSACTION CONTEMPLATED HEREBY ARE PROVIDED TO BUYER AS A
CONVENIENCE ONLY AND THAT ANY RELIANCE ON OR USE OF SUCH MATERIALS,
DATA OR INFORMATION BY BUYER SHALL BE AT THE SOLE RISK OF BUYER.
BUYER ACKNOWLEDGES AND AGREES THAT IT WILL CONDUCT ITS OWN
VERIFICATION OF THE INFORMATION, EITHER INDEPENDENTLY OR THROUGH
AGENTS OF BUYER’S CHOOSING. NEITHER SELLER, NOR ITS AGENTS,
NOR THE PERSON OR ENTITY WHICH PREPARED ANY REPORT OR REPORTS
DELIVERED BY SELLER TO BUYER SHALL HAVE ANY LIABILITY TO BUYER FOR
ANY INACCURACY IN OR OMISSION FROM ANY SUCH REPORTS.
5.
BUYER
RELEASES, ACQUITS AND FOREVER DISCHARGES SELLER FROM, AND WAIVES,
ANY AND ALL LIABILITIES, CLAIMS, CAUSES OF ACTION, DAMAGES, AND
OTHER RELIEF, WHETHER AT LAW OR IN EQUITY AND WHETHER IN CONTRACT,
TORT, STRICT LIABILITY OR OTHERWISE, AND WHETHER PAST, PRESENT, OR
FUTURE, IN CONNECTION WITH, AS A RESULT OF OR OTHERWISE WITH REGARD
TO THE CONDITION OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO ITS
ENVIRONMENTAL CONDITION. THIS GENERAL RELEASE SHALL BE APPLICABLE,
WITHOUT LIMITATION, TO ANY AND ALL LIABILITIES, CLAIMS, CAUSES OF
ACTION, DAMAGES AND OTHER RELIEF UNDER ANY OF THE ENVIRONMENTAL
LAWS.
6.
THE
OCCURRENCE OF A CLOSING SHALL CONSTITUTE AN ACKNOWLEDGMENT BY BUYER
THAT THE PROPERTY WAS ACCEPTED WITHOUT REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED (EXCEPT FOR THE SPECIAL WARRANTIES OF TITLE SET
FORTH IN THE SPECIAL WARRANTY DEED), AND OTHERWISE IN AN “AS
IS”, “WHERE IS”, AND “WITH ALL
FAULTS” CONDITION. THE PROVISIONS OF THIS EXHIBIT SHALL
SURVIVE CLOSING.
EXHIBIT
D
Statutory Notices
1.
Abstract or Title
Policy. Buyer should have an abstract covering the Property
examined by an attorney of Buyer’s selection, or Buyer should be
furnished with or obtain a title policy.
2.
Notice Regarding
Possible Liability for Additional Taxes (§5.010 Texas Property
Code). If the Property is vacant land, then pursuant to
Section 5.010 of the Texas Property Code Seller notifies Buyer:
“If for the current ad valorem tax year the taxable value of
the land that is the subject of this Agreement is determined by a
special appraisal method that allows for appraisal of the land at
less than its market value, the person to whom the land is
transferred may not be allowed to qualify the land for that special
appraisal in a subsequent tax year and the land may then be
appraised at its full market value. In addition, the transfer of
the land or a subsequent change in the use of the land may result
in the imposition of an additional tax plus interest as a penalty
for the transfer or the change in the use of the land. The taxable
value of the land and the applicable method of appraisal for the
current tax year is public information and may be obtained from the
tax appraisal district established for the county in which the land
is located.”
3.
Notice Regarding
Possible Annexation (§5.011 Texas Property Code). If
the Property is located outside the limits of a municipality, the
Property may now or later be included in the extra-territorial
jurisdiction (“ETJ”) of a
municipality and may now or later be subject to annexation by the
municipality. Each municipality maintains a map that depicts its
boundaries and ETJ. To determine if the Property is located within
a municipality’s ETJ or is likely to be located within a
municipality’s ETJ, Buyer should contact all municipalities
located in the general proximity of the Property for further
information.
4.
Notice of Water
Level Fluctuations (§5.019 Texas Property Code). If the
Property adjoins an impoundment of water, including a reservoir or
lake, constructed and maintained under Chapter 11 of the Texas
Water Code, that has a storage capacity of at least 5,000 acre-feet
at the impoundment’s normal operating level, then pursuant to
Section 5.019 of the Texas Property Code Seller notifies Buyer:
“The water level of the impoundment of water adjoining the
Property fluctuates for various reasons, including as a result of:
(1) an entity lawfully exercising its right to use the water stored
in the impoundment; or (2) drought or flood
conditions.”
5.
Notice of Private
Transfer Fee (§5.205 Texas Property Code). If the
Property is subject to a private transfer fee, then pursuant to
Section 5.205 of the Texas Property Code Seller notifies Buyer that
the private transfer fee obligation may be governed by Chapter 5,
Subchapter G of the Texas Property Code.
6.
Notice Required by
§13.257 of the Texas Water Code Regarding Certificated Water
or Sewer Service. Pursuant to Section 13.257 of the Texas
Water Code Seller notifies Buyer: “The real property,
described below, that you are about to purchase may be located in a
certificated water or sewer service area, which is authorized by
law to provide water or sewer service to the properties in the
certificated area. If your property is located in a certificated
area there may be special costs or charges that you will be
required to pay before you can receive water or sewer service.
There may be a period required to construct lines or other
facilities necessary to provide water or sewer service to your
property. You are advised to determine if the Property is in a
certificated area and contact the utility service provider to
determine the cost that you will be required to pay and the period,
if any, that is required to provide water or sewer service to your
property. The undersigned Buyer hereby acknowledges receipt of the
foregoing notice at or before the execution of a binding Agreement
for the purchase of the real property described in the notice or at
closing of purchase of the real property.” The real property
referred to in this notice is the Property defined in this
Agreement.
7.
Notice Regarding
Taxing Districts (§49.452 Texas Water Code). If the
Property is located in a district created under Title 4 of the
Texas Water Code (currently Chapters 49 through 68) or by a special
act of the legislature, that is providing or proposing to provide
water, sanitary sewer, drainage, or flood control or protection
facilities or services, or any of these facilities or services that
have been financed or are proposed to be financed with bonds of the
district payable in whole or part from taxes of the district, or by
imposition of a standby fee, if any, then pursuant to Section
49.452 of the Texas Water Code Seller gives Buyer the notice in the
attached Exhibit E,
which is incorporated into this Agreement for all
purposes.
8.
Notice of
Obligation to Pay Public Improvement District Assessment
(§5.014 Texas Property Code). If the Property is
located in a public improvement district established under
Subchapter A, Chapter 372, Local Government Code, or Chapter 382,
Local Government Code, and consists of not more than one dwelling
unit, then pursuant to Section 5.014 of the Texas Property Code
Seller notifies Buyer that as a Buyer of the Property you are
obligated to pay an assessment to a municipality or county for an
improvement project undertaken by a public improvement district
under Subchapter A, Chapter 372, Local Government Code, or Chapter
382, Local Government Code. The assessment may be due annually or
in periodic installments. More information concerning the amount of
the assessment and the due dates of that assessment may be obtained
from the municipality or county levying the assessment. The amount
of the assessments is subject to change. Your failure to pay the
assessments could result in a lien on and the foreclosure of your
property.
EXHIBIT
E
Notice of Utility or Other Statutorily Created
District
(§49.452 and § 54.812 Texas Water Code)
NOTICE TO BUYER OF REAL
ESTATE
SITUATED IN
HARRIS COUNTY IMPROVEMENT DISTRICT NO. 17
The
real property, described below, which you are about to purchase is
located Harris County Improvement District No. 17 (the
“District”). The
District has taxing authority separate from any other taxing
authority, and may, subject to voter approval, issue an unlimited
amount of bonds and levy an unlimited rate of tax in payment of
such bonds. As of this date, the rate of taxes levied by the
District on real property located in the District is $1.25 on each
$100 of assessed valuation. The total amount of bonds, excluding
refunding bonds and any bonds or any portion of bonds issued that
are payable solely from revenues received or expected to be
received under a contract with a governmental entity, approved by
the voters and that has been or may be issued, at this date, is
$200,000,000 for water, sewage and drainage purposes, $670,000,000
for roads, and $80,000,000 for parks and recreational facilities,
and the aggregate initial principal amount of all bonds issued for
one or more of the specified facilities of the District and payable
in whole or in part from property taxes is $-0-.
The
District also has the authority to adopt and impose a standby fee
on property in the District that has water, sanitary sewer, or
drainage facilities and services available but not connected and
which does not have a house, building or other improvement located
thereon and does not substantially utilize the utility capacity
available to the property. The District may exercise the authority
without holding an election on the matter. As of this date, the
most recent amount of the standby fee is $-0-. An unpaid standby
fee is a personal obligation of the person that owned the property
at the time of imposition and is secured by a lien on the property.
Any person may request a certificate from the District stating the
amount, if any, of unpaid standby fees on a tract of property in
the District.
The
District has the authority to levy an assessment on property within
the District. The District may exercise this authority without
holding an election the matter. As of this date, the amount of the
assessment is $-0- per $100 valuation for real property and
improvements thereon. The District is located in whole or in part
within the extra-territorial jurisdiction of the Cities of Houston
and Tomball. By law, a district
located in the extraterritorial jurisdiction of a municipality may
be annexed without the consent of a district or the voters in the
District. When a district is annexed, it is
dissolved.
The
purpose of this District is to provide water, sewer, drainage or
flood control facilities, roads, services, and park and recreation
facilities within the District through the issuance of bonds
payable in whole or in part from property taxes. The cost of these
utility facilities is not included in the purchase price of your
property, and these utility facilities are owned or to be owned by
the District.
See the
legal description of the Property in the contract to which this
notice is attached.
Buyer is advised that the
information shown on this form is subject to change by the district
at any time. The district routinely establishes tax rates during
the months of September through December of each year, effective
for the year in which the tax rates are approved by the district.
Buyer is advised to contact the
district to determine the status of any current or proposed changes
to the information shown on this form.
The
Buyer hereby acknowledges
receipt of the foregoing notice at or prior to execution of a
binding contract for the purchase of the real property described in
such notice or at closing of purchase of the real
property.
The
undersigned Buyer hereby
acknowledges receipt of the foregoing at or prior to execution of a
binding contract for the purchase of the real property described in
such notice or at closing of purchase of the real
property.
Exhibit
10.15
CONTRACT OF SALE
(Frederick,
Maryland)
THIS
CONTRACT OF SALE (this "Contract") is entered into as of the
20th day of July, 2016, by and between SeD Maryland Development,
LLC, a Delaware limited liability company qualified to conduct and
transact business in the State of Maryland ("Seller"), and ORCHARD DEVELOPMENT
CORPORATION, a Maryland corporation, or its permitted assignee as
provided for herein ("Buyer").
RECITALS:
R-1.
Seller is the owner of certain real property cons1stmg of
approximately 13 acres of land, located in Frederick, Maryland
generally described and identified on the attached Illustrative
Aerial Plan for the Ballenger Run PUD as "Future Multifamily", as
EXHIBIT A attached hereto
(the "Property"), together
with all rights, easements and appurtenances pertaining thereto,
trees, bushes, landscaping and foliage thereon, free and clear of
any existing improvements except as otherwise shown on EXHIBIT
A (i.e., storm
water management facilities and portion of hiker/biker trail shown
thereon), and to be delivered at Closing with the following
utilities stubbed to the Property lines: sewer, water, stormdrain,
electric and cable. Verizon service will not be provided by
Seller.
R-2.
Seller desires to sell and Buyer desires to purchase, upon the
terms and conditions hereinafter set forth, the Property, intended
to be developed by Buyer with approximately Two Hundred and Ten
(210) multi-family residential dwelling units, in accordance with
the terms and conditions of this Contract.
NOW,
THEREFORE, in consideration of the mutual covenants of Seller and
Buyer and for other good and valuable consideration, the receipt,
sufficiency and adequacy of which the parties hereby mutually
acknowledge, Seller and Buyer hereby agree as follows:
1.
Agreement to Sell and
Purchase. Buyer agrees to buy from Seller and Seller agrees
to sell and convey to Buyer, in fee simple, under the terms and
conditions hereinafter set forth, the Property.
2.
Deposit.
A. Posting
of Deposit. Not later than the Effective Date (as defined
below in the last paragraph of this Contract), Buyer shall deliver
to Carney Kelehan Bresler Bennett &
Scherr, LLP, as Escrow Agent ("Escrow Agent"), in cash or
immediately available funds, a deposit in the amount of One Hundred
Thousand Dollars ($100,000.00) (the "Initial Deposit"). In the event that
Buyer fails to terminate this Contract prior to the expiration of
Feasibility Study Period, as defined in Para. 4, Buyer shall,
within two (2) business days following the expiration of the
Feasibility Study Period deposit an additional One Hundred Fifty
Thousand and No/100 Dollars ($150,000 .00) with the Escrow Agent as
an additional Deposit (the "Additional Deposit"). The Initial
Deposit and the First Additional Deposit, and all subsequent
deposits, if any shall collectively be referred to as the Deposit
("Deposit"). The Deposit shall be held by Escrow Agent in a
federally insured, interest-bearing account in a national bank or
savings and loan institution reasonably acceptable to Buyer and
Seller (and any interest and other amounts accruing
on the
Deposit shall be deemed part of the Deposit for all purposes
hereunder) and disbursed in accordance with the provisions of this
Contract.
B.
Termination. If, prior to the end of the Feasibility
Study Period, Buyer, in its sole discretion as described in Para.4,
elects to terminate the Agreement by written notice described
therein, Escrow Agent shall promptly return the full Deposit to the
Buyer and neither party shall have any further obligation to the
other party.
C. Deposit
Non-Refundable after Feasibility Study Period. Following the
expiration of the Feasibility Study Period, the Deposit shall be
non-refundable to Buyer except in the event of termination of this
Contract as a result of an uncured default by Seller, or as
otherwise provided for herein.
D. Dispute
as to Deposit. In the event of any dispute between Seller
and Buyer with respect to the Deposit, Escrow Agent, Buyer and
Seller agree to the terms and conditions of the Escrow Agreement
("Escrow Agreement") as shown in EXHIBIT
B. Seller
and Buyer each acknowledge that Escrow Agent shall have no
liability to either or to any other party on account of Escrow
Agent's disbursement of the Deposit or failure to disburse the
Deposit if a dispute shall have arisen with respect to the Deposit,
and each agrees to indemnify Escrow Agent against any loss, damage
or liability (including specifically attorneys' fees and litigation
expenses) arising from Escrow Agent's role as escrow agent
hereunder except in the event of Escrow Agent's negligence or
willful misconduct.
3.
Purchase
Price and Intended Use. The purchase price for the Property
is Five Million Two Hundred Fifty Thousand Dollars ($5,250,000)
(the "Purchase Price"). Buyer shall pay fully all of the costs of
obtaining all state, local and federal approvals applicable
exclusively to the Property.
4.
Feasibility Tests and Studies;
Access.
A. Beginning
on the Effective Date and continuing until 5:00 p.m. EST on the One
Hundred Twentieth (1201h) calendar
day thereafter (the "Feasibility Study Period) Buyer shall have the
right, at its own expense, to go upon the Property to complete all
necessary due diligence efforts, including but not limited to:
completion of a Phase I Environmental Survey and Engineering
Survey; appraisal report; property inspections; title report;
initiation of financing process, and; initiate preliminary design
and investigate final site engineering and site plan approval
issues, and to cause boring tests and architectural, engineering,
subdivision, access and other tests and studies, including market
analyses and development and economic feasibility studies, to be
made upon any portion of the Property. In the event that one or
more of the investigations conducted by Buyer during the
Feasibility Study Period is unsatisfactory to Buyer, as determined
by Buyer in its sole discretion, Buyer shall have the right, by
written notice sent to Seller and Escrow Agent prior to the
expiration of the Feasibility Study Period, to terminate this
Contract, in which event the Deposit shall promptly be returned to
Buyer by Escrow Agent and upon written notice to all parties shall
thereupon be relieved of further liability and obligations
hereunder, except that Buyer agrees to (i) indemnify and save
harmless Seller from any costs (including reasonable attorney's
fees), expenses, loss or liability arising out of any study or
analysis, whether on-site or off-site, performed by or at the
request of Buyer, and (ii) repair any damage caused by
any such study or analysis and restore the Property, as near as
reasonably practical, to its condition before such study or
analysis.
B. Seller
shall grant Buyer and Buyer's employees, agents, representatives
and consultants the right to enter upon the Property at any time
before Closing hereunder for purposes of surveying, engineering,
testing and all other work which Buyer may deem necessary, provided
Buyer (i) shall not materially alter the present condition of the
Property and shall repair any damage caused by any such entry and
restore the Property, as near as reasonably practical, to its
condition before such entry, and (ii) shall indemnify and save
harmless Seller from any costs (including reasonable attorney's
fees), expenses, loss or liability arising out of any such entry.
Seller shall allow reasonable access to the Property through the
date of Settlement subject to the rights of existing tenants if
applicable. Seller shall further allow Buyer to inspect and review
the Ballenger Run Development Rights and Responsibilities
Agreement ("DRRA")
as well as any tax bills, title
policies, leases, contracts, service agreements, insurance loss
history, environmental or engineering surveys and certifications,
building plans specifications, surveys & plats, site plans, licenses & permits, code violations or other material
pertaining to the ownership of the Property (a complete checklist
will be included as an addendum to this Contract as
EXHIBIT C) which are in Sellers' possession and readily
accessible. Buyer acknowledges and agrees that it will be
responsible for ongoing repair and maintenance of the storm water
management facilities to be located on the Property (to be
constructed by Seller) and that it shall grant the Seller and/or a
future homeowners association an easement to construct and maintain
(at no expense to Buyer) the hiker/biker trail to be located on the
Property as shown on EXHIBIT
A.
C. Upon
the Effective Date, Buyer shall have in place a comprehensive
general liability insurance policy insuring that Buyer's and
Buyer's employees, agents, representatives and consultants
activities hereunder at the Property are covered under said policy
with a combined single limit of no less than One Million Dollars
($1,000,000.00) and naming the Seller as an additional insured.
Buyer will deliver a certificate of insurance to Seller evidencing
this coverage prior to entry onto the Property.
D. The
repair and indemnification provisions of this Section 4 shall
survive any termination of this Contract.
E. If
this Contract is terminated or expires for any reason other than
consummation of Closing, then, within fifteen (15) days after such
termination or expiration Buyer shall deliver or cause to be
delivered to Seller (at no cost to Seller), if available and,
except with respect to architectural and engineering, owned by
Buyer, all drawings, plats, surveys, tests, reports, investigations
and studies and all plans, specifications, architectural and
engineering work product, and governmental applications and
approvals prepared by third parties in connection with the Property
(each a "Study" and
collectively "Studies") prepared by
or for Buyer in connection with this Contract or Buyer's intended
acquisition, ownership or development of the Property, but
excluding: any Studies that involve analyses regarding the
financial viability of Buyer's intended use of the Property;
anything that would require the Buyer to incur additional costs
beyond those already committed; or any information, data, reports
or studies that the Buyer, in its sole discretion, considers
proprietary. The Studies are delivered without any representation
or warranty by Buyer as to the validity or correctness of any of
the Studies. This Section 4.E shall survive termination of this
Contract.
F. It
is the Buyer's intent to include 107 LIHTC units as part of the 210
total units in order to meet Frederick County, Maryland's
Moderately Priced Dwelling Units ("MPDUs") requirement
for the Ballenger Run project. In order to accomplish this, the
Seller must obtain the approval from Frederick County (the
"County") to amend the DRRA to allow Low Income Housing Tax Credits
("LIHTC")
units to satisfy this requirement. Further, Buyer's project
requires the County's participation in development incentive
programs for affordable housing in order to accomplish this. The
DRRA amendment and a commitment, in form and substance reasonably
acceptable to Buyer, of the cooperation of the County such the
development incentives must be accomplished by the Seller prior to
the end of the Feasibility Study Period. In the event the Seller
has not obtained the approval by the County to amend the DRRA as
provided for in in this Paragraph 4.F., by the end of the
Feasibility Study Period, Seller and Buyer shall mutually determine
whether to extend the Feasibility Study Period. Failure by the
Seller to have amended the DRRA prior to completion of the
Feasibility Study Period shall not be deemed a default by Seller of
this Contract, but Buyer shall be permitted to terminate the
Contract pursuant to Paragraph 4.A. if the parties cannot agree to
extend the Feasibility Study Period, and the Deposit shall be
promptly returned to the Buyer. Notwithstanding the aforegoing,
once Seller has amended the DRRA as provided in this Paragraph
4.F., it shall be a default by Buyer under this Contract to not
construct the MPDUs as provided herein; this provision of the
Contract shall survive Closing and shall not merge with the deed of
conveyance. In order to satisfy this requirement of Buyer, Buyer
shall be required to record the LIHTC covenants required under
§l -6A-5.2(B) and (C) of the Frederick County Code prior to
Closing, which shall run with and bind the Property.
G. During
the Feasibility Study Period, Buyer shall provide Seller with
initial architectural drawings for the intended multi-family
project. Seller shall have ten (10) business days to review and
approve these drawings, such approval not to be unreasonably
withheld, conditioned or delayed. Failure by the Seller to respond
within this period shall be deemed approval. Any further revisions
to said drawings prior to Closing other than non-material red-line
changes which do not change the layout or unit mix of the buildings
or materially alter the road circulation or amenities on the
Property as approved by the Seller shall require Seller's further
review and approval in accordance with this Paragraph 4.G., such
approval again shall not to be unreasonably withheld, conditioned
or delayed.
5.
Title.
A. .Buyer
shall order, at Buyer's expense, from a reputable title insurance
company of Buyer's choice (the "Title Company")
a report on title (the
"Title
Report") for the Property and
a survey (the "Survey") of the Property, which Survey shall reflect
the actual dimensions of, and the gross area within, the Property,
the location of any easements, rights-of- way, setback lines,
encroachments, or overlaps thereon or thereover, and the outside
boundary lines of any improvements. Not later than fifteen days
prior to the expiration of the Feasibility Study Period, Buyer
shall give notice to Seller of any objections to or defects of
title disclosed by the Title Report or Survey. If such notice is
not given, Buyer shall be deemed to accept title to the Property in
its condition existing as of the Effective Date. Within ten ( 10)
days after receiving notification of any objectionable title items
from Buyer, Seller shall give notice to Buyer as to whether Seller
shall cure or cause the cure of such objections to title. In the
event that Seller elects to remove or cause the removal of such
noted exceptions, Seller shall exercise diligent, good faith
efforts to do so. If such notice is not given or in the event that
Seller declines to cure or cause the cure of all items or if Seller
(despite Seller's diligent, good faith efforts) is unable within
the permitted time period to
cure all items Seller has elected to cure, then Buyer shall have
the option, to be exercised by written notice to Seller within five
(5) days after receipt of Seller's notice of Seller's unwillingness
or inability to cure the objectionable title items or the date
Seller was to have provided notice to Buyer as provided for herein,
to (i) accept title as shown by the Title Report and proceed to
Closing hereunder, OR (ii) terminate this Contract by giving notice
of Buyer's intention to terminate, in which event the Deposit shall
be returned to Buyer, and thereafter neither party shall have any
further liability hereunder except for those obligations which
specifically survive such termination. If Buyer fails to make an
election within such five (5)
day period, then Buyer shall be deemed to have elected item
(ii).
B. Fee
simple title to the Property is to be conveyed at the time of
Closing to Buyer or its designees, subject to any liens,
encumbrances, judgments, tenancies, covenants, restrictions,
easements and rights-of-way, recorded or unrecorded, or such other
items that Buyer has accepted as title defects or are expressly
permitted by this Contract (the "Permitted
Exceptions") except for those items that Seller is required
to or has agreed to cure. Title is to be marketable, good of record
and in fact, and insurable at regular rates by the Title Company,
subject only to the Permitted Exceptions.
C.
During the term of this Contract, Seller shall not execute nor
approve the execution of any easements, covenants, conditions or
restrictions with respect to the Property except as expressly
permitted by the terms of this Contract or, if not expressly
permitted, without first obtaining the written approval of Buyer,
which approval shall not be unreasonably withheld, conditioned nor
delayed.
6. Representations
and Warranties of Seller. Seller hereby represents and
warrants that each of the following is true and correct on the
Effective Date and shall be true and correct in all material
respects on, and restated as of, the date of Closing:
A. Seller
is a limited liability company, duly organized and validly existing
and in good standing under the laws of the State of Delaware and
qualified to conduct and transact business in the State of
Maryland, (ii) has the full and unrestricted power and authority to
execute and deliver this Contract and all other documents required
or contemplated by the terms of this Contract (collectively, the
"Seller
Documents") and to consummate the transactions contemplated
herein, and (iii) has taken all requisite company action required
to authorize the execution and delivery of the Seller
Documents.
B. The
execution and delivery of the Seller Documents by Seller and
compliance with the provisions of such documents by Seller will not
violate the provisions of the constitutive documents of Seller or
any other such similar document or rule regarding Seller or any
agreement to which Seller is bound.
C. The
execution, delivery and performance of the Seller Documents by
Seller will not violate any provision of any applicable statute,
regulation, rule, court order or judgment or other legal
requirements applicable to Seller.
D. To
the best of Seller's knowledge, there are no lawsuits or legal
proceedings pending or threatened regarding or resulting from
encumbrances on, or the ownership, use or possession of, the
Property.
E. To
the best of Seller's knowledge, there are no notices, suits or
judgments pending or threatened relating to violations of any
governmental regulations, ordinances or requirements affecting or
which may affect the Property. In the event Seller receives such a
notice of violation, Seller shall immediately take all actions
reasonably required to comply with the terms thereof, and the
Property shall be free and clear of all such violations prior to
Closing.
F. Except
for this Contract, Seller has not entered into any contracts of
sale, options to purchase, reversionary rights, rights of first
refusal or similar rights of any kind which are or shall be binding
upon the Property or any part thereof or which shall become binding
upon Buyer upon Closing.
G. Except
as otherwise disclosed in EXHIBIT C to this
Contract, Seller has not made and has no knowledge of (and to
Seller's knowledge, Seller's predecessors in title have not made
and have no knowledge of) any commitments to any governmental or
quasi-governmental authority, school board, church or other
religious body, or to any other organization, group or individual
relating to the Property which would impose any obligations upon
Buyer to make any contributions of money or land or to install or
maintain any improvements, or which would interfere with Buyer's
ability to use, develop or improve the Property as herein
contemplated (including any agreements or understandings to annex
the Property or any portion thereof to any homeowners' association
governing any project or subdivision adjacent to or in the vicinity
of the Property), and there are no special understandings or
agreements, whether oral or written, between Seller and any
jurisdictional authority whether contained in ordinances,
agreements or otherwise, limiting or defining the use and
development of the Property, the construction of improvements
thereon, the availability to the Property of public improvements
and municipal services, any requirement to share in the cost
thereof by recapture, contribution, special assessment or
otherwise, or any requirement to contribute in land or cash to any
school, library, park or other sort of county, municipal or
governmental district or body in connection with the development of
the Property. Buyer shall be responsible for any "proffers" to be
paid to the County with respect solely to the Property, including
but not limited to payment of County Impact Fees and School
Construction Fees for all approved Units, construction of public
and/or private roads within the Property, and installation of all
utilities within the Property ..
H. To
the best of Seller's knowledge, there is no actual, pending or
threatened designation of any portion of the Property or
improvements thereon, as a historic landmark or archeological
district, site or structure. To the best of Seller's knowledge,
there is no graveyard lying within the Property. Notwithstanding
the aforegoing to the contrary, within the Ballenger Run PUD there
are improvements which the Maryland Historical Trust ("MHT") has
investigated for historic status. Any such improvements located on
the Property will be removed by Seller in accordance with MHT
requirements prior to Closing. Seller shall notify Buyer
immediately in the event such MHT requirements change. In the event
Seller cannot satisfy or reasonably anticipates not being able to
satisfy any such changed MHT requirements which affect the Property
by Closing, Seller shall notify Buyer within sixty (60) days prior
to the expiration of the Site Plan Approval Period. Buyer may elect
to extend Closing by written notice to the Seller for an additional
period of time to allow Seller time to comply with MHT requirements
applicable to the Property. Such extension shall only be for such
amount of time as is necessary for Seller to comply with MHT
requirements, not to exceed one (1) year.
I. Except
as otherwise set forth in environmental studies previously
performed on behalf of Seller, by GTA dated June, 2014 copies of
which have been provided to Buyer, and including any remediation
efforts performed by Seller in accordance with such reports,
including the removal of underground storage tanks on the Property,
for which the Maryland Department of the Environment has issued a
closure report, all which have been performed in order to remove
any Contamination as required by any state, local or federal agency
having jurisdiction thereunder, to the best of Seller's knowledge,
the Property, including the land, surface water, ground water and
any improvements, is free of "contamination" from (i) any
"hazardous waste," any "hazardous substance," and any "oil,
petroleum products, and their by-products," as such terms are
defined by any federal, state, county or local law, ordinance,
regulation or requirement applicable to any portion of the
Property, as the same may be amended from time to time, and
including any regulations promulgated thereunder, and (ii) any
substance the presence of which on the Property is regulated or
prohibited by any law (collectively, "Hazardous
Substances"). "Contamination" means the presence of
Hazardous Substances at the Property or arising from the Property
that may require remediation or cleanup under any applicable law.
Seller has not used any Hazardous Substances on, from or affecting
the Property in any manner that violates any applicable law, and to
Seller's knowledge, no prior owner or user of the Property has used
such substances on, from or affecting the Property in any manner
which violates any applicable law. To Seller's knowledge, there are
not now, nor have there ever been on or in the Property underground
storage tanks or surface impoundments, asbestos-containing
materials or any material spills of polychlorinated biphenyls,
including those used in hydraulic oils, electric transformers or
other equipment, except as may be disclosed in the Environmental
Reports. Without limiting in any respect the generality of the
foregoing, to Seller's knowledge, there are no actual, alleged or
perceived health issues applicable to any portion of the Property.
To the best of Seller's knowledge, without independent
investigation, no landfill has occurred on the Property, and no
debris has been buried or placed on the Property.
J. Seller
will make available at Seller's offices (or Seller's engineer's
offices) all documents relating to or affecting the Property in
Seller's possession or available to Seller and required by this
Contract (including, but not limited to, all plats, plans, and
wetlands reports and permits).
K. All
bills and claims for labor performed and materials furnished to or
for the benefit of the Property by or on behalf of Seller for all
periods prior to Closing have been paid in full or adjustment
therefor shall be made at Closing on the settlement
sheet.
L.
Seller is not a "foreign person" as defined in the Internal Revenue
Code of 1986, and the regulations issued pursuant thereto, and
Seller shall deliver to Buyer at Closing an affidavit to such
effect containing Seller's taxpayer identification
number.
M. No
insolvency proceeding or petition in bankruptcy or for the
appointment of a receiver has been filed by or against Seller,
Seller has not made an assignment for the benefit of creditors or
filed a petition for, or entered into an arrangement with,
creditors, and Seller has not failed generally to pay its debts as
they become due.
N. There
are no leases or occupancy agreements currently affecting any
portion of the Property. Buyer acknowledges and agrees that Seller
may enter into agreements with respect to the lease, license or
rental of the Property for surface parking provided that any such
agreement shall terminate not
later than Closing. Exclusive possession of the Property shall be
delivered by Seller to Buyer at Closing free of the rights or
claims of any tenants, occupants or other parties in possession of
or having or claiming any right to possession or use of the
Property under, by or through the rights of Seller whether such
rights or claims are through lease, easement, license or
otherwise.
7,
Representations and
Warranties of Buyer. Buyer hereby represents and warrants as
follows, which representations and warranties shall be true and
correct as of the date of Closing:
A. Buyer
is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, and has the full
and unrestricted power and authority to execute and deliver this
Contract and all other documents required or contemplated by the
terms of this Contract (collectively, the "Buyer Documents") and
to consummate the transactions contemplated herein. Buyer has taken
all requisite corporate action required to authorize the
appropriate officer(s) of Buyer to execute and deliver the Buyer
Documents.
B. The
execution and delivery of the Buyer Documents by Buyer and
compliance with the provisions of such documents by Buyer will not
violate the provisions of the Articles of Incorporation, Bylaws or
any other such similar document or rule regarding Buyer, or any
agreement to which Buyer is subject or by which Buyer is
bound.
C. The
execution, delivery and performance of the Buyer Documents by Buyer
will not violate any provision of any applicable statute,
regulation, rule, court order or judgment or other legal
requirements applicable to Buyer.
D. No
insolvency proceeding or petition in bankruptcy or for the
appointment of a receiver has been filed by or against Buyer, Buyer
has not made an assignment for the benefit of creditors or filed a
petition for, or entered into an arrangement with, creditors, and
Buyer has not failed generally to pay its debts as they become
due.
8.
Conditions
Precedent.
A.
The obligation of Buyer to proceed with Closing is contingent upon
all of the following conditions being satisfied as of the date of
Closing:
(i) Seller's
representations and warranties in this Contract shall be true and
correct as of the date of Closing, and Seller shall execute a
certificate of reconfirmation of such representations and
warranties at Closing. Although certain of Seller's representations
and warranties are limited to the extent of Seller's knowledge,
this condition precedent is not so limited. Therefore, the
condition shall be deemed satisfied as the date of Closing if the
facts stated in all such representations and warranties are
accurate without reference to Seller's knowledge.
(ii)
The condition of title to the Property shall be as required by this
Contract.
(iii) Buyer
shall have received all Approvals (as defined in Section 9),
including Building Permits, and the approved record plat
subdividing the Property from the balance of the Seller's property,
and such approvals shall be final and all appeal periods in
connection therewith shall have expired, with no appeal having been
filed, or if an appeal is filed, same shall have been dismissed and
the approvals upheld.
(iv) All
offsite (not located within the Project) easements necessary for
the development and use of the Property including, without
limitation, access and utility easements for water, sanitary sewer,
stormwater management and drainage, electric and cable shall have
been obtained and (except for storm water management and drainage)
all such utilities have been installed and stubbed at the property
line, and Seller has completed base course paving from existing
public roads to the Property along with any other required
improvements to allow Buyer to obtain Building Permits and to
provide full vehicular and pedestrian access to the Property from
such public roadways.
(v) No
lawsuit, appeal or other action shall have been filed by any party,
directly or indirectly, involving the Property or Buyer's
development of the Property as a multifamily apartment
complex.
(vi) There
shall exist no moratorium or other action or directive by any
governmental authority which would prohibit or enjoin Buyer from
constructing a multifamily apartment complex as contemplated
herein. If, from the date of
this Contract until the Closing, any state, county, city, public
school district or governmental agency declares or effects any
moratorium, which moratorium is applicable to the Property or any
portion thereof, then, in such event, Buyer's obligations under
this Contract and all time frames required under this Contract
shall be suspended until such time as the moratorium is lifted;
provided, however that if such moratorium lasts or is declared by
any such authority to last for a duration in excess of twelve (12)
months from the date of the onset of such moratorium, then Buyer
may, at its sole option by written notice to the Seller, declare
this Contract to be null and void, the Deposit shall be returned to
the Buyer, and the parties shall thereafter have no further
obligation to one another.
(vii) Any
other conditions precedent to Closing set forth in other provisions
of this Contract shall have been satisfied, and Seller shall not be
in default of any of Seller's obligations under this
Contract.
B.
Failure of any
Conditions Precedent:
(i) If,
after written notice to Seller and the expiration of any applicable
cure period, the conditions set forth in Section 8A except for 8A
(iii) or (iv) hereof are not met at the time of Closing, then Buyer
shall have the option, to be exercised in its sole discretion
either to (i) waive the requirement for satisfaction of the
unsatisfied conditions and proceed to Closing without reduction in
the Purchase Price, or (ii) declare this Contract terminated in its
entirety, in which event. the Deposit shall be released to and
retained by Buyer, and thereafter neither party shall have any
further liability hereunder, except for those obligations which
specifically survive such termination, or (iii) exercise its
remedies under Section 14 below in the event the failure of the
condition(s) precedent to be satisfied is due to Seller's default;
or
(ii) If,
after written notice to Seller and the expiration of any applicable
cure period, the conditions set forth in Section 8A(iii) hereof are
not met at the time of Closing, then Buyer shall have the option,
to be exercised in its sole discretion either to (i) waive the
requirement for satisfaction of the unsatisfied conditions and
proceed to Closing without reduction in the Purchase Price, or (ii)
declare this Contract terminated in its entirety, in which event.
the Deposit shall be released to Seller, and thereafter neither
party shall have any further liability hereunder, except for those
obligations which specifically survive such termination;
or
(iii)
If, after
written notice to Seller and the expiration of any applicable cure
period, the conditions set forth in Section 8A(iv) hereof are not
met at the time of Closing, then Buyer shall have the option, to be
exercised in its sole discretion either to (i) waive the
requirement for satisfaction of the unsatisfied conditions and
proceed to Closing without reduction in the Purchase Price, (ii)
elect to extend Closing by written notice to the Seller for an
additional period of time to allow Seller time to comply with
Section 8A(iv) requirements, not to exceed one ( 1) year, or (iii)
declare this Contract terminated in its entirety, in which event.
the Deposit shall be released to Seller, and thereafter neither
party shall have any further liability hereunder, except for those
obligations which specifically survive such
termination.
C. The
obligation of Seller to proceed with Closing is contingent upon all
of the following conditions being satisfied as of the date of
Closing:
(i) The
representations and warranties of Buyer made in this Contract shall
be true and correct as of the date of Closing with the same force
and effect as though such representations and warranties had been
made on and as of such date.
(ii) Buyer
shall have performed in all material respects all covenants and
obligations and complied in all material respects with all
conditions required by this Contract to be performed or completed
with by it on or before the date of Closing, and Buyer shall have
executed and delivered to Seller a certificate, dated as of the
date of Closing, to the foregoing effect.
9. Development
and Permitting Approvals.
A. Site
Plan. Buyer shall submit upon the conclusion of the
Feasibility Study Period (and shall thereafter use reasonable
commercial efforts, proceeding diligently and in good faith to
obtain in as expeditious a manner as reasonably possible) its
application for Site Plan and subdivision plat approval for all
necessary municipal, state and federal approvals for the
construction of the multifamily apartment project on the Property
(collectively, "Site Plan Approval").
Buyer, proceeding diligently shall have one (1) year from the
expiration of the Feasibility Study Period to obtain Site Plan
Approval (the "Site Plan Approval
Period"). During the Site Plan Approval Period and prior to
any official submission of a Site Plan to the County, Buyer shall
provide Seller with an initial Site Plan for the intended
multi-family project. Seller shall have ten (10) business days to
review and approve the Site Plan, such approval not to be
unreasonably withheld, conditioned or delayed. Failure by the
Seller to respond within this period shall be deemed approval. Any
further revisions to said Site Plan prior to Closing other than
non material red-line changes which do not change the layout
or unit mix of the buildings or materially alter the road
circulation or amenities on the Property as approved by the Seller
shall require Seller's further review and approval in accordance
with this Paragraph 9.A., such approval again not to be
unreasonably withheld, conditioned or delayed.
B. Building
Permit. . Promptly upon Site
Plan Approval, Buyer shall pursue, at its sole cost and expense,
and take all actions required to be taken to obtain building
permits ("Building Permit
Approval"), to construct the
Buyer's proposed improvements to the Property. Not later than
thirty (30) days following the expiration of the Site Plan Approval
Period, Buyer shall obtain the Building Permits (the
"Building Permit Approval
Period").
C. Extensions
to Site Plan Approval Period and/or Building Permit Approval
Period. If the
governing authorities having jurisdiction thereunder have not
granted all required approvals for the Buyer to construct its
multifamily project within the Site Plan Approval Period or the
Building Permit Approval Period, respectively, despite the
diligent, good faith, and commercially reasonable efforts of the
Buyer to obtain the required Site Plan Approval or the Building
Permit Approval, the Buyer may, upon written notice delivered to
the Seller before the expiration of the Site Plan Approval Period
or Building Permit Approval Period, extend the Site Plan Approval
Period or Building Permit Approval Period for up to a combined
extension period not to exceed ninety (90) days (the "90 Day Extension
Period"). The 90 Day Extension Period can be used to extend
either the Site Plan Approval Period or the Building Permit
Approval Period but in no event shall it exceed 90 days in total.
The Buyer can use the 90 Day Extension Period in 30 day increments,
and it can be divided between the Site Plan Approval Period and the
Building Permit Approval Period (i.e., by way of example, it can be
used for a 30 day extension to the Site Plan Approval Period and
for a 60 day extension to the Building Permit Approval Period) so
long as the combined extensions do not exceed 90 days in
total.
D. Cooperation
in Development of the Project. Buyer covenants to use
reasonable commercial efforts and due diligence and good faith in
pursuit of the Site Plan Approval, preparation and recordation of
the record plat subdividing the Property from the balance of the
Seller's property and obtaining the Building Permit Approval
(collectively, the "Approvals") during
the Site Plan Approval Period and agrees to keep Seller currently
apprised (but not less often than monthly) of its efforts in
respect of the Approvals. Buyer and Seller shall in all events
promptly advise the other party of any on-going communications with
governmental authorities, and each of Buyer and Seller agree to
provide the other party at least five (5) days prior notice of any
meetings with any neighborhood groups, civic associations,
governmental authorities or other "stakeholders" and afford the
other party the opportunity to attend all such meetings. Buyer
shall advise Seller of the matters discussed at any meetings with
neighborhood groups, civic associations, governmental authorities
or other "stakeholders" or other public hearings at which the
Property is discussed which Seller does not attend.
A. Closing
(each a "Closing"), subject to
satisfaction or written waiver of all conditions precedent
contained herein, shall occur no later than twenty (20) days
following the completion of the Building Permit Approval Period;
provided however that in no event shall Closing occur later than
March 31, 2018 (the "Outside Closing Date").
B. Closing
shall be held at the offices of Escrow Agent or another title
company designated by Buyer, which offices shall be located in the
Baltimore/Washington, D.C., metropolitan area. Notwithstanding the
foregoing, however, the parties acknowledge that Closing may occur
through delivery of the Closing documents by reputable overnight
delivery and delivery of the payment by wire transfer or title
company check (at Seller's option) so that either or both parties
will not need to attend Closing. Buyer shall give Seller at least
five (5) business days' prior notice of the time and place of
Closing.
C. Any
general real estate taxes and rents and usual water and sewer
charges shall be pro-rated for the portion of the Property conveyed
at such Closing as of the date of Closing. Applicable special
assessments for public improvements that are substantially
completed prior to Closing
and any "roll-back" taxes applicable to the portion of the Property
conveyed at such Closing shall be paid by Seller. Transfer and
recordation taxes and any other recording charges shall be divided
equally between the parties, provided that the Buyer will pay any
recording tax attributable solely to any financing in excess of the
Purchase Price. Seller shall pay for the preparation of the deed
and the preparation of and the recording fees for the release of
any monetary encumbrances against the portion of the Property
conveyed at such Closing. Each party shall pay its own attorneys'
fees. Seller is aware that the Escrow Agent will be required to
collect from the proceeds of the sale a Maryland non-resident
withholding tax as prescribed by the Tax Property Article of
the Maryland Annotated Code unless it can provide the required
Certification as set forth in (E)(c), below.
D. At
Closing, Buyer shall pay the applicable portion of the Purchase
Price as adjusted in accordance with the provisions of this
Contract; and Buyer shall execute and deliver to Seller the
following:
(a) an
update of Buyer's representations executed by Buyer;
(b) evidence
of Buyer's (and its members) organizational authority, incumbency
and good standing as may be required by the Title Company;
and
(c)
such other instruments as Seller or Title Company may reasonably
desire in connection with or to consummate the transactions
contemplated by this Contract.
E.
At Closing, Seller shall deliver to Buyer the
following:
(a)
a F.l.R.P.T.A. affidavit;
(b)
an update of Seller's representations executed
by Seller;
(c) a
Certification of Exemption from Withholding Upon Disposition of
Maryland Real Estate executed by Seller if applicable;
(d)
an owner's affidavit in form reasonably required by the Title
Company;
(e) a
Gap Indemnity reasonably acceptable to Seller, if required by the
Title Company for payment of the Purchase Price to Seller prior to
recording.
(f) evidence
of Seller's (and its members) organizational authority, incumbency
and good standing as may be required by the Title
Company.
(g)
written instructions regarding delivery of the net proceeds to
Seller at Closing;
and
(h)
such other instruments as Seller or Title Company may reasonably
desire in connection with or to consummate the transact
contemplated by this Contract
11. Special
Warranty Deed; Delivery of Possession. At Closing, Seller shall
convey the Property to Buyer in fee simple by special warranty
deed, containing covenants against encumbrances and
with further assurances. Possession of the Property shall be
delivered to Buyer at the time of Closing, free and clear of any
licensees, occupants or tenants.
12. Risk
of Loss. Until execution, delivery and delivery of the deed
described in Section 10, the risk of loss or damage to the
Property, or any applicable portion thereof, by any cause, is
assumed by Seller.
13. Condemnation.
If, prior to
Closing, any material portion of the Property is condemned or taken
under the power of eminent domain (or is the subject of a pending
taking that has not yet been consummated), then Seller shall so
notify Buyer and Buyer shall have the right either to (i) terminate
this Contract, in which event the Deposit shall be returned to the
Buyer in accordance with Paragraph 2.C. of this Contract, and
thereafter neither party shall have any further liability hereunder
except for those obligations which specifically survive such
termination, or (ii) proceed to Closing hereunder, in which case
Seller shall pay over or assign, as applicable, at Closing all
awards and proceeds of such condemnation or taking with respect to
the Property, and there shall be no adjustment of the Purchase
Price. If, prior
to Closing hereunder, less than a material portion of the Property
is condemned or taken under the power of eminent domain (or is the
subject of a pending taking that has not yet been consummated),
then Buyer and Seller shall proceed to Closing hereunder and all
proceeds received by Seller with respect to such condemnation will
be credited against the Purchase Price (or applicable portion
thereof) at Closing and Seller shall assign shall assign, transfer,
and set over to Buyer at Closing all of Seller's rights, title and
interest in such condemnation proceeding with respect to the
Property and any awards that may be made with respect thereto. As
used in this Section 13, "material portion of the Property" shall
apply to a condemnation or taking resulting in the loss of more
than ten percent (10%) of the area of the Property.
14.
Default.
A. If
Buyer defaults under this Contract and Seller is not in default
under this Contract, has satisfied all of Seller's conditions
precedent under this Contract and is willing and able to proceed,
Seller shall be entitled to terminate this Contract, in which event
the Deposit shall be retained by Seller as liquidated damages and
as Seller's sole and exclusive remedy, and the parties hereto shall
thereafter have no further liability hereunder to each other
hereunder, except for those obligations which specifically survive
such termination.
B. If
Seller defaults hereunder and Buyer is not in default under this
Contract and is willing and able to proceed, then Buyer shall be
entitled, as its sole and exclusive remedy, to either: (i)
terminate this Contract, in which event the Deposit shall be
returned to Buyer, and thereafter neither party shall have any
further liability hereunder except for those obligations which
specifically survive such termination, or (ii) enforce all of the
terms of this Contract by specific performance.
C. Notwithstanding
the provisions of Sections 14A and 14B to the contrary, neither
party shall be considered in default under such sections unless
such party has received written notice of the claimed default from
the non-defaulting party and failed to cure the default within
thirty (30) days of receiving notice for any non-monetary default
other than failure to close, and five (5) days of receiving notice
for any monetary default.
15. Commission.
Other than a three percent (3%) sales commission payable solely by
the Seller under a separate agreement to Mackenzie Commercial Real
Estate Services, LLC, Seller and Buyer each represents to the other
that there is no real estate agent or real estate broker
responsible for bringing about this transaction. Each of Seller and
Buyer shall indemnify and hold harmless the other from any claims
for fees or commissions or any damage as a result of any such claim
(including reasonable attorneys' fees charged to defend such claim)
that arises from any breach of such party's representations in this
Section 15. This Section 15 shall survive Closing and any earlier
termination of this Contract.
16. Waiver
of Jury Trial. SELLER AND BUYER JOINTLY WAIVE TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO WHICH SELLER AND BUYER MAY BE
PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS CONTRACT.
This waiver is knowingly, willingly and voluntarily made by Seller
and Buyer, each of whom hereby acknowledges that no representations
of fact or opinion have been made by any individual to induce this
waiver of trial by jury or to in any way modify or nullify its
effect. Seller and Buyer each further represents that it has been
represented in the signing of this Contract and in the making of
this waiver by independent legal counsel, selected of its own free
will, and that it has had the opportunity to discuss this waiver
with counsel.
17.
Miscellaneous.
A. Waiver
of Conditions. Each party reserves the right to waive any of the
terms, conditions and contingencies of this Contract that are for
the benefit of such party and to consummate the transactions
contemplated by this Contract in accordance with the terms and
conditions of this Contract which have not been so waived. Failure
to take any action reserved to a party pursuant to this Contract
shall not be deemed a waiver by such party of such action, and all
waivers must be in writing. A waiver in one or more instances of
any term, covenant or contingency of this Contract shall apply to
the particular instance or instances and at the particular time or
times only, and no such waiver shall be deemed a continuing waiver,
but every term, covenant or contingency shall survive and continue
to remain in full force and effect.
B. Notices.
All Notices, demands, requests and other communications required
pursuant to the provisions of this Contract shall be in writing and
shall be deemed to have been properly given or served for all
purposes (i) if sent by Federal Express or any other nationally
recognized overnight carrier for next Business Day delivery, on the
first Business Day following deposit of such Notice with such
carrier, or (ii) if personally delivered, on the actual date of
delivery or (iii) if sent by certified mail, return receipt
requested postage prepaid, or electronic mail (email), read-receipt
requested) on the third (3rd) Business Day following the date of
mailing addressed as follows:
If to
Buyer:
Orchard
Development Corporation
Ellicott City,
Maryland 21042
Attn: L. Scott
Armiger, President
Telephone:
410-964-2334; Fax: 410-964-2215
Email
Address:scott@orcharddevelopment.com
with a copy
to:
Carney, Kelehan,
Bresler, Bennett &
Scherr, LLP
10715 Charter
Drive, Suite 200
Attn: Kevin J.
Kelehan, Esq.
Telephone:
410-740-4600; Fax: 410-730-7729
Email Address:
kjk@carneykelehan.com
Ifto
Seller:
c/o SeD Development
USA, Inc.
4800 Montgomery
Lane, Suite 210
Bethesda, Maryland
208143
Telephone: (301)
971-3940; Fax:
_______________
Email
Addresses: charley@sed.com.sg
c/o Singapore
Development Limited
Telephone:
; Fax: ____________
Email Address :
moe@sed.com.sg
With a copy
to:
Linowes and
Blocher LLP
31 West Patrick
Street, Suite 130
Frederick, Maryland
21701
Attn : Bruce N.
Dean, Esq.
Telephone:
301-620-1175; Fax: 301-732-4835
Email Address
:bdean@linowes-law.com
If to Escrow
Agent:
Carney, Kelehan,
Bresler, Bennett &
Scherr, LLP
10715 Charter
Drive, Suite 200
Attn: Michelle
DiDonato, Esq.
Telephone:
410-740-4600; Fax : 410-730-7729
Email Address:
mdd@carneykelehan.com
C. Entire
Agreement and Interpretation. This Contract contains the entire
agreement between Seller and Buyer. There are no promises or other
agreements, oral or written, express or implied, between Seller and
Buyer other than as herein set forth. This Contract may not
be
amended or modified except by written instrument signed by the
party to be charged with such amendment or modification. The
section and paragraph headings in this Contract are inserted for
convenience only and in no manner expand, limit or otherwise define
the terms hereof. Whenever in this Contract a time period shall end
on a day that is a Saturday, Sunday or legal holiday, the time
period shall be extended automatically to the next date that is not
a Saturday, Sunday or legal holiday. Both Seller and Buyer have
participated in the preparation of this Contract and no
construction of the terms hereof shall be taken against either as
the one drafting the Contract.
D.
Partial Invalidity. If any term, covenant or
condition of this Contract shall be invalid or unenforceable, the
remainder of this Contract shall not be affected and shall remain
in full force and effect.
E.
Governing Law. It is the intention of the
parties that all questions with respect to this Contract and the
rights and liabilities of the parties hereunder shall be determined
in accordance with the laws of the State of Maryland.
F.
Binding Effect; Assignment. All of the covenants, conditions and
obligations contained herein shall be binding upon and inure to the
benefit of the respective successors and assigns of Seller and
Buyer. Buyer shall not have the right to assign this Contract or
its rights under this Contract without obtaining in each instance
Seller's prior written consent. Notwithstanding the foregoing,
Buyer shall have the right, without Seller's consent, to assign its
entire right, title and interest in and to this Contract, expressly
including the Deposit, to any entity controlling, controlled by, or
under common control with Buyer; provided that, not less than three
(3) business days prior to Closing, Seller receives an executed
assignment and assumption agreement, in a form reasonably
acceptable to Seller, which expressly assigns the Deposit and in
which such assignee expressly assumes performance of this Contract
for the benefit of Seller. No such assignment or designation shall
relieve or release Buyer from any obligations under this Contract
(whether arising pre- or post-closing), and Buyer shall remain
jointly and severally liable for all of same together with such
assignee.
G.
Survival. Except as otherwise provided herein, the prov1s1ons of
this Contract shall survive Closing and delivery of the deed(s) for
a period of six (6) months and shall not be deemed merged
therein.
H.
Memorandum of Contract. This Contract shall not be recorded or
otherwise filed or made a matter of public record or lien records
and any attempt to record or file same by Buyer shall be deemed a
default by Buyer hereunder.
I. Time
of the Essence. Time is of the essence with respect to this
Contract.
J.
Exhibits. Each of the exhibits attached to this Contract is
incorporated herein by reference. Any exhibit not available at the
time this Contract is executed shall be agreed upon, initialed and
attached by the parties as soon after execution as it is
practicable, but failure to attach any exhibit shall not affect the
validity of this Contract unless the parties are in material
disagreement as to the contents of such exhibit.
K.
Counterparts. This Contract may be executed in one or more
counterparts, all of which shall be but one Contract and all of
which shall have the same force and effect as if all parties hereto
had executed a single copy.
L. Attorneys'
Fees. In the event of any legal action or arbitration proceeding
between the parties regarding this Contract or the Property, the
prevailing party shall be entitled to payment by the non-prevailing
party of the prevailing party's reasonable attorneys' fees and
litigation or arbitration expenses as determined in the course of
the proceeding.
M.
No Third Party Beneficiaries. The parties do not intend to confer
any benefit hereunder on any person, firm or corporation other than
the parties hereto and their respective successors or
assigns.
[Signatures
commence on following page]
IN
WITNESS WHEREOF, the parties hereto have signed, sealed and
delivered these presents as their own free act and deed, intending
that this Contract be effective as of the later of the dates set
forth beneath the signatures of the parties below (the "Effective Date").
SeD Maryland Development, LLC, a
Delaware
limited liability company
By: SeD Development Management,
LLC, Manager
___________________________________________
Name: Charles W.S. MacKenzie,
Manager
Date: ______________________________________
ORCHARD DEVELOPMENT CORPORATION ,
a
ACKNOWLEDGMENT AND CONSENT OF ESCROW AGENT:
Escrow
Agent hereby: (i) acknowledges receipt of the Deposit, and (ii)
agrees to be bound by the provisions and perform the obligations
hereof applicable to Escrow Agent.
|
|
Carney
Kelehan Bresler Bennett &
Scherr, LLP
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
Name: Michelle
DiDonato
|
|
|
|
|
Title:
Partner
|
|
EXHIBIT A
LEGAL
DESCRIPTION
EXHIBIT
B
ESCROW
AGREEMENT
EXHIBIT C
LIST OF BALLENGER RUN PROPERTY APPROVALS
|
APPROVALS:
|
DATE
|
LIBER/FOLIO
|
|
Rezoning
(Ordinance No.
13-20-648)
|
10/13/2013
|
NIA
|
|
Combined
Preliminary/Site Development Plan
|
10/8/2014
|
NIA
|
|
(S-1143, SP-14-18 & AP#14623)
|
|
|
|
Improvement
Plans
|
5/5/2016
|
NIA
|
AGREEMENTS:
|
Development Rights
and Responsibilities Agreement (Frederick County)
|
10/17/2013
|
9814112
|
|
Adequate Public
Facilities Letter of Understanding (Frederick County)
|
10/17/2013
|
9814/51
|
|
Memorandum of
Understanding (Board of Education)
|
10/8/2014
|
10241/351
|
|
EASEMENTS:
|
DATE
|
LIBER/FOLIO
|
|
Forest Resource
Easement
|
111 112016
|
109491470
|
|
2 Year
Forest Improvement Agreement
|
111 112016
|
NIA
|
|
Irrevocable Letter
of Credit for Forestation Issued by Bank of Hampton Roads
($201,322.99)
|
|
NIA
|
|
Stormwater
Management Pond Easement (Ponds 3-7)
|
31412016
|
110191225
|
|
Private Storm Drain Easements (#1, 2, 3
& 4)
|
2129/2016
|
11019/245
|
|
Public Storm Drain Easements (#1,
2, 3, 4, 5, 6, 7, 8, 9, 10 & 11)
|
2129/2016
|
11019/257
|
Exhibit 10.16
PARTNERSHIP INTEREST PURCHASE AGREEMENT
This
Partnership Interest Purchase Agreement (this "Agreement"), dated as of
July 23, 2018, is entered into among American Real Estate
Investments, LLC, a Missouri limited liability company
("Seller"),
SeD Development USA, LLC, a Delaware limited liability company
("Buyer")
and 150 CCM Black Oak. Ltd., a Texas limited partnership
(collectively, Seller and Buyer may be referred as the
“Parties” and
individually referred to as a “Party”).
RECITALS
WHEREAS, the Seller and
Buyer are limited partners in 150
CCM Black Oak, Ltd., (“Partnership”), a Texas limited
partnership; and
WHEREAS, the Partnership is engaged in
the development of certain real property located in Montgomery
County, Texas (the “Property”). The development is
known as the “Black Oak
Project”; and
WHEREAS, on March 20, 2014, the partners
in the Partnership entered into that Limited Partnership Agreement
(“LPA”) which
was subsequently amended various times; and
WHEREAS, the General Partner of the
Partnership, 150 Black Oak GP, Inc. (“General Partner”) manages the
operations of the Partnership; and
WHEREAS, on April 26, 2018, the
Partnership entered into the Consultant Fee Satisfaction and
Release Agreement (the “Consultant Fee Release”) with
Seller; and
WHEREAS, under the Consultant Fee
Release, the Partnership and Seller agreed that all Consultant Fees
under the LPA would be terminated as of December 31, 2017, that the
accrued Consultant Fees to Seller would be capped at $30,000.00,
and that the accrued Consultant Fees would not be payable to Seller
until the Partnership received $4,000,000.00 (four million) in
district reimbursement revenue, as determined by SeD Development
USA; and
WHEREAS, Buyer wishes to purchase from
Seller, and Seller wishes to sell to Buyer, Seller’s
partnership interest representing 7% of the Partnership (the
"Purchased
Interest"), subject to the terms and conditions set forth
herein; and
NOW, THEREFORE, in consideration of the
mutual covenants and agreements hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
Purchase and
Sale
Section
1.01 Purchase and Sale.
Subject to the terms and conditions
set forth herein, at the Closing (as defined herein), Seller shall
sell to Buyer, and Buyer shall purchase from Seller, the Purchased
Interest, free and clear of any mortgage, pledge, lien, charge,
security interest, claim or other encumbrance
(“Encumbrance”), and all the rights and claims Seller may
have, now and in the future, against Buyer, Buyer’s
affiliates, officers, directors, employees, and agents, for the
consideration specified in Section 1.02.
Section
1.02 Consideration.
The consideration for the Purchased
Interest shall be as follows:
(a) Buyer
shall pay Seller $35,000.00 (thirty-five thousand dollars) at the
Closing by wire transfer of immediately available funds in
accordance with the wire transfer instructions provided to Buyer by
Seller; and
(b) Buyer
and Partnership will
amend the obligation required by the Consultant Fee Release that
the Consultant Fees are not payable until the Partnership
received $4,000,000.00 (four million) in district reimbursement
revenue, as determined by SeD Development USA; and
(c) The
Partnership will pay a sum of $30,000.00 (thirty thousand dollars)
at the Closing to Seller for the satisfaction of the Consultant Fee
Release.
Section
1.03 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on July 23, 2018., or at such
time as Buyer and Seller shall mutually agree.
Section
1.04 Releases. Upon the receipt of the consideration described in
Section 1.02(a), Seller will release Partnership, General Partner,
Buyer, as well as General Partners’ and Buyers’
affiliates, officers, directors, managers, employees, and agents
from any and all obligations arising under the LPA and the Fee
Releases.
ARTICLE II
REPRESENTATIONS AND
WARRANTIES OF SELLER
Section
2.01 Organization and Authority of
Seller; Enforceability. Seller
is a limited liability company duly formed, validly existing and in
good standing under the laws of the state of Missouri. Seller has
full power and authority to enter into this Agreement and any
documents to be delivered hereunder, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby.
This Agreement and the documents to be delivered hereunder have
been duly executed and delivered by Seller, and (assuming due
authorization, execution and delivery by Buyer) this Agreement and
the documents to be delivered hereunder constitute legal, valid and
binding obligations of Seller, enforceable against Seller in
accordance with their respective terms, except as may be limited by
any bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws affecting the enforcement of
creditors' rights generally or by general principles of
equity.
Section
2.02 No
Conflicts; Consents. The
execution, delivery and performance by Seller of this Agreement and
the documents to be delivered hereunder, and the consummation of
the transactions contemplated hereby, do not and will not:
(a) violate or conflict with, or result in a default under,
its certificate of organization, operating agreement, or other
similar organizational documents (collectively,
“Organizational
Documents) of Seller, as
applicable; (b) violate or conflict with any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to
Seller, which would reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise),
results of operations or prospects of Seller (any such effect or
change, where the context so requires, is hereinafter called a
“Material Adverse
Effect”); (c) conflict
with, or result in (with or without notice or lapse of time or
both) any violation of, or default under, or give rise to a right
of termination, acceleration or modification of any obligation or
loss of any benefit under any contract or other instrument to which
Seller or Parent is a party, which would reasonably be expected to
have a Material Adverse Effect; or (d) result in the creation or
imposition of any Encumbrance on the Purchased Interest, or any
property or assets of Seller. Except as disclosed herein, no
consent, approval, waiver or authorization is required to be
obtained by Seller from any person or entity (including any
governmental authority) in connection with the execution, delivery
and performance by Seller of this Agreement and the consummation of
the transactions contemplated hereby, except such consents,
approvals, waivers or authorizations which would not, in the
aggregate, have a Material Adverse Effect or a material adverse
effect on Seller's ability to consummate the transactions
contemplated hereby on a timely basis.
Section
2.03 Legal Proceedings.
There is no claim, action, suit,
proceeding or governmental investigation ("Action") of any nature pending or, to Seller's
knowledge, threatened against or by Seller (a) relating to or
affecting the Purchased Interest; or (b) that challenges or seeks
to prevent, enjoin or otherwise delay the transactions contemplated
by this Agreement, except as would not have a Material Adverse
Effect. To Seller's knowledge, no event has occurred or
circumstances exist that may give rise to, or serve as a basis for,
any such Action.
Section
2.04 Debt. The Seller has no loans, other debts, unpaid
taxes, asserted or unasserted, known or unknown, absolute or
contingent, accrued or unaccrued, matured or unmatured or otherwise
("Debt") that could cause an Encumbrance on the
Purchased Interest or the Property (defined in Section 2.07),
except those which are adequately disclosed here:
____NONE______________.
Section
2.05 Related Party
Transactions. There are no
existing arrangements or proposed transactions between or among the
Seller or any of its affiliates and (i) any trustee, beneficiary,
officer, manager or managing member of the Seller or any of
immediate family of any of the foregoing persons (such trustee,
beneficiary, officers, managers, managing members and family
members being hereinafter individually referred to as a
"Related
Party"), (ii) any business
(corporate or otherwise) which a Related Party owns, directly or
indirectly, or in which a Related Party.
Section
2.06 No
Breach. Seller is not in breach
or violation of, or in default under any contract, which would
reasonably be expected to have a Material Adverse
Effect.
Section
2.07 Property
Assets. Seller represents and
warrants that the Partnership is the fee simple owner of the real
property listed in the legal descriptions in Exhibit A (the
“Property”).
Section 2.08 Ownership of
Partnership Interests
(a) Seller
is the sole legal, beneficial, record and equitable owner of 7% of
the issued and outstanding partnership interests of the Partnership
(the “Partnership
Interests”), free and clear of all
Encumbrances.
(b) To
Seller's knowledge, the Partnership Interests were issued in
compliance with applicable laws. To Seller's knowledge, the
Partnership Interests were not issued in violation of the
Organizational Documents of the Partnership any other agreement,
arrangement or commitment to which Seller is a party.
(c) To
Seller’s knowledge, other than the Organizational Documents
of Seller and the LPA, there are no other agreements or
understandings in effect with respect to the voting or transfer of
any of the Partnership Interests.
Section
2.09 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Seller.
Section
2.10 Due Diligence.
Seller has had the opportunity to
request, receive, and review the operations and prospects of the
Partnership and is familiar with the Partnership, its operations,
its assets, and its financial status and
projections.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF BUYER
Section
3.01 Organization and Authority of
Buyer; Enforceability. Buyer is
a limited liability company duly formed, validly existing and in
good standing under the laws of the state of Delaware. Buyer has
full limited liability company power and authority to enter into
this Agreement and the documents to be delivered hereunder, to
carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and
performance by Buyer of this Agreement and the documents to be
delivered hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite
corporate action on the part of Buyer. This Agreement and the
documents to be delivered hereunder have been duly executed and
delivered by Buyer, and (assuming due authorization, execution and
delivery by Seller) this Agreement and the documents to be
delivered hereunder constitute legal, valid and binding obligations
of Buyer enforceable against Buyer in accordance with their
respective terms, except as may be limited by any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity.
Section
3.02 No
Conflicts; Consents. The
execution, delivery and performance by Buyer of this Agreement and
the documents to be delivered hereunder, and the consummation of
the transactions contemplated hereby, do not and will not: (a)
violate or conflict with the Organizational Documents of Buyer; or
(b) violate or conflict with any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Buyer, which would
reasonably be expected to have a material adverse effect on the
Buyer’s ability to consummate the transactions contemplated
hereby on a timely basis. No consent, approval, waiver or
authorization is required to be obtained by Buyer from any person
or entity (including any governmental authority) in connection with
the execution, delivery and performance by Buyer of this Agreement
and the consummation of the transactions contemplated hereby,
except such consents, approvals, waivers or authorizations which
would not, in the aggregate, have a material adverse effect on
Buyer’s ability to consummate the transactions contemplated
hereby on a timely basis.
Section
3.03 Investment Purpose.
Buyer is acquiring the Purchased
Interest solely for its own account for investment purposes and not
with a view to, or for offer or sale in connection with, any
distribution thereof. Buyer acknowledges that the Purchased
Interest is not registered under the Securities Act of 1933, as
amended, or any state securities laws, and that the Purchased
Interest may not be transferred or sold except pursuant to the
registration provisions of the Securities Act of 1933, as amended,
or pursuant to an applicable exemption therefrom and subject to
state securities laws and regulations, as applicable. Buyer is able
to bear the economic risk of holding the Purchased Interest for an
indefinite period (including total loss of its investment), and has
sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risk of
its investment.
Section
3.04 Legal Proceedings.
There is no Action pending or, to
Buyer's knowledge, threatened against or by Buyer or any Affiliate
of Buyer that challenges or seeks to prevent, enjoin or otherwise
delay the transactions contemplated by this Agreement. To
Buyer’s knowledge, no event has occurred or circumstances
exist that may give rise or serve as a basis for any such
Action.
Section
3.05 Due Diligence.
Buyer acknowledges that it has had the
opportunity to conduct a thorough due diligence investigation with
respect to this transaction and the Partnership’s
assets.
ARTICLE IV
Closing
Deliveries
Section
4.01 Seller's Deliveries.
At the Closing, Seller shall deliver
to Buyer:
(a) A
Bill of Sale in the form attached hereto as Exhibit B¸ duly executed
by Seller, evidencing the issuance and sale to Buyer of the
Purchased Interest; and
(b) A
certificate of the manager or similar officer of Seller certifying
as to the authorization of the execution, delivery and performance
of this Agreement and the transactions contemplated hereby, and
(ii) the names and signatures of the trusteed authorized to sign
this Agreement and the documents to be delivered
hereunder.
Section
4.02 Buyer's Deliveries.
At the Closing, Buyer shall deliver
the following to Seller:
(a) The
Consideration described in 1.02(a); and
(b) A
certificate of the Secretary or Assistant Secretary (or equivalent
officer) of Buyer certifying as to (i) the resolutions of the board
of managers (or equivalent managing body) of Buyer, duly adopted
and in effect, which authorize the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby, and (ii) the names and signatures of the officers of Buyer
authorized to sign this Agreement and the documents to be delivered
hereunder.
ARTICLE V
Indemnification
Section
5.01 Indemnification By
Seller. Seller shall defend,
indemnify and hold harmless Buyer, its affiliates and their
respective members, managers, officers and employees from and
against all claims, judgments, damages, liabilities, settlements,
losses, costs and expenses, including attorneys' fees and
disbursements (a "Loss"), arising from or relating
to:
(a) any
inaccuracy in or breach of any of the representations or warranties
of Seller contained in this Agreement or any document to be
delivered hereunder; or
(b) any
breach or non-fulfillment of any covenant, agreement or obligation
to be performed by Seller pursuant to this Agreement or any
document to be delivered hereunder.
Section
5.02 Indemnification By
Buyer. Buyer shall defend,
indemnify and hold harmless Seller, its trustees and affiliates and
their respective members, managers, officers, directors and
employees from and against all Losses arising from or relating
to:
(a) any
inaccuracy in or breach of any of the representations or warranties
of Buyer contained in this Agreement or any document to be
delivered hereunder; or
(b) any
breach or non-fulfillment of any covenant, agreement or obligation
to be performed by Buyer pursuant to this Agreement or any document
to be delivered hereunder.
ARTICLE VI
Miscellaneous
Section
6.01 Confidentiality.
The Parties agree
that the terms of this Agreement shall remain confidential without
receiving prior written consent from the other Parties; provided
however, that any Party may disclose the terms as required by law,
including any court order or compliance with federal, state, or
local regulations that a Party may be subject
to.
Section
6.02 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be
paid by the Party incurring such costs and
expenses.
Section
6.03 Further Assurances.
Following the Closing, each of the
Parties hereto shall, and shall cause their respective affiliates
to, execute and deliver such additional documents, instruments,
conveyances and assurances and take such further actions as may be
reasonably required to carry out the provisions hereof and give
effect to the transactions contemplated by this
Agreement.
Section
6.04 Notices.
All notices, requests, consents, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to
have been given (a) when delivered by hand (with written
confirmation of receipt); (b) when received by the addressee if
sent by a nationally recognized overnight courier (receipt
requested); (c) on the date sent by facsimile or e-mail of a PDF
document (with confirmation of transmission) if sent during normal
business hours of the recipient, and on the next business day if
sent after normal business hours of the recipient or (d) on the
third day after the date mailed, by certified or registered mail,
return receipt requested, postage prepaid. Such communications must
be sent to the respective parties at the following addresses (or at
such other address for a party as shall be specified in a notice
given in accordance with this Section 6.04):
|
If to
Buyer:
|
SeD
Development USA, LLC
4800
Montgomery Lane, Suite 210
Bethesda,
MD 20814
Attention:
Charles W. S. MacKenzie
Email:
charley@sed.com.sg
And
SeD
Development USA, LLC
c/o
Singapore Development Limited
7
Temasek Boulevard #29-01B
Suntec
Tower One
Singapore
038987
Attn:
Moe Chan
Email
Address: moe@sed.com.sg
|
|
|
|
|
If to
Seller:
|
|
|
|
|
Section
6.05 Headings. The headings in this Agreement are for reference
only and shall not affect the interpretation of this
Agreement.
Section
6.06 Severability.
If any term or provision of this
Agreement is invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect
any other term or provision of this Agreement or invalidate or
render unenforceable such term or provision in any other
jurisdiction. Upon such determination that any term or other
provision is invalid, illegal or unenforceable, the Parties hereto
shall negotiate in good faith to modify the Agreement so as to
effect the original intent of the parties as closely as possible in
a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
Section
6.07 Entire Agreement.
This Agreement and the documents to be
delivered hereunder constitute the sole and entire agreement of the
parties to this Agreement with respect to the subject matter
contained herein, and supersede all prior and contemporaneous
understandings and agreements, both written and oral, with respect
to such subject matter.
Section
6.08 Successors and Assigns.
This Agreement shall be binding upon
and shall inure to the benefit of the Parties hereto and their
respective successors and permitted assigns. Neither Party may
assign its rights or obligations hereunder without the prior
written consent of the other Parties , which consent shall not be
unreasonably withheld or delayed. No assignment shall relieve the
assigning Party of any of its obligations
hereunder.
Section
6.09 No
Third-Party Beneficiaries. This
Agreement is for the sole benefit of the Parties hereto and their
respective successors and permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other
person or entity any legal or equitable right, benefit or remedy of
any nature whatsoever under or by reason of this
Agreement.
Section
6.10 Amendment and
Modification. This Agreement
may only be amended, modified or supplemented by an agreement in
writing signed by each party hereto.
Section
6.11 Waiver. Seller, Buyer, and Partnership agree to waive any
restrictions and obligations regarding transfer of ownership
interests contained in the LPA. No waiver by any Party of any of
the provisions hereof shall be effective unless explicitly set
forth in writing and signed by the Party so waiving. No waiver by
any Party shall operate or be construed as a waiver in respect of
any failure, breach or default not expressly identified by such
written waiver, whether of a similar or different character, and
whether occurring before or after that waiver. No failure to
exercise, or delay in exercising, any right, remedy, power or
privilege arising from this Agreement shall operate or be construed
as a waiver thereof; nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right,
remedy, power or privilege.
Section
6.12 Governing Law.
This Agreement shall be governed by
and construed in accordance with the internal laws of the State of
Delaware.
Section
6.13 Submission to
Jurisdiction. Any legal suit,
action or proceeding arising out of or based upon this Agreement or
the transactions contemplated hereby may be instituted in the
federal courts of the United States of America or the courts of the
State of Delaware, and each party irrevocably submits to the
exclusive jurisdiction of such courts in any such suit, action or
proceeding.
Section
6.14 Waiver of Jury Trial.
Each Party acknowledges and agrees
that any controversy which may arise under this Agreement is likely
to involve complicated and difficult issues and, therefore, each
such party irrevocably and unconditionally waives any right it may
have to a trial by jury in respect of any legal action arising out
of or relating to this Agreement or the transactions contemplated
hereby.
Section
6.15 Specific Performance.
The Parties agree that irreparable
damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the Parties
shall be entitled to specific performance of the terms hereof, in
addition to any other remedy to which they are entitled at law or
in equity.
Section
6.16 Counterparts.
This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall be deemed to be one and the same agreement. A
signed copy of this Agreement delivered by facsimile, e-mail or
other means of electronic transmission shall be deemed to have the
same legal effect as delivery of an original signed copy of this
Agreement.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed as of the date first written above by their respective
officers thereunto duly authorized.
|
|
SeD DEVELOPMENT USA, LLC
By:
Name:
Title:
|
|
|
|
|
|
AMERICAN REAL ESTATE INVESTMENTS, LLC
|
|
|
By:
Name:
Title:
|
|
|
150 CCM BLACK OAK,
LTD.
By:
150 Black Oak GP, Inc.
General Partner
Name:
Title:
|
|
|
|
EXHIBIT
A
LEGAL
DESCRIPTION OF THE PROPERTY ASSETS OF THE PARTNERSHIP
EXHIBIT
B
BILL OF
SALE
BILL OF SALE
AMERICAN REAL ESTATE INVESTMENTS, LLC, a
Missouri limited liability company (“AREI”), for and in consideration
provided in the Partnership Interest Purchase Agreement, dated July
___, 2018, the receipt and sufficiency of which are hereby
acknowledged, does bargain, sell, grant, transfer, assign, and
convey to SED DEVELOPMENT USA,
LLC, a Delaware limited liability company
(“SeD
Development”) all of its right, title, and interest,
in and to its 7% (seven percent) partnership interest in 150 CCM
Black Oak, Ltd., a Texas limited liability company (the
“Purchased
Interest”).
Without
limiting the generality of the foregoing, the Purchased Interest
acquired by SeD Development hereunder includes:
(a)
All of AREI’s
ownership interest, business interest, and goodwill in 150 CCM
Black Oak, Ltd. as a going concern; and
(b)
All of AREI’s
rights to accounts receivable, miscellaneous accounts receivable,
rights to reimbursement, partnership distributions, prepaid
expenses, and notes receivable or other rights to receive payments,
arising from its ownership of Purchased Interest; and
(c)
All interests of
AREI in real property owned by 150 CCM Black Oak, Ltd. including
land, buildings, structures, improvements, fixtures, leaseholds,
and leasehold improvements; and
(d)
All rights and
claims AREI may have, now and in the future, against SeD
Development, 150 CCM Black Oak, Ltd., 150 Black Oak GP, Inc., and
all affiliates, officers, directors, employees, and agents of these
entities.
(e)
All of AREI’s
rights to or under all trademarks, service marks, United States
trademark registrations and applications, trade names, copyrights,
including but not limited to the marks "Lakes at Black Oak”
or “Black Oak” or any variation thereof, including
international rights associated therewith, as well as any royalties
and rights to sue for past infringements, including, without
limitation, those items listed herein.
IN
WITNESS WHEREOF, AMERICAN REAL ESTATE INVESTMENTS, LLC has executed
this Bill of Sale as of the ____ day of July, 2018.
|
|
AMERICAN REAL
ESTATE INVESTMENTS, LLC,
a
Missouri limited liability company
By:
Name:
Title:
|
This
instrument was acknowledged before me on July _____, 2018 by
_____________________, ________________ of American Real Estate
Investments, LLC, a Missouri limited liability company, on behalf
of such entity.
Notary
Public in and for the
State
of Missouri
My
Commission Expires:________________________
Printed
Name of Notary:_________________________
EXHIBIT 10.17
PARTNERSHIP INTEREST PURCHASE AGREEMENT
This
Partnership Interest Purchase Agreement (this "Agreement"), dated as of
July 23, 2018, is entered into among Fogarty Family Trust II, a
trust organized under Texas law ("Seller"), Arete Real
Estate Development Company (“Arete”), SeD Development USA, LLC,
a Delaware limited liability company ("Buyer"), and 150 CCM
Black Oak, Ltd., a Texas limited partnership (collectively, Seller,
Buyer, and Arete may be referred as the “Parties” and individually referred
to as a “Party”).
RECITALS
WHEREAS, the Seller and Buyer are
limited partners in 150 CCM Black
Oak, Ltd., (“Partnership”), a Texas limited
partnership; and
WHEREAS, the Partnership is engaged in
the development of certain real property located in Montgomery
County, Texas (the “Property”). The development is
known as the “Black Oak
Project”; and
WHEREAS, on March 20, 2014, the partners
in the Partnership entered into that Limited Partnership Agreement
(“LPA”) which
was subsequently amended various times; and
WHEREAS, the General Partner of the
Partnership, 150 Black Oak GP, Inc. (“General Partner”) manages the
operations of the Partnership; and
WHEREAS, on April 26, 2018, the
Partnership entered into the Consultant Fee Satisfaction and
Release Agreement (the “Consultant Fee Release”) with
Arete Real Estate and Development Company (“Arete”);
and
WHEREAS, under the Consultant Fee
Release, the Partnership and Arete agreed that all Consultant Fees
under the LPA would be terminated as of December 31, 2017, that the
accrued Consultant Fees to Arete would be capped at $162,500.00,
and that the accrued Consultant Fees would not be payable to Arete
until the Partnership received $4,000,000.00 (four million) in
district reimbursement revenue, as determined by SeD Development
USA; and
WHEREAS, on April 26, 2018, the
Partnership entered into the Development Fee Satisfaction and
Release Agreement (the “Development Fee Release”) with
Seller; and
WHEREAS, under the Development Fee
Release, the Partnership and Seller agreed that all Development
Fees under the LPA would be terminated as of December 31, 2017,
that the accrued Development Fees to Arete would be capped at
$137,500.00, and that the accrued Development Fees would not be
payable to Arete until the Partnership received $4,000,000.00 (four
million) in district reimbursement revenue, as determined by SeD
Development USA; and
WHEREAS, the Consultant Fee Release and
the Development Fee Release may hereinafter be collectively
referred to as the “Fee
Releases”); and
WHEREAS, Buyer wishes to purchase from
Seller, and Seller wishes to sell to Buyer, Seller’s
partnership interest representing 24% of the Partnership (the
"Purchased
Interest"), subject to the terms and conditions set forth
herein; and
WHEREAS, the Partnership is expected to
receive its first district reimbursement revenue in the form of
proceeds from a Bond Anticipatory Note in the amount of
$2,942,079.00 (the “BAN
Proceeds”); and
WHEREAS, the Partnership also expects
that additional district reimbursement revenue in the amount of
$1,650,000.00 will be placed in a Construction Fund to be released
to the Partnership upon the occurrence of certain conditions (the
“Construction Fund BAN
Proceeds”); and
NOW, THEREFORE, in consideration of the
mutual covenants and agreements hereinafter set forth and for other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND
SALE
Section
1.01 Purchase and Sale.
Subject to the terms and conditions
set forth herein, at the Closing (as defined herein), Seller shall
sell to Buyer, and Buyer shall purchase from Seller, the Purchased
Interest, free and clear of any mortgage, pledge, lien, charge,
security interest, claim or other encumbrance
(“Encumbrance”), and
all the rights and claims Seller may have, now and in the future,
against Buyer, Buyer’s affiliates, officers, directors,
employees, and agents, for the consideration specified in
Section 1.02.
Section
1.02 Consideration.
The consideration for the Purchased
Interest shall be
(a) Buyer
shall pay Seller $25,000.00 (twenty-five thousand dollars) at the
Closing by wire transfer of immediately available funds in
accordance with the wire transfer instructions provided to Buyer by
Seller; and
(b) If
and when the Partnership should receive at least $15 million in net
reimbursement receivable proceeds from Harris County Improvement
District 17 and/or Aqua Texas, Inc. (net of any expenses Harris
County Improvement District 17 and/or Aqua Texas, Inc may deduct),
the Partnership shall pay the Seller an amount equal to 10%
of the net reimbursement receivable proceeds received from Harris
County Improvement District 17 and/or Aqua Texas, Inc. that exceeds
$15 million; provided however, this obligation shall only apply to
reimbursement revenue received on or before December 31, 2025. The
BAN Proceeds, and Construction Fund BAN Proceeds that are received
by the Partnership, shall be included in the calculation of the $15
million reimbursement receivable proceeds.
(c) the
Partnership will amend the obligation required by the Fee Releases
that Consultant Fees and Development Fees are not payable
until the Partnership received $4,000,000.00 (four million) in
district reimbursement revenue, as determined by SeD Development
USA;
and
(d) At
Closing, the Partnership will pay a sum of $300,000.00 (three
hundred thousand dollars) to Arete in satisfaction of the Fee
Releases, and all the rights and claims Arete may have, now
and in the future, against the Partnership, Buyer, Buyer’s
affiliates, officers, directors, employees, and agents.
Section
1.03 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place on July ______, 2018, or at
such time as Buyer and Seller shall mutually
agree.
Section
1.04 Releases. Upon the receipt of the consideration described in
Section 1.02(b), Seller and Arete will release the Partnership,
General Partner, Buyer, as well as General Partners’ and
Buyers’ affiliates, officers, directors, managers, employees,
and agents from any and all obligations arising under the LPA and
the Fee Releases.
ARTICLE II
REPRESENTATIONS AND
WARRANTIES OF SELLER
Section
2.01 Organization and Authority of
Seller; Enforceability. Seller
is a trust duly formed, validly existing and in good standing under
the laws of the state of Texas. Seller has full power and authority
to enter into this Agreement and any documents to be delivered
hereunder, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. This Agreement and the
documents to be delivered hereunder have been duly executed and
delivered by Seller, and (assuming due authorization, execution and
delivery by Buyer) this Agreement and the documents to be delivered
hereunder constitute legal, valid and binding obligations of
Seller, enforceable against Seller in accordance with their
respective terms, except as may be limited by any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity.
Section
2.02 No
Conflicts; Consents. The
execution, delivery and performance by Seller of this Agreement and
the documents to be delivered hereunder, and the consummation of
the transactions contemplated hereby, do not and will not:
(a) violate or conflict with, or result in a default under,
the Trust Agreement, or other similar organizational documents
(collectively, “Organizational
Documents) of Seller , as
applicable; (b) violate or conflict with any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to
Seller, which would reasonably be expected to have a material
adverse effect on the business, condition (financial or otherwise),
results of operations or prospects of Seller (any such effect or
change, where the context so requires, is hereinafter called a
“Material Adverse
Effect”); (c) conflict
with, or result in (with or without notice or lapse of time or
both) any violation of, or default under, or give rise to a right
of termination, acceleration or modification of any obligation or
loss of any benefit under any contract or other instrument to which
Seller or Parent is a party, which would reasonably be expected to
have a Material Adverse Effect; or (d) result in the creation or
imposition of any Encumbrance on the Purchased Interest, or any
property or assets of Seller. Except as disclosed herein, no
consent, approval, waiver or authorization is required to be
obtained by Seller from any person or entity (including any
governmental authority) in connection with the execution, delivery
and performance by Seller of this Agreement and the consummation of
the transactions contemplated hereby, except such consents,
approvals, waivers or authorizations which would not, in the
aggregate, have a Material Adverse Effect or a material adverse
effect on Seller's ability to consummate the transactions
contemplated hereby on a timely basis.
Section
2.03 Legal Proceedings.
There is no claim, action, suit,
proceeding or governmental investigation ("Action") of any nature pending or, to Seller's
knowledge, threatened against or by Seller (a) relating to or
affecting the Purchased Interest; or (b) that challenges or seeks
to prevent, enjoin or otherwise delay the transactions contemplated
by this Agreement, except as would not have a Material Adverse
Effect. To Seller's knowledge, no event has occurred or
circumstances exist that may give rise to, or serve as a basis for,
any such Action.
Section
2.04 Debt. The Seller has no loans, other debts, unpaid
taxes, asserted or unasserted, known or unknown, absolute or
contingent, accrued or unaccrued, matured or unmatured or otherwise
("Debt") that could cause an Encumbrance on the
Purchased Interest or the Property (defined in Section 2.07),
except those which are adequately disclosed here:
__________________.
Section
2.05 Related Party
Transactions. There are no
existing arrangements or proposed transactions between or among the
Seller or any of its affiliates and (i) any trustee, beneficiary,
officer, manager or managing member of the Seller or any of
immediate family of any of the foregoing persons (such trustee,
beneficiary, officers, managers, managing members and family
members being hereinafter individually referred to as a
"Related
Party"), (ii) any business
(corporate or otherwise) which a Related Party owns, directly or
indirectly, or in which a Related Party.
Section
2.06 No
Breach. Seller is not in breach
or violation of, or in default under any contract, which would
reasonably be expected to have a Material Adverse
Effect.
Section
2.07 Property
Assets. Seller represents and
warrants that the Partnership is the fee simple owner of the real
property listed in the legal descriptions in Exhibit A (the
“Property”).
Section 2.08 Ownership of
Partnership Interests.
(a) Seller
is the sole legal, beneficial, record and equitable owner of 24% of
the issued and outstanding partnership interests of the Partnership
(the “Partnership
Interests”), free and clear of all
Encumbrances.
(b) To
Seller's knowledge, the Partnership Interests were issued in
compliance with applicable laws. To Seller's knowledge, the
Partnership Interests were not issued in violation of the
Organizational Documents of the Partnership any other agreement,
arrangement or commitment to which Seller is a party.
(c) To
Seller’s knowledge, other than the Trust Agreement of Seller
and the LPA, there are no other agreements or understandings in
effect with respect to the voting or transfer of any of the
Partnership Interests.
Section
2.09 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Seller.
Section
2.10 Due Diligence.
Seller has had the opportunity to
request, receive, and review the operations and prospects of the
Partnership and is familiar with the Partnership, its operations,
its assets, and its financial status and
projections.
ARTICLE III
REPRESENTATIONS AND
WARRANTIES OF BUYER
Section
3.01 Organization and Authority of
Buyer; Enforceability. Buyer is
a limited liability company duly formed, validly existing and in
good standing under the laws of the state of Delaware. Buyer has
full limited liability company power and authority to enter into
this Agreement and the documents to be delivered hereunder, to
carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and
performance by Buyer of this Agreement and the documents to be
delivered hereunder and the consummation of the transactions
contemplated hereby have been duly authorized by all requisite
corporate action on the part of Buyer. This Agreement and the
documents to be delivered hereunder have been duly executed and
delivered by Buyer, and (assuming due authorization, execution and
delivery by Seller) this Agreement and the documents to be
delivered hereunder constitute legal, valid and binding obligations
of Buyer enforceable against Buyer in accordance with their
respective terms, except as may be limited by any bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws affecting the enforcement of creditors' rights
generally or by general principles of equity.
Section
3.02 No
Conflicts; Consents. The
execution, delivery and performance by Buyer of this Agreement and
the documents to be delivered hereunder, and the consummation of
the transactions contemplated hereby, do not and will not: (a)
violate or conflict with the Organizational Documents of Buyer; or
(b) violate or conflict with any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Buyer, which would
reasonably be expected to have a material adverse effect on the
Buyer’s ability to consummate the transactions contemplated
hereby on a timely basis. No consent, approval, waiver or
authorization is required to be obtained by Buyer from any person
or entity (including any governmental authority) in connection with
the execution, delivery and performance by Buyer of this Agreement
and the consummation of the transactions contemplated hereby,
except such consents, approvals, waivers or authorizations which
would not, in the aggregate, have a material adverse effect on
Buyer’s ability to consummate the transactions contemplated
hereby on a timely basis.
Section
3.03 Investment Purpose.
Buyer is acquiring the Purchased
Interest solely for its own account for investment purposes and not
with a view to, or for offer or sale in connection with, any
distribution thereof. Buyer acknowledges that the Purchased
Interest is not registered under the Securities Act of 1933, as
amended, or any state securities laws, and that the Purchased
Interest may not be transferred or sold except pursuant to the
registration provisions of the Securities Act of 1933, as amended,
or pursuant to an applicable exemption therefrom and subject to
state securities laws and regulations, as applicable. Buyer is able
to bear the economic risk of holding the Purchased Interest for an
indefinite period (including total loss of its investment), and has
sufficient knowledge and experience in financial and business
matters so as to be capable of evaluating the merits and risk of
its investment.
Section
3.04 Legal Proceedings.
There is no Action pending or, to
Buyer's knowledge, threatened against or by Buyer or any Affiliate
of Buyer that challenges or seeks to prevent, enjoin or otherwise
delay the transactions contemplated by this Agreement. To
Buyer’s knowledge, no event has occurred or circumstances
exist that may give rise or serve as a basis for any such
Action.
Section
3.05 Due Diligence.
Buyer acknowledges that it has had the
opportunity to conduct a thorough due diligence investigation with
respect to this transaction and the Partnership’s
assets.
ARTICLE IV
CLOSING
DELIVERIES
Section
4.01 Seller's Deliveries.
At the Closing, Seller shall deliver
to Buyer:
(a) A
Bill of Sale in the form attached hereto as Exhibit B¸ duly executed
by Seller, evidencing the issuance and sale to Buyer of the
Purchased Interest; and
(b) A
certificate of the trustee certifying as to the authorization of
the execution, delivery and performance of this Agreement and the
transactions contemplated hereby, and (ii) the names and signatures
of the trusteed authorized to sign this Agreement and the documents
to be delivered hereunder.
Section
4.02 Buyer's Deliveries.
At the Closing, Buyer shall deliver
the following to Seller:
(a) The
Consideration described in 1.02(a); and
(b) A
certificate of the Secretary or Assistant Secretary (or equivalent
officer) of Buyer certifying as to (i) the resolutions of the board
of managers (or equivalent managing body) of Buyer, duly adopted
and in effect, which authorize the execution, delivery and
performance of this Agreement and the transactions contemplated
hereby, and (ii) the names and signatures of the officers of Buyer
authorized to sign this Agreement and the documents to be delivered
hereunder.
ARTICLE V
INDEMNIFICATION
Section
5.01 Indemnification By
Seller. Seller shall defend,
indemnify and hold harmless Buyer, its affiliates and their
respective members, managers, officers and employees from and
against all claims, judgments, damages, liabilities, settlements,
losses, costs and expenses, including attorneys' fees and
disbursements (a "Loss"), arising from or relating
to:
(a) any
inaccuracy in or breach of any of the representations or warranties
of Seller contained in this Agreement or any document to be
delivered hereunder; or
(b) any
breach or non-fulfillment of any covenant, agreement or obligation
to be performed by Seller pursuant to this Agreement or any
document to be delivered hereunder.
Section
5.02 Indemnification By
Buyer. Buyer shall defend,
indemnify and hold harmless Seller, its trustees and affiliates and
their respective members, managers, officers, directors and
employees from and against all Losses arising from or relating
to:
(a) any
inaccuracy in or breach of any of the representations or warranties
of Buyer contained in this Agreement or any document to be
delivered hereunder; or
(b) any
breach or non-fulfillment of any covenant, agreement or obligation
to be performed by Buyer pursuant to this Agreement or any document
to be delivered hereunder.
Section
5.03 Indemnification By
Arete. Arete shall defend,
indemnify and hold harmless Buyer, its affiliates and their
respective members, managers, officers, directors and employees
from and against all Losses arising from or relating
to:
(a) any
inaccuracy in or breach of any of the representations or warranties
of Arete contained in this Agreement or any document to be
delivered hereunder; or
(b) any
breach or non-fulfillment of any covenant, agreement or obligation
to be performed by Areter pursuant to this Agreement or any
document to be delivered hereunder.
ARTICLE VI
MISCELLANEOUS
Section
6.01 Confidentiality.
The Parties agree
that the terms of this Agreement shall remain confidential without
receiving prior written consent from the other Parties; provided
however, that any Party may disclose the terms as required by law,
including any court order or compliance with federal, state, or
local regulations that a Party may be subject
to.
Section
6.02 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be
paid by the Party incurring such costs and
expenses.
Section
6.03 Further Assurances.
Following the Closing, each of the
Parties hereto shall, and shall cause their respective affiliates
to, execute and deliver such additional documents, instruments,
conveyances and assurances and take such further actions as may be
reasonably required to carry out the provisions hereof and give
effect to the transactions contemplated by this
Agreement.
Section
6.04 Notices. All notices, requests, consents, claims, demands,
waivers and other communications hereunder shall be in writing and
shall be deemed to have been given (a) when delivered by hand (with
written confirmation of receipt); (b) when received by the
addressee if sent by a nationally recognized overnight courier
(receipt requested); (c) on the date sent by facsimile or e-mail of
a PDF document (with confirmation of transmission) if sent during
normal business hours of the recipient, and on the next business
day if sent after normal business hours of the recipient or (d) on
the third day after the date mailed, by certified or registered
mail, return receipt requested, postage prepaid. Such
communications must be sent to the respective parties at the
following addresses (or at such other address for a party as shall
be specified in a notice given in accordance with this
Section 6.04):
|
If to
Buyer:
|
SeD
Development USA, LLC
4800
Montgomery Lane, Suite 210
Bethesda,
MD 20814
Attention:
Charles W. S. MacKenzie
Email:
charley@sed.com.sg
and
SeD
Development USA, LLC
c/o
Singapore Development Limited
7
Temasek Boulevard #29-01B
Suntec
Tower One
Singapore
038987
Attn:
Moe Chan
Email
Address: moe@sed.com.sg
|
|
|
|
|
If to
Seller:
|
|
|
If to
Arete:
|
|
Section
6.05 Headings. The headings in this Agreement are for reference
only and shall not affect the interpretation of this
Agreement.
Section
6.06 Severability.
If any term or provision of this
Agreement is invalid, illegal or unenforceable in any jurisdiction,
such invalidity, illegality or unenforceability shall not affect
any other term or provision of this Agreement or invalidate or
render unenforceable such term or provision in any other
jurisdiction. Upon such determination that any term or other
provision is invalid, illegal or unenforceable, the Parties hereto
shall negotiate in good faith to modify the Agreement so as to
effect the original intent of the parties as closely as possible in
a mutually acceptable manner in order that the transactions
contemplated hereby be consummated as originally contemplated to
the greatest extent possible.
Section
6.07 Entire Agreement.
This Agreement and the documents to be
delivered hereunder constitute the sole and entire agreement of the
parties to this Agreement with respect to the subject matter
contained herein, and supersede all prior and contemporaneous
understandings and agreements, both written and oral, with respect
to such subject matter.
Section
6.08 Successors and Assigns.
This Agreement shall be binding upon
and shall inure to the benefit of the Parties hereto and their
respective successors and permitted assigns. Neither Party may
assign its rights or obligations hereunder without the prior
written consent of the other Parties , which consent shall not be
unreasonably withheld or delayed. No assignment shall relieve the
assigning Party of any of its obligations
hereunder.
Section
6.09 No
Third-Party Beneficiaries. This
Agreement is for the sole benefit of the Parties hereto and their
respective successors and permitted assigns and nothing herein,
express or implied, is intended to or shall confer upon any other
person or entity any legal or equitable right, benefit or remedy of
any nature whatsoever under or by reason of this
Agreement.
Section
6.10 Amendment and
Modification. This Agreement
may only be amended, modified or supplemented by an agreement in
writing signed by each party hereto.
Section
6.11 Waiver. Seller, Buyer, and Partnership agree to waive any
restrictions and obligations regarding transfer of ownership
interests contained in the LPA. No waiver by any Party of any of the provisions
hereof shall be effective unless explicitly set forth in writing
and signed by the Party so waiving. No waiver by any Party shall
operate or be construed as a waiver in respect of any failure,
breach or default not expressly identified by such written waiver,
whether of a similar or different character, and whether occurring
before or after that waiver. No failure to exercise, or delay in
exercising, any right, remedy, power or privilege arising from this
Agreement shall operate or be construed as a waiver thereof; nor
shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof
or the exercise of any other right, remedy, power or
privilege.
Section
6.12 Governing Law.
This Agreement shall be governed by
and construed in accordance with the internal laws of the State of
Delaware.
Section
6.13 Submission to
Jurisdiction. Any legal suit,
action or proceeding arising out of or based upon this Agreement or
the transactions contemplated hereby may be instituted in the
federal courts of the United States of America or the courts of the
State of Delaware, and each party irrevocably submits to the
exclusive jurisdiction of such courts in any such suit, action or
proceeding.
Section
6.14 Waiver of Jury Trial.
Each Party acknowledges and agrees
that any controversy which may arise under this Agreement is likely
to involve complicated and difficult issues and, therefore, each
such party irrevocably and unconditionally waives any right it may
have to a trial by jury in respect of any legal action arising out
of or relating to this Agreement or the transactions contemplated
hereby.
Section
6.15 Specific Performance.
The Parties agree that irreparable
damage would occur if any provision of this Agreement were not
performed in accordance with the terms hereof and that the Parties
shall be entitled to specific performance of the terms hereof, in
addition to any other remedy to which they are entitled at law or
in equity.
Section
6.16 Counterparts.
This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall be deemed to be one and the same agreement. A
signed copy of this Agreement delivered by facsimile, e-mail or
other means of electronic transmission shall be deemed to have the
same legal effect as delivery of an original signed copy of this
Agreement.
[SIGNATURE
PAGE FOLLOWS]
IN
WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed as of the date first written above by their respective
officers thereunto duly authorized.
|
|
SeD DEVELOPMENT USA, LLC
By:
Name:
Title:
|
|
|
|
|
|
FOGARTY FAMILY TRUST II
|
|
|
By:
Name:
Title:
|
|
|
ARETE REAL ESTATE AND DEVELOPMENT COMPANY
|
|
|
By:
Name:
Title:
|
|
|
150 CCM BLACK OAK, LTD.
|
|
|
By:
150
Black Oak GP, Inc.
General
Partner
Name:
Title:
|
EXHIBIT
A
LEGAL
DESCRIPTION OF THE PROPERTY ASSETS OF THE PARTNERSHIP
EXHIBIT
B
BILL OF
SALE
BILL OF SALE
FOGARTY FAMILY TRUST II, a trust
organized under the laws of Texas (“FFT”), for and in consideration
provided in the Partnership Interest Purchase Agreement, dated July
___, 2018, the receipt and sufficiency of which are hereby
acknowledged, does bargain, sell, grant, transfer, assign, and
convey to SED DEVELOPMENT USA,
LLC, a Delaware limited liability company
(“SeD
Development”) all of its right, title, and interest,
in and to its 24% (twenty four percent) partnership interest in 150
CCM Black Oak, Ltd., a Texas limited liability company
Without
limiting the generality of the foregoing, the Purchased Interest
acquired by SeD Development hereunder includes:
(a)
All of FFT’s
ownership interest, business interest, and goodwill in 150 CCM
Black Oak, Ltd. as a going concern; and
(b)
All of FFT’s
rights to accounts receivable, miscellaneous accounts receivable,
rights to reimbursement, partnership distributions, prepaid
expenses, and notes receivable or other rights to receive payments,
arising from its ownership of Purchased Interest; and
(c)
All interests of
FFT in real property owned by 150 CCM Black Oak, Ltd. including
land, buildings, structures, improvements, fixtures, leaseholds,
and leasehold improvements; and
(d)
All rights and
claims FFT may have, now and in the future, against SeD
Development, 150 CCM Black Oak, Ltd., 150 Black Oak GP, Inc., and
all affiliates, officers, directors, employees, and agents of these
entities.
(d) All
of FFT’s rights to or under all trademarks, service marks,
United States trademark registrations and applications, trade
names, copyrights, including but not limited to the marks "Lakes at
Black Oak” or “Black Oak” or any variation
thereof, including international rights associated therewith, as
well as any royalties and rights to sue for past infringements,
including, without limitation, those items listed
herein.
IN
WITNESS WHEREOF, FOGARTY FAMILY TRUST II has executed this Bill of
Sale as of the ____ day of July, 2018.
FOGARTY
FAMILY TRUST II
a trust
organized under Texas law
By:
Name:
Title:
This
instrument was acknowledged before me on July _____, 2018 by
_____________________, ________________ of Fogarty Family Trust II,
a trust organized under Texas law, on behalf of such
entity.
Notary
Public in and for the
State
of Texas
My
Commission Expires:________________________
Printed
Name of Notary:_________________________
Exhibit
10.18
LOAN CONVERSION AGREEMENT
This Loan
Conversion Agreement (“Agreement”) is entered
into by and between HotApp International, Inc., a Delaware company
(hereinafter the “Company”) and Singapore
eDevelopment Limited, a Singapore company (hereinafter
“Creditor”), effective as
of this the 13th day of July 2015 (the “Conversion
Date”).
*WITNESSETH*
WHEREAS, on or about December 28, 2014,
Creditor did loan to the Company the sum of $5,250,553.92 Singapore
Dollars (or $3,888,435.10 USD as of exchange rate on July 10, 2015)
(the “Indebtedness”) which
amount is evidenced by a promissory note dated as of even date
therewith (“Promissory
Note”),
WHEREAS, the Company plans to uplist its
common stock, currently approved to trade on the OTCQB market, and
in addition, is desirous of raising capital to fund its operations
(“Financing”), and the
Company and Creditor, as the Company’s largest shareholder,
acknowledge that the existence of the Indebtedness will be an
impediment to the uplisting and/or fund raising
process,
WHEREAS, as a result of the forgoing and
certain other good and valuable consideration acknowledged by the
parties, Creditor desire to convert the entire Indebtedness into
common stock of the Company in full satisfaction of the
Indebtedness.
***
NOW THEREFORE, the undersigned parties
to this Agreement hereby mutually agree to all of the
following:
SECTION
I
CONVERSION OF INDEBTEDNESS;
ISSUANCE OF COMMON STOCK AND
CANCELATION OF PROMISSORY NOTE
1.01. Conversion of Indebtedness. In
exchange for good, valuable and mutual considerations, the receipt
and sufficiency of which is hereby acknowledged by the parties,
Creditor, as of the Conversion Date, hereby converts the entire
Indebtedness into 777,687 shares of common stock of the Company
(“Common Stock”), at a conversion price of $5.00 per
share (rounded to the nearest full share), in full satisfaction of
the Indebtedness.
1.02. Cancelation of Promissory Note and
Issuance of Common Stock.
(a). As of the
Conversion Date, the Creditor hereby cancels and forfeits the
Promissory Note and shall deliver the Promissory Note to the
Company marked “cancelled” and “satisfied in
full” as soon as practicable following the execution of this
Agreement.
(b). Within ten
(10) days from the date hereof, the Company will issue the Common
Stock to the Creditor.
1.03. Complete Release by Creditor.
As of the Conversion Date, Creditor irrevocably and unconditionally
releases, acquits, and forever discharges the Company, its
transferees, assigns, and any successors, from any and all known or
unknown claims, charges, promises, actions, or similar rights that
the Creditor presently may have (“Claims”) relating in any
way to its rights to collect the Indebtedness. Creditor understands
that the Claims that it is releasing might arise under many
different laws (including statutes, regulations, other
administrative guidance, and common law doctrines), and include
without limitation claims such as breach of contract, implied
contract, promissory estoppel, or claims under any federal, state
or local statute, law, order or ordinance.
SECTION
II
CREDITOR’S REPRESENTATIONS AND WARRANTIES
Creditor hereby
represents and warrants to the Company as follows;
(a). Creditor is
acquiring the Common Stock for investment purposes and not with a
view to resell or otherwise transfer the Common Stock,
(b). Creditor is an
“Accredited Investor” as that term is defined in Rule
501 of Regulation D promulgated under the Securities Act of 1933,
as amended,
(c). the Common
Stock has not been registered under any state or federal regulation
and is "restricted securities" and the certificate will contain the
following restrictive legend:
The securities represented by this certificate
have not been registered under the United States Securities Act of
1933, as amended (the "Act") or any state securities law. These
shares have been acquired for investment and may not be offered for
sale, hypothecated, sold or transferred, nor will any assignee or
transferee thereof be recognized by the Company as having any
interest in such shares, in the absence of (i) an effective
registration statement with respect to the shares under the Act,
and any other applicable state law, or (ii) an opinion of counsel
satisfactory to the Company that such shares will be offered for
sale, hypothecated, sold or transferred only in a transaction which
is exempt under or is otherwise in compliance with the applicable
securities laws.
(d). Creditor has
evaluated the risks associated with the acquisition of the Common
Stock and has determined that the acquisition of the Common Stock
is a suitable investment and can bear the entire risk of loss,
and
(e). Creditor
understands and acknowledges that a public trading market for the
Common Stock of the Company currently does not exist and may not be
developed in the future, and as a result, the Common Stock may not
be a liquid investment, and
SECTION
III
MISCELLANEOUS
3.01. Binding Nature of Agreement.
This Agreement shall be binding on and inure to the respective
successors, transferees and assigns of the Company and the
Creditor.
3.02. Law Governing. This Agreement
shall be governed by and construed under the laws of the STATE OF
DELAWARE, REGARDLESS OF LAWS THAT MIGHT OTHERWISE GOVERN UNDER
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
3.03. Entire Agreement. This
Agreement represents the entire agreement between the parties and
has been entered into by Creditor with a full understanding of its
terms, with an opportunity to consult with counsel and without
inducement or duress. This Agreement may not be changed orally, and
any written change or amendment must be signed and accepted by the
Company. If any provision in this Agreement is found to be
unenforceable, all other provisions will remain fully enforceable.
This Agreement may be executed in counterparts, each of which shall
be considered an original, but all of which together shall
constitute one and the same instrument.
***
WHEREFORE, the
undersigned parties to this Loan Conversion Agreement have agreed
to the foregoing as of the Conversion Date.
HotApp
International, Inc.
/s/ Lum Kan Fai
By: Lum Kan
Fai
Its:
Director
Singapore
eDevelopment Limited
/s/ Chan Heng Fai
By: Chan Heng
Fai-Director
AGREEMENT FOR SERVICES
THIS AGREEMENT FOR SERVICES is made this
25 day of January 2017.
BETWEEN
IGalen International Inc. a company
incorporated under the laws of United States of America bearing
corporate registration number 58156-96 and having its principal place
of business at 1771 Post Rd East
#178 Westport, CT 06880 hereinafter referred to as
"IGalen”) of the one part
AND
HotApp International Ltd. a company
incorporated under the laws of Hong Kong bearing corporate
registration number 63550608 and having its principal place of
business at 17B, Greatmany Centre, 109-111 Queen’s Road East,
Hong Kong, (hereinafter referred to as "HotApp”) of the
second part.
WHEREAS:
(A)
IGalen is engaged
in multilevel marketing of dietary supplements and is desirous to
develop a Mobile Application to enable communication and
interaction between independent distributors throughout
IGalen’s direct selling network (hereinafter referred to as
“the Project”).
(B)
HOTAPP is engaged
in development of online applications for mobile interface and is
desirous of sourcing, introducing and/or offering its service as
service provider to IGalen for the sole purpose of the Project upon
the terms and conditions hereinafter appearing.
NOW THIS CONTRACT FOR SERVICES
WITNESSETH as follows:-
IGalen hereby
agrees to appoint and engage HotApp and HotApp hereby accepts the
appointment and engagement by IGALEN as a service provider of
IGalen for the Project on a non-exclusive basis and solely for the
purpose of providing the services specified in Clause 2
specifically within the Territory (as described in item 1 of
Schedule 1) hereof subject to payment of the fees at the rate and
in the manner as stated in Clause 3 hereof.
2.1
HotApp shall use
his best endeavour to source, introduce and/or offer its service as
service provider to IGalen for the sole purpose of the Project at
its own costs and expenses.
2.2
Subject to Clause
2.1 HotApp hereby agrees to conform to the Project Timeline,
Project Deliverables and Reporting as described in items 2, 3 and 4
of Schedule 1 respectively.
3.1
In consideration of
HotApp providing the said Services to IGalen in such manner as
provided in Clause 2 hereof, IGalen hereby agrees to pay HotApp the
Service Fee as stated in item 5 0f Schedule 1.
3.2
All direct expenses
of travel, boarding, lodging and other related expenses if incurred
by HotApp in the Project will be borne by HotApp.
3.3
All payments made
by IGalen to HotApp shall be in United Stated Dollars (USD) within
sixty (60) days upon receipt of the respective invoice from HotApp
AND shall be made in favour of HotApp International
Ltd.
3.6
In the event the
Project is terminated, discontinued, varied or abandoned for any
reasons whatsoever due to any acts and/or omissions of HotApp then
IGalen shall be absolved from its obligation and/or liability to
pay the Service Fee or any balance thereof to HotApp.
4.1
HotApp hereby
undertakes to do the following:-
(a)
use its best
endeavour’s to source, introduce and/or offer its service to
IGalen in accordance with Clause 2 above;
(b)
observe and comply
with all rules and requirements which may from time to time be
specified by IGalen;
(c
)
not to assign,
transfer or delegate any of its rights or obligations under this
Agreement or the benefit thereof, without IGalen’s prior
written consent;
(d)
not to appoint or
allow any person to carry out HotApp’s business without
IGalen’s express or written consent;
(e)
only engage in the
scope of work in accordance with Clause 2 and not carry out any
regulated activity on behalf of IGalen;
(f)
not to accept any
money on IGalen’s behalf UNLESS instructed in writing by
IGalen to do so;
(g)
forward any
complaint regarding Project to IGalen as soon as possible;
and
4.2
IGalen hereby
undertakes to pay HotApp in accordance with all rates defined in
Clause 3 above; and
5.1
IGalen warrants
that:
(a)
it has full legal
right to use and to authorize the use of the Licensed Marks and has
disclosed to HotApp all RELEVANT trade names and trademarks used by
IGalen as at the date of this Agreement; and
(b)
the warranties in
this Clause are separate and independent and shall not be limited
by anything in this Agreement.
5.2
IGalen authorizes
HotApp to use the Licensed Marks only for the purpose of exercising
its rights and performing its obligations under this
Agreement.
5.3
HotApp shall
promptly inform IGalen of the following:
(a)
any actual,
threatened or suspected infringement of the Licensed Marks and/or
formulae or patent which comes to the notice of HotApp;
and
(b)
any claim by a
third party coming to its notice that the use of the Licensed Marks
and/or formulae or patents of IGalen infringes any rights of any
other person.
AND HotApp shall at
the request and expense of IGalen do all such things as may be
reasonably required to assist IGalen in taking or resisting any
proceedings in relation to any such infringement or claim at the
expense of IGalen.
(a)
alter, remove or
tamper with any of the Licensed Marks, numbers, or other means of
identification of IGalen; or
(b)
use any of the
Licensed Marks in any way which may prejudice their distinctiveness
or the validity or the goodwill of IGalen therein.
5.5
HotApp hereby
acknowledges that, except as expressly provided in this Agreement,
HotApp shall not acquire any rights in respect of the Licensed
Marks and/or formulae or patents pursuant to this
Agreement.
If any party hereto
shall for any reason whatsoever default, breach, fail to comply
with any of the covenants stipulations obligations and undertakings
on its part to be observed and performed as contained in this
Agreement then the defaulting party shall save harmless indemnify
and keep indemnified the other party against any liabilities claims
demands actions proceedings penalties prosecution fines loss damage
costs and expenses whatsoever that may be made against and/or
sustained suffered or otherwise incurred whether directly or
indirectly or however arising by the other party by reason of or
arising out of or in connection with such breach failure or default
provided that this clause shall be in addition to and not in
derogation of any other rights or remedies of the other
non-defaulting party as provided for in this Agreement against such
defaulting party.
7.1
For the purpose of
Clause 7 the term “Proprietary Information” shall
mean knowledge and information which the recipient Party may
acquire from employees, consultants, agents or representatives of
the disclosing Party or of its affiliated companies, respecting its
proprietary products and processes, know-how, business plan or
plans, inventions, trade secrets, and all other information which
may come to the knowledge of the receiving Party by whatever means
with regard to the business of the disclosing Party.
7.2
Proprietary
Information shall be disclosed by the receiving Party only to those
of its Professional Consultants, employees, and employees of
affiliated companies, if any, who need to know such Proprietary
Information for the purposes of this Agreement, who have been
informed of the confidential nature of such information, and who
are obligated to keep such information in confidence. The receiving
Party shall be responsible for any violation of this Agreement by
such employees.
7.3
Any Proprietary
Information supplied by one Party to the other shall be maintained
and kept confidential by the recipient at all times during the Term
of this Agreement and shall survive the termination of this
Agreement by five (5) years.
7.4
The obligations set
forth in this Agreement shall not apply to any portion of the
Proprietary Information which the receiving Party can
prove:
(a)
was
already known to the receiving Party prior to any disclosure by the
disclosing Party;
(b)
was
publicly available prior to any disclosure by the disclosing Party,
or subsequently becomes public information through no breach of
this Agreement;
(c
)
was
received by the receiving Party from a third party lawfully in
possession of the same and not in breach of any agreement or any
confidential relationship with the disclosing Party;
(d)
was
independently developed by the receiving Party, its parent or
affiliated companies without reliance upon the Proprietary
Information of the disclosing Party; or
(e)
was
disclosed as a requirement by any government or regulatory
authority or stock exchange having jurisdiction over such Party in
order to comply with any official directive or guideline, whether
or not having the force of law.
Either Party may
terminate this Agreement by providing a six (6) month written
notice to the other Party.
This Agreement
shall be binding upon the liquidators receivers permitted assigns
successors in title or the personal representative of the
parties.
HotApp agrees not
to make any public announcements about discussions regarding this
Agreement or any other related information, plans or proposals,
whether in the form of a press release or otherwise, without first
consulting with and obtaining the written consent from
IGALEN,
11.1
Nothing contained
in this Agreement shall create a partnership or joint venture or
relationship of principal and agent or employer and employee
between the Parties and neither Party hereto shall have any right
whatsoever to incur any liabilities or obligations on behalf or
binding upon the other Party; and that it will not at any time
represent orally or in writing to any person or corporation or
other business entity that it has any right, power or authority not
expressly granted by this Agreement.
11.2
This Agreement
supersedes all previous agreements and understandings between the
Parties with respect thereto, and may not be modified except by an
instrument in writing signed by the duly authorized representatives
of the Parties.
11.3
No remedy conferred
by any of the provisions of this Agreement is intended to be
exclusive of any other remedy which is otherwise available at law,
in equity, by statute or otherwise, and each and every other remedy
shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law, in equity, by
statute or otherwise. The election of any one or more of such
remedies by either Party shall not constitute a waiver by such
Party of the right to pursue any other available
remedy.
11.4
If any provision of
this Agreement or part thereof becomes void, illegal or
unenforceable under any legislation to which it is subject to, the
validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired AND the invalidity,
illegality and unenforceability of any provision or part of it
under this Agreement under the laws of one jurisdiction shall not
affect the validity, legality and enforceability of such provisions
under the laws of any other jurisdiction.
11.5
Neither Party shall
transfer nor assign any of its rights, interest or obligations
under this Agreement without the prior written consent of the other
Party.
This Agreement may
be executed in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall constitute one
and the same instrument. Signatures may be exchanged by facsimiles,
with original signatures to follow. Each Party agrees that it will
be bound by its own facsimile signature and that it accepts the
facsimile signature of the other Party.
This Agreement is
governed by the laws of Singapore, without giving effect to
conflict of law principles. If any matter, dispute or claim arising
out of or relating to this Agreement or the breach or termination
hereof, cannot be agreed upon by the Parties hereto, or cannot be
settled amicably by the Parties hereto, each of the parties
irrevocably submit to th jurisdiction of the courts of Singapore
and waives any objection to proceedings in such courts on the
grounds of venue or on the grounds that the proceedings have been
brought in an inconvenient forum.
This Agreement
shall constitute the whole agreement between the parties hereto and
it is expressly declared that no variation shall be effective
unless consented to by both parties hereto in writing.
Any notice, request
or demand requiring to be served by any party hereto to the other
under the provisions of this Service Fee Agreement shall be in
writing and shall be delivered by registered or certified mail,
prepaid postage to the parties at the following address (attention
of such other person or such other address as any party hereto may
provide in accordance with this clause):
Dato’ Dr. M.
Rajendran a/l V.Marnickavasagar
12th Floor, Amcorp
Trade Centre,
PJ Tower, No. 18,
Persiaran Barat Off Jalan Timur
46000 Petaling
Jaya,
Malaysia
Chan Heng Fai
Ambrose
17B, Greatmany
Centre,
109-111
Queen’s Road East,
Hong
Kong
In this Agreement
for Services unless there is something in the subject or context
inconsistent with such construction or unless it is otherwise
expressly provided:-
(a)
words importing the
masculine gender only include the feminine and neuter
genders;
(b)
words importing the
singular number only include the plural and vice versa;
and
(c)
words applicable to
human beings include any body of persons corporate or
unincorporate.
IN WITNESS WHEREOF
the parties hereto have hereunto set their hands and seals the day
and year first abovewritten.
|
SIGNED
BY
For and on behalf
of
IGalen
International Inc
(Company
No.58156-96)
Signatory’s
Full Name:
M RAJENDRAN A/L V
MARNICKAVASAGAR
Signatory’s
Designation: Director
Company
Seal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIGNED BY
For and on behalf
of
HotApp
International Ltd
(Company No.
63550608)
Signatory’s
Full Name:
CHAN HENG FAI
AMBROSE
Signatory’s
Designation: Director
Company
Seal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SCHEDULE
1
|
1.
|
TERRITORY
|
a) United States of
America and Canada; AND
b) Other
Territories to be included upon mutual consent of the
parties.
|
|
2.
|
PROJECT
TIMELINES
|
The project must be
completed within twelve (12) calendar months from the date of this
Agreement.
|
|
3.
|
PROJECT
DELIVERABLES
|
a) HotApp to
develop an IGalen Mobile Application for all independent
distributors of IGalen including but not limited to:-
● Chat
● Calling (In App
Calling)
● Channel
Posting
● Mobile
Dashboard
● IGalen Public
Channel and customer service channel
● Integration to
IGalen MLM system backend
● Coordination of MLM
backend developer
b) HotApp will
provide all updates, upgrade, bug fixing and continuous feature
enhancement for
IGalen
and a dedicated support staff for customer service.
c) HotApp will
provide infrastructure for calling, cloud service and database
management based
on
Amazon Cloud Service (AWS).
d) HotApp will
deliver at least one new update every 3 months with agreed
functional
requirement
with IGalen.
|
|
4.
|
REPORTING
|
Reporting
by email every seven (7) days in the form of interim reports to
provide regular status updates.
|
|
5.
|
SERVICE
FEE
|
3% of iGalen
International Inc. revenue as development and support fee for the
IGalen Mobile Application in the year 2017
|
Exhibit 10.20
LOAN CONVERSION AGREEMENT
This LOAN
CONVERSION AGREEMENT (this "Agreement") is dated March 27, 2017
(the “Effective Date”), by and between Singapore
eDevelopment, Ltd, a Singapore limited company (“SeD’)
or “Holder”) and HotApp International, Inc., a Delaware
corporation (“HotApp”).
R E C I T A L
S:
WHEREAS, the Holder has lent HotApp a
total of USD$450,890.00 as of March 27, 2017 (the
“Debt”); and
WHEREAS, Holder desires to convert the
Debt into common shares of HotApp, $0.0001 par value per share (the
“Common Stock”) at a conversion price of $0.09 per
share and HotApp desires to issue the Common Stock in exchange for
satisfaction of the Debt.
WHEREAS, Holder and HotApp intend this
conversion to be completed pursuant to Section 3(a)(9) of the
Securities Act of 1933, as amended.
NOW,
THEREFORE, in consideration of the premises and of the terms
and conditions herein contained, the parties mutually agree as
follows:
1. Conversion of
Debt.
1.1 As of the
Effective Date, the Debt shall be paid in full, with no further
interest, penalties, fees, or charges, with the issuance of
500,988,889 shares of common stock of HotApp, valued at $0.09 per
share, and the Debt shall be satisfied.
2. Representations and
Warranties of HotApp.
2.1 Authorization.
The execution, delivery and performance by HotApp of this Agreement
and the performance of all of HotApp’s obligations hereunder
have been duly authorized by all necessary corporate action, and
this Agreement has been duly executed and delivered by HotApp. This
Agreement constitutes the valid and binding obligation of HotApp
enforceable in accordance with its terms. The execution and
performance of the transactions contemplated by this Agreement and
compliance with its provisions by HotApp will not conflict with or
result in any breach of any of the terms, conditions, or provisions
of, or constitute a default under, its Articles of Incorporation or
Bylaws or any agreement to which HotApp is a party or by which it
or any of its properties is bound.
2.2 Issuance of Shares. The
issuance and delivery of the Convertible Debenture in accordance
with this Agreement has been duly authorized by all necessary
corporate action on the part of HotApp, and the underlying shares
of common stock to be delivered, when so delivered, will have been
duly and validly authorized and issued by the Company and will be
fully paid and nonassessable.
2.3 Binding
Obligation. Assuming the due execution and delivery of this
Agreement, this Agreement constitutes the valid and binding
obligation of HotApp, enforceable against HotApp in accordance with
its terms, subject, as to enforcement, (i) to bankruptcy,
insolvency, reorganization, arrangement, moratorium and other laws
of general applicability relating to or affecting creditors' rights
and (ii) to general principles of equity, whether such
enforceability is considered in a proceeding in equity or at
law.
3. Miscellaneous.
3.1 No Third Party Beneficiaries.
This Agreement shall not confer any rights or remedies upon any
person other than the parties and their respective successors and
permitted assigns.
3.2 Entire Agreement. This
Agreement (including the documents referred to herein) constitutes
the entire agreement among the parties and supersedes any prior
understandings, agreements, or representations by or among the
parties, written or oral, to the extent they related in any way to
the subject matter hereof.
3.3 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.
3.4 Governing Law. This Agreement
shall be governed by and construed in accordance with the laws of
the State of Maryland (without regard to conflict of
laws).
3.5 No
Waiver/Amendments. Any waiver by either party to this
Agreement of any provision of this Agreement shall not be construed
as a waiver of any other provision of this Agreement, nor shall
such waiver be construed as a waiver of such provision respecting
any future event or circumstance. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing
and signed by both parties.
3.6 Severability. Any term or
provision of this Agreement that is invalid or unenforceable in any
situation in any jurisdiction shall not affect the validity or
enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
3.7 Costs. Each
party will bear the costs and expenses incurred by it in connection
with this Agreement and the transaction contemplated
thereby.
3.8 Survival of Terms. All
representations, warranties and covenants contained in this
Agreement or in any certificates or other instruments delivered by
or on behalf of the parties hereto shall be continuous and survive
the execution of this Agreement.
3.9 Assignment. This Agreement
shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of any
assignee, subject to the terms and conditions hereof.
3.10 Headings. The headings used in
this Agreement are for convenience only and shall not by themselves
determine the interpretation, construction or meaning of this
Agreement.
3.12 Additional Assurances. Holder
agrees to furnish to HotApp, promptly upon HotApp's written request
therefor, such additional documents or instruments, if any, in
connection with the conversion of the Debt into the Common Stock,
HotApp, or its agent may require.
3.13
Attorneys Fees and
Costs. In the event any party to this Agreement shall be
required to initiate legal proceedings to enforce performance of
any term or condition of this Agreement, including, but not limited
to, the interpretation of any term or provision hereof, the payment
of moneys or the enjoining of any action prohibited hereunder, the
prevailing party shall be entitled to recover such sums in addition
to any other damages or compensation received, as will reimburse
the prevailing party for reasonable attorneys’ fees and court
costs incurred on account thereof (including, without limitation,
the costs of any appeal) notwithstanding the nature of the claim or
cause of action asserted by the prevailing party.
IN
WITNESS WHEREOF, the Holder and HotApp have caused this
Agreement to be executed as of the day and year first above
written.
Singapore
eDevelopment, Ltd.
By:
/s/ Fai H. Chan
HotApp
International Inc.
By: /s/ Conn
Flanigan
Exhibit 10.21
PREFERRED STOCK CANCELLATION AGREEMENT
THIS PREFERRED STOCK
CANCELLATION AGREEMENT (this “Agreement”) is made and
entered into effective as of March 27 , 2017, by and between HotApp
International Inc., a Delaware corporation (the
“Company” or “HotApp”), and Singapore
eDevelopment Ltd. (the
“Stockholder”).
WITNESSETH:
WHEREAS, the Company created a series of preferred
stock called the Perpetual Preferred Stock (the “Preferred
Stock”); and
WHEREAS, the Stockholder is the record and beneficial
owner of a total of 13,800,000 shares of the Preferred stock,
$0.00001 par value per share;
WHEREAS, the
Stockholder has requested that the Preferred Stock be cancelled;
and
WHEREAS, the Company and the Stockholder have entered
into negotiations regarding common stock of the Company and the
conversion of debt between the two companies;
and
WHEREAS, following the approval of the stockholders
of the Corporation, the Corporation is proposing to amend its
Articles of Incorporation to increase the number of its authorized
shares of Common Stock to 1,000,000,000 shares, to the
Company’s Articles of Incorporation to effect such increase
in the authorized shares of the Company, and that the Articles of
Amendment will be effective upon filing with the Secretary of State
for the State of Delaware; and
NOW,
THEREFORE, in
consideration of the foregoing recitals and the mutual agreements
set forth herein, and other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto agree
as follows:
1. Cancellation
of Shares. Upon the terms and subject to the
conditions set forth in this Agreement, upon execution hereof, the
Stockholder shall deliver to the Company certificates representing
the Preferred Stock, duly executed for cancellation, or accompanied
by stock powers duly executed in blank (with a medallion guarantee
or such other evidence of signature as the Company’s transfer
agent may require) whereupon the officers of the Company shall
cancel such Preferred Stock by delivering the Preferred Stock to
the Company’s Secretary for cancellation.
2. Representations
of Stockholder. The
Stockholder represents and warrants to the Company, as of the date
hereof, that:
a.
Stockholder
has the legal capacity to execute, deliver and perform the
obligations under this Agreement. This Agreement has
been duly executed and delivered by Stockholder and is a valid and
legally binding agreement of Stockholder enforceable against it in
accordance with its terms.
b.
Stockholder
is the sole holder of record of the Preferred Stock, and is the
beneficial owner of the Preferred Stock, free and clear of all
liens, and there exists no restriction on the transfer of the
Preferred Stock to the Company. Upon execution hereof,
Stockholder shall deliver to the Company at good and marketable
title to the Preferred Stock free and clear of all
liens.
c.
No
action has been taken by Stockholder that would give rise to a
claim against the Company for a brokerage commission,
finder’s fee or other like payment with respect to the
transactions contemplated by this Agreement.
d.
Stockholder
agrees that it is the sole holder of the Preferred Stock and
Stockholder’s obligation to cancel the Preferred Stock in
this Agreement satisfies Sections 222, 242, and 228 of the State of
Delaware General Corporation Code regarding stockholder consent and
waiver of stockholder notice.
4. Governing
Law.
This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware
without regard to conflict-of-laws rules.
5. Undertakings.
Each of Stockholder and the Company
hereby agrees to take whatever additional action and execute
whatever additional documents may be reasonably necessary or
advisable in order to carry out or effect one or more of the
provisions of this Agreement.
6. Counterparts.
This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one and the same
instrument.
7. Entire
Agreement. This Agreement and the instruments to be delivered
by the parties pursuant hereto represent the entire understanding
and agreement between the parties and supersede all prior oral and
written and all contemporaneous oral negotiations, commitments and
understandings.
APPROVED:
|
HotApp
International Inc.
|
Singapore
eDevelopment, Ltd.
|
|
By:
/s/ Conn
Flanigan
|
By:
/s/ Fai H. Chan
|
Exhibit
10.22
OUTSOURCE
TECHNOLOGY DEVELOPMENT AGREEMENT
This Outsource
Technology Development Agreement (this “Agreement”) is entered
into and effective as of this 1st day of March, 2018
(the “Effective
Date”) by and between Document Security Systems, Inc.,
a corporation organized and existing under the laws of the State of
New York (“DSS”), and HotApp International Ltd., a corporation organized
and existing under the laws of Hong Kong
(“Developer”).
RECITALS:
WHEREAS, DSS is
engaged in the business of, among other things, developing and
licensing anti-counterfeiting technology, processes and products
providing protection against a wide range of threats, including
product diversion and counterfeiting, brand infringement, forgery,
and unauthorized copying, scanning and photo imaging;
WHEREAS, Developer
is engaged in the business of, among other things, software
development; and
WHEREAS, DSS
desires to retain Developer for the purpose of assisting DSS in
developing an Android software application to be included as part
of DSS’s AuthentiGuard® Technology suite, and DSS is
willing to grant Developer a non-exclusive, limited and
non-transferable license for purposes of such development
activities.
NOW, THEREFORE, for
good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as
follows:
Capitalized terms
contained herein shall have the meanings ascribed to them herein,
or in Schedule 1
which is annexed hereto and made a part of this
Agreement.
1. Development License
and Fees.
1.1. Development
License. Subject to the terms
and conditions set forth herein, DSS hereby grants to Developer,
and Developer accepts from DSS, for the Term, a non-exclusive,
limited, and non-transferable license to install and use the
Technology for the sole purpose of developing the Improvements (as
defined hereunder) thereto for the benefit of DSS (the
“Technology Development
Services License”).
1.2. Development
Fees.
As payment for Developer’s
satisfactory performance of the services set forth in
Schedule
1 hereto (the
“Technology Development
Services”), DSS shall pay
Developer the sum of US $23,000 per month, for the duration of the
Term hereof, with payments to commence on March 1,
2018.
2.1. Term.
The initial term of this Agreement shall commence on the Effective
Date, and shall continue thereafter for a period of twelve (12)
months (the “Initial
Term”). The Initial Term
shall automatically renew for one-month periods thereafter unless
either party provides 30-days advance notice of termination, unless
earlier terminated pursuant to Section 2.2 hereof. For purposes
hereof, the Initial Term, together with any extension or renewal
terms, shall hereinafter be collectively referred to as the
“Term”.
2.2. Early
Termination.
2.2.1. Either
party may terminate this Agreement prior to expiration of the Term:
(i) upon thirty (30) days prior written notice, or (ii) immediately
upon written notice to the other party if: (a) the other party
declares or a petition is filed in any court for insolvency or
bankruptcy and such petition is not dismissed in thirty (30) days;
(b) the other party reorganizes under the relevant bankruptcy act
or any similar statute in such party’s jurisdiction of
incorporation; (c) the other party consents to the appointment of a
trustee in bankruptcy or a receiver or similar entity; or (d) the
Developer breaches DSS’s Technology or Intellectual Property
rights contained herein.
2.2.2. Upon
the expiration or termination of this Agreement, (i) the Technology
Development Services License granted to Developer hereunder shall
immediately cease, and (ii) Developer shall immediately cease use
of all proprietary technology files heretofore delivered by DSS and
shall deliver to DSS all such proprietary files along with any and
all Improvements completed to date by Developer.
3. Proprietary
Rights.
3.1. Subject to
Developer’s expressly granted rights under this Agreement,
Developer acknowledges and agrees that DSS shall own all right,
title, and interest in and to the Technology, the Improvements, its
Intellectual Property, and all future derivative works derived
therefrom or developed hereunder. Developer agrees that it will not
at any time (i) do or cause to be done any act or thing contesting
or in any way impairing any part of such right, title and interest
or (ii) represent, expressly or by implication that it has any
right, title or interest in or to any of the foregoing other than
as expressly set forth herein.
3.2. Developer hereby
acknowledges DSS’s claim of sole ownership of the Technology,
the Improvements, and all associated goodwill. Nothing in this
Agreement or in the performance thereof, or that might otherwise be
implied by law, shall operate to grant Developer any right, title,
or interest in or to the Technology or the Improvements. Developer
hereby assigns and shall assign in the future to DSS all rights it
may acquire by operation of law or otherwise in the Technology or
Improvements, along with the goodwill associated therewith. DSS
shall have the sole right to, and in its sole discretion may,
commence, prosecute or defend, and control any legal action
concerning the Technology and Improvements. Developer may not
contest the validity of, by act or omission jeopardize, or take any
action inconsistent with, DSS’s ownership rights or goodwill
in the Technology or Improvements, including any attempted
registration of the Technology or Improvements in Hong Kong or in
any other legal jurisdiction, or any attempts to license the same
to any unauthorized third Person.
4. Definitions.
For purposes of this Agreement, the following capitalized terms
shall have the meanings set forth below.
“Improvements” shall mean
technical improvements, modifications
or enhancements relating to the Technology that are developed by
the Developer pursuant to this Agreement.
“Intellectual
Property” shall
mean, but shall not be limited to, all of DSS’s (i) issued
and pending patents, trademarks, trade names, service marks,
designs, logos, and copyrights, and all pending applications for
registration thereof; (ii) know-how, inventions, improvements,
methods, operation manuals and procedures, trade secrets, technical
information, formulas; (iii) computer software and programs, and
related documentation, updates, and data, whether in object or
source code form, and (vi) other similar proprietary and
intellectual rights, whether or not registered.
“Person”
shall mean any individual, corporation, partnership, limited
liability company, association, trust or any other entity or
organization of any kind or character, including a governmental
authority or agency.
“Technology”
shall collectively mean (i) DSS’s proprietary
AuthentiGuard® technology (including DSS’s related
patents and patent applications, inventions, software, trademarks,
trade names, service marks, technology marks, designs, logos,
copyrights, know-how, trade secrets and any other DSS owned
intellectual property relating thereto), consisting of a unique
application of the AuthentiGuard® patent coupled with next
generation technology and software which enables and end-to-end
brand protection solution for product authentication, counterfeit
deterrence and data tracking via embedded customized technology
marks with hidden codes placed in products which can be read an
authenticated via an application loaded on various devices along
with necessary hardware and DSS’s portal, (ii) DSS’s
Prism Viewer technology comprised of a custom covert Prism image
imbedded in a customer’s products that is viewed and
authenticated through the use of DSS’s propriety smart phone
application, and (iii) DSS’s AuthentiSite technology suite
comprised of an embedded digital Prism image coupled with a
cloud-based security server and a smart phone verification
application for website authentication.
5. Confidentiality;
Non-Disclosure. The parties
acknowledge that they have entered into that certain Mutual
Non-Disclosure Agreement dated as of January 18, 2018 (the
“NDA”), a copy of which is attached hereto
as Exhibit
A. The terms of the NDA shall
be deemed to be incorporated by reference into this
Agreement, mutatis mutandis.
During the Term of this Agreement and
thereafter for a period of five (5) years, the parties shall be
bound by all of the protective terms and conditions of the
NDA.
6. Developer
Liability.
6.1. Developer Liability
for Damages. Developer shall be fully liable, without
limitation, for money damages resulting from its improper or unauthorized use, modification,
alteration, licensing or transfer of the Technology or
Improvements, or resulting from its failure to provide functional
and merchantable Improvements hereunder, which failure shall be
deemed a material breach of this Agreement by
Developer.
7. DSS’s
Representations and Warranties.
7.1. Power and
Authority. DSS represents and
warrants that it has the right, power and authority to enter into
this Agreement and that the signatory on behalf of such party to
this Agreement has full authority to enter into and bind the party
to the obligations set forth in this Agreement.
7.2. Right to
Technology. DSS represents and
warrants to Developer (i) that the Technology is the sole and
exclusive property of DSS (ii) that DSS possesses all legal right,
title and interest in and to the Technology necessary to grant
Developer the rights provided herein, and (iii) that nothing
contained in this Agreement conflicts with any other obligation or
agreement of DSS.
8. Developer’s Representations,
Warranties and Covenants.
8.1
Power and
Authority. Developer represents and warrants that it has the
right, power and authority to enter into this Agreement and that
the signatory on behalf of such party to this Agreement has full
authority to enter into and bind the party to the obligations set
forth in this Agreement.
8.2
Reverse
Engineering. Developer covenants that it shall not attempt,
directly or indirectly, during the term of this Agreement or at any
time thereafter, (i) to reverse engineer, by any means whatsoever,
the Technology or other Intellectual Property provided to Developer
hereunder, for any unauthorized purpose, and further acknowledges
that such Technology and Intellectual Property has been provided
hereunder by DSS solely for the purpose of enabling Developer to
fully perform its legal duties and obligations hereunder, (ii) to
forensically, graphically or otherwise physically analyze the
Technology or Intellectual Property provided to Developer hereunder
for any unauthorized purpose, or (iii) to compile/assemble,
decrypt, or create any derivative works based upon the Technology
or Intellectual Property of DSS, for any unauthorized purpose. Any
violation of this clause shall be deemed a material breach of this
Agreement by the Developer.
9. Miscellaneous.
9.1. Assignment. Developer may not
assign or transfer this Agreement, nor its rights and obligations
hereunder, by operation of law or otherwise, to any third party
without the prior express written approval of DSS. Any purported
assignment without the consent of DSS shall be void. The provisions
of this Agreement shall be binding upon, and shall inure to, the
benefit of the parties, their legal representatives, permitted
successors and permitted assigns. The rights of Developer under
this Agreement shall immediately cease and be terminated upon the
sale or transfer of all or substantially all of the assets of
Developer unless an assignment of such rights pursuant to such sale
or transfer has been previously approved in writing by DSS. The
rights of Developer under this Agreement shall immediately cease
and be terminated upon the sale or transfer of no less than a
majority of, or a controlling interest in or over, the voting
capital or ownership capital of Developer unless an assignment of
such rights pursuant to such sale or transfer has been previously
approved in writing by DSS.
9.2. Remedies Cumulative; Waiver.
The rights and remedies provided in this Agreement, and all other
rights and remedies available to either party at law or in equity
are, to the extent permitted by law, cumulative and not exclusive
of any other right or remedy now or hereafter available at law or
in equity. A party’s failure to assert any right or remedy
shall not constitute a waiver of that right or remedy. No waiver by
either party of any default shall be deemed as a waiver of prior or
subsequent default of the same or other provisions of this
Agreement.
9.3. Severability. In the event that
a court of competent jurisdiction finds any provision of this
Agreement to be illegal, invalid or unenforceable, it is the
intention of the parties that such court shall modify such
provision as necessary so that it shall be legal, valid and
enforceable. The illegality, invalidity or unenforceability of any
provision of this Agreement shall not affect the legality, validity
or enforceability of any other provision of this
Agreement.
9.4. Relationship of the Parties.
Nothing in this Agreement shall be construed as creating a
partnership, joint venture or agency relationship between the
parties, or as authorizing either party to act as agent for the
other.
9.5. Amendments. No modifications or
amendments may be made to this Agreement except as expressed in
writing and signed by both parties.
9.6. Irreparable Damage. The parties
acknowledge and agree that any material breach of this Agreement
may subject the other to irreparable injury for which monetary
damages may not be an adequate remedy. Therefore, in addition to
any remedies otherwise available, the non-breaching party may be
entitled to injunctive relief and specific performance to enforce
the terms of this Agreement. The breaching party shall pay all
reasonable attorney’s fees and court costs, arbitration
costs, and/or appeal costs incurred by the non-breaching party
should it be necessary for the non-breaching party to enforce the
terms of this Agreement.
9.7. No Construction against the Drafter;
Headings. The parties acknowledge that they have reviewed
this Agreement, have either been represented by counsel or had the
opportunity to be represented by counsel, and have negotiated its
terms. Accordingly, this Agreement shall be construed without
regard to the party or parties responsible for its preparation, and
shall be deemed to have been prepared jointly by the parties.
Headings contained in this Agreement are not intended to be full
and accurate descriptions of the contents of this Agreement and
shall not affect the meaning or interpretation of this
Agreement.
9.8. Notice.
All notices sent under this Agreement shall be in writing and shall
be deemed effectively given (i) upon personal delivery to
the party to be notified; (ii) when sent by e-mail PDF or confirmed
facsimile, if sent during normal business hours of the recipient,
if not, then on the next business day; (iii) three (3) days after
having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (iv) two (2) days after deposit with
an internationally recognized overnight courier, specifying two (2)
day delivery, with written verification of receipt. Notices shall be sent to the Parties at the
following addresses or fax numbers or such other addresses or fax
numbers as the parties subsequently may provide in accordance with
this Section 9.8:
|
|
If
to DSS:
Document
Security Systems, Inc.
200
Canal View Blvd., Suite 300
Rochester,
New York 14623
USA
Attn:
Chief Executive Officer
|
|
With
e-mail PDF copy to:
Document
Security Systems, Inc.
200
Canal View Blvd., Suite 300
Rochester,
New York 14614
USA
Attn: General
Counsel (jdangelo@dsssecure.com)
|
|
|
|
|
|
|
|
If
to Developer:
HotApp
International Ltd.
17B,
Greatmany Centre
109-111
Queen’s Road East
Hong
Kong
Attn:
Chief Executive Officer
|
|
With
a copy to:
|
9.9. Force Majeure. Notwithstanding
any provision herein, the parties may be discharged from all
liabilities if the failure to perform or improper performance of
this Agreement is the result of Force Majeure, provided that the
party subject to the Force Majeure provides notice of such Force
Majeure, as soon as possible after such party became subject to
such Force Majeure.
9.10. Governing Law; Jurisdiction.
This Agreement shall be governed in accordance with the laws of the
State of New York without regard to conflict of laws principles. It
is hereby irrevocably agreed that legal jurisdiction and venue for
any proceeding arising out of this Agreement shall be in the state
or federal courts located in the County of Monroe, State of New
York, United States.
9.11. Entire Agreement. This
Agreement and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the transactions
described herein, and supersede all prior agreements, written or
oral, with respect thereto, provided, however, that notwithstanding
any provision herein, the NDA shall remain in full force and
effect.
9.12. Counterparts; Facsimile
Signatures. This Agreement may be executed in counterparts,
each of which shall be deemed to be original but all of which
together shall constitute a single instrument. The signatures
required for execution may be transmitted electronically to the
other party via e-mail PDF, and such signatures shall be deemed
original signatures.
[Remainder of Page Intentionally Left Blank – Signature Page
Follows]
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the
date first set forth above.
|
DOCUMENT SECURITY SYSTEMS, INC.
|
|
HOTAPP
INTERNATIONAL LTD.
|
|
|
|
|
|
|
|
|
/s/Jeffrey
Ronaldi
|
|
|
/s/
Nathan Lee
|
|
|
Name:
Jeffrey Ronaldi
|
|
|
Name:
Nathan Lee
|
|
|
Title:
Chief Executive Office
|
|
|
Title:
Chief Executive Officer
|
|
SCHEDULE 1
TECHNOLOGY
DEVELOPMENT SERVICES
(Attached)
Technology
Development Services
Deliverables from March
1st to May
31st
1. To conduct thorough testing of
AuthentiGuard App for specificclients provided by DSS for every
releases in Android and iOS as instructed by
DSS.
2. To development Android Mobile
App for core scanning modulewith
improvement of scanning accuracy for major Android Phones (Samsung
S7, S8 in particular)
3. To develop Sales Demo Apps for
AuthentiGuard with guidelines offered by Product Marketing Team
from DSS
4. To establish the standard
testing procedure for all clients AuthentiGuard Mobile App
testing
5. To develop Proof of Concept for
AuthentiSite
Note: Detail Scope of Work to be
agreed during the meeting with HotApp on March 20-24th,
2018.
Deliverable for subsequent 3
months will be mutually agreed by end of May.
EXHIBIT A
MUTAL
NON-DISCLOSURE AGREEMENT
(Attached)
Exhibit 10.23
PRIVATE & CONFIDENTIAL
TERM
SHEET
This Term Sheet
sets out the understanding between HotApps International Pte Ltd
with regards to the proposed engagement of The Alpha Mind Pte Ltd
(“Consultant”) for provision of consultancy services to
the Company.
|
COMPANY
|
HotApps
International Pte Ltd, a company incorporated in Singapore,
registration no. 201414877D and having its office at 7 Temasek
Boulevard #29-01B Suntec Tower One Singapore 038987
(“Company”).
|
|
CONSULTANT
|
Company would like
to engage The Alpha Mind Pte Ltd, a company incorporated in
Singapore, registration no. 2009137393G (“Consultant”)
to provide consultancy services to the Company.
During the term of
engagement, its sole member and director, Mr Tay Kiat Ming, Eugene
will act as Acting Chief Executive Officer of the Company
(“Acting CEO”).
|
|
TERM AND
COMMENCEMENT DATE
|
For an initial term
of 12 months with effect 1 September 2018.
|
|
FEES
|
Consultant will be
paid consultancy fees based on the following milestones
-
1) First 12 months
-S$60,600 per annum payable monthly in arrears.
2) To be adjusted
to S$10,600 per month after successful raising of fresh funds by
the Consultant and upon receipt by the Company of or exceeding S$1
million which funds were raised based solely on Consultant’s
efforts.
3) To be adjusted
to S$20,600 per month after successful raising of fresh funds by
the Consultant and upon receipt by the Company of or exceeding S$5
million which were raised based solely on Consultant’s
efforts.
|
|
OVERVIEW
|
It is the intention
of the Company to work towards listing of its parent company,
HotApp BlockChain Inc., an OTC company in the United States,
incorporation ID. 5120182 and having its office at 4800 Montgomery
Lane Suite 210 Bethesda, MD20814 (“HotApp BlockChain”)
with NYSE or NASDAQ.
|
|
STOCK PERFORMANCE
SHARES
|
Acting CEO shall be
granted 1 million of HotApp BlockChain’s stock performance
shares upon its successful uplift to NYSE or NASDAQ. The exercise
price of the stock performance shares shall be at US$1.00 and will
be vested upon completion of 36 months’ continuous engagement
(“Tenure”) with the Company.
Such stock
performance shares can be sold only when the share price of the
HotApp BlockChain is trading at US$2 or above, at any time during
the Tenure. Sale of any shares arising from the vested stock
performance shares is restricted to no more than 5% of the daily
trading volume. All unvested stock performance shares will not be
due and will immediately become void in the event of termination of
the Consultancy Agreement.
|
|
TERMINATION
|
One (1)
month’s written notice of termination from either party or
fees in lieu of notice.
|
|
CONFIDENTIALITY
|
Save for any
disclosure made to any regulatory body (including the exchanges in
United States, Hong Kong or Singapore), each party shall keep
strictly confidential the negotiations relating to this
transaction, the existence of this transaction and the contents of
this Term Sheet and shall not disclose the name to any other person
with the prior written consent of the other party.
|
|
NON-COMPETITION
AND NON-SOLICITATION
|
Consultant shall
not:
(a) be directly or
indirectly engaged or concerned in (whether as an employee, agent,
independent contractor or otherwise) the conduct of any business
competing with the businesses carried on or proposed to be carried
on by the Company at any time;
(b) carry on for
your own account either alone or in partnership or be concerned as
a director or shareholder in any company engaged in any business
competing with the Company’s business;
(c) assist any
person, firm or company with technical advice or assistance in
relation to any business competing with the Company’s
business;
(d) solicit or
entice away or attempt to solicit or entice away from the Company,
any person, firm, company or organisation who shall at any time
have been a customer, client, distributor or agent of the Company
or in the habit of dealing with the Company;
(d) solicit or
entice away or attempt to solicit or entice away from the Company
any person who is an officer, manager or employee of the Company
whether or not such person would commit a breach of his contract of
employment by reason of leaving the Company;
(e) in relation to
any trade, business or company, use any name in such a way as to be
capable of or likely to be confused with the name of the Company
and/or the Group and shall use all reasonable endeavours to procure
that no such name shall be used by any other person, firm or
company;
(f) otherwise be
interested, directly or indirectly, in any business competing with
the Company’s business; or
(g) by any means
and at any time, use any information whatsoever which you may
possess during the course of your engagement with the Company in
any manner which may cause loss or injury to the Company and/or the
Group and should you come into possession of any confidential
information or trade secrets, you undertake irrevocably and
unconditionally not to disclose these to any party at any time
(whether during or after your engagement) without the
Company’s prior written consent unless or until the
information is in the public domain, whereupon to the extent that
it is public this obligation shall cease.
|
|
BINDING
EFFECT
|
This Term Sheet
shall be legally binding and shall also be legally enforceable in
accordance with its terms in any court or competent
jurisdiction.
|
|
PREVALENCE OF
CONSULTANCY AGREEMENT
|
This Term Sheet
shall be superseded by a Consultancy Agreement to be negotiated and
entered into as soon as practicable and in any event, no later than
6 months from the date of signing of this Term Sheet.
|
|
COSTS AND
EXPENSES
|
Each Party shall be
responsible for its respective costs and expenses in relation to
the preparation of this Term Sheet and any transactions
contemplated thereunder.
|
|
TAXES
|
Consultant and CEO
shall be responsible for all relevant taxes required by applicable
laws.
|
|
GOVERNING LAW AND
DISPUTE RESOLUTION
|
Singapore Laws and
the Parties hereby irrevocably submit to the exclusive jurisdiction
of the Singapore Courts.
|
Date: 14 September
2018
We hereby agree to
the above terms and conditions:
|
Signed
by:
|
Signed
by:
|
|
|
|
|
/s/ Chan Heng
Fai
|
/s/ Tay Kiat Ming
Eugene
|
|
Name: CHAN HENG
FAI
|
Name: TAY KIAT MING
EUGENE
|
|
For and on behalf
of
|
For and on behalf
of
|
|
HOTAPPS
INTERNATIONAL PTE LTD
|
THE ALPHA MIND PTE
LTD
|
|
|
|
Exhibit 10.24
CONSTRUCTION LOAN AGREEMENT
THIS CONSTRUCTION LOAN AGREEMENT (this
"Agreement") is
made as of the 23rd day of November, 2015, by and between
SeD MARYLAND DEVELOPMENT,
LLC, a Delaware limited liability company (the "Borrower"), and THE BANK OF HAMPTON ROADS, a Virginia
banking corporation, its successors and assigns, (the "Lender").
RECITALS
The
Borrower has applied to the Lender for a land development loan in
an original principal amount not to exceed at any one time
outstanding the sum of US$8,000,000 (as the same may be modified,
amended, extended or renewed from time to time, the "Land Development Loan") and a
letter of credit facility in the aggregate stated amount of
US$800,000 (as the same may be modified, amended, extended or
renewed from time to time, the "Letter of Credit Facility";
such Land Development Loan and Letter of Credit Facility, as the
same may be modified, amended, extended or renewed from time to
time, being hereinafter sometimes referred to collectively as the
"Loan") to finance
the first stage of the development by the Borrower of certain
property located in Frederick County, Maryland that will serve as
security for the Loan into a residential subdivision to be known as
"Ballenger Run" containing two hundred seventy-six (276)
single-family building lots (individually, a "Lot" and collectively, the
"Lots") and other
building parcels (individually, a "Parcel" and collectively, the
"Parcels") by
clearing and grading and the installation of, among other things,
sediment control, electric lines, communication lines, water and
sewer lines, sidewalks, curbs and paved roads. The Lender has
agreed to make the Loan to the Borrower on the terms and conditions
set forth in this Agreement and in the other documents evidencing
and securing the Loan.
AGREEMENTS
Now,
therefore, in consideration of the premises, and in further
consideration of the mutual covenants and agreements herein set
forth and of the sum of Ten Dollars (US$10.00) paid by each party
to the other, receipt of which is hereby acknowledged, the parties
hereto, intending to be legally bound, hereby covenant and agree as
follows:
Article
I
Section
1.1
Conditions to Closing. The
conditions precedent to closing the Loan and the making by the
Lender of the initial advance thereunder are set forth in the
Closing Checklist.
Section
1.2
Schedules. The Schedules
attached to this Agreement are incorporated herein and made a part
hereof.
Section
1.3
Defined Terms. Capitalized terms in
this Agreement shall have the meanings ascribed to such terms in
the Preamble hereto and in Schedule 1.
Article
II
Advances of the Loan.
Section
2.1
The Loan. The Borrower agrees
to borrow the Loan from the Lender, and the Lender agrees to lend
the Loan to the Borrower, subject to the terms and conditions
herein set forth, in incremental advances. Interest shall accrue
and be payable in arrears only on sums advanced hereunder for the
period of time outstanding. The Land Development Loan shall be a
revolving line of credit. Accordingly, as more particularly set
forth herein, the Borrower shall have the right to borrow, repay
and reborrow, from time to time, the principal amount of the Land
Development Loan, on the condition that (a) no Event of Default
shall then exist, (b) the unpaid principal balance outstanding
under the Land Development Loan at any one time does not exceed the
original principal amount of the Revolving Note, and (c) all
additional conditions as set forth in this Agreement and each of
the other Loan Documents have been satisfied and/or waived.
Notwithstanding anything contained herein to the contrary, however,
in no event shall the aggregate amount advanced under the Land
Development Loan exceed the Cumulative Loan Advance Limit. The
Letter of Credit Facility is not a revolving loan; amounts advanced
and repaid may not be re-borrowed.
Section
2.2
Purpose; Reallocation; Revenues from
Property. The Loan shall be advanced by the Lender in
accordance with the terms of this Agreement to pay those expenses
related to the Loan and the Property that are described in the
Budget, but not, in the aggregate with respect to any line item set
forth in the Budget, in excess of the amount of the Loan to be
disbursed for such line item, as set forth in the Budget. The
Borrower will receive each advance in trust for the purpose of
paying only those costs for which the advance is made and will
utilize the funds advanced for no other purpose. With the prior
approval of the Lender, any cost savings, actual or estimated,
affecting any approved line item within the Budget, other than the
interest reserve, may be reallocated by the Borrower to the
contingency reserve or to such other line item within the Budget as
may be reasonably approved by the Lender. Upon completion of the
Improvements and the payment of all costs in connection therewith,
any undisbursed proceeds of the Loan shall be allocated to such
other line item as the Lender shall approve. Each request to
reallocate funds from the contingency reserve shall be subject to
approval by the Lender as to the amount and purpose for which such
reallocation of funds will be used; provided, however, that the
Borrower shall have the right, in its discretion, to reallocate up
to $500,000 of the contingency reserve, plus the amount of any
confirmed cost savings in other line items in the Budget, to pay
demonstrated cost overruns in other approved line items within the
Budget without the prior written consent of the Lender. If and when
revenues are derived from the Property in amounts sufficient to pay
all or any portion of the operating expenses of the Property or all
or any portion of the interest on the Loan, such revenues will be
used to pay such expenses and/or interest, and the Lender, at its
sole option, may restrict or prohibit future disbursements of the
Loan for the payment of interest and/or such operating expenses to
the extent that revenues are sufficient to pay such
amounts.
Section
2.3
Draw Requests. Advances shall
be made not more frequently than monthly based on draw requests
signed by an Authorized Signer in the form attached hereto as
Schedule 2 or in another form reasonably approved by the Lender
(including any form on an electronic platform or electronic
transmission system). Each draw request for hard costs shall be set
forth on AIA Forms G702 and G703 or another form reasonably
approved by the Lender, and shall be reviewed by the Construction
Inspector, signed by the applicable Contractor or Contractors and,
if requested by the Lender, approved by the Engineer. Draw requests
for hard costs shall show the percentage of Completion of
Construction and shall set forth in trade breakdown form and in
such detail as may be reasonably required by the Lender the amounts
expended and/or costs incurred for work done and materials
incorporated in the Improvements. Retainage will be withheld and
released in accordance with the terms of Schedule 5. Each draw
request shall be supported by such information and documentation
(such as paid receipts, invoices, statements of accounts, lien
releases, etc.) as the Lender may reasonably require to assure that
amounts requested are to be used to reimburse the Borrower for
costs previously paid by the Borrower or to pay costs incurred by
the Borrower that are to be paid from proceeds of the Loan, as set
forth in the Budget. The Lender shall have a period of ten (10)
Banking Days within which to fund each approved
requisition.
Section
2.4
Additional Terms Regarding Advances;
Required Equity. Advances of the Loan shall also be subject
to the terms and conditions set forth in Schedule 5. The Borrower
shall be responsible for the payment of all costs and expenses not
otherwise payable with the proceeds of the Loan. During the term of
the Loan, the Borrower shall provide to the Lender satisfactory
evidence of the payment of all required equity, as and when the
same shall be due in accordance with the terms of this
Agreement.
Section
2.5
Liability of Lender. The Lender
shall in no event be responsible or liable to any Person other than
the Borrower for the disbursement of or failure to disburse the
Loan proceeds or any part thereof and neither the Construction
Inspector nor any Contractor, subcontractor, laborer or material
supplier shall have any right or claim against the Lender under
this Agreement or the other Loan Documents.
Section
2.6
Letters of Credit. All Letters
of Credit, if any, issued under the Loan, and drawings thereunder,
shall be subject to the terms and conditions of Schedule
6.
Article
III
Representations and Warranties.
The
Borrower makes the following representations and warranties to the
Lender as of the date hereof and as of the date of each advance
hereunder:
Section
3.1
Organization, Power and Authority of
the Borrower; Loan Documents. The Borrower (a) is a limited
liability company duly organized, existing and in good standing
under the Laws of the State of Delaware and is duly qualified to do
business and in good standing in the State of Maryland and in any
other state where the nature of the Borrower's business or property
requires it to be qualified to do business, and (b) has the power,
authority and legal right to own its property and carry on the
business now being conducted by it and to engage in the
transactions contemplated by the Loan Documents. The Loan Documents
to which the Borrower is a party have been duly executed and
delivered by the Borrower, and the execution and delivery of, and
the carrying out of the transactions contemplated by, such Loan
Documents, and the performance and observance of the terms and
conditions thereof, have been duly authorized by all necessary
organizational action by and on behalf of the Borrower. The Loan
Documents to which the Borrower is a party constitute the valid and
legally binding obligations of the Borrower and are fully
enforceable against the Borrower in accordance with their
respective terms, except to the extent that such enforceability may
be limited by Laws generally affecting the enforcement of
creditors' rights and the application of equitable
principles.
Section
3.2
Other Documents; Laws. The
execution and performance of the Loan Documents to which the
Borrower is a party and the consummation of the transactions
contemplated thereby will not conflict with, result in any breach
of, or constitute a default under, the organizational documents of
the Borrower, or any contract, agreement, document or other
instrument to which the Borrower is a party or by which the
Borrower or any of its properties may be bound or affected, and
such actions do not and will not violate or contravene any Law to
which the Borrower is subject. Such actions do not and will not
violate or contravene any Law to which the Borrower, the Property,
or any tenant under any Lease is subject, including the Controlled
Substances Act.
Section
3.3
Taxes. The Borrower has filed
all federal, state, county and municipal tax returns required to
have been filed by the Borrower and has paid all Taxes which have
become due pursuant to such returns or pursuant to any tax
assessments received by the Borrower.
Section
3.4
Legal Actions. There are no
Claims or investigations by or before any court or Governmental
Authority, pending, or to the best of the Borrower's knowledge and
belief, threatened against or affecting the Borrower, the
Borrower's business or the Property. The Borrower is not in default
with respect to any order, writ, injunction, decree or demand of
any court or any Governmental Authority affecting the Borrower or
the Property.
Section
3.5
Nature of Loan. The Borrower is
a business or commercial organization. The Loan is being obtained
solely for business or investment purposes, and will not be used
for personal, family, household or agricultural
purposes.
Section
3.6
Trade Names. The Borrower
conducts its business solely under the name set forth in the
Preamble to this Agreement and makes use of no trade names in
connection therewith, unless such trade names have been previously
disclosed to the Lender in writing.
Section
3.7
Financial Statements. The
financial statements heretofore delivered by the Borrower and the
Guarantor to the Lender are true and correct in all respects, have
been prepared in accordance with generally accepted accounting
principles consistently applied, and fairly present the respective
financial conditions of the subjects thereof as of the respective
dates thereof.
Section
3.8
No Material Adverse Change. No
material adverse change has occurred in the financial conditions
reflected in the financial statements of the Borrower and the
Guarantor since the respective dates of such statements, and no
material additional liabilities have been incurred by the Borrower
or the Guarantor since the dates of such statements other than the
borrowings contemplated herein or as approved in writing by the
Lender.
Section
3.9
ERISA and Prohibited
Transactions. As of the date hereof and throughout the term
of the Loan: (a) the Borrower is not and will not be (i) an
"employee benefit plan," as defined in Section 3(3) of ERISA, (ii)
a "governmental plan" within the meaning of Section 3(32) of ERISA,
or (iii) a "plan" within the meaning of Section 4975(e) of the
Code; (b) the assets of the Borrower do not and will not constitute
"plan assets" within the meaning of the United States Department of
Labor Regulations set forth in Section 2510.3-101 of Title 29 of
the Code of Federal Regulations; (c) transactions by or with the
Borrower are not and will not be subject to state statutes
applicable to the Borrower regulating investments of fiduciaries
with respect to governmental plans; and (d) the Borrower will not
engage in any transaction that would cause any Obligation or any
action taken or to be taken hereunder (or the exercise by Lender of
any of its rights under the Deed of Trust or any of the other Loan
Documents) to be a non-exempt (under a statutory or administrative
class exemption) prohibited transaction under ERISA or Section 4975
of the Code. The Borrower agrees to deliver to the Lender such
certifications or other evidence of compliance with the provisions
of this Section as the Lender may from time to time reasonably
request.
Section
3.10
Compliance with Zoning and Other
Requirements. To the best of its knowledge, (a) the Borrower
is in compliance with the requirements of all applicable Laws; (b)
the use of the Property complies with applicable zoning ordinances,
regulations and restrictive covenants affecting the Land; (c) all
use and other requirements of any Governmental Authority having
jurisdiction over the Property have been satisfied; and (d) no
violation of any Law exists with respect to the
Property.
Section
3.11
Plans and Specifications. The
Plans and Specifications are complete and adequate for the
Construction of the Improvements. The Plans and Specifications have
been approved by all Governmental Authorities having or claiming
jurisdiction over the Property and by the beneficiary of each
restrictive covenant affecting the Property whose approval is
required. The Plans and Specifications have also been approved by
NVR under the terms of the NVR Contracts, to the extent such
approval is required. To the best of the Borrower's knowledge, the
Improvements, if constructed substantially in accordance with the
Plans and Specifications, will fully comply with all applicable
Laws, including those Laws relating to access and facilities for
disabled persons.
Section
3.12
Building Permits; Other
Permits. All building, construction and other permits
necessary or required in connection with the Construction of the
Improvements have been validly issued or will be issued in a timely
manner by a date sufficient to ensure the commencement of
construction and the Completion of Construction in accordance with
the Project Schedule. All required fees have been or will be paid
and bonds and/or other security have been or will be posted in
connection with all permits as and when the same are required. To
the knowledge of the Borrower, adequate amounts are included in the
Budget to pay all fees and the cost of all bonds and other security
required in connection with permits to be issued in the future.
Following the issuance thereof, all permits will remain in full
force and effect.
Section
3.13
Utilities. All utility services
necessary for the Construction of the Improvements and the
operation thereof for their intended purposes are available at the
boundaries of the Land (or will be available upon the completion of
work shown in the Plans and Specifications), including telephone
service, cable television, water supply, storm and sanitary sewer
facilities, natural gas and electric facilities, including cabling
for telephonic and data communication, and the capacity to send and
receive wireless communication.
Section
3.14
Access; Roads. All roads and
other accesses necessary for the Construction of the Improvements
and full utilization thereof for their intended purposes have
either been completed or the necessary rights of way therefor have
either been acquired by the appropriate Governmental Authority, or
have been or will be, as and when required for the completion and
use of the Improvements, dedicated to public use and accepted by
such Governmental Authority and all necessary steps have been taken
by the Borrower or such Governmental Authority to assure the
complete construction and installation thereof by a date sufficient
to ensure the Completion of Construction of the Improvements in
accordance with the Project Schedule.
Section
3.15
Other Liens. Except for
contracts for labor, materials and services furnished or to be
furnished in connection with the Construction of the Improvements,
the Borrower has made no contract or arrangement of any kind the
performance of which by the other party thereto would give rise to
a lien on the Property.
Section
3.16
Defaults. There is no Default
or Event of Default under any of the Loan Documents, and there is
no default or event of default under any material contract,
agreement or other document related to the Construction of the
Improvements or the operation thereof.
Section
3.17
Affirmation of Representations and
Warranties. Each draw request and each receipt of the funds
requested thereby shall constitute an affirmation that: (a) no
uncured Default or Event of Default has occurred hereunder; (b) the
foregoing representations and warranties of the Borrower are true
and correct in all material respects as of the date of the draw
request and, unless Lender is notified to the contrary prior to the
disbursement of the advance requested, will be so on the date of
the disbursement; (c) any unadvanced portion of the Loan to which
the Borrower is entitled, together with additional funds that, to
the Lender's satisfaction, are available, set aside and committed,
is or will be sufficient to pay the expenses related to the Loan
and the Property that are described in the Budget; (d) all
disbursements were and will be used in compliance with the Budget;
(e) the work completed to the date of the draw request is of
quality and in all other respects consistent with the Plans and
Specifications; and (f) if applicable, Construction of the
Improvements is proceeding in accordance with the Project
Schedule.
Section
3.18
OFAC and Other Sanctions.
Neither the Borrower nor any of its subsidiaries (collectively, the
"Company") or, to the knowledge of the Company, any director,
officer, employee, agent, Affiliate or representative of the
Company is a Person currently the subject of any Sanctions, nor is
the Company located, organized or resident in a country or
territory that is the subject of Sanctions.
Article
IV
Affirmative Covenants and Agreements.
The
Borrower covenants as of the date hereof and until such time as all
Obligations shall be indefeasibly paid and performed in full,
that:
Section
4.1
Commencement and Completion of
Construction; Compliance with Laws; Use of Proceeds. The
Borrower shall cause the Construction of the Improvements to be
commenced on or before the Construction Commencement Date and
prosecuted in a good and workmanlike manner and shall cause the
same to be completed on or before the required Completion Date in
accordance with the Project Schedule and substantially in
accordance with the Plans and Specifications. The Borrower shall
comply with all Laws and all orders, writs, injunctions, decrees
and demands of any court or any Governmental Authority affecting
the Borrower or the Property. The Borrower shall use all proceeds
of the Loan for the purposes contemplated herein and which are not
in contravention of any Law or any Loan Document.
Section
4.2
Approval of Construction. No
work associated with any aspect or phase of the Construction of the
Improvements shall be commenced by the Borrower unless and until
the Plans and Specifications covering such aspect or phase of such
work have been approved by the Lender, by all Governmental
Authorities having or claiming jurisdiction over the Land and
Improvements, by NVR under the terms of the NVR Contracts (to the
extent required), by the beneficiary of any applicable restrictive
covenant whose approval is required, and by any other party whose
approval is required under applicable agreements, and unless and
until all building, construction and other permits necessary or
required in connection with such aspect or phase of the
Construction of the Improvements have been validly issued and all
fees, bonds and any other security required in connection therewith
have been paid or posted.
Section
4.3
Deposits to Balance Loan. If at
any time the Lender shall reasonably determine that (a) the
proceeds of the Loan remaining to be advanced for any line item
within the Budget, together with any anticipated Deferred Equity
that the Lender determines to its reasonable satisfaction is or
will be available for such item, are not or will not be sufficient
to pay, in a timely manner, the amount of such line item remaining
to be paid, and (b) the deficiency cannot be remedied by a
reallocation of budgeted amounts pursuant to Section 2.2, then the
Borrower shall deposit with the Lender, within ten (10) days from
the effective date of a Notice from the Lender requesting such
deposit, funds in an amount equal to the deficiency. Such funds
shall be held by the Lender in a Borrower's Deposit Account, which
shall be an interest-bearing account, with all accrued interest to
become part of the Borrower's deposit. The Borrower agrees that it
shall include all interest and earnings on any such deposit as its
income (and, if the Borrower is a partnership or other pass-through
entity, the income of its partners, members or beneficiaries, as
the case may be), and shall be the owner of all funds on deposit in
the Borrower's Deposit Account for federal and applicable state and
local tax purposes. The Lender shall have the exclusive right to
manage and control all funds in the Borrower's Deposit Account, but
the Lender shall have no fiduciary duty with respect to such funds.
Advances of the deposited funds will be made from time to time for
the payment of deficient line item amounts, prior to the advance of
proceeds of the Loan for such amounts. Advances of the deposited
funds will be subject to the terms of this Agreement regarding
advances of the Loan. Any account fees and charges may be deducted
from the balance, if any, in the Borrower's Deposit Account. The
Borrower grants to the Lender a security interest in the Borrower's
Deposit Account and all such deposited funds hereafter deposited to
such deposit account, and any proceeds thereof, as security for the
Obligations. Such security interest shall be governed by the
Uniform Commercial Code of the State, and the Lender shall have
available to it all of the rights and remedies available to a
secured party thereunder. The Borrower's Deposit Account may be
established and held in such name or names as the Lender shall deem
appropriate, including in the name of the Lender. The Borrower
hereby constitutes and appoints the Lender and any officer or agent
of the Lender its true and lawful attorneys-in-fact with full power
of substitution to open the Borrower's Deposit Account and to do
any and every act that the Borrower might do on its own behalf to
fulfill the terms of this Section. To the extent permitted by Law,
the Borrower hereby ratifies all that said attorneys shall lawfully
do or cause to be done by virtue hereof. It is understood and
agreed that this power of attorney, which shall be deemed to be a
power coupled with an interest, cannot be revoked.
Section
4.4
Compliance with Laws;
Encroachments. The Improvements shall be constructed and
operated in accordance with all applicable (whether present or
future) Laws. The Improvements shall be constructed entirely on the
Land and shall not encroach upon any easement or right-of-way, or
upon the land of others. Construction of the Improvements shall
occur wholly within all applicable building restriction lines and
set-backs, however established, and the Construction of the
Improvements and their operations shall be, in all material
respects, in compliance with all applicable use or other
restrictions and the provisions of any prior agreements,
declarations, covenants and all applicable zoning and subdivision
ordinances and regulations. The Borrower shall obtain, preserve and
maintain in good standing, as applicable, all rights, privileges
and franchises necessary or desirable for the operation of the
Property and the conduct of the Borrower's business thereon or
therefrom.
Section
4.5
Inspections; Cooperation. The
Borrower shall permit representatives of the Lender and the
Construction Inspector to enter upon the Land, to inspect the
Improvements and any and all materials to be used in connection
with the Construction of the Improvements, to inspect and examine
all detailed plans and shop drawings and similar materials in the
Borrower's possession, as well as all books and records of the
Borrower (regardless of where maintained) and all supporting
vouchers and data and to make copies and extracts therefrom and to
discuss the affairs, finances and accounts pertaining to the Loan
and the Improvements with representatives of the Borrower. The
Borrower shall at all times reasonably cooperate and cause each and
every one of its Contractors, subcontractors and material suppliers
to reasonably cooperate with the representatives of the Lender and
the Construction Inspector in connection with or in aid of the
performance of the Lender's functions under this Agreement. Except
in the event of an emergency, the Lender shall give the Borrower at
least twenty-four (24) hours' notice by telephone in each instance
before entering upon the Land and/or exercising any other rights
granted in this Section.
Section
4.6
Contracts, Vouchers and
Receipts. The Borrower shall furnish to the Lender, promptly
on demand, any contracts, subcontracts, bills of sale, statements,
receipted vouchers or other agreements relating to the Construction
of the Improvements, including any such items pursuant to which the
Borrower has any claim of title to any materials, fixtures or other
articles delivered or to be delivered to the Land or incorporated
or to be incorporated into the Improvements. The Borrower shall
furnish to the Lender, promptly on demand, a verified written
statement, in such form and detail as the Lender may reasonably
require, setting forth the names and addresses of all contractors,
subcontractors and suppliers furnishing labor or materials in the
Construction of the Improvements and showing all amounts paid for
labor and materials and all items of labor and materials furnished
or to be furnished for which payment has not been made and the
amounts to be paid therefor.
Section
4.7
Payment and Performance of Contractual
Obligations. The Borrower shall perform in a timely manner
all of its obligations under the Engineer's Contract, each and
every Construction Contract and any and all other contracts and
agreements related to the Construction of the Improvements or the
operation thereof, and the Borrower will pay when due all bills for
services or labor performed and materials supplied in connection
with the Construction of the Improvements. Within sixty (60) days
after the filing of any mechanic's lien or other lien or
encumbrance against the Property, the Borrower will promptly
discharge the same by payment or filing a bond or otherwise as
permitted by Law. So long as the Lender's security has been
protected by the filing of a bond or otherwise in a manner
satisfactory to Lender in its sole and absolute discretion, the
Borrower shall have the right to contest in good faith any claim,
lien or encumbrance, provided that the Borrower does so diligently
and without prejudice to the Lender or delay in completing
Construction of the Improvements. The Lender shall have no
obligation to make advances under the Loan during any period in
which there shall exist a filed mechanic's lien or other lien or
encumbrance against the Property which has not been discharged or
bonded off to the complete satisfaction of the Lender.
Section
4.8
Correction of Construction
Defects. Promptly following any demand by the Lender, the
Borrower shall correct or cause the correction of any structural
defects in the Improvements, any work that fails to comply with the
requirements of Section 4.4 and any material departures or
deviations from the Plans and Specifications not approved in
writing by the Lender.
Section
4.9
Insurance. The Borrower shall
maintain, at its sole cost and expense, each and every one of the
insurance coverages required pursuant to the terms of the Deed of
Trust. In addition to the foregoing, the Borrower shall cause each
and every Contractor to provide and maintain comprehensive
(commercial) general liability insurance and workers' compensation
insurance for all of its employees in amounts reasonably acceptable
to the Lender. The Borrower will immediately give Notice to the
Lender of any cancellation of, or material change in, any insurance
policy required pursuant to the terms hereof. The Lender shall not,
because of accepting, rejecting, approving or obtaining insurance,
incur any liability for (a) the existence, nonexistence, form or
legal sufficiency thereof, (b) the solvency of any insurer, or (c)
the payment of losses.
Section
4.10
Adjustment of Condemnation and
Insurance Claims. The Borrower shall give prompt Notice to
the Lender of any Casualty or any Condemnation or threatened
Condemnation. The Lender is authorized, at its sole and absolute
option, to commence, appear in and prosecute, in its own or the
Borrower's name, any action or proceeding relating to any
Condemnation or Casualty, and to make proof of loss for and to
settle or compromise any Claim in connection therewith. Any Net
Proceeds obtained in connection with any Condemnation or Casualty
involving the Property shall be utilized strictly in accordance
with the terms and conditions outlined in the Deed of
Trust.
Section
4.11
Management. The Borrower at all
times shall provide for the competent and responsible management
and operation of the Property. At all times, the Borrower shall
cause the Property to be managed by an Approved Manager. All
management contracts affecting the Property shall be terminable
upon not more than sixty (60) days' written notice without penalty
or charge (except for unpaid accrued management fees). Any
management contract affecting the Property must be approved in
writing by the Lender prior to the execution of the
same.
Section
4.12
Books and Records; Financial
Statements; Tax Returns. The Borrower shall provide or cause
to be provided to the Lender all of the Financial Statements and
other information required to be delivered with respect to the
Borrower and the Guarantor at the times and in the manner set forth
in the Deed of Trust and the other Loan Documents. The Borrower
will keep and maintain full and accurate books and records
administered in accordance with generally accepted accounting
principles, consistently applied, showing in detail the earnings
and expenses of the Property and the operation thereof. All
Financial Statements shall be in form and detail reasonably
satisfactory to the Lender and shall contain or be attached to the
signed and dated written certification of the reporting party in
form specified by the Lender to certify that the Financial
Statements are furnished to the Lender in connection with the
extension of credit by the Lender and constitute a true and correct
statement of the reporting party's financial position. All
certifications and signatures on behalf of corporations,
partnerships, limited liability companies or other entities shall
be by a representative of the reporting party satisfactory to the
Lender. All Financial Statements for a reporting party who is an
individual shall be on the Lender's then-current personal financial
statement form or in another form satisfactory to the Lender.
Following the date of this Agreement, all fiscal year-end Financial
Statements of the Borrower and the Guarantor shall be prepared by
independent certified public accountants acceptable to the Lender,
and shall contain all reports and disclosures required by generally
accepted accounting principles for a fair presentation. All
quarterly Financial Statements of the Borrower and/or the Guarantor
may be prepared by the applicable reporting party and shall include
a minimum of a balance sheet and income statement. The Borrower
shall provide, upon the Lender's request, convenient facilities for
the audit and verification of any such statement. Additionally, the
Borrower will provide the Lender at the Borrower's expense with all
evidence that the Lender may from time to time reasonably request
as to compliance with all provisions of the Loan Documents. The
Borrower shall promptly notify the Lender of any event or condition
that could reasonably be expected to have a material adverse change
in the financial condition of the Borrower, of the Guarantor (if
known by the Borrower), or in the construction progress of the
Improvements.
Section
4.13
Estoppel Certificates. Within
twenty (20) days after any request by the Lender or a proposed
assignee or purchaser of the Loan or any interest therein, the
Borrower shall certify in writing to the Lender, or to such
proposed assignee or purchaser, the then unpaid balance of the Loan
and whether the Borrower claims any right of defense or setoff to
the payment or performance of any of the Obligations, and if the
Borrower claims any such right of defense or setoff, the Borrower
shall give a detailed written description of such claimed
right.
Section
4.14
Taxes; Tax Receipts. The
Borrower shall pay and discharge all Taxes prior to the date on
which penalties are attached thereto unless and to the extent only
that such Taxes are contested in accordance with the terms of the
Deed of Trust. The Lender may, at its option and at the Borrower's
sole expense, obtain and enter into a tax services contract with
respect to the Property with a tax reporting agency satisfactory to
the Lender.
Section
4.15
Lender's Rights to Pay and
Perform. If, after any required notice, the Borrower fails
to promptly pay or perform any of the Obligations within any
applicable grace or cure periods, the Lender, without Notice to or
demand upon the Borrower, and without waiving or releasing any
Obligation or Default, may (but shall be under no obligation to) at
any time thereafter make such payment or perform such act for the
account and at the expense of the Borrower. The Lender may enter
upon the Property for that purpose and take all action thereon as
the Lender considers necessary or appropriate. At the option of the
Lender, following the occurrence of an Event of Default, the Lender
may apply any undisbursed Loan proceeds to the satisfaction of the
conditions of the Loan Documents, irrespective of the allocation of
such Loan proceeds in the Budget. Without limiting the generality
of the foregoing, the Lender may pay directly from the proceeds of
the Loan all interest bills rendered by the Lender in connection
with the Loan, and following the occurrence of an Event of Default
may make advances directly to the title insurance company, any
Contractor, subcontractor or material supplier, or to any of them
jointly. The execution hereof by the Borrower shall, and hereby
does, constitute an irrevocable authorization so to advance the
proceeds of the Loan. No further direction or authorization from
the Borrower shall be necessary to warrant such direct advances.
Each advance shall be secured by the Deed of Trust and shall
satisfy the obligations of the Lender hereunder to the extent of
the amount of the advance.
Section
4.16
Reimbursement; Interest. If the
Lender shall incur any Expenses or pay any Claims by reason of the
Loan or the rights and remedies provided under the Loan Documents
(regardless of whether or not any of the Loan Documents expressly
provide for an indemnification by the Borrower against such
Claims), the Lender's payment of such Expenses and Claims shall
constitute advances to the Borrower which shall be paid by the
Borrower to the Lender on demand, together with interest thereon
from the date incurred until paid in full at the highest rate of
interest then applicable to the Loan under the terms of the Notes.
Each advance shall be secured by the Deed of Trust and the other
Loan Documents as fully as if made to the Borrower, regardless of
the disposition thereof by the party or parties to whom such
advance is made. Notwithstanding the foregoing, however, in any
action or proceeding to foreclose the Deed of Trust or to recover
or collect the Obligations, the provisions of Law governing the
recovery of costs, disbursements and allowances shall prevail
unaffected by this Section.
Section
4.17
Notification by the Borrower.
The Borrower will promptly give Notice to the Lender of any claim
of a default by the Borrower, or any claim by the Borrower of a
default by any other party, under the Engineer's Contract or any
Construction Contract.
Section
4.18
Indemnification by the
Borrower. The Borrower agrees to indemnify the Lender and to
hold the Lender harmless from and against, and to defend the Lender
by counsel approved by the Lender against, any and all Claims
directly or indirectly arising out of or resulting from any
transaction, act, omission, event or circumstance in any way
connected with the Property or the Loan, including any Claim
arising out of or resulting from (a) Construction of the
Improvements, including any defective workmanship or materials; (b)
any failure by the Borrower to comply with the requirements of any
Laws or to comply with any agreement that applies or pertains to
the Property, including any agreement with a broker or "finder" in
connection with the Loan or other financing of the Property; (c)
any failure by the Borrower to observe and perform any of the
obligations imposed upon the landlord under the Leases; or (d) any
assertion or allegation that the Lender is liable for any act or
omission of the Borrower or any other Person in connection with the
ownership, development, financing, leasing, operation or sale of
the Property; provided, however, that the Borrower shall not be
obligated to indemnify the Lender with respect to any Claim arising
solely from the gross negligence or willful misconduct of the
Lender. The agreements and indemnifications contained in this
Section shall apply to Claims arising both before and after the
repayment of the Loan and shall survive the repayment of the Loan,
any foreclosure or deed, assignment or conveyance in lieu thereof
and any other action by the Lender to enforce the rights and
remedies of the Lender hereunder or under the other Loan
Documents.
Section
4.19
Fees and Expenses. The Borrower
shall pay all reasonable fees, charges, costs and expenses required
to satisfy the conditions of the Loan Documents. Without limitation
of the foregoing, the Borrower will pay, when due, and if paid by
the Lender will reimburse the Lender on demand for, all reasonable
fees and expenses of the Construction Inspector, the title
insurance company, environmental engineers, appraisers, surveyors
and the Lender's counsel in connection with the closing,
administration, modification or any "workout" of the Loan, or the
enforcement of the Lender's rights and remedies under any of the
Loan Documents.
Section
4.20
Appraisals. The Lender may
obtain from time to time an appraisal of all or any part of the
Property, prepared in accordance with written instructions from the
Lender, from a third-party appraiser satisfactory to, and engaged
directly by, the Lender. The cost of one such appraisal, including
any costs for internal review thereof, obtained by the Lender in
each calendar year and the cost of each such appraisal obtained by
the Lender following the occurrence of an Event of Default shall be
borne by the Borrower and shall be paid by the Borrower on
demand.
Section
4.21
Deposit Accounts. The Borrower
shall maintain with the Lender all deposit accounts related to the
Property, including (a) all operating accounts, (b) any reserve or
escrow accounts, (c) during any period in which any Hedging
Agreement shall be in effect, any accounts from which the Borrower
may from time to time authorize the Lender or any Hedging
Counterparty to debit payments due on the Loan and any Hedging
Agreements, and (d) any lockbox, cash management or other account
into which tenants are required from time to time to pay rent. The
Borrower hereby grants to the Lender a security interest in each of
the foregoing accounts.
Section
4.22
Income from Property. The
Borrower shall first apply all income derived from the Property,
including all amounts deposited by NVR with the Borrower, to pay
costs and expenses associated with the development, ownership,
maintenance, operation and sale of the Property, including all
amounts then required to be paid under the Loan Documents, before
using or applying such income for any other purpose. No such income
shall be distributed or paid to any member, partner, shareholder
or, if the Borrower is a trust, to any beneficiary or trustee,
unless and until the Obligations shall have been paid in
full.
Section
4.23
Representations and Warranties.
The Borrower shall take all actions and shall do all things
reasonably necessary or desirable to cause all of the Borrower's
representations and warranties in this Agreement to be true and
correct, in all material respects, at all times.
Section
4.24
Cash Collateral Account.
Contemporaneously with the execution and delivery of this
Agreement, the Borrower and/or the Guarantor shall deposit the sum
of US$2,600,000 in an account maintained at the Lender designated
as Account No. 1010803641, and styled "Ballenger Run Collateral
Account" (hereinafter referred to as the "Cash Collateral Account") and
shall execute and deliver, in favor of the Lender, the Assignment
and Pledge Agreement pursuant to which the Borrower and the
Guarantor shall assign, pledge and grant a security interest to the
Lender in all of their respective right, title and interest,
whether held jointly or severally, together or with others, in and
to the Cash Collateral Account, together with all funds now or at
any time hereafter on deposit therein and all interest earned
thereon, as security and collateral for the due and punctual
payment and performance of the Obligations. The parties hereto
hereby covenant and agree that Lender shall have all of the rights
of a secured party under the Uniform Commercial Code, as adopted in
the State of Maryland, with respect to the Cash Collateral Account
and the funds now or hereafter on deposit therein, as well as all
other rights and remedies at law and in equity. The Borrower hereby
covenants and agrees that, until the Obligations shall be repaid in
full, and the Lender shall have no further obligations to make any
advances under the Loan, neither the Borrower nor the Guarantor or
any party claiming against, under or through the Borrower or the
Guarantor, shall have any right to withdraw sums from the Cash
Collateral Account without the prior written consent of the Lender.
Upon the occurrence of an Event of Default hereunder or under any
of the other Loan Documents (beyond any applicable period to cure),
the Lender is hereby authorized to exercise at any time and from
time to time on behalf of the Borrower and the Guarantor all of the
powers, privileges and rights incident to or granted in connection
with the ownership of the Cash Collateral Account, including,
without limitation, the right to withdraw. If the Lender withdraws
any funds from the Cash Collateral Account pursuant to the terms
hereof, the Lender shall have the right to apply such funds to the
Obligations in such order and manner as the Lender may elect, and
the Borrower shall be liable for all Obligations thereafter
remaining outstanding. The Lender may at any time or from time to
time take any and all further actions with respect to the Cash
Collateral Account (and the funds deposited thereto) as are
authorized herein, by law and by the terms of any of the other Loan
Documents.
Section
4.25
Mandatory Project Absorption.
The Borrower further covenants and agrees to consummate the sale
and settlement of sufficient Lots within the Property in order to
cause the outstanding principal balance of the Land Development
Loan to be reduced from the application of the Release Fees
resulting from such sales (a) by an aggregate amount of
US$4,080,067, on or before December 31, 2016, (b) by an aggregate
amount of US$13,839,267, on or before December 31, 2017, and (c) by
an aggregate amount of US$22,981,130, on or before November 15,
2018 (each of the specified annual amounts of minimum required
cumulative Release Fees being hereinafter referred to as a
"Minimum Cumulative
Curtail Amount"). The failure of the Borrower to achieve any
one or more of the foregoing Minimum Cumulative Curtail Amounts on
or before the applicable date specified above is hereinafter
referred to as a "Sales
Shortfall"). Upon the occurrence of any such Sales
Shortfall, the Borrower shall be required to pay to the Lender a
mandatory principal curtailment on the Loan, within ten (10) days
after written notice from the Lender to the Borrower of the
occurrence of such event, in an amount equal to the difference
between (a) the Minimum Cumulative Curtail Amount for the date in
question, and (b) the sum of (i) the aggregate amount of Release
Fees actually received by the Lender prior to the date upon which
such Sales Shortfall shall be deemed to have occurred from the
sales of Lots within the Property, plus (ii) the full amount of any
mandatory principal curtailment previously paid by the Borrower to
the Lender pursuant to the terms of this Section 4.25 as a result
of the occurrence of any prior Sales Shortfall. In no event shall
the Borrower be entitled to the release of any portion of the
Property as a result of the payment by the Borrower of any such
mandatory principal curtailment unless otherwise agreed to by the
Lender in its sole and absolute discretion.
Section
4.26
Additional Financing. The
Borrower covenants and agrees that the Lender shall be afforded an
exclusive right and privilege, but without any obligation, to
finance the development of future stages or phases of the Property
as proposed by the Borrower or any Affiliate of the Borrower. The
Lender shall have forty-five (45) days within which to provide a
commitment for such financing after notification by the Borrower
and receipt of all necessary data reasonably required by the Lender
in connection therewith. The Borrower shall have no obligation to
accept any such financing proposal offered by the
Lender.
Article
V
Negative Covenants.
The
Borrower covenants as of the date hereof and until such time as all
Obligations shall be indefeasibly paid and performed in full,
that:
Section
5.1
Conditional Sales. The Borrower
shall not incorporate into the Improvements any property acquired
under a conditional sales contract or lease or as to which the
vendor retains title or a security interest, without the prior
written consent of the Lender.
Section
5.2
Changes to Plans and
Specifications. Except as otherwise expressly provided
below, the Borrower shall not make or permit any changes in the
Plans and Specifications, including any such changes that alter,
diminish or add to the work to be performed or change the design of
the Improvements, without the prior written consent of the Lender
and under such reasonable conditions as the Lender may establish.
The Lender's prior written consent shall not be required, however,
as to any changes in the Plans and Specifications which (a)
individually does not cause the total cost of the Improvements to
be increased or decreased by more than Twenty-Five Thousand Dollars
(US$25,000) or, when added to all previous change orders, does not
cause such total cost to be increased or decreased by more than One
Hundred Thousand Dollars (US$100,000) in the aggregate, (b) does
not result in a material change to the design of the Improvements,
and (c) has been approved in writing by the Engineer, NVR (to the
extent such approval is required by the terms of the NVR
Contracts), and any Governmental Authority or other party whose
approval is required.
Section
5.3
Insurance Policies and Bonds.
The Borrower shall not do or permit to be done anything that would
affect the coverage or indemnities provided for pursuant to the
provisions of any insurance policy, performance bond, labor and
material payment bond or any other bond given in connection with
the Construction of the Improvements.
Section
5.4
Commingling. The Borrower shall
not commingle the funds and other assets of the Borrower relating
to the Property with those of any Affiliate or any other Person,
including those funds and assets of the Borrower that are unrelated
to the Property.
Section
5.5
Additional Debt. The Borrower
shall not incur any debt, secured or unsecured, direct or
contingent (including guaranteeing any obligation), other than (a)
the Loan, (b) deposits under the NVR Contracts or under other
contracts of sale approved by the Lender in accordance with the
terms of the Deed of Trust, (c) advances or trade debt or accrued
expenses incurred in the ordinary course of business of operating
the Property, and (d) unsecured, intercompany indebtedness with
affiliates of the Borrower, the payment of which is expressly
subordinate to the payment of the obligations owing to the Lender
under the Loan. Except as otherwise expressly approved by the
Lender with regard to the NVR Contracts, no other debt may be
secured by the Property, whether senior, subordinate or pari
passu.
Section
5.6
Controlled Substances. Without
limiting the provisions of Section 4.1, the Borrower shall not, and
shall not suffer or permit any other Person to violate any Laws
affecting the Property, including the Controlled Substances Act, or
which could otherwise result in the occurrence of an Event of
Default under Section 6.19, including the commencement of any
proceedings under the Civil Asset Forfeiture Reform Act. Upon
learning of any conduct contrary to this Section, the Borrower
shall immediately take all actions reasonably expected under the
circumstances to terminate any such use of the Property, including:
(a) to give timely notice to an appropriate law enforcement agency
of information that led the Borrower to know such conduct had
occurred, and (b) in a timely fashion to revoke or make a good
faith attempt to revoke permission for those engaging in such
conduct to use the Property or to take reasonable actions in
consultation with a law enforcement agency to discourage or prevent
the illegal use of the Property.
Section
5.7
Sanctions. The Borrower shall
not, directly or indirectly, use the proceeds of the Loan, or lend,
contribute or otherwise make available such proceeds to any
subsidiary, joint venture partner or other Person, to fund the
activities of or business with any Person, or in any country or
territory, that, at the time of such funding, is the subject of
Sanctions, or in any other manner that will result in a violation
by any Person (including any Person participating in the
transaction being financed by the Loan, whether as underwriter,
advisor, investor or otherwise) of Sanctions.
Article
VI
Events of Default.
The
occurrence or happening, from time to time, of any one or more of
the following shall constitute an Event of Default under this
Agreement:
Section
6.1
Payment Default. The Borrower
fails to pay any Obligation under this Agreement as and when due,
whether on the scheduled due date or upon acceleration, maturity or
otherwise, which failure shall continue for more than ten (10 days
after written notice thereof shall have been sent by the Lender to
the Borrower; excluding, however, from such ten (10) day cure
period, the failure of the Borrower to pay all amounts due under
the Notes on the maturity date thereof (or any extension of such
maturity date); and provided further, however, that the Lender
shall have no obligation to provide written notice to the Borrower
of any monetary default under this Agreement more than twice in any
six (6) month period.
Section
6.2
Default Under Other Loan
Documents. An Event of Default (as defined therein) occurs
under either of the Notes or the Deed of Trust or any other Loan
Document, or the Borrower or the Guarantor fails to promptly pay,
perform, observe or comply with any term, obligation or agreement
contained in any of the Loan Documents (within any applicable grace
or cure period).
Section
6.3
Accuracy of Information;
Representations and Warranties. Any information contained in
any financial statement, schedule, report or any other document
delivered by the Borrower, the Guarantor or any other Person to the
Lender in connection with the Loan proves at any time not to be in
all material respects true and accurate, or the Borrower, the
Guarantor or any other Person shall have failed to state any
material fact or any fact necessary to make such information not
misleading, or any representation or warranty contained in this
Agreement or in any other Loan Document or other document,
certificate or opinion delivered to the Lender in connection with
the Loan, proves at any time to be incorrect or misleading in any
material respect either on the date when made or on the date when
reaffirmed pursuant to the terms of this Agreement.
Section
6.4
Deposits. The Borrower fails to
deposit funds with the Lender, in the amount requested by Lender,
pursuant to the provisions of Section 4.3, within ten (10) days
from the effective date of a Notice from the Lender requesting such
deposit, or the Borrower fails to deliver to the Lender any
Condemnation Awards or Insurance Proceeds within ten (10) days
after the Borrower's receipt thereof.
Section
6.5
Insurance Obligations. The
Borrower fails to promptly perform or comply with any of the
covenants contained in the Loan Documents with respect to
maintaining insurance, including the covenants contained in Section
4.9, which failure shall continue for more than ten (10) days after
written Notice thereof shall have been sent by the Lender to the
Borrower.
Section
6.6
Other Obligations. The Borrower
fails to promptly perform or comply with any of the Obligations set
forth in this Agreement (other than those expressly described in
other Sections of this Article), and such failure continues uncured
for a period of thirty (30) days after Notice from the Lender to
the Borrower, unless (a) such failure, by its nature, is not
capable of being cured within such period, and (b) within such
period, the Borrower commences to cure such failure and thereafter
diligently prosecutes the cure thereof, and (c) the Borrower causes
such failure to be cured no later than sixty (60) days after the
date of such Notice from the Lender.
Section
6.7
Progress of Construction. The
Borrower fails to commence the Construction of the Improvements on
or before the Construction Commencement Date, or at any time
thereafter, subject to delays occasioned by conditions of Force
Majeure, Construction of the Improvements is abandoned or is
discontinued for a period of more than thirty (30) consecutive
days.
Section
6.8
Damage to Improvements. The
Improvements are substantially damaged or destroyed by fire or
other casualty and the Lender determines, in its reasonable
discretion, that the Improvements cannot be restored and completed
in accordance with the terms and provisions of this Agreement and
the Deed of Trust.
Section
6.9
Lapse of Permits or Approvals.
At any time during the term of the Loan, any permit, license,
certificate or approval that the Borrower is required to obtain
with respect to the construction, operation, development, leasing
or maintenance of the Improvements or the Property lapses or ceases
to be in full force and effect, and the Borrower fails to cause
such permit, license, certificate or approval to be reinstated or
reissued within forty-five (45) after the same shall have lapsed or
ceased to be in effect.
Section
6.10
Completion of Construction.
Unless otherwise agreed to by the Lender, any phase of the
Improvements shall not be completed within ninety (90) days after
the date specified for the completion of such phase in the Project
Schedule, or Completion of Construction does not occur on or before
the required Completion Date in accordance with the Project
Schedule, or the Lender reasonably determines that Completion of
Construction will not occur by the Completion Date in accordance
with the Project Schedule.
Section
6.11
Mechanic's Lien. A lien for the
performance of work or the supply of materials filed against the
Property, or any stop notice served on the Borrower, any Contractor
or the Lender, remains unsatisfied or unbonded for a period of
sixty (60) days after the date of filing or service.
Section
6.12
Survey Matters. Any Survey
required by the Lender during the period of construction shows any
matter which in the Lender's reasonable judgment would interfere
with, in any material manner, the Construction of the Improvements
or the operation or use of the Property, and such matter is not
removed within a period of thirty (30) days after Notice thereof by
the Lender to the Borrower.
Section
6.13
Contractor Default. Any
Contractor defaults under its Construction Contract in a manner
which the Lender deems to be material, and, unless otherwise agreed
in writing by the Lender, the Borrower fails, within thirty (30)
days thereafter, to exercise its rights and remedies under the
Construction Contract with respect to such default.
Section
6.14
Performance Enjoined or
Prohibited. The Borrower is enjoined or prohibited from
performing any of its obligations under any of the Loan Documents
for a period of more than thirty (30) consecutive days, exclusive
of delays occurring as a result of conditions of Force
Majeure.
Section
6.15
Bankruptcy. The Borrower or the
Guarantor files a bankruptcy petition or makes a general assignment
for the benefit of creditors, or a bankruptcy petition is filed
against the Borrower or the Guarantor and such involuntary
bankruptcy petition continues undismissed for a period of sixty
(60) days after the filing thereof.
Section
6.16
Appointment of Receiver, Trustee,
Liquidator. The Borrower or the Guarantor applies for or
consents in writing to the appointment of a receiver, trustee or
liquidator of the Borrower, the Guarantor, the Property, or all or
substantially all of the other assets of the Borrower or of the
Guarantor, or an order, judgment or decree is entered by any court
of competent jurisdiction on the application of a creditor
appointing a receiver, trustee or liquidator of the Borrower, the
Guarantor, the Property, or all or substantially all of the other
assets of the Borrower or of the Guarantor.
Section
6.17
Judgment. A final nonappealable
judgment for the payment of money is entered against the Borrower
in any amount or against the Guarantor in an amount in excess of
US$100,000, and the
Borrower or the Guarantor fails to discharge the
same, or fails to cause it to be discharged or bonded off to the
Lender's satisfaction, within thirty (30) days from the date of the
entry of such judgment.
Section
6.18
Dissolution; Change in Business
Status. Unless the written consent of the Lender is
previously obtained, all or substantially all of the business
assets of the Borrower are sold, the Borrower is dissolved, or there occurs any
change in the form of business entity through which the
Borrower presently
conducts its business or any merger or consolidation involving the
Borrower; provided, however, that the Lender agrees to not
unreasonably withhold its consent to any change in the form of
business entity through which the Borrower presently conducts its
business or any merger or consolidation involving the Borrower so
long as such change will not have a material adverse effect on the
Borrower, the Loan or the Lender's security therefor.
Section
6.19
Forfeiture. A judicial or
nonjudicial forfeiture or seizure proceeding is commenced by a
Governmental Authority and remains pending with respect to the
Property or any part thereof, on the grounds that the Property or
any part thereof had been used to commit or facilitate the
commission of a criminal offense by any Person pursuant to any Law,
including under the Controlled Substances Act or the Civil Asset
Forfeiture Reform Act.
Section
6.20
Sales Shortfall. The Borrower
fails to comply with the terms of Section 4.25 hereof.
Section
6.21
Termination of NVR Contracts,
Etc. At any time during the term of the Loan, without the
prior, express written consent of the Lender, (a) any one or more
of the NVR Contracts is terminated or becomes of no further force
or effect for any reason whatsoever, (b) a default or event of
default shall occur under any of the NVR Contracts, which default
or event of default shall continue beyond any applicable grace
and/or cure period provided therefor, or (c) any of the NVR
Contracts is modified or amended in any material manner; provided,
however, that a voluntary termination of any one or more of the NVR
Contracts by NVR in accordance with the express terms thereof shall
not constitute an Event of Default hereunder so long as (i) such
termination was not the result of the exercise by NVR of a
termination right under any one or more of the NVR Contracts
arising from a breach by the Borrower of any of its obligations
under any one or more of the NVR Contracts, (ii) the Borrower shall
pay all interest thereafter becoming due under the Loan from
sources other than the proceeds of the Loan and/or any other sums
then held by the Lender pursuant to the terms of the Loan
Documents, and (iii) within ninety (90) days after the termination
of such NVR Contract or NVR Contracts, the Borrower shall furnish
to the Lender one or more replacement contracts of sale covering
all of the Lots theretofore covered by such terminated NVR
Contract(s) and then remaining subject to the lien of the Deed of
Trust from a purchaser approved by the Lender and in form and
substance, including purchase price thereunder, acceptable to the
Lender in all respects.
Section
6.22
Letters of Credit. Any draft
and/or demand for payment shall be presented to or made upon the
Lender under any Letter of Credit, and the Borrower fails to pay to
the Lender all sums owing to the Lender on account thereof,
including all accrued and unpaid interest thereon, within ten (10)
days after written notice thereof shall have been sent by the
Lender to the Borrower.
Article
VII
Remedies on Default.
Section
7.1
Remedies on Default. Upon the
happening of any Event of Default (including the expiration of any
applicable notice, grace and /or cure period), the Lender shall
have the right, in addition to any other rights or remedies
available to the Lender under the Deed of Trust or any of the other
Loan Documents or under applicable Law, to exercise any one or more
of the following rights and remedies:
(a) The
Lender may terminate its obligation to advance any further
principal of the Loan pursuant to this Agreement by Notice to the
Borrower.
(b) The
Lender may accelerate all of the Borrower's Obligations under the
Loan Documents, whether or not matured and regardless of the
adequacy of any other collateral securing the Loan, whereupon such
Obligations shall become immediately due and payable, without
notice of default, acceleration or intention to accelerate,
presentment or demand for payment, protest or notice of nonpayment
or dishonor, or notices or demands of any kind or character (all of
which are hereby waived by the Borrower).
(c) The
Lender may apply to any court of competent jurisdiction for, and
obtain appointment without bond of, a receiver for the
Property.
(d) The
Lender may set off the amounts due to the Lender under the Loan
Documents, whether or not matured and regardless of the adequacy of
any other collateral securing the Loan, against any and all
accounts, credits, money, securities or other property of the
Borrower now or hereafter on deposit with, held by or in the
possession of the Lender to the credit or for the account of the
Borrower, without notice to or the consent of the
Borrower.
(e) The
Lender may enter into possession of the Property and perform any
and all work and labor necessary to complete the Construction of
the Improvements (whether or not in accordance with the Plans and
Specifications) and to employ watchmen to protect the Property and
the Improvements. All sums reasonably expended by the Lender for
such purposes shall be deemed to have been advanced to the Borrower
under the Notes and shall be secured by the Deed of Trust. For this
purpose, the Borrower hereby constitutes and appoints the Lender
its true and lawful attorney-in-fact with full power of
substitution, which power is coupled with an interest and cannot be revoked, to complete the work
in the name of the Borrower, and hereby empowers said attorney or
attorneys, in the name of the Borrower or the Lender:
(i) To
use any funds of the Borrower including any balance which may be
held by the Lender and any funds which may remain unadvanced
hereunder for the purpose of completing the Construction of the
Improvements;
(ii) To
make such additions and changes and corrections to the Plans and
Specifications as shall be necessary or desirable in the judgment
of the Lender to complete the Construction of the
Improvements;
(iii) To
employ such contractors, subcontractors, agents, architects and
inspectors as shall be necessary or desirable for said
purpose;
(iv) To
pay, settle or compromise all existing bills and claims which are
or may be liens against the Property, or may be necessary or
desirable for the completion of the work or the clearance of title
to the Property;
(v) To
execute all applications and certificates which may be required in
the name of the Borrower;
(vi) To
enter into, enforce, modify or cancel Leases and to fix or modify
Rents on such terms as the Lender may consider proper;
(vii) To
file for record, at the Borrower's cost and expense and in the
Borrower's name, any notices of completion, notices of cessation of
labor, or any other notices that the Lender in its sole and
absolute discretion may consider necessary or desirable to protect
its security;
(viii) To
prosecute and defend all actions or proceedings in connection with
the Construction of the Improvements and to take such actions and
to require such performance as the Lender may deem necessary;
and
(ix) To
do any and every act with respect to the Construction of the
Improvements which the Borrower may do in its own
behalf.
(f) The
Lender may exercise any and all other rights and remedies under
this Agreement, the Loan Documents or at Law, equity or
otherwise.
Without
limitation of the foregoing, upon the occurrence of an actual or
deemed entry of an order for relief with respect to the Borrower
under the Bankruptcy Code (Title 11 of the United States Code, as
in effect from time to time), any obligation of the Lender to make
advances shall automatically terminate, and the unpaid principal
amount of the Loan outstanding and all interest and other amounts
payable hereunder and under the Notes and other Loan Documents
shall automatically become due and payable, in each case without
further act of the Lender.
Section
7.2
No Release or Waiver; Remedies
Cumulative and Concurrent. The Borrower shall not be
relieved of any Obligation by reason of the failure of the Lender
to comply with any request of the Borrower or of any other Person
to take action to foreclose on the Property under the Deed of Trust
or otherwise to enforce any provision of the Loan Documents, or by
reason of the release, regardless of consideration, of all or any
part of the Property. No delay or omission of the Lender to
exercise any right, power or remedy accruing upon the happening of
an Event of Default shall impair any such right, power or remedy or
shall be construed to be a waiver of any such Event of Default or
any acquiescence therein. No delay or omission on the part of the
Lender to exercise any option for acceleration of the maturity of
the Obligations, or for foreclosure of the Deed of Trust following
any Event of Default as aforesaid, or any other option granted to
the Lender hereunder in any one or more instances, or the
acceptance by the Lender of any partial payment on account of the
Obligations shall constitute a waiver of any such Event of Default
and each such option shall remain continuously in full force and
effect. No remedy herein conferred upon or reserved to the Lender
is intended to be exclusive of any other remedies provided for in
the Loan Documents, and each and every such remedy shall be
cumulative, and shall be in addition to every other remedy given
hereunder, or under the Loan Documents, or now or hereafter
existing at Law or in equity or by statute. Every right, power and
remedy given by the Loan Documents to Lender shall be concurrent
and may be pursued separately, successively or together against the
Borrower or the Property or any part thereof, and every right,
power and remedy given by the Loan Documents may be exercised from
time to time as often as may be deemed expedient by the Lender. All
notice and cure periods provided in this Agreement or in any Loan
Document shall run concurrently with any notice or cure periods
provided by Law.
Article
VIII
Miscellaneous.
Section
8.1
Further Assurances; Authorization to
File Documents; No Merger. At any time, and from time to
time, upon request by the Lender, the Borrower will, at the
Borrower's expense, (a) correct any defect, error or omission which
may be discovered in the form or content of any of the Loan
Documents, and (b) make, execute, deliver and record, or cause to
be made, executed, delivered and recorded, any and all further
instruments, certificates and other documents as may, in the
opinion of the Lender, be necessary or desirable in order to
complete, perfect or continue and preserve the lien of the Deed of
Trust. Upon any failure by the Borrower to do so, the Lender may
make, execute and record any and all such instruments, certificates
and other documents for and in the name of the Borrower, all at the
sole expense of the Borrower, and the Borrower hereby appoints the
Lender the agent and attorney-in-fact of the Borrower to do so,
this appointment being coupled with an interest and being
irrevocable. Without limitation of the foregoing, the Borrower
irrevocably authorizes the Lender at any time and from time to time
to file any initial financing statements, amendments thereto and
continuation statements deemed necessary or desirable by the Lender
to establish or maintain the validity, perfection and priority of
the security interests granted in the Deed of Trust or hereunder, and the Borrower ratifies any
such filings made by the Lender prior to the date hereof. In
addition, at any time, and from time to time, upon request by the
Lender, the Borrower will, at the Borrower's expense, provide any
and all further instruments, certificates and other documents as
may, in the opinion of the Lender, be necessary or desirable in
order to verify the Borrower's identity and background in a manner
satisfactory to the Lender. As a material inducement to the Lender
to enter into this Agreement, the Borrower acknowledges and agrees
that each of its Indemnification Agreements (as that term is
defined below) (a) is a continuing, separate agreement that shall
survive the termination of this Agreement, the other Loan Documents
and the payment and performance of all of the other Obligations and
(b) shall not be merged with any judgment or judgments with respect
to the Obligations. The term "Indemnification Agreements"
means the collective reference to each provision of this Agreement
or any of the Loan Documents for indemnification of the Lender, its
parent, Affiliates and/or their respective officers, directors,
shareholders, employees, attorneys, other professionals, and agents
and to each of the agreements of the Borrower to pay or reimburse
the Lender for costs and expenses (including attorneys' fees) of
collection or otherwise.
Section
8.2
No Warranty by the Lender. By
accepting or approving anything required to be observed, performed
or fulfilled by the Borrower or to be given to the Lender pursuant
to this Agreement, including any certificate, Survey, receipt,
appraisal or insurance policy, the Lender shall not be deemed to
have warranted or represented the sufficiency, legality,
effectiveness or legal effect of the same, or of any term,
provision or condition thereof and any such acceptance or approval
thereof shall not be or constitute any warranty or representation
with respect thereto by the Lender.
Section
8.3
Standard of Conduct of Lender.
Except as otherwise expressly provided in this Agreement, Nothing
contained herein or in any other Loan Document shall limit the
right of the Lender to exercise its business judgment or to act, in
the context of the granting or withholding of any advance or
consent under this Agreement or any other Loan Document, in a
subjective manner, whether or not objectively reasonable under the
circumstances, so long as the Lender's exercise of its business
judgment or action is made or undertaken in good faith. Except
under those provisions where the Lender is required to act
reasonably, the Borrower and the Lender intend by the foregoing to
set forth and affirm their entire understanding with respect to the
standard pursuant to which the Lender's duties and obligations are
to be judged and the parameters within which the Lender's
discretion may be exercised hereunder and under the other Loan
Documents. As used herein, "good faith" means honesty in fact in
the conduct and transaction concerned.
Section
8.4
No Partnership. Nothing
contained in this Agreement shall be construed in a manner to
create any relationship between the Borrower and the Lender other
than the relationship of borrower and lender and the Borrower and
the Lender shall not be considered partners or co-venturers for any
purpose on account of this Agreement.
Section
8.5
Severability. In the event any
one or more of the provisions of this Agreement or any of the other
Loan Documents shall for any reason be held to be invalid, illegal
or unenforceable, in whole or in part or in any other respect, or
in the event any one or more of the provisions of any of the Loan
Documents operates or would prospectively operate to invalidate
this Agreement or any of the other Loan Documents, then and in
either of those events, at the option of the Lender, such provision
or provisions only shall be deemed null and void and shall not
affect the validity of the remaining Obligations, and the remaining
provisions of the Loan Documents shall remain operative and in full
force and effect and shall in no way be affected, prejudiced or
disturbed thereby.
Section
8.6
Authorized Signers. The Lender
is authorized to rely upon the continuing authority of the
Authorized Signers to bind the Borrower with respect to all matters
pertaining to the Loan and the Loan Documents, including the
submission of draw requests and the selection of interest rates.
Such authorization may be changed only upon written notice
addressed to the Lender accompanied by evidence, reasonably
satisfactory to the Lender, of the authority of the Person giving
such notice. Such notice shall be effective not sooner than five
(5) Banking Days following receipt thereof by the
Lender.
Section
8.7
Notices. All Notices required
or which any party desires to give hereunder or under any other
Loan Document shall be in writing and, unless otherwise
specifically provided in such other Loan Document, shall be deemed
sufficiently given or furnished if delivered by personal delivery,
by nationally recognized overnight courier service or by certified
United States mail, postage prepaid, addressed to the party to whom
directed at the applicable address set forth below (unless changed
by similar notice in writing given by the particular party whose
address is to be changed). In addition, Notices may be sent by
electronic mail to the following addresses (conn@sed.com.sg;
sienlup@sed.com.sg; moe@sed.com.sg and charley@sed.com.sg) provided
that a duplicate copy of such Notice is sent by personal delivery,
mail or overnight courier service in the manner hereinabove
provided. Any Notice shall be deemed to have been given (a) at the
time of personal delivery or delivery by electronic mail, or (b) in
the case of courier, one Banking Day after the delivery of such
Notice to the courier service, or (c) in the case of mail, three
(3) Banking Days after the date when deposited in the mail in the
manner prescribed above; provided that service of a Notice required
by any applicable statute shall be considered complete when the
requirements of that statute are met. Notwithstanding the
foregoing, no notice of change of address shall be effective except
upon actual receipt. This Section shall not be construed in any way
to affect or impair any waiver of notice or demand provided in this
Agreement or in any other Loan Document or to require giving of
notice or demand to or upon any Person in any situation or for any
reason.
The
address of the Borrower is:
SeD
MARYLAND DEVELOPMENT, LLC
c/o SeD
Development Management, LLC
Hampden
Square
4800
Montgomery Lane, Suite 210
Bethesda, Maryland
20814
With a
copy to:
SeD
Ballenger, LLC
c/o
Singapore eDevelopment Limited
9
Temasek Boulevard #09-02A
Suntec
Tower 2
Singapore
038989
The
address of the Lender is:
THE
BANK OF HAMPTON ROADS
Commercial Real
Estate Banking
12090
West Broad Street
Richmond, Virginia
23233
Section
8.8
Permitted Successors and Assigns;
Disclosure of Information.
(a) Each
and every one of the covenants, terms, provisions and conditions of
this Agreement and the Loan Documents shall apply to, bind and
inure to the benefit of the Borrower, its successors and those
assigns of the Borrower consented to in writing by the Lender, and
shall apply to, bind and inure to the benefit of the Lender and the
endorsees, transferees, successors and assigns of the Lender, and
all Persons claiming under or through any of them.
(b) The
Borrower agrees not to transfer, assign, pledge or hypothecate any
right or interest in any payment or advance due pursuant to this
Agreement, or any of the other benefits of this Agreement, without
the prior written consent of the Lender, which consent may be
withheld by the Lender in its sole and absolute discretion. Any
such transfer, assignment, pledge or hypothecation made or
attempted by the Borrower without the prior written consent of the
Lender shall be void and of no effect. No consent by the Lender to
an assignment shall be deemed to be a waiver of the requirement of
prior written consent by the Lender with respect to each and every
further assignment and as a condition precedent to the
effectiveness of such assignment.
(c) The
Lender may sell or offer to sell the Loan or interests therein to
one or more assignees or participants. The Borrower shall execute,
acknowledge and deliver any and all instruments reasonably
requested by the Lender in connection therewith, and to the extent,
if any, specified in any such assignment or participation, such
assignee(s) or participant(s) shall have the same rights and
benefits with respect to the Loan Documents as such Person(s) would
have if such Person(s) were the Lender hereunder. The Borrower, on
its own behalf and on behalf of the other Borrower Parties (as
hereinafter defined), hereby (i) acknowledges and agrees that the
Lender is entitled, at any time and from time to time, without
notice to or further consent by the Borrower or any other Borrower
Party, to sell, transfer, assign or otherwise convey, and to
attempt to sell, transfer, assign or otherwise convey, the Loan and
the Loan Documents, or any interest herein or therein or rights
with respect hereto or thereto (including, but not limited to,
participation interests, syndication interests, servicing rights
and beneficial interests issued in connection with mortgage-backed
or similar certificates or securities) to any person or entity, and
(ii) irrevocably authorizes the Lender, and any person or entity
acting on behalf of the Lender, to deliver and disclose to any
Person any and all information and materials related to the Loan,
the Loan Documents, the Property and/or the Borrower Parties now or
hereafter in the Lender's possession (collectively, the
"Information"). The
Information may include, but shall not be limited to, original
and/or copies of financial statements, financial projections,
appraisals, studies, reports, business plans, permits, licenses,
approvals, organizational documents, resolutions, consents,
documents (including, but not limited to, the Loan Documents),
plans, drawings, specifications, contracts, bonds, credit reports,
payment histories, account statements and applications (including,
but not limited to, the application for the Loan). As used herein,
the term "Borrower
Parties" means, collectively, the Borrower, the Guarantor
and all other obligors of all or any obligations of the Borrower
and/or any other person or entity to the Lender in connection with
the Loan; all subsidiaries and affiliates of the Borrower, the
Guarantor and/or any such other obligor; the members, partners,
managers, stockholders, officers, directors, employees, agents,
contractors and representatives of the Borrower, the Guarantor or
any such other obligor and/or any such subsidiary or affiliate; and
any other person or entity now or hereafter owning a direct or
indirect interest in the Borrower, the Guarantor, any such obligor
and/or any such subsidiary or affiliate.
Section
8.9
Modification; Waiver. None of
the terms or provisions of this Agreement may be changed, waived,
modified, discharged or terminated except by instrument in writing
executed by the party or parties against whom enforcement of the
change, waiver, modification, discharge or termination is asserted.
None of the terms or provisions of this Agreement shall be deemed
to have been abrogated or waived by reason of any failure or
failures to enforce the same.
Section
8.10
Third Parties; Benefit. All
conditions to the obligation of the Lender to make advances
hereunder are imposed solely and exclusively for the benefit of the
Lender and its assigns and no other Persons shall have standing to
require satisfaction of such conditions in accordance with their
terms or be entitled to assume that the Lender will refuse to make
advances in the absence of strict compliance with any or all
thereof and no other Person shall, under any circumstances, be
deemed to be the beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by the Lender at any
time in the sole and absolute exercise of its discretion. The terms
and provisions of this Agreement are for the benefit of the parties
hereto and, except as herein specifically provided, no other Person
shall have any right or cause of action on account
thereof.
Section
8.11
Rules of Construction. The
words "hereof," "herein," "hereunder," "hereto," and other words of
similar import refer to this Agreement in its entirety. The terms
"agree" and "agreements" mean and include "covenant" and
"covenants." The words "include" and "including" shall be
interpreted as if followed by the words "without limitation." The
captions and headings contained in this Agreement are included
herein for convenience of reference only and shall not be
considered a part hereof and are not in any way intended to define,
limit or enlarge the terms hereof. All references (a) made in the
neuter, masculine or feminine gender shall be deemed to have been
made in all such genders, (b) made in the singular or plural number
shall be deemed to have been made, respectively, in the plural or
singular number as well, (c) to the Loan Documents are to the same
as extended, amended, restated, supplemented or otherwise modified
from time to time unless expressly indicated otherwise, (d) to the
Land, the Improvements or the Property shall mean all or any
portion of each of the foregoing, respectively, and (e) to
Articles, Sections and Schedules are to the respective Articles,
Sections and Schedules contained in this Agreement unless expressly
indicated otherwise.
Section
8.12
Counterparts. This Agreement
may be executed in any number of counterparts, each of which shall
be considered an original for all purposes; provided, however, that
all such counterparts shall together constitute one and the same
instrument.
Section
8.13
Signs; Publicity. At the
Lender's request, but at the expense of the Borrower, the Borrower
shall place a sign at a location on the Property reasonably
satisfactory to the Lender, which sign shall recite, among other
things, that the Lender is financing the Construction of the
Improvements. The Borrower expressly authorizes the Lender to
prepare and to furnish to the news media for publication from time
to time news releases with respect to the Property, specifically to
include releases detailing the Lender's involvement with the
financing of the Property.
Section
8.14
Governing Law. This Agreement
shall be governed by and construed, interpreted and enforced in
accordance with the Laws of the State.
Section
8.15
Time of Essence. Time shall be
of the essence for each and every provision of this Agreement of
which time is an element.
Section
8.16
Electronic
Communications.
(a) The
Lender and the Borrower agree that certain data related to the Loan
(including confidential information, documents, applications and
reports) may be transmitted electronically, including transmission
over the Internet. This data may be transmitted to, received from
or circulated among agents and representatives of the Borrower
and/or the Lender and their Affiliates and other Persons involved
with the subject matter of this Agreement.
(b) The
Borrower may elect to deliver documentation required pursuant to
the Closing Checklist or Schedule 5 hereof electronically, and if
so delivered, such documentation shall be deemed to have been
delivered on the date (i) on which the Borrower posts such
documents, or provides a link thereto on the Borrower's website on
the Internet at the website address listed on the Borrower's
signature page to this Agreement; or (ii) on which such documents
are posted on the Borrower's behalf on an Internet or intranet
website, if any, to which the Lender has access (whether a
commercial, third-party website or whether sponsored by the Lender;
provided that: (i) the Borrower shall deliver paper copies of such
documents to the Lender upon its request to the Borrower to deliver
such paper copies until a written request to cease delivering paper
copies is given by the Lender, and (ii) the Borrower shall notify
the Lender (by facsimile or electronic mail) of the posting of any
such documents and provide to the Lender by electronic mail
electronic versions (i.e., soft copies) of such documents. The
Borrower agrees that in the event that the Borrower would like to
update or revise a document previously posted to the Borrower
controlled website, the Borrower shall notify the Lender (by
facsimile or electronic mail) that such document has been revised
and an updated version has been posted.
(c) The
Borrower acknowledges and agrees that (i) there are risks
associated with the use of electronic transmission and Borrower
controlled websites and that the Lender does not control the method
of transmittal, the service providers or the operational or
technical issues that could occur; (ii) the Lender has no
obligation or responsibility whatsoever and assumes no duty or
obligation for the security, receipt or third party interception of
any such electronic transmission of data or the Borrower controlled
website, or any operational or technical issues that may occur with
the electronic transmission of data or the Borrower controlled
website; and (iii) the Borrower will release, hold harmless and
indemnify the Lender from any claim, damage or loss, including that
arising in whole or part from the Lender's strict liability or
sole, comparative or contributory negligence, which is related to
the electronic transmission of data or the Borrower controlled
website.
Section
8.17
Forum. Each Party hereby
irrevocably submits generally and unconditionally for itself and in
respect of its property to the non-exclusive jurisdiction of any
state court or any United States federal court sitting in the State
specified in the governing law section of this Agreement and to the
non-exclusive jurisdiction of any state court or any United States
federal court sitting in the state in which any of the Property is
located, over any Dispute. Each Party hereby irrevocably waives, to
the fullest extent permitted by Law, any objection that such Party
may now or hereafter have to the laying of venue in any such court
and any claim that any such court is an inconvenient forum. The
Borrower hereby agrees and consents that, in addition to any
methods of service of process provided for under applicable Law,
all service of process in any such suit, action or proceeding in
any state court or any United States federal court sitting in the
State specified in the governing law section of this Agreement or
in which any of the Property is located may be made by certified or
registered mail, return receipt requested, directed to the Borrower
at its address for notice set forth in this Agreement, or at a
subsequent address of which the Lender received actual notice from
the Borrower in accordance with the notice section of this
Agreement, and service so made shall be complete five (5) days
after the same shall have been so mailed. Nothing herein shall
affect the right of the Lender to serve process in any manner
permitted by Law or limit the right of the Lender to bring
proceedings against the Borrower in any other court or
jurisdiction.
Section
8.18
WAIVER OF JURY
TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY RIGHT IT MAY
HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING OR ACTION DIRECTLY
OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
NOTES, THE DEED OF TRUST, OR ANY OTHER DOCUMENT EXECUTED IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER
THEORY).
EACH
PARTY HERETO HEREBY:
(a) CERTIFIES
THAT NO REPRESENTATIVE, AGENT, OR ATTORNEY OF ANY OTHER PERSON HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD
NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING
WAIVER;
(b) ACKNOWLEDGES
THAT THIS WAIVER AND THE PROVISIONS OF THIS SECTION WERE A MATERIAL
INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN
DOCUMENTS;
(c) CERTIFIES
THAT THIS WAIVER IS KNOWINGLY, WILLINGLY, AND VOLUNTARILY
MADE;
(d) AGREES
AND UNDERSTANDS THAT THIS WAIVER CONSTITUTES A WAIVER OF TRIAL BY
JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH PROCEEDING OR
ACTION, INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO
THIS OR ANY OTHER AGREEMENT, AND FURTHER AGREES THAT SUCH PARTY
SHALL NOT SEEK TO CONSOLIDATE ANY SUCH PROCEEDING OR ACTION WITH
ANY OTHER PROCEEDING OR ACTION IN WHICH A JURY TRIAL CANNOT BE OR
HAS NOT BEEN WAIVED;
(e) AGREES
THAT THE BORROWER AND THE LENDER ARE EACH HEREBY AUTHORIZED TO FILE
A COPY OF THIS SECTION IN ANY PROCEEDING OR ACTION AS CONCLUSIVE
EVIDENCE OF THIS WAIVER OF JURY TRIAL; AND
(f) REPRESENTS
AND WARRANTS THAT SUCH PARTY HAS BEEN REPRESENTED IN THE SIGNING OF
THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY
INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT
IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.
Section
8.19
USA Patriot Act Notice. The
Lender hereby notifies the Borrower that pursuant to the
requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the "Act"), the Lender is required
to obtain, verify and record information that identifies the
Borrower, which information includes the name and address of the
Borrower and other information that will allow the Lender to
identify the Borrower in accordance with the Act. The Borrower
shall, promptly following a request by the Lender, provide all
documentation and other information that the Lender requests in
order to comply with its ongoing obligation under "know your customer" and
anti-money laundering rules and regulations, including the
Act.
Section
8.20
Entire Agreement. The Loan
Documents constitute the entire understanding and agreement between
the Borrower and the Lender with respect to the transactions
arising in connection with the Loan, and supersede all prior
written or oral understandings and agreements between the Borrower
and the Lender with respect to the matters addressed in the Loan
Documents. In particular, and without limitation, the terms of any
commitment by the Lender to make the Loan are merged into the Loan
Documents. Except as incorporated in writing into the Loan
Documents, there are no representations, understandings,
stipulations, agreements or promises, oral or written, with respect
to the matters addressed in the Loan Documents. If there is any
conflict between the terms, conditions and provisions of this
Agreement and those of any other instrument or agreement, including
any other Loan Document, the terms, conditions and provisions of
this Agreement shall prevail.
[Signatures
contained on following pages]
IN
WITNESS WHEREOF, the Borrower and the Lender have caused this
Agreement to be executed under
seal as of the date first above written.
|
WITNESS OR
ATTEST:
/s/
|
BORROWER:
SeD MARYLAND
DEVELOPMENT, LLC
By /s/ Jeffrey M.
Busch
(SEAL)
|
STATE
OF MARYLAND, COUNTY OF MONTGOMERY, TO WIT:
I
HEREBY CERTIFY, that on this 20th day of November, 2015, before me,
the undersigned Notary Public of said State, personally appeared
Jeffrey M. Busch, who acknowledged himself to be the Manager of SeD
Development Management, LLC, a Delaware limited liability company
and the Manager of SeD Maryland Development, LLC, a Delaware
limited liability company, known to me (or satisfactorily proven)
to be the person whose name is subscribed to the within instrument,
and acknowledged that he executed the same for the purposes therein
contained as the duly authorized Manager of said limited liability
company by signing the name of the limited liability company by
himself as Manager.
WITNESS
my hand and Notarial Seal.
/s/ Sarah Fry
Notary
Public
My
Commission Expires: 5/18/16
[Signatures
continued on following page]
|
WITNESS OR
ATTEST:
/s/
|
LENDER:
THE BANK OF HAMPTON
ROADS
By /s/ John S. Pearsall,
Jr.
(SEAL)
John S. Pearsall, Jr.
Senior
Vice President
|
COMMONWEALTH
OF VIRGINIA, COUNTY OF HENRICO, TO WIT:
I
HEREBY CERTIFY, that on this 20 day of November, 2015, before me,
the undersigned Notary Public of said State, personally appeared
John S. Pearsall, Jr., who acknowledged himself to be a Senior Vice
President of The Bank of Hampton Roads, a Virginia banking
corporation, personally well known to me (or satisfactorily proven)
to be the person whose name is subscribed to the within instrument,
and acknowledged that he executed the same for the purposes therein
contained as the duly authorized Senior Vice President of said
banking corporation by signing the name of the banking corporation
by himself as Senior Vice President.
WITNESS
my hand and Notarial Seal.
/s/ Karen Smith
Whitlock
Notary
Public
My
Commission Expires: 11-30-18
Schedule 1
Definitions
Unless
the context otherwise specifies or requires, the following terms
shall have the meanings herein specified, such definitions to be
applicable equally to the singular and the plural forms of such
terms and to all genders:
"Accounts Payable List" means
(a) a written summary from the Borrower of all accounts paid or
payable for soft costs associated with the applicable draw request
identifying each such account and the invoice amount due, and shall
be in form and substance acceptable to the Lender, together with
(b) a copy of all invoices, paid receipts, statements of accounts
and other documentation relating to the matters described in such
summary. For purposes of this definition, "soft costs" includes
costs and expenses of development other than those attributable to
the construction of the physical Improvements, including but not
limited to architect's fees, consulting fees, management fees,
abatement expenses, legal fees, testing and inspection fees,
connection charges, and other similar fees and
expenses.
"Affiliate" means, with respect
to any Person, another Person that directly, or indirectly through
one or more intermediaries, Controls or is Controlled by or is
under common Control with the Person specified.
"Approved Manager" means the
Borrower, an Affiliate of the Borrower or any other reputable and
creditworthy property manager, subject to the prior written
approval of the Lender, which written approval may be evidenced by
e-mail confirmation, not to be unreasonably withheld, with a
portfolio of properties comparable to the Property under active
management.
"Assignment and Pledge
Agreement" means the Assignment and Pledge of Collateral
Account of even date herewith executed by the Borrower and the
Guarantor for the benefit of the Lender, as the same may from time
to time be extended, amended, restated, supplemented or otherwise
modified.
"Authorized Signer" means each
of Chew Sien Lup, Ting Hui Mohamed Osman and Moe Chan, acting
alone, or any other representative of the Borrower duly designated
and authorized by the Borrower to bind the Borrower with respect to
all matters pertaining to the Loan and the Loan Documents,
including the submission of draw requests and the selection of
interest rates.
"Banking Day" means any day that
is not a Saturday, Sunday or banking holiday in the
State.
"Borrower" has the meaning set
forth in the introductory paragraph of this Agreement.
"Borrower's Deposit Account"
means an account established with the Lender pursuant to the terms
of Section 4.3.
"Borrower Parties" shall have
the meaning ascribed to such term in Section 8.8.
"Budget" means the breakdown of
hard costs and soft costs attached hereto as Schedule 3, as the
same may be revised from time to time with the written approval of
Lender.
"Cash Collateral Account" has
the meaning ascribed to such term in Section 4.24
hereof.
"Casualty" means any act or
occurrence of any kind or nature that results in damage, loss or
destruction to the Property.
"CCRC Multifamily Parcel" shall
have the meaning ascribed to such term in Schedule 7
hereof.
"Civil Asset Forfeiture Reform
Act" means the Civil Asset Forfeiture Reform Act of 2000 (18
U.S.C. Sections 983 et seq.), as amended from time to time, and any
successor statute.
"Claim" means any liability,
suit, action, claim, demand, loss, expense, penalty, fine, judgment
or other cost of any kind or nature whatsoever, including fees,
costs and expenses of attorneys, consultants, contractors and
experts.
"Closing Checklist" means that
certain Closing Requirements and Checklist setting forth the
conditions for closing the Loan.
"Code" means the Internal
Revenue Code of 1986, as amended.
"Company" shall have the meaning
set forth in Section 3.18.
"Completion Date" shall mean the
earlier to occur of (a) the date required for the completion of the
Improvements pursuant to the terms of the NVR Contracts, or (b)
August 15, 2018. Time shall be of the essence for all purposes
hereof.
"Completion of Construction"
means, with respect to the Construction of the Improvements or any
component thereof, the satisfaction of all of the conditions of
Section 4 of Schedule 5.
"Condemnation" means any taking
of title to, use of, or any other interest in the Property under
the exercise of the power of condemnation or eminent domain,
whether temporarily or permanently, by any Governmental Authority
or by any other Person acting under or for the benefit of a
Governmental Authority.
"Condemnation Awards" means any
and all judgments, awards of damages (including severance and
consequential damages), payments, proceeds, settlements, amounts
paid for a taking in lieu of Condemnation, or other compensation
heretofore or hereafter made, including interest thereon, and the
right to receive the same, as a result of, or in connection with,
any Condemnation or threatened Condemnation.
"Construction Commencement Date"
shall mean June 1, 2016. Time shall be of the essence for all
purposes hereof.
"Construction Contract" means
any contract for the Construction of the Improvements between the
Borrower and a Contractor, and approved in writing by the Lender,
as the same may be amended from time to time with the prior written
approval of the Lender.
"Construction Inspector" means a
Person appointed or designated by the Lender from time to time to
inspect the progress of the Construction of the Improvements and
the conformity of construction with the Plans and Specifications,
the Budget and the Project Schedule, and to perform such other acts
and duties for such other purposes as the Lender may from time to
time deem appropriate or as may be required by the terms of this
Agreement.
"Construction Inspector Report"
means a written report from the Construction Inspector due to the
Lender on a specified predetermined day of each month, and/or on a
day prior to the disbursement of funds, acceptable to the
Lender.
"Construction of the
Improvements" means the development of the Land and the
construction of the Improvements as contemplated by the Plans and
Specifications.
"Contractor" means any
contractor, laborer or material supplier engaged by the Borrower in
connection with the Construction of the Improvements, and its or
their successors and permitted assigns.
"Control" means the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or
otherwise. "Controlling" or "Controlled" have meanings
correlative thereto.
"Controlled Substances Act"
means the Controlled Substances Act (21 U.S.C. Sections 801 et
seq.), as amended from time to time, and any successor
statute.
"Cumulative Loan Advance Limit"
means US$26,000,000, exclusive of any advance made by the Lender on
or about the date of this Agreement to pay a portion of the
acquisition cost of the Land, so long as such advance is fully
repaid to the Lender within fifteen (15) days after the date of
such advance.
"Deed of Trust" means the Deed
of Trust, Assignment and Security Agreement of even date herewith
given by the Borrower in favor of the Lender to secure the
Obligations, as the same may from time to time be extended,
amended, restated, supplemented or otherwise modified.
"Default" means an event or
circumstance that, with the giving of Notice or lapse of time, or
both, would constitute an Event of Default under the provisions of
this Agreement.
"Deferred Equity" has the
meaning ascribed to such term in Schedule 5.
"Dispute" means any controversy,
claim or dispute between or among the parties to this Agreement,
including any such controversy, claim or dispute arising out of or
relating to (a) this Agreement, (b) any other Loan Document, (c)
any related agreements or instruments, or (d) the transaction
contemplated herein or therein (including any claim based on or
arising from an alleged personal injury or business
tort).
"Engineer" means any engineer
engaged by the Borrower in connection with the Construction of the
Improvements, and its successors and permitted
assigns.
"Engineer's Contract" means any
contract for engineering services relating to the Construction of
the Improvements between the Borrower and an engineer, and
reasonably approved in writing by the Lender, as the same may be
amended from time to time with the prior written approval of the
Lender, which approval shall not be unreasonably
withheld.
"Environmental Agreement" means
the Environmental Indemnification Agreement of even date herewith
executed by the Borrower and the Guarantor in favor of the Lender
pertaining to the Property, as the same may from time to time be
extended, amended, restated or otherwise modified.
"ERISA" means the Employee
Retirement Income Security Act of 1974, as amended.
"Event of Default" means any
event or circumstance specified in Article VI and the continuance
of such event or circumstance beyond the applicable grace and/or
cure periods therefor, if any, set forth in Article VI.
"Expenses" means all reasonable
fees, charges, costs and expenses of any nature whatsoever incurred
at any time and from time to time (whether before or after an Event
of Default) by the Lender in making, funding, administering or
modifying the Loan, in negotiating or entering into any "workout"
of the Loan, or in exercising or enforcing any rights, powers and
remedies provided in the Deed of Trust or any of the other Loan
Documents, including reasonable attorneys' fees, court costs,
receiver's fees, management fees and costs incurred in the repair,
maintenance and operation of, or taking possession of, or selling,
the Property.
"Financial Statements" means (i)
for each reporting party other than an individual, a balance sheet,
income statement, statements of cash flow and amounts and sources
of contingent liabilities, a reconciliation of changes in equity
and liquidity verification, cash flow projections, real estate
schedules providing details on each individual real property in the
reporting party's portfolio, including, but not limited to raw
land, land under development, construction in process and
stabilized properties and unless Lender otherwise consents,
consolidated and consolidating statements if the reporting party is
a holding company or a parent of a subsidiary entity; and (ii) for
each reporting party who is an individual, a balance sheet,
statements of cash flow and amounts and sources of contingent
liabilities, sources and uses of cash and liquidity verification,
cash flow projections, real estate schedules providing details on
each individual real property in the reporting party's portfolio,
including, but not limited to raw land, land under development, and
unless Lender otherwise consents, Financial Statements for each
entity owned or jointly owned by the reporting party. For purposes
of this definition and any covenant requiring the delivery of
Financial Statements, each party for whom Financial Statements are
required is a "reporting
party" and a specified period to which the required
Financial Statements relate is a "reporting period."
"Force Majeure" means strikes,
lock-outs, war, civil disturbance, natural disaster, acts of
terrorism or acts of God, unusually severe weather or similar
occurrences which cause a delay in the Borrower's performance of an
Obligation related to the work of construction; provided, however,
that (a) the Borrower must give Notice to the Lender within ten
(10) days after the occurrence of an event which it believes to
constitute Force Majeure, (b) in no event shall Force Majeure
extend the time for the performance of an Obligation by more than
thirty (30) days, and (c) circumstances that can be remedied or
mitigated through the payment of money shall not constitute Force
Majeure hereunder to the extent such remedy or mitigation is deemed
reasonable by the Lender in its sole discretion.
"Governmental Authority" or
"Governmental
Authorities" means the government of the United States or
any other nation, or of any political subdivision thereof, whether
state or local, and any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising
executive, legislative, judicial, taxing, regulatory or
administrative powers or functions of or pertaining to government
(including any supra-national bodies such as the European Union or
the European Central Bank).
"Guarantor" means SeD Ballenger, LLC, a
Delaware limited liability company, and its successors and
permitted assigns.
"Guaranty" means the Limited
Guaranty Agreement of even date herewith executed by the Guarantor
for the benefit of the Lender, as the same may from time to time be
extended, amended, restated, supplemented or otherwise
modified.
"Hedging Agreement" means any
agreement, whether or not in writing, relating to any Hedging
Transaction, including, unless the context otherwise clearly
requires, any agreement or contract that constitutes a
"swap" within the
meaning of Section 1a(47) of the Commodity Exchange Act (7 U.S.C.
§ 1 et seq.), as amended from time to time, and any successor
statute, and CFTC Regulation 1.3(xxx), any form of master agreement
(the "Master
Agreement") published by the International Swaps and
Derivatives Association, Inc., and any other master agreement,
entered into prior to the date hereof or any time after the date
hereof, between Hedging Counterparty and the Borrower (or its
Affiliate), together with any related schedules and confirmations,
as the same may be amended, restated, replaced, supplemented,
superseded or otherwise modified from time to time in accordance
with its terms, relating to or governing any or all of the
foregoing.
"Hedging Counterparty" means the
Lender or an Affiliate of the Lender, in its capacity as
counterparty under any Hedging Agreement.
"Hedging Transaction" means any
transaction that is a rate swap, basis swap transaction, forward
rate transaction, commodity swap, commodity option, equity or
equity index swap or option, bond option, note or bill option,
interest rate option, forward foreign exchange transaction, cap
transaction, spot or floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction,
swap option, currency option, credit swap or default transaction,
T-lock, or any other similar transaction (including any option to
enter into any of the foregoing) or any combination of the
foregoing, entered into prior to the date hereof or any time after
the date hereof between a Hedging Counterparty and the Borrower (or
its Affiliate) so long as a writing, such as a Hedging Agreement,
evidences the parties' intent that such obligations shall be
secured by the Deed of Trust in connection with the
Loan.
"Improvements" means all on-site
and off-site improvements now or hereafter shown on, or
contemplated by, the Plans and Specifications for the development
of the Land into the first stage of a residential subdivision to be
known as "Ballenger Run" containing two hundred seventy-six (276)
single-family building Lots and additional building Parcels,
including without limitation, clearing and grading and the
installation of, among other things, sediment control, electric
lines, communication lines, water and sewer lines, sidewalks, curbs
and paved roads.
"Information" shall have the
meaning ascribed to such term in Section 8.8.
"Insurance Proceeds" means the
insurance claims under and the proceeds of any and all policies of
insurance covering the Property or any part thereof, including all
returned and unearned premiums with respect to any insurance
relating to the Property, in each case whether now or hereafter
existing or arising.
"Land" means the land described
in, and encumbered by, the Deed of Trust.
"Land Development Loan" shall
have the meaning ascribed to such term in the Recitals to this
Agreement.
"Law(s)" means all federal,
state and local laws, statutes, rules, ordinances, regulations,
codes, licenses, authorizations, decisions, injunctions,
interpretations, orders or decrees of any court or other
Governmental Authority having jurisdiction as may be in effect from
time to time.
"Lease(s)" means all leases,
license agreements and other occupancy or use agreements (whether
oral or written), now or hereafter existing, which cover or relate
to the Property or any part thereof, together with all options
therefor, amendments thereto and renewals, modifications and
guaranties thereof, including any cash or security deposited under
the Leases to secure performance by the tenants of their
obligations under the Leases, whether such cash or security is to
be held until the expiration of the terms of the Leases or applied
to one or more of the installments of rent coming due
thereunder.
"Letter(s) of Credit" means any
letter of credit issued by the Lender for the account of the
Borrower or its nominee in connection with the Construction of the
Improvements, together with any and all extensions, renewals or
modifications thereof, substitutions therefor or replacements
thereof.
"Letter of Credit Agreement(s)"
shall have the meaning ascribed to such term in Schedule 6
hereof.
"Letter of Credit Facility"
shall have the meaning ascribed to such term in the Recitals to
this Agreement.
"Loan" has the meaning ascribed
to such term in the Recitals to this Agreement.
"Loan Amount" means,
individually and collectively, the amount of the Land Development
Loan in the original principal amount not to exceed at any one time
outstanding the sum of US$8,000,000 and the amount of the Letter of
Credit Facility in the aggregate stated amount of
US$800,000.
"Loan Documents" means this
Agreement, the Notes, the Deed of Trust, the Environmental
Agreement, the Guaranty, the Assignment and Pledge Agreement, any
Hedging Agreement, any Letter of Credit Agreement executed in
connection with any Letter of Credit issued by Lender in connection
with the Loan, and any and
all other documents which the Borrower, the Guarantor or any other
party or parties have executed and delivered, or may hereafter
execute and deliver, to evidence, secure or guarantee the
Obligations, or any part thereof, as the same may from time to time
be extended, amended, restated, supplemented or otherwise
modified.
"LOC Note" means the Promissory
Note of even date herewith in the principal amount of US$800,000
made by the Borrower to the order of the Lender evidencing the
Letter of Credit Facility, as the same may from time to time be
extended, amended, restated, supplemented or otherwise
modified.
"Lot" and "Lots" have the meanings
ascribed to such terms in the Recitals to this
Agreement.
"MF Multifamily Parcel" shall
have the meaning ascribed to such term in Schedule 7
hereof.
"Minimum Cumulative Curtail
Amount" has the meaning ascribed to such term in Section
4.25 hereof.
"Net Proceeds" when used with
respect to any Condemnation Awards or Insurance Proceeds, means the
gross proceeds from any Condemnation or Casualty remaining after
payment of all expenses, including attorneys' fees, incurred in the
collection of such gross proceeds.
"Notes" means the Revolving Note
and the LOC Note, as the same may from time to time be extended,
amended, restated, supplemented or otherwise modified.
"Notice" means a notice,
request, consent, demand or other communication given in accordance
with the provisions of Section 8.7 of this Agreement.
"NVR" means NVR, Inc., as the
contract purchaser under the NVR Contract, and its successors and
permitted assigns.
"NVR Contracts" means each and
every one of the following: (a) the Lot Purchase Agreement –
Ballenger Run – Single Family Attached Villa dated December
10, 2014 executed by and between the Borrower and NVR, as amended
by a Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run – Single Family
Attached Villa dated January 9, 2015, (b) the Lot Purchase
Agreement – Ballenger Run – Townhouse dated December
10, 2014 executed by and between the Borrower and NVR, as amended
by a Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run – Townhouse dated
January 9, 2015, (c) the Lot Purchase Agreement – Ballenger
Run – Large Single Family Dwelling dated December 10, 2014
executed by and between the Borrower and NVR, as amended by a
Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run – Large Single
Family Dwelling dated January 9, 2015, (d) the Lot Purchase
Agreement – Ballenger Run – Neo-Traditional Single
Family Dwelling dated December 10, 2014 executed by and between the
Borrower and NVR, as amended by a Restatement and Reinstatement of
and First Amendment to Lot Purchase Agreement – Ballenger Run
– Neo-Traditional Single Family Dwelling dated January 9,
2015, and (e) the Lot Purchase Agreement – Ballenger Run
– Small Single Family Dwelling dated December 10, 2014
executed by and between the Borrower and NVR, as amended by a
Restatement and Reinstatement of and First Amendment to Lot
Purchase Agreement – Ballenger Run – Small Single
Family Dwelling dated January 9, 2015, together with all
modifications thereof, amendments thereto and substitutions
therefor hereafter made with the consent of the
Lender.
"Obligations" means all present
and future debts, obligations and liabilities of the Borrower to
the Lender arising pursuant to, or on account of, the provisions of
this Agreement, the Notes or any of the other Loan Documents,
including the obligations: (a) to pay all principal, interest, late
charges, prepayment premiums (if any) and other amounts due at any
time under the Notes and/or any one or more of the Letter of Credit
Agreements; (b) to pay all interest, fees, costs, charges,
expenses, indemnification obligations and all other sums now or
hereafter due and payable under or with respect to any and all
Hedging Agreements; (c) to pay all Expenses, indemnification
payments, fees and other amounts due at any time under the Deed of
Trust or any of the other Loan Documents, together with interest
thereon as provided in the Deed of Trust or such Loan Document; and
(d) to perform, observe and comply with all of the terms, covenants
and conditions, expressed or implied, which the Borrower is
required to perform, observe or comply with pursuant to the terms
of this Agreement, the Deed of Trust or any of the other Loan
Documents.
"OFAC" means the U.S. Department
of Treasury's Office of Foreign Assets Control.
"Parcel" and "Parcels" have the meanings
ascribed to such terms in the Recitals to this
Agreement.
"Person" means an individual, a
corporation, a partnership, a joint venture, a limited liability
company, a trust, an unincorporated association, any Governmental
Authority or any other entity.
"Plans and Specifications" means
any and all plans and specifications prepared in connection with
the Construction of the Improvements and reasonably approved in
writing by Lender, as the same may from time to time be amended
with the prior written approval of the Lender, which approval shall
not be unreasonably withheld. A list of the Plans and
Specifications in existence as of the date hereof is attached
hereto as Schedule 8
"Project Schedule" means the
schedule for commencement and completion of the Construction of the
Improvements attached hereto as Schedule 4-1, as the same may
be revised from time to time with the written approval of the
Lender, which approval shall not be unreasonably
withheld.
"Property" means the real and
personal property conveyed and encumbered by the Deed of
Trust.
"Release Conditions" shall have
the meaning ascribed to such term in Schedule 7
hereof.
"Release Fee" shall have the
meaning ascribed to such term in Schedule 7 hereof.
"Rents" means all of the rents,
royalties, issues, profits, revenues, earnings, income and other
benefits of the Property or any part thereof, or arising from the
use or enjoyment of the Property or any part thereof, including all
such amounts paid under or arising from any of the Leases and all
fees, charges, accounts or other payments for the use or occupancy
of rooms or other public facilities within the Property or any part
thereof.
"Revolving Note" means the
Revolving Credit Note of even date herewith in the principal amount
of US$8,000,000 made by the Borrower to the order of the Lender
evidencing the Land Development Loan, as the same may from time to
time be extended, amended, restated, supplemented or otherwise
modified.
"Sales Shortfall" has the
meaning ascribed to such term in Section 4.25 hereof.
"Sanctions" means, collectively,
any sanctions administered or enforced by the United States
Government, including OFAC, the United Nations Security Council,
the European Union, Her Majesty's Treasury, or other relevant
sanctions authority.
"State" means the State of
Maryland.
"Stored Materials" means
building materials or furnishings that have not yet been
incorporated into the Improvements.
"Survey" means a map or plat of
survey of the Land which conforms with Lender's survey requirements
set forth in the Closing Checklist.
"Taxes" means all taxes and
assessments whether general or special, ordinary or extraordinary,
or foreseen or unforeseen, which at any time may be assessed,
levied, confirmed or imposed by any Governmental Authority or any
communities facilities or other private district on Borrower or on
any of its properties or assets or any part thereof or in respect
of any of its franchises, businesses, income or
profits.
"Total Costs" has the meaning
ascribed to such term in Schedule 5 hereof.
"UCC" means the Uniform
Commercial Code in effect in the State, as from time to time
amended or restated.
Schedule 2
Form of Draw Request
[BORROWER'S
LETTERHEAD]
DRAW
REQUEST NO. _________
TO: THE
BANK OF HAMPTON ROADS (the "Lender")
|
LOAN
NO.
|
|
|
|
PROJECT
|
|
|
|
LOCATION
|
|
|
|
|
|
|
|
BORROWER
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FOR PERIOD
ENDING
|
|
|
In
accordance with the Construction Loan Agreement in the amount of
US$_____________ dated ______________, between the Borrower and the
Lender, the Borrower requests that US$_______________ be advanced
from Loan proceeds [,
$_________________ be advanced from the Borrower's deposit,
US$_______________ be advanced from the Borrower's Upfront Equity,
and US$_____________ be advanced from the Borrower's Deferred
Equity]. The proceeds should be credited to the account of
_______________________________________ Account No.
___________________, at
_________________________________________.
1.
CURRENT DRAW
REQUEST FOR HARD COSTS
US$_______________
2.
CURRENT DRAW
REQUEST FOR SOFT
COSTS
US$_______________
3.
TOTAL DRAW
REQUEST
US$_______________
AUTHORIZED
SIGNER:
____________________________________
Dated:
__________________
Schedule 3
Budget
SEE
ATTACHED
Schedule 4
Project Schedule
1. Project
Schedule. The Borrower has delivered to the Lender a Project
Schedule which sets forth the anticipated schedule for each phase
of the Construction of the Improvements, a copy of which is
attached hereto as Schedule 4-1 and made a part hereof. In the
opinion of the Borrower, the Project Schedule sets forth, in all
material respects, the schedule for each phase of construction
required for Completion of Construction.
2. Commencement.
Subject to Force Majeure, the Borrower shall cause Construction of
the Improvements to commence no later than the Construction
Commencement Date. For the purposes hereof, commencement of
Construction of the Improvements shall mean the mobilization by the
applicable Contractors of the necessary equipment on the Property
to commence grading, and the actual commencement of the grading of
the Land.
3. Completion
of Construction of All Improvements. Regardless of the
existence or non-existence or occurrence or non-occurrence of any
condition of Force Majeure, (a) in no event shall any phase of the
Improvements be completed more than ninety (90) days after the date
specified for the completion of such phase in the Project Schedule,
and (b) in no event shall Completion of Construction of the
Improvements occur later than the Completion Date.
Schedule 4-1
Project Schedule
Ballenger Run Construction
|
Project
|
Number of Lots in Project
|
Aggregate Number of Lots
|
Construction
Start Date
|
Substantial Completion Date
|
|
1st Group of
Lots
|
112
|
112
|
6/1/16
(Construction
Commencement
Date)
|
12/31/16
|
|
2nd Group of
Lots
|
55
|
167
|
3/1/17
|
12/31/17
|
|
3rd Group of
Lots
|
55
|
222
|
9/30/17
|
6/30/18
|
|
4th Group of
Lots
|
54
|
276
|
3/31/18
|
90 days
before initial loan
maturity
|
|
Ballenger
Creek Pike Offsite Road Improvements
|
n/a
|
n/a
|
6/1/16
|
90 days
before initial loan
maturity
|
|
Clubhouse
Amenity
|
n/a
|
n/a
|
9/30/17
|
90 days
before initial loan
maturity
|
Notes:
●
Lots from any phase
can be counted toward to any Lot Group and Aggregate Number of
Lots
●
Lots in Group does
not refer to specific Lots in the Project but to a combination of
Lots within the Project.
Substantial
Completions means (a) with respect to any Group of Lots, the
completion of all work required by the terms of the NVR Contracts
for such Lots and base asphalt paving for all roads serving such
Lots is complete; and (b) with respect to the Ballenger Creek
Offsite Improvements and the Clubhouse Amenity, 100% completion of
such work, except for reasonable punch-list items.
Schedule 5
Additional Terms Regarding Advances
The
conditions precedent to closing the Loan, recording the Deed of
Trust and making the first advance are set forth in the Closing
Checklist. Subsequent advances of the Loan shall be subject to the
following additional terms and conditions:
1. Advances
Under the Budget. As listed in the Budget: (a) the
"Total Costs" are
the maximum costs anticipated by the Borrower for each item
specified; (b) the "Loan
Proceeds" are the maximum amount to be advanced under the
Loan; (c) "Upfront
Equity" is the amount that the Borrower is required to pay
toward the Total Costs prior to the first advance of the
Loan; and (d) "Deferred
Equity" is an additional amount that the Borrower is
required to pay toward the Total Costs as of the date indicated, if
any, or prior to the initial advance of any Loan Proceeds in the
specified line item in the Budget. Whenever the Borrower is
required to pay any items from Upfront Equity or Deferred Equity,
the Lender, at its option, may restrict or prohibit advances of the
Loan for such items to the extent that Upfront Equity or Deferred
Equity is sufficient to pay such amounts. Whenever the Borrower's
Upfront Equity or Deferred Equity is on deposit with the Lender,
the Lender shall make all advances first from such equity based on
the allocations thereof set forth in the Budget. After the
exhaustion of Upfront Equity or Deferred Equity allocated to a
given line item, the Lender will advance Loan proceeds for that
line item pursuant to the Budget.
2. Additional
Items Required for Each Advance. The Lender shall not be
obligated to make an advance of Loan proceeds until and unless the
following additional items shall have been received and approved by
the Lender, as and to the extent required by the Lender, prior to
the date of the advance:
(a) If
required by the Lender, a notice of title continuation or an
endorsement to the title insurance policy with respect to the Land
theretofore delivered to the Lender, showing that since the last
preceding advance, there has been no change in the status of title
and no other exception not theretofore approved by the Lender,
which endorsement shall have the effect of advancing the effective
date of the policy to the date of the advance then being made and
increasing the coverage of the policy by an amount equal to the
advance then being made, if the policy does not by its terms
provide automatically for such an increase.
(b) If
required by the Lender, interim acknowledgments of payment and
waivers and releases of liens from all Persons who have furnished
labor, materials and/or services in the Construction of the
Improvements, covering work performed, materials supplied and
services rendered through the date of the last preceding advance as
required by the Lender.
(c) If
required, soil compaction test reports, bearing capacity test
reports and concrete test reports.
(d) Evidence
that the Improvements have not been materially damaged by fire or
other Casualty unless the Lender shall have received Insurance
Proceeds, or satisfactory assurance that it will receive such
proceeds in a timely manner pursuant to the terms of the Deed of
Trust, sufficient in the judgment of the Lender to effect a
satisfactory restoration and completion of the Improvements in
accordance with the terms of the Deed of Trust and this
Agreement.
(e) Evidence
that all work requiring inspection by any Governmental Authority
having or claiming jurisdiction has been duly inspected and
approved by such authority and by any rating or inspection
organization, bureau, association or office having or claiming
jurisdiction.
(f) Evidence,
including the Construction Inspector Report, that all work
completed at the time of the application for an advance has been
performed in a good and workmanlike manner, that all materials and
fixtures usually furnished and installed at that stage of
construction have been so furnished and installed, that the
Improvements can be completed in accordance with the Project
Schedule, and that the balance of the Loan proceeds then held by
Lender and available for advance pursuant to the terms of this
Agreement, together with other funds which the Lender determines to
be available to the Borrower for such purpose, are and will be
sufficient to pay the cost of such completion.
(g) If
required by the Lender, payment and performance bonds covering
those Contractors or subcontractors designated by the Lender, with
companies and in amounts and form satisfactory to the Lender, which
bonds shall contain a dual obligee rider indicating the Lender's
interest as mortgagee.
3. Conditions
Precedent to All Advances. The Lender shall not be obligated
to make an advance of Loan proceeds unless the following additional
conditions shall have been satisfied or waived in writing by the
Lender as of the date of each advance:
(a) No
lien for the performance of work or supplying of labor, materials
or services shall have been filed against the Property and remain
unsatisfied or unbonded.
(b) No
condition or situation shall exist at the Property which, in the
reasonable determination of the Lender, constitutes a danger to or
impairment of the Property or presents a danger or hazard to the
public.
(c) The
representations and warranties made in Article III shall be true and
correct on and as of the date of the advance with the same effect
as if made on such date.
(d) All
terms and conditions of the Loan Documents required to be met as of
the date of the applicable advance shall have been met to the
reasonable satisfaction of the Lender.
(e) All
terms and conditions of the NVR Contracts (and any contracts of
sale executed in replacement thereof) required to be met as of the
date of the applicable advance shall have been met to the
reasonable satisfaction of the Lender.
(f) No
Default or Event of Default shall have occurred and be
continuing.
(g) The
Lender shall have received satisfactory evidence that the Borrower
shall have satisfied any equity investment in the Property required
to be made by the Borrower prior to the date of such
advance.
(h) The
Lender shall have received all due diligence materials it deems
necessary with respect to verifying the Borrower's identity and
background information in a manner satisfactory to the
Lender.
4. Advances
for Hard Costs. (a) The Lender shall make periodic advances
for hard costs as construction progresses. Each advance shall be
equal to the Borrower's total costs as reflected in the applicable
draw request, net of the Borrower's required Deferred Equity and
retainage in an amount equal to 10% of the total
costs.
(b) The
Lender shall not be obligated to make the initial advance of the
proceeds of the Loan for the payment of any hard costs with respect
to any aspect or phase of the Construction of the Improvements
unless the following additional conditions shall have been
satisfied with respect to such aspect or phase of the Construction
of the Improvements, to the extent required by Lender:
(i)
The Lender shall have received from the Borrower a complete set of
the Plans and Specifications with respect to such aspect or phase
of the Construction of the Improvements signed and sealed by the
Engineer, together with written evidence, in form and substance
reasonably satisfactory to the Lender, to the effect that the Plans
and Specifications with respect to such work are satisfactory to
the Borrower, each Contractor, NVR (to the extent required by the
terms of the NVR Contracts), the Construction Inspector and, to the
extent required by applicable law or any effective restrictive
covenant, have been approved by all Governmental Authorities having
or claiming jurisdiction and by the beneficiary of any such
restrictive covenant, respectively;
(ii)
The Lender shall have received and approved a fully executed copy
of each and every Construction Contract for such aspect or phase of
the Construction of the Improvements, which shall be for a fixed
price, the Engineer's Contract, as well as any information
regarding each Contractor and the Engineer which the Lender has
requested;
(iii) The
Lender shall have received and approved the written undertaking of
those Contractors and/or subcontractors designated by the Lender,
and of the Borrower's Engineer to continue performance on the
Lender's behalf without additional costs over the required contract
amounts in the event of default by the Borrower under any of the
Loan Documents and not to permit nor execute any change order
increasing the price of the Improvements or materially altering the
scope of the Improvements;
(iv)
The Lender shall have received from the Borrower written evidence,
in form and substance reasonably satisfactory to the Lender, from
all Governmental Authorities having or claiming jurisdiction to the
effect that all building, construction and other permits required
in connection with such aspect or phase of the Construction of the
Improvements have been validly issued, that all fees and bonds
required in connection therewith have been paid in full or posted,
as the circumstances may require, and that the project meets
subdivision requirements, zoning requirements and all sewer and
storm drain requirements;
(v)
The Lender shall have received from the Borrower written evidence,
in form and substance reasonably satisfactory to the Lender, from
all municipalities and utility companies having or claiming
jurisdiction to the effect that all utility services required by
the Plans and Specifications or otherwise necessary for such aspect
or phase of the Construction of the Improvements and the operation
thereof for their intended purpose after completion are available
for connection and use at the boundaries of the Land, including,
without limitation, telephone service, water supply, storm and
sanitary sewer facilities, natural gas and electric
facilities;
(vi)
The Lender shall have received and approved a cost breakdown in
trade form for the Improvements, and showing, if available,
subcontractors and material suppliers;
(vii)
The Lender shall have received and approved a report setting forth
the monthly projected advances of the Loan throughout the
construction period and a construction progress schedule in form
and substance reasonably satisfactory to the Lender, calling for
the completion of the Construction of the Improvements by a date no
later than the Completion Date;
(viii)
The Lender shall have received and reasonably approved evidence
that all Contractors and all major subcontractors carry public
liability and property damage insurance and workers' compensation
insurance in form, amounts and issued by companies reasonably
acceptable to the Lender;
(ix)
The Lender shall have received an engineer's certificate or other
evidence acceptable in all respects that the Improvements, when
constructed, will comply with all legal requirements regarding
access and facilities for handicapped or disabled persons,
including, without limitation and to the extent applicable, The
Federal Architectural Barriers Act (42 U.S.C. § 4151 et seq.),
The Fair Housing Amendments Act of 1988 (42 U.S.C. § 3601 et
seq.), The Americans With Disabilities Act of 1990 (42 U.S.C.
§12101 et seq.), The Rehabilitation Act of 1973 (29 U.S.C.
§794) and any applicable state statutes relating to access and
facilities for handicapped or disabled persons;
(x)
The Lender shall have received and approved satisfactory evidence
that the Borrower shall have satisfied any required equity
investment related to the Loan and/or the Property;
and
(xi) The
Lender shall have received and approved a pre-construction review
report issued by the Construction Inspector with respect to such
aspect or phase of the Construction of the Improvements, in form
and substance satisfactory to the Lender in all respects, covering
the Plans and Specifications, the Budget and all other construction
matters.
(xii)
The Lender shall have received and approved such other documents,
instruments and materials relating to such aspect or phase of the
Construction of the Improvements as the Lender may reasonably
require.
(c) The
Lender shall not be obligated to make the final advance of the Loan
for hard costs (including the retainage) unless the following
additional conditions shall have been satisfied, to the extent
required by Lender:
(i)
The Construction Inspector and the Engineer
shall have certified to the Lender that construction has been
completed in a good and workmanlike manner, in accordance with
applicable requirements of all Governmental Authorities and
substantially in accordance with the Plans and
Specifications;
(ii)
To the extent required by applicable Governmental Authorities for
the use of the Improvements, certificates of occupancy or
completion and other applicable permits and releases shall have
been issued with respect to the Improvements and copies thereof
have been furnished to the Lender;
(iii)
The Lender shall have received a satisfactory as-built Survey
showing the location of all Improvements;
(iv)
The Lender shall have received a satisfactory final affidavit and
full and complete releases of lien from each Contractor and each
major subcontractor designated by the Lender with respect to work
performed and/or materials supplied in the Construction of the
Improvements;
(v)
If requested by the Lender, the Lender shall have received a
satisfactory set of as-built plans and specifications for any
vertical Improvements;
(vi)
If required by the Lender, the Lender shall have received a
satisfactory endorsement to its title insurance policy;
and
(vii)
All other terms and conditions of this Agreement and the other Loan
Documents required to be met as of the date of the final advance of
the Loan for hard costs shall have been met to the satisfaction of
the Lender.
5. Advances
for Stored Materials. No advances will be made for Stored
Materials unless (a) the Borrower has good title to the Stored
Materials and has furnished satisfactory evidence of such title to
the Lender, to the extent required by the Lender, (b) the Stored
Materials are components in a form ready for incorporation into the
Improvements and will be so incorporated within a period of
forty-five (45) days from the date of the advance for the Stored
Materials, (c) the Stored Materials are in the Borrower's
possession and are satisfactorily stored on the Land or at such
other location as the Lender may approve, in each case with
adequate safeguards to prevent commingling with materials for other
projects, (d) the Stored Materials are protected and insured
against loss, theft and damage in a manner and amount satisfactory
to the Lender, (e) the Stored Materials have been paid for in full
or will be paid for in full from the funds to be advanced, (f) the
Lender has or will have upon the payment for the Stored Materials
from the advanced funds a perfected, first priority security
interest in the Stored Materials, (g) all lien rights and claims of
the supplier have been released or will be released upon payment
with the advanced funds, and (h) following the advance for the
Stored Materials, the aggregate amount of advances for Stored
Materials will not exceed US$100,000.
6. Advances
for Soft Costs. The Lender shall make periodic advances for
soft costs, each in the amount requested in the applicable draw
request, without retainage. The Borrower shall be required to
submit to the Lender, an Accounts Payable List for any advances for
soft costs.
7. Advances
for Interest. To the extent that sufficient sums remain
available under the interest reserve line item in the Budget, and
no Default or Event of Default shall then exist hereunder, the
Lender shall make periodic advances to pay interest as and when it
becomes due. The Borrower hereby irrevocably authorizes the Lender
to make any interest payment on the Borrower's behalf by debiting
the interest reserve in the amount of the payment and applying the
debited amount to accrued and unpaid interest on the
Loan.
8. Account
for Funding Advances. Subject to the Lender's right to
advance Loan proceeds as provided in this Agreement, the Lender may
make advances into the Borrower's checking account maintained with
the Lender. The Borrower hereby irrevocably authorizes the Lender
to deposit any advance to the credit of the Borrower in that
account, by wire transfer or other deposit. The Borrower further
irrevocably authorizes the Lender to pay and reimburse itself for
any Expenses incurred by the Lender by debit to such account. This
account shall be used solely for the payment of costs and other
purposes associated with the Construction of the Improvements, the
Property and/or the Loan, and shall not be used for any other
purpose.
9. Advances
for Developer's Fees and Overhead. Upon the satisfaction by
the Borrower of its required Upfront Equity and the other
conditions precedent to the Lender's initial advance under the Loan
for hard costs, and provided that no Default or Event of Default
shall then exist under any of the Loan Documents, the Lender agrees
that that portion of the Loan proceeds allocated for the payment of
developer's fees and/or developer's overhead shall be available for
requisition by the Borrower on a percentage of completion basis as
the Construction of the Improvements progresses.
Schedule 6
Letters of Credit
1.
Letter of Credit
Availability. The proceeds of the Letter of Credit Facility
shall be allocated by the Lender exclusively for the issuance of
one or more Letters of Credit as collateral security for the
performance of certain obligations of the Borrower in connection
with the Construction of the Improvements. With respect to such
Letters of Credit and the Letter of Credit Facility, the following
additional terms and conditions shall apply. Each Letter of Credit
shall be in form and substance satisfactory to the Lender in all
respects, including without limitation, the amount and expiration
date thereof. In no event shall the term of any Letter of Credit
issued hereunder exceed two (2) years from the date of issuance;
provided, however, that to the extent required by the beneficiary
thereof, and as agreed to by the Lender, the term of the Letters of
Credit may be renewable for successive periods of one (1) year on
the condition that the Lender shall have the right to terminate the
same on not more than sixty (60) days written notice prior to any
anniversary. At the time of the issuance of each Letter of Credit,
the Borrower and, to the extent deemed necessary by the Lender, the
Guarantor shall execute in favor of the Lender an Application and
Agreement for Standby Letter of Credit on the Lender's then
standard form (collectively, the "Letter of Credit Agreements")
and deliver to the Lender for its review and approval such other
information and material in connection therewith as may be
reasonably requested by the Lender. The Borrower shall pay to the
Lender (a) upon the issuance of each Letter of Credit and
thereafter annually while such Letter of Credit remains
outstanding, a per annum letter of credit fee for each Letter of
Credit in an amount equal to one and one-half percent (1-1/2%) of
the stated amount of each such Letter of Credit, but in no event
less than US$300.00, (b) upon the issuance of each such Letter of
Credit, an upfront letter of credit documentation fee in the amount
of US$250.00, (c) in the event of any amendment of a Letter of
Credit, an amendment fee in the amount of US$250.00, and (d) in the
event of a draw under any such Letter of Credit, the customary fee
of the Lender charged at such time as a result of the occurrence of
the same. At the time of the maturity of the Loan (whether by
acceleration or otherwise), the Borrower shall be obligated to
fully collateralize any Letters of Credit then outstanding by
pledging to the Lender unencumbered liquid assets approved by the
Lender or by providing such other collateral as may be reasonably
acceptable to the Lender.
2.
Right to Advance;
Security. With respect to the Letters of Credit, the Lender,
in the exercise of its sole and absolute discretion from time to
time, shall be entitled to, without notice to or demand of the
Borrower, at any time and without the need for further approval of
the Borrower, make advances under the Letter of Credit Facility to
the Borrower or directly to beneficiaries or other persons making
claims with respect to the Letters of Credit to cover or to secure
all or any part of the liabilities under such Letters of Credit.
Without in any way limiting the force and effect of any provision
hereof or of any of the Loan Documents, the Borrower acknowledges
and agrees that the obligations under the Letter of Credit
Agreements shall be advanced under the terms of the LOC Note and
shall be secured by the Deed of Trust.
3.
Funding Upon
Default. So long as there shall exist an uncured Default or
Event of Default hereunder or under any of the other Loan Documents
or upon the payment or prepayment of the Loan in full, the Lender
may, at its option, advance from the Letter of Credit Facility an
amount equal to the then potential unfunded obligations of the
Lender under the Letters of Credit, so that such sums shall be
available for the payment of any subsequent drafts made under such
Letters of Credit by the beneficiaries thereof. The proceeds of any
advance made pursuant hereto shall be advanced under the terms of
the LOC Note and shall be deposited by the Lender in a deposit
account maintained at the Lender which shall be pledged to the
Lender as collateral for the Loan in accordance with the terms of
an assignment and pledge of deposit account in form and substance
satisfactory to the Lender in all respects.
4.
Return of Letters of
Credit. Immediately upon the expiration of any Letter of
Credit pursuant to its terms or the satisfaction of all conditions
precedent to the right of the Borrower to obtain the return of any
Letter of Credit from the beneficiary thereof, the Borrower shall
retrieve such original Letter of Credit and return the same or
cause it to be returned to the Lender.
5.
Action by Lender.
The Borrower hereby irrevocably constitutes and appoints the Lender
its true and lawful attorney-in-fact, during the continuance of any
Event of Default, to execute, acknowledge and deliver such
documents, instruments and certificates, and to take such other
actions, in the name and on behalf of the Borrower and at the sole
cost and expense of the Borrower, as the Lender, in its sole
discretion, deems necessary, desirable or appropriate to effectuate
the provisions of this Schedule 6.
Schedule 7
Partial Release Provisions
1. Partial
Releases Generally. The Lender hereby acknowledges and
agrees that the Borrower intends to subdivide portions of the
Property into separate residential building Lots and other Parcels
of land and to convey such Lots and Parcels to third-parties
(including NVR). Thus, notwithstanding anything contained herein or
in any of the other Loan Documents to the contrary, but except as
otherwise expressly provided in Section 2 below of this Schedule 7,
upon the achievement of each of the Release Conditions (as
hereinafter defined), as determined by the Lender in its sole, but
reasonable discretion, the Borrower shall have the right to obtain
a release of individual Lots and Parcels from the lien of the Deed
of Trust in connection with a conveyance of the same to NVR
pursuant to the terms of the NVR Contracts or to another
third-party purchaser under a contract of sale approved by the
Lender. The satisfaction of each and every one of the following
conditions (hereinafter referred to as the "Release Conditions") shall be a
condition precedent to the right of the Borrower to obtain a
release of a Lot or Parcel from the lien and effect of the Deed of
Trust:
(a)
The Lender shall have previously received and approved, which
approval shall not be unreasonably withheld or delayed, a legal and
valid subdivision plat covering that portion of the Property in
which the Lot or Parcel proposed to be released shall be located,
approved (to the extent necessary) by all required Governmental
Authorities, which shall confirm (i) that the Lot or Parcel which
is proposed to be released is a separate and distinct lot or parcel
of property, and (ii) that the balance of the Property remaining
subject to the lien of the Deed of Trust conforms in all respects
with all required zoning and building codes, rules and regulations,
with adequate means of ingress and egress from a public roadway,
together with such cross easement agreements as may be deemed
reasonably necessary by the Lender;
(b)
Unless such Lot or Parcel is being conveyed pursuant to the terms
of the NVR Contracts, the Lender shall have previously received and
approved, which approval shall not be unreasonably withheld or
delayed, a fully executed contract of sale covering the Lot or
Parcel proposed to be released, which shall provide for a purchase
price acceptable to the Lender in all respects and which shall
provide sufficient sums for the payment of the Release Fee required
pursuant to the terms hereof;
(c)
At the time of the request by the Borrower for a release of such
Lot or Parcel from the lien of the Deed of Trust, there shall not
exist any Event of Default hereunder or under any of the other Loan
Documents, nor any condition or state of facts which after notice
and/or lapse of time would constitute an Event of Default hereunder
or under any of the other Loan Documents;
(d)
At the time of the release of such Lot or Parcel from the lien of
the Deed of Trust, the Borrower shall have paid to Lender a release
fee (a "Release
Fee") in an amount equal to the greater of (i) 95% of the
net proceeds received by the Borrower from the sale of such Lot or
Parcel pursuant to the terms of the NVR Contracts or other
applicable contract of sale approved by the Lender after the
payment of all reasonable and necessary third-party closing costs
and expenses approved by the Lender, and (ii) 100% of the minimum
amount required for the release of such Lot or Parcel pursuant to
the schedule attached hereto as Schedule 7-1 and made a part
hereof, which Release Fee shall be applied by the Lender to the
payment of the Obligations in such order or manner as the Lender
may require; provided, however, that in the event that there shall
remain outstanding any Letters of Credit issued by the Lender under
the Loan at the time that the Obligations shall be repaid in full,
or in the event that at the time of such release the Construction
of the Improvements shall not have been completed or there shall
remain any costs related thereto which have not yet been paid, such
Release Fee may then be deposited by the Lender into a deposit
account maintained by the Lender and pledged to the Lender as
additional collateral for the Loan pursuant to the terms of an
assignment and pledge of deposit account in form and substance
satisfactory to the Lender in all respects; and
(e)
The Borrower shall have paid all reasonable out-of-pocket costs and
expenses incurred by the Lender in connection with such release,
including, without limitation, legal fees and all recording
costs.
2. Conveyance
of CCRC Multifamily Parcel and MF Multifamily Parcel to Related
Entities. Notwithstanding anything contained in Section 1 of
this Schedule 7 to the contrary, the Lender acknowledges and agrees
that that portion of the Property located adjacent to Ballenger
Creek Pike containing approximately 6 acres of land and intended
for the development of 200 age-restricted rental units (such Parcel
being hereinafter referred to as the "CCRC Multifamily Parcel") and
that portion of the Property located adjacent to Ballenger Creek
Pike containing approximately 11 acres of land and intended for the
development of 210 multi-family rental units (such Parcel being
hereinafter referred to as the "MF Multifamily Parcel") may be
sold and/or conveyed to Persons related to or affiliated with the
Borrower and/or Mr. Heng Fai Chan. Thus, notwithstanding anything
contained herein or in any of the other Loan Documents to the
contrary, upon the achievement of each of the Release Conditions
set forth below, as determined by the Lender in its sole, but
reasonable discretion, the Borrower shall have the right to obtain
a release of the CCRC Multifamily Parcel and/or the MF Multifamily
Parcel from the lien of the Deed of Trust in connection with a
conveyance of the same to a Person related to or affiliated with
the Borrower and/or Mr. Heng Fai Chan:
(a)
The Lender shall have previously received and approved, which
approval shall not be unreasonably withheld or delayed, a legal and
valid subdivision plat covering that portion of the Property in
which the CCRC Multifamily Parcel and/or the MF Multifamily Parcel,
as the case may be, shall be located, approved (to the extent
necessary) by all required Governmental Authorities, which shall
confirm (i) that the Parcel which is proposed to be released is a
separate and distinct lot or parcel of property, and (ii) that the
balance of the Property remaining subject to the lien of the Deed
of Trust conforms in all respects with all required zoning and
building codes, rules and regulations, with adequate means of
ingress and egress from a public roadway, together with such cross
easement agreements as may be deemed reasonably necessary by the
Lender;
(b)
The Lender shall have previously received and approved, which
approval shall not be unreasonably withheld or delayed, a fully
executed contract of sale or other conveyance agreement covering
the Parcel proposed to be released, which shall provide for a
purchase price acceptable to the Lender in all respects and which
shall provide sufficient sums for the payment of the Release Fee
required pursuant to the terms hereof;
(c)
At the time of the request by the Borrower for a release of such
Parcel from the lien of the Deed of Trust, there shall not exist
any Event of Default hereunder or under any of the other Loan
Documents, nor any condition or state of facts which after notice
and/or lapse of time would constitute an Event of Default hereunder
or under any of the other Loan Documents;
(d)
At the time of the release of such Parcel from the lien of the Deed
of Trust, the Borrower shall have paid to Lender a release fee (a
"Release Fee") in
an amount equal to the greater of (i) 95% of the net proceeds
received by the Borrower from the sale of such Parcel pursuant to
the terms of the applicable contract of sale or other conveyance
agreement approved by the Lender after the payment of all
reasonable and necessary third-party closing costs and expenses
approved by the Lender, and (ii) $4,738,125, if the Parcel to be
released is the MF Multifamily Parcel, or $1,214,330 if the Parcel
to be released is the CCRC Multifamily Parcel, which Release Fee
shall be applied by the Lender to the payment of the Obligations in
such order or manner as the Lender may require; provided, however,
that in the event that there shall remain outstanding any Letters
of Credit issued by the Lender under the Loan at the time that the
Obligations shall be repaid in full, or in the event that at the
time of such release the Construction of the Improvements shall not
have been completed or there shall remain any costs related thereto
which have not yet been paid, such Release Fee may then be
deposited by the Lender into a deposit account maintained by the
Lender and pledged to the Lender as additional collateral for the
Loan pursuant to the terms of an assignment and pledge of deposit
account in form and substance satisfactory to the Lender in all
respects; and
(e)
The Borrower shall have paid all reasonable out-of-pocket costs and
expenses incurred by the Lender in connection with such release,
including, without limitation, legal fees and all recording
costs.
3.
Release of Roadways,
Public Parks, School Site and Other Common Areas. In
addition, provided that no Event of Default shall then exist
hereunder or under any of the other Loan Documents, the Lender
agrees to release from the lien of the Deed of Trust any areas
within the Property designated for use as public roadways, public
parks, a school or as "common areas" for no additional
consideration at the time that such areas are properly conveyed to
the appropriate Governmental Authority or to the appropriate owners
association established for such purpose, so long as the Lender
shall have theretofore reviewed and approved (which approval shall
not be unreasonably withheld or delayed) (a) the final recorded
subdivision plat or plats approved by all appropriate Governmental
Authorities pursuant to which such public roadways or other areas
shall have been formally established, as may be required, (b) if
applicable, all documents and agreements establishing the owners'
association to which such areas shall be conveyed, and (c) the deed
and all other documents pursuant to which such areas shall be
conveyed; all of which must be reasonably acceptable in all
respects to the Lender.
4.
Effect of Partial
Releases. Any release by the Lender of any part of the
Property from the lien of the Deed of Trust shall not, in any
manner, affect or impair the lien or priority of the Deed of Trust
as to the remainder of the Property.
5.
Payment of Additional
Charges. In addition to any other charges payable by the
Borrower pursuant to the terms hereof, of the Deed of Trust or of
any of the other Loan Documents, the Borrower agrees, to the extent
not prohibited by Law, to pay all governmental charges, and all of
the Lender's fees and expenses, for any full or partial release of
the Deed of Trust and any other security interests and liens
securing the Loan, which charges, fees and expenses shall be
payable at the time of such release.
Schedule 7-1
Minimum Release Fee Schedule
|
Developed
Lots
|
|
|
|
SFD
Large
|
$146,875
|
38
|
|
SFD
Small
|
$135,024
|
41
|
|
SFD
NEO
|
$96,082
|
33
|
|
SFA 28'
Villa
|
$99,045
|
56
|
|
SFA 20' TH (End
Units)
|
$88,464
|
34
|
|
SFA 16' TH
(Interior Units)
|
$74,017
|
74
|
|
Undeveloped
Land Parcels
|
|
|
|
MF
Land
|
$4,688,250
|
11+
|
|
CCRC
Land
|
$2,500,400
|
6+
|
|
Future Phase Land
(2D & 3)
|
$2,050,686
|
TBD
|
Schedule 8
List of Plans and Specifications
Ballenger Run
As of November 19, 2015
1.
Ballenger Run Phase
II Execution Plan, Combined Preliminary/Site Plan by Harris,
Smariga & Associates, Inc. dated July 2014, sheets 1 through
25. This plan includes all phases of Ballenger Run.
2.
Ballenger Run
Sediment Controls and Stormwater Management Plans by PHR&A
dated 11/1/12, sheets 1 - 18. Plans will be reapproved as is in
November 2015. This covers all stormwater management for Phases 1,
2A, 2B, 2C and 2D.
3.
Improvement Plan
for Ballenger Run Phase I by Harris, Smariga Associates, Inc. dated
May 2015, sheets 1 – 61. Currently in review by County.
Improvement plans for Phases 2A, 2B and 2C will be drafted and
approved in the future.
4.
Hold down grading
plan by Harris, Smariga & Associates, Inc. undated, 1 sheet.
This plan has been approved by Borrower and NVR and doesn’t
require any governmental approvals. It covers only Phase I. Hold
down plans for future phases will be completed with Improvement
Plans for future phases.
5.
SWM Concept, SWM
Development, Improvement Plan for Ballenger Creek Pike Phases 1 and
2 prepared by Harris, Smariga & Associates, Inc. and dated
August 2015, sheets 1 through 17. Plans for Ballenger Creek Pike
Phases 3 and 4 will be drafted and submitted for approval after
Phases 1 and 2 are approved.
6.
Illustrative Aerial
Plan for Ballenger Run prepared by Harris, Smariga &
Associates, Inc., dated July 13, 2015.
Exhibit 10.27
THIRD LOAN MODIFICATION AGREEMENT
THIS THIRD LOAN MODIFICATION AGREEMENT
(this "Agreement") is made this 18th day of September, 2017, by and
among SeD MARYLAND DEVELOPMENT,
LLC, a Delaware limited liability company, (hereinafter
referred to as the "Borrower"); SeD
BALLENGER, LLC, a Delaware limited liability company,
(hereinafter referred to as the "Limited Guarantor"); and
XENITH BANK, a Virginia
banking corporation formerly known as THE BANK OF HAMPTON ROADS, its successors and assigns,
(hereinafter referred to as the "Lender").
INTRODUCTORY STATEMENT
A.
Pursuant to the terms of a Construction Loan Agreement dated
November 23, 2015 executed by and between the Borrower and the
Lender (such Construction Loan Agreement, together with all
modifications thereto, extensions or renewals thereof and
substitutions therefor being hereinafter referred to as the "Loan
Agreement"), the Lender extended to the Borrower a land development
loan in an original principal amount not to exceed at any one time
outstanding the sum of US$8,000,000 (as the same may be modified,
amended, extended or renewed from time to time, the "Land
Development Loan") and a letter of credit facility in the aggregate
stated amount of US$800,000 (as the same may be modified, amended,
extended or renewed from time to time, the "Letter of Credit
Facility"; such Land Development Loan and Letter of Credit
Facility, as the same may be modified, amended, extended or renewed
from time to time, being hereinafter sometimes referred to both
individually and collectively as the "Loan") to finance the first
stage of the development by the Borrower of certain real property
located in Frederick County, Maryland into a residential
subdivision to be known as "Ballenger Run" containing two hundred
seventy-six (276) single-family building lots (individually, a
"Lot" and collectively, the "Lots") and other building parcels
(individually, a "Parcel" and collectively, the "Parcels") by
clearing and grading and the installation of, among other things,
sediment control, electric lines, communication lines, water and
sewer lines, sidewalks, curbs and paved roads.
B.
The Loan is currently evidenced by (i) a Revolving Credit Note
dated November 23, 2015 executed by the Borrower, as maker, in
favor of the Lender, as payee, with respect to the Land Development
Loan in the original principal amount of US$8,000,000 (which
Revolving Credit Note, together with all modifications thereto,
extensions or renewals thereof and substitutions therefor being
hereinafter referred to as the "Revolving Note"), (ii) a Promissory
Note dated November 23, 2015 executed by the Borrower, as maker, in
favor of the Lender, as payee, with respect to the Letter of Credit
Facility in the original principal amount of US$800,000 (which
Promissory Note, together with all modifications thereto,
extensions or renewals thereof and substitutions therefor being
hereinafter referred to as the "LOC Note"; the Revolving Note and
the LOC Note, together with all modifications thereto, extensions
or renewals thereof and substitutions therefor being hereinafter
sometimes referred to individually as a "Note" and collectively as
the "Notes"), and (iii) one or more Letter of Credit Applications
and/or Agreements heretofore or hereafter executed by the Borrower
(which Letter of Credit Applications and/or Agreements, together
with all modifications thereto, extensions or renewals thereof and
substitutions therefor being hereinafter referred to individually
as a "Letter of Credit Agreement" and collectively as the "Letter
of Credit Agreements").
C. The
Loan is secured by, among other things, the lien of a Deed of
Trust, Assignment and Security Agreement dated November 23, 2015
executed by the Borrower, as grantor, in favor of certain trustees
for the benefit of the Lender and duly recorded among the Land
Records of Frederick County, Maryland on December 1, 2015 in Liber
10880, folio 415 (such Deed of Trust, Assignment and Security
Agreement, together with all modifications thereto, extensions or
renewals thereof and substitutions therefor being hereinafter
referred to as the "Deed of Trust") covering the Borrower's fee
simple interest in the Lots, the Parcels, all improvements now or
hereafter constructed thereon, and all other items of real and
personal property more particularly described therein.
D.
The payment and performance of certain of the obligations of the
Borrower to the Lender under the Loan are unconditionally and
irrevocably guaranteed by the Limited Guarantor pursuant to the
terms of a certain Limited Guaranty Agreement dated November 23,
2015 executed by the Limited Guarantor in favor of the Lender (such
Limited Guaranty Agreement, together with all modifications
thereto, extensions or renewals thereof and substitutions therefor
being hereinafter referred to as the "Limited
Guaranty").
E.
In addition to the foregoing documents, instruments, and
agreements, the obligations of the Borrower to the Lender under the
Loan are further secured by (i) an Assignment of Contracts of Sale
dated November 23, 2015 executed by the Borrower in favor of the
Lender (such Assignment of Contracts of Sale, together with all
modifications thereto, extensions or renewals thereof and
substitutions therefor being hereinafter referred to as the
"Assignment of Contracts"), (ii) an Environmental Indemnification
Agreement dated November 23, 2015 executed by the Borrower and the
Limited Guarantor in favor of the Lender (such Environmental
Indemnification Agreement, together with all modifications thereto,
extensions or renewals thereof and substitutions therefor being
hereinafter referred to as the "Environmental Indemnity"), and
(iii) an Assignment and Pledge of Collateral Account dated November
23, 2015 executed by the Borrower and the Limited Guarantor in
favor of the Lender (such Assignment and Pledge of Collateral
Account, together with all modifications thereto, extensions or
renewals thereof and substitutions therefor being hereinafter
referred to as the "Assignment of Collateral
Account"),.
F.
The terms of the Loan have previously been modified by (i) that
certain Loan Modification Agreement dated January 27, 2017 executed
by and among the Borrower, the Limited Guarantor and the Lender
(hereinafter referred to as the "First Modification Agreement") and
(ii) that certain Loan Modification Agreement dated June 30, 2017
executed by and among the Borrower, the Limited Guarantor and the
Lender (hereinafter referred to as the "Second Modification
Agreement").
G. Furthermore,
subsequent to the closing of the Loan, the Borrower sold one or
more of the Lots or Parcels originally covered by the lien of the
Deed of Trust, and the Lender released the same from the lien of
the Deed of Trust in return for agreed upon principal curtailments
on the Loan.
H. On
this date, the Borrower continues to be the owner of those Lots and
Parcels and other areas of land more particularly described in
Exhibit A attached hereto and made a part hereof (hereinafter
referred to as the "Land") and the improvements now or hereafter
constructed thereon (hereinafter referred to as the "Improvements";
the Land and the Improvements and all other items of real and
personal property now or hereafter covered by the lien of the Deed
of Trust being hereinafter collectively referred to as the
"Property"), and the Borrower and the Limited Guarantor hereby
acknowledge and agree that the Deed of Trust constitutes a valid
and subsisting first lien on the fee simple interest of the
Borrower in the Property as security for the Borrower's payment of
the entire outstanding principal balance of the Loan secured
thereby, and interest thereon, all in accordance with the terms,
covenants, conditions and warranties of the Deed of Trust and the
Notes secured thereby, and that all of the other provisions of the
same are in full force and effect.
I.
The Borrower and the Limited Guarantor have now requested that the
Lender increase the principal amount of the Revolving Note by the
sum of US$3,000,000 in order to provide additional funds to the
Borrower, and further modify the terms of repayment of the
Loan.
J. In
order to induce the Lender to agree to the requests of the Borrower
and the Limited Guarantor hereinabove set forth, and upon the
express condition that the lien of the Deed of Trust remains a
valid and subsisting first lien on the Property and that the
execution and delivery of this Agreement shall not impair the lien
thereof, the parties hereto have agreed to execute and deliver this
Agreement to modify the terms and conditions of the Loan as
hereinafter more particularly set forth.
AGREEMENTS
NOW,
THEREFORE, in consideration of the premises and for the sum of One
Dollar ($1.00) and other good and valuable consideration, the
receipt and sufficiency whereof are hereby acknowledged, the
parties hereto, for themselves, their respective successors and
assigns do hereby mutually covenant and agree as
follows:
1.
Incorporation of
Recitals. The parties hereto acknowledge and agree that the
recitals hereinabove set forth are true and correct in all respects
and that the same are incorporated herein and made a part
hereof.
2.
Outstanding
Obligations. The parties hereto acknowledge and agree (a)
that the outstanding principal balance of the Loan as of the date
hereof, but prior to any advance by the Lender of any additional
proceeds of the Loan made on or about the date hereof, is
US$7,984,631.00, (b) that, as of the date hereof, Letters of Credit
(as defined in the Loan Agreement) in the aggregate stated amount
of US$493,212.18 remain issued and outstanding under the Loan, (c)
that interest on the unpaid principal balance of the Notes has been
paid through August 31, 2017, and (d) that the unpaid principal
balance of the Loan, together with accrued and unpaid interest
thereon, is due and owing subject to the terms of repayment
hereinafter set forth, without defense or offset.
3.
Additional
Indebtedness. In consideration of the agreements set forth
herein, the Lender hereby agrees to increase the principal amount
of the Revolving Note by the sum of US$3,000,000 to an aggregate
amount not to exceed at any time outstanding the sum of
US$11,000,000. Thus, the Borrower hereby promises to pay to the
Lender, in addition to the principal sum originally evidenced by
the Revolving Note, and in accordance with the terms of the
Revolving Note, as modified hereby, with interest, the additional
principal sum of US$3,000,000 (hereinafter referred to as the
"Additional Proceeds"). The face amount of the Revolving Note,
therefore, is hereby increased to the sum of US$11,000,000, and the
parties hereto hereby covenant and agree that, from and as of the
date hereof, whenever the term "principal sum" or "principal
amount" is referred to with respect to the Land Development Loan in
the Revolving Note, the Loan Agreement or in any of the other Loan
Documents (as hereinafter defined), such term shall be deemed to
mean the sum of US$11,000,000 or so much thereof as may from time
to time be advanced and/or readvanced by the Lender to or for the
account of the Borrower under the Revolving Note, as increased
hereby. The Additional Proceeds shall be advanced and/or readvanced
by the Lender to or for the account of the Borrower strictly in
accordance with, and subject to the terms and conditions contained
in, the Revolving Note and the Loan Agreement, each as modified
hereby. In particular, and not in limitation of the foregoing, and
notwithstanding the fact that the principal amount of the Revolving
Note has been increased pursuant to the terms of this Section 3,
the parties hereto hereby acknowledge and agree that the Cumulative
Loan Advance Limit of US$26,000,000 established pursuant to the
terms of the Loan Agreement remains unchanged. Therefore,
notwithstanding anything contained herein to the contrary, in no
event shall the aggregate amount advanced and/or readvanced under
the Land Development Loan exceed the Cumulative Loan Advance Limit
of US$26,000,000.
4. Confirmation
of Liens and Security Interests. In order to secure to the
Lender the payment of the additional indebtedness evidenced hereby,
the Borrower covenants and agrees to execute and deliver, on the
date hereof, in favor of the Lender, among other things, a First
Supplement to Deed of Trust, Assignment and Security Agreement
(hereinafter referred to as the "First Supplement to Deed of
Trust") pursuant to which the lien of the Deed of Trust shall be
increased to secure the repayment in full of the Additional
Proceeds. In addition, the Borrower and the Limited Guarantor
hereby further acknowledge and agree that, from and as of the date
hereof, the Assignment of Contracts, the Environmental Indemnity
and the Assignment of Collateral Account shall secure the full
principal sum of $11,800,000, together with interest thereon, all
costs and expenses of collection and all other sums that may
heretofore or may hereafter be advanced by the Lender in protection
of its rights pursuant to the terms of such Loan Documents, and
that the uses, purposes and conditions upon which the Borrower and
the Limited Guarantor irrevocably granted, transferred and assigned
to the Lender the security interests, liens, charges and
encumbrances contained in such Loan Documents, shall now include
the purpose of securing performance of each agreement of the
Borrower contained in this Agreement, and the Borrower's payment of
the aggregate principal sum of ELEVEN MILLION EIGHT HUNDRED THOUSAND
DOLLARS (US$11,800,000), with interest thereon,
according to the terms of the Notes, the Loan Agreement and the
other Loan Documents, as modified hereby. Nothing herein contained,
and nothing done pursuant hereto, shall adversely affect or be
construed to adversely affect the liens, security interests,
charges or encumbrances of, or warranties of title in, or
conveyances effected by the Deed of Trust and such other Loan
Documents, or the priority thereof over other liens, security
interests, charges, encumbrances or conveyances, or to release or
adversely affect the liability of any party or parties whomsoever
who may now or hereafter be liable under or on account of the Loan
or any of the Loan Documents, nor shall anything herein contained
or done in pursuance hereof adversely affect or be construed to
adversely affect any other security or instrument held by the
Lender as security for or evidence of the indebtedness evidenced
and secured thereby.
5.
Continuation of Loan
Terms. Except as otherwise expressly set forth herein, the
outstanding principal balance of the Loan shall continue to bear
interest, to be advanced and to be repaid on the terms and subject
to the conditions set forth in the Notes and the other documents
evidencing and securing the Loan (this Agreement, the Loan
Agreement, the Notes, the Deed of Trust, the Limited Guaranty, the
Assignment of Contracts, the Environmental Indemnity, the
Assignment of Collateral Account, the First Modification Agreement,
the Second Modification Agreement, the First Supplement to Deed of
Trust, and all such other documents, whether currently existing or
hereafter executed, and all modifications thereto, extensions or
renewals thereof and substitutions therefor being hereinafter
collectively referred to as the "Loan Documents").
6.
Amendment of Certain
Defined Terms. The parties hereto hereby acknowledge and
agree that from and as of the date hereof, the following terms in
the Loan Agreement shall have the meanings indicated below. All
capitalized terms not defined in this Agreement shall have the
meanings given to them in the Loan Agreement:
(a)
"Budget" shall mean
the revised loan budget attached hereto as Exhibit B and
incorporated herein by reference, as the same may be further
amended from time to time with the prior written approval of the
Lender.
(b) "Completion
Date" shall mean the earlier to occur of (a) the date
required for the completion of the Improvements pursuant to the
terms of the NVR Contracts, or (b) September 30, 2019. Time shall
be of the essence for all purposes hereof.
(c) "Loan
Amount" means, individually and collectively, the amount of
the Land Development Loan in the original principal amount not to
exceed at any one time outstanding the sum of US$11,000,000 and the
amount of the Letter of Credit Facility in the aggregate stated
amount of US$800,000.
(d)
"Project Schedule"
shall mean the schedule for commencement and completion of the
Construction of the Improvements attached hereto as Exhibit C and
incorporated herein by reference, as the same may be further
amended from time to time with the prior written approval of the
Lender, which approval shall not be unreasonably
withheld.
7.
Extension of the Maturity
Dates; Confirmation of Extension Options. The parties hereto
hereby further acknowledge and agree that, effective upon the
execution and delivery of this Agreement, the maturity of the Loan
shall be extended to December 31, 2019, so that each of the Notes
shall mature, and the entire principal balance of the Loan,
together with all interest accrued and unpaid thereon, and all
other sums owing by the Borrower to the Lender under the Loan
Documents, shall be due and payable in full on December 31, 2019.
Furthermore, the parties hereto hereby acknowledge and agree that
the "Extension Option" set forth in Section 2 of each of the Notes
shall remain available for exercise by the Borrower in accordance
with the terms therein set forth. Accordingly, from and as of the
date hereof, the term "Maturity Date" in each of the Notes shall
mean December 31, 2019, and in the event that the Borrower shall
successfully exercise the Extension Options in accordance with the
terms of the Notes, the term "Maturity Date" shall mean December
31, 2020.
8.
Right to Requisition Sums
from the Cash Collateral Account. In consideration of the
agreements of the Borrower and the Limited Guarantor set forth
herein, the Lender hereby acknowledges and agrees that,
notwithstanding anything contained in Section 4.24 of the Loan
Agreement or in the Assignment of Collateral Account to the
contrary, and so long as no Default or Event of Default shall then
exist under the Loan, the Borrower shall have the right to request
the withdrawal of up to $1,152,204.00 of the sums on deposit in the
Cash Collateral Account in order to satisfy a portion of the
Borrower's required cash equity investment in the Property, which
sums shall be applied towards the payment of project-related costs
and expenses shown in the Budget and approved by the Lender. It
shall be a condition precedent to the right of the Borrower to
requisition such sums from the Cash Collateral Account that the
Borrower shall have delivered to the Lender fully executed copies
of (a) a Declaration of Covenants and Lien for Private Water and
Sewer Facilities Charges for Ballenger Run, and (b) a Ballenger Run
Water and Sewer Facilities Charges Purchase Agreement, in form and
substance satisfactory to the Lender in all respects. In addition,
the Borrower's right to requisition any such sums from the Cash
Collateral Account shall be subject to the satisfaction by the
Borrower of all conditions precedent to the advance of any portion
of the proceeds of the Loan set forth in the Loan
Agreement.
9.
Amendment of Mandatory
Project Absorption Provision. In further consideration of
the agreements of the Borrower and the Limited Guarantor set forth
herein, the parties hereto hereby acknowledge and agree that,
effective upon the execution and delivery of this Agreement,
Section 4.25 of the Loan Agreement is hereby deleted in its
entirety, and the following shall be inserted in lieu
thereof:
"Section 4.25
Mandatory Project
Absorption. The Borrower further covenants and agrees to
consummate the sale and settlement of sufficient Lots within the
Property in order to cause the outstanding principal balance of the
Land Development Loan to be reduced from the application of the
Release Fees resulting from such sales (a) by an aggregate amount
of US$4,080,067, on or before March 31, 2018, (b) by an aggregate
amount of US$13,839,267, on or before December 31, 2018, and (c) by
an aggregate amount of US$22,981,930, on or before June 30, 2019
(each of the specified annual amounts of minimum required
cumulative Release Fees being hereinafter referred to as a "Minimum
Cumulative Curtail Amount"). The failure of the Borrower to achieve
any one or more of the foregoing Minimum Cumulative Curtail Amounts
on or before the applicable date specified above is hereinafter
referred to as a "Sales Shortfall"). Upon the occurrence of any
such Sales Shortfall, the Borrower shall be required to pay to the
Lender a mandatory principal curtailment on the Loan, within ten
(10) days after written notice from the Lender to the Borrower of
the occurrence of such event, in an amount equal to the difference
between (a) the Minimum Cumulative Curtail Amount for the date in
question, and (b) the sum of (i) the aggregate amount of Release
Fees actually received by the Lender prior to the date upon which
such Sales Shortfall shall be deemed to have occurred from the
sales of Lots within the Property, plus (ii) the full amount of any
mandatory principal curtailment previously paid by the Borrower to
the Lender pursuant to the terms of this Section 4.25 as a result
of the occurrence of any prior Sales Shortfall. In no event shall
the Borrower be entitled to the release of any portion of the
Property as a result of the payment by the Borrower of any such
mandatory principal curtailment unless otherwise agreed to by the
Lender in its sole and absolute discretion."
10.
Amendment of Minimum
Release Fee Schedule. In further consideration of the
agreements of the Borrower and the Limited Guarantor set forth
herein, the parties hereto hereby acknowledge and agree that,
effective upon the execution and delivery of this Agreement, the
Minimum Release Fee Schedule attached as Schedule 7.1 to the Loan
Agreement is hereby deleted in its entirety, and the revised
Minimum Release Fee Schedule attached hereto as Exhibit D and made
a part hereof shall be inserted in lieu thereof.
11.
Ratification of Limited
Guaranty. The Limited Guarantor hereby covenants and agrees
with the Lender that the execution of this Agreement does not and
shall not in any manner affect the obligations and liabilities of
the Limited Guarantor under the Limited Guaranty and the other Loan
Documents executed by the Limited Guarantor, that the Limited
Guaranty and such other Loan Documents remain in full force and
effect, and all obligations of the Borrower set forth in this
Agreement are covered by the terms of the Limited Guaranty as if
the same were set forth fully therein at the time of the execution
thereof..
12.
Fees and Expenses.
In consideration of the Lender's agreement to increase, modify and
extend the Loan and in addition to the payments of principal and
interest required under the Notes, the Borrower and/or the Limited
Guarantor shall pay to the Lender, upon the execution and delivery
of this Agreement, a non-refundable Loan modification fee in the
amount of US$10,000. In addition, the Borrower and the Limited
Guarantor, jointly and severally, covenant and agree to pay all
other reasonable fees, costs, charges and expenses incurred by the
Lender in connection with the preparation of this Agreement and the
modification of the Loan, including without limitation, the
Lender's reasonable attorneys' fees and all recording
costs.
13.
Additional Events of
Default. In addition to those events of default specifically
enumerated in the Notes, the Loan Agreement, the Deed of Trust
and/or any of the other Loan Documents, the failure of the Borrower
or the Limited Guarantor to comply with the terms of any covenant
or agreement contained herein (after the expiration of any
applicable grace and/or cure period afforded to the Borrower and/or
the Limited Guarantor for monetary and/or non-monetary defaults
pursuant to the terms of the Loan Documents) shall constitute an
event of default and shall entitle the Lender to exercise all
rights and remedies provided in the Notes, the Loan Agreement and
the Deed of Trust, as well as all other rights and remedies
provided to the Lender under the terms of any of the other Loan
Documents as a result of the occurrence of the same.
14.
Release of Claims.
The Borrower and the Limited Guarantor, for themselves and for each
of their respective successors and assigns, hereby release and
waive all claims and/or defenses they now or hereafter may have
against the Lender and its successors and assigns on account of any
occurrence relating to the Loan, the Loan Documents and/or the
Property which accrued prior to the date hereof, including, but not
limited to, any claim that the Lender (a) breached any obligation
to the Borrower and/or the Limited Guarantor in connection with the
Loan, (b) was or is in any way involved with the Borrower and/or
the Limited Guarantor as a partner, joint venturer, or in any other
capacity whatsoever other than as a lender, (c) failed to fund any
portion of the Loan or any other sums as required under any
document or agreement in reference thereto, or (d) failed to timely
respond to any offers to cure any defaults under any document or
agreement executed by the Borrower, the Limited Guarantor or any
third party or parties in favor of the Lender. This release and
waiver shall be effective as of the date of this Agreement and
shall be binding upon the Borrower and the Limited Guarantor and
each of their respective successors and assigns, and shall inure to
the benefit of the Lender and its successors and assigns. The term
"Lender" as used herein shall include, but shall not be limited to,
its present and former officers, directors, employees, agents and
attorneys.
15.
Continuing Agreements;
Novation. Except as expressly modified hereby, the parties
hereto ratify and confirm each and every provision of the Notes,
the Loan Agreement, the Deed of Trust, the Limited Guaranty and
each of the other Loan Documents as if the same were set forth
herein. In the event that any of the terms and conditions in the
Notes or in any of the other Loan Documents conflict in any way
with the terms and provisions hereof, the terms and provisions
hereof shall prevail. The parties hereto covenant and agree that
the execution of this Agreement is not intended to and shall not
cause or result in a novation with regard to the Notes and/or any
of the other Loan Documents and that the existing indebtedness of
the Borrower to the Lender evidenced by the Notes is continuing,
without interruption, and has not been discharged by a new
agreement.
16.
Entire Agreement.
NO STATEMENTS, AGREEMENTS OR REPRESENTATIONS, ORAL OR WRITTEN,
WHICH MAY HAVE BEEN MADE TO THE BORROWER OR TO THE LIMITED
GUARANTOR OR TO ANY EMPLOYEE OR AGENT OF THE BORROWER OR OF THE
LIMITED GUARANTOR, EITHER BY THE LENDER OR BY ANY EMPLOYEE, AGENT
OR BROKER ACTING ON THE LENDER'S BEHALF, WITH RESPECT TO THE
MODIFICATION OF THE LOAN, SHALL BE OF ANY FORCE OR EFFECT, EXCEPT
TO THE EXTENT STATED IN THIS AGREEMENT OR IN ANY OTHER DOCUMENT
EXECUTED AND DELIVERED IN CONNECTION HEREWITH, AND ALL PRIOR
AGREEMENTS AND REPRESENTATIONS WITH RESPECT TO THE MODIFICATION OF
THE LOAN ARE MERGED HEREIN AND THEREIN.
17.
Captions. The
captions herein set forth are for convenience only and shall not be
deemed to define, limit or describe the scope or intent of this
Agreement.
18.
Governing Law. The
provisions of this Agreement shall be construed, interpreted and
enforced in accordance with the laws of the State of Maryland as
the same may be in effect from time to time.
19.
Counterparts; Execution by
Facsimile, Etc. This Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an
original. It shall not be necessary that the signature of, or on
behalf of, each party, or that the signatures of the persons
required to bind any party, appear on more than one counterpart.
For purposes of this Agreement, a document (or signature page
thereto) signed and transmitted by facsimile machine or e-mail is
to be treated as an original document. The signature of any party
thereon, for purposes hereof, is to be considered as an original
signature, and the document transmitted is to be considered to have
the same binding effect as an original signature on an original
document.
[Signatures
contained on following pages]
IN
WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the date first above written.
|
WITNESS OR
ATTEST:
/s/
|
BORROWER:
SeD MARYLAND
DEVELOPMENT, LLC
By: SeD Development
Management, LLC
By /s/ Jeffrey M.
Busch
(SEAL)
Jeffrey M. Busch
Manager
|
STATE
OF MARYLAND, COUNTY OF ANNE ARUNDEL, TO WIT:
I
HEREBY CERTIFY, that on this 14th day of September, 2017, before
me, the undersigned Notary Public of said State, personally
appeared Jeffrey M. Busch, who acknowledged himself to be a Manager
of SeD Development Management, LLC, a Delaware limited liability
company and the Manager of SeD Maryland Development, LLC, a
Delaware limited liability company, known to me (or satisfactorily
proven) to be the person whose name is subscribed to the within
instrument, and acknowledged that he executed the same for the
purposes therein contained as the duly authorized Manager of said
limited liability company by signing the name of the limited
liability company by himself as Manager.
WITNESS
my hand and Notarial Seal.
/s/ Christine
Norwood
Notary
Public
My
Commission Expires: 7/6/20
[Signatures
continued on following pages]
|
WITNESS OR
ATTEST:
/s/ Mohammad Ghaggur
|
LIMITED
GUARANTOR:
SeD BALLENGER,
LLC
By /s/ Conn
Flanigan
(SEAL)
Conn Flanigan
Authorized
Representative
|
STATE
OF COLORADO, COUNTY OF ARAPAHOE, TO WIT:
I
HEREBY CERTIFY, that on this 14th day of September, 2017, before
me, the undersigned Notary Public of said State, personally
appeared Jeffrey M. Busch, who acknowledged himself to be an
Authorized Representative of SeD Ballenger, LLC, a Delaware limited
liability company, known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein
contained as the duly authorized representative of said limited
liability company by signing the name of the limited liability
company by himself as Authorized Representative.
WITNESS
my hand and Notarial Seal.
/s/ Daniel G. Budd
Notary
Public
My
Commission Expires: June 20, 2025
[Signatures
continued on following page]
|
WITNESS OR
ATTEST:
/s/
|
LENDER:
By /s/ John S. Pearsall,
Jr.
(SEAL)
John S. Pearsall,
Jr.
Senior
Vice President
|
COMMONWEALTH
OF VIRGINIA, CITY OF RICHMOND TO WIT:
I
HEREBY CERTIFY, that on this 15 day of September, 2017, before me,
the undersigned Notary Public of said State, personally appeared
John S. Pearsall, Jr., who acknowledged himself to be a Senior Vice
President of Xenith Bank, a Virginia banking corporation,
personally well known to me (or satisfactorily proven) to be the
person whose name is subscribed to the within instrument, and
acknowledged that he executed the same for the purposes therein
contained as the duly authorized Senior Vice President of said
banking corporation by signing the name of the banking corporation
by himself as Senior Vice President.
WITNESS
my hand and Notarial Seal.
/s/ Tracy S. Cox
Notary
Public
My
Commission Expires: 4-30-2021
EXHIBIT
A
Page 1
of 4
DESCRIPTION OF THE LAND
ALL those lots or parcels of land
located in the County of Frederick, State of Maryland and more
particularly described as follows:
PARCEL 1: 45.9542 acres of land, more or less.
LAND OF RICHARD B. GRIFFIN ESTATE
RESIDUE OF FARM LOT 1
District 28 Tax Account 581556
FREDERICK COUNTY, MARYLAND
ALL of Farm Lot 1 as it is shown on a plat of subdivision
entitled Griffin Farm Lot 1 and recorded in said Land Records in
Plat Book 60 at Page 126 EXCEPT that part of the Farm Lot 1
panhandle shown on said plat that is shown on a plat of subdivision
entitled Central High School and Future Alignment of Ballenger
Creek Pike, Addition and Outlot Plat, Situated Along Ballenger
Creek Pike and recorded in said Land Records in Plat Book 64 at
Page 151, some of which is shown as Ballenger Creek Pike on
Frederick County Department of Public Works Right of Way Plat
310.
CONTAINING 2,001,764 square feet, or 45.9542 acres of land,
more or less.
PARCEL 2: 96.8933 acres of land, more or less.
LAND OF RICHARD B. GRIFFIN ESTATE
REMAINDER OF THE FIRST DESCRIBED PARCEL
DEED BOOK 2161 PAGE 632
District 28 Tax Account 539193
FREDERICK COUNTY, MARYLAND
ALL of the first parcel described in a deed from Richard B.
Griffin, Jr., Victoire Griffin Rankin, Georgianna Griffin DuBose,
and Morgan Guaranty Trust Company of New York, Co-Personal
Representatives of the Estate of Victoire Conley Griffin, to
Richard B. Griffin made 18 December 1995 and recorded in the Land
Records of Frederick County, Maryland, in Book 2161 at Page 632
EXCEPT Farm Lot 1 as it is shown on a plat of subdivision entitled
Griffin Farm Lot 1 and recorded in said Land Records in Plat Book
60 at Page 126, some of Farm Lot 1 now being part of Ballenger
Creek Pike, and EXCEPT the land in said first parcel that is shown
on a plat of subdivision entitled Central High School and Future
Alignment of Ballenger Creek Pike, Addition and Outlot Plat,
Situated Along Ballenger Creek Pike and recorded in said Land
Records in Plat Book 64 at Page 151, some of which is shown as
Ballenger Creek Pike on Frederick County Department of Public Works
Right of Way Plats 309 and 310, and more particularly described as
follows by metes and bounds on the Maryland State Plane projection
of the North American Datum of 1983 according to a survey by Patton
Harris Rust and Associates, PC, of October, 2005.
EXHIBIT
A
Page 2
of 4
DESCRIPTION OF THE LAND
BEGINNING at a concrete monument found at the end of the S
02°36'06" W, 860.47 foot line of said Farm Lot 1 and
proceeding for three lines more or less along an old wood post and
wire fence
1.
S 02°59'52" W,
830.74 feet to a rebar and cap set
2.
N 79°53'20" W,
393.16 feet to a rebar and cap set
3.
S 70°02'10" W,
519.52 feet to a rebar and cap set; thence passing over rebars with
caps found at 327.08 feet and 431.84 and a rebar and cap found at
546.14 feet near a diversion of the fence
4.
N 80°56'00" W,
667.46 feet to a rebar and cap set
5.
N 72°41'00" W,
458.33 feet to a rebar and cap set
6.
S 56°52'50" W,
174.47 feet to the end of the ninth line of the first parcel
described in Book 2161 at Page 632 and the beginning of the first
line of the third parcel described in that deed, both these lines
being cited as the second line of a deed from Jacob Lewis to Henry
C. Drill dated April 12, 1869 and recorded in the Land Records of
Frederick County, Maryland, in Liber C.M. No. 3 at Folio 411;
thence with these-lines
7.
N 27°37'13" W,
978.45 feet; thence with part of the eighth line reversed of the
said first parcel, which is also part of the second line of the
said third parcel
8.
N 35°05'05" W,
1122.36 feet to a rebar and cap found on the east side of Ballenger
Creek Pike, as it is shown on the aforesaid Frederick County
Right-of-Way plats; thence two courses bounded by Ballenger Creek
Pike
9.
N 07° 04' 10"
E, 161.56 feet to a rebar and cap found
10.
278.30 feet along
the arc of a curve to the right with a radius of 3769.72 feet and a
chord bearing N 09°11'04" E for 278.24 feet to the N
85°35'03" W, 1713.52 foot line of said Farm Lot 1; thence
bounded by Farm Lot 1 reversely along the remainder of this line
and then two preceding lines of Farm Lot 1
11.
S 85°33'53" E,
1678.62 feet
12.
S 21°36'17" E,
1525.05 feet
13.
N 82°56'20" E,
968.27 feet to the place of beginning.
CONTAINING 4,220,672 square feet, or 96.8933 acres of land,
more or less.
EXCEPTING Lots 235, 248, and 261 as shown on a plat of
subdivision entitled "Final Plat, Phase 1, Plat 2, Lots 231-239,
240-251, 259-261, 286, 287 & HOA Common Space, Ballenger Run"
and recorded in said Land Records in Plat Book 98 at Page
12.
EXHIBIT
A
Page 3
of 4
DESCRIPTION OF THE LAND
ALSO EXCEPTING Lots 66-69 and 110-115 as shown on a plat of
subdivision entitled "Final Plat, Phase 1, Plat 3, Lots 11-24,
58-73, 102-115 & HOA Common Space, Ballenger Run" and recorded
in said Land Records in Plat Book 98 at Page 13.
PARCEL 3: 54.1818 acres of land, more or less.
LAND OF RICHARD B. GRIFFIN ESTATE
REMAINDER OF THE THIRD DESCRIBED PARCEL
DEED BOOK 2161 PAGE 632
District 28 Tax Account 539207
FREDERICK COUNTY, MARYLAND
ALL of the third parcel described in a deed from Richard B.
Griffin, Jr., Victoire Griffin Rankin, Georgianna Griffin DuBose,
and Morgan Guaranty Trust Company of New York, Co-Personal
Representatives of the Estate of Victoire Conley Griffin, to
Richard B. Griffin made 18 December 1995 and recorded in the Land
Records of Frederick County, Maryland, in Book 2161 at Page 632
EXCEPT the land in said third parcel that is shown on a plat of
subdivision entitled Central High School and Future Alignment of
Ballenger Creek Pike, Addition and Outlot Plat, Situated Along
Ballenger Creek Pike and recorded in said Land Records in Plat Book
64 at Page 151, some of which is shown as Ballenger Creek Pike on
Frederick County Department of Public Works Right of Way Plats 305,
306, 308, and 309, ALSO EXCEPTING that parcel of land which was
conveyed by Richard B. Griffin and Victoire C. Griffin, his wife,
to Claude R. Page and Lela S. Page, his wife, by deed dated June
15, 1959 and recorded among the aforesaid Land Records in Liber 619
at Folio 561, the remainder being more particularly described by
the following metes and bounds on the Maryland State Plane
projection of the North American Datum of 1983 according to a
survey by Patton Harris Rust and Associates, PC, of October 5,
2005.
BEGINNING at a rebar found at the intersection of the east
side of Ballenger Creek Pike and a line that is both the second
line of said third parcel and the eighth line of the first parcel
described in the same deed; thence with the remainder of these
lines:
1.
S 35°05'05" E,
1122.36 feet; thence with the first line reversed of said third
parcel and the ninth line of said first parcel, both these lines
being cited as the second line of a Deed from Jacob Lewis to Henry
C. Drill dated April 12, 1869 and recorded in the Land Records of
Frederick County, Maryland, in Liber C.M. No. 3 at Folio 411;
thence with these lines
2.
S 27°37'13" E,
978.45 feet; thence passing over iron rebars with caps found at
341.65 feet, 454.92 feet, 739.44 feet, 773.68 feet, 891.91 feet and
973.27 feet for the first of four lines to include said third
parcel
3.
S 56°52'50" W,
1104.18 feet to a rebar and cap set
4.
N 34°59'17" W,
584.10 feet to a rebar and cap set
5.
S 46°30', 43"
W, 311.85 feet to a rebar and cap set
EXHIBIT
A
Page 4
of 4
DESCRIPTION OF THE LAND
6.
S 81°30'43" W,
215.11 feet to a rebar and cap set on the eastern side of said
Ballenger Creek Pike; thence twelve lines with the side of
Ballenger Creek Pike
7.
N 14°10'44" W,
12.38 feet to a rebar and cap set
8.
N 16°11'13" W,
268.95 feet to a rebar and cap set
9.
N 76°43'34" W,
66.00 feet to a rebar and cap set
10.
N 16°43'34" W,
49.51 feet to a rebar and cap set
11.
N 14°55'56" W,
153.11 feet to a rebar found
12.
747.28 feet along
the arc of a curve to the right with a radius of 713.94 and a chord
bearing N 19°03'45" E for 713.63 feet to a rebar
found
13.
N 49°02'53" E,
294.70 feet to a rebar and cap set
14.
S 40°57' 07"
E, 50.00 feet to a rebar and cap set
15.
N 46°55'10" E,
109.36 feet to a rebar and cap set
16.
N 46°20'32" W,
50.00 feet to a rebar and cap set
17.
554.62 feet along
the arc of a curve to the left with a radius of 868.51 feet and a
chord bearing N 25°21'49" E for 545.24 feet to a rebar and cap
found
18.
N 07°04'10" E,
245.80 feet to the place of beginning.
CONTAINING 2,360,160 square feet, or 54.1818 acres of land,
more or less.
EXCEPTING Outlot 'A' as shown on a plat of subdivision
entitled "Outlot Plat, Outlot 'A', Ballenger Run" and recorded in
said Land Records in Plat Book 98 at Page 4.
EXHIBIT
B
REVISED BUDGET
SEE
ATTACHED
EXHIBIT
C
REVISED PROJECT SCHEDULE
SEE
ATTACHED
EXHIBIT
D
REVISED MINIMUM RELEASE FEE SCHEDULE
SEE
ATTACHED
Exhibit 10.28
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of
October 1, 2018 (the “Agreement”), by and
between HF Enterprises Inc., a Delaware (USA) corporation
(“HF
Enterprises”), and Heng Fai Chan, the sole shareholder
(the “Shareholder”) of Hengfai
International Pte. Ltd., a limited corporation formed in Singapore
(the “Company”).
W I T N E S E T H:
WHEREAS, the Shareholder is the owner of
an aggregate of One Million (1,000,000) shares of the ordinary
shares of the Company (the “Company Shares”),
constituting One Hundred Percent (100%) of the issued and
outstanding shares of capital stock of the Company;
WHEREAS, the Shareholder desires to
transfer the Company Shares to HF Enterprises in exchange for Eight
Million Five Hundred Thousand (8,500,000) shares of HF
Enterprises’ common stock (the “HF Enterprises
Shares”);
WHEREAS, the Shareholder intends that
the HF Enterprises Shares be issued to HFE Holdings Limited, an
entity controlled by the Shareholder; and
WHEREAS, in order to accomplish said
transactions, the Shareholder desires to sell, and HF Enterprises
desires to purchase, the Company Shares in exchange for the HF
Enterprises Shares on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the
mutual representations warranties, agreements and indemnities
contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby mutually acknowledged,
the parties agree as follows:
1. Company
Shares
Subject
to the terms and conditions stated herein, the Shareholder hereby
agrees to sell, assign, transfer and deliver to HF Enterprises on
the Closing Date, as defined in Section 3 hereof, and HF
Enterprises hereby agrees to purchase from the Shareholder on the
Closing Date, all right, title and interest of the Shareholder in
and to the Company Shares for a total purchase price consisting of
the HF Enterprises Shares.
2. Payment
of Consideration
In
furtherance of the consummation of the transactions contemplated
hereby, HF Enterprises shall deliver to HFE Holdings Limited, an
entity controlled by the Shareholder, a stock certificate
representing the HF Enterprises Shares, and the Shareholder shall
deliver to HF Enterprises a certificate representing the Company
Shares, properly endorsed and/or accompanied by instruments of
transfer duly executed in blank.
3. Closing
Date
The
closing of the transactions contemplated by this Agreement (the
“Closing”) shall occur on
October 1, 2018 (the “Closing Date”) at the
offices of the Company.
4. Representations
and Warranties
4.1
By the Shareholder. The
Shareholder represents and warrants as follows and acknowledges
that HF Enterprises is relying upon such representations and
warranties in connection with the purchase by HF Enterprises of the
Company Shares.
(a)
The Company is a
limited company duly formed, validly existing and in good standing
under the laws of Singapore;
(b)
The total issued
and outstanding capital stock of the Company consists of One
Million (1,000,000) ordinary shares;
(c)
All of the Company
Shares are owned by the Shareholder as the registered and
beneficial owner of record, with good and marketable title thereto,
free and clear of all mortgages, liens, charges, security
interests, adverse claims, pledges, encumbrances, restrictions and
demands whatsoever (other than restrictions imposed by applicable
securities laws);
(d)
The Shareholder is
purchasing the HF Enterprises Shares for its own account for
investment purposes, and not with a view to the distribution
thereof in violation of any applicable securities
laws;
(e)
The Shareholder is
aware that the HF Enterprise Shares shall be subject to U.S.
securities laws, and may only be sold or transferred in accordance
with applicable law;
(f)
No person,
corporation or other entity (other than HF Enterprises, pursuant to
this Agreement) has any agreement, option or warrant, or any right
or privilege (whether by law, pre-emptive or contractual, or
whether by means of any exercise, conversion or other right or
action) which has the effect of or is capable of becoming an
agreement, option or warrant, for the purchase of any of the
Company Shares from the relevant Shareholder;
(g)
Neither the
Shareholder nor the Company is party to, bound or affected by or
subject to any indenture, mortgage, lease, agreement, instrument,
charter or by-law provision, statute, regulation, order, judgment,
decree or law which would be violated, contravened or breached by,
or under which any default would occur as a result of, the
consummation of the transactions provided for herein;
(h)
The Shareholder has
all requisite power and authority to execute, deliver and perform
its obligations under this Agreement; the execution, delivery and
performance of this Agreement by the Shareholder has been duly
authorized by all necessary action on the part of the Shareholder;
and this Agreement constitutes the legal, valid and binding
obligations of the Shareholder, enforceable against the Shareholder
in accordance with its terms;
(i)
The Company has no
material liabilities;
(j)
The Company is the
sole stockholder of Hengfai Business Development Pte. Ltd.;
and
(k)
The Company’s
wholly-owned subsidiary Hengfai Business Development Pte. Ltd., as
of the date hereof, is the owner of 761,185,294 ordinary shares of
Singapore eDevelopment Limited and warrants to purchase 359,834,471
ordinary shares of Singapore eDevelopment Limited.
4.2
By HF Enterprises. HF
Enterprises represents and warrants as follows and acknowledges
that the Shareholder is relying upon such representations and
warranties in connection with the sale by the Shareholder of the
Company Shares:
(a)
HF Enterprises is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware;
(b)
HF Enterprises has
all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement; the execution,
delivery and performance of this Agreement by HF Enterprises has
been duly authorized by all necessary corporate action on the part
of HF Enterprises; and this Agreement constitutes the legal, valid
and binding obligation of HF Enterprises, enforceable against HF
Enterprises in accordance with its terms;
(c)
HF Enterprises is
not a party to, bound or affected by or subject to any indenture,
mortgage, lease, agreement, instrument, charter or by-law,
provision, statute, regulation, order, judgment, decree or law
which would be violated, contravened or breached by, or under which
any default would occur as a result of, the consummation of the
transactions provided for herein; and
(d)
HF Enterprises is
purchasing the Company Shares for its own account for investment
purposes, and not with a view to the distribution thereof in
violation of any applicable securities laws.
5. Survival
of Representations and Warranties
5.1 The Shareholder. The
representations and warranties of the Shareholder contained in this
Agreement shall survive the consummation of the transactions
contemplated by this Agreement and, notwithstanding such completion
or any investigation made by or on behalf of HF Enterprises, shall
continue in full force and effect for the benefit of HF Enterprises
for a period of one year after the Closing Date.
5.2 HF Enterprises. The
representations and warranties of HF Enterprises contained in this
Agreement shall survive the completion of the transactions
contemplated by this Agreement and, notwithstanding such completion
or any investigation made by or on behalf of the Shareholder, shall
continue in full force and effect for the benefit of the
Shareholder for a period of one year after the Closing
Date.
6. Transfer
This
Agreement shall operate as an immediate and effective transfer and
assignment of the Company Shares by the Shareholder to HF
Enterprises as at the Closing Date. The parties agree to do all
such other acts and things as may be necessary to give effect to
the provisions hereof, and without limiting the generality of the
foregoing, to validly and effectively transfer the Company Shares
from the Shareholder to HF Enterprises as at the Closing Date, and
to validly and effectively issue the HF Enterprises Shares to the
Shareholder as at the date hereof.
7. Additional
Covenants; Assignment
7.1 Each of the
Shareholder and HF Enterprises covenants and agrees to take all
such actions as are within such party’s power to control, and
to use all reasonable efforts to cause other actions to be taken
which are not within such party’s power to control, so as to
ensure compliance with any conditions of Closing as set forth in
this Agreement which are for the benefit of the other
party.
7.2 Each of the
Shareholder and HF Enterprises shall take or cause to be taken all
necessary or desirable actions, steps and corporate proceedings to
approve or authorize the transactions contemplated by this
Agreement and the execution and delivery of this Agreement and
other agreements and documents contemplated hereby, and shall cause
all necessary meetings of directors and Shareholder of the Company
to be held for such purpose.
7.3 Each of the Shareholder and HF
Enterprises covenants and agrees that the transfer of the Company
Shares shall not include the transfer of the following securities
presently held by the Company’s wholly-owned subsidiary
Hengfai Business Development Pte. Ltd.: (i) 683,000 shares of the
common stock of Document Security Systems, Inc., a New York
corporation (the “Document
Security Shares”); and (ii) those warrants to
purchase 1,864,275,000 shares of Singapore eDevelopment Limited, a
limited company formed in Singapore, at a purchase price of S$.048
that were issued in 2017 (the “2017
Warrants”). The Company’s
wholly-owned subsidiary Hengfai Business Development Pte. Ltd. will
assign both the Document Security Shares and the 2017 Warrants,
using the Assignment attached as Exhibit
A hereto, to such
entity or entities as shall be designated by the Shareholder.
Both the Shareholder and HF Enterprises shall take such actions as
shall be necessary and proper to promptly transfer the Document
Security Shares and the 2017 Warrants out of the Company’s
wholly-owned subsidiary Hengfai Business Development Pte.
Ltd.
8. Conditions
8.1
Conditions to the Obligation of HF
Enterprises. The obligation of HF Enterprises to complete
the transactions contemplated herein is subject to the satisfaction
of, or compliance with, on or before the Closing Date, each of the
following conditions (each of which is acknowledged to be for the
exclusive benefit of HF Enterprises and may be waived by it in
whole or in part):
(a)
the representations
and warranties of the Shareholder contained herein shall be true
and correct as at the Closing Date;
(b)
the Shareholder
shall have performed all of his obligations under this Agreement to
be performed on or prior to the Closing Date and the Shareholder
shall not be in breach of any agreement contained in this
Agreement; and
(c)
all documents
relating to the due authorization and completion of the
transactions contemplated hereby and all actions and proceedings
taken on or prior to the Closing Date in connection with the
performance by the Shareholder of his obligations under this
Agreement shall be satisfactory to HF Enterprises and its counsel
and HF Enterprises shall have received copies of all such documents
or other evidence as it may reasonably request in form and
substance satisfactory to Enterprises and its counsel.
8.2
Conditions to the Obligations of the
Shareholder. The obligations of the Shareholder to complete
the transactions contemplated hereunder are subject to the
satisfaction of, or compliance with, on or before the Closing Date,
each of the following conditions each of which is acknowledged to
be for the exclusive benefit of the Shareholder):
(a)
the representations
and warranties of HF Enterprises contained herein shall be true and
correct as at the Closing Date;
(b)
HF Enterprises
shall have performed all of its obligations under this Agreement to
be performed by it on or prior to the Closing Date and HF
Enterprises shall not be in breach of any agreement on its part
contained in this Agreement; and
(c)
all documents
relating to the due authorization and completion of the
transactions contemplated hereby and all actions and proceedings
taken on or prior to the Closing Date in connection with the
performance by HF Enterprises of its obligations under this
Agreement shall be satisfactory to the Shareholder and his counsel
and the Shareholder shall have received copies of all such
documents or other evidence as they may reasonably request in form
and substance satisfactory to the Shareholder and his
counsel.
9. Indemnification
9.1 Each party hereto
agrees to indemnify and hold harmless the other party from and in
respect of any cost, claim, loss, damage, liability or expense
which such other party may suffer or incur, whether at law or in
equity, arising out, resulting from or in connection with the
inaccuracy of any representation or warranty contained herein, for
the time periods provided in Section 5 hereof.
9.2 No claim for
indemnification will arise until written notice thereof is given to
the party from whom indemnification is sought or claimed (the
“Indemnitor”). Such notice
shall be sent within a reasonable time following the determination
by the party seeking indemnification (the “Indemnitee”) that a claim
for indemnity may exist. In the event that any legal proceedings
shall be instituted or any claim or demand is asserted by any third
person in respect of which either party may seek any
indemnification from the other party, the Indemnitee shall give or
cause to be given to the Indemnitor written notice thereof and the
Indemnitor shall have the right, at its option and expense, to be
present at the defense of such proceedings, claim or demand, but
not to control the defense, negotiation or settlement thereof,
which control shall at all times remain with the Indemnitee, unless
the Indemnitor irrevocably acknowledges full and complete
responsibility for indemnification of the Indemnitee in respect of
the subject claim, in which case the Indemnitor may assume such
control through counsel of its choice; provided however, that no settlement
shall be entered into without the Indemnitee’s prior written
consent (which shall not be unreasonably withheld). The parties
agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such third party legal
proceeding, claim or demand.
9.3 Notwithstanding
anything in this Agreement to the contrary, the indemnity provided
for in this Section 9 shall apply to any loss, claim, cost, damage,
expense or liability, whether or not the actual amount thereof
shall have been ascertained prior to the final day upon which a
claim for indemnity with respect thereto may be made hereunder in
accordance with Section 5 hereof, so long as written notice thereof
shall have been given to the party from whom indemnification is
sought prior to said date, setting forth specifically and in
reasonable detail, so far as is known, the matter as to which
indemnification is being sought, but nothing herein shall be
construed to require payment of any claim for indemnity until the
actual amount payable shall have been finally
ascertained.
10. Tax
Treatment
It is
the intention of the parties hereto for the transaction
contemplated by this Agreement to qualify as a tax-free transaction
pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended, thereby resulting in no gain or loss to either the
Shareholder or HF Enterprises.
11. Notices
Notices
required or permitted to be given under this Agreement shall be in
writing and shall be deemed to be sufficiently given when sent by
certified or registered mail or by hand, addressed to the following
addresses or to such other address furnished by notice in
accordance with this section:
If to
the Shareholder:
7
Temasek Boulevard #29-01B
Suntec
Tower One
Singapore
038987
If to
HF Enterprises:
HF
Enterprises Inc.
4800
Montgomery Lane, Suite 210
Bethesda,
MD 20814
A copy
of any notice sent to HF Enterprises shall also be sent to Olshan
Frome Wolosky LLP, 1325 Avenue of the Americas, 15th Floor, New York,
New York 10019, Attention: Spencer G. Feldman, Esq.
12. Interpretation
The
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the words “include”,
“includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words
“without limitation”.
13. Severability
Whenever possible,
each provision or portion of any provision of this Agreement will
be interpreted in such manner as to be effective and valid under
applicable law but if any provision or portion of any provision of
this Agreement is held to be invalid, illegal or unenforceable in
any respect underany applicable law or rule in any jurisdiction,
such invalidity, illegality or unenforceability will not affect any
other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision
or portion of any provision had never been contained
herein.
14. Applicable
Law; Disputes
This
Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to principles of
conflicts of laws. Any action brought by either party hereto
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or
in the federal courts located in the state of Delaware. The parties
to this Agreement hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or
based upon forum non conveniens. The parties hereto agree to submit
to the in person am jurisdiction of such courts and hereby
irrevocably waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable
attorney’s fees and costs.
15. Entire
Agreement
This
Agreement constitutes the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this
Agreement.
16. Assignment
Neither
this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the
other party, which consent may be withheld in either party’s
sole and absolute discretion.
17. Binding
Effect; Counterparts
This
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. This Agreement may be executed in one or more identical
counterparts, all of which shall be considered one and the same
instrument and shall become effective when one or more such
counterparts shall have been executed by each of the parties and
delivered to the other parties.
[Remainder of page
intentionally left blank]
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above
written.
|
THE
SHAREHOLDER
/s/ Chan Heng
Fai
Name: Chan
Heng Fai
|
|
|
HF ENTERPRISES INC.
By:
/s/ Chan Heng
Fai
Name: Chan
Heng Fai
Title: Chief
Executive Officer
|
|
EXHIBIT
A
ASSIGNMENT
Exhibit 10.29
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of
October 1, 2018 (the “Agreement”), by and
between HF Enterprises Inc., a Delaware (USA) corporation
(“HF
Enterprises”), and Chan Heng Fai, the sole shareholder
(the “Shareholder”) of Global
eHealth Limited, a limited corporation formed in Hong Kong (the
“Company”).
W I T N E S E T H:
WHEREAS, the Shareholder is the owner of
One (1) share of the ordinary shares of the Company (the
“Company
Shares”), constituting One Hundred Percent (100%) of
the issued and outstanding shares of capital stock of the
Company;
WHEREAS, the Shareholder desires to
transfer the Company Shares to HF Enterprises in exchange for One
Million (1,000,000) shares of HF Enterprises’ common stock
(the “HF Enterprises
Shares”);
WHEREAS, the Shareholder intends that
the HF Enterprises Shares be issued to HFE Holdings Limited, an
entity controlled by the Shareholder; and
WHEREAS, in order to accomplish said
transactions, the Shareholder desires to sell, and HF Enterprises
desires to purchase, the Company Shares in exchange for the HF
Enterprises Shares on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the
mutual representations warranties, agreements and indemnities
contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby mutually acknowledged,
the parties agree as follows:
1. Company
Shares
Subject
to the terms and conditions stated herein, the Shareholder hereby
agrees to sell, assign, transfer and deliver to HF Enterprises on
the Closing Date, as defined in Section 3 hereof, and HF
Enterprises hereby agrees to purchase from the Shareholder on the
Closing Date, all right, title and interest of the Shareholder in
and to the Company Shares for a total purchase price consisting of
the HF Enterprises Shares.
2. Payment
of Consideration
In
furtherance of the consummation of the transactions contemplated
hereby, HF Enterprises shall deliver to HFE Holdings Limited, an
entity controlled by the Shareholder, a stock certificate
representing the HF Enterprises Shares, and the Shareholder shall
deliver to HF Enterprises a certificate representing the Company
Shares, properly endorsed and/or accompanied by instruments of
transfer duly executed in blank.
3. Closing
Date
The
closing of the transactions contemplated by this Agreement (the
“Closing”) shall occur on
October 1, 2018 (the “Closing Date”) at the
offices of the Company.
4. Representations
and Warranties
4.1 By the Shareholder. The
Shareholder represents and warrants as follows and acknowledges
that HF Enterprises is relying upon such representations and
warranties in connection with the purchase by HF Enterprises of the
Company Shares.
(a)
The Company is a
limited company duly formed, validly existing and in good standing
under the laws of Hong Kong;
(b)
The total issued
and outstanding capital stock of the Company consists of One (1)
ordinary share;
(c)
All of the Company
Shares are owned by the Shareholder as the registered and
beneficial owner of record, with good and marketable title thereto,
free and clear of all mortgages, liens, charges, security
interests, adverse claims, pledges, encumbrances, restrictions and
demands whatsoever (other than restrictions imposed by applicable
securities laws);
(d)
The Shareholder is
purchasing the HF Enterprises Shares for its own account for
investment purposes, and not with a view to the distribution
thereof in violation of any applicable securities
laws;
(e)
The Shareholder is
aware that the HF Enterprise Shares shall be subject to U.S.
securities laws, and may only be sold or transferred in accordance
with applicable law;
(f)
No person,
corporation or other entity (other than HF Enterprises, pursuant to
this Agreement) has any agreement, option or warrant, or any right
or privilege (whether by law, pre-emptive or contractual, or
whether by means of any exercise, conversion or other right or
action) which has the effect of or is capable of becoming an
agreement, option or warrant, for the purchase of any of the
Company Shares from the relevant Shareholder;
(g)
Neither the
Shareholder nor the Company is party to, bound or affected by or
subject to any indenture, mortgage, lease, agreement, instrument,
charter or by-law provision, statute, regulation, order, judgment,
decree or law which would be violated, contravened or breached by,
or under which any default would occur as a result of, the
consummation of the transactions provided for herein;
(h)
The Shareholder has
all requisite power and authority to execute, deliver and perform
its obligations under this Agreement; the execution, delivery and
performance of this Agreement by the Shareholder has been duly
authorized by all necessary action on the part of the Shareholder;
and this Agreement constitutes the legal, valid and binding
obligations of the Shareholder, enforceable against the Shareholder
in accordance with its terms;
(i)
The Company has no
material liabilities; and
(j)
The Company owns
46,226,673 ordinary shares of Holista Colltech
Limited.
4.2
By HF Enterprises. HF
Enterprises represents and warrants as follows and acknowledges
that the Shareholder is relying upon such representations and
warranties in connection with the sale by the Shareholder of the
Company Shares:
(a)
HF Enterprises is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware;
(b)
HF Enterprises has
all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement; the execution,
delivery and performance of this Agreement by HF Enterprises has
been duly authorized by all necessary corporate action on the part
of HF Enterprises; and this Agreement constitutes the legal, valid
and binding obligation of HF Enterprises, enforceable against HF
Enterprises in accordance with its terms;
(c)
HF Enterprises is
not a party to, bound or affected by or subject to any indenture,
mortgage, lease, agreement, instrument, charter or by-law,
provision, statute, regulation, order, judgment, decree or law
which would be violated, contravened or breached by, or under which
any default would occur as a result of, the consummation of the
transactions provided for herein; and
(d)
HF Enterprises is
purchasing the Company Shares for its own account for investment
purposes, and not with a view to the distribution thereof in
violation of any applicable securities laws.
5. Survival
of Representations and Warranties
5.1 The Shareholder. The
representations and warranties of the Shareholder contained in this
Agreement shall survive the consummation of the transactions
contemplated by this Agreement and, notwithstanding such completion
or any investigation made by or on behalf of HF Enterprises, shall
continue in full force and effect for the benefit of HF Enterprises
for a period of one year after the Closing Date.
5.2 HF Enterprises. The
representations and warranties of HF Enterprises contained in this
Agreement shall survive the completion of the transactions
contemplated by this Agreement and, notwithstanding such completion
or any investigation made by or on behalf of the Shareholder, shall
continue in full force and effect for the benefit of the
Shareholder for a period of one year after the Closing
Date.
6. Transfer
This
Agreement shall operate as an immediate and effective transfer and
assignment of the Company Shares by the Shareholder to HF
Enterprises as at the Closing Date. The parties agree to do all
such other acts and things as may be necessary to give effect to
the provisions hereof, and without limiting the generality of the
foregoing, to validly and effectively transfer the Company Shares
from the Shareholder to HF Enterprises as at the Closing Date, and
to validly and effectively issue the HF Enterprises Shares to the
Shareholder as at the date hereof.
7. Additional
Covenants; Assignment
7.1 Each of the
Shareholder and HF Enterprises covenants and agrees to take all
such actions as are within such party’s power to control, and
to use all reasonable efforts to cause other actions to be taken
which are not within such party’s power to control, so as to
ensure compliance with any conditions of Closing as set forth in
this Agreement which are for the benefit of the other
party.
7.2 Each of the
Shareholder and HF Enterprises shall take or cause to be taken all
necessary or desirable actions, steps and corporate proceedings to
approve or authorize the transactions contemplated by this
Agreement and the execution and delivery of this Agreement and
other agreements and documents contemplated hereby, and shall cause
all necessary meetings of directors and Shareholder of the Company
to be held for such purpose.
8. Conditions
8.1
Conditions to the Obligation of HF
Enterprises. The obligation of HF Enterprises to complete
the transactions contemplated herein is subject to the satisfaction
of, or compliance with, on or before the Closing Date, each of the
following conditions (each of which is acknowledged to be for the
exclusive benefit of HF Enterprises and may be waived by it in
whole or in part):
(a)
the representations
and warranties of the Shareholder contained herein shall be true
and correct as at the Closing Date;
(b)
the Shareholder
shall have performed all of his obligations under this Agreement to
be performed on or prior to the Closing Date and the Shareholder
shall not be in breach of any agreement contained in this
Agreement; and
(c)
all documents
relating to the due authorization and completion of the
transactions contemplated hereby and all actions and proceedings
taken on or prior to the Closing Date in connection with the
performance by the Shareholder of his obligations under this
Agreement shall be satisfactory to HF Enterprises and its counsel
and HF Enterprises shall have received copies of all such documents
or other evidence as it may reasonably request in form and
substance satisfactory to Enterprises and its counsel.
8.2 Conditions to the Obligations of the
Shareholder. The obligations of the Shareholder to complete
the transactions contemplated hereunder are subject to the
satisfaction of, or compliance with, on or before the Closing Date,
each of the following conditions each of which is acknowledged to
be for the exclusive benefit of the Shareholder):
(a)
the representations
and warranties of HF Enterprises contained herein shall be true and
correct as at the Closing Date;
(b)
HF Enterprises
shall have performed all of its obligations under this Agreement to
be performed by it on or prior to the Closing Date and HF
Enterprises shall not be in breach of any agreement on its part
contained in this Agreement; and
(c)
all documents
relating to the due authorization and completion of the
transactions contemplated hereby and all actions and proceedings
taken on or prior to the Closing Date in connection with the
performance by HF Enterprises of its obligations under this
Agreement shall be satisfactory to the Shareholder and his counsel
and the Shareholder shall have received copies of all such
documents or other evidence as they may reasonably request in form
and substance satisfactory to the Shareholder and his
counsel.
9. Indemnification
9.1 Each party hereto
agrees to indemnify and hold harmless the other party from and in
respect of any cost, claim, loss, damage, liability or expense
which such other party may suffer or incur, whether at law or in
equity, arising out, resulting from or in connection with the
inaccuracy of any representation or warranty contained herein, for
the time periods provided in Section 5 hereof.
9.2 No claim for
indemnification will arise until written notice thereof is given to
the party from whom indemnification is sought or claimed (the
“Indemnitor”). Such notice
shall be sent within a reasonable time following the determination
by the party seeking indemnification (the “Indemnitee”) that a claim
for indemnity may exist. In the event that any legal proceedings
shall be instituted or any claim or demand is asserted by any third
person in respect of which either party may seek any
indemnification from the other party, the Indemnitee shall give or
cause to be given to the Indemnitor written notice thereof and the
Indemnitor shall have the right, at its option and expense, to be
present at the defense of such proceedings, claim or demand, but
not to control the defense, negotiation or settlement thereof,
which control shall at all times remain with the Indemnitee, unless
the Indemnitor irrevocably acknowledges full and complete
responsibility for indemnification of the Indemnitee in respect of
the subject claim, in which case the Indemnitor may assume such
control through counsel of its choice; provided however, that no settlement
shall be entered into without the Indemnitee’s prior written
consent (which shall not be unreasonably withheld). The parties
agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such third party legal
proceeding, claim or demand.
9.3 Notwithstanding
anything in this Agreement to the contrary, the indemnity provided
for in this Section 9 shall apply to any loss, claim, cost, damage,
expense or liability, whether or not the actual amount thereof
shall have been ascertained prior to the final day upon which a
claim for indemnity with respect thereto may be made hereunder in
accordance with Section 5 hereof, so long as written notice thereof
shall have been given to the party from whom indemnification is
sought prior to said date, setting forth specifically and in
reasonable detail, so far as is known, the matter as to which
indemnification is being sought, but nothing herein shall be
construed to require payment of any claim for indemnity until the
actual amount payable shall have been finally
ascertained.
10. Tax
Treatment
It is
the intention of the parties hereto for the transaction
contemplated by this Agreement to qualify as a tax-free transaction
pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended, thereby resulting in no gain or loss to either the
Shareholder or HF Enterprises.
11. Notices
Notices
required or permitted to be given under this Agreement shall be in
writing and shall be deemed to be sufficiently given when sent by
certified or registered mail or by hand, addressed to the following
addresses or to such other address furnished by notice in
accordance with this section:
If to
the Shareholder:
7
Temasek Boulevard #29-01B
Suntec
Tower One
Singapore
038987
If to
HF Enterprises:
HF
Enterprises Inc.
4800
Montgomery Lane, Suite 210
Bethesda,
MD 20814
A copy
of any notice sent to HF Enterprises shall also be sent to Olshan
Frome Wolosky LLP, 1325 Avenue of the Americas, 15th Floor, New York,
New York 10019, Attention: Spencer G. Feldman, Esq.
12. Interpretation
The
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the words “include”,
“includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words
“without limitation”.
13. Severability
Whenever possible,
each provision or portion of any provision of this Agreement will
be interpreted in such manner as to be effective and valid under
applicable law but if any provision or portion of any provision of
this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction,
such invalidity, illegality or unenforceability will not affect any
other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision
or portion of any provision had never been contained
herein.
14. Applicable
Law; Disputes
This
Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to principles of
conflicts of laws. Any action brought by either party hereto
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or
in the federal courts located in the state of Delaware. The parties
to this Agreement hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or
based upon forum non conveniens. The parties hereto agree to submit
to the in person am jurisdiction of such courts and hereby
irrevocably waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable
attorney’s fees and costs.
15. Entire
Agreement
This
Agreement constitutes the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this
Agreement.
16. Assignment
Neither
this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the
other party, which consent may be withheld in either party’s
sole and absolute discretion.
17. Binding
Effect; Counterparts
This
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. This Agreement may be executed in one or more identical
counterparts, all of which shall be considered one and the same
instrument and shall become effective when one or more such
counterparts shall have been executed by each of the parties and
delivered to the other parties.
[Remainder of page
intentionally left blank]
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above
written.
|
THE
SHAREHOLDER
/s/ Chan Heng
Fai
Name: Chan
Heng Fai
|
|
|
HF ENTERPRISES INC.
By:
/s/ Chan Heng
Fai
Name: Chan
Heng Fai
Title: Chief
Executive Officer
|
|
Exhibit 10.30
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT, dated as of
October 1, 2018 (the “Agreement”), by and
between HF Enterprises Inc., a Delaware (USA) corporation
(“HF
Enterprises”), and Chan Heng Fai, the sole shareholder
(the “Shareholder”) of Heng Fai
Enterprises Pte. Ltd., a limited corporation formed in Singapore
(the “Company”).
W I T N E S E T H:
WHEREAS, the Shareholder is the owner of
One (1) share of the ordinary shares of the Company (the
“Company
Shares”), constituting One Hundred Percent (100%) of
the issued and outstanding shares of capital stock of the
Company;
WHEREAS, the Shareholder desires to
transfer the Company Shares to HF Enterprises in exchange for Five
Hundred Thousand (500,000) shares of HF Enterprises’ common
stock (the “HF
Enterprises Shares”);
WHEREAS, the Shareholder intends that
the HF Enterprises Shares be issued to HFE Holdings Limited, an
entity controlled by the Shareholder; and
WHEREAS, in order to accomplish said
transactions, the Shareholder desires to sell, and HF Enterprises
desires to purchase, the Company Shares in exchange for the HF
Enterprises Shares on the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the
mutual representations warranties, agreements and indemnities
contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby mutually acknowledged,
the parties agree as follows:
1. Company
Shares
Subject
to the terms and conditions stated herein, the Shareholder hereby
agrees to sell, assign, transfer and deliver to HF Enterprises on
the Closing Date, as defined in Section 3 hereof, and HF
Enterprises hereby agrees to purchase from the Shareholder on the
Closing Date, all right, title and interest of the Shareholder in
and to the Company Shares for a total purchase price consisting of
the HF Enterprises Shares.
2. Payment
of Consideration
In
furtherance of the consummation of the transactions contemplated
hereby, HF Enterprises shall deliver to HFE Holdings Limited, an
entity controlled by the Shareholder, a stock certificate
representing the HF Enterprises Shares, and the Shareholder shall
deliver to HF Enterprises a certificate representing the Company
Shares, properly endorsed and/or accompanied by instruments of
transfer duly executed in blank.
3. Closing
Date
The
closing of the transactions contemplated by this Agreement (the
“Closing”) shall occur on
October 1, 2018 (the “Closing Date”) at the
offices of the Company.
4. Representations
and Warranties
4.1
By the Shareholder. The
Shareholder represents and warrants as follows and acknowledges
that HF Enterprises is relying upon such representations and
warranties in connection with the purchase by HF Enterprises of the
Company Shares.
(a)
The Company is a
limited company duly formed, validly existing and in good standing
under the laws of Singapore;
(b)
The total issued
and outstanding capital stock of the Company consists of One (1)
ordinary share;
(c)
All of the Company
Shares are owned by the Shareholder as the registered and
beneficial owner of record, with good and marketable title thereto,
free and clear of all mortgages, liens, charges, security
interests, adverse claims, pledges, encumbrances, restrictions and
demands whatsoever (other than restrictions imposed by applicable
securities laws);
(d)
The Shareholder is
purchasing the HF Enterprises Shares for its own account for
investment purposes, and not with a view to the distribution
thereof in violation of any applicable securities
laws;
(e)
The Shareholder is
aware that the HF Enterprise Shares shall be subject to U.S.
securities laws, and may only be sold or transferred in accordance
with applicable law;
(f)
No person,
corporation or other entity (other than HF Enterprises, pursuant to
this Agreement) has any agreement, option or warrant, or any right
or privilege (whether by law, pre-emptive or contractual, or
whether by means of any exercise, conversion or other right or
action) which has the effect of or is capable of becoming an
agreement, option or warrant, for the purchase of any of the
Company Shares from the relevant Shareholder;
(g)
Neither the
Shareholder nor the Company is party to, bound or affected by or
subject to any indenture, mortgage, lease, agreement, instrument,
charter or by-law provision, statute, regulation, order, judgment,
decree or law which would be violated, contravened or breached by,
or under which any default would occur as a result of, the
consummation of the transactions provided for herein;
(h)
The Shareholder has
all requisite power and authority to execute, deliver and perform
its obligations under this Agreement; the execution, delivery and
performance of this Agreement by the Shareholder has been duly
authorized by all necessary action on the part of the Shareholder;
and this Agreement constitutes the legal, valid and binding
obligations of the Shareholder, enforceable against the Shareholder
in accordance with its terms;
(i)
The Company has no
material liabilities; and
(j)
The Company owns
2,480,000 shares of the common stock of Vivacitas Oncology
Inc.
4.2
By HF Enterprises. HF
Enterprises represents and warrants as follows and acknowledges
that the Shareholder is relying upon such representations and
warranties in connection with the sale by the Shareholder of the
Company Shares:
(a)
HF Enterprises is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of Delaware;
(b)
HF Enterprises has
all requisite corporate power and authority to execute, deliver and
perform its obligations under this Agreement; the execution,
delivery and performance of this Agreement by HF Enterprises has
been duly authorized by all necessary corporate action on the part
of HF Enterprises; and this Agreement constitutes the legal, valid
and binding obligation of HF Enterprises, enforceable against HF
Enterprises in accordance with its terms;
(c)
HF Enterprises is
not a party to, bound or affected by or subject to any indenture,
mortgage, lease, agreement, instrument, charter or by-law,
provision, statute, regulation, order, judgment, decree or law
which would be violated, contravened or breached by, or under which
any default would occur as a result of, the consummation of the
transactions provided for herein; and
(d)
HF Enterprises is
purchasing the Company Shares for its own account for investment
purposes, and not with a view to the distribution thereof in
violation of any applicable securities laws.
5. Survival
of Representations and Warranties
5.1 The Shareholder. The
representations and warranties of the Shareholder contained in this
Agreement shall survive the consummation of the transactions
contemplated by this Agreement and, notwithstanding such completion
or any investigation made by or on behalf of HF Enterprises, shall
continue in full force and effect for the benefit of HF Enterprises
for a period of one year after the Closing Date.
5.2 HF Enterprises. The
representations and warranties of HF Enterprises contained in this
Agreement shall survive the completion of the transactions
contemplated by this Agreement and, notwithstanding such completion
or any investigation made by or on behalf of the Shareholder, shall
continue in full force and effect for the benefit of the
Shareholder for a period of one year after the Closing
Date.
6. Transfer
This
Agreement shall operate as an immediate and effective transfer and
assignment of the Company Shares by the Shareholder to HF
Enterprises as at the Closing Date. The parties agree to do all
such other acts and things as may be necessary to give effect to
the provisions hereof, and without limiting the generality of the
foregoing, to validly and effectively transfer the Company Shares
from the Shareholder to HF Enterprises as at the Closing Date, and
to validly and effectively issue the HF Enterprises Shares to the
Shareholder as at the date hereof.
7. Additional
Covenants; Assignment
7.1 Each of the
Shareholder and HF Enterprises covenants and agrees to take all
such actions as are within such party’s power to control, and
to use all reasonable efforts to cause other actions to be taken
which are not within such party’s power to control, so as to
ensure compliance with any conditions of Closing as set forth in
this Agreement which are for the benefit of the other
party.
7.2 Each of the
Shareholder and HF Enterprises shall take or cause to be taken all
necessary or desirable actions, steps and corporate proceedings to
approve or authorize the transactions contemplated by this
Agreement and the execution and delivery of this Agreement and
other agreements and documents contemplated hereby, and shall cause
all necessary meetings of directors and Shareholder of the Company
to be held for such purpose.
8. Conditions
8.1
Conditions to the Obligation of HF
Enterprises. The obligation of HF Enterprises to complete
the transactions contemplated herein is subject to the satisfaction
of, or compliance with, on or before the Closing Date, each of the
following conditions (each of which is acknowledged to be for the
exclusive benefit of HF Enterprises and may be waived by it in
whole or in part):
(a)
the representations
and warranties of the Shareholder contained herein shall be true
and correct as at the Closing Date;
(b)
the Shareholder
shall have performed all of his obligations under this Agreement to
be performed on or prior to the Closing Date and the Shareholder
shall not be in breach of any agreement contained in this
Agreement; and
(c)
all documents
relating to the due authorization and completion of the
transactions contemplated hereby and all actions and proceedings
taken on or prior to the Closing Date in connection with the
performance by the Shareholder of his obligations under this
Agreement shall be satisfactory to HF Enterprises and its counsel
and HF Enterprises shall have received copies of all such documents
or other evidence as it may reasonably request in form and
substance satisfactory to Enterprises and its counsel.
8.2
Conditions to the Obligations of the
Shareholder. The obligations of the Shareholder to complete
the transactions contemplated hereunder are subject to the
satisfaction of, or compliance with, on or before the Closing Date,
each of the following conditions each of which is acknowledged to
be for the exclusive benefit of the Shareholder):
(a)
the representations
and warranties of HF Enterprises contained herein shall be true and
correct as at the Closing Date;
(b)
HF Enterprises
shall have performed all of its obligations under this Agreement to
be performed by it on or prior to the Closing Date and HF
Enterprises shall not be in breach of any agreement on its part
contained in this Agreement; and
(c)
all documents
relating to the due authorization and completion of the
transactions contemplated hereby and all actions and proceedings
taken on or prior to the Closing Date in connection with the
performance by HF Enterprises of its obligations under this
Agreement shall be satisfactory to the Shareholder and his counsel
and the Shareholder shall have received copies of all such
documents or other evidence as they may reasonably request in form
and substance satisfactory to the Shareholder and his
counsel.
9. Indemnification
9.1 Each party hereto
agrees to indemnify and hold harmless the other party from and in
respect of any cost, claim, loss, damage, liability or expense
which such other party may suffer or incur, whether at law or in
equity, arising out, resulting from or in connection with the
inaccuracy of any representation or warranty contained herein, for
the time periods provided in Section 5 hereof.
9.2 No claim for
indemnification will arise until written notice thereof is given to
the party from whom indemnification is sought or claimed (the
“Indemnitor”). Such notice
shall be sent within a reasonable time following the determination
by the party seeking indemnification (the “Indemnitee”) that a claim
for indemnity may exist. In the event that any legal proceedings
shall be instituted or any claim or demand is asserted by any third
person in respect of which either party may seek any
indemnification from the other party, the Indemnitee shall give or
cause to be given to the Indemnitor written notice thereof and the
Indemnitor shall have the right, at its option and expense, to be
present at the defense of such proceedings, claim or demand, but
not to control the defense, negotiation or settlement thereof,
which control shall at all times remain with the Indemnitee, unless
the Indemnitor irrevocably acknowledges full and complete
responsibility for indemnification of the Indemnitee in respect of
the subject claim, in which case the Indemnitor may assume such
control through counsel of its choice; provided however, that no settlement
shall be entered into without the Indemnitee’s prior written
consent (which shall not be unreasonably withheld). The parties
agree to cooperate fully with each other in connection with the
defense, negotiation or settlement of any such third party legal
proceeding, claim or demand.
9.3 Notwithstanding
anything in this Agreement to the contrary, the indemnity provided
for in this Section 9 shall apply to any loss, claim, cost, damage,
expense or liability, whether or not the actual amount thereof
shall have been ascertained prior to the final day upon which a
claim for indemnity with respect thereto may be made hereunder in
accordance with Section 5 hereof, so long as written notice thereof
shall have been given to the party from whom indemnification is
sought prior to said date, setting forth specifically and in
reasonable detail, so far as is known, the matter as to which
indemnification is being sought, but nothing herein shall be
construed to require payment of any claim for indemnity until the
actual amount payable shall have been finally
ascertained.
10. Tax
Treatment
It is
the intention of the parties hereto for the transaction
contemplated by this Agreement to qualify as a tax-free transaction
pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended, thereby resulting in no gain or loss to either the
Shareholder or HF Enterprises.
11. Notices
Notices
required or permitted to be given under this Agreement shall be in
writing and shall be deemed to be sufficiently given when sent by
certified or registered mail or by hand, addressed to the following
addresses or to such other address furnished by notice in
accordance with this section:
If to
the Shareholder:
7
Temasek Boulevard #29-01B
Suntec
Tower One
Singapore
038987
If to
HF Enterprises:
HF
Enterprises Inc.
4800
Montgomery Lane, Suite 210
Bethesda,
MD 20814
A copy
of any notice sent to HF Enterprises shall also be sent to Olshan
Frome Wolosky LLP, 1325 Avenue of the Americas, 15th Floor, New York,
New York 10019, Attention: Spencer G. Feldman, Esq.
12. Interpretation
The
headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation
of this Agreement. Whenever the words “include”,
“includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words
“without limitation”.
13. Severability
Whenever possible,
each provision or portion of any provision of this Agreement will
be interpreted in such manner as to be effective and valid under
applicable law but if any provision or portion of any provision of
this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction,
such invalidity, illegality or unenforceability will not affect any
other provision or portion of any provision in such jurisdiction,
and this Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable provision
or portion of any provision had never been contained
herein.
14. Applicable
Law; Disputes
This
Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware without regard to principles of
conflicts of laws. Any action brought by either party hereto
against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of Delaware or
in the federal courts located in the state of Delaware. The parties
to this Agreement hereby irrevocably waive any objection to
jurisdiction and venue of any action instituted hereunder and shall
not assert any defense based on lack of jurisdiction or venue or
based upon forum non conveniens. The parties hereto agree to submit
to the in person am jurisdiction of such courts and hereby
irrevocably waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable
attorney’s fees and costs.
15. Entire
Agreement
This
Agreement constitutes the entire agreement, and supersede all prior
agreements and understandings, both written and oral, among the
parties with respect to the subject matter of this
Agreement.
16. Assignment
Neither
this Agreement nor any rights or obligations hereunder may be
assigned by either party without the prior written consent of the
other party, which consent may be withheld in either party’s
sole and absolute discretion.
17. Binding
Effect; Counterparts
This
Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted
assigns. This Agreement may be executed in one or more identical
counterparts, all of which shall be considered one and the same
instrument and shall become effective when one or more such
counterparts shall have been executed by each of the parties and
delivered to the other parties.
[Remainder of page
intentionally left blank]
IN WITNESS WHEREOF, the parties have
executed this Agreement as of the date first above
written.
|
THE
SHAREHOLDER
/s/ Chan Heng
Fai
Name: Chan
Heng Fai
|
|
|
HF ENTERPRISES INC.
By:
/s/ Chan Heng
Fai
Name: Chan
Heng Fai
Title: Chief
Executive Officer
|
|
PURCHASE AND SALE AGREEMENT
This
Purchase and Sale Agreement (“Agreement”) is made between
150 CCM Black Oak, Ltd. a Texas
limited partnership (collectively “Seller” and/or “Developer”, whether one or more)
and Houston LD, LLC
(“Buyer”).
1. Sale
of Property/Lots. Seller agrees to sell and Buyer agrees to
purchase, subject to the terms and conditions of this Agreement,
certain property more particularly described as
follows:
124
Lots located in the Lakes at Black Oak Subdivision, Magnolia,
Montgomery County, Texas, as more particularly referenced and
described on the “Plat” attached hereto as Exhibit A, and specifically
including the Lot Numbers listed on Exhibit A.
together
with all improvements thereon and all appurtenant rights of Seller
including, without limitation, any rights of ingress and egress
through the adjacent streets, roads, infrastructure, alleys and
right-of-ways and such other rights as may be specified in this
Agreement (collectively the “Property”, which may refer also to
the lots included therein). Buyer and Seller acknowledge and
understand the location and description of the Property referenced
and described herein, regardless of the sufficiency of any legal
description.
2. Purchase
Price. The Purchase Price for
Property shall be $6,175,000.00
and allocated as
follows:
|
50 lf
Lot
|
$44,000
|
Number
of lots: 53
|
$2,332,000
|
|
60 lf
Lot
|
$54,000
|
Number
of lots: 70
|
$3,780,000
|
|
70 lf
Lot
|
$63,000
|
Number
of lots: 1
|
$63,000
|
The
Purchase Price shall be payable as follows:
a.
Within two (2) business days of the Effective
Date, Buyer shall deliver $50,000 to Texas State Title,
attn. Cody Sobieski, Pres. 281-640-7660
(“Escrow Agent”) as earnest money to be credited toward
the Purchase Price at the Closing. In addition, Buyer shall deliver
along with the earnest money the independent consideration for the
inspection period in Paragraph 4
below.
b.
Within two (2) business days after the expiration
of the Inspection Period, Buyer shall deliver to the Escrow Agent
an additional $100,000 non-refundable earnest money deposit, which
shall be considered earnest money for all purposes under this
Agreement, except that it is non-refundable unless
Seller defaults.
c.
The
remaining balance of the Purchase Price shall be paid in cash or
its equivalent at Closing as specified below, as adjusted for
prorations and closing costs described below, and subject to
exceptions contained herein.
d.
In addition to the Purchase Price, Buyer agrees to
pay $2,500 per lot at Closing as a “community enhancement
fee” which Seller will apply exclusively towards funding an
amenity package on the Property. The current proposed amenity
package is attached on Exhibit B
hereto.
The
Purchase Price to be paid by Buyer for the Property is conditioned
upon Seller’s delivery of the Property in compliance with the
terms and conditions of this Agreement.
3. Effective
Date. The Effective Date shall
be the date when the last one of the Buyer or Seller executes this
Agreement.
4. Due
Diligence Inspection Period.
For the independent consideration of $500 paid to the Escrow Agent
in accordance with Paragraph 2.a
above, Buyer shall have forty-five
(45) days from the Effective Date (“Inspection
Period”) in which the
Buyer may perform inspections and non-invasive testing, at its sole
expense, to determine if the Property and lots located therein, in
its sole discretion, is suitable for Buyer’s proposed
development, use and business purposes and that the lots within
Property are in compliance with all standards, conditions and terms
hereof and herein. Buyer and its representatives shall have access
to the Property during this Inspection Period and up until Closing.
Buyer agrees to restore the Property substantially to its original
condition after completion of such inspection and testing, which
obligation shall survive termination of this Agreement. Buyer may
cancel or terminate this Agreement at any time during the
Inspection Period for any reason by delivering written notice of
termination to Seller prior to the expiration of the Inspection
Period and the parties shall be released from any further rights,
obligations, and liabilities hereunder (except for those which
expressly survive termination) and all earnest money on deposit
shall be returned to the Buyer.
Buyer
shall indemnify, defend, and hold Seller and its employees,
representatives, and agents harmless from and against all claims,
liabilities, liens, costs, fees, and expenses, including, without
limitation, court costs, litigation expenses, and attorneys’
fees, related to or anyway arising from any of the inspections,
tests, or entry on the Property. This obligation to indemnify and
hold harmless shall survive the termination of this
Agreement.
Within
ten (10) days of the Effective Date, Seller agrees to disclose and
provide to Buyer copies of any third party materials that Seller
identifies in its possession that relate to the Property, which may
include (but Seller does not represent that it has all of these
materials) a current survey, boundary and topographical surveys,
plats, HOA, restrictive covenants and conditions, engineering
reports by electronic format in PDF, CAD (including but not limited
to .dwg and/or .dgn format) or other media, environmental reports,
flood zone certifications, soils reports, easement agreements,
encroachments or encumbrances, municipal zoning related documents,
improvement/management district information, requirements and fees,
mineral leases, oil/gas wells/lines, property line discrepancies,
and homeowners or community association documents, but Seller is
under no obligation to disclose or provide documents of record in
the real property records. Buyer may perform Phase I (but not Phase
II environmental assessments on Property during the Inspection
Period at its own expense.
If
Buyer does not terminate this Agreement prior to the expiration of
the Inspection Period, then the earnest money deposit shall become
non-refundable (subject only to Seller’s ability to convey
clear title and deliver the Property in compliance with the terms
and conditions of this Agreement), and which shall be applied
towards the Purchase Price at closing.
5. Title
Commitment. Within seven (7)
days after the Effective Date, Seller, at its expense, shall order
and deliver to Buyer a title commitment for the Property in the
amount of the Purchase Price from Escrow Agent and obtain a copy of
all documents which constitute exceptions to the title commitment.
Buyer shall give Seller written notice within twenty (20) days
following receipt of the Title Commitment of any condition of title
(exceptions or requirements) that is not satisfactory to Buyer.
Seller may, but shall not be obligated, to resolve such matters;
provided, however, that mortgage liens may be resolved at closing.
If Seller is unable or unwilling to resolve such matters before the
expiration of the Inspection Period as defined above, then Buyer
may, at Buyer’s sole option, either (1) accept title subject
to the objections raised by Buyer and such accepted objections
shall become Permitted Exceptions (“Permitted
Exceptions”) without any
adjustment in the Purchase Price, or (2) terminate this Agreement
prior to the expiration of the Inspection Period pursuant to
Paragraph
4 above, whereupon the earnest
monies shall be immediately returned to Buyer by Escrow Agent, or
(3) work with Seller, if mutually agreeable, to satisfy
unacceptable matters and postpone the end of the Inspection Period
and/or Closing Date to satisfy these matters. At Closing, Seller
shall provide Buyer with an owner’s policy of title insurance
in the amount of the Purchase Price. Seller shall pay the cost for
the basic cost of the owner’s policy of title insurance, and
Buyer shall pay the cost for all endorsements, changes, and
modifications to the owner’s policy of title
insurance.
6. Closing.
Closing shall occur within thirty (30) days after the expiration of
the Inspection Period (“Closing Date”) subject to the Property being delivered
in compliance with all terms herein.
7. Title
& Deliveries. At or prior
to Closing, Seller shall deliver to the Escrow Agent and/or Buyer
the following items for the Property, duly executed and
acknowledged where required:
A. Conveyance
Deed. A special warranty deed
in the form satisfactory to Buyer, specifically stating all
approved exceptions to title, if any, subject but not limited to,
zoning or deed restrictions, easements and encumbrances of record
by either Buyer or Seller, or future assessments if
applicable.
B. Foreign
Person Tax Withholding.
Documentation or information required for compliance with Section
1445 of the Internal Revenue Code.
C. Additional
Documents. Such additional
documents as might be reasonably required by the Buyer,
Buyer’s Lender, or the Escrow Agent to consummate the sale of
the Property and convey clear title to the Buyer with all
appurtenant rights.
D. Insurance
Policy and Costs. Seller will
pay the costs of Seller’s counsel, preparation of any deeds
and any bill of sale, deliver and pay the basic costs for a title
insurance policy in an amount equal to the Purchase Price, transfer
taxes for the conveyance, and one half of the escrow or closing
fees. Buyer will pay the cost of Buyer’s counsel, all loan
costs required by Buyer’s lender, including title policy cost
in excess of owner’s policy, Buyer’s portion of the
cost of the owner’s policy of title insurance, one half of
any escrow or closing fee, and recording fees for any deeds and
mortgage, and any applicable mortgage tax.
E. Tax
Prorations. All taxes and assessments (including pending
assessments if the related improvement is substantially completed
as of the Closing Date), whether payable in installments or not,
for the year of closing will be prorated to the Closing Date based
on the latest available tax rate and assessment valuation (with the
parties signing a proration agreement as to adjustments when actual
taxes are known).
8. Obligations
of Seller & Conditions Precedent to Closing. Seller shall complete and deliver the Property
in compliance with all terms and requirements stated herein, if not
already done so. Buyer’s obligation to close on the Property
or any lots within same is subject to and conditioned upon the
compliance and satisfaction, as of the Closing Date, of each of the
requirements described herein and below. Unless specifically stated
otherwise, the satisfaction of these conditions shall be at
Seller’s expense. Buyer shall cooperate with Seller to
satisfy these conditions as needed.
A. Correctness of Representations
and Warranties. Seller
represents and warrants that (i) to its knowledge it holds good and marketable
title in fee simple to the Property, (ii) all closing documents signed by Seller will be
valid, authorized and binding upon Seller, (iii) to its knowledge no outstanding contracts,
fees, debts or liens exist on the Property (except mortgage liens
to be satisfied at closing and other items related to the
development of the Property); and (iv) to Seller’s knowledge
there are no leases or third-party rights/interests on the Property
and Seller is in sole possession. These representations and warranties of Seller
shall be evaluated by Buyer
during its title review and the Inspection Period and shall not
create any obligations of Seller or rights of Buyer, outside of
those specified in Paragraphs 4 and 5 of this
Agreement.
B. Final
Plat Recording & 911 Addresses. Finalization and recording of the proposed plat
and Seller’s delivering a copy thereof to Buyer on or before
the Closing Date. The plat shall be deemed finalized after all
required governmental approvals have been obtained, said plat has
been duly recorded in the real property records of the applicable
County Clerk’s office, corresponding 911 addresses have been
provided by the Seller to the Buyer.
C. Covenants,
Conditions, and Restrictions
(“CC&Rs”).
Seller shall draft CC&Rs for Buyer’s review prior to the
expiration of the Inspection Period, and Buyer shall approve the
CC&Rs so long as they are reasonable. If buyer does not believe
that the CC&Rs are reasonable, it shall give Seller written
notice specifying its objections and Seller and Buyer shall attempt
to negotiate a final set of CC&Rs prior to the expiration of
the Inspection Period. If Seller or its affiliate is the declarant
and/or governing architectural review authority under the
CC&Rs, then upon Buyer’s submittal from time to time,
Seller shall approve Buyer’s submittals so long as they are
in accordance with the CC&Rs.
D. Completion/Compliance.
The Property and lots therein have
been completed in full compliance with all terms hereof. All
requirements by applicable local, state and federal governmental
authorities will have been met or exceeded for the Property and
each lot therein, including but not limited to, preliminary and
final plat approval, proper construction and availability of fully
operational utilities including roads, water, sanitary sewer,
storm, sewer with all necessary permits and fully compliant (no
violations) with all applicable rules, regulations, and ordinances
of applicable authorities, and a written statement from the
engineer of record that building permits are obtainable from the
appropriate governmental agencies for the construction of
single-family houses on the lots. A preliminary and final plat of
the development, approved construction drawings from the municipal
authority and an “AS BUILT” survey will be provided in
“PDF” and “CAD” format to the Buyer as they
become available. Each lot pin shall have a flagged wooden lathe to
mark the pin location. Provided
that Buyer provides Seller adequate and appropriate utility
easements over and under the Property, as reasonably determined by
Seller, Seller will cause permanent underground electric power and
telecommunication facilities (collectively, the
“Permanent
Utilities”) to be
installed and available to the perimeter of each lot within the
Property within ninety (90) days after Buyer has poured the slab
for a residence on a lot and has given Seller written notice that
Buyer is ready for the Permanent Utilities for the
lot. This post-closing
obligation of Seller to provide Permanent Utilities shall expressly
survive Closing for twenty-four (24) months.
E. Permits and Environmental
Concerns. Seller will obtain
and complete all requirements related to Storm Water Pollution
Prevention Plans (“SWPPP”) as required by applicable local, state
and federal authorities and maintain the same during the
development of the lots within the Property. Upon Closing, Seller
will deliver to Buyer satisfactory approval from the appropriate
authority/agency regarding storm water quality that all BMP’s
are installed and maintained per the SWPPP. Upon Closing, Seller
shall transfer (to the extent transferrable) the stormwater permit
to Buyer and Buyer shall assume all responsibility for future
maintenance and installation and Seller shall be released from
liability thereon. Seller shall have caused all FEMA requirements
to have been met for a home on any lot to be exempted from
purchasing flood insurance and no portion of any house pad site (it
being understood that some portions of some lots are within a flood
plain) is to be located in a FEMA defined flood plain.
Seller’s principals have no
actual knowledge that the Property has been or is presently used
for handling, storage, manufacturing, refining, transportation or
disposal of “toxic material”, “hazardous
substances”, or “hazardous waste”.
If “hazardous wastes”,
“hazardous substances”, or “hazardous
material” is located on the Property, as determined by a
Phase I or permitted Phase II environmental assessment obtained by
the Buyer, then Buyer shall have the right to terminate this
Agreement during the Inspection Period pursuant to Paragraph 4
above.
F. Trash, Trees, Brush &
Debris. The Property is being
sold “as-is” and Buyer shall be responsible for mowing,
brush hogging, and removing, clearing, and disposing of all trees,
trash and debris on the Property, except that Seller will remove
any construction debris of which Buyer notifies Seller in writing
prior to the expiration of the Inspection
Period.
9. Offsite Water
Flow. Seller will deliver the Property at Closing
with proper offsite
water flow on and to the Property and which will
be managed through the
appropriate infrastructure.
10. Subsurface
Rock. Prior to expiration of
the Inspection Period, Buyer may terminate this Agreement pursuant
to Paragraph
4 above and recover the earnest money
upon the discovery of subsurface rock underlying the Property in
any quantity deemed excessive by the Buyer, unless Seller has
remedied the same to Buyer’s
satisfaction.
11. Assessments.
So long as Developer is in control
under the CC&Rs, Buyer shall be exempt from paying any and all
applicable assessments (but will have to pay TAP fees and the
amenity assessment) in the CC&Rs to the Developer during the
Seller’s period of ownership, including, but not limited to
regular and special assessments. Seller also agrees to exempt bona fide home
builders from assessments in the CC&Rs, during the same time
period.
12. Notice.
All notices will be in writing and served by electronic
transmission to the addresses shown below, until notification of a
change of such addresses. All such notices shall be deemed
delivered on the date initiated.
For
Buyer:
David
C. Frye, Manager
David.frye@rauschcoleman.com
479.455.9090
Dana
Danvers, Director of Acquisitions
Dana.danvers@rauschcoleman.com
John
Maberry
John.maberry@rauschcoleman.com
Josh
Carson
Josh.carson@rauschcoleman.com
Julie
Bias, Financial Coordinator
Julie.bias@rauschcoleman.com
For
Seller:
Charley
MacKenzie
charley@sed.com.sg
Daryl
Robinson
drobinson@newquestcrosswell.com
Moe
Chan
moe@sed.com.sg
Shamar
O’Bryant
shamar@sed.com.sg
Frank
Heuszel
fheuszel@yahoo.com
Randy
Farber
rfarber@jw.com
13. Disclosure
by Buyer and Seller. One or
more individuals representing the Buyer or Seller may hold real
estate licenses from multiple states.
14. Default.
If Seller has performed all of Seller’s obligations and
fulfilled the conditions under this Agreement and, if within five
(5) days after the date specified for Closing, the Buyer fails to
make payment as required herein, through no fault of Seller, then
Seller may, as its sole and exclusive remedy, cancel and terminate
this Agreement and keep the earnest money deposit paid by the Buyer
as liquidated damages. If Seller breaches this Agreement or fails
to perform any of Seller’s obligations hereunder, then Buyer
may as its sole remedy, (i) terminate this Agreement and receive a
refund of all of the earnest money, or (ii) seek specific
performance of this Agreement pursuant to the remainder of
this Paragraph
14.
a.
Buyer may enforce specific performance of
Seller’s obligation to execute the documents required to
convey the Property to Buyer but waiving any uncured title or
survey objections or matters and without any offset against,
deduction from, or reduction in the Purchase Price
(except for the costs Buyer will incur
to complete the Property in accordance with the terms
hereof), and Seller’s
warranty of title in the special warranty deed and the owner policy
of title insurance to be delivered under this Agreement shall be
subject to the permitted title exceptions and all uncured title or
survey objections or matters, and Buyer expressly waives its rights
to seek damages if it files a lawsuit for specific
performance.
b.
Buyer shall be deemed to have elected to terminate
this Agreement under clause (i) above if Buyer fails to file suit
for specific performance in accordance with Sub-Paragraph a
above (against
Seller in a court having jurisdiction in the county and state in
which the Property is located, on or before 60 days after the date
upon which closing was to have occurred.
15. Binding
Effect/Assignment. This
Agreement will inure to the benefit of and bind the respective
successors of the parties. Seller may not assign this Agreement or
any obligations hereunder. Buyer may assign this Agreement and any
and all rights and obligations hereunder at any time prior to
closing to any person or entity controlling, controlled by, or
under common control with Buyer. For purposes of this Paragraph a
person or entity shall control an entity, if it, directly or
indirectly, holds a majority interest in the entity to be
controlled.
16. No
Waiver. Failure of either party
to exercise any rights under this Agreement shall not constitute a
waiver of any right, nor excuse the other party’s full
performance. No express waiver of any matter shall affect any other
matter under this Agreement. Express waivers are only effective if
in writing.
17. Brokerage.
Buyer represents that it has not contracted with any real estate
broker in connection with the transaction contemplated by this
Agreement. Seller shall be responsible for paying a 4%
Broker’s commission based on the Purchase Price to Dave
Ramsey with Home Asset, Inc. Each party shall indemnify and hold
the other party harmless from all claims, losses, liabilities,
costs, fees, and expenses (including, but not limited to, court
costs, litigation expenses, and attorneys’ fees) related to
or incurred in connection with any claims for brokerage commissions
arising by, through, or under the indemnifying
party.
18. Entire
Agreement. This document
constitutes the entire agreement between the parties, incorporating
all prior agreements, and may only be amended in writing executed
by both parties. The exhibits attached to this Agreement are
incorporated into this Agreement for all
purposes.
19. Attorney’s
Fees. If either party prevails
against the other in a legal action concerning any part of this
Agreement, the successful party shall be entitled to its reasonable
attorney’s fees and costs connected with such action, through
appellate and bankruptcy proceedings, in addition to all other
recovery or relief. Costs shall include all deposition costs and
expert fees, even if not used at trial.
20. Governing
Law. This Agreement shall be
governed and enforced in accordance with the law of the state where
the Property is located.
21. Time.
Buyer and Seller understand that “Time is of the
Essence” for this Agreement.
22. ADA
Compliant Ramps. Seller shall
be responsible for installation of any and all required ADA
sidewalk ramps for sidewalks installed by Seller. Said ramps shall
meet all the ADA Guidelines, Code and Specifications for such
ramps.
23. Special
Stipulations.
a.
Within 30 days after Closing, Seller shall
commence construction of the Black Oak Community Entry on Black Oak
Drive, including the landscaping and amenities in
Paragraph
1. This provision shall
expressly survive Closing and remain a continuing obligation of
Seller until complete.
b.
During
the Inspection Period, Buyer shall propose its signage to Seller
for approval, as to type, size, appearance, and placement. Seller
shall not unreasonably withhold its approval of the signage, so
long as the signage meets all applicable governmental requirements
and is limited so as not to clutter the Property. After approval by
Seller, Buyer may place the signage in the agreed locations prior
to closing.
c.
Seller’s obligations under this
Paragraph
23 and any liabilities
therefore shall survive Closing.
d.
The terms of this Agreement shall be kept
confidential by both parties, subject to the remainder of
this Paragraph 23.d.
Each party may disclose the terms of
this Agreement (including information about the parties) where
disclosure is required by (or advisable to comply with) applicable
law or regulation, rule of stock exchange, governmental agency, or
self-regulatory agency, by a court of competent jurisdiction, or by
any other regulatory body, and the terms may be disclosed to the
parties’ respective counselors, attorneys, accountants,
brokers, and other persons with a need to know.
24. AS-IS. Subject to
the representations and covenants, stated herein to expressly
survive Closing, and the specific provisions of Paragraph 8.D,
the parties intend that the
sale of the Property will be made on an “As Is, Where
Is” basis with all faults, in accordance with the terms and
provisions of Exhibit
C.
25. Statutory
Notices. To the extent
applicable, Seller gives Buyer the
notices set forth in Exhibit
D.
|
SELLER:
150 CCM BLACK OAK LP,
a Texas
limited partnership
By:
150 Black Oak GP, Inc.,
a Texas
corporation
Its: General
Partner
By:
/s/ Charley
MacKenzie
Charley
MacKenzie,
Chief
Development Officer
Date:
7/2/18
|
|
BUYER:
HOUSTON LD, LLC
By:
/s/ David C.
Frye
David
C. Frye,
Manager
Date:
7-2-18
|
Description and Plat of Property
and List of Lots
Proposed Amenity Package
As-Is, Where-Is
1.
BUYER
ACKNOWLEDGES AND AGREES THAT SELLER AND ITS AGENTS HAVE NOT MADE,
DO NOT MAKE, WILL NOT MAKE AND SPECIFICALLY NEGATE AND DISCLAIM ANY
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS,
IMPLIED, OR STATUTORY, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE,
OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE NATURE, QUALITY,
OR CONDITION OF THE PROPERTY OR ANY PART THEREOF, INCLUDING,
WITHOUT LIMITATION, THE WATER, SOIL, AND GEOLOGY; (B) THE ECONOMIC
FEASIBILITY OF THE PROPERTY OR THE INCOME TO BE DERIVED FROM THE
PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) EXCEPT FOR
ANY WARRANTIES OF TITLE CONTAINED IN THE SPECIAL WARRANTY DEED TO
BE DELIVERED BY SELLER AT THE CLOSING, THE NATURE AND EXTENT OF ANY
RIGHT-OF-WAY; (E) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS
OPERATION WITH ANY LAWS, RULES, ORDINANCES, OR REGULATIONS OF ANY
APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, INCLUDING, WITHOUT
LIMITATION, THE STATUS OF ANY PERMITS AND GOVERNMENTAL APPROVAL;
(F) THE RENTABILITY, HABITABILITY, MARKETABILITY, MERCHANTABILITY,
OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (G) THE
PRESENCE OF ANY ENDANGERED OR THREATENED SPECIES ON THE PROPERTY,
AS WELL AS THE SUITABILITY OF THE PROPERTY AS HABITAT FOR ANY OF
THOSE SPECIES; OR (H) ANY OTHER MATTER WITH RESPECT TO THE
PROPERTY. WITHOUT LIMITING THE FOREGOING, SELLER AND ITS AGENTS
HAVE NOT MADE, DO NOT MAKE, WILL NOT MAKE AND SPECIFICALLY NEGATE
AND DISCLAIM ANY REPRESENTATION OR WARRANTY REGARDING THE PRESENCE
OR ABSENCE OF ANY HAZARDOUS MATERIALS (AS HEREINAFTER DEFINED) ON,
UNDER, OR ABOUT THE PROPERTY OR THE COMPLIANCE OF THE PROPERTY WITH
ANY OF THE ENVIRONMENTAL LAWS (AS HEREINAFTER DEFINED). THE TERM
“HAZARDOUS MATERIALS” MEANS ANY SUBSTANCE, COMPOUND,
MATERIAL OR WASTE, WHETHER SOLID, LIQUID OR GASEOUS: (1) THE
PRESENCE OF WHICH REQUIRES INVESTIGATION, MONITORING OR REMEDIATION
UNDER ANY ENVIRONMENTAL LAW (DEFINED BELOW); (2) WHICH IS OR
BECOMES DEFINED AS A “HAZARDOUS SUBSTANCE”,
“HAZARDOUS MATERIAL”, “HAZARDOUS WASTE”,
“EXTREMELY HAZARDOUS WASTE”, “SOLID WASTE”,
“TOXIC SUBSTANCE”, “CHEMICAL SUBSTANCE”,
“REGULATED SUBSTANCE”, “POLLUTANT”, OR
“CONTAMINANT”, OR IS OTHERWISE CLASSIFIED AS HAZARDOUS
OR TOXIC, IN OR PURSUANT TO ANY ENVIRONMENTAL LAW; (3) WHICH IS
EXPLOSIVE, CORROSIVE, FLAMMABLE, RADIOACTIVE, OR OTHERWISE
HAZARDOUS AND IS OR BECOMES REGULATED BY ANY GOVERNMENTAL
AUTHORITY, AGENCY, DEPARTMENT, COMMISSION, BOARD, AGENCY OR
INSTRUMENTALITY OF THE UNITED STATES, THE STATE OF TEXAS OR ANY
POLITICAL SUBDIVISION THEREOF; (4) THE PRESENCE OF WHICH ON THE
PROPERTY CAUSES OR THREATENS TO CAUSE A NUISANCE UPON THE PROPERTY
OR TO ADJACENT PROPERTIES OR POSES OR THREATENS TO POSE A HAZARD TO
THE HEALTH OR SAFETY OF PERSONS ON OR ABOUT THE PROPERTY; (5) THAT
CONTAINS PETROLEUM HYDROCARBONS, ASBESTOS, RADON, POLYCHLORINATED
BIPHENYLS, UREA FORMALDEHYDE FOAM INSULATION, LEAD, OR MOTOR FUEL
OR OTHER VOLATILE ORGANIC COMPOUNDS; (6) WHICH CAUSES OR POSES A
THREAT TO CAUSE A HAZARD TO THE ENVIRONMENT OR TO THE HEALTH,
SAFETY OR WELFARE OF PERSONS ON OR ABOUT THE PROPERTY, OR (7) WHICH
IS A SHARP (E.G. NEEDLE) OR AN INFECTIOUS, MEDICAL OR RADIOACTIVE
WASTE. THE TERM “ENVIRONMENTAL LAWS” MEANS ANY FEDERAL,
STATE OR LOCAL LAW, STATUTE, GUIDANCE OR POLICY STATEMENT,
ORDINANCE, CODE, RULE, REGULATION, LICENSE, AUTHORIZATION,
DECISION, ORDER, INJUNCTION OR DECREE, WHICH PERTAINS TO HEALTH,
SAFETY OR THE ENVIRONMENT (INCLUDING, BUT NOT LIMITED TO, GROUND,
AIR, WATER OR NOISE POLLUTION OR CONTAMINATION, AND UNDERGROUND OR
ABOVEGROUND TANKS) AND SHALL INCLUDE WITHOUT LIMITATION, THE CLEAN
WATER ACT, 33 U.S.C. § 1251 ET SEQ.; THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT, 42 U.S.C.
§ 9601 ET SEQ.; THE RESOURCE CONSERVATION AND RECOVERY ACT, 42
U.S.C. § 6901 ET SEQ.; THE TOXIC SUBSTANCE CONTROL ACT, 15
U.S.C. §§ 2601 ET SEQ; THE OCCUPATIONAL HEALTH AND SAFETY
ACT; THE TEXAS WATER CODE; AND THE TEXAS SOLID WASTE DISPOSAL ACT,
TEXAS HEALTH AND SAFETY CODE CHAPTER 361, ALL AS
AMENDED.
2.
BUYER
AGREES THAT IT HAS EXAMINED AND INVESTIGATED THE PROPERTY PRIOR TO
EXECUTION HEREOF OR THAT IT WILL INVESTIGATE THE PROPERTY PRIOR TO
THE EXPIRATION OF THE INSPECTION PERIOD AND THAT IN PURCHASING THE
PROPERTY BUYER WILL RELY SOLELY UPON ITS INDEPENDENT EXAMINATION,
STUDY, INSPECTION AND KNOWLEDGE OF THE PROPERTY, AND BUYER IS
RELYING SOLELY UPON ITS OWN EXAMINATION, STUDY, INSPECTION, AND
KNOWLEDGE OF THE PROPERTY AND BUYER’S DETERMINATION OF THE
VALUE OF THE PROPERTY AND USES TO WHICH THE PROPERTY MAY BE PUT,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY
SELLER.
3.
BUYER
AGREES TO PAY FOR AND HAS MADE OR CAUSED TO BE MADE (OR WILL MAKE
OR CAUSE TO BE MADE) ALL INSPECTIONS, INVESTIGATIONS AND ANALYSES
NECESSARY OR APPROPRIATE FOR THE PURPOSE OF DETERMINING COMPLIANCE
OR NON-COMPLIANCE BY THE PROPERTY WITH ALL BUILDING, HEALTH,
ENVIRONMENTAL, ZONING AND LAND USE LAWS, ORDINANCES, RULES AND
REGULATIONS, AND SELLER MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, CONCERNING THE PROPERTY’S COMPLIANCE WITH
SUCH BUILDING, HEALTH, ENVIRONMENTAL, ZONING AND LAND USE LAWS,
ORDINANCES, RULES AND REGULATIONS.
4.
BUYER
FURTHER ACKNOWLEDGES THAT THE INFORMATION, IF ANY, PROVIDED AND TO
BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A
VARIETY OF SOURCES AND SELLER (A) HAS NOT MADE AND WILL NOT BE
OBLIGATED TO MAKE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF
SUCH INFORMATION AND (B) DOES NOT MAKE ANY REPRESENTATIONS AS TO
THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. BUYER
ACKNOWLEDGES AND AGREES THAT ALL MATERIALS, DATA AND INFORMATION
DELIVERED AT ANY TIME BY SELLER TO BUYER IN CONNECTION WITH THE
TRANSACTION CONTEMPLATED HEREBY ARE PROVIDED TO BUYER AS A
CONVENIENCE ONLY AND THAT ANY RELIANCE ON OR USE OF SUCH MATERIALS,
DATA OR INFORMATION BY BUYER SHALL BE AT THE SOLE RISK OF BUYER.
BUYER ACKNOWLEDGES AND AGREES THAT IT WILL CONDUCT ITS OWN
VERIFICATION OF THE INFORMATION, EITHER INDEPENDENTLY OR THROUGH
AGENTS OF BUYER’S CHOOSING. NEITHER SELLER, NOR ITS AGENTS,
NOR THE PERSON OR ENTITY WHICH PREPARED ANY REPORT OR REPORTS
DELIVERED BY SELLER TO BUYER SHALL HAVE ANY LIABILITY TO BUYER FOR
ANY INACCURACY IN OR OMISSION FROM ANY SUCH REPORTS.
5.
BUYER
RELEASES, ACQUITS AND FOREVER DISCHARGES SELLER FROM, AND WAIVES,
ANY AND ALL LIABILITIES, CLAIMS, CAUSES OF ACTION, DAMAGES, AND
OTHER RELIEF, WHETHER AT LAW OR IN EQUITY AND WHETHER IN CONTRACT,
TORT, STRICT LIABILITY OR OTHERWISE, AND WHETHER PAST, PRESENT, OR
FUTURE, IN CONNECTION WITH, AS A RESULT OF OR OTHERWISE WITH REGARD
TO THE CONDITION OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO ITS
ENVIRONMENTAL CONDITION. THIS GENERAL RELEASE SHALL BE APPLICABLE,
WITHOUT LIMITATION, TO ANY AND ALL LIABILITIES, CLAIMS, CAUSES OF
ACTION, DAMAGES AND OTHER RELIEF UNDER ANY OF THE ENVIRONMENTAL
LAWS.
6.
THE
OCCURRENCE OF A CLOSING SHALL CONSTITUTE AN ACKNOWLEDGMENT BY BUYER
THAT THE PROPERTY WAS ACCEPTED WITHOUT REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED (EXCEPT FOR THE SPECIAL WARRANTIES OF TITLE SET
FORTH IN THE SPECIAL WARRANTY DEED), AND OTHERWISE IN AN “AS
IS”, “WHERE IS”, AND “WITH ALL
FAULTS” CONDITION. THE PROVISIONS OF THIS EXHIBIT SHALL
SURVIVE CLOSING.
Statutory Notices
1.
Abstract or Title
Policy. Buyer should have an abstract covering the Property
examined by an attorney of Buyer’s selection, or Buyer should be
furnished with or obtain a title policy.
2.
Notice Regarding
Possible Liability for Additional Taxes (§5.010 Texas Property
Code). If the Property is vacant land, then pursuant to
Section 5.010 of the Texas Property Code Seller notifies Buyer:
“If for the current ad valorem tax year the taxable value of
the land that is the subject of this Agreement is determined by a
special appraisal method that allows for appraisal of the land at
less than its market value, the person to whom the land is
transferred may not be allowed to qualify the land for that special
appraisal in a subsequent tax year and the land may then be
appraised at its full market value. In addition, the transfer of
the land or a subsequent change in the use of the land may result
in the imposition of an additional tax plus interest as a penalty
for the transfer or the change in the use of the land. The taxable
value of the land and the applicable method of appraisal for the
current tax year is public information and may be obtained from the
tax appraisal district established for the county in which the land
is located.”
3.
Notice Regarding
Possible Annexation (§5.011 Texas Property Code). If
the Property is located outside the limits of a municipality, the
Property may now or later be included in the extra-territorial
jurisdiction (“ETJ”) of a
municipality and may now or later be subject to annexation by the
municipality. Each municipality maintains a map that depicts its
boundaries and ETJ. To determine if the Property is located within
a municipality’s ETJ or is likely to be located within a
municipality’s ETJ, Buyer should contact all municipalities
located in the general proximity of the Property for further
information.
4.
Notice of Water
Level Fluctuations (§5.019 Texas Property Code). If the
Property adjoins an impoundment of water, including a reservoir or
lake, constructed and maintained under Chapter 11 of the Texas
Water Code, that has a storage capacity of at least 5,000 acre-feet
at the impoundment’s normal operating level, then pursuant to
Section 5.019 of the Texas Property Code Seller notifies Buyer:
“The water level of the impoundment of water adjoining the
Property fluctuates for various reasons, including as a result of:
(1) an entity lawfully exercising its right to use the water stored
in the impoundment; or (2) drought or flood
conditions.”
5.
Notice of Private
Transfer Fee (§5.205 Texas Property Code). If the
Property is subject to a private transfer fee, then pursuant to
Section 5.205 of the Texas Property Code Seller notifies Buyer that
the private transfer fee obligation may be governed by Chapter 5,
Subchapter G of the Texas Property Code.
6.
Notice Required by
§13.257 of the Texas Water Code Regarding Certificated Water
or Sewer Service. Pursuant to Section 13.257 of the Texas
Water Code Seller notifies Buyer: “The real property,
described below, that you are about to purchase may be located in a
certificated water or sewer service area, which is authorized by
law to provide water or sewer service to the properties in the
certificated area. If your property is located in a certificated
area there may be special costs or charges that you will be
required to pay before you can receive water or sewer service.
There may be a period required to construct lines or other
facilities necessary to provide water or sewer service to your
property. You are advised to determine if the Property is in a
certificated area and contact the utility service provider to
determine the cost that you will be required to pay and the period,
if any, that is required to provide water or sewer service to your
property. The undersigned Buyer hereby acknowledges receipt of the
foregoing notice at or before the execution of a binding Agreement
for the purchase of the real property described in the notice or at
closing of purchase of the real property.” The real property
referred to in this notice is the Property defined in this
Agreement.
7.
Notice Regarding
Taxing Districts (§49.452 Texas Water Code). If the
Property is located in a district created under Title 4 of the
Texas Water Code (currently Chapters 49 through 68) or by a special
act of the legislature, that is providing or proposing to provide
water, sanitary sewer, drainage, or flood control or protection
facilities or services, or any of these facilities or services that
have been financed or are proposed to be financed with bonds of the
district payable in whole or part from taxes of the district, or by
imposition of a standby fee, if any, then pursuant to Section
49.452 of the Texas Water Code Seller gives Buyer the notice in the
attached Exhibit E,
which is incorporated into this Agreement for all
purposes.
8.
Notice of
Obligation to Pay Public Improvement District Assessment
(§5.014 Texas Property Code). If the Property is
located in a public improvement district established under
Subchapter A, Chapter 372, Local Government Code, or Chapter 382,
Local Government Code, and consists of not more than one dwelling
unit, then pursuant to Section 5.014 of the Texas Property Code
Seller notifies Buyer that as a Buyer of the Property you are
obligated to pay an assessment to a municipality or county for an
improvement project undertaken by a public improvement district
under Subchapter A, Chapter 372, Local Government Code, or Chapter
382, Local Government Code. The assessment may be due annually or
in periodic installments. More information concerning the amount of
the assessment and the due dates of that assessment may be obtained
from the municipality or county levying the assessment. The amount
of the assessments is subject to change. Your failure to pay the
assessments could result in a lien on and the foreclosure of your
property.
Notice of Utility or Other Statutorily Created
District
(§49.452 and § 54.812 Texas Water Code)
NOTICE TO BUYER OF REAL
ESTATE
SITUATED IN
HARRIS COUNTY IMPROVEMENT DISTRICT NO. 17
The
real property, described below, which you are about to purchase is
located Harris County Improvement District No. 17 (the
“District”). The
District has taxing authority separate from any other taxing
authority, and may, subject to voter approval, issue an unlimited
amount of bonds and levy an unlimited rate of tax in payment of
such bonds. As of this date, the rate of taxes levied by the
District on real property located in the District is $1.25 on each
$100 of assessed valuation. The total amount of bonds, excluding
refunding bonds and any bonds or any portion of bonds issued that
are payable solely from revenues received or expected to be
received under a contract with a governmental entity, approved by
the voters and that has been or may be issued, at this date, is
$200,000,000 for water, sewage and drainage purposes, $670,000,000
for roads, and $80,000,000 for parks and recreational facilities,
and the aggregate initial principal amount of all bonds issued for
one or more of the specified facilities of the District and payable
in whole or in part from property taxes is $-0-.
The
District also has the authority to adopt and impose a standby fee
on property in the District that has water, sanitary sewer, or
drainage facilities and services available but not connected and
which does not have a house, building or other improvement located
thereon and does not substantially utilize the utility capacity
available to the property. The District may exercise the authority
without holding an election on the matter. As of this date, the
most recent amount of the standby fee is $-0-. An unpaid standby
fee is a personal obligation of the person that owned the property
at the time of imposition and is secured by a lien on the property.
Any person may request a certificate from the District stating the
amount, if any, of unpaid standby fees on a tract of property in
the District.
The
District has the authority to levy an assessment on property within
the District. The District may exercise this authority without
holding an election the matter. As of this date, the amount of the
assessment is $-0- per $100 valuation for real property and
improvements thereon. The District is located in whole or in part
within the extra-territorial jurisdiction of the Cities of Houston
and Tomball. By law, a district
located in the extraterritorial jurisdiction of a municipality may
be annexed without the consent of a district or the voters in the
District. When a district is annexed, it is
dissolved.
The
purpose of this District is to provide water, sewer, drainage or
flood control facilities, roads, services, and park and recreation
facilities within the District through the issuance of bonds
payable in whole or in part from property taxes. The cost of these
utility facilities is not included in the purchase price of your
property, and these utility facilities are owned or to be owned by
the District.
See the
legal description of the Property in the contract to which this
notice is attached.
Buyer is advised that the
information shown on this form is subject to change by the district
at any time. The district routinely establishes tax rates during
the months of September through December of each year, effective
for the year in which the tax rates are approved by the district.
Buyer is advised to contact the
district to determine the status of any current or proposed changes
to the information shown on this form.
The
Buyer hereby acknowledges
receipt of the foregoing notice at or prior to execution of a
binding contract for the purchase of the real property described in
such notice or at closing of purchase of the real
property.
7/2/18
/s/ Charley
MacKenzie
Date
Signature of Seller
The
undersigned Buyer hereby
acknowledges receipt of the foregoing at or prior to execution of a
binding contract for the purchase of the real property described in
such notice or at closing of purchase of the real
property.
7-2-18
/s/ David C.
Frye
Date
Signature of Buyer
AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT
(DEVELOPED - BULK)
This
Amended and Restated Purchase and Sale Agreement
(“Agreement”) is
made between 150 CCM Black Oak,
Ltd. a Texas limited partnership (collectively
“Seller” and/or
“Developer”,
whether one or more) and Houston
LD, LLC (“Buyer”).
WHEREAS, the
parties entered into that certain Purchase & Sale Agreement on
July 2, 2018 (“Original
Agreement”) involving the purchase and sale of the
same developed real property described herein and that is the
subject of this Agreement; and
WHEREAS, during the
Inspection Period as defined in the Original Agreement, Buyer was
made aware of certain pending and on-going agreements and
operations with third parties relating to the development and
construction of the water, sewer, and other
infrastructure/utilities that will serve the lots within the real
property, and which still requires substantial work in order to
complete development of the lots; and
WHEREAS, the
parties amended the Original Agreement on several occasions to
extend the dates and deadlines within the Original Agreement to
allow Seller to continue its development work and to discuss the
terms for this Agreement; and
WHEREAS, the
parties now wish to amend and restate the terms of the Original
Agreement to account for Seller’s pending and on-going
development work.
NOW
THEREFORE, for Ten Dollars ($10.00) and other valuable
consideration received and acknowledged by the parties, the parties
do hereby amend and re-state the Original Agreement in its entirety
as set forth in this Agreement, which shall replace and supersede
the Original Agreement, except for Buyer’s acknowledgement of
receipt of the notice set forth on the attached Exhibit E, which
shall not be superseded.
1. Sale
of Property/Lots. Seller agrees to sell and Buyer agrees to
purchase, subject to the terms and conditions of this Agreement,
certain property more particularly described as
follows:
124
Lots located in the Lakes at Black Oak Subdivision, Magnolia,
Montgomery County, Texas, as more particularly referenced and
described on the “Plat” attached hereto as Exhibit
A, and specifically including the Lot Numbers listed on
Exhibit A.
together with all
improvements thereon and all appurtenant rights of Seller
including, without limitation, any rights of ingress and egress
through the adjacent streets, roads, infrastructure, alleys and
right-of-ways and such other rights as may be specified in this
Agreement (collectively the “Property”, which may refer also to
the lots included therein). Buyer and Seller acknowledge and
understand the location and description of the Property referenced
and described herein, regardless of the sufficiency of any legal
description.
2. Purchase
Price. The Purchase
Price for the Property shall be $6,175,000.00
and allocated as
follows:
|
50 lf
Lot
|
$44,000
|
Number
of lots: 53
|
$2,332,000
|
|
60 lf
Lot
|
$54,000
|
Number
of lots: 70
|
$3,780,000
|
|
70 lf
Lot
|
$63,000
|
Number
of lots: 1
|
$63,000
|
The
Purchase Price shall be payable as follows:
A.
Both parties acknowledge that Buyer has already
delivered $150,000.00 (an original payment of $50,000 and a
subsequent payment of $100,000) to Texas State Title, attn. Cody
Sobieski, Pres. 281-640-7660 (“Escrow Agent”) as earnest money to be credited toward
the Purchase Price at the Closing. In addition, Buyer has already
delivered along with the earnest money the independent
consideration for the pre-closing period in Paragraph
4
below.
B.
Within
two (2) business days after execution of this Agreement, Buyer
shall deliver to the Escrow Agent an additional $100,000.00 earnest
money deposit, which shall be considered earnest money for all
purposes under this Agreement.
C.
The
remaining balance of the Purchase Price shall be paid in cash or
its equivalent at Closing as specified below, as adjusted for
prorations and closing costs described below, and subject to
conditions and exceptions contained herein.
D.
In addition to the Purchase Price, Buyer agrees to
deliver to Escrow Agent $2,500 per lot ($310,000 total) at Closing
as a “community enhancement fee” to be held by Escrow
Agent in order to help compensate/reimburse Seller for funding an
amenity package on the Property after Closing. The current proposed
amenity package is attached on Exhibit B
hereto. Prior to Closing, Seller shall
provide Buyer with a copy of the final plans & specifications
for the amenity package (“Amenity Plans”) and Buyer
will review, comment and approve of the Amenity Plans within seven
(7) days after receipt. Seller shall commence construction of the
amenity package improvements within 30 days after Closing and
complete same within 6 months after Closing, subject to
“Force Majeure” (which in this Agreement is defined as
that term is defined in the USA reference below but as such
definition is applicable to Seller). If Seller has not completed
the amenity package improvements within this 6 month period, then
Seller shall have an additional thirty (30) days to complete,
during which time Buyer and the Escrow Agent may withhold any
remaining escrowed portions of the community enhancement fee until
completed (as further described in the process below). As Seller
constructs and completes the components of the amenity package,
Seller may submit periodic draw requests to the Escrow Agent (with
a copy to Buyer) requesting a draw from the community enhancement
fee held in escrow to pay for/reimburse Seller’s contractor
for the completed components of the amenity package for which the
draw is being requested. Each draw request shall be accompanied by
(i) a certification by the engineer/architect that the portion of
the amenity package for which the draw request is being made has
been completed substantially in accordance with the Amenity Plans
and (ii) fully executed conditional lien waiver from the general
contractor for the work performed. Upon submission of a draw
request with the information/documentation required above, then
Escrow Agent shall pay the draw with the community enhancement fee
funds held in escrow, subject to availability. The parties may
enter into a separate Community Enhancement Fee Escrow Agreement as
necessary which shall be subject to these terms. All parties
acknowledge that the community enhancement fee contributed by Buyer
herein does not necessarily represent the total cost of completion
of the amenity package but is merely Buyer’s agreed upon
contribution toward said costs, and Seller is obligated to complete
the amenity package and pay for all costs over and above the amount
of the community enhancement fee contributed by Buyer as stated
herein. All parties acknowledge that the obligations under this
provision shall survive Closing.
The
Purchase Price to be paid by Buyer for the Property, and
Seller’s right to retain any of the earnest money other than
the independent consideration (so long as Buyer is not in default),
is conditioned upon Seller’s delivery of the Property and
fulfillment of all other conditions and obligations in compliance
with the terms of this Agreement.
3. Effective
Date. The Effective Date shall
be the date when the last one of the Buyer or Seller executes this
Agreement.
4. Pre-Closing
Period & Initial Acceptance. Within sixty (60) days after execution hereof by
all parties (“Pre-Closing
Period”), Seller will (i)
obtain the initial acceptance of such roads by Montgomery County
(the “County”) subject to a one-year maintenance bond
period and a performance bond, both as required by the County, and
furnish the County required bond, and (ii) obtain initial
acceptance of the internal water and sewer facilities, including
the internal water/sewer utility lines, onsite lift station, and
water well(s), that will service the Property to Aqua Texas, Inc.
(the “Utility” or “Aqua”) and cause Aqua to accept same for
maintenance and operation subject to a one-year performance bond
and/or letter of credit and warranty of Seller, as required by
Aqua, and furnish Aqua the required bond and/or letter of credit
(Seller’s “Initial
Dedications”). If
necessary, the Pre-Closing Period may be extended one time by
Seller for an additional thirty (30) days in order to fulfill its
obligations stated herein. During the Pre-Closing Period,
Buyer’s representatives shall have access to the Property to
continue its inspections and review of the Property, so long as to
not unreasonably interfere with Seller’s completion of the
Initial Dedications and other Pre-Closing Period work. Prior to
Closing, Buyer agrees to restore the Property substantially to its
pre-existing condition after completion of any inspections. Buyer
agrees to share copies of any tests, inspections and reports with
Seller upon request. Buyer shall indemnify, defend, and hold Seller
and its employees, representatives and agents harmless from and
against all claims, liabilities, liens, costs, fees and expenses,
including attorney fees, related to or in any way arising from
Buyer’s inspections or entry on the Property, and this
obligation shall survive termination of this Agreement or Closing,
as applicable. Following the one-year period after each of the
Initial Dedications, Seller shall cause the County to agree to
final acceptance for maintenance of the above-described roads, and
shall cause Aqua to agree to final acceptance for maintenance of
the above described utilities (the “Final
Acceptances”), this
obligation of Seller to survive Closing. Buyer shall be liable for
and reimburse Seller for (A) the cost to repair any damages to the
above-described roads and the above-described utilities that is
caused by Buyer or Buyer’s agents and that is suffered by
Seller prior to the Final Acceptances and (B) costs incurred by
Seller related to Buyer’s failure to construct improvements
on the Property in accordance with the standards of the County and
the Utility that delay or cause Seller to incur additional costs to
obtain Final Acceptances from either or both of the County and the
Utility. This obligation of Seller shall survive
Closing.
Buyer
acknowledges that Seller has disclosed and provided to Buyer copies
of any third party materials that Seller identified in its
possession that relate to the Property and that Seller has not
already provided, which may include (but Seller does not represent
that it has all of these materials) a current survey, boundary and
topographical surveys, plats, HOA, restrictive covenants and
conditions, engineering reports by electronic format in PDF, CAD
(including but not limited to .dwg and/or .dgn format) or other
media, environmental reports, flood zone certifications, soils
reports, easement agreements, encroachments or encumbrances,
municipal zoning related documents, improvement/management district
information & agreements, utility agreements, construction
agreements, requirements and fees, mineral leases, oil/gas
wells/lines, property line discrepancies, and homeowners or
community association documents, but Seller is under no obligation
to disclose or provide documents of record in the real property
records.
5. Title
Commitment. Buyer acknowledges
receipt of the Title Commitment (the “Current Title
Commitment”) with an
effective date of September 4, 2018, issued on September 13, 2018,
by Texas State Title, LLC. Prior to expiration of the Pre-Closing
Period, , Buyer, at its expense, may order an updated title
commitment for the Property in the amount of the Purchase Price
from Escrow Agent and obtain a copy of all documents which
constitute exceptions to the title commitment. Buyer shall give
Seller written notice within five (5) days following receipt of the
updated title commitment of any condition of title (exceptions or
requirements) that is not shown on the Current Title Commitment and
that is not satisfactory to Buyer. Seller may, but shall not be
obligated, to resolve such matters; provided, however, that
mortgage liens may be resolved at closing. If Seller is unable or
unwilling to resolve such matters before the expiration of the
Pre-Closing Period as defined above, then Buyer may, at
Buyer’s sole option, either (1) accept title subject to
the objections raised by Buyer and such accepted objections (along
with the matters not objected to) shall become permitted exceptions
(“Permitted
Exceptions”) without any
adjustment in the Purchase Price, or (2) terminate this
Agreement prior to the expiration of the Pre-Closing Period,
whereupon the earnest monies (less the independent consideration)
shall be immediately returned to Buyer by Escrow Agent, or
(3) work with Seller, if mutually agreeable, to satisfy
unacceptable matters and postpone the end of the Pre-Closing Period
and/or Closing Date to satisfy these matters. At Closing, Seller
shall provide Buyer with an owner’s policy of title insurance
in the amount of the Purchase Price. Seller shall pay the cost for
the basic cost of the owner’s policy of title insurance, and
Buyer shall pay the cost for all endorsements, changes, and
modifications to the owner’s policy of title
insurance.
6. Closing.
Closing (the “Closing”) shall occur within ten (10)
days after expiration of the Pre-Closing Period or ten (10) days
after Buyer receives written confirmation and verification that the
Initial Dedications have been made and accepted, whichever is
earlier (“Closing Date”), subject to the Property being delivered
in compliance with all terms herein and the satisfaction and
fulfillment of all other pre-Closing conditions and obligations
stated herein.
7. Title
& Deliveries. At
or prior to Closing, Buyer and Seller, as applicable, shall deliver
to the Escrow Agent and/or each other the following items for the
Property, duly executed and acknowledged where
required:
A. Conveyance
Deed. A special
warranty deed in the form satisfactory to Buyer, specifically
stating all approved exceptions to title, if any, subject but not
limited to, zoning or deed restrictions, easements and encumbrances
of record by either Buyer or Seller, or future assessments if
applicable, with an acknowledgment of the Post-Closing Work to be
performed hereunder.
B. Foreign
Person Tax Withholding. Documentation or information required
for compliance with Section 1445 of the Internal Revenue
Code.
C. Additional
Documents. Such
additional documents as might be reasonably required by the Seller,
Buyer, Buyer’s Lender, or the Escrow Agent to consummate the
sale of the Property and convey clear title to the Buyer with all
appurtenant rights, including but not limited to the Community
Enhancement Fee Escrow Agreement referenced
above.
D. Insurance
Policy and Costs. Seller will pay the costs of
Seller’s counsel, preparation of any deeds and any bill of
sale, deliver and pay the basic costs for a title insurance policy
in an amount equal to the Purchase Price, transfer taxes for the
conveyance, and one half of the escrow or closing fees. Buyer will
pay the cost of Buyer’s counsel, all loan costs required by
Buyer’s lender, including title policy cost in excess of
owner’s policy, Buyer’s portion of the cost of the
owner’s policy of title insurance, one half of any escrow or
closing fee, and recording fees for any deeds and mortgage, and any
applicable mortgage tax.
E. Tax
Prorations. All taxes and assessments (including pending
assessments if the related improvement is substantially completed
as of the Closing Date), whether payable in installments or not,
for the year of the Closing will be prorated to the Closing Date
based on the latest available tax rate and assessment valuation
(with the parties signing a proration agreement as to adjustments
when actual taxes are known).
F. Take
Over Assignments. On or before
Closing, Seller, Buyer and any necessary third parties will execute
and deliver assignments of the “Aqua Texas, Inc. Black Oak
Force Main Agreement” (“FMA”) between Aqua Texas
Inc. and Seller pertaining to the construction of the Improvements
as defined herein and listed on Exhibit F attached hereto,
including specifically an assignment of the right to and ownership
of District funds being held in escrow (approximately $1,200,000)
for the costs of completion of the offsite water and sewer
facilities to service the Property (“Escrow Funds”) (but excluding all other reimbursables
and reimbursements) as referenced in the agreements listed on
Exhibit F attached hereto (the “Ancillary
Agreements”), said
assignments and deliveries to be a condition of Buyer’s
obligation to close and to be held in escrow by the Escrow Agent
and subject to the provisions of Paragraph 9 and Buyer’s Take
Over Rights.
8. Obligations
of Seller and Buyer & Conditions Precedent to
Closing. On or prior
to Closing, Seller shall complete and deliver the Property in
compliance with all terms and requirements stated herein, if not
already done so, including specifically providing the Initial
Dedications. Buyer’s obligation to close on the Property and
Seller’s right to retain any of the earnest money deposit
(other than the independent consideration) is subject to and
conditioned upon the completion, compliance and satisfaction, as of
the Closing Date, of each of the requirements described herein and
below, and compliance with all delivery requirements of Paragraph 7
above. Unless specifically stated otherwise, the satisfaction of
these conditions shall be at Seller’s expense. Buyer shall
cooperate with Seller to satisfy these conditions as
needed.
A. Correctness
of Representations and Warranties. Seller represents and warrants that
(i) to its knowledge, it holds good and marketable title in fee
simple to the Property, (ii) all closing documents signed by Seller
will be valid, authorized and binding upon Seller, (iii) to its
knowledge, no outstanding contracts, fees, debts or liens exist on
the Property (except mortgage liens to be satisfied at closing and
other items related to the development of the Property); and (iv)
to its knowledge, there are no leases or third-party
rights/interests on the Property and Seller is in sole possession.
These representations and warranties of Seller shall be evaluated
by Buyer during its title review and shall not create any
obligations of Seller or rights of Buyer, outside of those
specified in Paragraph 5 of this Agreement.
B. Final
Plat Recording & 911 Addresses. Finalization and recording of the
proposed plat and Seller’s delivering a copy thereof to Buyer
on or before the Closing Date, which Buyer acknowledges has been
delivered. The plat shall be deemed finalized after all required
governmental approvals have been obtained, said plat has been duly
recorded in the real property records of the applicable County
Clerk’s office, corresponding 911 addresses have been
provided by the Seller to the Buyer.
C. Covenants,
Conditions, and Restrictions
(“CC&Rs”).
Seller shall draft CC&Rs for Buyer’s review prior to the
expiration of the Pre-Closing Period, and Buyer shall approve the
CC&Rs so long as they are reasonable. If Buyer does not believe
that the CC&Rs are reasonable, it shall give Seller written
notice specifying its objections and Seller and Buyer shall attempt
to negotiate a final set of CC&Rs prior to the expiration of
the Pre-Closing Period. If Seller or its affiliate is the declarant
and/or governing architectural review authority under the
CC&Rs, then upon Buyer’s submittal from time to time,
Seller shall approve Buyer’s submittals so long as they are
in accordance with the CC&Rs.
D. Completion/Compliance.
With the exception of the incomplete
Post Closing Work defined below, the Property and lots therein,
including all work and Post Closing Work performed by Seller as of
Closing, have been completed in full compliance with all terms
hereof. All requirements by applicable local, state and federal
governmental authorities, as certified by a certified professional
engineer, will have been met or exceeded for the Property and each
lot therein, including but not limited to, preliminary and final
plat approval, proper construction and availability of fully
operational utilities including roads, water, sanitary sewer,
storm, sewer with all necessary permits and fully compliant (no
violations) with all applicable rules, regulations, and ordinances
of applicable authorities, and a written statement from the
engineer of record that building permits are obtainable from the
appropriate governmental agencies for the construction of
single-family houses on the lots. A preliminary and final plat of
the development, approved construction drawings from the municipal
authority and an “AS BUILT” survey will be provided in
“PDF” and “CAD” format to the Buyer as they
become available. Each lot pin shall have a flagged wooden lathe to
mark the pin location. Provided that Buyer provides Seller adequate
and appropriate utility easements over and under the Property and
has graded the Property and staked all of the lots in the Property,
all as reasonably determined by Seller, Seller will cause permanent
underground electric power and telecommunication facilities
(collectively, the “Permanent
Utilities”) to be
installed and available to the perimeter of each lot within the
Property within ninety (90) days after Buyer has poured the slab
for a residence on a lot and has given Seller written notice that
Buyer is ready for the Permanent Utilities for the lot. This
post-Closing obligation of Seller for Permanent Utilities shall be
performed at Seller’s expense and shall expressly survive
Closing for twenty-four (24) months and shall not merge into the
deed or Closing.
E. Permits
and Environmental Concerns.
With the exception of the incomplete Post Closing Work defined
below, Seller will obtain and complete all requirements related to
Storm Water Pollution Prevention Plans (“SWPPP”) as required by applicable local, state
and federal authorities and maintain the same during the
development of the lots within the Property. Upon Closing, Seller
will deliver to Buyer Seller’s most recent reports from its
compliance inspector regarding storm water quality that all
BMP’s are installed and maintained per the SWPPP. Upon
Closing, Seller will close out its storm water permit for the
Property and Buyer shall assume all responsibility for future
maintenance and installation and Seller shall be released from
liability thereon. Seller shall have caused all FEMA requirements
to have been met for a home on any lot to be exempted from
purchasing flood insurance and no portion of any house pad site (it
being understood that some portions of some lots are within a flood
plain) is to be located in a FEMA defined flood plain.
Seller’s principals have no actual knowledge that the
Property has been or is presently used for handling, storage,
manufacturing, refining, transportation or disposal of “toxic
material”, “hazardous substances”, or
“hazardous waste”. If “hazardous wastes”,
“hazardous substances”, or “hazardous
material” is located on the Property, as determined by a
Phase I or permitted Phase II environmental assessment obtained by
the Buyer, then Buyer shall have the right to terminate this
Agreement during the Pre-Closing Period pursuant to
Paragraph
4
above. Without diminishing the
obligations still to be performed by Seller hereunder, Buyer
otherwise acknowledges Seller’s delivery of the Property in
compliance with this Paragraph.
F. Trash,
Trees, Brush & Debris. The
Property is being sold “as-is” and Buyer shall be
responsible for mowing, brush hogging, and removing, clearing, and
disposing of all trees, trash and debris on the Property, except
that Seller will remove any construction debris of which Buyer
notifies Seller in writing prior to the expiration of the
Pre-Closing Period, and Buyer acknowledges Seller’s delivery
of the Property in compliance with this
Paragraph.
9. Seller’s
Post Closing Obligations. The
Property lies within the boundaries and jurisdiction of the Harris
County Improvement District No. 17 (the “District”). The District was created to, amongst
other things, provide sewer and utility infrastructure to the
Property. Pursuant to that certain agreement titled the
“Harris County Improvement District No. 17 – Black Oak
Utility Service Agreement” (the “USA”) and the FMA, and other Ancillary
Agreements between the District, the Seller, and Aqua Texas, Inc.
(the “Utility”) which are referenced herein and
incorporated herein by reference in Exhibit F, the Seller is
obligated to construct certain sewer and water utility
infrastructure improvements, including internal sewer/water lines
within the Property subdivision, a lift station, a force main, and
other onsite and offsite improvements (such improvements, insofar
as those improvements pertain to, service, and/or if not completed
would have a negative impact on servicing the Property, are
collectively, the “Improvements”). After Seller’s completion of the
Improvements, the Utility is to take over, accept and operate the
Improvements, along with separate facilities constructed by the
Utility, in order to provide water and sewer service to the lots
within the Property subdivision. To facilitate the construction of
the Improvements, the Escrow Funds held by the District are or will
be accessible by Seller to complete the construction. The parties
acknowledge that the Improvements may not be complete prior to
Closing. However, Seller will continue its work on the Improvements
and complete the Improvements after Closing, in accordance with the
terms and schedules stated herein and in the USA, the FMA,and other
Ancillary Agreements with specific regard to the Property
.
A.
Post
Closing Work. Following the
Closing, Seller, at its cost and expense (subject to approved
disbursements from the District and otherwise), shall perform the
Post Closing Work as set forth on Exhibit G hereto and in
accordance with all terms, conditions and schedules stated herein
and in the USA, the FMA, and other Ancillary Agreements as that
work pertains to the Property. All
parties, including specifically Seller, acknowledge and agree that
Seller’s performance of the Post Closing Work and all other
terms of this Paragraph 9 shall expressly survive Closing and shall
not merge with any deed, and these provisions may be construed
separately as needed to give surviving effect and full validity to
these terms after Closing.
B.
Performance
of the Post Closing Work. Time
is of the essence with respect to performance of the Post Closing
Work pursuant to the schedules on Exhibit G and the applicable
schedules in the USA and Ancillary Agreements, subject to Force
MajeureSeller shall not permit any liens or encumbrances to arise
against the Property in connection with or as a result of the
performance of the Post Closing Work. Seller shall protect,
indemnify, defend and hold Buyer and the Property harmless of and
from any and all losses, liabilities, costs, expenses (including
attorney fees), damages, liens, claims, actions or causes of action
arising from or relating to Seller or its contractors entering upon
the Property to complete the Post Closing Work. At all times prior
to completion of the Post Closing Work, Seller, at its cost and
expense, shall maintain commercial general liability insurance on
an occurrence basis covering Seller and its agents, contractors,
subcontractors and licensees, against claims of bodily injury,
personal injury and property damage for limits not less than
$1,000,000 each occurrence, which insurance shall name Buyer as
additional insured if allowable by insurance
company.
C.
Completion
of Post Closing Work. The
parties acknowledge that Seller has commenced performance of the
Post Closing Work and Seller shall use its commercially reasonable,
good faith efforts to complete the Post Closing Work by August 1,
2019 (“Completion
Date”), and the various
components thereof by the dates set forth on Exhibit G (the
“Progress
Dates”), subject to Force
Majeure.
D.
Delay
or Failure to Complete Post Closing Work. In the event Seller (i) fails to complete the
Post Closing Work by the Completion Date and/or (ii) fails to
complete any portion of the Post Closing Work by the applicable
Progress Date on which that portion of work was to be completed as
set forth on Exhibit G and/or (iii) ceases continuous and diligent
performance and construction of the Post Closing Work for a period
of ten (10) days or more without a definable excuse under the
applicable Force Majeure provisions, then Buyer may deliver written
notice of default to Seller and if Seller fails to resume
continuous and diligent construction of the Post Closing Work
within fifteen (15) days of receiving notice, then Buyer, as its
sole remedy, shall be immediately entitled to notify Seller, the
Utility, the District and any other interested parties that Buyer
is exercising its right to step in, take over all right, title and
interest to all parts, plans and components of the Post Closing
Work and the Improvements, receive all payments, benefits and funds
from the Escrow Funds , and complete the Post Closing Work itself
(“Take
Over Rights”). If
exercised, Seller will fully cooperate with Buyer and any other
parties to effectuate the Take Over Rights and Seller shall
relinquish any claims or rights under the Ancillary Agreements or
otherwise and to any and all equipment, personal property,
plans/specs or otherwise related to, connected with or to be
connected with the Improvement. This shall also include
Seller’s assignment and delivery of all construction plans
and any necessary licenses and permits connected to the Post
Closing Work and the Improvements. To accommodate Buyer’s
exercise of its Take Over Rights and Buyer’s right to receive
the Escrow Funds in connection therewith, Seller shall execute, on
or before Closing, all documents necessary and shall assign all of
its rights and entitlements to Buyer, with an assumption by Buyer,
in all of the Ancillary Agreements listed on Exhibit F and as
referenced in Paragraph 7.F above. These assignments shall be held
in escrow by the Escrow Agent pursuant to an escrow agreement (the
“Take-Over Escrow
Agreement”) and shall
entitle Buyer to receive all Escrow Funds referenced in the
Ancillary Agreements to assist and compensate Buyer in and for the
completion of the Improvements. All parties acknowledge that fully
executed assignments of the Ancillary Agreements, including all
third party signatures necessary, and documentation assuring
Buyer’s access to the Escrow Funds and the Take Over Rights
is an express condition precedent of Buyer’s obligation to
close under this Agreement (so long as Buyer negotiates a
reasonable form of such assignments and documents in good faith),
otherwise Buyer may terminate and receive its earnest money
deposits (other than the independent consideration) or seek
specific performance as provided herein.
E.
Take
Over Rights Limitation. With
respect to Buyer’s Take Over Rights and assumption of rights
and obligations under the Ancillary Agreements, all parties
acknowledge that Buyer’s obligations to perform under the
Ancillary Agreements shall be limited to the Improvements (onsite
and offsite) which specifically pertain to the Property being
purchased hereunder by Buyer, and shall in no way extend to or
obligate any work or Improvements that are beyond the scope of the
FMA and that service or pertain to any separate property, including
Seller’s other real property. However, this limitation shall
not be interpreted to relieve Buyer from performing all obligations
and constructing all improvements under the FMA in the event Buyer
exercises its Take Over Rights. A statement to this effect shall be
included in any assignments of the Ancillary Agreements as provided
herein.
10. Offsite
Water Flow. Seller will deliver
the Property at Closing with proper offsite water flow on and to
the Property and which will be managed through the appropriate
infrastructure, and Buyer acknowledges Seller’s compliance
with this Paragraph.
11. Subsurface
Rock. Prior to expiration of
the Pre-Closing Period, Buyer may terminate this Agreement pursuant
to Paragraph
4 above and recover the earnest money
(less the independent consideration) upon the discovery of
subsurface rock underlying the Property in any quantity deemed
excessive by the Buyer, unless Seller has remedied the same to
Buyer’s satisfaction, Buyer acknowledges Seller’s
delivery of the Property in compliance with this
Paragraph.
12. Assessments.
So long as Developer is in control
under the CC&Rs, Buyer shall be exempt from paying any and all
applicable assessments (but will have to pay TAP fees and the
amenity assessment) in the CC&Rs to the Developer during the
Seller’s period of ownership, including, but not limited to
regular and special assessments. Seller also agrees to exempt bona
fide home builders from assessments in the CC&R’s during
the same time period.
13. Notice. All
notices will be in writing and served by electronic transmission to
the addresses shown below, until notification of a change of such
addresses. All such notices shall be deemed delivered on the date
initiated.
For
Buyer:
David
C. Frye, Manager
David.frye@rauschcoleman.com
479.455.9090
Dana
Danvers, Director of Acquisitions
Dana.danvers@rauschcoleman.com
John
Maberry
John.maberry@rauschcoleman.com
Josh
Carson
Josh.carson@rauschcoleman.com
Julie
Bias, Financial Coordinator
Julie.bias@rauschcoleman.com
For
Seller:
Charley
MacKenzie
charley@sed.com.sg
Daryl
Robinson
drobinson@newquestcrosswell.com
Moe
Chan
moe@sed.com.sg
Shamar
O’Bryant
shamar@sed.com.sg
Frank
Heuszel
fheuszel@yahoo.com
Randy
Farber
rfarber@jw.com
Ronald
Wei
14. Disclosure
by Buyer and Seller. One or more individuals representing
the Buyer or Seller may hold real estate licenses from multiple
states.
15. Default.
If Seller has performed all of Seller’s obligations and
fulfilled the conditions under this Agreement and, if within five
(5) days after the date specified for Closing, the Buyer fails to
make payment as required herein, through no fault of Seller, then
Seller may, as its sole and exclusive remedy, cancel and terminate
this Agreement and keep the earnest money deposit paid by the Buyer
as liquidated damages. Subject to Buyer’s separate post
closing rights and remedies discussed in Paragraph 9, if Seller
breaches this Agreement or fails to perform any of Seller’s
obligations hereunder, then Buyer may as its sole remedy, (i)
terminate this Agreement and receive a refund of all of the earnest
money (less the independent consideration), or (ii) seek specific
performance of this Agreement pursuant to the remainder of
this Paragraph
15.
A.
Buyer may enforce specific performance of
Seller’s obligation to execute the documents required to
convey the Property to Buyer, including the Take Over Assignments,
but waiving any uncured title or survey objections or matters and
without any offset against, deduction from, or reduction in the
Purchase Price (except for the costs Buyer will incur to complete
the Property and Improvements in accordance with the terms hereof),
and Seller’s warranty of title in the special warranty deed
and the owner policy of title insurance to be delivered under this
Agreement shall be subject to the permitted title exceptions and
all uncured title or survey objections or matters, and Buyer
expressly waives its rights to seek damages if it files a lawsuit
for specific performance. After Closing, Buyer may also seek
specific performance of Seller’s obligation to (i) complete
the post-closing Permanent Utilities as defined in Paragraph 8.D
(or to recover the costs to complete same), and (ii) complete the
Final Acceptances (or to recover the costs to complete
same).
B.
Buyer shall be deemed to have elected to terminate
this Agreement under clause (i) above if Buyer fails to file suit
for specific performance in accordance with Sub-Paragraph
A
above against Seller in a court having
jurisdiction in the county and state in which the Property is
located on or before 60 days after the date upon which closing was
to have occurred.
16. Binding
Effect/Assignment. This Agreement will inure to the
benefit of and bind the respective successors of the parties,
including specifically the post closing provisions stated herein
which shall survive Closing. Seller may not assign this Agreement
or any obligations hereunder. Buyer may assign this Agreement and
any and all rights and obligations hereunder at any time prior to
closing to any person or entity controlling, controlled by, or
under common control with Buyer. For purposes of this Paragraph a
person or entity shall control an entity, if it, directly or
indirectly, holds a majority interest in the entity to be
controlled. Notwithstanding anything stated herein to the contrary,
either Buyer or Seller (or both) may unilaterally execute and
record a simple notice of this Agreement with the land records
office for the purpose of providing notice hereof and both parties
shall deem any such notice as sufficient, lawful and proper
pursuant to all applicable state and local laws. If this Agreement
is properly terminated prior to Closing in accordance with the
terms herein pertaining to termination rights, then Seller may file
a release of any such notice without the consent of Buyer, and any
such release may be relied upon by any third
party.
17. No
Waiver. Failure of
either party to exercise any rights under this Agreement shall not
constitute a waiver of any right, nor excuse the other
party’s full performance. No express waiver of any matter
shall affect any other matter under this Agreement. Express waivers
are only effective if in writing.
18. Brokerage. Buyer
represents that it has not contracted with any real estate broker
in connection with the transaction contemplated by this Agreement.
Seller shall be responsible for paying a 4% Broker’s
commission based on the Purchase Price to Dave Ramsey with Home
Asset, Inc. Each party shall indemnify and hold the other party
harmless from all claims, losses, liabilities, costs, fees, and
expenses (including, but not limited to, court costs, litigation
expenses, and attorneys’ fees) related to or incurred in
connection with any claims for brokerage commissions arising by,
through, or under the indemnifying party.
19. Entire
Agreement. This
document constitutes the entire agreement between the parties,
incorporating all prior agreements, and may only be amended in
writing executed by both parties. The exhibits attached to this
Agreement are incorporated into this Agreement for all
purposes.
20. Attorney’s
Fees. If either
party prevails against the other in a legal action concerning any
part of this Agreement, the successful party shall be entitled to
its reasonable attorney’s fees and costs connected with such
action, through appellate and bankruptcy proceedings, in addition
to all other recovery or relief. Costs shall include all deposition
costs and expert fees, even if not used at
trial.
21. Governing
Law. This Agreement
shall be governed and enforced in accordance with the law of the
state where the Property is located.
22. Time.
Buyer and Seller understand that “Time is of the
Essence” for this Agreement.
23. ADA
Compliant Ramps. Seller shall
be responsible for installation of any and all required ADA
sidewalk ramps for sidewalks installed by Seller. Said ramps shall
meet all the ADA Guidelines, Code and Specifications for such
ramps.
24. Special
Stipulations.
A.
Within 30 days after Closing, Seller shall
commence construction of the Black Oak Community Entry on Black Oak
Drive, including the landscaping and amenities in
Paragraph
2.c. This provision shall
expressly survive Closing and remain a continuing obligation of
Seller until complete.
B.
Prior
to Closing, Buyer shall propose its signage to Seller for approval,
as to type, size, appearance, and placement. Seller shall not
unreasonably withhold its approval of the signage, so long as the
signage meets all applicable governmental requirements and is
limited so as not to clutter the Property. After approval by
Seller, Buyer may place the signage in the agreed locations prior
to closing.
C.
Seller’s obligations under this
Paragraph
24
and any liabilities therefore shall
survive Closing.
D.
The
terms of this Agreement shall be kept confidential by both parties,
subject to the remainder of this paragraph. Each party may disclose
the terms of this Agreement (including information about the
parties) where disclosure is required by (or advisable to comply
with) applicable law or regulation, rule of stock exchange,
governmental agency, or self-regulatory agency, by a court of
competent jurisdiction, or by any other regulatory body, and the
terms may be disclosed to the parties’ respective counselors,
attorneys, accountants, brokers, and other persons with a need to
know. The provisions of this paragraph shall survive termination of
this Agreement and Closing, as applicable.
25. AS-IS. Subject to the representations and covenants
stated herein to expressly survive Closing, including those set
forth in Paragraph 8.D and the Post Closing Work, the parties
intend that the sale of the Property will be made on an “As
Is, Where Is” basis with all faults, in accordance with the
terms and provisions of
Exhibit C.
26. Statutory
Notices. To the extent
applicable, Seller gives Buyer the notices set forth in
Exhibit
D.
|
SELLER:
150 CCM BLACK OAK LP,
a Texas
limited partnership
By: 50
Black Oak GP, Inc.,
a Texas
corporation
Its:
General Partner
By:
/s/ Charley
MacKenzie
Charley
MacKenzie,
Chief
Development Officer
Date:
10/12/18
|
|
BUYER:
HOUSTON LD, LLC
By:
/s/ David C.
Frye
David
C. Frye,
Manager
Date:
10-12-2018
|
EXHIBIT A
Description and Plat of
Property
and List of Lots
EXHIBIT B
EXHIBIT C
1.
BUYER
ACKNOWLEDGES AND AGREES THAT SELLER AND ITS AGENTS HAVE NOT MADE,
DO NOT MAKE, WILL NOT MAKE AND SPECIFICALLY NEGATE AND DISCLAIM ANY
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS,
IMPLIED, OR STATUTORY, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE,
OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE NATURE, QUALITY,
OR CONDITION OF THE PROPERTY OR ANY PART THEREOF, INCLUDING,
WITHOUT LIMITATION, THE WATER, SOIL, AND GEOLOGY; (B) THE ECONOMIC
FEASIBILITY OF THE PROPERTY OR THE INCOME TO BE DERIVED FROM THE
PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) EXCEPT FOR
ANY WARRANTIES OF TITLE CONTAINED IN THE SPECIAL WARRANTY DEED TO
BE DELIVERED BY SELLER AT THE CLOSING, THE NATURE AND EXTENT OF ANY
RIGHT-OF-WAY; (E) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS
OPERATION WITH ANY LAWS, RULES, ORDINANCES, OR REGULATIONS OF ANY
APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, INCLUDING, WITHOUT
LIMITATION, THE STATUS OF ANY PERMITS AND GOVERNMENTAL APPROVAL;
(F) THE RENTABILITY, HABITABILITY, MARKETABILITY, MERCHANTABILITY,
OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; (G) THE
PRESENCE OF ANY ENDANGERED OR THREATENED SPECIES ON THE PROPERTY,
AS WELL AS THE SUITABILITY OF THE PROPERTY AS HABITAT FOR ANY OF
THOSE SPECIES; OR (H) ANY OTHER MATTER WITH RESPECT TO THE
PROPERTY. WITHOUT LIMITING THE FOREGOING, SELLER AND ITS AGENTS
HAVE NOT MADE, DO NOT MAKE, WILL NOT MAKE AND SPECIFICALLY NEGATE
AND DISCLAIM ANY REPRESENTATION OR WARRANTY REGARDING THE PRESENCE
OR ABSENCE OF ANY HAZARDOUS MATERIALS (AS HEREINAFTER DEFINED) ON,
UNDER, OR ABOUT THE PROPERTY OR THE COMPLIANCE OF THE PROPERTY WITH
ANY OF THE ENVIRONMENTAL LAWS (AS HEREINAFTER DEFINED). THE TERM
“HAZARDOUS MATERIALS” MEANS ANY SUBSTANCE, COMPOUND,
MATERIAL OR WASTE, WHETHER SOLID, LIQUID OR GASEOUS: (1) THE
PRESENCE OF WHICH REQUIRES INVESTIGATION, MONITORING OR REMEDIATION
UNDER ANY ENVIRONMENTAL LAW (DEFINED BELOW); (2) WHICH IS OR
BECOMES DEFINED AS A “HAZARDOUS SUBSTANCE”,
“HAZARDOUS MATERIAL”, “HAZARDOUS WASTE”,
“EXTREMELY HAZARDOUS WASTE”, “SOLID WASTE”,
“TOXIC SUBSTANCE”, “CHEMICAL SUBSTANCE”,
“REGULATED SUBSTANCE”, “POLLUTANT”, OR
“CONTAMINANT”, OR IS OTHERWISE CLASSIFIED AS HAZARDOUS
OR TOXIC, IN OR PURSUANT TO ANY ENVIRONMENTAL LAW; (3) WHICH IS
EXPLOSIVE, CORROSIVE, FLAMMABLE, RADIOACTIVE, OR OTHERWISE
HAZARDOUS AND IS OR BECOMES REGULATED BY ANY GOVERNMENTAL
AUTHORITY, AGENCY, DEPARTMENT, COMMISSION, BOARD, AGENCY OR
INSTRUMENTALITY OF THE UNITED STATES, THE STATE OF TEXAS OR ANY
POLITICAL SUBDIVISION THEREOF; (4) THE PRESENCE OF WHICH ON THE
PROPERTY CAUSES OR THREATENS TO CAUSE A NUISANCE UPON THE PROPERTY
OR TO ADJACENT PROPERTIES OR POSES OR THREATENS TO POSE A HAZARD TO
THE HEALTH OR SAFETY OF PERSONS ON OR ABOUT THE PROPERTY; (5) THAT
CONTAINS PETROLEUM HYDROCARBONS, ASBESTOS, RADON, POLYCHLORINATED
BIPHENYLS, UREA FORMALDEHYDE FOAM INSULATION, LEAD, OR MOTOR FUEL
OR OTHER VOLATILE ORGANIC COMPOUNDS; (6) WHICH CAUSES OR POSES A
THREAT TO CAUSE A HAZARD TO THE ENVIRONMENT OR TO THE HEALTH,
SAFETY OR WELFARE OF PERSONS ON OR ABOUT THE PROPERTY, OR (7) WHICH
IS A SHARP (E.G. NEEDLE) OR AN INFECTIOUS, MEDICAL OR RADIOACTIVE
WASTE. THE TERM “ENVIRONMENTAL LAWS” MEANS ANY FEDERAL,
STATE OR LOCAL LAW, STATUTE, GUIDANCE OR POLICY STATEMENT,
ORDINANCE, CODE, RULE, REGULATION, LICENSE, AUTHORIZATION,
DECISION, ORDER, INJUNCTION OR DECREE, WHICH PERTAINS TO HEALTH,
SAFETY OR THE ENVIRONMENT (INCLUDING, BUT NOT LIMITED TO, GROUND,
AIR, WATER OR NOISE POLLUTION OR CONTAMINATION, AND UNDERGROUND OR
ABOVEGROUND TANKS) AND SHALL INCLUDE WITHOUT LIMITATION, THE CLEAN
WATER ACT, 33 U.S.C. § 1251 ET SEQ.; THE COMPREHENSIVE
ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT, 42 U.S.C.
§ 9601 ET SEQ.; THE RESOURCE CONSERVATION AND RECOVERY ACT, 42
U.S.C. § 6901 ET SEQ.; THE TOXIC SUBSTANCE CONTROL ACT, 15
U.S.C. §§ 2601 ET SEQ; THE OCCUPATIONAL HEALTH AND SAFETY
ACT; THE TEXAS WATER CODE; AND THE TEXAS SOLID WASTE DISPOSAL ACT,
TEXAS HEALTH AND SAFETY CODE CHAPTER 361, ALL AS
AMENDED.
2.
BUYER
AGREES THAT IT HAS EXAMINED AND INVESTIGATED THE PROPERTY PRIOR TO
EXECUTION HEREOF OR THAT IT WILL INVESTIGATE THE PROPERTY PRIOR TO
THE EXPIRATION OF THE PRE-CLOSING PERIOD AND THAT IN PURCHASING THE
PROPERTY BUYER WILL RELY SOLELY UPON ITS INDEPENDENT EXAMINATION,
STUDY, INSPECTION AND KNOWLEDGE OF THE PROPERTY, AND BUYER IS
RELYING SOLELY UPON ITS OWN EXAMINATION, STUDY, INSPECTION, AND
KNOWLEDGE OF THE PROPERTY AND BUYER’S DETERMINATION OF THE
VALUE OF THE PROPERTY AND USES TO WHICH THE PROPERTY MAY BE PUT,
AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY
SELLER.
3.
BUYER
AGREES TO PAY FOR AND HAS MADE OR CAUSED TO BE MADE (OR WILL MAKE
OR CAUSE TO BE MADE) ALL INSPECTIONS, INVESTIGATIONS AND ANALYSES
NECESSARY OR APPROPRIATE FOR THE PURPOSE OF DETERMINING COMPLIANCE
OR NON-COMPLIANCE BY THE PROPERTY WITH ALL BUILDING, HEALTH,
ENVIRONMENTAL, ZONING AND LAND USE LAWS, ORDINANCES, RULES AND
REGULATIONS, AND SELLER MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, CONCERNING THE PROPERTY’S COMPLIANCE WITH
SUCH BUILDING, HEALTH, ENVIRONMENTAL, ZONING AND LAND USE LAWS,
ORDINANCES, RULES AND REGULATIONS.
4.
BUYER
FURTHER ACKNOWLEDGES THAT THE INFORMATION, IF ANY, PROVIDED AND TO
BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OBTAINED FROM A
VARIETY OF SOURCES AND SELLER (A) HAS NOT MADE AND WILL NOT BE
OBLIGATED TO MAKE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF
SUCH INFORMATION AND (B) DOES NOT MAKE ANY REPRESENTATIONS AS TO
THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. BUYER
ACKNOWLEDGES AND AGREES THAT ALL MATERIALS, DATA AND INFORMATION
DELIVERED AT ANY TIME BY SELLER TO BUYER IN CONNECTION WITH THE
TRANSACTION CONTEMPLATED HEREBY ARE PROVIDED TO BUYER AS A
CONVENIENCE ONLY AND THAT ANY RELIANCE ON OR USE OF SUCH MATERIALS,
DATA OR INFORMATION BY BUYER SHALL BE AT THE SOLE RISK OF BUYER.
BUYER ACKNOWLEDGES AND AGREES THAT IT WILL CONDUCT ITS OWN
VERIFICATION OF THE INFORMATION, EITHER INDEPENDENTLY OR THROUGH
AGENTS OF BUYER’S CHOOSING. NEITHER SELLER, NOR ITS AGENTS,
NOR THE PERSON OR ENTITY WHICH PREPARED ANY REPORT OR REPORTS
DELIVERED BY SELLER TO BUYER SHALL HAVE ANY LIABILITY TO BUYER FOR
ANY INACCURACY IN OR OMISSION FROM ANY SUCH REPORTS.
5.
BUYER
RELEASES, ACQUITS AND FOREVER DISCHARGES SELLER FROM, AND WAIVES,
ANY AND ALL LIABILITIES, CLAIMS, CAUSES OF ACTION, DAMAGES, AND
OTHER RELIEF, WHETHER AT LAW OR IN EQUITY AND WHETHER IN CONTRACT,
TORT, STRICT LIABILITY OR OTHERWISE, AND WHETHER PAST, PRESENT, OR
FUTURE, IN CONNECTION WITH, AS A RESULT OF OR OTHERWISE WITH REGARD
TO THE CONDITION OF THE PROPERTY, INCLUDING BUT NOT LIMITED TO ITS
ENVIRONMENTAL CONDITION. THIS GENERAL RELEASE SHALL BE APPLICABLE,
WITHOUT LIMITATION, TO ANY AND ALL LIABILITIES, CLAIMS, CAUSES OF
ACTION, DAMAGES AND OTHER RELIEF UNDER ANY OF THE ENVIRONMENTAL
LAWS.
6.
THE
OCCURRENCE OF A CLOSING SHALL CONSTITUTE AN ACKNOWLEDGMENT BY BUYER
THAT THE PROPERTY WAS ACCEPTED WITHOUT REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED (EXCEPT FOR THE SPECIAL WARRANTIES OF TITLE SET
FORTH IN THE SPECIAL WARRANTY DEED), AND OTHERWISE IN AN “AS
IS”, “WHERE IS”, AND “WITH ALL
FAULTS” CONDITION. THE PROVISIONS OF THIS EXHIBIT SHALL
SURVIVE CLOSING.
EXHIBIT D
1.
Abstract or Title
Policy. Buyer should have an abstract covering the Property
examined by an attorney of Buyer’s selection, or Buyer should
be furnished with or obtain a title policy.
2.
Notice Regarding
Possible Liability for Additional Taxes (§5.010 Texas Property
Code). If the Property is vacant land, then pursuant to
Section 5.010 of the Texas Property Code Seller notifies Buyer:
“If for the current ad valorem tax year the taxable value of
the land that is the subject of this Agreement is determined by a
special appraisal method that allows for appraisal of the land at
less than its market value, the person to whom the land is
transferred may not be allowed to qualify the land for that special
appraisal in a subsequent tax year and the land may then be
appraised at its full market value. In addition, the transfer of
the land or a subsequent change in the use of the land may result
in the imposition of an additional tax plus interest as a penalty
for the transfer or the change in the use of the land. The taxable
value of the land and the applicable method of appraisal for the
current tax year is public information and may be obtained from the
tax appraisal district established for the county in which the land
is located.”
3.
Notice Regarding
Possible Annexation (§5.011 Texas Property Code). If
the Property is located outside the limits of a municipality, the
Property may now or later be included in the extra-territorial
jurisdiction (“ETJ”) of a
municipality and may now or later be subject to annexation by the
municipality. Each municipality maintains a map that depicts its
boundaries and ETJ. To determine if the Property is located within
a municipality’s ETJ or is likely to be located within a
municipality’s ETJ, Buyer should contact all municipalities
located in the general proximity of the Property for further
information.
4.
Notice of Water
Level Fluctuations (§5.019 Texas Property Code). If the
Property adjoins an impoundment of water, including a reservoir or
lake, constructed and maintained under Chapter 11 of the Texas
Water Code, that has a storage capacity of at least 5,000 acre-feet
at the impoundment’s normal operating level, then pursuant to
Section 5.019 of the Texas Property Code Seller notifies Buyer:
“The water level of the impoundment of water adjoining the
Property fluctuates for various reasons, including as a result of:
(1) an entity lawfully exercising its right to use the water stored
in the impoundment; or (2) drought or flood
conditions.”
5.
Notice of Private
Transfer Fee (§5.205 Texas Property Code). If the
Property is subject to a private transfer fee, then pursuant to
Section 5.205 of the Texas Property Code Seller notifies Buyer that
the private transfer fee obligation may be governed by Chapter 5,
Subchapter G of the Texas Property Code.
6.
Notice Required by
§13.257 of the Texas Water Code Regarding Certificated Water
or Sewer Service. Pursuant to Section 13.257 of the Texas
Water Code Seller notifies Buyer: “The real property,
described below, that you are about to purchase may be located in a
certificated water or sewer service area, which is authorized by
law to provide water or sewer service to the properties in the
certificated area. If your property is located in a certificated
area there may be special costs or charges that you will be
required to pay before you can receive water or sewer service.
There may be a period required to construct lines or other
facilities necessary to provide water or sewer service to your
property. You are advised to determine if the Property is in a
certificated area and contact the utility service provider to
determine the cost that you will be required to pay and the period,
if any, that is required to provide water or sewer service to your
property. The undersigned Buyer hereby acknowledges receipt of the
foregoing notice at or before the execution of a binding Agreement
for the purchase of the real property described in the notice or at
closing of purchase of the real property.” The real property
referred to in this notice is the Property defined in this
Agreement.
7.
Notice Regarding
Taxing Districts (§49.452 Texas Water Code). If the
Property is located in a district created under Title 4 of the
Texas Water Code (currently Chapters 49 through 68) or by a special
act of the legislature, that is providing or proposing to provide
water, sanitary sewer, drainage, or flood control or protection
facilities or services, or any of these facilities or services that
have been financed or are proposed to be financed with bonds of the
district payable in whole or part from taxes of the district, or by
imposition of a standby fee, if any, then pursuant to Section
49.452 of the Texas Water Code Seller gives Buyer the notice in the
attached Exhibit E, which is
incorporated into this Agreement for all purposes.
8.
Notice of
Obligation to Pay Public Improvement District Assessment
(§5.014 Texas Property Code). If the Property is
located in a public improvement district established under
Subchapter A, Chapter 372, Local Government Code, or Chapter 382,
Local Government Code, and consists of not more than one dwelling
unit, then pursuant to Section 5.014 of the Texas Property Code
Seller notifies Buyer that as a Buyer of the Property you are
obligated to pay an assessment to a municipality or county for an
improvement project undertaken by a public improvement district
under Subchapter A, Chapter 372, Local Government Code, or Chapter
382, Local Government Code. The assessment may be due annually or
in periodic installments. More information concerning the amount of
the assessment and the due dates of that assessment may be obtained
from the municipality or county levying the assessment. The amount
of the assessments is subject to change. Your failure to pay the
assessments could result in a lien on and the foreclosure of your
property.
EXHIBIT E
Notice
of Utility or Other Statutorily Created District
(§49.452 and § 54.812 Texas Water Code)
NOTICE TO BUYER OF REAL ESTATE
SITUATED IN
HARRIS COUNTY IMPROVEMENT DISTRICT NO. 17
The real property, described below, which you are about to purchase
is located Harris County Improvement District No. 17 (the
“District”). The District has taxing authority separate
from any other taxing authority, and may, subject to voter
approval, issue an unlimited amount of bonds and levy an unlimited
rate of tax in payment of such bonds. As of this date, the rate of
taxes levied by
the District on real property located in the District is $1.25 on
each $100 of assessed valuation. The total amount of bonds,
excluding refunding bonds and any bonds or any portion of bonds
issued that are payable solely from revenues received or expected
to be received under a contract with a governmental entity,
approved by the voters and that has been or may be issued, at this
date, is
$200,000,000 for water, sewage and drainage purposes, $670,000,000
for roads, and $80,000,000 for parks and recreational facilities,
and the aggregate initial principal amount of all bonds issued for
one or more of the specified facilities of the District and payable
in whole or in part from property taxes is $-0-.
The District also has the authority to adopt and impose a standby
fee on property in the District that has water, sanitary sewer, or
drainage facilities and services available but not connected and
which does not have a house, building or other improvement located
thereon and does not substantially utilize the utility capacity
available to the property. The District may exercise the authority
without
holding an election on the matter. As of this date, the most recent
amount of the standby fee is $-0-. An unpaid standby fee is a
personal obligation of the person that owned the property at the
time of imposition and is secured by a lien on the property. Any
person may request a certificate from the District stating the
amount, if any, of unpaid standby fees on a tract of property in
the District.
The District has the authority to levy an assessment on property
within the District. The District may exercise this authority
without holding an election the matter. As of this date, the amount
of the assessment is $-0- per $100 valuation for real property and
improvements thereon. The District is located in whole or in part
within the extra-territorial jurisdiction of the Cities of Houston
and Tomball. By law, a district
located in the extraterritorial jurisdiction of a municipality may
be annexed without the consent of a district or the voters in the
District. When a district is annexed, it is
dissolved.
The purpose of this District is to provide water, sewer, drainage
or flood control facilities, roads, services, and park and
recreation facilities within the District through the issuance of
bonds payable in whole or in part from property taxes. The cost of
these utility facilities is not included in the purchase price of
your property, and these utility facilities are owned or to be
owned by the District.
See the
legal description of the Property in the contract to which this
notice is attached.
Buyer is advised that the information shown on this form is subject
to change by the district at any time. The district routinely
establishes tax rates during the months of September through
December of each year, effective for the year in which the tax
rates are approved by the district. buyer is advised to contact the
district to determine the status of any current or proposed changes
to the information shown on this form.
The
Buyer hereby acknowledges receipt of the foregoing notice at or
prior to execution of a binding contract for the purchase of the
real property described in such notice or at closing of purchase of
the real property.
____________________________
________________________________
The undersigned buyer hereby acknowledges receipt of the foregoing
at or prior to execution of a binding contract for the purchase of
the real property described in such notice or at closing of
purchase of the real property.
____________________________
___________________________ _____
EXHIBIT F
List of Ancillary Agreements
(not in chronological order)
1.
“Development,
Financing and Construction Agreement by and between Harris County
Improvement District No. 17 and 150 CCM Black Oak, Ltd.”
dated September 15, 2014.
2.
“Aqua
Texas, Inc. Black Oak Force Main Agreement” dated
________________, 2017
3.
Assignment of HCID
No. 17 Reimbursement & Escrow Funds (to be
prepared)
4.
Agreement/Declaration
from HCID No. 17 and Preston Hollow Capital for Periodic
Disbursements of District Escrow Funds (to be
prepared)
5.
Other
agreements/assignments as necessary for Buyer’s Take Over
Rights.
EXHIBIT G
Seller’s Post Closing Work and Schedule
Definition, Explanation, Details & Interpretations of all work
referenced herein shall be as described in the Ancillary
Agreements, when in doubt or further explanation is needed. The
Force Majeure provisions of the USA (as revised to apply to Seller)
shall apply to the Post Closing Work and Schedule outlined below.
The term “Post Closing Work” means the construction and
completion of the lift stations, force main, and related
improvements under the FMA in accordance with the requirements of
the FMA and the applicable requirements of the other Ancillary
Documents.
|
Post
Closing Work – General
Description
|
|
Progress Date Deadline
|
All construction plans &
specifications (“Plans”) for the Post Closing
Work (lift stations, all portions of Force Main, etc.) shall have
been approved by certified engineer with contract awarded to
Project Contractor; all necessary County and/or other municipal
approvals are obtained for the construction of the Post Closing
Work; copies of approved Plans delivered to Buyer
|
|
January
1, 2019
|
|
|
|
|
|
Re-commence/continue
diligent construction work on lift stations and all remaining incomplete portions of the Force
Main
|
|
to
start within 60 days after Closing (but no later than February 1,
2019)
|
|
|
|
|
|
Continuous and diligent construction work on lift
stations and Force Main
|
|
February
1, 2019 – August 1, 2019
|
|
|
|
|
Completion and dedication/acceptance
of all Post Closing Work (lift stations, Force Main, etc.)
in fully operational state, with all permits and capacity to accept
water/sewer from Property
|
|
August
1, 2019
|
Exhibit 10.33
AMENDMENT TO PROJECT DEVELOPMENT AND MANAGEMENT
AGREEMENT FOR BALLENGER RUN PUD
THIS
AMENDMENT (hereinafter referred to as the “Amendment”),
made as of this 16th day of October 2019
by and between Adams-Aumiller Properties, LLC
(“Adams-Aumiller”) and Cavalier Development Group, LLC
(“Cavalier”) (together Adams-Aumiller and Cavalier are
referred to as the “Developers”) and SeD Maryland
Development, LLC (the “Owner”).
RECITALS
WHEREAS, MacKenzie
Development Company, LLC, Cavalier and Owner entered into a Project
Development and Management Agreement for Ballenger Run PUD dated
February 25, 2015 (the “Contract”), a copy of which is
attached as Exhibit A hereto and made part hereof by reference;
and
WHEREAS, MacKenzie
Development Company, LLC assigned and transferred all its rights,
obligations and interests in the Contract to Adams-Aumiller
pursuant to an Assignment and Assumption Agreement dated September
15, 2017, a copy of which is attached as Exhibit B hereto and made
part hereof by reference; and
WHEREAS,
Adams-Aumiller, Cavalier and Owner desire to amend the Contract to
include the development of an additional 36 lots in the
Project.
NOW,
THEREFORE, FOR AND IN CONSIDERATION of the mutual entry into this
Amendment by the parties hereto, and for other good and valuable
consideration, the receipt and adequacy of which are hereby
acknowledged by each party hereto, the parties hereto hereby agree
as follows:
1.
Developers will
seek all County approvals to permit 36 age-restricted villa lots to
be built on the 5.975 acre parcel identified as Lot D Ballenger Run
which is recorded in the Land Records of Frederick County in book
100 page 48 (the “CCRC Parcel”). This rezoning approval
will require an amendment to the originally approved Adequate
Public Facilities Memorandum of Understanding and the
Developer’s Rights and Responsibilities Agreement. Developers
will attend all County Council, Planning Commission, staff, and
other meetings as required. Owner’s legal counsel will also
support this effort.
2.
With the assistance
of the Owner’s engineer, Developers will seek site plan
approval from Frederick County for the CCRC Parcel which is to
include 36 attached single-family lots. Developers will attend all
Planning Commission, public and staff meetings required for site
plan approval.
3.
For the CCRC
Parcel, Developer will perform all necessary Services To Be
Provided By Developers as outlined in Section 2 of the Contract A.
This includes but is not limited to engineering approvals, lot
development and construction and close out services.
4.
Compensation for
Services for development of the CCRC Parcel shall be as
follows:
i.
A fee of $50,000 to
by paid by Owners to the Developers and due by October 31, 2019.
This fee shall be paid $27,500 to Cavalier and $22,500 to
Adams-Aumiller. Invoices will be sent by Cavalier and
Adams-Aumiller to Owner. Upon payment of this $50,000 fee, the
$50,000 fee for the sale of the CCRC Parcel as outlined in Section
4f of the Contract shall no longer be owed from Owner to
Developers.
ii.
A fee of $2,500 for
every villa lot in the CCRC Parcel which is sold and settled to a
third party. This fee shall be paid to the Developers at the time
of settlement and shall be included on the settlement statement for
each villa lot. The fee shall be paid as $1,375 to Cavalier and
$1,125 to Adams-Aumiller. An invoice will not be issued for these
fees, but Owner shall instruct the settlement agent to make the
payments to the Developers at lot settlement. For only these 36
lots included in the CCRC Parcel, the fees outlined in Section 4d
and 4e of the Contract shall not be owed from Owner to
Developers.
5.
Except to the
extent modified herein, all of the terms, conditions and provisions
of the Contract and Assignment and Assumption Agreement are hereby
ratified and declared to be in full for and effect.
IN
WITNESS WHEREOF, each party hereto has executed and sealed this
Agreement by its duly authorized representative, as of the day and
year first above written.
|
WITNESS:
|
Adams-Aumiller
Properties, LLC
|
|
|
|
|
|
|
|
|
By:
/s/ Robert J. Aumiller,
Jr. (SEAL)
|
|
|
Robert
J. Aumiller, Jr., Manager
|
|
|
|
|
|
|
|
WITNESS:
|
Cavalier
Development Group, LLC
|
|
|
|
|
|
|
|
|
By:
/s/ Stephen P. Oder
(SEAL)
|
|
|
Stephen
P. Oder, Manager
|
|
|
|
|
|
|
|
WITNESS:
|
SeD
Maryland Development, LLC
|
|
|
By: SeD
Development Management, LLC, Manager
|
|
|
|
|
|
|
|
|
By:
/s/ Charles W.S.
MacKenzie (SEAL)
|
|
|
Charles
W.S. MacKenzie, Manager
|
EXHIBIT A
Project Development and Management Agreement dated February 25,
2015
EXHIBIT B
Assignment and Assumption Agreement dated September 15,
2017
Exhibit 14.1
HF ENTERPRISES INC. (the “Company”)
Introduction
This
Code of Conduct covers a wide range of business practices and
procedures. It does not cover every issue that may arise, but it
sets out basic principles to guide the directors, officers, and
employees of the Company. All Company directors, officers, and
employees should conduct themselves accordingly and seek to avoid
even the appearance of improper behavior in any way relating to the
Company. In appropriate circumstances, this Code should also be
provided to and followed by the Company’s agents and
representatives, including consultants.
Any
director or officer who has any questions about this Code should
consult with the Chief Executive Officer, the Chief Financial
Officer, or legal counsel as appropriate in the circumstances. If
an employee has any questions about this Code, the employee should
ask his or her supervisor how to handle the situation.
This
Code is intended to deter wrongdoing and to promote the
following:
●
honest and ethical
conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional
relationships;
●
full, fair,
accurate, timely, and understandable disclosure in reports and
documents the Company files with, or submits to, the Securities and
Exchange Commission (the “SEC”) and in other
communications made by the Company;
●
compliance with
applicable governmental laws, rules, and regulations;
●
the prompt internal
reporting of violations of this Code to the appropriate person or
persons identified in this Code;
●
accountability for
adherence to this Code; and
●
adherence to a high
standard of business ethics.
2.
Compliance
with Laws, Rules, and Regulations
Obeying
the law, both in letter and in spirit, is the foundation on which
the Company’s ethical standards are built. All directors,
officers, and employees should respect and obey all laws, rules,
and regulations applicable to the business and operations of the
Company. Although directors, officers, and employees are not
expected to know all of the details of these laws, rules, and
regulations, it is important to know enough to determine when to
seek advice from supervisors, managers, officers or other
appropriate Company personnel.
A
“conflict of interest” exists when an
individual’s private interest interferes in any way –
or even appears to conflict – with the interests of the
Company. A conflict of interest situation can arise when a
director, officer, or employee takes actions or has interests that
may make it difficult to perform his or her work on behalf of the
Company in an objective and effective manner. Conflicts of interest
may also arise when a director, officer, or employee, or a member
of his or her family, receives improper personal benefits as a
result of his or her position with the Company. Loans to, or
guarantees of obligations of, employees and their family members
may create conflicts of interest.
Service
to the Company should never be subordinated to personal gain or
advantage. Conflicts of interest, whenever possible, should be
avoided. In particular, clear conflict of interest situations
involving directors, officers, and employees who occupy supervisory
positions or who have discretionary authority in dealing with any
third party may include the following:
●
any significant
ownership interest in any supplier or customer;
●
any consulting or
employment relationship with any customer, supplier, or
competitor;
●
any outside
business activity that detracts from an individual’s ability
to devote appropriate time and attention to his or her
responsibilities to the Company;
●
the receipt of
non-nominal gifts or excessive entertainment from any organization
with which the Company has current or prospective business
dealings;
●
being in the
position of supervising, reviewing, or having any influence on the
job evaluation, pay, or benefit of any family member;
and
●
selling anything to
the Company or buying anything from the Company, except on the same
terms and conditions as comparable directors, officers, or
employees are permitted to so purchase or sell.
It is
almost always a conflict of interest for a Company officer or
employee to work simultaneously for a competitor, customer, or
supplier. No officer or employee may work for a competitor as a
consultant or board member. The best policy is to avoid any direct
or indirect business connection with the Company's customers,
suppliers, and competitors, except on the Company's
behalf.
Conflicts of
interest are prohibited as a matter of Company policy, except under
guidelines approved by the Board of Directors. Conflicts of
interest may not always be clear-cut and further review and
discussions may be appropriate. Any director or officer who becomes
aware of a conflict or potential conflict should bring it to the
attention of the Chief Executive Officer, the Chief Financial
Officer, or legal counsel as appropriate in the circumstances. Any
employee who becomes aware of a conflict or potential conflict
should bring it to the attention of a supervisor, manager, or other
appropriate personnel.
Directors,
officers, and employees who have access to confidential information
relating to the Company are not permitted to use or share that
information for stock trading purposes or for any other purpose
except the conduct of the Company's business. All non-public
information about the Company should be considered confidential
information. To use non-public information for personal financial
benefit or to “tip” others who might make an investment
decision on the basis of this information is not only unethical and
against Company policy but is also illegal. Directors, officers,
and employees also should comply with insider trading standards and
procedures adopted by the Company. If a question arises, the
director, officer, or employee should consult with the
Company’s Chief Financial Officer.
5.
Corporate
Opportunities
Directors,
officers, and employees are prohibited from taking for themselves
personally or directing to a third party any opportunity that is
discovered through the use of corporate property, information, or
position without the consent of the Board of Directors. No
director, officer, or employee may use corporate property,
information, or position for improper personal gain, and no
director, officer, or employee may compete with the Company
directly or indirectly. Directors, officers, and employees owe a
duty to the Company to advance its legitimate interests when the
opportunity to do so arises.
6.
Competition
and Fair Dealing
The
Company seeks to compete in a fair and honest manner. The Company
seeks competitive advantages through superior performance rather
than through unethical or illegal business practices. Stealing
proprietary information, possessing trade secret information that
was obtained without the owner’s consent, or inducing such
disclosures by past or present employees of other companies is
prohibited. Each director, officer, and employee should endeavor to
respect the rights of and deal fairly with the Company’s
customers, suppliers, service providers, competitors, and
employees. No director, officer, or employee should take unfair
advantage of anyone relating to the Company’s business or
operations through manipulation, concealment, or abuse of
privileged information, misrepresentation of material facts, or any
unfair dealing practice.
To
maintain the Company’s valuable reputation, compliance with
the Company's quality processes and safety requirements is
essential. In the context of ethics, quality requires that the
Company's products and services meet reasonable customer
expectations. All inspection and testing documents must be handled
in accordance with all applicable regulations.
The
purpose of business entertainment and gifts in a commercial setting
is to create good will and sound working relationships, not to gain
unfair advantage with customers. No gift or entertainment should
ever be offered, given, provided, or accepted by a director,
officer, or employee, family member of a director, officer, or
employee, or agent relating to the individual’s position with
the Company unless it (1) is not a cash gift, (2) is consistent
with customary business practices, (3) is not excessive in value,
(4) cannot be construed as a bribe or payoff, and (5) does not
violate any laws or regulations. A director or officer should
discuss with the Chief Executive Officer or Chief Financial
Officer, and a employee should discuss with his or her supervisor,
any gifts or proposed gifts that the individual is not certain are
appropriate.
7.
Discrimination
and Harassment
The
diversity of the Company’s employees is a tremendous asset.
The Company is firmly committed to providing equal opportunity in
all aspects of employment and will not tolerate any illegal
discrimination or harassment or any kind. Examples include
derogatory comments based on racial or ethnic characteristics and
unwelcome sexual advances.
The
Company strives to provide each employee with a safe and healthful
work environment. Each officer and employee has responsibility for
maintaining a safe and healthy workplace for all employees by
following safety and health rules and practices and reporting
accidents, injuries, and unsafe equipment, practices, or
conditions.
Violence and
threatening behavior are not permitted. Officers and employees
should report to work in a condition to perform their duties, free
from the influence of illegal drugs or alcohol. The use of illegal
drugs in the workplace will not be tolerated.
The
Company requires honest and accurate recording and reporting of
information in order to make responsible business
decisions.
Many
officers and employees regularly use business expense accounts,
which must be documented and recorded accurately. If an officer or
employee is not sure whether a certain expense is legitimate, the
employee should ask his or her supervisor or the Company's
controller. Rules and guidelines are available from the Accounting
Department.
All of
the Company’s books, records, accounts, and financial
statements must be maintained in reasonable detail, must
appropriately reflect the Company’s transactions, and must
conform both to applicable legal requirements and to the
Company’s system of internal controls. Unrecorded or
“off the books” funds or assets should not be
maintained unless permitted by applicable law or
regulation.
Business records
and communications often become public, and the Company and its
officers and employees in their capacity with the Company should
avoid exaggeration, derogatory remarks, guesswork, or inappropriate
characterizations of people and companies that can be
misunderstood. This applies equally to e-mail, internal memos, and
formal reports. The Company’s records should always be
retained or destroyed according to the Company’s record
retention policies. In accordance with those policies, in the event
of litigation or governmental investigation, directors, officers,
and employees should consult with the Company’s Chief
Financial Officer or legal counsel before taking any action because
it is critical that any impropriety or possible appearance of
impropriety be avoided.
Directors,
officers, and employees must maintain the confidentiality of
confidential information entrusted to them by the Company or its
customers, suppliers, joint venture partners, or others with whom
the Company is considering a business or other transaction except
when disclosure is authorized by an executive officer or required
or mandated by laws or regulations. Confidential information
includes all non-public information that might be useful or helpful
to competitors or harmful to the Company or its customers and
suppliers, if disclosed. It also includes information that
suppliers and customers have entrusted to the Company. The
obligation to preserve confidential information continues even
after employment ends.
11.
Protection
and Proper Use of Company Assets
All
directors, officers, and employees should endeavor to protect the
Company’s assets and ensure their efficient use. Theft,
carelessness, and waste have a direct impact on the Company’s
profitability. Any suspected incident of fraud or theft should be
immediately reported for investigation. Company assets should be
used for legitimate business purposes and should not be used for
non-Company business.
The
obligation to protect the Company’s assets includes its
proprietary information. Proprietary information includes
intellectual property, such as trade secrets, patents, trademarks,
and copyrights, as well as business, marketing and service plans,
engineering and manufacturing ideas, designs, databases, records,
salary information, and any unpublished financial data and reports.
Unauthorized use or distribution of this information would violate
Company policy. It could also be illegal and result in civil or
even criminal penalties.
12.
Payments
to Government Personnel
The
U.S. Foreign Corrupt Practices Act prohibits giving anything of
value, directly or indirectly, to officials of foreign governments
or foreign political candidates in order to obtain or retain
business. It is strictly prohibited to make illegal payments to
government officials of any country.
In
addition, the U.S. government has a number of laws and regulations
regarding business gratuities that may be accepted by U.S.
government personnel. The promise, offer, or delivery to an
official or employee of the U.S. government of a gift, favor, or
other gratuity in violation of these rules would not only violate
Company policy but could also be a criminal offense. State and
local governments, as well as foreign governments, may have similar
rules.
13.
Corporate
Disclosures
All
directors, officers, and employees should support the
Company’s goal to have full, fair, accurate, timely, and
understandable disclosure in the periodic reports required to be
filed by the Company with the SEC. Although most employees hold
positions that are far removed from the Company’s required
filings with the SEC, each director, officer, and employee should
promptly bring to the attention of the Chief Executive Officer, the
Chief Financial Officer, the Company’s Disclosure Committee,
or the Audit Committee, as appropriate in the circumstances, any of
the following:
●
Any material
information to which such individual may become aware that affects
the disclosures made by the Company in its public filings or would
otherwise assist the Chief Executive Officer, the Chief Financial
Officer, the Disclosure Committee, and the Audit Committee in
fulfilling their responsibilities with respect to such public
filings.
●
Any information the
individual may have concerning (a) significant deficiencies in the
design or operation of internal controls that could adversely
affect the Company's ability to record, process, summarize, and
report financial data or (b) any fraud, whether or not material,
that involves management or other employees who have a significant
role in the Company's financial reporting, disclosures, or internal
controls.
●
Any information the
individual may have concerning any violation of this Code,
including any actual or apparent conflicts of interest between
personal and professional relationships, involving any management
or other employees who have a significant role in the Company's
financial reporting, disclosures, or internal
controls.
●
Any information the
individual may have concerning evidence of a material violation of
the securities or other laws, rules, or regulations applicable to
the Company and the operation of its business, by the Company or
any agent thereof, or of violation of this Code.
14.
Waivers
of the Code of Conduct
Any
waiver of this Code for directors or executive officers may be made
only by the Board of Directors or a committee of the Board and will
be promptly disclosed to stockholders as required by applicable
laws, rules, and regulations, including the rules of the SEC and
Nasdaq. Any such waiver also must be disclosed in a Form
8-K.
This
Code shall be posted on the Company’s website.
16.
Reporting
any Illegal or Unethical Behavior
Directors and
officers are encouraged to talk to the Chief Executive Officer, the
Chief Financial Officer, or legal counsel, and employees are
encouraged to talk to supervisors, managers, or other appropriate
personnel, when in doubt about the best course of action in a
particular situation. Directors, officers, and employees should
report any observed illegal or unethical behavior and any perceived
violations of laws, rules, regulations, or this Code to appropriate
personnel. It is the policy of the Company not to allow retaliation
for reports of misconduct by others made in good faith. Directors,
officers, and employees are expected to cooperate in internal
investigations of misconduct.
The
Company maintains a Whistleblower Policy, for (1) the receipt,
retention, and treatment of complaints received by the Company
regarding accounting, internal accounting controls, or auditing
matters and (2) the confidential, anonymous submission by the
Company’s employees of concerns regarding questionable
accounting or auditing matters.
The
Board of Directors shall determine, or designate appropriate
persons to determine, appropriate actions to be taken in the event
of violations of this Code. Such actions shall be reasonably
designed to deter wrongdoing and to promote accountability for
adherence to this Code and to these additional procedures, and may
include written notices to the individual involved that the Board
has determined that there has been a violation, censure by the
Board, demotion or re-assignment of the individual involved,
suspension with or without pay or benefits (as determined by the
Board), and termination of the individual's employment or position.
In determining the appropriate action in a particular case, the
Board of Directors or such designee shall take into account all
relevant information, including the nature and severity of the
violation, whether the violation was a single occurrence or
repeated occurrences, whether the violation appears to have been
intentional or inadvertent, whether the individual in question had
been advised prior to the violation as to the proper course of
action, and whether or not the individual in question had committed
other violations in the past.
Exhibit 14.2
HF ENTERPRISES INC. (the “Company”)
CODE OF
ETHICS FOR THE CEO AND SENIOR FINANCIAL OFFICERS
The
Company has a Code of Business Conduct and Ethics applicable to all
directors and employees of the company. The Chief Executive Officer
and all senior financial officers, including the Chief Financial
Officer and principal accounting officer, are bound by the
provisions set forth therein relating to ethical conduct, conflicts
of interest, and compliance with law. In addition to the Code of
Business Conduct and Ethics, the Chief Executive Officer and senior
financial officers are subject to the following additional specific
policies:
1.
The Chief Executive
Officer and all senior financial officers are responsible for full,
fair, accurate, timely, and understandable disclosure in the
periodic reports required to be filed by the Company with the SEC.
Accordingly, it is the responsibility of the Chief Executive
Officer and each senior financial officer promptly to bring to the
attention of the Disclosure Committee, if applicable, and to the
Audit Committee any material information of which he or she may
become aware that affects the disclosures made by the Company in
its public filings or otherwise assist the Disclosure Committee, if
applicable, and the Audit Committee in fulfilling their
responsibilities.
2.
The Chief Executive
Officer and each senior financial officer shall promptly bring to
the attention of the Disclosure Committee, if applicable, and the
Audit Committee any information he or she may have concerning (a)
significant deficiencies in the design or operation of internal
controls that could adversely affect the Company's ability to
record, process, summarize, and report financial data or (b) any
fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's financial
reporting, disclosures, or internal controls.
3.
The Chief Executive
Officer and each senior financial officer shall promptly bring to
the attention of the Audit Committee any information he or she may
have concerning any violation of this Code or the Company's Code of
Business Conduct and Ethics, including any actual or apparent
conflicts of interest between personal and professional
relationships, involving any management or other employees who have
a significant role in the Company's financial reporting,
disclosures, or internal controls.
4.
The Chief Executive
Officer and each senior financial officer shall promptly bring to
the attention of the Disclosure Committee, if applicable, and the
Audit Committee any information he or she may have concerning
evidence of a material violation of the securities or other laws,
rules, or regulations applicable to the Company and the operation
of its business, by the Company or any agent thereof, or of
violation of the Code of Business Conduct and Ethics or of these
additional procedures.
5.
The Board of
Directors shall determine, or designate appropriate persons to
determine, appropriate actions to be taken in the event of
violations of the Code of Business Conduct and Ethics or of these
additional procedures by the Chief Executive Officer and the
Company's senior financial officers. Such actions shall be
reasonably designed to deter wrongdoing and to promote
accountability for adherence to the Code of Business Conduct and
Ethics and to these additional procedures, and may include written
notices to the individual involved that the Board has determined
that there has been a violation, censure by the Board, demotion or
re-assignment of the individual involved, suspension with or
without pay or benefits (as determined by the Board), and
termination of the individual's employment. In determining the
appropriate action in a particular case, the Board of Directors or
such designee shall take into account all relevant information,
including the nature and severity of the violation, whether the
violation was a single occurrence or repeated occurrences, whether
the violation appears to have been intentional or inadvertent,
whether the individual in question had been advised prior to the
violation as to the proper course of action, and whether or not the
individual in question had committed other violations in the
past.
Exhibit
21.1
|
Company Name / Business Name
|
Jurisdiction of Incorporation
|
|
150 Black Oak GP Inc
|
Texas
|
|
150 CCM Black Oak Ltd
|
Texas
|
|
Art eStudio Pte. Ltd.
|
Singapore
|
|
BioLife Sugar Inc
|
Nevada
|
|
BMI Capital Partners International Limited
|
Hong Kong
|
|
Coinstreet Partners Investment Pte. Ltd.
|
Singapore
|
|
Coinstreet Partners Pte. Ltd.
|
Singapore
|
|
Crypto Exchange Inc
|
Nevada
|
|
Global BioLife Inc
|
Nevada
|
|
Global BioMedical Inc
|
Nevada
|
|
Global BioMedical Pte. Ltd.
|
Singapore
|
|
Global eHealth Limited
|
Hong Kong
|
|
Global TechFund of Fund Pte. Ltd.
|
Singapore
|
|
Happy Sugar Inc
|
Nevada
|
|
Health Wealth Happiness Pte. Ltd.
|
Singapore
|
|
Health, Wealth & Happiness Inc
|
Delaware
|
|
Heng Fai Enterprises Pte. Ltd.
|
Singapore
|
|
LiquidValue Asset Management Pte. Ltd.
|
Singapore
|
|
Hengfai Business Development Pte. Ltd.
|
Singapore
|
|
Hengfai International Pte. Ltd.
|
Singapore
|
|
Holista Collecth Limited
|
Australia
|
|
HotApp BlockChain Inc
|
Delaware
|
|
HotApp International Limited
|
Hong Kong
|
|
HotApps International Pte. Ltd.
|
Singapore
|
|
HWH International Inc
|
Delaware
|
|
HWH Multi-Strategy Investment Inc
|
Nevada
|
|
HWH World Inc
|
Delaware
|
|
HWH World Pte. Ltd.
|
Singapore
|
|
iGalen International Inc
|
Delaware
|
|
iGalen Inc.
|
Delaware
|
|
Impact BioMedical Inc
|
Nevada
|
|
SeD Ballenger LLC
|
Delaware
|
|
SeD BioLife International Inc
|
Nevada
|
|
SeD BioMedical International Inc
|
Nevada
|
|
SeD Builder LLC
|
Delaware
|
|
SeD Capital Pte. Ltd.
|
Singapore
|
|
SeD Development Management LLC
|
Delaware
|
|
SeD Development USA Inc
|
Delaware
|
|
SeD Home Inc
|
Delaware
|
|
SeD Home International Inc
|
Delaware
|
|
SeD Home Limited
|
Hong Kong
|
|
SeD iHome Pte. Ltd.
|
Singapore
|
|
SeD Intelligent Home Inc
|
Nevada
|
|
SeD Investment Pte. Ltd.
|
Singapore
|
|
SeD Maryland Development LLC
|
Delaware
|
|
SeD Perth Pty Ltd
|
Australia
|
|
SeD Texas Home LLC
|
Delaware
|
|
SeD USA LLC
|
Delaware
|
|
Singapore Construction & Development Pte. Ltd.
|
Singapore
|
|
Singapore Construction Pte. Ltd.
|
Singapore
|
|
Singapore eChainLogistic Pte. Ltd.
|
Singapore
|
|
Singapore eDevelopment Limited
|
Singapore
|
|
Sweet Sense Inc
|
Nevada
|
Exhibit 23.2
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM’S CONSENT
We
consent to the inclusion in this Registration Statement of HF
Enterprises, Inc. (the “Company”) on Form S-1 to e
filed on November 12, 2019, of our report dated August 12, 2019 and
then dual dated November 12, 2019 with respect to a subsequent
event, with respect to our audit of the financial statements of HF
Enterprises, Inc. as of December 31, 2018 and 2017, and for the
years then ended, which report appears in the Prospectus, which is
part of this Registration Statement. We also consent to the
reference to our Firm under the heading “Experts” in
such Prospectus.
/s/
Rosenberg Rich Baker Berman, P.A.
Rosenberg
Rich Baker Berman, P.A.
Somerset,
New Jersey
November
12, 2019
Exhibit 23.3
CONSENT
Pursuant to Rule
438 under the Securities Act of 1933, as amended, the undersigned
hereby consents to being named in the Registration Statement on
Form S-1 of HF Enterprises Inc. (the “Company”) as a
person about to become a director of the Company.
|
Date: December 23,
2019
|
By:
|
/s/ Wong Tat
Keung
|
|
|
|
|
Wong Tat
Keung
|
|
|
|
|
|
|
Exhibit 23.4
CONSENT
Pursuant to Rule
438 under the Securities Act of 1933, as amended, the undersigned
hereby consents to being named in the Registration Statement on
Form S-1 of HF Enterprises Inc. (the “Company”) as a
person about to become a director of the Company.
|
Date: December 23,
2019
|
By:
|
/s/ Robert
Trapp
|
|
|
|
|
Robert
Trapp
|
|
|
|
|
|
|
Exhibit 23.5
CONSENT
Pursuant to Rule
438 under the Securities Act of 1933, as amended, the undersigned
hereby consents to being named in the Registration Statement on
Form S-1 of HF Enterprises Inc. (the “Company”) as a
person about to become a director of the Company.
|
Date: December 23,
2019
|
By:
|
/s/ John
Thatch
|
|
|
|
|
John
Thatch
|
|
|
|
|
|
|
Exhibit 23.6
CONSENT
Pursuant to Rule
438 under the Securities Act of 1933, as amended, the undersigned
hereby consents to being named in the Registration Statement on
Form S-1 of HF Enterprises Inc. (the “Company”) as a
person about to become a director of the Company.
|
Date: December 23,
2019
|
By:
|
/s/ Charles
MacKenzie
|
|
|
|
|
Charles
MacKenzie
|
|
|
|
|
|
|
