UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
OFFERING CIRCULAR
FORM 1-A
OFFERING STATEMENT UNDER THE SECURITIES ACT OF 1933 CURRENT REPORT
ILS FIXED HORIZON LLC
Date: December 19, 2023
Texas | 6500 | 88-1715867 |
(State or Other Jurisdiction of Incorporation) |
(Primary Standard Classification Code) |
(IRS Employer Identification No.) |
Tom Berry
Chief Executive Officer
PO Box 1227
210 Market Street
El Campo, TX 77437
Telephone: 979-541-1270
Website: https://ils.cash/
Please send copies of all correspondence to:
Pino Law Group PLLC
99 S. New York Ave.
Winter Park, FL 32789
Telephone: 407-206-6577
Email: ljp@PinoLawGroup.com
THIS OFFERING STATEMENT SHALL ONLY BE QUALIFIED UPON ORDER OF THE COMMISSION, UNLESS A SUBSEQUENT AMENDMENT IS FILED INDICATING THE INTENTION TO BECOME QUALIFIED BY OPERATION OF THE TERMS OF REGULATION A.
PART I - NOTIFICATION
Part I should be read in conjunction with the attached XML Document for Items 1-6
Offering Statement First Submission
File No. 024-12055
IMPORTANT RISK FACTORS
Interest Payments Subject to Manager’s Discretion
Investing in the Debt Units involves a risk that all debt payments, including interest payments, are subject to the discretion of the Manager. This means that the Manager may, at their sole discretion, temporarily pause or defer interest payments if they determine it to be in the best interest of the Company, such as during periods of financial stress or liquidity crunch. While the unearned interest payment would roll over to the following period, this discretion may result in uncertainty and delays for Debt Unit Holders in receiving their expected returns.
Conflict of Interest
Numerous conflicts of interest may arise between the Company, Company management, Company affiliates, and Debt Unit Holders. There are several potential conflicts of interest between the Company, its management, its affiliates, and Debt Unit Holders. Company affiliates may be compensated to provide various services, including the investment of assets, conducting due diligence on borrowers, and selling loans. These relationships may create situations where the interests of the Company, its management, and its affiliates do not align with the interests of Debt Unit Holders. In such cases, the Company's decision-making process may be influenced by these conflicts of interest, which could negatively impact the Debt Unit Holders' returns and the overall performance of the Company.
PART I – END
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PART II – OFFERING CIRCULAR
ILS FIXED HORIZON LLC
$75,000,000 OF DEBT UNITS
$1,000 PAR VALUE PER DEBT UNIT
This Offering involves the purchase of Debt Units (“Units”) in ILS Fixed Horizon LLC (the “Company”), which was formed for the purpose of raising capital to engage in the business of investing in all forms of real estate, primarily by providing financing to affiliated and unaffiliated Borrowers (“Investment Activities”).
Purchasers of the Units will become owners of the Units (“Investors” or “Debt Unit Holders”) upon execution of the Subscription Agreement, submission of the Investor Qualification Questionnaire, delivery of the investment funds (“Capital Contribution”), and acceptance by the Manager, which is ILS Fixed Horizon MGMT CORP. The Manager is controlled by Donald Sutton and Tom Berry.
The Offering was initially filed with the SEC for qualification on November 10, 2022, and then amened on February 6, 2023 and is a “Continuous Offering” under Rule 251(d)(3)(i)(F), which shall be commenced within two (2) days of the Offering being qualified by the SEC, and will terminate upon the earlier of: (i) the completion of the sale of all of the Units, or (ii) after a period of three (3) years (the "Offering Period"). The Company is offering a minimum of twenty-five (25) Units and a maximum of seventy-five thousand (75,000) Units. Each Unit is priced at One Thousand ($1,000) Dollars and a minimum purchase of twenty-five (25) Units is required, although the minimum number of Units may be offered in fractions at the discretion of the Manager. The executive management of the Company may purchase less. Any number of additional Units may be purchased.
The Debt Units have the following distinguishing characteristics:
Class
|
Interest |
Interest Rate/Lock-up |
Withdrawal Period |
Min. |
Class A1
|
monthly | 5% Interest Payment for 1 year, per annum | May withdraw 60 days after Initial Capital Contribution Received by Company | $25,000 |
Class A2
|
monthly | 6% Interest Payment for 1 year, per annum | May withdraw 60 days after Initial Capital Contribution Received by Company | $500,000 |
Class B1
|
monthly | 6% Interest Payment for 3 years, per annum | May withdraw 180 days after Initial Capital Contribution Received by Company | $25,000 |
Class B2
|
monthly | 7% Interest Payment for 3 years, per annum | May withdraw 180 days after Initial Capital Contribution Received by Company | $500,000 |
Class C1
|
monthly | 7% Interest Payment for 5 years, per annum | May withdraw 365 days after Initial Capital Contribution Received by Company | $25,000 |
Class C2
|
monthly | 8% Interest Payment 5 years, per annum | May withdraw 365 days after Initial Capital Contribution Received by Company | $500,000 |
Note to Table - Debt Unit investors should be aware that they may not be able to withdraw their debt units from the Company, and they may not be able to liquidate their debt unit interests. Debt investors may have to hold the debt units for an indefinite period of time or have the debt units sold for less than their initial contribution. There are no assurances that debt investors can withdraw funds at the specified time frames of 60 days, 180 days, or 365 days after the initial capital contribution is received by the Company if the Manager determines that the Company is undergoing a Liquidity Crunch, as defined by the mathematical formula on the following page . The 1, 3, and 5 year periods mentioned in the Offering refer to the length of time that the Manager will pay the Interest Payments to Investors, should they decide to keep their funds in the Offering. It is a lock-in period on the payment received, not on their Capital Contributions, which may be withdrawn at 60, 180, or 365 days, depending on the Class of Units purchased.
Additionally, each of these withdrawal periods are subject to the Debt Investor submitting a written request for Withdrawal of Capital to the Manager. Upon the Manager receiving the Letter, the Manager then has 60 days to process the Capital Withdrawal under the terms of this Offering Circular. For example, this means that a Class A1 Investor may request a Capital Withdrawal 60 days after they make their Initial Capital Contribution, and then 60 days thereafter shall receive it. The 60-day period provides the Manager with time to ensure that the Company can adequately provide the Capital Withdrawals as requested by Debt Investors.
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Monthly distributions are subject to the Company having sufficient cash on hand to meet its obligations and remain solvent. The Company has developed a methodology to determine whether it is in such a “Liquidity Crunch” & thus presents here a formula to make that determination. In this instance, a Liquidity Crunch occurs when the Company’s Quick Ratio (defined as the Company’s Current Assets minus its Inventory, which is then divided by the Company’s Current Liabilities) is equivalent to, or falls below, a 1.0 value for a period of two consecutive months—or two consecutive thirty day periods. At that juncture, the Company’s current liabilities will equal or rise above its current assets, meaning that the Debt Payments will not be able to be paid with the cash on hand, or without offloading a substantial portion of assets.
During a Liquidity Crunch, the Manager shall have the sole and absolute discretion to pause Debt Payments, provided that the Manager issues a ten-day written notice to Investors prior to the pause occurring. This only applies to Interest Payments and the principal is not subject to this restriction. Investors are free to receive their principal (“Capital Contribution”).
Additionally, with respect to Item 14 of Form 1-A, we provide the following distinguishing characteristics of the Debt Units:
a. | Provisions with respect to interest, conversion, maturity, redemption, amortization, sinking fund, or retirement. |
i. | Interest Payment: Interest payments will be made monthly for each class, with interest rates varying from 5% to 8% depending on the class and the minimum capital contribution, as indicated in the table above. |
ii. | Conversion: There are no conversion provisions. |
iii. | Maturity: There is no specific maturity date mentioned in the table, but the Manager affirms that the stated monthly Interest Payments are locked in for Investors for a period of 1 to 5 years, depending on the class. This does not mean that Investors cannot withdraw their money for that period of time, but rather that that is the period of time the Manager affirms the Interest Payments will last under the Offering, should Investors choose to keep their Capital Contributions with the Company. For avoidance of doubt, the Manager here affirms that Investors may withdraw their funds based on the Table above, which ranges from 60 days to 365 days, depending on the Class of Units purchased, and does not meant that Investors are precluded from withdrawing the funds for 1, 3, or 5 years. |
iv. | Redemption: Investors may withdraw their capital contributions after the specified withdrawal periods, which range from 60 days to 365 days after the initial capital contribution has been received by the company, depending on the class. |
v. | Amortization: There are no provisions for amortization of the Debt Units. |
vi. | Sinking Fund: There is no sinking fund or retirement provision. |
b. | Provisions with respect to the kind and priority of any lien securing the issue, together with a brief identification of the principal properties subject to such lien. |
i. | The debt units are secured by the underlying notes that the company will purchase. The company cannot provide exact numbers for the amount of notes purchased, as that depends on the amount raised in the offering. To our knowledge, there are no liens on the security, and the priority of the lien is not mentioned. |
c. | Material affirmative and negative covenants. |
i. | Affirmative Covenants: The company guarantees interest payments for the lock-up period specified for each class, which range from 1 to 5 years. |
ii. | Negative Covenants: The Company will purchase Notes from its affiliates, ILS Lending LLC and Pearl Funding LLC which are subject to the following restrictions: (1) LTV for borrowers will be limited to seventy-five (75%) percent; (2) the Notes will be secured by the physical collateral underlying the Notes, which the Company may repossess upon non-payment; (3) the ability of Borrower to pass the due diligence background check initiated by Company Affiliate Loan Source LLC, which is the entity issuing the loans and transferring the loans from Loan Source LLC to the Company |
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These Units are offered to both “accredited,” and “non-accredited” investors as described on page 2 of the Company’s Subscription Agreement, attached hereto as Exhibit 1A-4. However, non-accredited investors are restrained by the purchasing limits set by the SEC, which are as follows:
1. | Non-accredited investors may not purchase more than ten (10%) percent of the greater of annual income or net worth (for natural persons); or |
2. | Non-accredited investors may not purchase more than ten (10%) percent of the greater of annual revenue, or net assets at fiscal year-end (for non-natural persons). |
There is the possibility of conflicts of interest arising between the Debt Investors and the Manager that are described in the “Conflicts of Interest” section further below in this Offering circular. This Offering of Units involves substantial risks that are described in “Risk Factors and Disclosures”. There is the possibility that the proceeds of this Offering will be insufficient to meet the requirements described in “Investment Objectives, Policies, Debt Payments.” Before purchasing any of the Units offered through this Memorandum, consult with an attorney or a financial advisor to determine if this investment is suitable for you.
Per Unit(1) | Minimum Offering Amount |
Maximum Offering Amount | ||||||||||
Price to public (minimum cost for Class A1 Units) | $ | 1000.00 | $ | N/A | $ | 75,000,000.00 | ||||||
Commissions(1) | $ | (0.00 | ) | $ | N/A | $ | (0.00 | ) | ||||
Proceeds, net of Commissions, before expenses, to the Company | $ | 1000.00 | $ | N/A | $ | 75,000,000.00 | ||||||
Proceeds to other persons | $ | N/A | $ | N/A | $ | N/A |
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INVESTMENT IN UNITS OF THE COMPANY INVOLVES SIGNIFICANT RISK, AND YOU MAY BE REQUIRED TO HOLD YOUR INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. YOU SHOULD PURCHASE THIS SECURITY ONLY IF YOU CAN AFFORD A COMPLETE LOSS OF YOUR INVESTMENT. SEE “RISK FACTORS” BEGINNING ON PAGE 20 OF THIS OFFERING CIRCULAR.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION.
GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN 10 PERCENT OF THE GREATER OF YOUR ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, THE COMPANY ENCOURAGES YOU TO REVIEW RULES 251(d)(2)(i)(C) OF REGULATION A. FOR GENERAL INFORMATION ON INVESTING, THE COMPANY ENCOURAGES YOU TO REFER TO WWW.INVESTOR.GOV.
The Company is following the “Offering Circular” format of disclosure under Regulation A.
The date of this Offering Circular is December 19, 2023.
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IMPORTANT NOTICES TO INVESTORS
INVESTMENT IN REAL ESTATE FINANCING INVOLVES A HIGH DEGREE OF RISK, AND INVESTORS SHOULD NOT INVEST ANY FUNDS IN THIS OFFERING UNLESS THEY CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER MADE BY THIS OFFERING CIRCULAR, NOR HAS ANY PERSON BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS OFFERING CIRCULAR, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS OFFERING CIRCULAR DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR ANY PERSON TO WHO IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE ISSUER SINCE THE DATE HEREOF.
THIS OFFERING CIRCULAR MAY NOT BE REPRODUCED IN WHOLE OR IN PART. THE USE OF THIS OFFERING CIRCULAR FOR ANY PURPOSE OTHER THAN AN INVESTMENT IN SECURITIES DESCRIBED HEREIN IS NOT AUTHORIZED AND IS PROHIBITED.
THE OFFERING PRICE OF THE SECURITIES IN WHICH THIS OFFERING CIRCULAR RELATES HAS BEEN DETERMINED BY THE ISSUER AND DOES NOT NECESSARILY BEAR ANY SPECIFIC RELATION TO THE ASSETS, BOOK VALUE OR POTENTIAL EARNINGS OF THE ISSUER OR ANY OTHER RECOGNIZED CRITERIA OF VALUE.
IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT AND SUCH LAWS. THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE COMPANY WILL BE PERMITTED TO MAKE A DETERMINATION THAT THE PURCHASERS OF UNITS IN THIS OFFERING ARE ACCREDITED INVESTORS OR ACCEPTABLE NON-ACCREDITED INVESTORS PER THE GUIDELINES LISTED ON PG. 3 OF THIS OFFERING CIRCULAR, IN RELIANCE ON THE INFORMATION AND REPRESENTATIONS PROVIDED BY THE PURCHASERS REGARDING THE PURCHASERS’ FINANCIAL SITUATION. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, THE COMPANY ENCOURAGES YOU TO REVIEW RULE 251(D)(2)(I)(C) OF REGULATION A. FOR GENERAL INFORMATION ON INVESTING, THE COMPANY ENCOURAGES YOU TO REFER TO WWW.INVESTOR.GOV.
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STATE LAW EXEMPTION AND INVESTOR SUITABILITY REQUIREMENTS
The Units are being offered and sold only to “qualified purchasers” (as defined in Regulation A under the Securities Act). As a Tier 2 Offering pursuant to Regulation A under the Securities Act, this Offering will be exempt from state law “blue sky” review, subject to meeting certain state filing requirements and complying with certain anti-fraud provisions, to the extent that the Units offered hereby are offered and sold only to “qualified purchasers” or at a time when the Units are listed on a national securities exchange. “Qualified purchasers” include: (i) “accredited investors” under Rule 501(a) of Regulation D and (ii) all other investors so long as their investment in the Units does not represent more than 10% of the greater of their annual income or net worth (for natural persons), or 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons). Accordingly, the Company reserves the right to reject any investor’s subscription in whole or in part for any reason, including if the Company determines in its sole and absolute discretion such investor is not a “qualified purchaser” for purposes of Regulation A.
To determine whether a potential investor is an “accredited investor” for purposes of satisfying one of the tests in the “qualified purchaser” definition, the investor must be a natural person who has:
1. | an individual net worth, or joint net worth with the person’s spouse, that exceeds $1,000,000 at the time of the purchase, excluding the value of the primary residence of such person; or |
2. | earned income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year. |
If the investor is not a natural person, different standards apply. See Rule 501 of Regulation D for more details.
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The following Table of Contents has been designed
to help you find important information contained in this Offering Circular.
The Company encourages you to read the entire Offering Circular.
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under “Offering Circular Summary,” “Risk Factors,” “Description of Business”, “Plan of Operations,” and elsewhere in this Offering Circular constitute forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “should,” “will” and “would” or the negatives of these terms or other comparable terminology. In this Offering Circular, unless the context indicates otherwise, references to “we”, “our”, and “the Company” refer to ILS FIXED HORIZON LLC.
The forward-looking statements are based on the Company’s beliefs, assumptions and expectations of its future performance, taking into account all information currently available to the Company. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to the Company or are within its control. If a change occurs, its business, financial condition, liquidity and results of operations may vary materially from those expressed in its forward-looking statements. You should carefully consider these risks before you make an investment decision with respect to the Units, along with the following factors that could cause actual results to vary from the Company’s forward-looking statements:
· | The Company commenced operations on April 5, 2022, and is an affiliate of ILS RE Capital LLC, ILS Capital Management LLC, and ILS Legacy Holdings LLC (the “Common Member”) but has no prior track record otherwise. |
· | The Company has made no investments to date. |
· | Traditionally, the real estate loan industry is cyclical in nature, causing it to experience dramatic swings in value. Real estate has generally appreciated in value over time, allowing borrowers to repay back their loans, but the Company cannot assure that such appreciation will continue to occur. |
· | The Debt Units are non-voting. As such, Debt Investors do not have a right to participate in the management of the Company’s affairs. Debt Investors cannot propose changes to the Manager or to the Operating Agreement. The Manager will make all decisions with respect to the management of the Company. Debt Investors will have no right or power to take part in the management of the Company. Therefore, they will be relying entirely on the Manager for management of the Company and the operation of its business. The Manager may not be removed under the Operating Agreement. |
· | Manager will have an exclusive role in determining what is in the best interests of the Company. Since no individual other than the Manager has any direct control over management of the Company, it does not have the benefit of independent consideration of issues affecting its operations. Therefore, these individuals will determine the propriety of their own actions, which could result in a conflict of interest and a risk to the viability and success of the Company when they are faced with any significant decisions relating to the affairs of the Company. |
· | The Company may need to raise additional capital to address liquidity needs caused by shortfalls in revenue or unanticipated expenses. There can be no assurance that additional financing will be available when needed on terms favorable to the Company or at all. The Manager reserves the right to add capital from their own individual accounts to make up for such shortfall if either so desire. |
· | Any returns on your investment will depend solely on the results of operations of the Notes which the Company purchases and manages. |
· | The Company intends to establish an operating reserve account with a portion of the proceeds raised from this Offering to pay anticipated operating, administrative and other expenses that shall be incurred as part of this Offering. If future expenses increase by unanticipated amounts, the Company may not have sufficient reserves to pay these obligations. The Company does not currently have any commitment or arrangement in place to obtain additional Funding, and there are no assurances that additional Funding can be obtained, if necessary, or that such additional Funding, if obtained, will be adequate for its financial needs. |
· | The real estate market is affected by many factors, such as general economic conditions, the availability of financing, interest rates and other factors, including the supply and demand for real estate investments, all of which are beyond the control of the Company all of which could materially affect the Company and the Debt Units. There are no assurances that the Company can successfully achieve its investment goals and therefore, Debt Investors may have to hold their Units for an indefinite period of time, or have their Units sold or redeemed for less than the Debt Investors’ Capital Contribution.. |
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· | There will be competing demands on the Manager and its Affiliates and as a result they will not devote all of their attention to the Company, which could have a material adverse effect on the Company’s business and financial condition. The officers of the Manager will experience conflicts of interest in managing the Company, because they also have management responsibilities for other companies, including companies that conduct the same Investment Activities as the Company. For these reasons, all of these individuals share their management time and services among those companies, and the Company, and will not devote all of their attention to the Company. |
· | None of the agreements with the Manager were negotiated at arm’s length. Agreements with the Manager were not negotiated at arm’s length and accordingly may contain or omit different terms that would otherwise apply if the agreements were negotiated at arm’s length with third parties. |
· | There is no present public trading market for the Units and the price at which the Units are being offered bears no relationship to conventional criteria such as book value or earnings per unit. |
· | Company staff may change from time to time. Turnover may result in negative consequences to the Company’s Investment Activities. |
· | The Manager will endeavor to communicate in advance any perceived exceeded risk based on the Manager’s anticipation of not meeting the required interest payouts, accrual, and/or withdrawal of Capital Contributions. The Manager will not communicate normal operational challenges including but not limited to construction delays, termination or reprimanding of staff, and lawsuits as part of the Investment Activities. |
· | The Company’s assessment of the merits of any identified projects under consideration may be inaccurate, which may negatively affect its results of operations. |
· | There is a risk that no market for the Units will ever exist and as a result, the investment in the Company is illiquid in the event a Debt Investor desires to liquidate their interest. If a Debt Investor attempts to sell its Units prior to the dissolution of the Company, there is no certainty that they can be sold for full market value or that the Units may be sold at any price. |
· | There is an investment risk of losing the whole investment. There can be no assurance that the Company will be able to achieve its investment objectives or that Investors will receive any return of their capital. Investment results may vary substantially over time and as a result, Investors should understand the results of a particular period will not necessarily be indicative of results in future periods. |
· | The revenue and profit potential of the company are uncertain. If the Company meets its revenue expectations, there is no guarantee that the Company will be profitable or that costs will not exceed revenue. |
· | The Company may not generate sufficient income to fund Debt Unit interest payments and there is a risk that the Company may never pay such interest. Additionally, the Company may use other sources including borrowings and sales of assets. If it pays interest on the Debt Units from sources other than its cash flow from operations, it will have less funds available for investments and your overall return may be reduced. |
· | The Company’s future performance is difficult to evaluate as it has not commenced operations. |
· | As ILS Fixed Horizon MGMT CORP (the “Manager”) will exercise complete control over the Company, it will have the ability to make decisions regarding, (i) making changes to the Company’s Operating Agreement per the Operating Agreement powers given to it, except that under the Operating Agreement the Manager may not change the terms of the Debt Payments due to Investors as outlined in this Offering Circular, per section 4.7 of the Operating Agreement, (ii) employment decisions, including compensation arrangements; and (iii) the decision to enter into material transactions with related parties. |
· | The Company’s Operating Agreement and Subscription Agreement, all provide mandatory binding arbitration provisions that, unlike in judicial proceedings, are subject to determination by an arbitrator, not a judge, who is not necessarily governed by the same standards. In light of that, there is a risk that an arbitrator will not view the contract or the law in the same way a judge would and may grant a remedy or award relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties or based on simple notions of equity, rather than the facts or the relevant law. Furthermore, there is a risk that an arbitrator may interpret the relevant agreements or facts without regard to legal precedent. That risk is exacerbated by the fact that it is more difficult to overturn or vacate an arbitration award, because the law supports confirmation of an arbitration decision which is not otherwise arbitrary or capricious; therefore, investors should consider the difficulty of reversing an arbitration award, once made. |
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· | The Company’s long-term growth depends upon its ability to retain and grow its investor base by successfully identifying and financing projects with attractive returns on investment. If the Company is unable to find such projects or if Company Loans do not produce the expected returns, it may be unable to retain or grow its investor base, and its operations and business could be adversely affected. |
· | There has been no public market for the securities of the Company. The Units will not be listed on any securities exchange. There will be no active market for the Units. |
· | There is a risk that an audit of the Company’s records could trigger an audit of the individual Investor’s tax records. |
· | There is a risk that the amount of capital to be raised by the Company will be insufficient to meet the investment objectives of the Company. If there is a shortage of capital, the Manager will use best efforts to obtain funds from a third party or advance the Company’s directly or through an affiliate. Obtaining funds from a third party or an advance directly or through an affiliate may require an increase in the amount of financing the Company will be obligated to repay. In addition, there is no certainty that such funds will be available at a reasonable cost, if available at all. |
· | The incapacitation of key operational and management personnel could adversely affect the Company. |
· | The Manager may invest a significant amount of the proceeds raised on behalf of the Company in ways that Investors may not agree or that do not yield maximum favorable return due to market cycles |
· | There is a risk that budgets could be exceeded resulting in the Company needing additional financing, and that in the absence thereof the Company may not be able to make Debt Payments. |
· | The acquisition, entitlement, and permitting of real estate entails various risks, including the risk that investments may not perform as expected. The prices paid, or to be paid, for any Borrower Property are based upon a series of market judgments, some of which may prove to be inaccurate. These risks could adversely affect the Borrower’s financial condition, results of operations, cash flow and ultimate ability to service or repay the Financing which are the basis of Debt Investors’ Debt Payments. |
· | The success of the Investment Activities will depend largely on adapting to trends in the real estate industry, including competitive pressures, increased consolidation, industry overbuilding and changing demographics, the introduction of new concepts and products, availability of labor, changing tenant pricing levels and general economic conditions. Failures in adapting to the foregoing may affect the Company’s financial performance and thus the profits it receives. |
· | The Company’s geographic focus consists of a sizable area of the United States that spans the United States. The Company’s overall performance is therefore largely dependent on real estate economic conditions in these geographic areas. Since there are no diversification requirements with regard to the Company’s investment activities the Company’s investment portfolio may include a small number of large positions, and at times, in one or two geographic markets. While such a portfolio concentration may enhance Company profits, if any large position has a material loss, then returns to Debt Investors may be lower than if the Company had invested in a more diversified and widespread portfolio of smaller positions. Such concentration may increase the volatility of the Company’s returns and may also expose the Company to significant risk of economic downturns in this sector to a greater extent than if its portfolio was further diversified. As a result, economic downturns in the real estate sector could have an adverse effect on the financial condition, results of operations and cash flow of the Company. |
· | The SEC heavily regulates the manner in which “investment companies,” “investment advisors,” and “broker-dealers” are permitted to conduct their business activities. The Company firmly believes the Company has conducted business in a manner that does not result in the Company or its affiliates being characterized as an investment company, an investment advisor or a broker-dealer, as the Company does not believe that the Company engages in any of the activities described under Section 3(a)(1) of the Investment Company Act of 1940 or Section 202(a)(11) or the Investment Advisor’s Act of 1940 or any similar provisions under state law, or in the business of (i) effecting transactions in securities for the account of others as described under Section 3(a)(4)(A) of the Exchange Act or any similar provisions under state law or (ii) buying and selling securities for our own account, through a broker or otherwise as described under Section 3(a)(5)(A) of the Exchange Act or any similar provisions under state law. The Company intends to continue to conduct our business in such manner. If, however, the Company (or any of the Company’s affiliates) are deemed to be an investment company, an investment advisor, or a broker-dealer, the Company may be required to institute burdensome compliance requirements and our activities may be restricted, which would affect the Company’s operations to a material degree. |
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· | This Offering Circular, as well as other documents connected herewith, may contain “forward-looking statements,” such as statements related to financial condition and prospects, lending risks, plans for future business development and marketing activities, capital spending and financing sources, capital structure, the effects of regulation and competition, and the prospective business of the Company. Where used in this Offering Circular, the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” as well as other or similar words and expressions, as they relate to the Company, identify forward-looking statements. All forward-looking statements, by their nature, are subject to risks and uncertainties. Results may differ materially from those set forth in the forward-looking statements. The Company’s ability to achieve financial objectives could be adversely affected by the factors discussed in detail in throughout the PPM as well as the following: |
a. | Changes in the securities and real estate markets; |
b. | The strength of the United States economy in general and the strength of the local economies in which we conduct operations; |
c. | Changes in monetary and fiscal policies of the U.S. Government; |
d. | Inflation, interest rate, market and monetary fluctuations; |
e. | Legislative or regulatory changes; |
f. | The accuracy of the Company’s Pro Forma estimates and assumptions; |
g. | The loss of key personnel; |
h. | The Company’s need and ability to incur additional debt or equity financing; |
i. | The effects of harsh weather conditions, including hurricanes; |
j. | The Company’s ability to comply with the extensive laws and regulations to which we are subject; |
k. | Increased competition and its effect on pricing; |
l. | Technological changes; |
m. | The effects of security breaches and computer viruses that may affect our computer systems; |
n. | Changes in consumer spending and saving habits; |
o. | Changes in accounting principles, policies, practices or guidelines; |
p. | Our ability to manage the risks involved in the foregoing. |
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This summary highlights selected information contained elsewhere in this Offering Circular. This summary is not complete and does not contain all the information that you should consider before investing in Debt Units. You should carefully read the entire Offering Circular including the risks associated with an investment in the specific securities you are offered, which are discussed under the “Risk Factors” section of this Offering Circular, before making an investment decision. Some of the statements in this Offering Circular are forward-looking statements. See the section of this Offering Circular entitled “Cautionary Statement Regarding Forward-Looking Statements.” In this Offering Circular, unless the context indicates otherwise, references to “we”, “our”, and “the Company” refer to ILS Fixed Horizon LLC.
Overview
ILS Fixed Horizon LLC (“Company”) was organized as a Texas limited liability company on April 5, 2022.
The Company was formed for the purpose of raising capital to engage in the business of investing in all forms of real estate, primarily by providing financing to affiliated and unaffiliated Borrowers (“Investment Activities”).
The Company intends to provide Financing to various Borrowers, which typically operate in real estate investment. Borrowers may obtain financing for purposes of fix and flip investments, buy and hold investments, “wrap-around” loans, commercial loans, or hard money/bridge loans. The Company primarily intends to purchase Notes from an Affiliate, which will originate the Notes. The Company anticipates the majority of its Investment Activities will be providing the financing described herein, although the Company can provide additional types of financing to Borrowers at its discretion.
ILS Lending LLC, an affiliate of the Company, was founded by Tom Berry and Donald Sutton in December 2017; Loan Source LLC (D/B/A “Investor Loan Source) was formed as a partnership in January 2014 and Pearl Funding LLC, founded in October 2021. ILS Lending LLC and Pearl Funding LLC will act as the originators of the notes and will sell the notes to the Company. Loan Source LLC will process and service the loans and will also facilitate the transfer the notes from ILS Lending LLC and/or Pearl Funding LLC to the Company. The Company will purchase these notes and will pay a transfer fee of between $135 and $200 per note. The underlying purchased notes will have generally offer rates between eight (8%) percent and fourteen (14%) percent, with the Company earning the spread on the difference between the rates of the notes and the interest paid out to Debt Unit Holders. The Manager is taking a 1% APR Management fee on the total Capital under management in the company at the beginning of each calendar month, to be paid monthly. The Company is reliant on this aforementioned interest rate spread in order to pay Investors and meet its obligations. It is in essence, the source of its income.
The Manager will use its best discretion in determining which notes will be sold to the Company and will only purchase notes which it believes will perform and will provide for the Interest Rate Payments outlined in this Offering Circular such that Investors receive the Debt Payments as outlined on page 3 of this Offering Circular, dependent on which Class of Debt Units is purchased by Investors. Investors are advised to review the attached Exhibits to the Offering, namely the “Master Loan Agreement” and a sample of a “Loan Purchase Certificate” that the Company will use when purchasing Notes. This shall be the primary mechanism by which the Notes are transferred to the Company from the affiliates mentioned above.
Collectively, Donald and Tom have been doing real estate investing and hard money lending for over 20 years. Their vision for Loan Source LLC, and all affiliated ILS entities is the following: "We are dedicated to our clients and pride ourselves on maintaining innovative - in demand loan products, quality customer service, and, above all, our fast approval process."
This is an initial Offering by the Company on a “best efforts” basis for its Class A, Class B, and Class C Debt Units, and all sub-units within each class. Company management (“Management”) will be making the investment decision about which Notes to purchase, which to offload, and the timing of such transactions. The Manager is a Texas corporation, and an affiliate of the Company.
Substantially all of the Company’s assets will be held by, and substantially all of its operations will be conducted by the Company. Under this structure, the Common Member shall be ILS Legacy Holdings LLC, an affiliate of the Manager who shall receive all the fees due to the Manager under this Offering. For avoidance of doubt, the Common Member is simply receiving the economic interest on behalf of the Manager. Only ILS Legacy Holdings LLC shall have any voting rights as it relates to the Company. ILS Legacy Holdings LLC is controlled by the same Management Team of Donald Sutton and Tom Berry. This clarifies that the Manager is essentially in control of Company operations.
The proceeds from the Offering may be used to (i) pay fees and expenses relating to the organization of the Company and the sale of Debt Units, (ii) invest in Notes for various qualified properties and (iii) establish working capital reserves for the Company to fund operating and other expenses of the Company. The Company expects to use the Offering proceeds to pay such amounts at such time and in such order as the Manager deems, in its sole and absolute discretion, to be in the best interest of the Company.
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The expenses of this Offering, including the preparation of this Offering Circular and the filing of this Offering Statement, are being paid for on behalf of the Company by the Manager, and will be repaid to the Manager from the Company’s working capital reserves, the timing of which shall be as Management deems, in its sole and absolute discretion, to be in the best interest of the Company. The Manager here further discloses that, as of the date of the submission of this Amended Offering Circular, the Manager has paid approximately $61,000 in fees for the Offering in legal and administrative expenses.
Classes of Units Offered: Class A, Class B, and Class C Non-Voting Debt Units
The Company has established non-voting classes of debt units, each with $1,000 par value per Unit (“Units”) and seeks to raise $75,000,000 through the sale of 75,000 Units. Units will have the right to Interest Payments, to be paid monthly, and subject to the availability of Company cash to meet distributions and maintain operations. The Manager will determine, in its sole discretion, if the Company has sufficient cash on hand to make the Interest Payments. Should the Manager determine that Interest Rate Payments will not be made in a particular month, the Interest Payment will accrue over to the following month. The payments are solely comprised of interest, and not principal.
Importantly, no Debt Payments to holders of Units are assured, nor are any returns on, or of, a purchaser’s investment guaranteed. Debt Payments are subject to the Company’s ability to generate positive cash flow from operations.
Class A Non-Voting Debt Units
Class “A” Units grant Debt Investors the option to earn interest at the rate indicated below, with a sixty (60) day Capital Commitment Period. Investors may request their Capital Contributions through a written request to the Manager, and the Manager will return the Capital Contribution to Investors of Class A Units within sixty (60) days of the Manager receiving their written request. The Class A Units have their respective Interest Rate Payments locked in (“Rate Lock Period”) for one (1) year, meaning that irrespective of the interest rate environment, Debt Unit Holders will receive the Interest Rate Payments listed here. There are no additional expenses or charges if the commitment period is not reached prior to requesting a return of the Capital Contribution. There are two types of debt units within Class A, known as Class A1 Units and Class A2 Units, which are described more fully below.
Class A1 Non-Voting Debt Units
Class A1 Units are paid five (5%) percent per annum. Class A1 Units are available to Debt Investors who make a minimum Capital Contribution of twenty-five thousand ($25,000) dollars.
Class A2 Non-Voting Debt Units
Class A2 Units are paid six (6%) percent per annum. Class A2 Units are available to Debt Investors who make a minimum Capital Contribution of five hundred thousand ($500,000) dollars.
Class B Non-Voting Debt Units
Class “B” Units grant Debt Investors the option to earn interest at the rate indicated below, with a one hundred eighty (180) day Capital Commitment Period. Investors may request their Capital Contributions through a written request to the Manager, and the Manager will return the Capital Contribution to Investors of Class B Units within one hundred and eighty (180) days of the Manager receiving their written request. The Class B Units have their respective Interest Rate Payments locked in (“Rate Lock Period”) for three (3) years, meaning that irrespective of the interest rate environment, Debt Unit Holders will receive the Interest Rate Payments listed here. There are no additional expenses or charges if the commitment period is not reached prior to requesting a return of the Capital Contribution. There are two types of debt units within Class B, known as Class B1 Units and Class B2 Units, which are described more fully below.
Class B1 Non-Voting Debt Units
Class B1 Units are paid six (6%) percent per annum. Class B1 Units are available to Debt Investors who make a minimum Capital Contribution of twenty-five thousand ($25,000) dollars.
Class B2 Non-Voting Debt Units
Class B2 Units are paid seven (7%) percent per annum. Class B2 Units are available to Debt Investors who make a minimum Capital Contribution of five hundred thousand ($500,000) dollars.
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Class C Non-Voting Debt Units
Class “C” Units grant Debt Investors the option to earn interest at the rate indicated below, with a three hundred sixty (360) day Capital Commitment Period. Investors may request their Capital Contributions through a written request to the Manager, and the Manager will return the Capital Contribution to Investors of Class C Units within three hundred and sixty (360) days of the Manager receiving their written request. The Class C Units have their respective Interest Rate Payments locked in (“Rate Lock Period”) for five (5) years, meaning that irrespective of the interest rate environment, Debt Unit Holders will receive the Interest Rate Payments listed here. There are no additional expenses or charges if the commitment period is not reached prior to requesting a return of the Capital Contribution. There are two types of debt units within Class C, known as Class C1 Units and Class C2 Units, which are described more fully below.
Class C1 Non-Voting Debt Units
Class C1 Units are paid seven (7%) percent per annum. Class C1 Units are available to Debt Investors who make a minimum Capital Contribution of twenty-five thousand ($25,000) dollars.
Class C2 Non-Voting Debt Units
Class C2 Units are paid eight (8%) percent per annum. Class C2 Units are available to Debt Investors who make a minimum Capital Contribution of five hundred thousand ($500,000) dollars.
Services Performed by, and Compensation Paid to Affiliates
The Manager and its Affiliates will be engaged by the Company to perform various services for day-to-day management of the Company including the identification of Borrowers, investment of its assets, and any other actions in furtherance of the Investment Activities. The Company and its Affiliates may receive compensation and profits for such services as described in this section. None of the agreements for such services are the result of arm’s-length negotiations. The Company believes, however, that the terms of such arrangements are reasonable and are comparable to those that could be obtained from unaffiliated entities. The timing and nature of the compensation could create a conflict between the interests of the Manager, its Affiliates, and those of Debt Investors. Services performed by Company Affiliates include the following:
Company Expenses. Company expenses such as Marketing expenses may be paid with the Company’s funds, which as of the date of submission for this Amended Offering Circular is equal to approximately $61,000, however Company Expenses will have no impact on Debt Investor’s Capital Contribution or Debt Payments and the Manager has itself absorbed these expenses in the Company’s Start-Up phase, for which it shall be reimbursed at a later date, provided that doing so does not materially affect the Company’s operations.
Referral Fees. The Company reserves the right to contract with and compensate third parties who bring Prospective Debt Investors to the attention of the Manager’s Executive Team.
Third Parties. Third parties may profit while working with the Company to facilitate Investment Activities.
Employees. The Company may employ employees to assist in the Company’s Investment Activities.
Conflicts of Interest
There are conflicts of interest between and among the Company, Manager, and other Company Affiliates. The Manager may provide services to other affiliate companies in addition to the Company. All of the agreements and arrangements between and among Company Affiliates and the Company, including those related to compensation, are not the result of arm’s-length negotiations. The Company will try to balance the interests of Company Affiliates with the interests of the Company. However, to the extent that the Company takes actions that are more favorable to Company Affiliates than the Company, these actions could have a negative impact on the Company’s financial performance and, consequently, on the Debt Payments to holders of Units and the value of those securities. The Company has not adopted, and does not intend to adopt in the future, either a conflicts of interest policy or a conflicts resolution policy.
Some of the conflict-of-interest risks are listed here.
· Manager or Company May be Involved in Similar Investments. The Manager, the Company, or their affiliates, may act as managers in other limited liability companies engaged in making similar investments.
· Manager or Company May Act on Behalf of Others. The Manager or the Company, or their affiliates, who may act as managers for the Company, may act in such capacities for other companies, partnerships or entities that may compete with the Properties.
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· Manager or Company May Raise Capital for Others. The Manager or the Company, or their affiliates, who will raise investment Funds, may act in the same capacity for other companies, partnerships or entities that may compete with the Company’s acquired Notes.
· Manager’s or Company’s Compensation May be a Conflict. The compensation plan for the Manager or the Company may create a conflict between the interests of the Manager, the Company, and the interests of the Company.
· Manager or Company Allocating Time and Resources to Affiliated Entities. The Manager or the Company may have a conflict in allocating their time and resources between the Company and other business activities they are involved with.
· Principals of Manager and Company May Provide for Affiliated Partnerships. The principals of the Manager and the Company are comprised of individuals who may be principals of other affiliated or non-affiliated organizations organized to promote other real estate investment.
· Principals of Manager and Company. The Manager and the Company are comprised of individuals who may be principals of other affiliated or non-affiliated entities. One or more principals of the Manager and Company may provide additional or subsequent private offerings or terms of offer different than herein.
Competitive Strengths
The Company’s competitive strengths stem from the Management’s experience and understanding of the intricacies of the real estate borrowing sector. The Manager has over twenty (20) years of experience in private lending and is able to leverage that knowledge and experience in underwriting the loans to be provided by the Company.
As of the date of this Offering Circular, ILS affiliated entities have closed on over 2,000 loans, for a value of approximately $500,000,000 dollars. To date, ILS affiliated funds have raised over $100,000,000 dollars in investor capital, producing solid returns throughout.
Corporate Information
The Company’s executive offices are located at PO Box 1227, 210 Market Street, El Campo, TX 77437. The Company’s telephone number is (979) 541-1270.
Reporting Requirements Under Tier 2 of Regulation A
Following this Tier 2 Regulation A Offering, the Company has, and will continue to be required to comply with certain ongoing disclosure requirements under Regulation A. The Company has, and will be required to file (i) an annual report with the SEC on Form 1-K, (ii) a semi-annual report with the SEC on Form 1-SA, (iii) current reports with the SEC on Form 1-U, and (iv) a notice under cover of Form 1-Z. The necessity to file current reports will be triggered by certain corporate events. Parts I and II of Form 1-Z will be filed by the Company if and when it decides to and is no longer obligated to file and provide annual reports pursuant to the requirements of Regulation A.
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Issuer: | ILS Fixed Horizon LLC |
Securities Offered: | Class A1, Class A2, Class B1, Class B2, Class C1, and Class C2. All Units are Non-Voting Debt Units (“Units”). |
Par Value: | $1,000.00 per Unit of any class. |
Minimum Purchase: | Class A1 – Twenty-Five (25) Units or Twenty-Five Thousand ($25,000) Dollars |
Class A2 – Five Hundred (500) Units or Five Hundred Thousand ($500,000) Dollars
Class B1 – Twenty-Five (25) Units or Twenty-Five Thousand ($25,000) Dollars
Class B2 – Five Hundred (500) Units or Five Hundred Thousand ($500,000) Dollars
Class C1 – Twenty-Five (25) Units or Twenty-Five Thousand ($25,000) Dollars
Class C2 – Five Hundred (500) Units or Five Hundred Thousand ($500,000) Dollars | |
Minimum Offering Amount: |
N/A |
Maximum Offering Amount: |
75,000 Units ($75,000,000) |
Escrow: | Investment Funds will initially be placed into Escrow for an estimated three (3) to five (5) days until Investor Funds clear and are made available to the Company. |
ERISA: |
Investment in the Company is generally open to institutions, including pensions and other Funds subject to ERISA. The Company may require certain representations or assurances from investors subject to ERISA to determine compliance with ERISA provisions. |
Offering Price: | $1,000 per Debt Unit (“Offering Price”) |
Offering Period: | To begin upon qualification by the SEC, the Offering Period shall be commenced within two (2) days of the Offering being qualified by the SEC, and will terminate upon the earlier of: (i) the completion of the sale of all Units, or (ii) after a period of three (3) years (the “Offering Period”) and subject to extension or earlier termination by the issuer in accordance with SEC Regulations. |
Debt Payments: | No Debt Payments to holders of Units are assured, nor are any returns on, or of, a purchaser’s investment guaranteed. Debt Payments are subject to the Company’s ability to generate positive cash flow from operations. All Debt Payments are further subject to the discretion of the Manager. It is possible that the Company may have cash available for Debt Payments, but the Manager could determine that the reservation, and not distribution, of such cash by the Company would be in its best interest. |
Voting Rights: | None. |
Dilution: | Not applicable |
Liquidation Rights: | In the event of the Company voluntarily liquidating its assets, the priority of distributions (“Liquidation Distributions”) shall be performed in the following manner:
1. First, to creditors of the Company, including holders of Debt Units who may be creditors, to the extent otherwise permitted by law, in satisfaction of all debts, liabilities, obligations and expenses of the Company, including, without limitation, the expenses incurred in connection with the liquidation of the Company; then
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2. Second, to the holders of Debt Units to the extent of and in proportion to their invested capital until the aggregate amount paid to such holders of Debt Units is sufficient to provide for a complete return of such holder of Debt Units’ invested capital; then
3. Third, to the holders of Debt Units to the extent of and in proportion to their respective unpaid Interest Payments until such Debt Unit holder’s unpaid Interest Payment has been paid in full; and
4. Fourth, to the Manager.
If the Company is liquidated or enters into bankruptcy, voluntarily or involuntarily, all secured creditors, such as those who have mortgages or liens on assets, will be paid from those assets first. The Debt Units are subordinated debts that will be paid off after other debts are settled. Then, holders of subordinated debt or other unsecured creditors, including holders of Debt Units, will be paid from any remaining funds. Therefore, holders of Debt Units would be paid second to the creditors of the company after the secured creditors have been paid off. | |
Conversion Rights: | None. |
Pre-emptive Rights: | None. |
Sinking Fund Provision: |
None. |
Liability for Further Calls: |
None. |
Management Fee: |
The Manager shall receive a 1% APR management fee on the total Capital Contributions under management in the company at the beginning of each calendar month, to be paid monthly. For example, if $1,000,000 is under management at the start of the month, then the management fee would be calculated as $1,000,000 multiplied by 0.01 and then divided by 12, which leads to an approximate fee of $833.33 for that month. |
Gross Proceeds: |
The proceeds from this Offering prior to the payment of any commission, Offering expenses, Manager operating expenses, legal fees, Company management, supervisory and accounting services, and other working capital reserves (“Gross Proceeds”). |
Net Proceeds: | Gross Proceeds, less organization and Offering expenses, Manager operating expenses (“Net Proceeds”). |
Net Proceeds Allocation: |
Based on raising the Maximum Offering Amount, the Company intends to initially allocate ninety-five (95%) percent of Net Proceeds to the financing of Borrower loans, and five (5%) percent of Net Proceeds to legal fees, Company management, supervisory and accounting services, and other working capital reserves. Management may change this allocation at any time based on the actual Net Proceeds of the Offering and Management’s sole determination of what is in the best interests of the Company. |
Risk Factors: | Investing in the Units involves a high degree of risk. See “Risk Factors” beginning on page 20. |
Transfer Agent: | Signature Stock Transfer, Inc. will act as the Company’s transfer agent. |
Liquidity: | There is no public market for the Units. |
Withdrawals: |
Holders of Class A Units shall be able to request from the Manager a withdrawal of their Initial Capital Contribution sixty (60) days after their Initial Capital Contribution is received by the Company, provided that they make a written request to the Manager, and after receiving the written request, the Manager shall have an additional sixty (60) days to facilitate the withdrawal.
Holders of Class B Units shall be able to request from the Manager a withdrawal of their Initial Capital Contribution one hundred eighty (180) days after their Initial Capital Contribution is received by the Company, provided that they make a written request to the Manager, and after receiving the written request, the Manager shall have an additional sixty (60) days to facilitate the withdrawal.
Holders of Class C Units shall be able to request from the Manager a withdrawal of their Initial Capital Contribution three hundred sixty (360) days after their Initial Capital Contribution is received by the Company, provided that they make a written request to the Manager, and after receiving the written request, the Manager shall have an additional sixty (60) days to facilitate the withdrawal. |
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Rollover of Units: |
Investors may select automatic rollover of Debt Payments. In case interest on Debt Payments is rolled over as per the request of the Investors, Company will still send an IRS Form 1099 for tax reasons. The Company may redeem an Investor’s capital at any time. |
Closing: |
The Manager intends to keep the Offering open for a period of three (3) years in compliance with Rule 251(d)(3)(i)(F) of Regulation A. |
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An investment in Units of the Company involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained in this Offering Circular, before purchasing securities offered by the Company. Any of the following factors could harm the Company’s business and future results of operations and could result in a partial or complete loss of your investment. This could cause the value of Units to decline significantly, and you could lose part or all of your investment. Some statements in this Offering Circular, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Cautionary Statement Regarding Forward-Looking Statements.”
This Offering is being made pursuant to the rules and regulations under Regulation A of the Securities Act.
The legal and compliance requirements of these rules and regulations, including ongoing reporting requirements related thereto, are relatively untested.
Arbitrary Determination of the Offering Price.
The Offering Price has been arbitrarily determined by the Company and may not bear any relationship to assets acquired or to be acquired or the book value of the Company or any other established criteria or quantifiable indicia for valuing a business. Neither the Company nor Manager represents that the Units have or will have a market value equal to their Offering Price or that the Units could be resold (if at all) at their original Offering Price.
No market currently exists for the Units.
There is a risk that no market for the Units will ever exist and as a result, an investment in the Company would be illiquid in the event investors were to desire to liquidate their Unit interests. If investors were to attempt to sell their Units prior to the dissolution of the Company through secondary market sales or otherwise, they might have to sell them at a discount to their fair value as there is no certainty that they can be sold for full market value or that the Units may be sold at any price.
RISKS RELATED TO THE COMPANY’S BUSINESS PLAN
Debt Payments on the Units are Not Guaranteed.
Although Debt Payments on the Units are cumulative (but non-compounding), the Company’s Manager must approve the actual payment of the distributions. Monthly distributions are subject to the Company having sufficient cash on hand to meet its obligations and remain solvent. The Company has developed a methodology to determine whether it is in such a “Liquidity Crunch” & thus presents here a formula to make that determination. In this instance, a Liquidity Crunch occurs when the Company’s Quick Ratio (defined as the Company’s Current Assets minus its Inventory, which is then divided by the Company’s Current Liabilities) is equivalent to, or falls below, a 1.0 value for a period of two consecutive months—or two consecutive thirty day periods. At that juncture, the Company’s current liabilities will equal or rise above its current assets, meaning that the Debt Payments will not be able to be paid with the cash on hand, or without offloading a substantial portion of assets.
During a Liquidity Crunch, the Manager shall have the sole and absolute discretion to pause Debt Payments, provided that the Manager issues a ten-day written notice to Investors prior to the pause occurring. This only applies to Interest Payments and the principal is not subject to this restriction. Investors are free to receive their principal (“Capital Contribution”).
Adverse Economic Conditions in the Private Lending Space.
Adverse economic conditions may negatively affect the Company’s results of operations and, as a result, its ability to make distributions to Investors or to realize appreciation in the value of Company loans.
The Company’s operating results may be adversely affected by market and economic challenges, which may negatively affect its returns and profitability and, as a result, its ability to make distributions to Investors and the value of an investment in the Company. These market and economic challenges include, but are not limited to, any future downturn in the U.S. economy and the related uncertainty in the financial and credit markets.
The length and severity of any economic slow-down or downturn cannot be predicted. The Company’s operations and, as a result, its ability to make distributions to holders of the Units could be materially and adversely affected to the extent that an economic slow-down or downturn is prolonged or becomes severe.
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General Risk of Investment in the Company.
The economic success of the Company will depend upon the results of operations of the Company Notes issued to Borrowers. The results of operations are subject to those risks typically associated with the business of hard money lending, including the accuracy of underwriting said loans, and ensuring that Borrowers are able to repay the loans in a timely manner to ensure the Company can continue its operations. Although the experience of the Company’s Executive Team weighs favorably, the Company makes no assurances that the Borrowers will successfully pay back their Company-issued loans in a timely manner. The traditional risks associated with any entity operating in the business of lending are all present here. In addition, even if adverse operating results do not result in lease or financing defaults, they will likely reduce the ability of the Company to make Debt Payments to Debt Unit Holders.
Units Have No Voting Rights.
Management will have sole power and authority over the business and management of the Company. Investors will not have the right to vote on any matters, and, therefore, Investors will not have an active role in the Company’s management and will be unable to implement a change in the Management team or the Management team’s decisions.
The Company is a Blind Pool Investment without Operational Track Record prior to the Date of this Offering.
The Company has yet to identify any specific Notes to purchase with the Net Proceeds of this Offering and has no prior track record. While Company Affiliates, which are mentioned throughout the Offering and include ILS Lending LLC, Pearl Funding LLC, and Loan Source LLC have been in the private lending space for an extensive period of time, prior performance is not always indicative of future results, and Investors are cautioned that risk is an inherent part of the nature of any investment.
Investment Risk.
There can be no assurance that the Company will be able to achieve its investment objectives or that investors will receive any Debt Payment or any return of their capital. Investment results may vary substantially over time, and as a result, investors should understand that the results of a particular period will not necessarily be indicative of results in future periods.
Dependence Upon Key Management Personnel.
The Company will depend upon the efforts, experience, diligence, skill and network of business contacts of the Management team; therefore, the Company’s success will depend on their continued service. The departure of any of the Company’s key Management personnel could have a material adverse effect on performance. If any of the Company’s key personnel were to cease their employment, the Company’s operating results could suffer.
The Company believes its future success depends upon Management’s ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for such personnel is intense, and the Company cannot assure that it will be successful in attracting and retaining such skilled personnel. If the Company loses or is unable to obtain the services of key personnel, the Company’s ability to implement its investment strategies could be delayed or hindered, and the value of an investment in the Company may decline.
Reliance on Management.
The Company’s ability to achieve its investment objectives is largely dependent upon the performance of Management and the Manager, in selecting additional investments for the Company to acquire, securing financing arrangements, and financing the Company loans. The investors generally have no opportunity to evaluate the terms of transactions or other economic or financial data concerning any investments and must rely entirely on the ability of Management. Management may not be successful in identifying suitable investments on financially attractive terms, and the Company may not be successful in achieving its investment objectives.
There will be competing demands on the officers of the Manager, and they will not devote all of their attention to the Company, which could have a material adverse effect on the Company’s business and financial condition.
The officers of the Manager will experience conflicts of interest in managing the Company, because they also have management responsibilities for other companies, including companies that invest in the same types of assets as the Company. For these reasons, all of these individuals share their management time and services among those companies, and the Company, and will not devote all of their attention to the Company. Specifically, Officers of the Company are involved in the following entities:
1. | Loan Source LLC: Entity processing and servicing the loans and facilitating the transfer of the notes to the Company for a fee of between $135 and $200 per note. |
2. | ILS Lending LLC: Entity originating the loans. |
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3. | Pearl Funding LLC: Secondary entity originating the loans. |
4. | ILS Legacy Holdings LLC: The Common Member for the Company and ILS Fixed Horizon Management Corp. which receives the Manager fees. |
5. | ILS RE Capital I LLC: 506(b) Offering. |
6. | ILS RE Capital II LLC: 506(b) Offering. |
7. | ILS Growth Fund I LP: 506(c) Offering. |
8. | ILS Income Fund I LP: 506(c) Offering. |
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RISKS RELATED TO INVESTMENTS IN REAL ESTATE LENDING
Risk of Borrower Inability to Obtain Financing.
Oftentimes, Borrowers on the Notes which the Company intends to purchase will obtain other third-party financing. There is no guarantee that the Borrower will be able to obtain such financing and as such may not be able to make payments on the Notes.
Borrower Intends to Use Leverage and this May Impact Repayment on Company Loans.
The Company’s objectives are based on the Note Borrower’s use of leverage in the acquisition, development, construction, and operation of the Property. If the Borrower does obtain outside financing, the use of leverage increases the risk of an investment in the Units, as it is possible that the Borrower’s income from the Property, in any month, will be inadequate to make the Company’s Project Financing or Land Financing debt-service after servicing other Borrower financing obligations. A result of being unable to make the required financing payments could be that the lender could complete a foreclosure on the Borrower and all of the investment in the Units will be lost. There is also the risk that at the time of the refinancing or sale of the Property, the proceeds will not be greater than the amount needed to pay off the remaining balance of the Borrower’s other financing and, as a result, no cash will be available for repayment of the outstanding balance of the Project Financing, Land Financing, or any distribution to the Debt Unit Holders.
Financial projections May not be borne out by Events and the Company May Fail to Meet its Obligations.
All financial projections are prepared on the basis of assumptions and hypotheses. Future operating results are impossible to predict and no representation of any kind is made with respect to future accuracy or completeness of the forecast of projections as to income, expenses, costs, or other items. No representations or warranties of any kind are intended or should be inferred with respect to economic return which may accrue to a Member. An investment in the Company should be made only after adequate personal investigation of the merits of the Company and the Offering.
The Company may not raise sufficient Capital to Perform under its Investment Strategy.
There is a risk that the amount of capital to be raised by the Company will be insufficient to meet the investment objectives of the Company. If there is a shortage of capital, the Manager will use best efforts to obtain funds from a third party or advance the Company’s directly or through an affiliate. Obtaining funds from a third party or an advance directly or through an affiliate may require an increase in the amount of financing the Company will be obligated to repay. In addition, there is no certainty that such funds will be available at a reasonable cost, if available at all.
Investors Have no control in the Day-to-Day Management of the Offering.
Under the Operating Agreement, Debt Unit Holders do not have a right to participate in the management of the Company’s affairs. Debt Unit Holders cannot propose changes to the Manager or to the Operating Agreement. Under the Operating Agreement, it may also be difficult for Debt Unit Holders to enforce claims against the Manager, which means that Debt Unit Holders may not be able to recover any losses they may suffer through their ownership of Units arising from acts of the Manager that harm the Company’s business.
The Manager and its management must discharge their duties with reasonable care, in good faith and in the best interest of the Company. Despite this obligation, the Operating Agreement limits management’s liability to the Company and all Debt Unit Holders. The Manager is not liable for monetary damages unless it involves receipt of an improper personal financial benefit, a willful failure to deal fairly with the Company on matters where there is a material conflict of interest, a knowing violation of law, or willful misconduct. Any Member’s ability to bring legal action against the Manager for these actions is also limited.
The Company May Have Limited Operating Reserves.
The Company intends to establish an operating reserve account with a portion of the proceeds raised from this Offering to pay anticipated operating, administrative and other expenses that shall be incurred following the Closing Date of this Offering. If future expenses increase by unanticipated amounts, the Company may not have sufficient reserves to pay these obligations. The Company does not currently have any commitment or arrangement in place to obtain additional funding, and there are no assurances that additional funding can be obtained, if necessary, or that such additional funding, if obtained, will be adequate for its financial needs.
General economic conditions may affect the value and the timing of the sale of Borrower Property or the ability to refinance the Borrower Property.
The real estate market is affected by many factors, such as general economic conditions, the availability of financing, interest rates and other factors, including the supply and demand for real estate investments, all of which are beyond the control of the Borrower. The Company cannot predict whether the Borrower will be able to sell the Borrower Property for a price or on terms which are acceptable. Further, the Company cannot predict the Borrower’s ability to obtain adequate funding from a third-party lender to refinance the Borrower Property. There are no assurances that the Company can successfully achieve its investment goals and therefore, Debt Unit Holders may have to hold their Units for an indefinite period of time, or have their Units sold or redeemed for less than the Debt Unit Holders’ Capital Contribution.
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The Company May Purchase Notes tied to Borrowers who purchase Environmentally hazardous property.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on, under or in such property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require expenditures. Environmental laws provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. In connection with the ownership of the Property, the Borrower may be potentially liable for such costs, and upon the Company repossessing the Property as part of the non-performing note, would then have to deal with these issues. The cost of defending against claims of liability, complying with environmental regulatory requirements or remediating any contaminated property could materially adversely affect the value of the Units.
Real estate investments are long-term investments and may be difficult to sell in response to changing economic conditions.
Virtually all real property investments are subject to certain inherent risks. Real estate investments are generally long-term investments which cannot be quickly converted to cash. Real property investments are also subject to adverse changes in general economic conditions or local conditions which may reduce the demand for commercial property. Since the Company purchases notes primarily related to real estate, a downturn in the real estate market could negatively impact the Company’s operations.
Adverse Trends in the Single-Family Housing Industry May Impact the Project.
The success of the Project will depend largely on the ability of the Borrowers to adapt to trends in the single-family housing industry, including competitive pressures, increased consolidation, industry overbuilding and changing demographics, the introduction of new concepts and products, availability of labor, changing tenant pricing levels and general economic conditions. Failures in adapting to the foregoing may affect the Borrower’s financial performance and thus the Company’s ability to receive funding from the notes underlying the Borrower’s property(ies).
Geographic Concentration and Sector Risk.
The Company’s geographic focus is not specifically limited other than to areas other than those in which ILS RE Capital LLC, an affiliate of the Company, has invested. Its sector focus is to provide Project Financing and Land Financing, enter into strategic relationships with real estate developers and builders. The Company’s overall performance is therefore largely dependent on real estate economic conditions in these geographic areas and real estate sectors. Since there are no diversification requirements with regard to the Company’s investment activities the Company’s investment portfolio may include a small number of large positions, and at times, may include only one or two Borrower Properties in one or two geographic markets. While such a portfolio concentration may enhance total returns to Investors, if any large position has a material loss, then returns to Investors may be lower than if the Company had invested in a more diversified and widespread portfolio of smaller positions. The Company’s investments will consist entirely of investments related to Investment Properties. Such concentration may increase the volatility of the Company’s returns and may also expose the Company to significant risk of economic downturns in this sector to a greater extent than if its portfolio also included other property types. As a result, economic downturns in the real estate sector could have an adverse effect on the financial condition, results of operations and cash flow of the Company.
Competition in the Market May Harm Company Objectives
The real estate borrowing industry is highly competitive on both a national and regional level. The Company faces competition from REITs, other hard-money providers, other public and private real estate companies, private real estate investors, and banks. Competition may prevent the Company from providing loans to Borrowers of desirable Qualified Properties, who can then either refinance and/or sell the property(ies) financed with the Company loans in order to make prompt repayment and keep up with the loan’s APR. If the Company offers lower interest rates to remain competitive, Investors may experience a lower return on investment and be less inclined to invest in the Company’s next project which may decrease its profitability. Increased competition for Borrowers may also preclude the Company from acquiring Borrowers that would generate the most attractive returns to Investors or may reduce the number of Borrowers the Company could acquire, which could have an adverse effect on its business.
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Availability of Future Financing and Market Conditions May Affect the Company’s Operations.
Market fluctuations in real estate financing may affect the availability and cost of funds needed to successfully operate in the private lending space. Rising interest rates require Offerings to provide greater returns to be attractive to investors, and many issuers of such Offerings may require additional third-party financing for operation in the real estate industry, which is a highly capital intensive area.
Borrower Development or Construction Difficulties or Delays May Impact the Company’s Profitability.
Some Company Notes will be to Borrowers who will require development and construction, and the Company has no ability to complete the development and construction, which will be outside the Company’s control or even the control of the entity supervising the construction. These factors include, but are not limited to:
· | difficulties or delays in obtaining building, occupancy, licensing and other required governmental permits and approvals; |
· | failure to complete construction on budget and on schedule; |
· | unforeseen engineering, environmental or geological problems; |
· | failure of third-party contractors and subcontractors to perform under their contracts; |
· | shortages of labor or materials that could delay construction or make it more expensive than budgeted; |
· | adverse weather conditions that could cause delays; |
· | unionization or work stoppages; |
· | force majeure events or other acts of God; |
· | increased costs resulting from changes in general economic conditions or increases in the costs of materials; and |
· | increased costs as a result of addressing changes in laws and regulations or how existing laws and regulations are applied. |
LEGAL, TAX AND REGULATORY RISKS
Legal, tax and regulatory changes could occur during the lifetime of the Company that may adversely impact the Company’s and Company Affiliates’ taxation status and any distributions from the Company, and Debt Payments to Debt Unit Holders. The Affiliates include ILS Lending LLC, Pearl Funding LLC, and Loan Source LLC.
Risk of Arbitration.
The Company’s Operating Agreement and Subscription Agreement, all provide mandatory binding arbitration provisions that, unlike in judicial proceedings, are subject to determination by an arbitrator, not a judge, who is not necessarily governed by the same standards. In light of that, there is a risk that an arbitrator will not view the contract or the law in the same way a judge would and may grant a remedy or award relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties or based on simple notions of equity, rather than the facts or the relevant law. Furthermore, there is a risk that an arbitrator may interpret the relevant agreements or facts without regard to legal precedent. That risk is exacerbated by the fact that it is more difficult to overturn or vacate an arbitration award, because the law supports confirmation of an arbitration decision which is not otherwise arbitrary or capricious; therefore, investors should consider the difficulty of reversing an arbitration award, once made.
The Company believes that binding arbitration is legally enforceable based on case law provisions as applicable to claims in connection with this Offering (including secondary transactions whereunder Units are resold by initial investors, and subsequent, secondary investors are governed by the Company’s Operating Agreement) under federal law, state law, and U.S. federal securities laws. The legal enforceability based on case law as upheld by U.S. Supreme Court rulings, which, for the Commission’s reference, include but are not limited to the following: Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989); Shearson/American Express v. McMahon, 482 U.S. 220 (1987); and Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (1985).
As a result of this mandatory binding arbitration provision, Investors may incur increased costs to bring a claim, have limited access to information, and these provisions can discourage claims or limit investors’ ability to bring a claim in a judicial forum that they find favorable, In the event of arbitration these clauses would limit the legal remedies available to holders of Units to arbitration for any claims they may have, however by agreeing to be subject to these arbitration provisions, investors will not be deemed to waive the company’s compliance with the federal securities laws and the rules and regulations promulgated thereunder. Notwithstanding case law supporting the enforceability of arbitration, there does appear to be a split of authority suggesting that arbitration provisions are not always enforceable under federal and state law. Nonetheless, to the extent any arbitration provisions are ruled unenforceable, the Company would abide by such ruling.
Debt Investors will be subject to taxation.
Debt Investors will only receive Debt Payments. If a Debt Investor’s Unit generates taxable income, the Debt Investor is generally taxed on that income in the year it’s received.
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No Deductibility of Losses.
As a result of the Investment being a debt investment. Debt Investors will not be allocated losses absent a clear exemption.
Interest on Underpayment of Taxes; Accuracy-Related Penalties; Negligence Penalties.
If the Company incorrectly reports a Debt Investor’s income, this may cause a Debt Investor to underpay his taxes. If it is determined that a Debt Investor has underpaid taxes for any taxable year, the Debt Investor must pay the amount of taxes underpaid plus interest on the underpayment and possibly certain penalties from the date the tax was originally due. Under recent law changes, the accrual of interest and penalties may be suspended for certain qualifying individual taxpayers if the IRS does not notify the Debt Investor of amounts owing within 18 months of the date the income tax return was filed. The suspension period ends 21 days after the IRS sends the required notice. The rate of interest is compounded daily and is adjusted monthly.
Under Section 6662 of the Internal Revenue Code, penalties may be imposed relating to the accuracy of tax returns that are filed. A twenty (20%) percent penalty is imposed with respect to any "substantial understatement of income tax" and with respect to the portion of any underpayment of tax attributable to a "substantial valuation misstatement" or to "negligence." All of those penalties are subject to an exception to the extent a taxpayer had reasonable cause for a position and acted in good faith. The IRS may impose a twenty (20%) percent penalty with respect to any underpayment of tax attributable to negligence. An underpayment of taxes is attributable to negligence if such underpayment results from any failure to make a reasonable attempt to comply with the provisions of the Code, or any careless, reckless, or intentional disregard of the federal income tax rules or regulations. In addition, regulations provide that the failure by a taxpayer to include on a tax return any amount shown on an information return is strong evidence of negligence. The disclosure of a position on the taxpayer's return will not necessarily prevent the imposition of the negligence penalty.
State and Local Taxes.
In addition to federal income tax consequences, Debt Investors should consider the state and local tax consequences of an investment in the Company. Debt Investors may be subject to state and local taxes that may be imposed by various jurisdictions in which they reside. Debt Investors may be required to file state and local income tax returns and pay state and local income tax in these jurisdictions. This Memorandum makes no attempt to summarize the state and local tax consequences to an investor. Debt Investors are urged to consult their own tax advisor regarding their state and local tax obligations.
Risk of audit of Individual Investor returns.
There is a risk that an audit of the Company's records could trigger an audit of the individual investor’s tax records.
RISK RELATED TO CONFLICTS OF INTEREST
Note to Section – Company Affiliates Here Mean ILS Lending LLC, Pearl Funding LLC, and Loan Source LLC.
Management May be Involved in Similar Investments.
Management, or their affiliates, may act as asset managers or advisors for other companies engaged in making similar investments, and intend to act as the asset managers and advisors of new yet to be formed companies.
Management May Act on Behalf of Others.
Management, or their affiliates, who may act as asset managers for the Company, may act in such capacities for other investors, companies, partnerships or entities that may compete with the loans.
Management May Raise Capital for Others.
Management, or their affiliates, who will raise investment funds, may act in the same capacity for other investors, companies, partnerships or entities that may compete with the Company loans.
Management’s Compensation May be a Conflict.
The compensation plan for Management may create a conflict among the interests of Management and the interests of the Company.
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Management Allocating Time and Resources to Company Affiliates.
Management and their affiliates may have a conflict in allocating their time and resources between the Company and other business activities they are involved with, including without limitation Company Affiliates. The Company does not require any minimum amount of time or attention that Management devote to the Company.
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This Offering Circular will be furnished to prospective investors upon their request via electronic PDF format and will be available for viewing and download from Company’s web platform, as well as on the SEC’s website at www.sec.gov.
The Units are self-underwritten and are being offered and sold by the Company on a best-efforts basis. No compensation will be paid to any principal of the Company, or any affiliated company or party with respect to the sale of the Units. This means that no commissions or other compensation will be paid for the sale of the Units offered by the Company.
We are relying on Rule 3a4-1 of the Securities Exchange Act of 1934, Associated Persons of an Issuer Deemed not to be Brokers. The applicable portions of the rule state that associated persons (including companies) of an issuer shall not be deemed brokers if they a) perform substantial duties at the end of the Offering for the issuer; b) are not broker dealers; and c) do not participate in selling securities more than once every 12 months, except for any of the following activities: i) preparing written communication, but no oral solicitation; or ii) responding to inquiries provided that the content is contained in the applicable registration statement; or iii) performing clerical work in effecting any transaction.
Neither the Company, its principals, nor any affiliates conduct any activities that fall outside of Rule 3a4-1 and are therefore not brokers nor are they dealers. All subscription funds which are accepted will be deposited directly into the Company’s account. This account is not held by an escrow agent nor subject to any escrow agreement.
The Company plans use its current network of real estate investors to solicit investments as well as various forms of advertisement. The Company, subject to Rule 255 of the Securities Act of 1933 and corresponding state regulations, is permitted to generally solicit investors by using advertising mediums, such as print, radio, TV, and the Internet. We will offer the securities as permitted by Rules 251 (d)(1)(iii) and 251(d)(3)(i)(F) of Regulation A whereby offers may be made after this Offering has been qualified, but any written offers must be accompanied with or preceded by the most recent Offering circular filed with the Commission for the Offering. The Company plans to solicit investors through a variety of media and internet advertising mechanisms, such as search based advertising and search engine optimization.
Additionally, the Company intends to conduct its operations so that neither the Company, nor any of its subsidiaries, will meet the definition of investment company under Section 3(a)(1) of the Investment Company Act of 1940, as amended (the “Investment Company Act”) and, accordingly, neither the Company nor any of its subsidiaries intend to register as an investment company under the Investment Company Act.
In order to subscribe to purchase this Offering, a prospective investor must either electronically or manually complete, sign and deliver an executed purchase agreement for the Units (“Subscription Agreement”) to the Company at ILS Fixed Horizon LLC,
PO Box 1227, 210 Market Street, El Campo, TX 77437, Attention: Donald Sutton, and submit payment by way of check or wire transfer payable to “ILS Fixed Horizon LLC Escrow Account.” The Offering will remain open from the date on which the Offering statement is qualified until the Manager decides to close the Offering. All investor funds will go directly to the Company based on payment instructions provided on the Platform in accordance with the Subscription Agreement and will be immediately released to the Company on an ongoing basis as received from Investors and accepted by the Company.
There is currently no trading market for the Units and no trading market is expected to ever develop. As a result, Investors should be prepared to retain this Offering for as long as this Offering remain outstanding and should not expect to benefit from any Unit price appreciation.
In compliance with Rule 253(e) of Regulation A, the Company will revise the Offering statement, of which this Offering Circular forms a part, during the course of the Offering whenever information herein has become false or misleading in light of existing circumstances, material developments have occurred, or there has been a fundamental change in the information initially presented. Such updates will not only correct such misleading information but shall also provide update financial statements and shall be filed as an exhibit to the Offering statement, of which this Offering Circular forms a part, and be requalified under Rule 252 of Regulation A.
Determination of Offering Price
The Offering Price is arbitrary with no relation to the value of the Company. Since the Units are not listed or quoted on any exchange or quotation system, the Offering Price of the Units was arbitrarily determined. The Offering Price was determined by the Company and is based on its own assessment of its financial condition and prospects, limited Offering history and the general condition of the securities market. It does not necessarily bear any relationship to book value, assets, past operating results, financial condition or any other established criteria of value.
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Subscription Process
Investors seeking to purchase Units should proceed as follows:
· | Read this entire Offering Circular and any supplements accompanying this Offering Circular. |
· | Electronically or manually complete and execute a copy of the Subscription Agreement. |
· | Electronically provide the required Subscription Agreement information, or manually provide the required Subscription Agreement information and any additional information to the Company at ILS Fixed Horizon LLC, PO Box 1227, 210 Market Street, El Campo, TX 77437, Attention: Donald Sutton. |
By executing the Subscription Agreement and paying the total purchase price for the Units you are interested in purchasing, which payment is made directly to the Company based on payment instructions provided on the Platform in accordance with the Subscription Agreement, and immediately deposited by Company, you will be deemed to (i) agree to all of the provisions of the Subscription Agreement attached hereto as Exhibit B, and (ii) attest that you meet the minimum standards of a “qualified purchaser,” and that, if you are not an “accredited investor,” such subscription for this Offering does not exceed 10% of the greater of your annual income or net worth (for natural persons), or 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons). Subscriptions will be irrevocable, and effective only upon the Company’s acceptance and the Company reserves the right to reject any subscription in whole or in part.
Following the date on which the SEC qualifies the Offering, subscriptions will be accepted or rejected within ten (10) business days of receipt by the Company. The Company will not draw funds from any subscriber until the date your subscription is accepted. If the Company accepts your subscription, it will email you a confirmation.
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The Company intends to purchase Notes from affiliates which provide Financing to various Borrowers, which typically operate in the real estate space. Borrowers may obtain financing for purposes of fix and flip investments, buy and hold investments, wrapable loans, commercial loans, or hard money/bridge loans. The Company primarily intends to purchase Notes from an Affiliate, which will originate the Notes. The Company anticipates the majority of its Investment Activities will be providing the financing described herein, although the Company can provide additional types of financing to Borrowers at its discretion.
The Company will incur various expenses the consolidated total of which will not reduce the Capital Interest of Debt Investors. Expenses incurred by the Company will be deducted as part of the determination of Net Distributable Cash Flow and will be payable on a priority basis prior to any Debt Investors Debt Payments.
The estimated use of proceeds from this Offering will be dependent upon the amount and timing of the capital raised in this Offering. Assuming the Maximum Offering Amount is raised, the Company expects to use the proceeds from this Offering of Units to (i) pay fees and expenses relating to the organization of the Company and the sale of the Units, (ii) provide private loans to Borrowers for real-estate-related activities, whether those include short-term flipping sales, development of projects, or refurbishing of purchased homes, and (iii) establish working capital reserves for the Company to fund operating and other expenses of the Company. The Company expects to use the Offering proceeds to pay such amounts at such time and in such order as Management deems, in its sole and absolute discretion, to be in the best interest of the Company. If the maximum offering amount is not filled, the Company intends to use the Proceeds raised in the manner outlined in this section regardless.
The expenses of this Offering, including the preparation of this Offering Circular and the filing of this Offering Statement, estimated at $61,000, are being paid for on behalf of the Company by the Manager, and will be repaid to Manager from the Company’s working capital reserves, the timing of which shall be as Management deems, in its sole and absolute discretion, to be in the best interest of the Company.
The Manager here further discloses that the Offering will perform in following manner should it sell the following amounts of Units in the Offering, ten (10%) percent of total available units, twenty-five (25%) percent or total available units, or fifty (50%) percent of total available units, as follows:
1. | If 10% of the offering is sold: In this case, the company may focus on its most critical operating expenses and allocate the funds to areas such as maintaining essential operations, meeting working capital needs, and servicing existing debt obligations. The company may have to postpone or scale down certain growth initiatives, marketing efforts, or expansion plans. |
2. | If 25% of the offering is sold: With a higher percentage of funds raised, the company can allocate resources to a broader range of activities, such as investing in product development, expanding sales and marketing efforts, and pursuing strategic partnerships. However, the company may still need to prioritize and make strategic decisions regarding which initiatives to pursue based on the limited funds available. |
3. | If 50% of the offering is sold: In this scenario, the company will have more flexibility to allocate funds across a wider range of operational and growth initiatives. This may include investments in geographic expansion and hiring additional personnel. |
The following table shows a summary of the use of the Maximum Offering Amount generated through the sale of Units:
Minimum Offering Amount |
Percent | Maximum Offering Amount |
Percent | |
Gross Offering Proceeds | N/A | N/A | $75,000,000 | 100.00% |
Less: Commissions(1): | N/A | N/A | (0.00) | -0.00% |
Available Proceeds | N/A | N/A | $75,000,000 | 100.00% |
Less Offering Expenses: | N/A | N/A | ||
Organization and Offering Expenses(2,3) | N/A | N/A | ($41,000) | -0.055% |
Working Capital Reserves | N/A | N/A | ($3,750,000) | 5.00% |
Advisor Operating Expenses | N/A | N/A | ($20,000) | -0.027% |
Net Proceeds to Company
from Offering(4) |
N/A | N/A | $71,189,000 | 94.918% |
Net Proceeds to other persons | N/A | N/A | N/A | N/A |
1) | No compensation will be paid to any principal of the Company, or any affiliated company or party with respect to the sale of the Units. This means that no commissions or other compensation will be paid for the sale of the Units offered by the Company. |
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2) | The Company will pay or reimburse the Manager for organization and Offering expenses undertaken in conjunction with this Offering, as indicated in the table above. |
3) | Includes all expenses to be paid by the Company in connection with its formation and the qualification of the Offering, and the marketing and distribution of Units, including, without limitation, expenses for printing, engraving and amending Offering statements or supplementing Offering Circulars, mailing and distributing costs, telephones, internet and other telecommunications costs, all advertising and marketing expenses, charges of experts and fees, expenses and taxes related to the filing, registration and qualification of the sale of Units under federal and state laws, including taxes and fees and accountants’ and attorneys’ fees. See “Plan of Distribution.” |
4) | Assuming the Maximum Offering Amount is achieved, the Company expects to allocate (a) 94.918% ($71,189,000.00) of the Net Proceeds to the Company to purchase notes, (b) 5% ($3,750,000.00) of the Net Proceeds to the Company to Working Capital Reserves, and (c) the remaining 0.082% allocated to Expenses. |
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The Company was formed as a Texas limited liability company on April 5, 2022. The Company is an affiliate of Investor Loan Source (ILS), which is a collection of various other entities related to ILS that engage in various aspects of private real estate lending. The Company is managed by Donald Sutton (Co-Founder and President) and Tom Berry (Co-Founder and CEO). The Company maintains offices in El Campo, Texas and Houston, Texas. The El Campo office has 28 employees and the Houston Team has 13 employees.
Loan Source LLC (D/B/A Investor Loan Source (ILS)), the primary affiliate of the Company, was founded as a partnership between Tom Berry and Donald Sutton in January 2014. Collectively, Donald and Tom have been involved in real estate lending and hard money lending for over twenty (20) years. Their vision for Loan Source LLC, and all affiliated ILS entities is the following: “We are dedicated to our clients and pride ourselves on maintaining innovative, in-demand loan products, quality customer service, and, above all, a fast approval process.”
Borrowers can apply for loans using the ils.cash/apply/ website, which offers a streamlined fillable online application form, and guides potential Borrowers through the process. The application itself has a four-step process that requests information from the Borrower in these four areas: Borrower Details, Property Details, Financial Details, and Loan Details. The ILS network of companies also includes education videos, podcasts, and a blog which further provides information to potential Borrowers about the ILS lending process.
Additionally, on the ILS website, Borrowers can apply via a “Quick Application,” a “Fix & Flip Application,” a “Rental Loan,” application and/or a “Commercial Loan Application.” Each of these types of loans require different information from the Borrower as well as more or less extensive details regarding the use for the Loan, which the Company will evaluate in making its loan disbursement decision.
Company Structure
ILS Fixed MGMT CORP (the “Manager”), a Texas Corporation, will be the manager of ILS Fixed Horizon LLC (the “Company”), the issuer of the Units offered by this Offering Circular. The sole common member of the Company will be ILS Legacy Holdings LLC (“Common Member”).
The Company was organized as a Texas limited liability company on April 5, 2022. The Company currently has six authorized Unit classes: Debt Units under Class A1, Class A2, Class B1, Class B2, Class C1, and Class C2, each of which is priced at $1,000 per Unit.
In addition to the Company engaging in this Offering, ILS Fixed Horizon LLC, the Officers manage the following entities:
a. | Loan Source LLC: Entity processing and servicing the loans and facilitating the transfer of the notes to the Company for a fee of between $135 and $200 per note. |
b. | ILS Lending LLC: Entity originating the loans. |
c. | Pearl Funding LLC: Secondary entity originating the loans. |
d. | ILS Legacy Holdings LLC: The Common Member for the Company and ILS Fixed Horizon Management Corp. which receives the Manager fees. |
e. | ILS RE Capital I LLC: 506(b) Offering. |
f. | ILS RE Capital II LLC: 506(b) Offering. |
g. | ILS Growth Fund I LP: 506(c) Offering. |
h. | ILS Income Fund I LP: 506(c) Offering. |
The graphic on the following page shows the typical relationship among the various affiliates and the Company (“Company Affiliates”) as of the date of this Offering Circular. Additionally, the Company has provided a diagram outlining the relationships among itself and its affiliates as Exhibit 15.2.
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Company Structure Graphic
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Financial Reporting Considerations
Upon extensive review and discussion with our Independent Accountants, Grennan Fender (the “Company Auditor”) we have concluded that ILS Legacy Holdings LLC is the primary beneficiary of the Company (as its sole Common Member).
Accordingly, the Company and Company Auditor have concluded that the most appropriate financial reporting treatment would be to provide potential investors with the present account balances for the Company, as the Company does not presently have any operating history. The Manager intends to utilize Grennan Fender to provide audited financials every twelve (12) months per the SEC’s Regulation A framework.
The Issuer and Company Auditor believe that in so doing, potential investors should be provided with full disclosure of Company’s financial performance in accordance with Generally Accepted Accounting Principals (“GAAP”) and has included by reference the audited statements for the period ending December 31, 2022. There have been no changes to the Company’s account since then, and the Company does not intend to use any of the $5,000 balance it presently has in its account until the Offering is qualified by the SEC.
Additionally, investors should note that information contained in linked material is not intended to be part of the Offering circular, yet the Company believes that i) all information material to investors has been included in this Offering Circular, and ii) that while linked material is not considered part of the Offering, the Issuer, to the best of its knowledge believes that they are accurate and complete in all material respects.
Management and Company Affiliates’ Roles in Business Operations
Company Management will be making the business and management decisions for the Company based on the recommendations ILS Fixed Horizon MGMT CORP (the “Manager”).
Company Affiliates’ Current Ownership Interests in Loan Providers
Company Affiliates have ownership interests in a variety of other entities that provide similar loan services as the Company.
THE PRIOR PERFORMANCE OF THE MANAGER AFFILIATES, AND THEIR RESPECTIVE AFFILIATED ENTITIES MAY NOT PREDICT THE FUTURE PERFORMANCE OF THE COMPANY, AS THE COMPANY ITSELF HAS NO OPERATING HISTORY. THEREFORE, THERE IS NO ASSURANCE THAT THE COMPANY WILL ACHIEVE ITS INVESTMENT OBJECTIVES OR THAT THE DEBT PAYMENT AND/OR CASH DISTRIBUTIONS WILL BE PAID TO THE HOLDERS OF UNITS.
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Typical Services Provided to Borrowers
The proceeds of this Offering are for the purpose of financing all or a portion of the costs of providing loans to Borrowers to acquire (“Qualified Properties”) or convert other real estate properties (“Conversion Projects”) from one use to another—for example from retail to residential or vice versa. The Company’s primary focus for providing such loans will be primarily in the Midwest, Southeast, and the heartland. Specifically, ILS Fixed Horizon LLC will allow for the financing of Borrower loans in the following states:
1. | Alabama |
2. | Arkansas |
3. | Colorado |
4. | Florida |
5. | Georgia |
6. | Idaho |
7. | Indiana |
8. | Iowa |
9. | Kansas |
10. | Kentucky |
11. | Louisiana |
12. | Michigan |
13. | Mississippi |
14. | Missouri |
15. | North Carolina |
16. | Ohio |
17. | Oklahoma |
18. | South Carolina |
19. | Tennessee |
20. | Texas |
21. | Utah |
22. | Virginia |
23. | Wisconsin |
The Company intends to purchase Notes for the following types of Borrower Loans:
1. | Purchase/Rehab Loans: This loan is used to purchase a property that needs to be rehabilitated in order to flip or sell, or that will be later leased out and refinanced. The Company has a one-time close loan so the property can be rehabbed, loaned out, and refinanced into a long-term loan without paying more closing costs. |
2. | Single Family Rental Loans: This loan is used to refinance a single-family home (limited to properties with up to four (4) units) that is already owned and leased and does not need to be rehabilitated. The Company also provides a loan service for short-term rentals, such as Airbnb Properties. |
3. | Portfolio Loans: This loan allows for refinancing of five (5) rental properties into one loan, with one (1) single payment. |
4. | Commercial Property Loans: These loan types are specifically tailored for Borrowers investing in Retail, Office, Mixed-Use, or Multi-Family Properties. |
5. | Land Loans. These loans are typically for Borrowers purchasing undeveloped land with the intention of dividing the land into parcels and either selling the parceled lots or engaging in ground-up development themselves. |
How Loans Amounts are Determined by Affiliates Issuing Notes
The loan amount is determined by the After Repair Value (ARV) for a short-term fix and flip loan, and the As-Is Value for a long-term loan or rental loan. The loan amount determination begins with a loan request. An ILS affiliate loan approval specialist will make every effort to help achieve the loan amount requested. Documentation is instrumental, as well as a detailed scope of work (for rehab/flip loans), which will serve to assist the appraiser in determining an after-repair-value (ARV), and further formulates the basis of our loan amount determinations. Any documentation provided can help the asset evaluator, or an appraiser, determine the ARV, which is a crucial component of the process. Although loan amounts may vary on the Borrower’s past credit history and projects, the Company typically loans up to seventy-five (75%) percent of the ARV or as-is condition of the Property.
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Competition in the Market
The real estate borrowing industry is highly competitive on both a national and regional level. The Company faces competition from REITs, other hard-money providers, other public and private real estate companies, private real estate investors, and banks. Competition may prevent the Company from providing loans to Borrowers of desirable Qualified Properties, who can then either refinance and/or sell the property(ies) financed with the Company’s purchased Notes in order to make prompt repayment and keep up with the loan’s APR. If the Company offers lower interest rates to remain competitive, Investors may experience a lower return on investment and be less inclined to invest in the Company’s next project which may decrease its profitability. Increased competition for Borrowers may also preclude the Company from acquiring Borrowers that would generate the most attractive returns to Investors or may reduce the number of Borrowers the Company could acquire, which could have an adverse effect on its business.
Regulation
The Company’s business practices and projects, and those of the Manager Affiliates are subject to regulation by numerous federal, state and local authorities including but not limited to the following:
U.S. and State Laws Regulating the Licensure of Private Loans
Although private lending (outside of student loans or other federally subsidized loans) is subject to some federal regulation, generally, private loans fall primarily within the purview of state regulatory agencies. Since the Company intends to offer commercial private loans in approximately twenty-three (23) states, the Company will itself be subject to state regulators in each of those states.
FINRA
The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates brokerage firms and exchange markets. FINRA’s mission is to protect investors by ensuring that the U.S. securities industry operates fairly and honestly. Given that this is a securities offering, and despite the fact that the Company does not intend to classify as a broker-dealer itself, it is wholly possible that the Company will fall under the purview of FINRA. As such, the Company is notifying investors of this possibility, which may serve to add additional regulatory compliance costs to the Company’s expected financial position.
U.S. and State Securities Laws
The Units offered hereby are “securities,” as defined in the Securities Act and under state securities laws. The Securities Act provides, among other things, that no sale of any securities may be made except pursuant to a registration statement that has been filed with the SEC, and has become effective, unless such sale (or the security sold) is specifically exempted from registration. State securities laws have analogous provisions.
The Units being offered hereby have not been registered under the Securities Act. Neither the SEC nor any state securities commission or regulatory authority approved, passed upon or endorsed the merits of this Offering. The Offering and proposed sale of the Units described herein shall be made pursuant to an exemption from registration with the SEC pursuant to Regulation A and shall only be offered in states in which the registration of the offer and sale of the Units has been declared effective.
Environmental Regulations
Federal, state and local laws and regulations impose environmental controls, disclosure rules and zoning restrictions that directly impact the management, development, use, and/or sale of real estate. Such laws and regulations tend to discourage sales and leasing activities with respect to some properties, and may therefore adversely affect the Company specifically, and the real estate industry in general. The Company’s failure to uncover and adequately protect against environmental issues in connection with the issuance of private loans for real estate may subject the Company to liability as financier of such property or asset. Since the Company intends to take collateral in each of the properties it provides loans for, unexpected environmental issues with said property may add additional unforeseen compliance costs to the Company’s finances.
Environmental laws and regulations impose liability on current or previous real property owners or operators for the cost of investigating, cleaning up or removing contamination caused by hazardous or toxic substances at the property. The Company may be held liable for such costs as a subsequent owner of such property. Liability can be imposed even if the original actions were legal and the Company had no knowledge of, or were not responsible for, the presence of the hazardous or toxic substances. Further, the Company may also be held responsible for the entire payment of the liability if it is subject to joint and several liability and the other responsible parties are unable to pay. The Company may also be liable under common law to third parties for damages and injuries resulting from environmental contamination emanating from the site, including the presence of asbestos containing materials. Insurance for such matters may not be available. Additionally, new or modified environmental regulations could develop in a manner that could adversely affect the Company.
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Certain laws and regulations govern the removal, encapsulation or disturbance of asbestos containing materials (“ACMs”), when those materials are in poor condition or in the event of building renovation or demolition, impose certain worker protection and notification requirements and govern emissions of and exposure to asbestos fibers in the air. These laws may also impose liability for a release of ACMs and may enable third parties to seek recovery against the Company for personal injury associated with ACMs.
Other Laws and Regulations
The Borrowers on the Notes which the Company intends to purchase will be required to operate their projects in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to the projects financed by the Company. The Company is also required to comply with labor laws and laws which prohibit unfair and deceptive business practices with consumers. The Company’s projects will also be subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning fair housing and real estate transactions in general. These laws may result in delays if the Company-financed projects are re-developed by Borrowers. Additionally, these laws might cause the Company to incur substantial compliance and other costs. The Company may be required to make substantial capital expenditures to comply with those requirements and these expenditures could have a material adverse effect on its ability to make Debt Payments to Investors at historical levels or at all.
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MANAGEMENT’S ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was formed in April 2022 and has no operational history at present. As a result, per Regulation A guidelines, the Manager here presents its anticipated plan of operations for the twelve (12) month period succeeding the date of qualification of this Offering. Additionally, the Manager intends to update this section once the Company becomes operational and there are key aspects to discuss regarding its performance, challenges, and future strategic initiatives.
At present, the Company maintains a $5,000 dollar balance in its corporate account, as shown in the attached Financial Statement in Appendix A. The Company intends to use that same account for the raising of the Proceeds of this Offering, from which it will then make distributions to Investors and the Manager. The Manager does not anticipate requiring any additional proceeds to effectuate its business, outside of those raised in this Offering. Furthermore, the Manager here affirms that the Company will take its place in the ecosystem of ILS-branded affiliates, which all engage in substantially similar businesses as the Company.
The Manager here discloses that, should the need arise, it may be possible for the Company to take out loans from affiliates and/or the Management Team itself. Should liquidity concerns arise, the Manager reserves the right to take on additional debt through the Company to ensure that Company operations continue. The Manager has already established an extensive network of borrowers within and without the State of Texas and continues to develop and expand that network throughout the United States at large.
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Overview
Loan Evaluation Criteria
An Affiliate of the Company, ILS Lending LLC, performs the underwriting of all loans issued by the Notes that the Company intends to purchase, with Pearl Funding LLC also performing some of the underwriting work. Loan Source LLC processes and services the Loans and transfers the Notes to the Company. ILS Lending LLC, Pearl Funding LLC, and Loan Source LLC are managed by the same Principals as the Company. Loan Source LLC will charge between approximately one hundred thirty-five ($135) dollars and two hundred ($200) dollars per loan to recover County recording fees and loan document preparation for Note Sales.
Potential Areas of Expansion
Affiliates of the Company are presently operating in twenty-three (23) states, as mentioned on page 32 of this Offering Circular. The Company intends to expand in other states that the Company deems have commercial private lending laws beneficial to the Company. The Company also looks to entertain, evaluate and purchase loans from other third parties once it finds those with the same strict underwriting requirements that ILS Affiliates have.
Leverage of Strategic Relationships
The Company will take its place in an ecosystem of Affiliates which are operated by the same Management Team. As a result, the Company will be able to leverage these strategic partnerships to perform underwriting of Loans as well as furnish any relevant loan document preparation. The Company Management Team is also actively engaged in annual real estate conferences, which it uses to establish its brand and expand its client base.
Marketing Strategy
The Company intends to leverage the experience and vast network of its Management Team to expand its loan operations. Specifically, the Management Team is active on the speaking circuit, partakes in several Mastermind groups, and regularly attends conferences in the real estate/private lending space. The Company makes up a part of the ILS ecosystem, which is a collection of entities that work in tandem to achieve investor goals. The integration of those entities also allows the Manager to make loans between entities or leverage an opportunity that may not be a good fit for one entity to another entity within the ecosystem. Furthermore, ILS retains an investor-friendly website where Borrowers can apply for and be qualified for loans very rapidly. This online integration of the Borrower application portal creates a seamless pipeline for driving Loan development, a key competitive advantage over private lenders that have not efficiently operationalized such a system.
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Financial Performance of Company Affiliates’ Loans
During the past several years, the Officers of the Company have sponsored several offerings focused on hard money lending and the issuance of notes. These four offerings listed below offered substantially similar terms as this Offering, in the sense that there Unit Classes made available with similar terms as this Offering, in the range of 5% to 8%. The numbers below are current as of September 30, 2023. These programs have been designed to provide investors with strong investment opportunities and have generated returns as follows:
Affiliate Program |
Investment
Objective |
Investment
Strategy |
Total Capital | Annualized
Return Gross |
Income | Expenses | Net Return |
ILS RE Capital
|
Buy Notes paying > 8% |
Buy Notes paying > 8% |
$8,309,225 |
10.751% |
$690,016 |
$424,887 |
3.933% |
ILS RE Capital II
|
Buy Notes paying > 8% |
Buy Notes paying > 8% |
$4,343,968 |
5.269% |
$171,670 |
$117,581 |
1.660% |
ILS Growth Fund I LP
|
Buy Rehab Notes paying > 10% |
Buy Rehab Notes paying > 10% |
$96,074,935 |
13.608% |
$9,805,718 |
$906,772 |
12.350% |
ILS Income Fund I LP
|
Buy NON-Rehab Notes paying > 10%
|
Buy NON-Rehab Notes paying > 10%
|
$12,612,248
|
10.997%
|
$1,040,198
|
$27,228
|
10.709%
|
Additionally, the Manager the additional financial information as outlined in the SEC’s Industry Guide 5, in table format, per requested guidelines as Exhibit 15.1 in this Offering.
[Additional Financial Information of Affiliates available on next page.]
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The Manager here discloses additional financial information regarding the Operations of its other Companies, operating under a similar framework as the Company is presently doing.
Effective Date |
Capital Contributions (Debt Units /Partners) |
Assets (Balance Sheet) |
Income (Gross Revenue) |
Expenses | Mths of financials |
Qtr CALC |
Net Income |
Net Income CALC to Annualize |
Annualized Gross |
Annualized Net |
ILS RE Capital | ||||||||||
6/30/2022 | $1,273,241 | $2,142,270 | $15,058 | $15,058 | 3 | 4.000 | ||||
9/30/2022 | $4,341,978 | $4,386,723 | $83,872 | $74,388 | 6 | 2.000 | $9,484 | $18,968 | 3.863% | 0.437% |
12/31/2022 | $9,280,948 | $9,367,321 | $214,328 | $171,542 | 9 | 1.333 | $42,786 | $57,048 | 3.079% | 0.615% |
3/31/2023 | $8,847,684 | $8,978,255 | $233,414 | $147,718 | 3 | 4.000 | $85,696 | $342,784 | 10.553% | 3.874% |
6/30/2023 | $7,939,758 | $8,232,297 | $454,301 | $166,043 | 6 | 2.000 | $288,258 | $576,516 | 11.444% | 7.261% |
9/30/2023 | $8,309,225 | $8,533,014 | $670,016 | $424,887 | 9 | 1.333 | $245,128 | $326,838 | 10.751% | 3.933% |
ILS RE Capital 2 | ||||||||||
12/31/2022 | $505,109 | $500,110 | $0 | $6,000 | 0 | |||||
3/31/2023 | $2,219,311 | $2,221,865 | $23,858 | $16,305 | 3 | 4.000 | $7,553 | $30,212 | 4.300% | 1.361% |
6/30/2023 | $2,569,309 | $2,586,756 | $78,788 | $56,333 | 6 | 2.000 | $22,455 | $44,910 | 6.133% | 1.748% |
9/30/2023 | $4,343,968 | $4,393,061 | $171,670 | $117,581 | 9 | 1.333 | $54,089 | $72,119 | 5.269% | 1.660% |
ILS Growth Fund | ||||||||||
12/31/2020 | $11,689,668 | $19,369,324 | $1,281,559 | $464,773 | 12 | 1.000 | $816,786 | $816,786 | 10.963% | 6.987% |
12/31/2021 | $33,294,081 | $40,704,716 | $3,867,083 | $884,739 | 12 | 1.000 | $2,982,344 | $2,982,344 | 11.615% | 8.958% |
12/31/2022 | $76,298,875 | $87,459,540 | $8,612,233 | $1,324,862 | 12 | 1.000 | $7,287,371 | $7,287,371 | 11.287% | 9.551% |
3/31/2023 | $84,832,673 | $94,572,242 | $3,023,311 | $261,925 | 3 | 4.000 | $2,761,386 | $11,045,544 | 14.255% | 13.020% |
6/30/2023 | $91,689,720 | $101,901,082 | $6,357,883 | $600,917 | 6 | 2.000 | $5,756,966 | $11,513,932 | 13.868% | 12.557% |
9/30/2023 | $96,074,935 | $104,310,346 | $9,805,718 | $906,772 | 9 | 1.333 | $8,898,946 | $11,865,261 | 13.608% | 12.350% |
ILS Income Fund | ||||||||||
12/31/2020 | $938,168 | $2,313,296 | $155,972 | $84,612 | 12 | 1.000 | $71,360 | $71,360 | 16.625% | 7.606% |
12/31/2021 | $6,226,067 | $6,607,173 | $565,364 | $130,291 | 12 | 1.000 | $435,073 | $435,073 | 9.081% | 6.988% |
12/31/2022 | $10,488,849 | $10,546,177 | $968,364 | $67,690 | 12 | 1.000 | $900,674 | $900,674 | 9.232% | 8.587% |
3/31/2023 | $11,557,936 | $11,624,236 | $325,162 | $7,046 | 3 | 4.000 | $318,116 | $1,272,464 | 11.253% | 11.009% |
6/30/2023 | $12,054,755 | $12,123,421 | $635,380 | $80,519 | 6 | 2.000 | $554,861 | $1,109,722 | 10.542% | 9.206% |
9/30/2023 | $12,612,248 | $12,684,231 | $1,040,198 | $27,228 | 9 | 1.333 | $1,012,970 | $1,350,627 | 10.997% | 10.709% |
Material Definitive Agreement
Notwithstanding this objective, the prior performance of the Manager, Manager Affiliates, and their respective affiliated entities may not predict the future performance of the Company and its affiliated entities or the return on an investment in the Units. Therefore, there is no assurance that the Company will achieve its investment objectives or that the Debt Payment and/or cash distributions will be paid to the holders of Units.
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DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
Below the Company provides information regarding the executive officers and significant employees of the Company. The Company does not have any other employees at this time as it relies on Company Affiliates to provide all administrative and other services to the Company at fair market value. For avoidance of doubt, both Donald Sutton and Tom Berry are beneficial owners of the Manager of the Company.
(a) | Directors, Executive Officers and Significant Employees of the Company |
Name | Age | Title | Term of OfficeNote 1 | Approximate Hours Per Week | |||
Donald Sutton | 59 | Co-Founder, President of Manager & Chief Financial Officer/Chief Accounting Principal |
April 2022 | 20 | |||
Tom Berry | 58 | Co-Founder and CEO | April 2022 |
20 |
Note 1 – The Company expects each Executive Officer to continue in the same capacity as their predecessor Company Affiliate roles outlined below, not all Company Executive Officers will be focused on all aspects of the Company’s business initiatives, but will rather focus on specific business initiatives in accordance with their area(s) of expertise.
Prior service with a Investor Loan Source (ILS), a Company Affiliate:
Name | Age | Title | Term of Office | ||||
Donald Sutton | 59 | Co-Founder and President | January 2014 | ||||
Tom Berry | 58 | Co-Founder and CEO | January 2014 |
(b) | Family relationships. | |
None |
(c) | Business experience. |
The Company’s Management, each of which reside in Texas, has extensive experience in private real estate lending, private lending more broadly, property acquisition and development, property rehabilitation, hard money loans, and the real estate industry overall. The following are Management’s biographies:
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Donald Sutton, Co-Founder, President of Manager, Chief Financial Officer/Chief Accounting Principal. Donald graduated from Stephen F. Austin University Magna Cum Laude with a degree in Applied Mathematics and Computer Science. Thereafter, Donald was recruited by a defense contractor right out of college. For the next 5 years, he worked in satellite and missile science for multiple undisclosed US government agencies. Two of his most notable assignments were working on missile technology for the NORAD defense system’s “war games” and the satellite system that was used for troop location and movements for coalition forces during Operation Desert Storm. After his time with military defense agencies, Donald moved into the private sector as a software engineer working with companies such as Oracle, E-Systems Raytheon, Lockheed Martin, and EMC Greenplum. Over the next 26 years, he managed design teams creating system software for private sector companies and government agencies. It was during this time that he moved back to his hometown area and met his wife, Fredia, of now over 20 years. They have four children, the oldest of which, works in the family business. |
While working in the corporate world, Donald started investing in rental homes, mobile home parks, and apartments as an alternative to the stock market. After a while, he found that passive investing as a private lender was more suited to his busy work and travel schedule. He now boasts more than 20 years in private lending. In 2014 he partnered with Tom Berry to Co-Found Investor Loan Source (ILS). Since that time ILS has closed over 2,000 loans for over $500,000,000 in loan volume. In 2018 Donald and Tom launched the ILS Funds as a way to grow their loan volume and allow other passive investors to pool their money and take part in the private lending systems and the team they had built. To date the ILS funds have raised over $100,000,000 dollars in investor capital and have produced solid returns throughout. Donald enjoys working with the local 4-H and FFA chapters in his spare time serving as project leader and mentor. His mission is to help others build their wealth and get the highest returns with minimal risk. Donald says success feels best when it is shared.
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Tom Berry, Co-Founder and CEO. Growing up in Appalachia, Tom always knew he wanted to be a businessman. For Tom a career in business seemed like the only way to escape the generational poverty he saw all around him. As the son of a coal miner, Tom did not attend college but instead choose to work his way up the corporate ladder in sales and management. Before long, he realized, he had developed a strong resume as a turnaround manager. Taking positions managing a company, store, or department that was not profitable and turning them profitable. After several of these positions, he had acquired the skills and knowledge to go on his own and started his own financial services firm. Acquiring 18 state and federal licenses and admissions covering life and health insurance, property and casualty insurance, mortgages, and securities sales, Tom and his wife built a business by helping families plan and implement efficient finance and investing strategies to enable them to reach their goals. |
In 2006 Tom and his wife decided to move their family and business from their small rural community in Ohio to the much larger market of Houston, TX. While this seemed like a fantastic opportunity, no one foresaw the financial crisis that crushed their business the following year. After losing everything they had worked for and saved, Tom decided to start a different type of business as a real estate professional. Starting with nothing, he acquired over 400 rental units in the next four years and has since bought and sold hundreds of houses and commercial properties.
In 2014 he partnered with Donald Sutton to Co-Found Investor Loan Source (ILS) and since that time ILS has closed over 2,000 loans for over $500,000,000 in loan volume. In 2018 Donald and Tom launched The ILS Funds to grow their loan volume and allow other passive investors to pool their money and take part in the private lending systems and the team they had built. To date, the ILS funds have raised over $100,000,000 dollars in investor capital and have produced solid returns throughout. Tom and his wife of over 20 years, Melissa, still reside in Texas and have four adult children and seven grandchildren. All of their children or their children’s spouses work in the family business. In his spare time, Tom is an avid hunter and loves to make memories with the family on his exotic game ranch in central Texas. He also has a passion for teaching others how to build wealth through real estate and strongly believes that teaching is the best way to set the next generation up for success. Mr. Berry is the former host of a popular radio show, The Real Estate Rush Hour, and continues traveling all over the country to speak at various conventions and mastermind groups in addition to his duties as CEO of ILS.
(d) | Legal proceedings. (confirm with client) |
None.
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COMPENSATION OF MANAGEMENT AND DIRECTORS
Compensation of Management
Currently, each member of the Company Management is an employee of Company Affiliates and the Company does not currently have any plans to hire additional employees who will be compensated directly by the Company. The Company will distribute monthly Interest Payments directly to the Debt Unit Holders and the Common Member will receive the Manager’s distribution. The spread earned on the Notes is the primary source of the Company’s income, and the funds from which the Company will pay Investors in the Offering. Any excess remaining cash after Investors have been paid their Debt Payments as outlined elsewhere in this Offering Circular shall be provided to the Manager, which may vary depending on the note, however range between eight (8%) percent and fourteen (14%) percent. Debt Unit Holders receive the Interest Payment, which is locked in at a particular rate for a set period of time as a monthly distribution, and ranges between five (5%) percent and eight (8%) percent, depending on the Class of Debt Units. The Manager is taking a 1% APR Management Fee on the total Capital Contributions under management at the beginning of each calendar month, to be paid monthly. For example, if $1,000,000 is under management at the start of the month, then the management fee would be calculated as $1,000,000 multiplied by 0.01 and then divided by 12, which leads to an approximate fee of $833.33 for that month.
Donald Sutton and Tom Berry will serve to manage the Company’s day-to-day affairs, and both are Members of the Manager and comprise its Management Team, and as a result shall receive any fees and/or distributions due to the Manager under this Offering Circular and the Company’s Operating Agreement. Although the Company will indirectly bear some of the costs of the compensation paid to these individuals through fees that the Company pays to Company Affiliates, such as the note transfer fee to Loan Source LLC of between $135 and $200 per note, the Company does not intend to pay any compensation directly to these individuals.
Consequently, the Net Proceeds shall be used to finance the Company’s operations and to pay the Debt Payments to Investors. Any excess Net Proceeds outside of that shall remain with the Company, and the Manager shall distribute it in its sole discretion, provided that such distributions do not conflict with this Offering Circular or the Company’s Operating Agreement. Should the Company, in the future choose to hire additional employees, it may need to offer substantial cash compensation to attract qualified individuals, and may, depending on market conditions, be required to provide equity incentive awards as part of their compensation packages.
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PRINCIPAL DEBT UNIT HOLDERS AND OTHER COMPANY DEBT UNIT HOLDERS – BENEFICIAL OWNERSHIP
The Company was organized as a Texas Limited Liability Company on April 5, 2022. ILS Fixed Horizon LLC (the “Company”) a Texas limited liability corporation.
No other Units have been issued.
The following table displays, as of December 19, 2023, the non-voting Units of the Company:
Title of Class | Name of Beneficial Owner |
Amount and Nature of Beneficial Ownership |
Percent of Class |
Percent of Company Total Voting Power |
||||||||||
Common Voting Shares ($1.00 par value) | ILS Legacy Holdings LLCNote 1
Donald Sutton & Tom Berry are the beneficial owners of ILS Legacy Holdings LLC |
$ | 99.0 | % | 99.0 | % | ||||||||
Common Voting Shares ($1.00 par value) |
ILS Fixed Horizon Management Corp. |
$ | 1.00 | % | 1.00 | % | ||||||||
Donald Sutton & Tom Berry are the beneficial owners of ILS Legacy Holdings LLC |
||||||||||||||
Total | 100.00% |
Note 1 – ILS Legacy Holdings LLC, a Management controlled Company Affiliate, is the sole voting member of the Company and the Common Member. ILS Legacy Holdings LLC is jointly owned by Donald Sutton and Tom Berry; Donald Sutton retains his 50% in ILS Legacy Holdings LLC through DFSWIM LLC, and Tom Berry retains his 50% in ILS Legacy Holdings LLC through Tom Berry REI LLC. Thus, both Tom Berry and Donald Sutton are Beneficial owners.
ILS Fixed Horizon MGMT CORP (the “Manager”), a Management controlled Company Affiliate, is the Manager of the Company.
Donald Sutton, as President of Manager, is therefore the sole natural person with voting and dispositive power over the Common Member’s Interest.
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
All Company affiliates (collectively “Company Affiliates”) will be engaged by the Company and its affiliates to perform various value add services for day-to-day management of the Company including the investment of its assets, due diligence for Borrower backgrounds, and selling of loans. Company Affiliates will receive fees and compensation for such services as described in this section. None of the agreements for such services are the result of arm’s-length negotiations. The Company believes, however, that the terms of such arrangements are reasonable and are comparable to those that could be obtained from unaffiliated entities. The timing and nature of these fees could create a conflict between and among the interests of the Company, and those of the Investors.
Services performed by Company Affiliates include the following:
Service | Company Stage of Development | Estimated Amount | ||
Organizational and Offering Expenses |
Organization and Offering Stage (“Startup Stage”) | If the Company raises the Maximum Offering Amount, the Manager has stated that approximately five (5%) percent of the Offering Proceeds will be used to pay Organizational and Offering Expenses and maintain adequate capital reserves. | ||
Reimbursement of Advisor
|
Organization and Offering Stage (“Startup Stage”) | At this time we will not have the Company reimburse for this until the Manager, in its sole and absolute discretion, determines that the Company can perform financially | ||
Organization and Offering Expenses shall be performed by ILS Legacy Holdings LLC | Organization and Offering Stage (“Startup Stage”) |
The company shall reimburse ILS Legacy Holdings LLC for these expenses after the company is formed, and the Principals make a capital contribution to the company to cover these expenses. These “Startup Costs” shall be depreciated over a fifteen (15) year period. | ||
Labor cost for processing and servicing the loan and transfer of note shall be performed by Investor Loan Source | Operational Stage | The company does not need to reimburse for processing and servicing the loan since each loan has its own processing and servicing fee. The Transfer fee shall be between one hundred thirty-five ($135) dollars and two hundred ($200) dollars per note | ||
Labor Cost for management and accounting of the company shall be performed by Investor Loan Source and ILS Fixed Horizon MGMT CORP
|
Operational Stage |
At this time the Manager does not intend for the Company reimburse for these expenses until the Manager, in its sole and absolute discretion, determines that it is proven the Company can perform financially.
| ||
Office Lease, facilities and Supplies and computer software of the Company shall be provided by Investor Loan Source |
Operational Stage | At this time the Manager will not have the Company reimburse for this expense until the Manager, in its sole and absolute discretion, determines that the Company can perform financially. |
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Tax Preparation and Filing | Operational Stage |
At this time the Manager will not have the Company reimburse for this expense until the Manager, in its sole and absolute discretion, determines that the Company can perform financially.
As determined each year from an external third-party CPA Firm, which the Manager intends to engage to perform this service |
Note to Section
There are no front-end fees for the first year, outside of reimbursing the Manager for expenses, which are estimated to be $61,000 and of which the Manager has incurred approximately $61,000 presently, and does not expect them to raise significantly, and the 1% APR Management Fee, which is taken out of the Capital Contributions under the Company management at the beginning of each month – please refer to page. 19 of the Offering Circular for an example of how the fee is calculated. The Manager does not expect significant administrative expenses outside of the legal costs. However, should the Manager require reimbursement for administrative expenses, such as the purchase of office materials and document preparation, it anticipates these fees to be no greater than $15,000. Presently, the Company has spent approximately $61,000 in preparation for this Offering.
Assuming the maximum amount is raised and the target leverage is utilized, the estimated aggregate dollar amount of front-end fees to be paid during the first fiscal year would be approximately $61,000 ($41,000 in legal fees + $20,000 in administrative expenses). There are no formalized arrangements for these reimbursements, outside of the Engagement Agreement with the Law Firm, which is a standard hourly arrangement.
To determine if the Company can perform financially, the manager will use a combination of financial metrics and qualitative factors to assess the financial stability of the company and its ability to reimburse the manager for various fees and expenses. These assessments will be based on the company's financial statements, industry benchmarks, and other relevant information. Key aspects of the evaluation process include:
1. | Financial Ratios: The manager will analyze various financial ratios, such as liquidity ratios (current ratio, quick ratio), profitability ratios (gross profit margin, net profit margin, return on assets, return on equity), and solvency ratios (debt-to-equity ratio, interest coverage ratio) to assess the company's financial stability and its ability to cover the expenses and fees. Specifically, the Manager will utilize the “Liquidity Crunch” formula provided on page 3 of this Offering Circular to determine if the Company can make Debt Payments to Investors. |
2. | Cash Flow Analysis: The manager will review the company's cash flow statements to evaluate its ability to generate positive cash flow from operations, which is crucial for covering ongoing expenses and fees. The analysis will include an assessment of the company's cash conversion cycle, operating cash flow margin, and free cash flow. |
3. | Budgets and Projections: The manager will examine the company's budgets and financial projections, comparing them with actual results to determine if the company is on track to achieve its financial targets. This analysis will help the manager identify any potential issues or areas of improvement that may impact the company's ability to cover fees and expenses. |
4. | Industry Benchmarks: The manager will compare the company's financial performance with industry benchmarks to evaluate its relative financial stability within the market. This comparison will provide insight into the company's competitive position and its ability to cover fees and expenses. |
5. | Management's Track Record: The manager will consider the track record of the company's management team in managing the financial performance of the company or similar businesses. |
Based on this comprehensive evaluation, the manager will determine if the company is financially stable and able to reimburse the manager for the various fees and expenses, such as organizational & offering expenses, reimbursement of advisor operating expenses, and labor costs for management and accounting. The manager will exercise its sole and absolute discretion in deciding the timing and amount of reimbursements, ensuring that such decisions align with the company's financial performance and long-term growth objectives.
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Conflicts of Interest
There are conflicts of interest between and among the Company, the Manager, and other Company Affiliates. All of the agreements and arrangements between Company Affiliates and the Company, including those related to compensation, are not the result of arm’s-length negotiations. The Company will try to balance the interests of Company Affiliates with the interests of the Company. However, to the extent that the Company takes actions that are more favorable to Company Affiliates than the Company, these actions could have a negative impact on the Company’s financial performance and, consequently, on the Debt Payments to holders of Units and the value of those securities. The Company has not adopted, and does not intend to adopt in the future, either a conflicts of interest policy or a conflicts resolution policy.
The Company relies on key real estate professionals, including Donald Sutton and Tom Berry (collectively “Management”), for the day-to-day operation of its business. As a result of their interests in other Company Affiliates, their obligations to other investors, and the fact that they engage in and will continue to engage in other business activities on behalf of themselves and others, Management will face conflicts of interest in allocating their time among us, and other Company Affiliates, and other business activities in which they are involved. However, the Company believes that the aforementioned individuals along with their respective affiliates have sufficient real estate professionals to fully discharge their responsibilities to the Company.
There are no other material relationships or related party transactions.
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DEBT UNIT HOLDERS’ RIGHTS UNDER THE COMPANY
Class A, B, and C Non-Voting $1,000 Par Value Units
The Units being offered pursuant to this Offering Circular are Units representing non-voting interests in the Company. Purchasers of the Units (“Debt Unit Holders”) have no rights to direct or vote on any matter concerning the Company or the management of the Company, including whether or not the Company should dissolve.
Debt Unit Holders have the right to receive Debt Payments as set forth in this Offering Circular, as amended from time to time. Additionally, the distinguishing characteristics of the Units are as follows:
Class
|
Interest |
Interest Rate/Lock-up |
Withdrawal Period |
Min. |
Class A1
|
monthly | 5% Interest Payment for 1 year, per annum | May withdraw 60 days after Initial Capital Contribution Received by Company | $25,000 |
Class A2
|
monthly | 6% Interest Payment for 1 year, per annum | May withdraw 60 days after Initial Capital Contribution Received by Company | $500,000 |
Class B1
|
monthly | 6% Interest Payment for 3 years, per annum | May withdraw 180 days after Initial Capital Contribution Received by Company | $25,000 |
Class B2
|
monthly | 7% Interest Payment for 3 years, per annum | May withdraw 180 days after Initial Capital Contribution Received by Company | $500,000 |
Class C1
|
monthly | 7% Interest Payment for 5 years, per annum | May withdraw 365 days after Initial Capital Contribution Received by Company | $25,000 |
Class C2
|
monthly | 8% Interest Payment for 5 years, per annum | May withdraw 365 days after Initial Capital Contribution Received by Company | $500,000 |
Note to Table - Debt Unit investors should be aware that they may not be able to withdraw their debt units from the Company, and they may not be able to liquidate their debt unit interests. Debt investors may have to hold the debt units for an indefinite period of time or have the debt units sold for less than their initial contribution. There are no assurances that debt investors can withdraw funds at the specified time frames of 60 days, 180 days, or 365 days after the initial capital contribution is received by the Company if the Manager determines that the Company is undergoing a Liquidity Crunch, as defined by the mathematical formula on the following page . The 1, 3, and 5 year periods mentioned in the Offering refer to the length of time that the Manager will pay the Interest Payments to Investors, should they decide to keep their funds in the Offering. It is a lock-in period on the payment received, not on their Capital Contributions, which may be withdrawn at 60, 180, or 365 days, depending on the Class of Units purchased.
Additionally, each of these withdrawal periods are subject to the Debt Investor submitting a written request for Withdrawal of Capital to the Manager. Upon the Manager receiving the Letter, the Manager then has 60 days to process the Capital Withdrawal under the terms of this Offering Circular. For example, this means that a Class A1 Investor may request a Capital Withdrawal 60 days after they make their Initial Capital Contribution, and then 60 days thereafter shall receive it. The 60-day period provides the Manager with time to ensure that the Company can adequately provide the Capital Withdrawals as requested by Debt Investors.
Liquidation
In the event of the Company liquidating its assets, the priority of distributions (“Liquidation Distributions”) shall be performed in the following manner:
1. | First, to creditors of the Company, including holders of Debt Units who may be creditors, to the extent otherwise permitted by law, in satisfaction of all debts, liabilities, obligations and expenses of the Company, including, without limitation, the expenses incurred in connection with the liquidation of the Company; then |
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2. | Second, to the holders of Debt Units to the extent of and in proportion to their invested capital until the aggregate amount paid to such holders of Debt Units is sufficient to provide for a complete return of such holder of Debt Units’ invested capital; then |
3. | Third, to the holders of Debt Units to the extent of and in proportion to their respective unpaid Interest Payments until such Debt Unit holder’s unpaid Interest Payment has been paid in full; and |
4. | Fourth, to the Manager. |
The Governing State
This Company shall be governed by and construed in accordance with the laws of the state of Texas. “Debt Unit Holder” means a person who has been admitted as a Debt Unit Holder of the Company and has no ownership interest in the Company.
Management, Voting and Governance
Except as otherwise provided in the Governing Documents, Company Management will conduct, direct and exercise full control over all major activities of the Company, including all decisions relating to the issuance of Units. The Company will have six classes of Units, Class A1 Non-Voting Units, Class A2 Non-Voting Units, Class B1 Non-Voting Units, Class B2 Non-Voting Units, Class C1 Non-Voting Units, and Class C2 Non-Voting Units with $1,000.00 par value per Unit (“Units”).
ILS Legacy Holdings LLC (“Common Member”) will be the only Common Member. All other investors will be Debt Unit Holders and will have no voting rights. Unless otherwise specifically provided in the Company’s Operating Agreement, no action may be taken or authorized on the part of the Debt Unit Holders without the approval of the Manager. Management will have the sole power and authority to bind or take any action on behalf of the Company, or to exercise any rights and powers granted to the Company any agreement, instrument, or other document to which the Company is a party. Except as otherwise required by law, the Debt Unit Holders will have no voting rights or governance rights.
The approval of the Manager is required in connection with:
(a) | The admission of an additional Common Member; |
(b) | The initiation of a proceeding for the bankruptcy of the Company; |
(c) | The approval of a merger, conversion or the application of any statute (the application of which is elective) to the Company; |
(d) | The determination of the amount of, and the making of, the transfer of any Company Property to any person or entity; |
(e) | The institution, prosecution, and defense of any Proceeding in the Company's name; |
(f) | The investment and reinvestment of the Company's funds, and receipt and holding of Company Property as security for repayment; |
(g) | The sale, exchange, transfer, Distribution, or other Disposition of all, or substantially all, of the Company Loans; and |
(h) | The redemption of all or any portion of the Debt Unit Holders’ Units. |
Management is authorized under the Governing Documents to oversee and make decisions regarding:
(a) | The conduct of the Company's business, the establishment of Company offices, and the exercise of the powers of the Company within or without Texas; |
(b) | The appointment of employees and agents of the Company, the defining of their duties, and the establishment of their annual compensation; |
(c) | The payment of compensation, or additional compensation to a Debt Unit Holder and employees on account of services previously rendered to the Company, whether or not an agreement to pay such compensation was made before such services were rendered; |
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(d) | The purchase of liability and other insurance to protect the Company's Property and business and the purchase of insurance on the life of any of the Debt Unit Holders or employees for the benefit of the Company; |
(e) | The employment of accountants, legal counsel, managing agents, or other experts to perform services for the Company and to compensate them from Company funds; and |
(f) | The doing and performing of all other acts as may be necessary or appropriate to carry out the Company's day to day business. |
(g) | The negotiation and execution of contracts, partnerships, and joint venture relationships with other parties in order to facilitate the successful acquisition, construction, development, and operation of Company Loans; and |
(h) | Negotiate and receive advances that are required to address economic or financial shortfalls on behalf of the Company and its affiliates, including without limitation advances from the Asset Manager or its Affiliates (“Affiliate Advances”). In the event of Affiliate Advances, any such Affiliate Advances shall be reimbursed to the advancing party by the Company, or its affiliate with accrued interest at a monthly rate of five (5.0%) percent, or the nominal rate, whichever is higher, on such advances prior to any return of any Debt Unit Holders capital. |
As ILS Fixed Horizon MGMT CORP (the “Manager”) will exercise complete control over the Company, it will have the ability to make decisions regarding, (i) making changes to the Company’s Operating Agreement per the Operating Agreement powers given to it, except that under the Operating Agreement the Manager may not change the terms of the Debt Payments due to Investors as outlined in this Offering Circular, per section 4.7 of the Operating Agreement (ii) employment decisions, including compensation arrangements; and (iii) the decision to enter into material transactions with related parties.
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Standard of Care of the Manager
The Manager’s duty of care in the discharge of its duties to the Company is limited to refraining from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law. In discharging its’ duties, the Manager shall be fully protected in relying in good faith upon the records required to be maintained by the Company and upon such information, opinions, reports, or statements by any of its agents, or by any other Person, as to matters the Manager 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 information, opinions, reports, or statements as to the value and amount of the assets, liabilities, profits, or losses of the Company or any other facts pertinent to the existence and amount of assets from which Debt Payments to the Debt Unit Holders, including Manager might properly be paid.
Books, Records and Accounting
During the Term of the Governing Documents and for one (1) year thereafter, the Company shall maintain proper records and books of account prepared using consistent accounting principles relating to the computation of payments owed and costs charged to the Company. The Company, for accounting and income tax purposes, shall operate on a Fiscal Year ending December 31 of each year, and shall make such income tax elections and use such methods of depreciation as shall be determined by the Company. The books and records of the Company shall be maintained at the principal place of business of the Company. The Company shall make the Company books and records available for inspection and copying by any Member at reasonable times during normal business hours upon at least ten (10) days prior notice, and without cost to the requesting Member. As a Company engaged in a Tier 2 Regulation A Offering, the Manager affirms that it will provide unaudited financial reports every six (6) months and audited financials once every (12) months, per SEC Regulation A reporting guidelines, once the Offering is qualified by the SEC. Any other released financial reports or information regarding past performance of Company Affiliates are provided solely in the discretion of the Manager, and are meant to aid prospective Investors in making their investment decision.
Conflicts of Interest
The Management Corporation are comprised of individuals who are also principals of the Company and other affiliated entities. One or more principals of the Management Corporation will also operate as the principal decisionmakers of how the Company will issue Loans and be responsible for the due diligence process required for such loans. One or more principals of the Management Corporation will also operate as advisors to the Company and will receive fees for their services. One or more principals of the Management Corporation may provide additional or subsequent private Offerings or terms of offer different than herein for the construction, development and/or operation of Company Properties. In addition, one or more principals or affiliates of the Management Corporation own the Trademarks and other Intellectual Property associated with Investor Loan Source (“ILS”) and have licensed the Intellectual Property to the Projects associated with the Company.
The Company Affiliates do not violate a duty or obligation to the Company merely because their conduct furthers their own interest. The Company Affiliates may lend money to and transact other business with the Company. The rights and obligations of the Company Affiliates who lends money to or transacts business with the Company are the same as those of an arm’s length Person, subject to other applicable law. No transaction with the Company shall be voidable solely because the Company Affiliates have a direct or indirect interest in the transaction if either the transaction is fair to the Company. Moreover, all documents and legal work associated with the creation of the entities associated herewith, including the Company and Company Affiliates, have been provided by the law firm of Pino Law Group PLLC (“PLG”). The Debt Unit Holders, and Company Affiliates intentionally waive any and all objections to PLG continuing to represent the Company regardless of any potential conflict of interest considerations.
Debt Payments (Interest Payments)
No Debt Payments to holders of Units are assured, nor are any returns on, or of, a purchaser’s investment guaranteed. Debt Payments are subject to the Company’s ability to generate positive cash flow from operations. All Debt Payments are further subject to the discretion of the Manager. It is possible that the Company may have cash available for Debt Payments, but the Manager could determine that the reservation, and not distribution, of such cash by the Company would be in its best interest.
The priority of Debt Payments shall be as follows:
1. | Company Asset Expenses |
2. | Company Operating Expenses |
3. | Accrued Investor Interest (“Debt Payments” to Debt Unit Holders) |
4. | Return of Investor Capital Contribution |
5. | Distributions paid to ILS Legacy Holdings LLC (the “Common Member”) |
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Exculpation and Indemnification of the Common Member and Company Affiliates
Neither the Common Member nor Company Affiliates shall be liable for the liabilities of the Company to third parties. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Act shall not be grounds for imposing personal liability on the Common Member or Company Affiliates for liabilities of the Company.
The Company shall indemnify the Common Member or Company Affiliates for all costs, losses, liabilities, and damages paid or accrued by the Common Member or Company Affiliates (either as Common Member or agent) or because it is a Common Member or Company Affiliate, to the fullest extent provided or allowed by the laws of the State of Texas. To the extent the Company is required to indemnify the Common Member or Company Affiliates, as set forth herein, the Common Member, or Company Affiliates shall cause the Company to advance costs of participation in any Proceeding to the Common Member, or Company Affiliates. The Common Member or Company Affiliates may, based on its sole discretion, indemnify all other employees and agents of the Company for all costs, losses, liabilities, and damages paid or accrued by the agent or employee in connection with the business of the Company or because such Person is an agent or employee, to the fullest extent provided or allowed by the laws of the State of Texas.
Additional Rights and Obligations Considerations
There are no conversion, pre-emptive, sinking fund, or liability for further call rights or obligations associated with the Units.
Amendment
The Governing Documents may not be amended except with the consent of the Common Member.
Dissolution
The Common Member must consent to dissolve the Company, which it may elect to do at any time without the consent of the Debt Unit Holders. Upon dissolution of the Company, Management will wind up the Company’s affairs and make all liquidating Debt Payments in accordance with the Company’s Operating Agreement.
Mandatory Binding Arbitration
The Company’s Operating Agreement and Subscription Agreement, all provide mandatory binding arbitration provisions that, unlike in judicial proceedings, are subject to determination by an arbitrator, not a judge, who is not necessarily governed by the same standards. In light of that, there is a risk that an arbitrator will not view the contract or the law in the same way a judge would and may grant a remedy or award relief that the arbitrator deems just and equitable and within the scope of the agreement of the parties or based on simple notions of equity, rather than the facts or the relevant law. Furthermore, there is a risk that an arbitrator may interpret the relevant agreements or facts without regard to legal precedent. That risk is exacerbated by the fact that it is more difficult to overturn or vacate an arbitration award, because the law supports confirmation of an arbitration decision which is not otherwise arbitrary or capricious; therefore, Investors should consider the difficulty of reversing an arbitration award, once made.
The Company believes that binding arbitration is legally enforceable based on case law provisions as applicable to claims in connection with this Offering (including secondary transactions whereunder Units are resold by initial Investors, and subsequent, secondary Investors are governed by the Company’s Operating Agreement) under federal law, state law, and U.S. federal securities laws. The legal enforceability based on case law as upheld by U.S. Supreme Court rulings, which, for the Commission’s reference, include but are not limited to the following: Arthur Andersen LLP v. Carlisle, 556 U.S. 624 (2009); Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 (1991); Rodriguez de Quijas v. Shearson/American Express, Inc., 490 U.S. 477 (1989); Shearson/American Express v. McMahon, 482 U.S. 220 (1987); and Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213 (1985).
As a result of this mandatory binding arbitration provision, Investors may incur increased costs to bring a claim, have limited access to information, and these provisions can discourage claims or limit Investors’ ability to bring a claim in a judicial forum that they find favorable, In the event of arbitration these clauses would limit the legal remedies available to holders of Units to arbitration for any claims they may have, however by agreeing to be subject to these arbitration provisions, Investors will not be deemed to waive the company’s compliance with the federal securities laws and the rules and regulations promulgated thereunder. Notwithstanding case law supporting the enforceability of arbitration, there does appear to be a split of authority suggesting that arbitration provisions are not always enforceable under federal and state law. Nonetheless, to the extent any arbitration provisions are ruled unenforceable, the Company would abide by such ruling.
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For additional information, the Company here presents language from the Company’s Operating Agreement, as seen in Section 15.14 of the Company Operating Agreement, as it relates to Arbitration. This provision applies to all Subscribers in this Offering. The Subscription Agreement indicates that acceptance by the Company of the Subscription Agreement causes the Member (aka, Debt Holder) to become a Member of the Company in accordance with and bound by the Company’s Operating Agreement.
“This Agreement shall be governed by and construed in accordance with the laws of the state of Texas. In the event of a dispute regarding this Agreement or the respective rights of the Parties hereunder, the Parties agree to submit such dispute exclusively to binding arbitration under Judicial Arbitration and Mediation Services (“JAMS”) or the American Arbitration Association (“AAA”), at the discretion of the Party filing such demand for arbitration, in Wharton, Texas before a single professional arbitrator selected by the Parties or, if the Parties cannot agree on an arbitrator, appointed by JAMS or AAA, as relevant. Any such arbitration shall be commenced within fifteen (15) days of selection of the arbitrator and the discovery rules contained in the Texas Rules of Civil Procedure shall apply to all such proceedings in the event the arbitrator does not set out alternative discovery rules. In the event that the Parties are required to take any action to enforce any provision of this Agreement, or litigation results from or arises out of this Agreement or the performance thereof, the Parties agree the arbitrator shall order all remedies permitted by law, including award attorney's fees and costs to the prevailing party, and require that the entire proceeding, including the existence of the proceeding, be held confidential by the Parties, and shall not be disclosed by any Party. Any and all orders issued by the arbitrator shall be enforced by a state court of competent jurisdiction located in Wharton, Wharton County, Texas.”
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FEDERAL INCOME TAX CONSEQUENCES OF AN INVESTMENT IN THE COMPANY
The following is a discussion of U.S. federal income tax considerations relevant to an investment in Units of the Company. This discussion does not address all U.S. tax considerations that may be relevant to an investment in Units, and it does not cover every aspect of U.S. federal income taxation that may be relevant to a particular taxpayer in light of their particular circumstances or to Investors having a special legal status (such as tax-exempt Investors, dealers in securities, banks, thrifts, trusts, insurance companies, corporations that may be treated as personal holding companies under the Internal Revenue Code of 1986, as amended (the “Code”), or persons who acquire interests in the Company in connection with the performance of services), or to Investors holding their interest in the Company other than as a capital asset. In addition, except as expressly indicated below, the discussion does not address state or local income tax considerations, nor does it address taxes other than income taxes. The following discussion also does not address tax considerations that may be relevant under the laws of jurisdictions other than the United States.
IN VIEW OF THE SUMMARY NATURE OF THIS DISCUSSION, EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT THEIR OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO SUCH PROSPECTIVE INVESTOR OF AN INVESTMENT IN UNITS OF THE COMPANY.
The following discussion of U.S. federal income tax considerations relevant to an investment in the Company is based on the Code and other currently applicable legal authorities such as the regulations promulgated under the Code (the “Treasury Regulations”), administrative rulings and judicial decisions. The Code and other legal authorities are subject to change at any time, possibly on a retroactive basis, by legislative, judicial or administrative action. No rulings have been or are expected to be requested from the U.S. Internal Revenue Service (the “IRS”) or any other tax authority as to any matter, and no assurance can be provided that any such authorities will not successfully assert a position contrary to one or more of the legal conclusions discussed herein.
This discussion assumes each investor (a “Debt Unit Holder”) is a “U.S. Holder.” A “U.S. Holder” is an individual or entity that is, for purposes of the Code: (i) a citizen or resident of the United States; (ii) a corporation or other entity taxable as a corporation created or organized under the laws of the United States or any political subdivision of the United States; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; (iv) a trust (1) the administration of which is subject to primary supervision by a court within the United States and as to which one or more U.S. persons have the authority to control all substantial decisions, or (2) which was in existence on August 20, 1996, and has properly elected to be treated as a “United States person” for federal income tax purposes; or (v) otherwise subject to U.S. federal income tax on a net income basis with respect to its income from The Company. No discussion is provided herein concerning the eligibility requirements applicable to a Member that is not a U.S. Holder.
If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is the beneficial owner of an interest in Units, the U.S. federal income tax treatment of a partner in the partnership (or owner of such entity) will generally depend on the status of the partner (or other owner) and the activities of the partnership (or entity). Investors that are treated as partnerships for U.S. federal income tax purposes and their owners should each consult their own tax advisors about potential U.S. federal income tax consequences of an investment in The Company.
General Matters Relevant to Investment in the Company
Taxation of Debt Unit Holders and Debt Unit Holders
Taxation of Proceeds and Debt Payments in General. Debt Unit Holders are required to declare all proceeds received in connection with Debt Payments or proceeds from sale of their Units. The recognition of such receipts as income or capital gain will depend on multiple factors including without limitation the Debt Unit Holders’ basis for tax purposes and whether Debt Payments qualify as ordinary or qualified under IRS guidelines. The rules governing basis adjustments and the taxation of proceeds and Debt Payments are complex, and Investors are urged to consult with their own U.S. tax advisors concerning these rules
Property Held Primarily for Sale. If the Company is deemed for tax purposes to be a “dealer” in real property, defined as one who holds real estate primarily for sale to customers in the ordinary course of business, any gain recognized upon a sale of such real property (commonly referred to as “Dealer Property”) will be taxable as ordinary income, rather than as capital gain, and will constitute “unrelated business taxable income” (“UBTI”). Furthermore, all of such property would be treated as “inventory items”. Under existing law, whether property is held primarily for sale to customers in the ordinary course of business must be determined from all the facts and circumstances surrounding the particular property and sale in question. Accordingly, it is possible that the Company could be deemed to be a dealer in real estate, and that the Company’s share of profits from its disposition of real property would therefore be considered ordinary income, even though the Company’s primary area of operations is in the real estate private lending sector.
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Liquidation. Upon the dissolution and liquidation of the Company, the Company will pay its debts and liabilities, and the Debt Unit Holders will be entitled to receive Debt Payments as provided in the Governing Documents. The Company’s sale of its assets and the liquidation will generally be recognition events for U.S. federal income tax purposes. If a Debt Unit Holder recognizes gain upon the liquidation of their Units, the gain may consist of both ordinary income and capital gain components. If a Debt Unit Holder realizes a loss upon the liquidation of the Company, the Debt Unit Holder will be entitled to recognize such loss for tax purposes only if the Company’s liquidating distribution consists solely of cash, or of cash and “unrealized receivables” (as defined in the Code).
Tax Information and Tax Audits. The Company will file a U.S. federal tax return reporting its annual operations and will provide each Debt Unit Holder with the information for Debt Payments or redemptions of Units by the Company needed to file their U.S. federal income tax return. However, the Company may not be able to provide U.S. tax information to its Debt Unit Holders in time to prevent such Debt Unit Holders from having to obtain extensions of the filing dates of applicable tax returns. The Company is not obligated to provide tax information to persons who are not Debt Unit Holders of record. The Code imposes certain penalties in the event of failure to make various filings in a timely manner and in the event of various understatements of income tax. The Company intends to comply fully with all applicable filing and reporting requirements.
FATCA
The Foreign Account Tax Compliance Act (“FATCA”) generally imposes a withholding tax of 30% on “withholdable payments” made to a “foreign financial institution” unless the foreign financial institution enters into an agreement with the IRS to collect and provide to the IRS on an annual basis substantial information regarding its U.S. account holders or an exception applies. If a foreign financial institution enters into such an agreement but is unable to obtain the relevant information from its direct and indirect account holders or owners on an annual basis, the foreign financial institution will be required to withhold 30% of any withholdable payment allocable to such account holders, and there is a risk that the IRS may determine that the foreign financial institution is not in compliance with its agreement, resulting in the foreign financial institution becoming subject to the 30% withholding tax on all of the withholdable payments made to it. The term “withholdable payment” includes any payment of (i) interest or Debt Payments, (ii) the gross proceeds of a disposition of debt instruments, and (iii) “foreign pass-thru payments,” in each case with respect to any U.S. investment. It is not yet clear whether and to what extent the gross proceeds from the disposition of an interest in a partnership or limited liability company will be treated as a withholdable payment. The legislation also generally imposes a withholding tax of 30% on withholdable payments made to a non-U.S. entity that is not a foreign financial institution unless such entity provides the withholding agent with a certification identifying the substantial U.S. owners of the entity, which are generally defined as any U.S. persons who directly or indirectly own more than 10% of the entity, or unless an exception applies. Withholding on gross proceeds and “foreign pass-thru payments” will not apply until after December 31, 2018. A generally will be required to withhold 30% of withholdable payments received thereby that are distributable to any Debt Unit Holder thereof that is a foreign financial institution or other non-U.S. entity unless such investor complies with the applicable requirements discussed above. Accordingly, the Investors may be required to provide certain information to the Company in order to avoid the imposition of the 30% withholding tax on any withholdable payments made by the Company.
The foregoing is only a general summary of certain provisions of FATCA. Prospective Investors are urged to consult with their own tax advisers regarding the application of FATCA to their investment in the Company.
Reportable Transactions Regulations. Regulations impose special reporting rules for “reportable transactions.” A reportable transaction includes, among other things: (i) a transaction in which an advisor limits the disclosure of the tax treatment or tax structure of the transaction and receives a fee in excess of certain thresholds, and (ii) a “transaction of interest” that the IRS believes has a potential for tax avoidance or evasion, but for which the IRS lack enough information to determine whether the transaction should be identified specifically as a tax avoidance transaction. The Company intends to take the position that no investment in the Company constitutes a reportable transaction, that the Company does not engage in transactions which themselves constitute reportable transactions, and that neither the Company nor any of its respective Debt Unit Holders are participants in a transaction of interest by virtue of their investment in the Company. If any of these transactions were determined to constitute a reportable transaction, then the Company, or each Debt Unit Holder may be required to complete and file IRS Form 8886 with their respective tax returns for the applicable tax year. The Company reserves the right to disclose certain information about the Company’s Debt Unit Holders on Form 8886, including the Debt Unit Holders’ capital commitments, tax identification numbers (if any), and dates of admission to the Company, to facilitate compliance with the reportable transaction rules if necessary. Certain legislation imposes substantial excise taxes and additional reporting requirements and penalties on certain tax-exempt Investors (and, in some cases, the managers of tax-exempt Investors), that are, directly or in some cases indirectly, parties to certain types of reportable transactions. In addition, certain states have similar reporting requirements and may impose penalties for failure to report. Debt Unit Holders should consult their tax advisors for advice concerning compliance with the reportable transaction regulations.
EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS OWN TAX ADVISORS WITH RESPECT TO THE LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO SUCH INVESTOR OF THE PURCHASE AND OWNERSHIP OF AN INTEREST IN THE COMPANY.
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The validity of the issuance of the Units offered by this Offering Circular has been passed upon as of December 19, 2023 by Pino Law Group PLLC.
The Audited Financial Statements of the Company as of December 31, 2022 have been included in this Offering in reliance upon the report of Grennan Fender, and independent registered public accounting firm, and upon the authority of said firm as experts in accounting and auditing. The Company has had no operations since its inception, because it will only begin its operational stage upon qualification by the SEC, and thus no changes have occurred within its already-submitted financial statements.
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The Company has filed with the SEC an Offering statement under the Securities Act on Form 1-A regarding this Offering. This Offering circular, which is part of the Offering statement, does not contain all the information set forth in the Offering statement and the exhibits related thereto filed with the SEC, reference to which is hereby made. Upon the qualification of the Offering statement, The Company will be subject to the informational reporting requirements of the Securities Act that are applicable to Tier 2 companies whose securities are registered pursuant to Regulation A, and accordingly, The Company will file annual reports, semi-annual reports and other information with the SEC. You may read and copy the Offering statement, the related exhibits and the reports and other information The Company files with the SEC at the SEC’s public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, DC 20549. You can also request copies of those documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information regarding the operation of the public reference rooms. The SEC also maintains a website at www.sec.gov that contains reports, information statements and other information regarding issuers that file with the SEC.
You may also request a copy of these filings at no cost, by writing, emailing or telephoning The Company at:
ILS Fixed Horizon LLC
210 Market Street
El Campo, TX 77437
Telephone: 979-541-1270
Attention: Donald Sutton
email: invest@ils.cash
The Company will file (i) an annual report with the SEC on Form 1-K, (ii) a semi-annual report with the SEC on Form 1-SA, (iii) current reports with the SEC on Form 1-U, and (iv) a notice under cover of Form 1-Z. The necessity to file current reports will be triggered by certain corporate events. Parts I and II of Form 1-Z will be filed by the Company if and when it decides to and is no longer obligated to file and provide annual reports pursuant to the requirements of Regulation A. The Company’s annual report will contain audited financial statements and certain other financial and narrative information that the Company is required to provide to holders of Units.
Company affiliate Loan Source LLC (D/B/A Investor Loan Source (ILS)) maintains a website at www.ils.cash, where there may be additional information about the Company’s business, but the contents of that site are not incorporated by reference in or otherwise a part of this Offering circular.
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PART III—EXHIBITS AND SIGNATURES
EXHIBITS
Index to Exhibits
Exhibit Number |
Description |
1A-1 | |
1A-2A** | ILS FIXED HORIZON LLC CERTIFICATE OF ORGANIZATION |
1A-2B* | ILS FIXED HORIZON LLC AMENDED OPERATING AGREEMENT |
1A-3 | |
1A-4* | ILS FIXED HORIZON LLC AMENDED SUBSRIPTION AGREEMENT |
1A-5 | |
1A-6.1* | ILS FIXED HORIZON LLC MASTER LOAN AGREEMENT |
1A-6.2* | ILS FIXED HORIZON LLC TRANSACTIONAL PACKAGE EXAMPLE |
1A-7 | |
1A-8 | |
1A-9 | |
1A-10 | |
1A-11** | CONSENT OF INDEPENDENT AUDITOR |
1A-12* | AMENDED LEGAL OPINION LETTER |
1A-13 | |
1A-14** | APPOINTMENT FOR AGENT OF SERVICE OF PROCESS |
1A-15.1* | CF INDUSTRY GUIDE 5 TABLES |
1A-15.2* | ILS FIXED HORIZON LLC DIAGRAM OF BUSINESS OPERATIONS |
* Filed herewith.
** Previously filed.
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Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Wharton, State of Texas, on the 19th day of December, 2023.
ILS Fixed Horizon LLC
This offering statement has been signed by the following persons in the capacities and on the dates indicated.
By: /s/ Donald Sutton
Title: President, ILS Fixed Horizon MGMT CORP, Manager, ILS Fixed Horizon LLC
Date: 12/19/2023
By: /s/ Tom Berry
Title: Chief Executive Officer, ILS Fixed Horizon LLC, Manager ILS Fixed Horizon MGMT CORP
Date: 12/19/2023
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ILS FIXED HORIZON LLC
Audited Financial Statements
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EXHIBIT A
AUDITED FINANCIAL STATEMENTS REPORT (CURRENT COMPANY STATUS)
F-1 |
ILS FIXED HORIZON, LLC
Financial Statements
and
Independent Auditor’s Report
For the period from inception
(April 5, 2022) to December 31, 2022
F-2 |
ILS FIXED HORIZON, LLC
Table of Contents
Page | |
Independent Auditor’s Report | F-4 |
Financial Statements: | |
Balance Sheet | F-6 |
Statement of Operations and Changes in Equity | F-7 |
Statement of Cash Flows | F-8 |
Notes to Financial Statements | F-9 |
F-3 |
INDEPENDENT AUDITOR’S REPORT
To the Stockholders
ILS Fixed Horizon, LLC
Opinion
We have audited the accompanying financial statements of ILS Fixed Horizon, LLC (a Texas limited liability company), which comprise the balance sheet as of December 31, 2022, and the related statements of income, and cash flows for the period from inception (April 5, 2022) to December 31, 2022 and the related notes to the financial statements.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ILS Fixed Horizon, LLC as of December 31, 2022, and the results of its operations and its cash flows for the period from inception to December 31, 2022, in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of ILS Fixed Horizon, LLC and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about ILS Fixed Horizon, LLC’s ability to continue as a going concern within one year after the date that the financial statements are available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
Grennan Fender, LLP
1000 Legion Place, Suite 701, Orlando FL 32801 | 407.896.4931 office | 4078942049 fax
1692 W. Hibiscus Blvd, Melbourne. FL 32901 I 321 123.3352 office l 321.722.4460 fax
GrennanFender.com
F-4 |
In performing an audit in accordance with generally accepted auditing standards, we:
• Exercise professional judgment and maintain professional skepticism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ILS Fixed Horizon, LLC’s internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about ILS Fixed Horizon, LLC’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
Orlando, Florida January 27, 2023
F-5 |
ILS FIXED HORIZON, LLC
BALANCE SHEET
DECEMBER 31, 2022
ASSETS | ||||
CURRENT ASSETS: | ||||
Cash | $ | 5,000 | ||
TOTAL ASSETS | $ | 5,000 | ||
LIABILITIES AND EQUITY | ||||
CURRENT LIABILITIES: | ||||
Notes payable | $ | - | ||
TOTAL LIABILITIES | - | |||
EQUITY | 5,000 | |||
TOTAL EQUITY | 5,000 | |||
TOTAL LIABILITIES AND EQUITY | $ | 5,000 |
See accompanying notes to financial statements.
F-6 |
ILS FIXED HORIZON, LLC
STATEMENT OF OPERATIONS AND CHANGES IN
EQUITY FROM INCEPTION (APRIL 5, 2022) TO DECEMBER 31, 2022
REVENUE: | ||||
Revenues | $ | - | ||
TOTAL REVENUE | - | |||
OPERATING EXPENSES: | ||||
Expenses | - | |||
TOTAL OPERATING EXPENSES | - | |||
NET INCOME | $ | - | ||
EQUITY, APRIL 5, 2022 (INCEPTION) | $ | - | ||
Purchase of common stock | - | |||
EQUITY, DECEMBER 31, 2022 | $ | - |
See accompanying notes to financial statements.
F-7 |
ILS FIXED HORIZON, LLC
STATEMENT OF CASH FLOWS
FROM INCEPTION (APRIL 5, 2022) TO DECEMBER 31, 2022
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||
Net income | $ | - | ||
NET CASH PROVIDED BY OPERATING ACTIVITIES | - | |||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||
Proceeds from capital contributions | 5,000 | |||
NET CASH PROVIDED BY FINANCING ACTIVITIES | 5,000 | |||
NET INCREASE IN CASH | 5,000 | |||
CASH, INCEPTION (APRIL 5, 2022) | - | |||
CASH, DECEMBER 31, 2022 | $ | 5,000 |
See accompanying notes to financial statements.
F-8 |
ILS FIXED HORIZON, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 1 – DESCRIPTION OF BUSINESS
ILS Fixed Horizon, LLC (the “Company”) was organized as a Texas limited liability company on April 5, 2022. The Company was formed for the purpose of raising capital to engage in the business of investing in all forms of real estate, primarily by providing financing to affiliated and unaffiliated Borrowers (“Investment Activities”).
The Company intends to provide financing to various borrowers, which typically operate in real estate investment. Borrowers may obtain financing for purposes of fix and flip investments, buy-and-hold investments, “wrap-around” loans, commercial loans, or hard money/bridge loans. The Company primarily intends to purchase notes from an Affiliate, which will originate the notes. The Company anticipates the majority of its Investment Activities will be providing the financing described herein, although the Company can provide additional types of financing to Borrowers at its discretion.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accounting policies of the Company conform to accounting principles generally accepted in the United States of America.
Cash
The Company maintains its cash deposits at a bank. Cash deposits could, at times, exceed federally insured limits. As of December 31, 2022 there was no uninsured balance.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, if any, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Income Taxes
There are no open federal or state tax years under audit. Financial Accounting Standards Board issued ASC 740-10, Accounting for Uncertainty in Income Taxes, which prescribed a comprehensive model for how a company should measure, recognize, present, and disclose in its financial statements uncertain tax positions that an organization has taken or expects to take. The Company adopted ASC 740-10 and has not taken any uncertain tax positions that require disclosure in the financial statements.
F-9 |
ILS FIXED HORIZON, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
FASB ASC 825, Financial Instruments, clarifies the definition of fair value for financial reporting, establishing a framework for measuring fair value, and requires additional disclosure about the use of fair value measurements in an effort to make the measurement of fair value more consistent and comparable. The carrying amount of cash approximates fair value due to the short maturity of this financial instruments.
NOTE 3 – EQUITY AND FUTURE EQUITY
The Company has established non-voting classes of debt units, each with $1,000 par value per Unit (“Units”) and seeks to raise $75,000,000 through the sale of 75,000 Units. Units will have the right to interest payments.
The Company currently has three authorized main share classes: Class A, Class B, and Class C Non-Voting Debt Units.
Class A Non-Voting Debt Units
Class A Units grant debt investors the option to earn interest at the following rate with a one (1) year capital commitment period (“Rate Lock Period”). Investors may request their capital contributions through a written request to the manager, and the manager will return the capital contribution to investors of Class A Units within sixty (60) days of receiving the written request. There are two types of debt units within Class A, known as Class A1 Units and Class A2 Units:
Class A1 Non-Voting Debt Units
Class A1 Units are paid five (5%) percent per annum. Class A1 Units are available to debt investors who make a minimum capital contribution of twenty- five thousand ($25,000) dollars.
Class A2 Non-Voting Debt Units
Class A2 Units are paid six (6%) percent per annum. Class A2 Units are available to debt investors who make a minimum capital contribution of five hundred thousand ($500,000) dollars.
F-10 |
ILS FIXED HORIZON, LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2022
NOTE 3 – EQUITY AND FUTURE EQUITY (Continued)
Class B Non-Voting Debt Units
Class B Units grant debt investors the option to earn interest at the following rate with a three (3) year capital commitment period (“Rate Lock Period”). Investors may request their capital contributions through a written request to the Manager, and the Manager will return the capital contribution to investors of Class B Units within one hundred and eighty (180) days of receiving the written request. There are two types of debt units within Class B, known as Class B1 Units and Class B2 Units:
Class B1 Non-Voting Debt Units
Class B1 Units are paid six (6%) percent per annum. Class B1 Units are available to debt investors who make a minimum capital contribution of twenty-five thousand ($25,000) dollars.
Class B2 Non-Voting Debt Units
Class B2 Units are paid seven (7%) percent per annum. Class B2 Units are available to debt investors who make a minimum capital contribution of five hundred thousand ($500,000) dollars.
Class C Non-Voting Debt Units
Class C Units grant debt investors the option to earn interest at the following rate with a five (5) year capital commitment period (“Rate Lock Period”). Investors may request their capital contributions through a written request to the Manager, and the Manager will return the capital contribution to investors of Class C Units within three hundred and sixty (360) days of receiving the written request. There are two types of debt units within Class C, known as Class C1 Units and Class C2 Units:
Class C1 Non-Voting Debt Units
Class C1 Units are paid seven (7%) percent per annum. Class C1 Units are available to debt investors who make a minimum capital contribution of twenty- five thousand ($25,000) dollars.
Class C2 Non-Voting Debt Units
Class C2 Units are paid eight (8%) percent per annum. Class C2 Units are available to debt investors who make a minimum capital contribution of five hundred thousand ($500,000) dollars.
NOTE 4 – SUBSEQUENT EVENT
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were available to be issued.
F-11
Exhibit 1A-2B
AMENDED OPERATING AGREEMENT
FOR
ILS FIXED HORIZON LLC
December 19, 2023
TABLE OF CONTENTS
ARTICLE 1 | FORMATION, OFFICES AND RECORDS | 3 |
ARTICLE 2 | DEFINITIONS | 4 |
ARTICLE 3 | CAPITAL CONTRIBUTIONS | 6 |
ARTICLE 4 | MANAGEMENT | 7 |
ARTICLE 5 | MEMBERSHIP INTERESTS; MEMBER MEETINGS | 9 |
ARTICLE 6 | MAINTENANCE OF BOOKS AND RECORDS, ALLOCATION OF PROFITS AND LOSSES | 10 |
ARTICLE 7 | OTHER TAX AND FINANCIAL MATTERS | 11 |
ARTICLE 8 | ADMISSION OF ADDITIONAL MEMBERS | 12 |
ARTICLE 9 | DISTRIBUTIONS | 12 |
ARTICLE 10 | TRANSFERS OF MEMBERSHIP INTERESTS | 13 |
ARTICLE 11 | RIGHT OF FIRST REFUSAL TO TRANSFER INTEREST | 14 |
ARTICLE 12 | BANKRUPTCY OR OTHER INVOLUNTARY TRANSFER | 14 |
ARTICLE 13 | DISSOLUTION AND WINDING UP | 16 |
ARTICLE 14 | ATTORNEY-IN-FACT AND AGENT | 17 |
ARTICLE 15 | MISCELLANEOUS | 17 |
EXHIBIT A | OWNERSHIP INTEREST | 20 |
2 |
ILS Fixed Horizons LLC
AMENDED OPERATING AGREEMENT
This Amended Operating Agreement (the “Agreement”) is effective as of the 19th day of December 2023, by and among each of the other persons whose names are set forth on Exhibit “A” attached hereto (the “Members”).
In consideration of the mutual covenants herein contained and for other good and valuable consideration, the Members and ILS Fixed Horizon LLC (the “Company”) hereby represent and agree as follows:
ARTICLE 1
FORMATION, OFFICES AND RECORDS
1.1 Formation. The Members have formed a manager-managed Texas limited liability company by executing and delivering the Articles of Organization to the Secretary of State of Texas in accordance with the Texas Limited Liability Company Act, and the rights and liabilities of the Members shall be as provided in such revised statutes except as may be modified in this Agreement. In the event of a conflict between the provisions of the Texas Limited Liability Company Act and the provisions of this Agreement, the provisions of this Agreement shall prevail unless the Texas Limited Liability Company Act specifically provides that the Agreement may not change the provision in question. The parties shall immediately, and from time-to-time hereafter, execute all documents and do all filing, recording, and other acts as may be required to comply with the operation of the Company under the Texas Limited Liability Company Act.
1.2 Name. The Name of the Company is ILS Fixed Horizon LLC.
1.3 Corporate Office. The corporate office (“Corporate Office”) of the Company shall be located at 210 Market Street, El Campo, TX 77437 or at such other place as the Company may determine from time to time.
1.4 Nature of Business. The business of the Company shall be an investment offering and to engage in any and all activities related or incidental thereto, wholly or partially, together with all activities necessary or appropriate to further said business. Notwithstanding the foregoing, the Company may engage in any lawful business activity in which a Texas limited liability company may engage.
1.5 Registered Office and Registered Agent. The location of the registered office and the name of the registered agent of the Company in the state of Texas shall be as stated in the Articles or as shall be determined from time to time by the Company.
1.6 Condition of Membership. No person may become a Member of the Company without first executing this Agreement.
1.7 Records. The Company shall maintain the following records at the Corporate Office:
(a) | The full names and addresses of the Members; |
(b) | A copy of the Articles and all amendments thereto, together with executed copies of any powers of attorney pursuant to which Articles have been executed; |
(c) | A copy of the Company’s federal, foreign, state, and local income tax returns and reports (or the portions of the returns of others showing the taxable income, deductions, gains, losses, and credits of the Company), if any, for the three (3) most recent years; |
3 |
(d) | A copy of this Agreement, including all amendments thereto; and |
(e) | If regularly prepared, any financial statements of the Company for the three (3) most recent years. |
ARTICLE 2
DEFINITIONS
For purposes of this Agreement, unless the context clearly indicates otherwise, the following terms shall have the following meanings:
2.1 “Additional Member” means any Person that is admitted to the Company as an additional member pursuant to Article 8 of this Agreement.
2.2 “Agreement” means this Amended Operating Agreement, as further amended from time to time.
2.3 “Articles” means the Articles of Organization of the Company as properly adopted and amended from time to time by the Members and filed with the Texas Secretary of State.
2.4 “Bankruptcy” means a Member who:
(a) | makes an assignment for the benefit of creditors; |
(b) | files a voluntary petition in bankruptcy; |
(c) | is adjudged a bankrupt or insolvent, or has entered against the Member an order for relief in any bankruptcy or insolvency proceeding; files a petition or answer seeking for herself or himself any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation, if the proceeding has not been dismissed within one hundred twenty (120) days after commencement; |
(d) | files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the member in any proceeding of this nature; or |
(e) | seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the Member or of all or any substantial part of the Member's properties, if within ninety (90) days after the appointment without the Member's consent or acquiescence of a trustee, receiver, or liquidator of the Member or of all or any substantial part of the Member's properties, the appointment is not vacated or stayed, or within ninety (90) days after the expiration of any such stay, the appointment is not vacated. |
2.5 “Capital Account” means the agreed value of the initial contributions increased by the agreed value of subsequent contributions to capital, if any, and reduced by distributions of capital, unless otherwise provided in the articles of organization or herein.
2.6 “Capital Contribution” means any contribution of funds, property, or services made by or on behalf of a Member as consideration for a Membership Interest.
2.7 “Cash Proceeds” means the amount of cash received from operations.
4 |
2.8 “Code” means the Internal Revenue Code of 1986, as amended, and any successor to that Code.
2.9 “Company” means ILS Fixed Horizon LLC.
2.10 “Company Property” means any property owned by the Company.
2.11 “Disposition (Dispose)” means any sale, assignment, exchange, mortgage, pledge, grant, hypothecation, or other transfer, absolute or as security or encumbrance (including dispositions by operation of law).
2.12 “Distribution” means a transfer of Company Property to a Member on account of a Membership Interest regardless of whether the transfer occurs on the liquidation of the Company, in exchange for the Membership Interest, or otherwise.
2.13 “Fiscal Year” means the Company’s fiscal year, which shall be the calendar year.
2.14 “Liquidity Crunch” occurs when the Company’s Quick Ratio (defined as the Company’s Current Assets minus its Inventory, which is then divided by the Company’s Current Liabilities) is equivalent to, or falls below, a 1.0 value for a period of two consecutive months—or two (2) consecutive thirty (30) day periods. At that juncture, the Company’s current liabilities will equal or rise above its current assets, meaning that the Debt Payments will not be able to be paid with the cash on hand, or without offloading a substantial portion of assets. During a Liquidity Crunch, the Manager shall have the sole and absolute discretion to pause Debt Payments, provided that the Manager issues a ten-day written notice to Investors prior to the pause occurring.
2.15 “Liquidity Event” means the sale or refinancing of any Property where, upon refinancing, the amount identified as Proceeds shall represent the Value of the Property, or cash proceeds, whichever is greater. This shall apply in the case of the Company having to take over the property underlying a delinquent Note.
2.16 “Liquidity Proceeds” means the amount of proceeds remaining on a Liquidity Event, after payment of all debts and obligations.
2.17 “Manager” means the Member appointed to be the Manager pursuant to Article 4.2. The Manager shall be the sole Voting Member.
2.18 “Member” means a person who has been admitted as a member of the Company and has a Membership Interest in the Company with rights, obligations and preferences and limitations specified in this Agreement and pursuant to the Texas Limited Liability Company Act.
2.19 “Membership Interest” or “Interest” means a Member’s entire interest in the Company including such Member’s rights in or to the Company’s profits, losses and Distributions pursuant to this Agreement and the Texas Limited Liability Company Act and such other rights and privileges that the Member may enjoy by being a Member.
2.20 “Net Distributable Cash Flow” means cash flow generated by the Company actually distributed subsequent to payment of all costs and expenses of operation and allocation of a reasonable reserve for working capital, depreciation and Liquidity Reserves.
5 |
2.21 “Person” means a natural person, domestic or foreign limited liability company, corporation, partnership, limited partnership, joint venture, association, business trust, estate, trust enterprise, or any other legal or commercial entity.
2.22 “Proceeding” means any judicial or administrative trial, hearing, or other activity, civil, criminal, or investigative, the result of which may be that a court, arbitrator, or governmental agency may enter a judgment, order, decree, or other determination which, if not appealed and reversed, would be binding upon the Company, a Member in the capacity of a Member, or other Person subject to the jurisdiction of such court, arbitrator, or governmental agency.
2.23 “Proceeds” means the amount of cash received from all sources.
2.24 “Substitute Member” means any Person that is admitted to the Company as an additional member pursuant to Article 10 of this Agreement.
ARTICLE 3
CAPITAL CONTRIBUTIONS AND DEBT STRUCTURE
3.1 Initial Capital Contributions. The Capital Contributions of the Members shall be equal to one hundred (100%) percent of the total capitalization of the Company. Irrespective of the number of Units issued to the Manager, the Manager shall contribute zero (0%) percent of the total capitalization of the Company.
3.2 Capital Contributions of the Members. The Members shall make such Capital Contributions as shall result in the issuance of Units described for each Member in Exhibit “A”. No interest shall accrue on any Capital Contribution and the Members shall not have the right to withdraw or be repaid any Capital Contribution except as provided in this Agreement.
3.3 Return of Capital Contributions. Capital Contributions shall be expended in furtherance of the business of the Company. All costs and expenses of the Company shall be paid from its funds. No interest shall be paid on capital contributions. The Manager shall not have any individual liability for the repayment of any Capital Contribution to any Member. Except as otherwise expressly provided in this Agreement, no portion of the capital of the Company may be withdrawn at any time without the express written consent of the Manager.
3.4 Capital Accounts. The allocations and maintenance of Capital Accounts provisions contained in this Agreement are intended to comply with the Treasury regulations promulgated under 26 U.S. Code § 704 (the “Section 704 Regulations”) and shall be interpreted in a manner consistent with such regulations.
3.5 Offering. The Company shall offer the purchase of Debt Units (“Debt Units”) in various classes (“Classes”) which, taken together, shall be considered one offering (the “Offering”).
3.6 Debt Owners. Purchasers of Debt Units will become owners of Debt (“Debt Owners”) upon execution of the Subscription Agreement, indication of the Class the investor shall be a part of, a review and approval of the Company’s Operating Agreement, submission of the Qualification Profile, and delivery of the investment funds (the “Investment”). Debt Owners are not Members of the Company.
3.7 Debt Terms. Debt Units holders shall be entitled to a Debt Payment of between five to eight (5%-8%) percent depending on the Class of the Debt Units, paid monthly (“Debt Payment”) paid on or before the thirtieth (30th) day of the month following every calendar quarter, commencing on the day following receipt of the Capital Contribution by the Company.
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3.8 Only Entitled to Debt Payments. Debt Owners sole and exclusive entitlement with respect to their Investment is to debt payments according with the terms listed hereinabove.
3.9 No Control in Management. Debt Owners do not have a right to participate in the management of the Company’s affairs. Debt Owners cannot propose changes to the Manager or to the Operating Agreement.
ARTICLE 4
MANAGEMENT
4.1 Management Rights. Subject to Article 4.7, the day-to-day operations of the Company shall be conducted by the Manager, and all management of the Company shall be vested in the Manager. The Manager shall have full and complete authority, power, and discretion to make any and all decisions and to do any and all things that the Manager shall deem to be reasonably required to accomplish the business and objectives of the Company. Approval or action taken by the Manager in accordance with this Agreement shall constitute approval or action by the Company and shall be binding on each Member.
4.2 Manager. ILS Fixed Horizon MGMT CORP shall be the Manager of the Company.
4.3 Certain Powers of the Manager and Restrictions on Authority of the Manager. The Manager and agents of the Company authorized by the Manager shall have the authority to bind the Company. The Manager has the power, on behalf of the Company, to do all things necessary or convenient to carry out the day-to-day business, management, and affairs of the Company, including, without limitation:
(a) | All distributions made by the Company must be approved by the Manager; |
(b) | The determination of the amount of, and the making of, the transfer of any Company Property to any person or entity; |
(c) | The institution, prosecution, and defense of any Proceeding in the Company’s name; |
(d) | The investment and reinvestment of the Company’s funds, and receipt and holding of Company Property as security for repayment; |
(e) | The conduct of the Company’s business, the establishment of Company offices, and the exercise of the powers of the Company within or without Texas; |
(f) | The appointment of employees and agents of the Company, the defining of their duties, and the establishment of their annual compensation; |
(g) | The payment of compensation, or additional compensation to a Member and employees on account of services previously rendered to the Company, whether or not an agreement to pay such compensation was made before such services were rendered; |
(h) | The purchase of liability and other insurance to protect the Company’s Property and business and the purchase of insurance on the life of any of the Members or employees for the benefit of the Company; |
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(i) | The employment of accountants, legal counsel, managing agents, or other experts to perform services for the Company and to compensate them from Company funds; and |
(j) | The doing and performing of all other acts as may be necessary or appropriate to carry out the Company’s day-to-day business. |
4.4 Liability of Members and Manager. Neither the Members nor the Manager shall be liable as Members or Manager for the liabilities of the Company to third parties. The failure of the Company to observe any formalities or requirements relating to the exercise of its powers or management of its business or affairs under this Agreement or the Texas Limited Liability Company Act shall not be grounds for imposing personal liability on the Members or the Manager for liabilities of the Company. In the event the Manager does not comply with the standard of care set forth herein, in compliance with the requirements set forth herein, or breaches this Agreement, the Manager shall be liable to the Company and the Members for any and all damages caused directly or indirectly by said non-compliance or breach and the Company and/or the Members may pursue an action against the Manager. However, under no circumstances will a third party be deemed to be a third-party beneficiary of this or any provision in this Agreement.
4.5 Indemnification. The Company shall indemnify the Members and the Manager, for all costs, losses, liabilities, and damages paid or accrued by any Member or the Manager (either as Member, Manager, or agent) or because such Person is a Member or Manager, to the fullest extent provided or allowed by the law of Texas. To the extent the Company is required to indemnify the Manager or Member, as set forth herein, the Manager shall cause the Company to advance costs of participation in any Proceeding to the Member or Manager. The Manager may, with the consent of the Members, indemnify all other employees and agents of the Company for all costs, losses, liabilities, and damages paid or accrued by the agent or employee in connection with the business of the Company or because such Person is an agent or employee, to the fullest extent provided or allowed by the laws of Texas.
4.6 Conflicts of Interest. A Member or Manager does not violate a duty or obligation to the Company merely because the Member’s or Manager’s conduct furthers the Member’s or Manager’s own interest. A Member or Manager may lend money to and transact other business with the Company. The rights and obligations of a Member or Manager who lends money to or transacts business with the Company are the same as those of a Person who is not a Member, subject to other applicable law. No transaction with the Company shall be voidable solely because a Member or Manager has a direct or indirect interest in the transaction if either the transaction is fair to the Company or the Members (in the case of a transaction in which the Manager but not a Member is personally interested) or a Manager (in the case of a transaction in which a Member but not a Manager is personally interested) with knowledge of the interest and transaction of the Member or Manager as the case may be, or approved in advance by all of the non-interested Members.
4.7 Authority of the Manager to Bind the Company. The Manager may take the following actions only upon approval of all Members.
(a) | The admission of an Additional Member; |
(b) | The initiation of a proceeding for the bankruptcy of the Company; |
(c) | The change in the business or purpose of the Company; |
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(d) | The approval of a merger, conversion or the application of any statute (the application of which is elective) to the Company; |
(e) | Trading for or in the Company’s proprietary account, except for any normal operating error account; |
(f) | The amendment of this Agreement, provided that such Amendment does not change the Distributions assigned to Members of each Class under the Offering Circular, or any action taken in violation of this Agreement; and |
(g) | The sale, exchange, transfer, Distribution, or other Disposition of all, or substantially all, of the Company Property. |
(h) | The initiation of a proceeding for the bankruptcy of the Company. |
4.8 Compensation of Members and Manager. The Manager shall be reimbursed all reasonable expenses incurred on behalf of the Company and shall be entitled to reasonable compensation, in an amount to be determined from time to time by the Manager.
4.9 Standard of Care of Members and Manager. The Members’ and Manager’s duty of care in the discharge of the Members’ and the Manager’s respective duties to the Company is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law. In discharging their duties, the Members or Manager shall be fully protected in relying in good faith upon the records required to be maintained by the Company and upon such information, opinions, reports, or statements by any of its agents, or by any other Person, as to matters the Members or Manager reasonably believe 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 information, opinions, reports, or statements as to the value and amount of the assets, liabilities, profits, or losses of the Company or any other facts pertinent to the existence and amount of assets from which Distributions to the Members or the Manager might properly be paid.
4.10 Delegation of Duties. The Manager shall have the right to perform or exercise any of its rights or duties under this Agreement through delegation to or contract with affiliates of Manager, provided that all contracts with affiliated entities are on terms at least as favorable to the Company as could be obtained through arms-length negotiations with unrelated third parties; and further provided that notwithstanding such delegation the Manager shall remain primarily responsible for the active supervision of the work performed.
ARTICLE 5
MEMBERSHIP INTERESTS; MEMBER MEETINGS
5.1 Membership Interests. The interests in the Company shall be represented by Membership Units. Each Membership Interest is represented by the number set forth with respect to the applicable Member in Exhibit “A” hereto.
5.2 Members. The Members of the Company, their respective addresses, and the number of Membership Interests held by each Member shall be as set forth in Exhibit “A” attached hereto and by reference made a part hereof. Exhibit “A” shall be amended from time to time to reflect any changes in the composition of the Members or their Membership Interests that may occur after the date hereof in accordance with the terms of this Agreement, and such amendments to Exhibit “A” shall be made automatically upon any such change.
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5.3 Required Meetings; Place of Meetings. The Members may, but are not required to, hold meetings annually. Meetings of the Members may be called by the Manager. The Manager shall designate the place of any Member meeting, which may be any place within or outside of the state of Texas and may be held or attended via conference call or video conference. If no designation is made, or if a special meeting is otherwise called, the place of meeting shall be the Corporate Office of the Company.
5.4 Notice of Meetings; Record Date. Written notice stating the place, day, and hour of the meeting and the purpose(s) for which the meeting is called shall be given not less than ten (10) days or more than sixty (60) days before the date of the meeting to each Member. Notice shall be effective if delivered personally, telecopied (if confirmed), or if mailed by registered or certified mail (return receipt requested) on the third business day after mailing to the Member(s) or if by overnight delivery, the first business day following delivery.
5.5 Consents. Action required or permitted to be taken at any meeting of the Members may be taken without a meeting if the action is evidenced by written consent of the Manager.
ARTICLE
6
MAINTENANCE OF BOOKS AND RECORDS,
ALLOCATION OF PROFITS AND LOSSES
6.1 Books, Records and Audit Rights. During the Term of this Agreement and for three (3) years thereafter, the Company shall maintain proper records and books of account prepared using consistent accounting principles relating to the computation of payments owed and costs charged to the Company. The Company, for accounting and income tax purposes, shall operate on a Fiscal Year ending December 31 of each year, and shall make such income tax elections and use such methods of depreciation as shall be determined by the Manager. The books and records of the Company shall be maintained at the principal place of business of the Company. The Manager shall make the Company books and records available for inspection and copying by any Member at reasonable times during normal business hours upon at least forty-eight (48) hours prior notice.
6.2 Bank Accounts. All funds of the Company shall be held in a separate bank account(s) in the name of the Company as determined by the Manager.
6.3 Financial Statements. Within a reasonable period after the end of each Fiscal Year, the Manager shall cause to be prepared and furnished to all the Members annual financial statements of the Company, the cost of which shall be an expense of the Company.
6.4 Revenues. The Company shall collect and account for all gross revenue received from the Notes. All revenue collected by the Company shall be collected, reported, and accounted for through the bank accounts of the Company.
6.5 Net Profits and Net Losses. “Net Profits” and ‘‘Net Losses” shall mean the net profits or net losses of the Company for any specified period, taking into account each item of income, gain, loss, and deduction for such period, including the following deductions or reserves:
(a) expenses, maintenance, and overhead charges of the operations of the Company’s business, including operating expenses and working capital needs; and
(b) reserves for accrued or contingent liabilities required by GAAP or as the Manager deems appropriate.
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6.6 Allocation of Net Profits and Net Losses. Net Profits and Net Losses of the Company shall be allocated among the Members’ Capital Accounts as follows:
(a) Profits. At the end of each Fiscal Year, any Net Profits remaining may be allocated to the Members pro rata, based upon the proportion of the Membership Interest held by each Member to the number of Membership Interests held by all Members, subject to allocations based on the Capital Accounts.
(b) Losses. At the end of each Fiscal Year, any Net Losses remaining shall be allocated to the Members pro rata, based upon the proportion of the Membership Interest held by each Member to the number of Membership Interests held by all Members, subject to allocations based on the Capital Accounts.
6.7 Tax Allocation. For federal, state, and local income tax purposes the income, gains, losses, deductions and credits of the Company, including the character and type thereof, shall be allocated among the Members in the same manner that each such item is allocated among the Capital Accounts.
(a) Profits. For federal, state, and local income tax purposes the income, gains, losses, deductions and credits of the Company, including the character and type thereof, shall be allocated among the Members in the same manner that each such item is allocated among the Capital Accounts.
(b) Losses. The allocations set forth in Sections 6.5 and 6.6 hereof (the “Regulatory Allocations”) are intended to comply with certain requirements of the Regulations. It is the intent of the Members that, to the extent possible, all Regulatory Allocations shall be offset either with other Regulatory Allocations or with special allocations of other item of Company income, gain, loss or deduction pursuant to this section. Therefore, notwithstanding any other provision of this Article 6 (other than the Regulatory Allocations) to the contrary, the Manager shall make such offsetting special allocations of income, gain, loss or deduction in whatever manner it determines appropriate so that after such offsetting allocations are made, each Member’s Capital Account balance is to the extent possible, equal to the Capital Account balance such Member would have had if the Regulatory Allocations were not part of the Agreement and all Company items were allocated pursuant to the general allocation provisions.
6.9 Compliance with Code. The allocations and maintenance of Capital Accounts provisions contained in this Agreement are intended to comply with 26 U.S. Code § 704 and shall be interpreted in a manner consistent with such regulations. The Company may, by action of the Manager, and without the consent of any Member, amend the provisions of the Agreement and the manner in which profits and losses (or other items) are allocated to the extent (but only to the extent) necessary to comply with 26 U.S. Code § 704.
ARTICLE
7
OTHER TAX AND FINANCIAL MATTERS
7.1 Tax Characterization and Returns. The Members acknowledge that the Company is intended to be treated as a “partnership” for federal, state, and local tax purposes. Within ninety (90) days after the end of each Fiscal Year, the Manager will cause to be delivered to each person who was a Member at any time during such Fiscal Year a Schedule K-1 and such other information with respect to each Member’s share of income, gain, loss, deduction, and credit for the Fiscal Year, if any, with respect to the Company as may be necessary for the preparation of such Member’s federal, state, or local income tax (or information) returns.
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7.2 Accounting Decisions. The Manager will make all decisions as to accounting matters and may cause the Company to make whatever elections the Company may make under the Code.
ARTICLE
8
ADMISSION OF ADDITIONAL MEMBERS
From the date of the formation of the Company, any Person acceptable to the Manager may become a Member in the Company by the sale of new Membership Interests for such consideration as the Manager shall determine, subject to the terms and conditions of this Agreement. No new Members shall be entitled to any retroactive allocation of losses, income, or expense deductions incurred by the Company. The Manager may, at its option, at the time an additional Member is admitted, close the Company books (as though the Company’s tax year had ended) or make pro rate allocations of loss, income, and expense deductions to an additional Member for that portion of the Company’s tax year in which an additional Member was admitted in accordance with the provisions of the Treasury regulations promulgated under Section 706 of the Code.
ARTICLE 9
DISTRIBUTIONS
9.1 Distributions of Proceeds. Distributions of Proceeds made by the Company are made pro rata.
9.2 Liquidation/Dissolution. All distributions of cash resulting from the sale of the Company’s Property shall be distributed consistent with the provisions of section 13.4 of this Agreement as soon as practicable following the Manager’s determination that such cash is available for distribution.
9.3 Allocation and Distributions between Transferor and Transferee. Upon the transfer of all or any part of a Member Interest of a Member as provided in this Agreement, profits and losses shall be allocated between the transferor and transferee on the basis of the computation method which in the reasonable discretion of the Manager is in the best interests of the Company, provided such method is in conformity with the methods prescribed by 26 U.S. Code § 706 and 26 CFR § 1.704 and 26 CFR § 1.706. Distributions shall be made to the holder of record of the Member Interest on the date of distribution. Any transferee of a Member Interest shall succeed to the Capital Account of the transferor Member to the extent it relates to the transferred Membership Interest; provided, however, that if such transfer causes a termination of the Company pursuant to 26 CFR § 708(b)(1)(B), the Capital Accounts of all Members, including the transferee, shall be re-determined as of the date of such termination in accordance with 26 CFR § 1.704-1(b).
9.4 Guaranteed Payments. Any payment to a Member for services rendered by the Company which is not governed for all purposes by an agreement other than this Agreement shall be deemed to be a "guaranteed payment" described in and governed by Section 707(c) of the Code.
9.5 In-Kind Distribution. Except as otherwise expressly provided herein, assets of the Company, other than cash, shall not be distributed, in kind, to the Members, without the prior approval of the Manager.
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ARTICLE 10
TRANSFERS OF MEMBERSHIP INTERESTS
10.1 Transfers Prohibited. No Member may voluntarily, involuntarily or by operation of law assign, transfer, sell, pledge, hypothecate or otherwise dispose (collectively “Transfer”) of all or part of its Interest in the Company, except as is specifically permitted by this Agreement. Any Transfer made in violation of this Article 10 shall be void and of no legal effect.
10.2 Permitted Transfer. Any Member may transfer their Interest to a third party with the written consent of Manager. The Manager, in its sole discretion, may approve or disapprove the Transfer.
10.3 Substituted Member. A permitted transferee of any Member’s Interest shall be admitted to the Company as a Substituted Member upon satisfaction of the following conditions:
(a) | Filing with the Company an opinion of counsel reasonably satisfactory to the Company that the proposed sale, transfer or disposition does not result in a violation of the Texas Limited Liability Company Act or any applicable state or province "blue sky" (collectively, "Securities Laws"); |
(b) | Filing with the Company a duly executed and acknowledged written instrument of assignment in a form approved by the Manager, which approval shall not be unreasonably withheld, specifying the Member’s percentage being transferred and setting for the intention of the transferor that the permitted transferee succeed to the transferor Membership Interest (or the portion thereof) as a Member; |
(c) | Filing with the Manager any and all documents requested by Manager to allow Manager to assess the qualifications of the transferee; |
(d) | Execution, acknowledgement and delivery by the transferor and transferee of any other instruments reasonably required by the Manager, including an agreement of the permitted transferee to be bound by the provisions of this Agreement; and |
(e) | Manager approval. |
10.4 Indemnification. The Member agrees to hold the Company and its directors, officers and controlling persons and their respective heirs, representatives, successors and assigns harmless and to indemnify them against all liabilities, costs and expenses incurred by them as a result of any sale, transfer or other disposition of the Units by the transferring Member in violation of any Securities Laws or any misrepresentation with respect to said transfer.
10.5 Successors in Interest. Subject to the restriction of this Article, the rights and obligations of the Members shall inure to and be binding upon the heirs, successors and permitted assignees of the Member.
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ARTICLE 11
RIGHT OF FIRST REFUSAL TO TRANSFER INTEREST
11.1 Notice. In the event any Member (the “Offeree”) receives or obtains a bona fide offer from a third party (“Third Party”) to purchase all or any portion of its Interest in the Company, which the Offeree desires to accept, then prior to accepting such offer the Offeree shall give written notice (the “Notice”) of such offer to the Manager. Such Notice shall set forth the material terms of such offer, including without limitation the identity of the Third Party, the purchase price, and the terms of payment. The Manager shall have a period of thirty (30) days from the date of receipt of the Notice in which to elect to purchase the interest of the Offeree on the same terms and conditions as contained in the Notice. In the event that the Manager declines to purchase the interest of the Offeree, then the Offeree shall give written notice of such offer to all other Members (the “Noticed Members”), which Notice shall set forth the material terms of such offer, including without limitation the identity of the Third Party, the purchase price, and terms of payment. The Noticed Parties shall have a period of thirty (30) days from the date of receipt of the notice in which to elect to purchase the Interest of the Offeree on the same terms and conditions as contained in the Notice. If more than one Noticed Member elects to purchase, the Interest of the Offeree shall be purchased pro rata by all electing Noticed Members in accordance with their respective percentages. Failure of a Noticed Member to respond within the thirty (30) day period shall be deemed an election not to purchase.
In the event that no Noticed Members respond, or if all Noticed Members expressly elect not to purchase, upon approval of the Manager, the Offeree shall have the right to proceed to sell its Interest to the Third Party on the terms and conditions contained in the Notice. In the event, however, that the sale to the Third Party is not consummated on the terms contained in the Notice within six (6) months following the date of the Notice, the Offeree shall be obligated to comply again with the terms of this Article 11.1 with respect to the existing Offer and all subsequent third party offers.
11.2 Costs. In the event that the Manager or Noticed Member or more than one Noticed Member shall elect to purchase as provided in Article 11.1, the cost of such transaction, including without limitation, recording fees, escrow fees, if any, and other fees, excluding attorneys’ fees shall be divided equally among the Offeree and the purchasing Noticed Member(s). The Offeree shall deliver all appropriate documents of transfer at the closing of such sale. From and after the date of such closing, whether the sale is made to the Noticed Member(s) or to the Third Party, the Offeree shall have no further interest in the assets or income of the Company and the person(s) purchasing the Interest shall indemnify and hold harmless the Offeree from and against any claim, demand, loss, liability, damage or expense, including without limitation, attorney’s fees arising from the operation of the Company.
11.3 Substituted Member. If a Member transfers its interest pursuant to this Article 11, such transferee shall comply with the provisions of Article 10.3 to become a Substituted Member of the Company.
ARTICLE 12
BANKRUPTCY OR OTHER INVOLUNTARY TRANSFER
12.1 Option to Purchase due to Bankruptcy. In the event of the Bankruptcy of a Member (hereinafter called the “Bankrupt Member”), the Manager initially and thereafter the other Members (hereinafter referred to as “Remaining Members”) shall have the option to purchase the Membership Interest of the Bankrupt Member. Such option may be exercised first by the Manager for a period of thirty (30) days and thereafter by the Remaining Members, should the Manager decline to exercise its option, giving written notice thereof within thirty (30) days after its receipt of notice of a Bankruptcy. Notice of exercise of the option shall be given to the Bankrupt Member and to any trustee, receiver or other legal representative or holder or transferee of the Bankrupt Member’s interest in the Company (hereinafter called an “Bankruptcy Transferee”) of which the Remaining Members have been given notice, at the address of such Bankruptcy Transferee contained in any such notice of Bankruptcy.
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If the Remaining Members have not elected within the period specified herein to purchase the Bankrupt Member’s Interest as provided, the Bankruptcy Transferee of such Interest shall, within thirty (30) days thereafter, execute and deliver to the Company such documents, in a form reasonably satisfactory to the counsel for the Remaining Members, as may be necessary and requisite to evidence and effect the transfer of such Interest to the Bankruptcy Transferee, together with its acceptance of this Agreement and the rights and duties of a Member hereunder. Within thirty (30) days after delivery of such documents the Company shall notify the Bankruptcy Transferee of its acceptance of such documents and of the Bankruptcy Transferee as a Member, the Bankruptcy Transferee shall thereupon be deemed a Member.
12.2 Purchase due to Involuntary Transfer. In the event of the death of a Member (“Deceased Member”) the Member’s estate or heirs (“Involuntary Transferees”) have the option to sell the Deceased Member’s Interest to the Manager in the first instance and thereafter, to the Remaining Members. Such option may be exercised only by the Involuntary Transferees by giving the Manager and thereafter, the Remaining Members written notice of its desire to sell said Interest. The option must be exercised within one (1) year of the death of the Deceased Member. If the Manager desires to purchase said Deceased Member’s Interest, the Manager must give written notice thereof within thirty (30) days after its receipt of notice of the Involuntary Transferees’ the intention to sell the Interest. Thereafter, notice of exercise of the option shall be given to the Remaining Members which must include the contact information for the Involuntary Transferees.
If the Involuntary Transferees have not elected within the period specified herein to sell or the Remaining Members have not elected to purchase the Deceased Member’s Interest the Involuntary Transferees shall, within thirty (30) days thereafter, execute and deliver to the Company such documents, in a form reasonably satisfactory to the counsel for the Remaining Members, as may be necessary and requisite to evidence and effect the transfer of such Interest to the Involuntary Transferees, together with its acceptance of this Agreement and the rights and duties of a Member hereunder. Within thirty (30) days after delivery of such documents, the Company shall notify the Involuntary Transferees of its acceptance of such documents and of the approval as a Member, and shall thereupon be deemed a Member.
12.3 Agreed Value. If the Remaining Members have elected to purchase the Interest of the Bankrupt or Deceased Member, the purchase price of such Interest shall be the percentage of the Bankrupt or Deceased Member’s Interest in the Company purchased by the Remaining Members times the agreed value thereof. If a value cannot be agreed upon, three appraisals of the Membership Interest shall be obtained from three different reputable appraisal companies as promptly as practicable. The average of the three such appraisals shall become the “Agreed Value” of the Bankrupt or Deceased Member’s Interest in the Company, taking into account all debts and liabilities of the Company and the Capital Accounts of the Bankrupt or Deceased Member and the Remaining Members. Prompt written notice of the determination of the appraisers, signed by each appraiser, shall be given to the Bankrupt and any Bankruptcy Transferee, or Deceased Member’s heirs or estate, and to the Remaining Members and shall be conclusive upon them. Costs of the appraisals shall be shared equally between the Bankrupt or Deceased member and the Remaining Members who elect to purchase the subject Member Interest.
12.4 Notice of Agreed Value and Closing. After the giving of the determination as set forth in Article 12.3, the Remaining Members shall give written notice to the Bankrupt Member and any Bankruptcy Transferee or the Involuntary Transferees as the case may be, fixing the time and date for the closing of the purchase by the Remaining Members of the Bankrupt or Deceased Member’s Interest in the Company, which closing shall be at the Corporate Office of the Company on the date not less than thirty (30) days nor more than sixty (60) days after the date of such notice subject to the consent and approval of any Court having jurisdiction. At the closing, the Remaining Members shall pay to the Bankrupt Member or Bankruptcy Transferee, as the case may be, or the Involuntary Transferees by certified or bank check, an amount equal to the Agreed Value of the Bankrupt or Deceased Member’s Interest in the Company. The Bankrupt Member and any Bankruptcy Transferee, or the Involuntary Transferees shall execute, acknowledge and deliver to the Remaining Members such instruments of conveyance, assignment and releases as shall be necessary or reasonably desirable to convey to the Remaining Members all the right, title and interest of the Bankrupt Member and Bankruptcy Transferee, or the Involuntary Transferees in the Company and the assets thereof.
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ARTICLE 13
DISSOLUTION AND WINDING UP
13.1 Dissolution. The Company shall be dissolved and its affairs wound up upon the election of the Manager. Notwithstanding any provision of the Texas Limited Liability Company Act to the contrary, the Company shall continue and not dissolve as a result of the death, retirement, resignation, expulsion, bankruptcy, or dissolution of any Member or any other event that terminates the continued membership of a Member. The Company shall be dissolved and its affairs shall be wound up upon the earliest of:
(a) | The sale or other Disposition of all or substantially all of the assets of the Company. |
(b) | An election to dissolve and wind up the Company by the Manager(s); |
(c) | The expiration of the term of the Company, unless the Manager(s) have elected to continue the Company in writing prior to the expiration of such term; |
13.2 Notwithstanding anything to the contrary contained herein no Member may voluntarily withdraw from the Company without the consent of the Manager. The withdrawal, death, insanity, incompetency, Bankruptcy, dissolution or Liquidation of any Member as such will not dissolve the Company.
13.3 Effect of Dissolution. Upon dissolution, the Company shall cease carrying on as distinguished from the winding up of the Company business, but the Company is not terminated and continues until the winding up of the affairs of the Company is completed and articles of dissolution have been filed with the Texas Department of State.
13.4 Procedure for Winding-Up. The Company shall be dissolved upon an election of the Manager(s) to dissolve the Company. Upon dissolution of the Company, the assets of the Company will be distributed in the following order:
(a) The creditors of the Company, including the Manager.
(b) The balance to the Members.
13.5 Winding Up and Certificate of Dissolution. Upon the completion of winding up of the Company, the Manager or other person designated by the Members shall deliver articles of dissolution to the Texas Department of State for filing. The articles of dissolution shall set forth the information required by the Texas Limited Liability Company Act.
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ARTICLE 14
ATTORNEY-IN-FACT AND AGENT
Each Member, by execution of this Agreement, irrevocably constitutes and appoints the Manager and any of them acting alone as such Member’s true and lawful attorney-in-fact and agent, with full power and authority in such Member’s name, place, and stead to execute, acknowledge, and deliver, and to file or record in any appropriate public office: (a) any certificate or other instrument that may be necessary, desirable, or appropriate to qualify the Company as a limited liability company or to transact business as such in any jurisdiction in which the Company conducts business; (b) any certificate or amendment to the Company’s articles of organization or to any certificate or other instrument that may be necessary, desirable, or appropriate to reflect an amendment approved by the Members in accordance with the provisions of this Agreement; (c) any certificates or instruments that may be necessary, desirable, or appropriate to reflect the dissolution and winding up of the Company; and (d) any certificates necessary to comply with the provisions of this Agreement. This power of attorney will be deemed to be coupled with an interest and will survive the Transfer of a Member’s Interest. Notwithstanding the existence of this power of attorney, each Member agrees to join in the execution, acknowledgment, and delivery of the instruments referred to above if requested to do so by the Manager. This power of attorney is a limited power of attorney and does not authorize the Manager to act on behalf of a Member except as described in this Article 14.
ARTICLE 15
MISCELLANEOUS
15.1 Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, telecopied (if confirmed), or if mailed by registered or certified mail (return receipt requested) on the third business day after mailing to the parties at the following addresses (or at such other address for a party as shall be specified by like notice) or if by overnight delivery one the first business day after delivery to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
If to Company: | ILS Fixed Horizon LLC |
210 Market Street | |
El Campo, TX 77437 | |
Attention: Donald J. Sutton | |
Email: Donald.Sutton@ILS.Cash | |
If to Manager: | ILS Fixed Horizon Management Corp |
210 Market Street | |
El Campo, TX 77437 | |
Attention: Donald J. Sutton | |
Email: Donald.Sutton@ILS.Cash | |
Copy To: | c/o Laurence J. Pino, Esq. |
Pino Law Group, PLLC | |
99 S. New York Ave. | |
Winter Park, FL 32789 | |
Email: ljp@pinolawgroup.com |
15.2 Construction. Every covenant, term and provision of this Agreement shall be construed simply according to its fair meaning and not strictly for or against any Member.
15.3 Interpretation. Except as otherwise provided herein, to the extent provisions or terms of this Agreement are subject to varying interpretations or constructions, the parties intend that such provisions and terms be interpreted consistent and in accordance with any similar provisions and terms set forth in the Texas Limited Liability Company Act, and successor laws.
15.4 Terms. Common nouns and pronouns will be deemed to refer to the masculine, feminine, neuter, singular, and plural, as the identity of the person or persons, firm, or corporation may in the context require.
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15.5 Nature of Interest in the Company. A Member’s Interest shall be personal property for all purposes.
15.6 Amendment. This Agreement shall not be altered, amended, or repealed except upon the approval of the Manager.
15.7 Amendment of Articles of Organization. Except as otherwise provided in the Texas Limited Liability Company Act, the Articles of the Company shall not be altered, modified, or changed except upon the approval of the Manager at the time of such alteration, modification, or change.
15.8 Specific Enforcement. All breaches of this Agreement are subject to specific enforcement, without prejudice to the right to seek damages or other remedies.
15.9 Time. Time is of the essence with respect to this Agreement.
15.10 Entire Agreement; No Third-Party Rights. This Agreement, including Schedules and Exhibits, and the Articles constitute the complete and exclusive statement of agreement among the Members with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the Members with respect to the subject matter hereof. None of the provisions contained in this Agreement shall be for the benefit of or enforceable by any third parties, including creditors of the Company. The parties to this Agreement expressly retain any and all rights to amend this Agreement as herein provided, notwithstanding any interest in this Agreement or in any party to this Agreement held by any other Person.
15.11 Incorporation by Reference. Every exhibit, schedule, and other appendix attached to this Agreement and referred to herein is hereby incorporated in this Agreement by reference.
15.12 Severability. In the event that any of the provisions of this Agreement shall be held by a court or other tribunal of competent jurisdiction to be illegal, invalid, or unenforceable, to any extent, such provisions shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.
15.13 Headings. Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement.
15.14 Governing Law; Dispute Resolution. This Agreement shall be governed by and construed in accordance with the laws of the state of Texas. In the event of a dispute regarding this Agreement or the respective rights of the Parties hereunder, the Parties agree to submit such dispute exclusively to binding arbitration under Judicial Arbitration and Mediation Services (“JAMS”) or the American Arbitration Association (“AAA”), at the discretion of the Party filing such demand for arbitration, in Wharton, Texas before a single professional arbitrator selected by the Parties or, if the Parties cannot agree on an arbitrator, appointed by JAMS or AAA, as relevant. Any such arbitration shall be commenced within fifteen (15) days of selection of the arbitrator and the discovery rules contained in the Texas Rules of Civil Procedure shall apply to all such proceedings in the event the arbitrator does not set out alternative discovery rules. In the event that the Parties are required to take any action to enforce any provision of this Agreement, or litigation results from or arises out of this Agreement or the performance thereof, the Parties agree the arbitrator shall order all remedies permitted by law, including award attorney's fees and costs to the prevailing party, and require that the entire proceeding, including the existence of the proceeding, be held confidential by the Parties, and shall not be disclosed by any Party. Any and all orders issued by the arbitrator shall be enforced by a state court of competent jurisdiction located in Wharton, Wharton County, Texas.
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15.15 Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but both of which together shall constitute one and the same instrument. Transmission by facsimile of an executed counterpart of this Agreement shall be deemed to constitute due and sufficient delivery of such counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first written above.
COMPANY: | ||
ILS Fixed Horizon LLC |
||
By: | ||
ILS Fixed Horizon MGMT CORP, Manager Donald J. Sutton, President |
||
MANAGER: | ||
ILS Fixed Horizon MGMT CORP |
||
By: | ||
Donald J. Sutton, President | ||
MEMBERS: |
||
ILS Legacy Holdings LLC | ||
By: | ||
Donald J. Sutton, Manager |
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EXHIBIT “A”
OWNERSHIP INTEREST
Manager | Address | Units |
ILS Fixed Horizon MGMT CORP | 210 Market Street El Campo, TX 77437 |
-1- |
Members | Address | Units |
ILS Legacy Holdings LLC | 210 Market Street El Campo, TX 77437 |
-99- |
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Exhibit 1A-4
ILS FIXED HORIZON LLC
SUBSCRIPTION AGREEMENT
TO BE USED ONLY IN CONJUNCTION WITH AN INVESTMENT IN UNITS OFFERED THROUGH THE OFFERING MATERIALS DATED DECEMBER 19, 2023.
THIS SUBSCRIPTION AGREEMENT is made as of this ___ day of ____________, 2023, by and between ILS FIXED HORIZON LLC, a Texas limited liability company (the “Company”) and the undersigned subscriber (the “Subscriber”).
The Company desires to obtain financing by selling investment Debt Units (“Units”) of various Classes, which are more fully described in the Company’s Offering Circular and in Section 2.6 herein. Investors must purchase Units subject to the minimum purchase requirements listed in Section 2.6 of this Subscription Agreement. The Manager may waive the minimum subscription requirement, in its sole and absolute discretion. Subscriber desires to purchase the number of Units set forth on the signature page hereof.
NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows:
1. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY THE SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the Subscriber hereby subscribes for and agrees to purchase the number of Units for the purchase price set forth upon the signature page hereof, and the Company agrees to sell such Units to the Subscriber at a purchase price equal to such amount. The purchase price is payable by wire transfer, ACH, or check, on terms set forth in Section 2.3.
The Subscriber understands that the sale of Debt Units to Subscriber is contingent upon the acceptance in writing of the Subscription by the Company. The Subscriber understands that pending such acceptance, the check will be deposited in an escrow account and the other documents the Subscriber furnished will be held in trust by the Company.
1.2 The Subscriber recognizes that the purchase of Units involves a high degree of risk and is suitable only for persons of adequate financial means who have no need for liquidity in this investment in that (i) he/she may not be able to liquidate his investment in the event of an emergency; (ii) transferability is extremely limited; and (iii) he/she could sustain a complete loss of his/her entire investment.
1.3 The Subscriber represents that (i) he/she is competent to understand and does understand the nature of the investment, and (ii) he/she is able to bear the economic risk of this investment.
1.4 Please check the appropriate space(s):
____ | The Subscriber represents that he/she is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”). (The definition of “accredited investor” is set forth below.) |
____ | The Subscriber represents that he/she is a “non-accredited investor” that understands this investment and further represents that the Capital Contribution listed on this Subscription Agreement does not represent more than ten (10%) percent of either their (i) personal net worth or (ii) annual income, whichever is greater. The purchasing limits are set forth in Section 1.5 of this Subscription Agreement. |
____ | The Subscriber represents that he/she is a resident of the United States. |
The definition of an “accredited investor” includes the following:
· | An individual having a net worth or a joint net worth with spouse at the time of purchase in excess of one million ($1,000,000) dollars. (In calculating net worth, you may include the value of your personal property and real estate, excluding the value of your principal residence, but including cash, short-term investments, stock and securities. Your inclusion of personal property and real estate, other than your principal residence, should be based on the fair market value of such property less debt secured by such property.) |
· | An individual whose net income was in excess of two hundred thousand ($200,000) dollars in each of the two most recent years, or whose joint income with spouse was in excess of three hundred ($300,000) dollars in each of those years, and who reasonably expects his net income to reach such level in the current year. |
· | An IRA, Keogh or similar benefit plan for which investments are made solely by persons that are accredited investors. |
· | Any entity in which all of the equity owners are accredited investors. |
· | Any entity not formed for the specific purpose of acquiring the securities offered, owning investments in excess of $5,000,000; |
· | Any natural person holding in good standing a Series 7, Series 65, or Series 82 license, or any other professional certification or designation or credential from an accredited educational institution that the Securities and Exchange Commission has designated as qualifying an individual for accredited investor status; |
· | Any “family office,” as defined in Rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 with assets under management in excess of $5,000,000 that is not formed for the specific purpose of acquiring the securities offered and whose prospective investment is directed by a person who has such knowledge and experience in financial and business matters that such family office is capable of evaluating the merits and risks of the prospective investment; or |
· | Any “family client,” as defined in Rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940, of a family office (as defined above) and whose prospective investment in the issuer is directed by such family office. |
1.5 This is a Tier 2 Regulation A Offering. The SEC has set the following purchasing limits for non-accredited investors investing in a Tier 2 Regulation A offering:
· | Non-accredited investors may not purchase more than ten (10%) percent of the greater of annual income or net worth (for natural persons); or |
· | Non-accredited investors may not purchase more than ten (10%) percent of the greater of annual revenue, or net assets at fiscal year-end (for non-natural persons). |
1.6 The Subscriber acknowledges and represents that his/her investment does not and will not exceed any additional net worth requirements imposed by the Subscriber’s state of residence.
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1.7 The Subscriber acknowledges and represents that he/she has significant prior investment experience and that he/she recognizes the highly speculative nature of this investment. The Subscriber has such knowledge and experience in financial and business matters that he/she is capable of evaluating the merits and risks of investment in the Company; and has the capacity to protect his/her interest in connection with an investment in the Company;
1.8 The Subscriber hereby represents that he/she has been furnished by the Company during the course of this transaction with all information regarding the Company which he/she requested or desired to know; that all other documents which could be reasonably provided have been made available for his/her inspection and review; and that he/she has been offered the opportunity to ask questions of and receive answers from duly authorized officers or other representatives of the Company concerning the Company and the terms and conditions of this offering.
1.9 The Subscriber hereby specifically accepts and adopts all applicable provisions of the Private Placement Memorandum and executes this Subscription Agreement as a counterpart signature page to those documents. The Subscriber has read and understands the Private Placement Memorandum, this Subscription Agreement, the Qualification Profile and all other related documents.
1.10 The Subscriber’s overall commitment to investments that are not readily marketable is not disproportionate to his/her or their net worth and the investment in the Units will not cause such overall commitment to be excessive.
1.11 The Subscriber hereby acknowledges that this offering of Units has not been reviewed by the United States Securities and Exchange Commission (the "SEC") because of the Company's representations that this is intended to be a nonpublic offering pursuant to Sections 4(a)(2) and 4(a)(6) of the Securities Act and Regulation A ("Regulation A") promulgated thereunder. The Subscriber represents that the Units are being purchased for his/her/their own account, for investment and not for distribution or resale to others. The Subscriber agrees that he/she will not sell, transfer or otherwise dispose of any of the Units unless they are registered under the Securities Act or unless an exemption from such registration is available.
1.12 The Subscriber agrees that the Company may, if it desires, permit the transfer of the Units by the Subscriber out of his/her name only when his/her request for transfer is accompanied by an opinion of counsel reasonably satisfactory to the Company that the proposed sale, transfer or disposition does not result in a violation of the Securities Act or any applicable state or province "blue sky" laws (collectively, "Securities Laws"). The Subscriber agrees to hold the Company and its directors, officers and controlling persons and their respective heirs, representatives, successors and assigns harmless and to indemnify them against all liabilities, costs and expenses incurred by them as a result of any sale, transfer or other disposition of the Units by the undersigned Subscriber in violation of any Securities Laws or any misrepresentation herein.
1.13 The Subscriber acknowledges and agrees that the Company is relying on the Subscriber's representations contained in this Agreement in determining whether to accept this Subscription. The Subscriber agrees that the Company reserves the unrestricted right to request and require additional information from Subscriber, reject or limit any Subscription, and to close the offer at any time.
1.14 The Subscriber represents and warrants that all representations made by the Subscriber hereunder are true and correct in all material respects as of the date of execution hereof, and Subscriber further agrees that until the closing on the Units subscribed for he/she shall inform the Company immediately of any changes in any of the representations provided by the Subscriber hereunder.
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1.15 The Subscriber is aware of the following:
(a) The Company has limited financial or operating history;
(b) There are substantial restrictions on the transferability of the Units; the Units will not be, and investors in the Company have no rights to require that the Units be registered under the Securities Act of 1933, or any other state or federal act, and any such registration is unlikely;
(c) Financial projections and forecasts, if any, in the materials provided by the Company are only management's estimates based on assumptions therein stated. There is no assurance or guarantee that any such projections and forecasts will be met;
(d) At any time, the amount of distributions or tax effects that may be available as a result of investment in the Company is not susceptible to absolute prediction, and different future occurrences, interpretations or new developments in rulings of the Internal Revenue Service, court decisions or legislative changes may have an adverse effect thereon;
(e) No federal or state agency has made any finding or determination as to the fairness for public investment, nor any recommendation nor endorsement, of the Units;
1.16 The Subscriber acknowledges and agrees that, except as set forth in the offering materials, no other facts or assumptions have been represented, guaranteed or warranted to me, or us, by any person, expressly or by implication.
2. TERMS OF OFFERING
2.1 The total amount of the Offering is seventy-five million ($75,000,000) dollars and shall have no minimum. The Subscription period shall begin upon SEC Qualification and will continue until terminated by the Company as determined by the Company in its sole discretion (the "Offering Period"). The Offering may be closed from time to time, in tranches of any number of Units (collectively the "Closings").
2.2 All funds paid hereunder shall be immediately available to the Company, although the Company may hold funds in escrow for three (3) to five (5) days pending processing.
2.3 The Subscriber hereby agrees to purchase the number of Units from the Company set forth upon the signature page hereof. The Subscriber must purchase a minimum of twenty-five (25) or more Units for his/her initial Subscription with a purchase price of one thousand ($1,000) dollars per Unit. The purchase price is payable by check or wire transfer to the Company. If the Company declines to accept this Subscription, the Company will return Subscription funds to the undersigned without interest thereon or deduction there from.
2.4 Closings on Subscriptions shall be held as soon as practicable following the Company's acceptance hereof.
2.5 In the event of the Company voluntarily liquidating its assets, the priority of distributions (“Liquidation Distributions”) shall be performed in the following manner:
a. | First, to creditors of the Company, including holders of Debt Units who may be creditors, to the extent otherwise permitted by law, in satisfaction of all debts, liabilities, obligations and expenses of the Company, including, without limitation, the expenses incurred in connection with the liquidation of the Company; then |
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b. | Second, to the holders of Debt Units to the extent of and in proportion to their invested capital until the aggregate amount paid to such holders of Debt Units is sufficient to provide for a complete return of such holder of Debt Units’ invested capital; then |
c. | Third, to the holders of Debt Units to the extent of and in proportion to their respective unpaid Interest Payments until such Debt Unit holder’s unpaid Interest Payment has been paid in full; and |
d. | Fourth, to the Manager. |
2.6 The Classes of Units Offered are as follows:
Class
|
Interest |
Interest Rate/Lock-up |
Withdrawal Period |
Min. |
Class A1
|
monthly | 5% Interest Payment for 1 year, per annum | May withdraw 60 days after Initial Capital Contribution Received by Company | $25,000 |
Class A2
|
monthly | 6% Interest Payment for 1 year, per annum | May withdraw 60 days after Initial Capital Contribution Received by Company | $500,000 |
Class B1
|
monthly | 6% Interest Payment for 3 years, per annum | May withdraw 180 days after Initial Capital Contribution Received by Company | $25,000 |
Class B2
|
monthly | 7% Interest Payment for 3 years, per annum | May withdraw 180 days after Initial Capital Contribution Received by Company | $500,000 |
Class C1
|
monthly | 7% Interest Payment for 5 years, per annum | May withdraw 365 days after Initial Capital Contribution Received by Company | $25,000 |
Class C2
|
monthly | 8% Interest Payment for 5 years, per annum | May withdraw 365 days after Initial Capital Contribution Received by Company | $500,000 |
If the Company is liquidated or enters into bankruptcy, voluntarily or involuntarily, all secured creditors, such as those who have mortgages or liens on assets, will be paid from those assets first. The Debt Units are subordinated debts that will be paid off after other debts are settled. Then, holders of subordinated debt or other unsecured creditors, including holders of Debt Units, will be paid from any remaining funds. Therefore, holders of Debt Units would be paid second to the creditors of the company after the secured creditors have been paid off.
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3. RESTRICTIONS ON TRANSFER
3.1 The certificates representing the Units shall bear the following legend:
The securities issued pursuant to this certificate are restricted securities as defined in Rule 144 promulgated pursuant to the U.S. Securities Act of 1933, as amended (the “Securities Act”); the securities have not been registered under the Securities Act with the Securities and Exchange Commission or under the Securities Laws of any state. The holder of a certificate evidencing interests will only be able to sell or otherwise transfer his or her securities pursuant to an effective registration statement or in accordance with an opinion from counsel, acceptable to the company that the same may be sold pursuant to an exemption from the registration requirements of those Securities Laws.
3.2 The Company may in its sole discretion place a “Blue Sky” legend on the certificates in accordance with Securities Laws or as required by applicable securities laws.
3.3 Except as otherwise permitted by the Governing Documents, each Subscriber will be prohibited from selling, transferring, pledging or otherwise disposing of the Units sold pursuant to this Private Placement Offering. As a result of restrictions on transferability of the Units, a Subscriber may not be able to liquidate his investment and must bear the economic risk of his investment for a significant period of time.
4. NOTICES TO SUBSCRIBERS
4.1 THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES LAWS OF ANY STATE OR PROVINCE AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES LAWS. THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SEC, OR ANY STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING DOCUMENTS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
4.2 THE UNITS ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. SUBSCRIBERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
4.3 THIS INVESTMENT INVOLVES A HIGH DEGREE OF RISK. THIS INVESTMENT IS SUITABLE ONLY FOR PERSONS WHO CAN BEAR THE ECONOMIC RISK FOR AN INDEFINITE PERIOD OF TIME AND WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. FURTHERMORE, INVESTORS MUST UNDERSTAND THAT SUCH INVESTMENT IS ILLIQUID AND IS EXPECTED TO CONTINUE TO BE ILLIQUID FOR AN INDEFINITE PERIOD OF TIME. NO PUBLIC MARKET EXISTS FOR THE SECURITIES.
4.4 PROSPECTIVE INVESTORS MAY NOT TREAT THE CONTENTS OF THE SUBSCRIPTION AGREEMENT, THE OFFERING CIRCULAR OR ANY OF THE OTHER MATERIALS PROVIDED BY THE COMPANY (COLLECTIVELY, THE “OFFERING MATERIALS”), OR ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE COMPANY OR ANY OF ITS OFFICERS, EMPLOYEES OR AGENTS (INCLUDING “TESTING THE WATERS” MATERIALS) AS INVESTMENT, LEGAL OR TAX ADVICE. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THIS OFFERING, INCLUDING THE MERITS AND THE RISKS INVOLVED. EACH PROSPECTIVE INVESTOR SHOULD CONSULT THE INVESTOR’S OWN COUNSEL, ACCOUNTANTS AND OTHER PROFESSIONAL ADVISORS AS TO INVESTMENT, LEGAL, TAX AND OTHER RELATED MATTERS CONCERNING THE INVESTOR’S PROPOSED INVESTMENT.
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4.5 THE OFFERING MATERIALS MAY CONTAIN FORWARD-LOOKING STATEMENTS AND INFORMATION RELATING TO, AMONG OTHER THINGS, THE COMPANY, ITS BUSINESS PLAN AND STRATEGY, AND ITS INDUSTRY. THESE FORWARD-LOOKING STATEMENTS ARE BASED ON THE BELIEFS OF, ASSUMPTIONS MADE BY, AND INFORMATION CURRENTLY AVAILABLE TO THE COMPANY’S MANAGEMENT. WHEN USED IN THE OFFERING MATERIALS, THE WORDS “ESTIMATE,” “PROJECT,” “BELIEVE,” “ANTICIPATE,” “INTEND,” “EXPECT” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS, WHICH CONSTITUTE FORWARD LOOKING STATEMENTS. THESE STATEMENTS REFLECT MANAGEMENT’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING STATEMENTS. INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO REVISE OR UPDATE THESE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER SUCH DATE OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS.
5. MISCELLANEOUS
5.1 Any notice or other communication given hereunder shall be deemed sufficient if in writing and sent by registered or certified mail, return receipt requested, addressed to the Company at ILS FIXED HORIZON LLC, PO Box 1227, 210 Market Street, El Campo, TX 77437, Attention: Donald Sutton, and to the Subscriber at his/her address indicated on the last page of this Agreement. Notices shall be deemed to have been given on the date of mailing, except notices of change of address, which shall be deemed to have been given when received.
5.2 This Agreement shall not be changed, modified, or amended except by a writing signed by the parties to be charged, and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged. The respective representations, warranties and covenants of the parties set forth in this Agreement shall survive delivery of and payment for the Units contemplated hereunder.
5.3 This Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of any and every nature among them.
5.4 This Agreement and its validity, construction and performance shall be governed in all respects by the laws of the State of Texas, without giving effect to the choice of law rules thereof, and by the terms of the Governing Documents.
5.5 This Agreement may be executed in counterparts. Upon the execution and delivery of this Agreement by the Subscriber to the Manager by email to fixedhorizon@ils.cash, this Agreement shall become a binding obligation of the Subscriber with respect to the purchase of Units as herein provided.
5.6 Governing Law; Dispute Resolution. This Agreement shall be governed by and construed in accordance with the laws of the state of Texas. In the event of a dispute regarding this Agreement or the respective rights of the Parties hereunder, the Parties agree to submit such dispute exclusively to binding arbitration under Judicial Arbitration and Mediation Services (“JAMS”) or the American Arbitration Association (“AAA”), at the discretion of the Party filing such demand for arbitration, in Wharton, Texas before a single professional arbitrator selected by the Parties or, if the Parties cannot agree on an arbitrator, appointed by JAMS or AAA, as relevant. Any such arbitration shall be commenced within fifteen (15) days of selection of the arbitrator and the discovery rules contained in the Texas Rules of Civil Procedure shall apply to all such proceedings in the event the arbitrator does not set out alternative discovery rules. In the event that the Parties are required to take any action to enforce any provision of this Agreement, or litigation results from or arises out of this Agreement or the performance thereof, the Parties agree the arbitrator shall order all remedies permitted by law, including award attorney's fees and costs to the prevailing party, and require that the entire proceeding, including the existence of the proceeding, be held confidential by the Parties, and shall not be disclosed by any Party. Any and all orders issued by the arbitrator shall be enforced by a state court of competent jurisdiction located in Wharton, Wharton County, Texas.
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6. ACCEPTANCE.
Execution of this Subscription Agreement and tender of the payment referenced in Paragraph 1 above shall constitute an irrevocable offer which the Company may accept or reject; acceptance by the Company shall be indicated by its causing the undersigned to become a Member of the Company with execution hereof constituting execution of the Operating Agreement.
[Remainder of Page Intentionally Left Blank.]
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Subscriber Information: | |
Name | Social Security # or Tax I.D.
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Street Address | County
|
City | State Zip Code
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Telephone Email | Occupation
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Spouse’s Name | Spouse’s Occupation
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Co-Subscriber Information: | |
Name | Social Security # or Tax I.D.
|
Street Address | County
|
City | State Zip Code
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Telephone Email | Occupation
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Spouse’s Name | Spouse’s Occupation
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Investment Ownership: | Investment Payment Method (choose one): |
Capital Contribution
$________________
¨ Class A1 Units
¨ Class A2 Units
¨ Class B1 Units
¨ Class B2 Units
¨ Class C1 Units
¨ Class C2 Units
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¨ Wire Transfer Instructions
¨ ACH Instructions
¨ Check
|
Revenue Automatic Direct Deposit: | |
¨ Deposit my monthly Debt Payments electronically into the account listed on the attached voided check.
¨ Reinvest my monthly Accrued Interest. |
My Interest Should be Shown on the Company Records as Follows (indicate one of the following): | ||
¨ Individual ¨ Joint Tenancy ¨ Trustee** |
¨ Company* ¨ Tenants in Common ¨ Other (Describe) ______________________________
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¨ IRA ¨ Corporation*** |
* If a limited liability company, please include a copy of the Articles of Organization, Operating Agreement and a certificate of action of the manager(s) or other document authorizing the investment.
** If a custodian, trustee or agent, please include a copy of the trust, agency or other agreement and an entity certificate authorizing the investment.
*** If a corporation, please include a copy of the Articles of Incorporation and a certified corporate resolution or other document authorizing the investment.
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Beneficiary Information: |
While a designation of your beneficiary or beneficiaries is not required for investment, should you desire to identify your beneficiary of your investment herein, please provide the information requested below. If you live in a state with community property statutes and do not designate your spouse as the sole primary beneficiary, you represent and warrant that your spouse has consented to such a designation. Note that the information provided on this form will replace all existing primary and contingent beneficiary designations you have provided to us. |
1. | ¨ Primary Beneficiary ¨ Contingent Beneficiary _____% Designated Percentage |
Beneficiary Name: Social Security Number:
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Address: City: State: Zip:
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Relationship: Date of Birth: Mobile Phone:
Email Address: Spousal Approval: Y/N (circle one)
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2. | ¨ Primary Beneficiary ¨ Contingent Beneficiary |
Beneficiary Name: Social Security Number:
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Address: City: State: Zip:
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Relationship: Date of Birth: Mobile Phone:
Email Address: Spousal Approval: Y/N (circle one)
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3. | ¨ Primary Beneficiary ¨ Contingent Beneficiary |
Beneficiary Name: Social Security Number:
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Address: City: State: Zip:
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Relationship: Date of Birth: Mobile Phone:
Email Address: Spousal Approval: Y/N (circle one)
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4. | ¨ Primary Beneficiary ¨ Contingent Beneficiary |
Beneficiary Name: Social Security Number:
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Address: City: State: Zip:
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Relationship: Date of Birth: Mobile Phone:
Email Address: Spousal Approval: Y/N (circle one)
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5. | ¨ Primary Beneficiary ¨ Contingent Beneficiary |
Beneficiary Name: Social Security Number:
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Address: City: State: Zip:
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Relationship: Date of Birth: Mobile Phone:
Email Address: Spousal Approval: Y/N (circle one)
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6. | ¨ Primary Beneficiary ¨ Contingent Beneficiary |
Beneficiary Name: Social Security Number:
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Address: City: State: Zip:
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Relationship: Date of Birth: Mobile Phone:
Email Address: Spousal Approval: Y/N (circle one)
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Please indicate your acceptance of the terms, conditions, and information provided in this Subscription Agreement by executing below in the space provided. The Subscription Agreement will be deemed to be fully executed and a copy returned to you for your records upon receipt of investment payment. |
Accepted By: | ||
SUBSCRIBER | ||
Signature
|
Printed Name | Date
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ILS FIXED HORIZON LLC | ||
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11
Exhibit 1A-6.1
MASTER LOAN PURCHASE AND SALE AGREEMENT
This MASTER LOAN PURCHASE AND SALE AGREEMENT (this “Agreement”) is made effective as of ______________, 2023 (“Effective Date”), by and between ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY, PEARL FUNDING LLC, A TEXAS LIMITED LIABILITY COMPANY, ILS GROWTH FUND I LP, A TEXAS LIMITED PARTNERSHIP, ILS INCOME FUND I LP, A TEXAS LIMITED PARTNERSHIP, ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY, ILS RE CAPITAL II LLC, A TEXAS LIMITED LIABILITY COMPANY (“Seller”) and _________________________________________________________(“Buyer”).
RECITALS
WHEREAS, from time to time, Buyer desires to purchase and assume from Seller, and Seller desires to sell and assign to Buyer, all or part of Seller’s right, title and interest in and to one (1) or more of the Loans (as evidenced by the Notes and other Loan Documents applicable to the Loans in question) (the “Loan” or “Loans”), and all or part of Seller’s rights, duties, and obligations that may exist with respect thereto, pursuant to the terms and conditions of this Agreement and the applicable Loan Purchase Certificate(s).
WHEREAS, Seller is the holder of the Loans, with each such Loan being evidenced, secured and/or guaranteed by the Loan Documents applicable thereto, as such Loan Documents are more particularly described herein.
AGREEMENT
NOW THEREFORE, in consideration of the purchase price of the Loan and for other good and valuable consideration, Seller and Buyer agree as follows:
1. The Loan(s) as described in the Loan Purchase Certificate(s) are governed and secured by, among other documents: (a) Security Instrument recorded or to be recorded in the real property records of the collateral property’s jurisdiction (b) Note secured by the Security Instrument (c) Specific Guaranty Agreement (d) a Loan Title Policy issued or to be issued (e) all other documents and agreements provided by and/or executed by Borrower in connection with the application and closing of the Loan, hereinafter collectively referred to as the “Loan” and the “Loan Documents”.
Master Loan Purchase and Sale Agreement | Page 1 |
2. Seller has agreed to sell and assign to Buyer the Loan, Loan Servicing Agreement and the Loan Documents and all claims, actions, causes of action, rights or defenses arising out of or in connection therewith, collectively the “Claims”, and Buyer has agreed to purchase the Loan and the Claims from Seller, on the terms and conditions set forth in this Agreement and on the Loan Purchase Certificate. The Loan Servicing rights shall be retained by Seller through the life of the Loan unless specifically transferred to Buyer in writing and indicated on the Loan Purchase Certificate for each loan.
3. Seller warrants, represents and agrees to sell to Buyer, the Loan, and shall TRANSFER, ASSIGN, GRANT and convey, to Buyer, subject to the terms of this Agreement and each Loan Purchase Certificate, the Loan and the Loan Documents and Claims, free and clear of liens, claims and encumbrances.
4. The purchase price of the Loan is as shown on the Loan Purchase Certificate plus assignment fees, the “Purchase Price” and is to be paid upon execution of this Agreement and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged and confessed, and for the mutual and dependent covenants herein contained.
5. On the effective date as written on the Loan Purchase Certificate, Seller shall deliver to Buyer, via electronic delivery, the following documents:
a. | An itemized accounting of the payments and charges related to the Loan including the amount due as of the effective date. |
b. | Assignment of Lien executed by Seller, to be recorded in the real property records of the collateral property’s jurisdiction after consummation of the Loan purchase. |
c. | Allonge Endorsement to the Note executed by Seller |
d. | Note |
e. | Security Instrument |
f. | Loan Title Policy upon receipt of same by Seller |
g. | Loan Documents |
The originals of all documents shall be held in the custody of and under the control of the Loan Servicer at all times until written request is made by Lender for delivery of all original documents, as aforementioned in Section 5. Upon written request, said original documents shall be promptly delivered to Lender.
6. Seller represents and warrants that as of the effective date, the outstanding principal balance due under the Loan is accurately represented on the Loan Purchase Certificate. The outstanding and unpaid interest balance due under the Loan has a daily interim rate that is calculated by taking the outstanding Principal balance multiplied by the note interest rate and dividing by 365 and the total due is calculated using the effective funding date of the purchase of the loan. Seller represents the total interest due as of the effective funding date is accurately represented on the Loan Purchase Certificate.
Master Loan Purchase and Sale Agreement | Page 2 |
7. Seller represents and warrants that the Loan is not in default as of the effective date and Seller represents to promptly inform Buyer if the loan defaults prior to the execution of the Loan Purchase Certificate.
8. Seller represents and warrants that (i) the amount of the unpaid principal and interest due under the Loan, together with outstanding attorneys’ fees, late charges and other amounts owed is as stated herein, (ii) Seller, is the legal and equitable owner and holder of the Loan, the other Loan Documents and the Claims and has the power and authority to sell and assign the Loan, the other Loan Documents and the Claims pursuant to the terms of this Agreement which are free and clear of any liens, claims or encumbrances, (iii) Seller has not released any person from any material obligation under the Loan, the other Loan Documents and the Claims which would or could reasonably be expected to prevent Buyer from obtaining the practical benefits of the Loan, the other Loan Documents and the Claims, (iv) Seller has not released any liens, security interests or other encumbrances on the Property, (v) Seller has not previously assigned the Loan, the other Loan Documents or the Claims, (vi) the person signing this Agreement on behalf of Seller is duly authorized to do so, (vii) to the best of Seller’s knowledge and belief, all payments of principal and interest received by Seller for application to the Loan have been properly applied in accordance with the Loan Documents, (viii) to the best of Seller’s knowledge and belief, the Loan is not subject to any offsets or credits that are not already reflected in Seller’s records. (ix) the Seller has had adequate opportunity to consult with its counsel regarding this Agreement and the advisability of entering in to this Agreement, (x) the Loan is secured by a lien on the Property and the priority of the lien is accurately represented on the Loan Purchase Certificate; AND (xi) SELLER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS, SHAREHOLDERS, MEMBERS, EMPLOYEES, AGENTS, REPRESENTATIVES AND ATTORNEYS, FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, CLAIM, JUDGMENT, DAMAGE AND EXPENSE WHATSOEVER (INCLUDING REASONABLE ATTORNEYS’ FEES AND AMOUNTS PAID IN SETTLEMENT) RELATED TO THE ACTIONS OR INACTION OF SELLER RELATED TO THE LOAN OR ANY BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT HEREUNDER.
9. Repurchase Agreement. If a repurchase purchase amount provision is specified in the Loan Purchase Certificate and accompanying schedules, Seller warrants that if Borrower is in default under the Loan for SIXTY (60) days or more, within FIVE (5) years from the date of the Loan Purchase Certificate, and upon written request by Buyer, Seller shall purchase the Loan in an amount defined therein.
Master Loan Purchase and Sale Agreement | Page 3 |
10. | Representations and Warranties of Buyer. Buyer represents and warrants to Seller that: |
(i) it has the power and authority to purchase the Loan, the other Loan Documents and the Claims pursuant to the terms of this Agreement, (ii) Buyer has conducted its own due diligence with respect to the acquisition of the Loan, the other Loan Documents and the Claims, including without limitation, (a) the terms, provisions, validity and enforceability of the Loan Documents, (b) the perfection and/or priority of any lien against, security interests in and assignment of any and all of the Property therefore, and (c) the value, condition, quality, sufficiency of the description and amount of any such Property purportedly covered and affected by the Loan Documents, (iii) except as expressly set forth in this Agreement, Buyer has not relied on any statements of Seller (other than representations, warranties and covenants set forth herein), and is relying solely upon the results of Buyer’s own due diligence, (iv) the person signing this Agreement on behalf of Buyer is duly authorized to do so, (v) Buyer is acquiring the Loan, the other Loan Documents and the Claims for its own account and not with a view to any public sale or distribution thereof and Buyer does not intend to sell, offer for sale or syndicate securities or fractional interests in Buyer in connection with the purchase of the Loan, the other Loan Documents and the Claims, provided however, nothing herein shall be construed or applied to prohibit or otherwise limit Buyer’s right to dispose of all or any portion of Buyer’s interest in the Loan, the other Loan Documents and the Claims in any manner Buyer so desires in compliance with all applicable laws, (vi) Buyer has such knowledge and experience in financial and business matters so that it is capable of evaluating the merits and risks relating to its purchase of the Loan, the other Loan Documents and the Claims and making an informed purchase and investment decision in connection therewith, (vii) Buyer has made such independent examination, review and investigation of the facts and circumstances necessary to evaluate the Loan, the other Loan Documents and the Claims as it has deemed necessary or appropriate to form a basis for its evaluation of a purchase of the Loan, the other Loan Documents and the Claims, and, other than representations, warranties and covenants made by Seller, Buyer is assuming all risk with respect to the completeness, accuracy or sufficiency of the Loan Documents, (viii) Buyer has retained counsel of its own choosing in performing its due diligence in connection with this Agreement and has had adequate opportunity to consult with its counsel regarding this Agreement and the advisability of entering in to this Agreement, (ix) Buyer further acknowledges that in acquiring the Loan, the other Loan Documents and the Claims, Buyer is assuming the risk of full or partial loss that is inherent with the credit, collateral and collectability risks associated with the quality and character of the Loan, the other Loan Documents and the Claims, (x) Buyer has agreed to the Purchase Price on the basis of its own independent investigation and credit evaluation of the Loan, the other Loan Documents and the Claims and Buyer acknowledges that the amount ultimately received by Buyer in respect of the Loan, the other Loan Documents and the Claims may be less than the Purchase Price, and Buyer shall have no recourse to Seller for any such deficiency, except to the extent such deficiency results from a breach of a representation, warranty or covenant of Seller, (xi) Buyer has not engaged any broker or finder or incurred or become obligated to pay any broker’s commission or finder’s fee in connection with the transactions contemplated by this Agreement, AND (xii) BUYER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS SELLER, AND ITS SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS, SHAREHOLDERS, MEMBERS, EMPLOYEES, AGENTS, REPRESENTATIVES AND ATTORNEYS, FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, CLAIM, JUDGMENT, DAMAGE AND EXPENSE WHATSOEVER (INCLUDING REASONABLE ATTORNEYS’ FEES AND AMOUNTS PAID IN SETTLEMENT) RELATED TO THE ACTIONS OR INACTION OF BUYER RELATED TO THE LOAN AFTER THE EFFECTIVE DATE; provided, however, that such loss, liability, claim, judgment, damage or expense is not solely attributable to any negligent act or omission by Seller.
Master Loan Purchase and Sale Agreement | Page 4 |
11. Parties Intent. It being the express intent of Seller and Buyer that all liens, security interests, assignments, amounts held in escrow or otherwise for the benefit of the Borrower remaining with the Loan Servicer, and other encumbrances related to the Loan are to be transferred and assigned to Buyer under the terms and conditions of this Agreement (except those liens, security interests, assignments and other encumbrances expressly excluded by the terms hereof), SELLER HEREBY AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS BUYER, AND ITS SUBSIDIARIES, AFFILIATES, OFFICERS, DIRECTORS, SHAREHOLDERS, MEMBERS, EMPLOYEES, AGENTS, REPRESENTATIVES AND ATTORNEYS, FROM AND AGAINST ANY AND ALL LOSS, LIABILITY, CLAIM, JUDGMENT, DAMAGE AND EXPENSE WHATSOEVER (INCLUDING REASONABLE ATTORNEYS’ FEES AND AMOUNTS PAID IN SETTLEMENT) DIRECTLY ARISING OUT OF, BASED UPON, RESULTING FROM OR OTHERWISE RELATING TO ANY LIENS, SECURITY INTERESTS, ASSIGNMENTS AND OTHER ENCUMBRANCES THAT ARE INTENDED TO BE ASSIGNED HEREBY, BUT THAT ARE RETAINED BY SELLER.
12. Fees and Expenses. Seller and Buyer shall each pay their own fees and expenses (including attorneys’ fees) in connection with this Agreement. Additionally, Buyer shall pay all premiums and other expenses associated with the issuance of any title policies, title policy endorsements, any other title company related charges and any recording fees if invoiced by Seller or Loan Servicer.
13. Further Assurances. Seller and Buyer further covenant and agree to take any and all reasonable actions and to execute, acknowledge, deliver and record any and all reasonable agreements, amendments, assignments, instruments and other documents as may be necessary or appropriate to evidence the foregoing sale, assignment, transfer and conveyance.
14. Confidentiality. Buyer hereby agrees that the business methods, documents, financial information, pricing information, identities and contact information of clients and borrowers of Seller are the confidential and proprietary property (the “Confidential Information”) of Seller. Buyer covenants and agrees to treat as confidential and will not, without the prior written approval of Seller, disclose any Confidential Information except as required to service or enforce the Loan and the liens securing the Loan or as such disclosure is necessary to its attorneys, accountants, and other financial advisors.
Master Loan Purchase and Sale Agreement | Page 5 |
15. Notices. All notices, demands, or other communications of any type (collectively, the “Notices”) given by Seller to Buyer or by Buyer to Seller, whether required by this Agreement or in any way related to the transactions contemplated herein, shall be in writing and delivered either by commercial delivery service to the office of the person to whom the Notice is directed (provided that such delivery is confirmed by the courier delivery service), or by United States Mail, postage prepaid, as a registered or certified item, return receipt requested. Notices delivered by commercial delivery service shall be deemed to have been given upon receipt at the office of the person to whom the Notice is directed and Notices delivered by mail shall be effective when deposited in a Post Office or other depository under the care or custody of the United States Postal Service, enclosed in a wrapper with proper postage affixed and addressed, as provided below:
TO SELLER:
ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY;
PEARL FUNDING LLC, A TEXAS LIMITED LIABILITY COMPANY;
ILS GROWTH FUND I LP, A TEXAS LIMITED PARTNERSHIP;
ILS INCOME FUND I LP, A TEXAS LIMITED PARTNERSHIP;
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY;
ILS RE CAPITAL II LLC, A TEXAS LIMITED LIABILITY COMPANY
c/o LOAN SOURCE LLC
PO BOX 1611
EL CAMPO, TEXAS 77437
TO BUYER:
TO LOAN SERVICER:
LOAN SOURCE LLC, A TEXAS LIMITED LIABILITY COMPANY
PO BOX 1611
EL CAMPO, TEXAS 77437
Any party hereto may change the address for Notices specified above by giving the other party ten days’ advance written Notice of such change of address.
Master Loan Purchase and Sale Agreement | Page 6 |
16. Governing Law and Venue. This Agreement and the obligations of Seller and Buyer shall be interpreted, construed, and enforced in accordance with the laws of the State of Texas and venue for any dispute related to this Agreement shall lie solely in the Texas State Courts in WHARTON County, Texas.
17. Binding Effect. This Agreement shall be binding upon Seller and Buyer and their respective successors and assigns. Buyer may not assign its rights hereunder in whole or in part at any time at or prior to the effective date to any other Person except to an Affiliate of Buyer without the prior written consent of Seller. “Affiliate” means any Person controlling, controlled by or under common control with any other Person. For the purposes of this definition, the term “control” when used with respect to any Person means the power to direct the management or policies of such Person, directly or indirectly, whether through the ownership of voting securities, by law, regulation, contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
18. Attorney’s Fees, Expenses and Court Costs. In the event of any action at law or in equity in relation to this Agreement, the losing party shall pay the prevailing party’s reasonable attorneys’ fees, expenses, and court costs.
19. Terminology. Wherever required by the context, any gender shall include any other gender, the singular shall include the plural, and the plural shall include the singular.
20. Severability. In case any one or more of the provisions contained in this Agreement shall for any reason be held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality, or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal, or unenforceable provision had never been contained herein.
21. Rule of Construction. The parties hereby agree that normal rules of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Agreement or any amendments or exhibits hereto.
22. Counterparts. This instrument may be executed in multiple counterparts, all of which shall be deemed originals and have the same effect as if all parties hereto had signed the same document. All such counterparts shall be construed together and shall constitute one and the same instrument.
Master Loan Purchase and Sale Agreement | Page 7 |
23. WAIVER OF JURY TRIAL. EACH PARTY HEREBY WAIVES TRIAL BY JURY IN ANY PROCEEDINGS BROUGHT BY THE OTHER PARTY IN CONNECTION WITH ANY MATTER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE LOAN DOCUMENTS, OR THE RELATIONSHIP OF SELLER AND BUYER HEREUNDER. THE PROVISIONS OF THIS PARAGRAPH SHALL SURVIVE THE CLOSING OR THE EARLIER TERMINATION OF THIS AGREEMENT.
24. Survival. All certifications, representations, warranties, and indemnifications herein shall survive closing.
25. Entire Agreement. This Agreement (including the exhibits hereto) contains the entire agreement between Seller and Buyer regarding the sale and purchase of the Loan, and no oral statements or prior written matter not specifically incorporated herein shall be of any force and effect. No variation, modification, or changes hereof shall be binding on either party hereto unless set forth in a document executed by such parties or duly authorized agent, officer or representative thereof. THIS WRITTEN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the day and year first above written.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE AND ACKNOWLEDGEMENT PAGES FOLLOW]
Master Loan Purchase and Sale Agreement | Page 8 |
AGREED:
SELLER:
ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: SWM CORPORATE MANAGEMENT LLC, ITS MANAGER
DONALD J. SUTTON, MANAGER |
PEARL FUNDING LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: SWM CORPORATE MANAGEMENT LLC, ITS MANAGER
DONALD J. SUTTON, MANAGER |
ILS GROWTH FUND I LP, A TEXAS LIMITED PARTNERSHIP
BY: ILS GP LLC, GENERAL PARTNER
BY: SWM CORPORATE MANAGEMENT LLC, MANAGER OF ILS GP LLC
DONALD J. SUTTON, MANAGER |
ILS INCOME FUND I LP, A TEXAS LIMITED PARTNERSHIP
BY: ILS GP LLC, GENERAL PARTNER
BY: SWM CORPORATE MANAGEMENT LLC, MANAGER OF ILS GP LLC
DONALD J. SUTTON, MANAGER |
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, A TEXAS CORPORATION, ITS MANAGER
DONALD J. SUTTON, PRESIDENT |
Master Loan Purchase and Sale Agreement | Page 9 |
ILS RE CAPITAL II LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, A TEXAS CORPORATION, ITS MANAGER
DONALD J. SUTTON, PRESIDENT |
BUYER:
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
This instrument was acknowledged before me on __________________, 2023, by DONALD J. SUTTON as MANAGER OF SWM CORPORATE MANAGEMENT, the MANAGER of ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY.
Notary Public, State of TEXAS | ||
My commission expires: |
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
This instrument was acknowledged before me on __________________, 2023, by DONALD J. SUTTON as MANAGER OF SWM CORPORATE MANAGEMENT, the MANAGER of PEARL FUNDING LLC, A TEXAS LIMITED LIABILITY COMPANY.
Notary Public, State of TEXAS | ||
My commission expires: |
Master Loan Purchase and Sale Agreement | Page 10 |
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
This instrument was acknowledged before me on __________________, 2023, by DONALD J. SUTTON as MANAGER of SWM CORPORATE MANAGEMENT LLC, MANAGER of ILS GP LLC, GENERAL PARTNER of ILS GROWTH FUND I LP, A TEXAS LIMITED PARTNERSHIP.
Notary Public, State of TEXAS | ||
My commission expires: |
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
This instrument was acknowledged before me on __________________, 2023, by DONALD J. SUTTON as MANAGER of SWM CORPORATE MANAGEMENT LLC, MANAGER of ILS GP LLC, GENERAL PARTNER of ILS INCOME FUND I LP, A TEXAS LIMITED PARTNERSHIP.
Notary Public, State of TEXAS | ||
My commission expires: |
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
This instrument was acknowledged before me on __________________, 2023, by DONALD J. SUTTON as PRESIDENT of ILS RE CAPITAL MGMT CORP, A TEXAS CORPORATION, MANAGER of ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILTY COMPANY.
Notary Public, State of TEXAS | ||
My commission expires: |
Master Loan Purchase and Sale Agreement | Page 11 |
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
This instrument was acknowledged before me on __________________, 2023, by DONALD J. SUTTON as PRESIDENT of ILS RE CAPITAL MGMT CORP, A TEXAS CORPORATION, MANAGER of ILS RE CAPITAL II LLC, A TEXAS LIMITED LIABILTY COMPANY.
Notary Public, State of TEXAS | ||
My commission expires: |
STATE OF TEXAS | § | |
COUNTY OF | § |
This instrument was acknowledged before me on _________________, 2023, by ______________________________________.
Notary Public, State of | ||
My commission expires: |
Master Loan Purchase and Sale Agreement | Page 12 |
EXHIBIT “MLSA”
MASTER LOAN SERVICING AGREEMENT
This Master Loan Servicing Agreement is made and entered into on ______________, 2023 by and between ____________________________________________________________, the “Lender” and LOAN SOURCE LLC, A TEXAS LIMITED LIABILITY COMPANY, the “Loan Servicer”.
WHEREAS, from time to time Lender may purchase one or more Loans in which Loan Servicer is the Loan Servicing Agent for the life of the loan, and acquiring rights, title and interest in and to the Loans, pursuant to terms contained in a Master Loan Purchase and Sale Agreement and Loan Purchase Certificate(s) and addenda.
WHEREAS, Loan Servicer is performing certain services on behalf of Lender in servicing the Loan and is the custodian of the original documents pertaining to the Loan.
“Loan” and “Loan Documents” shall be construed to mean, the Note, Security Instrument, Guaranty Agreement, loan documents executed by Borrower, documents provided by Borrower and all other documents provided, obtained, and/or executed by Borrower in connection with the loan.
AGREEMENT
1. | Payment of Principal and Interest and Other Fees. During the life of the loan, Loan Servicer shall use any and all reasonable efforts to collect all sums due from Borrower, under the terms of the Loan on or before each due date of each and every month and at maturity. The interest payable to Lender shall be the Note’s face value interest rate less a servicing spread retained by Loan Servicer as its fee, if applicable and indicated on the Loan Purchase Certificate, the “Loan Servicer Fee”. In the event of default, Loan Servicer shall retain the difference between the default rate of the Note and the face value rate of the Note as an additional servicing spread fee for the default servicing of the Loan. |
2. | Under the terms of this Agreement, Loan Servicer shall pay to Lender the interest rate and monthly payment amount, and on the date indicated and stated on the Loan Purchase Certificate. |
3. | Upon receipt of any payment from Borrower to Loan Servicer, the Loan Servicer shall first apply the payment to Loan Servicing Fees, additional interest or other amounts due to Loan Servicer, and then shall remit the balance to Lender. Lender shall keep additional Fees as defined in the Loan Documents and other fees as defined on “Exhibit MLSA” attached hereto. |
Master Loan Servicing Agreement | Page 1 |
4. | Payment of Escrow Amounts. In addition to the payment of interest, Loan Servicer shall make any and all reasonable efforts to collect from Borrower on or before each monthly due date, all amounts owed with respect to taxes and insurance, as required by the Loan Documents, as such amounts vary from time to time. Loan Servicer shall collect such amounts and pay the applicable providers and/or taxing authorities on or before their respective due dates and promptly provide Lender with evidence of said payments. |
5. | Notices. Loan Servicer may send notices on Lender’s behalf. A notice by Loan Servicer shall be considered a notice from the Lender. Loan Servicer will promptly provide Lender with copies of all notices sent by Loan Servicer, on behalf of Lender. |
6. | Repurchase. If the parties have agreed to repurchase terms, the Lender may reassign the Loan and its related documents to the Seller by providing written notice to Loan Servicer pursuant to terms in the Master Loan Purchase Agreement and Loan Purchase Certificate. In such event, the parties will execute all document necessary to transfer and assign the loan to the Seller. If such agreement exists documented by a repurchase amount provision in the Loan Purchase Certificate and accompanying schedules, such provision contained therein governs the repurchase amount, if any. |
7. | Power of Attorney. Lender shall execute the Power of Attorney providing Loan Servicer the authority to do all things and take all actions on behalf of Lender, including but not limited to, executing Satisfaction and Releases of Lien upon payoff of the Loan. |
8. | Governing Law. This agreement shall be governed by the laws of the State of Texas, without regard to its conflict of laws principles. |
LENDER:
DATE: |
LOAN SERVICER:
LOAN SOURCE LLC, A TEXAS LIMITED LIABILITY COMPANY
DATE: |
DONALD J. SUTTON, MANAGER
Master Loan Servicing Agreement | Page 2 |
MLSA EXHIBIT “A”
OTHER FEES SCHEDULE PAYABLE BY BORROWER TO LOAN SERVICER
Late Payment Fee: | As defined in the Note |
Wire Transfer fee | $35.00 each |
Loan Servicing Fee | As defined in the Note |
Release of Lien Fee | $200.00 by request |
Extension Fee | As defined in the Note Addendum |
Prepayment Fee | As defined in the Note Addendum |
Payoff Statement Request Fee | $25.00 each occurrence |
Credit card service fee (for service fees only excluding monthly payment that may include interest and/or principal of the note) | 3.5% of the amount charged |
DRAW FEES
Draw Request | $100.00 each |
Inspection Fee | $250.00 each |
OTHER
Initial referral to national counsel | Minimum $1,500.00 each occurrence |
Uncontested Judicial Foreclosure Fee | Minimum $5,000.00 each occurrence |
Contested Judicial Foreclosure Fee | Minimum $7,500.00 each occurrence |
Non-Judicial Foreclosure Fee | Minimum $3,500.00 each occurrence |
Non-Judicial Foreclosure Posting Fee | Minimum $750.00 each occurrence |
Foreclosure Loan Service Fee | $400.00 each occurrence |
Foreclosure Sale and Auction Fee | $2,500.00 |
Litigation Fee | Minimum $5,000.00 each occurrence |
Title Review Fee | $195.00 each occurrence |
Reinstatement Fee | $150.00 each occurrence |
Bankruptcy Fee | Minimum $7,500.00 each occurrence |
Initiate Force Placed Insurance Administration Fee | $75.00 each occurrence |
Force Placed Insurance Coverage | Market rate per day each occurrence |
Deed in Lieu of Foreclosure Fee | $500.00 |
All other fees defined in the transaction documents.
All fees are subject to change without notice and actual costs and fees may vary depending on circumstances related to the loan.
Master Loan Servicing Agreement | Page 3 |
POWER OF ATTORNEY
WHEREAS (“Client”) has agreed to place loans with LOAN SOURCE LLC (“Servicer”) for purposes of loan servicing in accordance with terms and conditions of certain Agreements Regarding Absolute Assignment of Notes, Liens and Other Documents and Claims entered into between Client and Servicer (the “Servicing Agreement”); and
WHEREAS Client is desirous of appointing Servicer to act on its behalf under this Power of Attorney for purposes of, but not limited to, managing, servicing, and/or foreclosing the Loans that are the subject of the Servicing Agreement.
NOW THEREFORE in consideration of the foregoing, the receipt and sufficiency of which are hereby acknowledged, intending to be legally bound, Client does hereby declare as follows:
1. With respect to each Loan, Client hereby agreed that SERVICER shall have full power and authority, and Client hereby appoints SERVICER as its true and lawful attorney-in-fact to (a) hold the original note(s), if necessary, and (b) to do all things and take all actions on behalf of Client which are necessary or convenient to effectuate the Servicing Agreement and its intent and to protect Client’s interest under any note, deed of trust, mortgage, guaranty, security agreement or other document pertaining to any Loan.
2. This Power of Attorney shall further evidence the appointment of SERVICER as Client’s true and lawful attorney-in-fact to undertake the duties of SERVICER hereunder.
3. Client agrees that no one shall be required to look beyond this Power of Attorney for evidence of SERVICER’S authority hereunder.
4. Without limiting the generality of anything contained herein, Client hereby authorizes and empowers SERVICER, on Client’s behalf, to:
(a) execute and deliver demands for payoff and beneficiary’s/Client’s statements of account and the like;
(b) execute and deliver any instruments of satisfaction or cancellation, or of partial or full release, discharge, or reconveyance, or authorizations in connection therewith, with respect to any Loans paid in full and with respect to the related real or personal property securing such Loans;
(c) execute and deliver any and all other documents with respect to any loans that are customary and consistent with loan servicing practices pertaining to such loans, including, but not limited to, endorsement of any notes, checks, drafts, money orders or other negotiable instruments given in payment of any said Loans;
(d) consent to modifications of the Loans if the effect of any such modification will not materially or adversely affect the security provided by the real or personal property in connection therewith;
(e) demand, reduce to possession, sue upon, collect, receive for, convey, transfer, or endorse or assign without recourse, any and all Loans and/or mortgages or deeds of trust subject to the Servicing Agreement, and institute foreclosure or possession proceedings (judicial or non-judicial), obtain a deed-in-lieu thereof, engage in settlement discussions, and enter into forbearance and other settlement- related agreements (which agreements may contain provisions that release or waive claims against a Borrower or Guarantor);
(e) take title in the name of Client (in proportion to its interest in the Loan) to any real property upon foreclosure or delivery of a deed-in-lieu thereof; and
(f) communicate with any of Client’s predecessors in interest and to receive from such predecessors in interest any and all documents, instruments or other writings necessary to exercise the powers granted hereby.
Power of Attorney | Page 1 |
5. Notwithstanding and foregoing or any other provision contained herein, SERVICER may not permit any modification to any loan that would materially change the interest rate, forgive the payment of any principal or interest (expressly excluding late charges or the difference between default and non-default interest), change the outstanding principal amount, or extend the maturity date, without Client’s prior written consent.
Effective Date and Termination Date: The powers and authority of the SERVICER as attorney-in-fact herein granted shall commence and be in full force and effect from the date this Power of Attorney is executed, and such rights, powers and authority shall remain in full force and effect thereafter until revoked in writing.
IN WITNESS WHEREOF, Client, through its authorized representative, has caused this Instrument to be executed and its corporate seal to be hereunto affixed and attested by its proper officers thereunto duly authorized on this ________________day of ____________________________, 20______.
STATE OF TEXAS | § | |
COUNTY OF | § |
This instrument was acknowledged before me on ________________, 2023, by________________________________________.
Notary Public, State of | ||
My commission expires: |
Power of Attorney | Page 2 |
ASSIGNMENT AND ASSUMPTION OF LOAN DOCUMENTS
THIS ASSIGNMENT AND ASSUMPTION OF LOAN DOCUMENTS (“Assignment”) is made as of ________________, 2023, by and between ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY, PEARL FUNDING LLC, A TEXAS LIMITED LIABILITY COMPANY, ILS GROWTH FUND I LP, A TEXAS LIMITED PARTNERSHIP, ILS INCOME FUND I LP, A TEXAS LIMITED PARTNERSHIP, ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY, ILS RE CAPITAL II LLC, A TEXAS LIMITED LIABILITY COMPANY (“Seller”),
and _________________________________________________________________(“Buyer”).
Seller and Buyer have entered into that certain Master Loan Purchase and Sale Agreement dated _____________, 2023 (the "Agreement"), for the purchase and sale of those certain promissory notes and the assignment of those certain loan documents to Buyer, all as more particularly described in the Agreement. Capitalized terms not otherwise defined herein have the meanings given to them in the Agreement.
This Assignment is being incorporated into said Master Loan Purchase and Sale Agreement for the purpose of assigning to Buyer all of Seller’s rights, title and interest in and to those certain loans purchased by Buyer from Seller (the “Loan Documents”).
Assignment and Assumption of Loan Documents | Page 1 |
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Assignment of Loan Documents. Seller hereby grants, assigns, transfers, conveys and delivers to Buyer the Loan Documents and all of Seller’s right, title, interest, benefits and privileges thereunder, and Buyer hereby accepts such Assignment. Notwithstanding anything to the contrary in this Assignment, Seller shall continue to be entitled (on a non-exclusive basis) to the rights of indemnity, defense and to be held harmless provided to the lender under the Loan Documents; provided, however, that (i) nothing herein shall be construed to limit the right, title and interest of Buyer once Buyer becomes the lender under the Loan Documents, to all such rights of indemnity, defense and to be held harmless, (ii) if and to the extent Seller’s rights of indemnity, defense and to be held harmless provided to the lender under the Loan Documents conflict or compete in any way with Buyer’s rights of indemnity, defense and to be held harmless provided to the lender under the Loan Documents, Buyer’s rights shall have priority, and (iii) if and to the extent any amounts are recoverable from or payable by a borrower and/or any guarantor under the Loan Documents in satisfaction of such indemnity and/or defense obligations, then as between Buyer (and Buyer’s Related Persons) and Seller (and Seller’s Related Persons), Buyer (and Buyer’s Related Persons) shall have first priority as to same.
2. Assumption of Obligations. By acceptance of this Assignment, Buyer hereby assumes and agrees to hereafter perform and to be bound by all of the terms, covenants, conditions and obligations imposed upon or assumed by Seller under the Loan Documents from and after the Closing (as defined in the Agreement).
3. Successors and Assigns. This Assignment shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, heirs and legatees of the respective parties hereto.
4. Attorneys’ Fees. In the event of the bringing of any action or suit by a Party hereto against another Party hereunder by reason of any breach of any of the covenants, conditions, agreements or provisions on the part of the other Party arising out of this Assignment, then in that event the prevailing Party shall be entitled to have and recover of and from the other Party all costs and expenses of the action or suit, including reasonable attorneys’ fees.
5. Governing Law. This Assignment shall be governed by, interpreted under, and construed and enforceable with, the laws of the State of Texas.
6. Counterparts. This Assignment may be executed in multiple counterparts, each of which shall be deemed an original, but all of which, together, shall constitute one and the same instrument.
SELLER:
ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: SWM CORPORATE MANAGEMENT LLC, ITS MANAGER
DONALD J. SUTTON, MANAGER |
Assignment and Assumption of Loan Documents | Page 2 |
PEARL FUNDING LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: SWM CORPORATE MANAGEMENT LLC, ITS MANAGER
DONALD J. SUTTON, MANAGER |
ILS GROWTH FUND I LP, A TEXAS LIMITED PARTNERSHIP
BY: ILS GP LLC, GENERAL PARTNER
BY: SWM CORPORATE MANAGEMENT LLC, MANAGER OF ILS GP LLC
DONALD J. SUTTON, MANAGER |
ILS INCOME FUND I LP, A TEXAS LIMITED PARTNERSHIP
BY: ILS GP LLC, GENERAL PARTNER
BY: SWM CORPORATE MANAGEMENT LLC, MANAGER OF ILS GP LLC
DONALD J. SUTTON, MANAGER |
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, A TEXAS CORPORATION, ITS MANAGER
DONALD J. SUTTON, PRESIDENT |
ILS RE CAPITAL II LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, A TEXAS CORPORATION, ITS MANAGER
DONALD J. SUTTON, PRESIDENT |
BUYER:
Assignment and Assumption of Loan Documents | Page 3 |
EXAMPLE OR FORM OF ASSIGNMENT OF SECURITY INSTRUMENT
PARCEL ID: | INSTRUMENT PREPARED BY: |
AFTER RECORDING RETURN TO: | LOAN SOURCE LLC |
LOAN SOURCE LLC | PO BOX 1611 |
PO BOX 1611 | EL CAMPO TEXAS 77437 |
EL CAMPO TEXAS 77437 |
[SPACE ABOVE THIS LINE FOR RECORDING]
LOAN NUMBER:
TRANSFER AND ASSIGNMENT OF LIEN
STATE OF | § |
COUNTY OF | § |
INDEXING: |
EFFECTIVE DATE: |
APN: |
GRANTOR/ASSIGNOR: |
ADDRESS: |
GRANTEE/ASSIGNEE: |
ADDRESS: |
REFERENCE TO: |
PROPERTY ADDRESS: |
LEGAL DESCRIPTION: |
FOR VALUE RECEIVED, the undersigned hereby grants, assigns and transfers to:
all beneficial interest under that Certain Mortgage, Deed of Trust, and/or Security Instrument dated:
AND RECORDED ON
executed by
to
in the amount of $
TOGETHER will the Note therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said Security Instrument.
ASSIGNOR:
Exhibit 1A-6.2
Loan Number | [[LOAN NUMBER]] |
Borrower | [[BORROWER]] |
Collateral Property Address | [[STREET ADDRESS]] [[CITY STATE AND ZIP]] |
LOAN PURCHASE CERTIFICATE
THIS LOAN PURCHASE CERTIFICATE including addenda (collectively the “Loan Purchase Certificate”) is entered into by and between, ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY, the “Buyer” and ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY, the “Seller”, and is executed pursuant to and in accordance with the terms of that certain Master Loan Purchase and Sale Agreement executed between the parties.
The rights and obligations of the Parties to this Loan Purchase Certificate are governed by the Master Agreement, executed between the parties which (i) is fully incorporated herein by reference as if set forth in full herein and (ii) shall govern the sale by Seller to Buyer of the Loans described in this Loan Purchase Certificate below.
Seller does hereby agree to sell, assign, set over and otherwise convey, and Buyer does hereby agree to purchase from Seller, all of Seller’s right, title and interest to the Loans identified on Schedule “1” hereto, for a price equal to the Purchase Price set forth on Schedule “1” hereto.
LOAN PURCHASE CERTIFICATE DATE: _____________________, 2023
This Loan Purchase Certificate consists of the following documents:
Loan Purchase Certificate |
Schedule 1 – Transaction Details |
Schedule 2 – Settlement Statement |
Schedule 3 – Invoice |
Schedule 4 – Allonge |
Schedule 5 – True and Correct Copy of the Note, Security Instrument, Title Commitment or Loan Title Policy, and the Assignment/Transfer of Lien form |
Transfer and Assignment of Lien |
This Loan Purchase Certificate is for the purchase and sale of the rights, title, claims and interests in and to, excluding any rights retained in the Master Agreement and/or herein as described in the Loan Purchase Certificate and addenda, the Loan and Loan Documents executed by:
[[BORROWER]] in favor of ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY on [[LOAN DATE]], secured by the following real property:
[[STREET ADDRESS]]
[[CITY STATE AND ZIP]]
Loan Purchase Certificate and Addenda | Page 1 |
The parties hereto have executed this Loan Purchase Certificate as of the Loan Purchase Certificate Date set forth above.
SELLER:
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, MANAGER
_________________________________________
BY: DONALD J. SUTTON, PRESIDENT
BUYER:
ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS FIXED HORIZON MGMT CORP, MANAGER
_________________________________________
BY: DONALD J. SUTTON, PRESIDENT
Loan Purchase Certificate and Addenda | Page 2 |
SCHEDULE 1 - TRANSACTION DETAILS
Loan Number | [[LOAN NUMBER]] |
Name of Borrower | [[BORROWER]] |
Collateral Property Full Address | [[STREET ADDRESS]] [[CITY STATE AND ZIP]] |
Original Lender | ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY |
Current Lender | ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY |
Buyer | ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY |
Date of Loan | [[LOAN DATE]] |
Original Maturity Date | [[MATURITY DATE]] |
Note Interest Rate Face Value | 10.99% |
Buyer’s Purchase Interest Rate | 8.99% |
Fees retained by Loan Servicer | Monthly Loan Servicing Fee of $40.00 and extension fees due by Borrower |
Interest Spread Rate | 2.00% |
Lien Position | FIRST |
Principal Loan Amount | $100,001.25 |
Loan Holdback Amount | $10,001.25 |
Unpaid Principal Balance | $100,001.25 |
Accrued Interest | $0.00 |
Loan Document Fee | $65.00 |
Document Delivery and Recording Fee | $135.00 |
Total Purchase Price | $100,201.25 |
Repurchase Terms | Aggregate principal, interest and fees |
PAYMENTS TO PURCHASER:
Under the terms of this Agreement, Loan Servicer shall pay to Lender/Buyer 8.99% per annum (the “Lender Rate”) with monthly payments in the amount of $_________________amortized over _____________months which equates to the maturity date of the Note. This payment shall be due and payable on the 15th or at the end of the month after note payment is received from the borrower (“Lender Payments”). The Loan Servicer Fee shall be $_____________each payment. The first payment shall occur on ______________________________________________.
Loan Purchase Certificate and Addenda | Page 3 |
SELLER:
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, MANAGER
_________________________________________
BY: DONALD J. SUTTON, PRESIDENT
BUYER:
ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS FIXED HORIZON MGMT CORP, MANAGER
_________________________________________
BY: DONALD J. SUTTON, PRESIDENT
Loan Purchase Certificate and Addenda | Page 4 |
SCHEDULE 2 - SETTLEMENT STATEMENT
Loan Number | [[LOAN NUMBER]] |
Borrower | [[BORROWER]] |
Collateral Property Address | [[STREET ADDRESS]] [[CITY STATE AND ZIP]] |
Effective Date: _____________________, 2023
SELLER: | ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY |
BUYER: | ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY |
SETTLEMENT STATEMENT
Purchase/Assign Price: | ||||
Unpaid Principal Balance of Loan: | $100,001.25 | |||
Credits for Escrows: | NONE | |||
TOTAL DUE FROM PURCHASER TO SELLER: | $100,001.25 | |||
Purchase/Assign Price with Fees: | ||||
Unpaid Principal Balance Loan Payable to Loan Source LLC | $100,001.25 | |||
Payoff Debit for Escrows: | NONE | |||
Loan Document Preparation to Loan Source LLC ($450 Disc) | $65.00 | |||
Document Delivery and Recording Fee to Loan Source LLC | $135.00 | |||
TOTAL DUE FROM/TO PURCHASER to Loan Source LLC: | $100,201.25 |
SELLER:
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, MANAGER
_________________________________________
BY: DONALD J. SUTTON, PRESIDENT BUYER:
ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS FIXED HORIZON MGMT CORP, MANAGER
_________________________________________
BY: DONALD J. SUTTON, PRESIDENT
Loan Purchase Certificate and Addenda | Page 5 |
SCHEDULE 3 - INVOICE
LOAN SOURCE LLC
210 Market Street / PO Box 1611
El Campo TX 77437
_______________________, 2023
INVOICE
Loan Number: Seller: |
[[LOAN NUMBER]] ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY |
Buyer: | ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY |
Borrower: | [[BORROWER]] |
Collateral Property Address: | [[STREET ADDRESS]] [[CITY STATE AND ZIP]] |
TASK | ESCROW AMOUNT |
AMOUNT DUE |
Unpaid Principal of Loan Amount (LSLLC-AP Loan Amount to Seller) |
$100,001.25 | |
Payoff Debit for Escrows (LSLLC-AP) |
NONE | |
Loan Doc Prep Fee ($450.00 Disc) (LSLLC-AP) |
$65.00 | |
Document Delivery / Recoding fees (LSLLC-AP) |
$135.00 | |
Interim Interest Split (Seller-TBC) (LSLLC-AP Calculate Note Start to Fund Date) |
$___________________________ | |
Interim Interest Split (Buyer-TBC) (LSLLC-AP Calculate Fund Date to Pmt Date) |
$___________________________ | |
Holdback Repairs (TBC) (LSLLC-Transfer to New Lender Loan Managed) |
$___________________________ | |
Escrow for Taxes and Insurance (TBC) (LSLLC-Transfer to New Lender Loan Managed) |
$___________________________ | |
TOTAL DUE | $100,201.25 |
Please wire funds for $100,201.25 to:
Bank Name:
Bank Address:
ABA Routing #:
Account Name:
Account Address:
Account Number:
Thank you!
Loan Purchase Certificate and Addenda | Page 6 |
Loan Number | [[LOAN NUMBER]] |
Borrower | [[BORROWER]] |
Collateral Property Address | [[STREET ADDRESS]] [[CITY STATE AND ZIP]] |
ALLONGE
The undersigned “Assignor” executes the following endorsement with the same intent and purpose as if written and signed on the back of that certain Promissory Note (the “Note”) dated effective as of [[LOAN DATE]], executed by [[BORROWER]], and secured by the property commonly known as [[STREET ADDRESS]], [[CITY STATE AND ZIP]] and payable to the order of ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY in the original principal amount of $100,001.25 and hereby authorizes the attachment hereof to the above described instrument, so as to become firmly affixed thereto that it is to become a part thereof.
This Allonge is affixed to, and is hereby made a part of the Note for the benefit of ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY (the “Seller”) and evidences the endorsement of the Note by Seller as provided in that certain Master Loan Purchase and Sale Agreement executed by and between Seller and ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY (the “Buyer”).
The Note is hereby made PAYABLE TO THE ORDER OF________________________________________.
SELLER:
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, MANAGER
_________________________________________
BY: DONALD J. SUTTON, PRESIDENT
Loan Purchase Certificate and Addenda | Page 7 |
SCHEDULE 5 – COPIES
1. | NOTE |
2. | SECURITY INSTRUMENT |
3. | TITLE COMMITMENT OR LOAN TITLE POLICY |
4. | TRANSFER AND ASSIGNMENT OF LIEN |
Loan Purchase Certificate and Addenda | Page 8 |
PARCEL ID: __________________ | INSTRUMENT PREPARED BY: |
AFTER RECORDING RETURN TO: | STEPHANIE WILSON |
LOAN SOURCE LLC | PO BOX 1611 |
PO BOX 1611 | EL CAMPO TEXAS 77437 |
EL CAMPO TEXAS 77437 |
[SPACE ABOVE THIS LINE FOR RECORDING]
LOAN NUMBER: [[LOAN NUMBER]]
TRANSFER AND ASSIGNMENT OF LIEN
STATE OF________________________ | § |
COUNTY OF______________________ | § |
INDEXING:
EFFECTIVE DATE: | _____________________, 2023 |
APN: | _____________________________ |
GRANTOR/ASSIGNOR: | ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY |
ADDRESS: | PO BOX 1227 / 210 MARKET STREET EL CAMPO, TEXAS 77437 |
GRANTEE/ASSIGNEE: | ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY |
ADDRESS: | PO BOX 1227 / 210 MARKET STREET EL CAMPO, TEXAS 77437 |
REFERENCE TO: | INSTRUMENT # ________________________ |
PROPERTY ADDRESS: | [[STREET ADDRESS]] [[CITY STATE AND ZIP]] |
LEGAL DESCRIPTION: | |
FOR VALUE RECEIVED, the undersigned hereby grants, assigns, and transfers to: ILS FIXED HORIZON LLC, A TEXAS LIMITED LIABILITY COMPANY all beneficial interest under that Certain Mortgage, Deed of Trust, and/or Security Instrument dated: [[LOAN DATE]] and recorded on _____________ under recorded Instrument Number:______________________ and the Assignment of Leases recorded under Instrument Number: ______________________, executed by [[BORROWER]] to ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY in the amount of $100,001.25 executed by [[BORROWER]] to ILS LENDING LLC, A TEXAS LIMITED LIABILITY COMPANY in the amount of $100,001.25 TOGETHER will the Note therein described or referred to, the money due and to become due thereon with interest, and all rights accrued or to accrue under said Security Instrument.
Transfer and Assignment of Lien
Page 1 |
ASSIGNOR:
ILS RE CAPITAL LLC, A TEXAS LIMITED LIABILITY COMPANY
BY: ILS RE CAPITAL MGMT CORP, MANAGER
DATE: | |||
BY: DONALD J. SUTTON, PRESIDENT |
STATE OF TEXAS | § |
COUNTY OF WHARTON | § |
This instrument was acknowledged before me on __________________________________, 2023 by DONALD J. SUTTON AS PRESIDENT OF ILS RE CAPITAL MGMT CORP.
Notary Public, State of Texas | ||
My commission expires: |
Transfer and Assignment of Lien
Page 2
Exhibit 1A-12
From the Desk of
Laurence J. Pino, Esquire
December 19, 2023
Via Edgar and E-mail
ILS Fixed Horizon
PO Box 1227
210 Market Street
El Campo, TX 77437
Re: | ILS Fixed Horizon LLC Regulation A Offering Submission |
ILS Fixed Horizon LLC
Response to SEC Letter Dated October 6, 2023
File No. 024-12055
Dear Tom Berry & Donald J. Sutton,
You have asked us to opine on the validity of the offering and sale of the Notes, the exemption from securities registration requirements, the corporate authorization and validity of the securities, and related matters in connection with the ILS Fixed Horizon LLC Regulation A offering as described in the Company's Form 1-A Offering Statement (the "Offering Statement") filed with the Securities and Exchange Commission (the "Commission") under the Act and rules promulgated thereunder.
Importantly, the legal opinions set forth herein are subject to the following qualifications:
1. | The opinions expressed herein are limited to matters governed by the federal laws of the United States of America and the laws of the State of Texas. To the extent that the governing law with respect to any matter covered by our opinions is not the law identified in this paragraph, we have assumed that the law applicable to such matter is identical to the law of the State of Texas. |
2. | Our opinions are limited to only those laws and regulations that, in our experience, are normally applicable to transactions of the type contemplated by the Offering Statement, Operating Agreement and the Subscription Agreement. |
3. | Our opinion assumes that the Company is conducting its business and affairs in compliance with the terms of its Operating Agreement and Articles of Organization. We have participated in the drafting of the Offering Statement. |
4. | We have made no investigation or review of any agreements or documents which may be among, between or executed by the Company and third parties other than the documents as referenced herein. |
5. | The opinions expressed herein are as of the date hereof, and we undertake no obligation to advise you of any changes in applicable laws after the date of this opinion letter nor do we have any responsibility to update this opinion letter for events and circumstances occurring after the date hereof. |
For the purposes of this opinion letter, we have examined such documents, records, and instruments as we have deemed necessary or appropriate. These examined documents include, but are not limited to the following:
1. | The Offering Statement on Form 1-A (File No. 024-12150) as filed with the Securities and Exchange Commission (the "SEC") on December 8, 2023 (the "Offering Statement"). |
2. | The Operating Agreement of the Company; |
3. | The Articles of Organization of the Company; |
4. | The Subscription Agreements to be executed by purchasers of the Securities; |
5. | The Master Loan Purchase and Sales Agreements the Company will use to purchase Notes from Affiliates; |
6. | The Transactional Documents Package that shows the Notes Certificates and other fillable information that the Company provides as part of its purchasing and selling of notes; and |
7. | Such other documents and information as we deemed necessary or appropriate for the purposes of this opinion. |
Based upon the foregoing, and subject to the assumptions, qualifications, and limitations set forth in this letter, it is our opinion that:
1. | The Company is validly existing as a limited liability company and in good standing under the laws of the State of Texas. We have examined the articles of organization of the Company filed with the Secretary of State of Texas on April 5, 2022 (the “Articles of Organization), as well as the operating agreement of the Company dated December 8, 2023 (the “Operating Agreement”). |
2. | The Offering Statement filed by the Company with the Securities and Exchange Commission (the “Commission”) on [date] (the “Offering Statement”) complies as to form with the requirements of Regulation A under the Securities Act of 1933, as amended (the “Securities Act”). The Offering Statement has been qualified by the Commission under Tier 2 of Regulation A under the Securities Act. |
3. | The up to $75,000,000 aggregate principal amount of the Class A1, Class A2, Class B1, Class B2, Class C1, and Class C2 (the “Securities”) proposed to be offered and sold by the Company pursuant to the Offering Statement have been duly authorized in accordance with the Operating Agreement and applicable resolutions of the Company’s Manager, and when issued and paid for in accordance with the terms of the Subscription Agreement, the Securities will be validly issued, fully paid and non-assessable under state and federal law. |
4. | The execution and delivery of the form of subscription agreement (the “Subscription Agreement”) filed as an exhibit to the Offering Statement by the Company does not, and the performance by the Company of its obligations thereunder will not, result in any violation of (i) the Operating Agreement or Articles of Organization; or (ii) to our knowledge, any statute, rule, regulation or order enacted by any United States federal or state agency applicable to the Company or the transactions contemplated by the Subscription Agreement. |
5. | The offer and sale of the Securities will be conducted pursuant to and will be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to Regulation A promulgated thereunder. |
6. | The Subscription Agreements, upon receipt of full payment for the securities and the satisfaction of all conditions contained therein, will constitute valid and legally binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors’ rights generally, and general equitable principles. |
7. | No authorization, consent, order or approval of any United States federal or Texas State government authority that has not already been obtained is necessary in connection with the issuance and sale of the Securities by the Company as contemplated by the Offering Statement and the Subscription Agreements. |
Based on the foregoing, and subject to the above, we, as Counsel for ILS Fixed Horizon LLC, are further of the opinion that:
8. | The offer and sale of the Securities pursuant to the Offering Statement and Subscription Agreements will be exempt from the registration requirements of Section 5 of the Securities Act and will not violate any provision of the Securities Act or any regulation or rule thereunder. |
9. | The execution and delivery by the Company of the Subscription Agreements, and the consummation by the Company of the transactions contemplated thereby, including the issuance and sale of the Securities, will not violate to our knowledge (i) any provisions of the Articles of Organization or Operating Agreement, (ii) any law, statute, rule or regulation of the State of Texas or United States to which the Company may be subject, or (iii) any judgment, order, writ or decree of any government, governmental instrumentality or court, domestic or foreign, applicable to the Company or its properties. |
This opinion is based on currently applicable laws, rules and regulations and is limited to the matters expressly set forth herein. We hereby consent to the filing of this Legal Opinion Letter as Exhibit 12 to the Offering Statement and to the reference to our firm under the caption "Legal Matters" in the Offering Statement.
If you should require any additional information or clarification, please do not hesitate to contact me at (407) 425-7831.
Sincerely, | |
/s/ Laurence J. Pino, Esq., for the firm | |
PINO LAW GROUP PLLC |
Exhibit 1A-15.1
TABLE I: EXPERIENCE IN RAISING AND INVESTING FUNDS
Program Name | Offering Period
(Start - End Date) |
Total Dollar
Amount Offered |
Total Dollar
Amount Raised |
Length of Offering (Months) |
Months to Invest
90% of Amount Available for Investment |
ILS Growth Fund I LP (Initial) | 06/01/2018 - 06/30/2022 | $50,000,000 | $50,000,000 | 48 | 48 |
ILS Growth Fund I LP (2nd Offering Update) | 07/01/2022 - Evergreen | $100,000,000 | $96,074,935 | 14+ | 12 |
ILS Income Fund I LP | 06/01/2018 - Evergreen | $50,000,000 | $12,612,248 | 62+ | Evergreen still raising |
SEC Guidance Notes to Table I: Experience In Raising and Investing Funds
· | Table I is designed to summarize the sponsor’s experience in raising and investing funds. Although Guide 5 limits Table I to information about programs that have closed in the most recent three years, for some sponsors this may include a large number of prior programs. Based on our reviews of non-traded REIT registration statements, we believe the volume of disclosure currently provided in some cases may exceed what is necessary to adequately reflect the sponsor’s track record in raising capital and investing funds, particularly when the prior programs have investment objectives different from the registrant’s. We are concerned that the volume of information may obscure other, more important disclosure about the registrant. Therefore, we do not object if a registrant limits the Table I disclosure to the sponsor’s three most recent programs with investment objectives similar to those of the registrant. If the sponsor has fewer than three programs with investment objectives similar to those of the registrant, we would not object to inclusion of all programs with similar investment objectives and the sponsor’s most recent additional programs, such that the total number of programs included is three. Registrants should continue to apply the three-year period limitation described in Instruction 1 to Table I. |
· | In addition, we generally do not object if the information included in Table I is limited to dollar amount offered, dollar amount raised, length of offering (months) and months to invest 90% of amount available for investment, as these are the metrics that most clearly reflect the sponsor’s experience. |
TABLE III: OPERATING RESULTS OF PRIOR PROGRAMS
Program
Name |
Start Date | Termination
Date |
Total
Amount Raised |
GAAP
Balance Sheet Summary |
Income
Statement Summary |
Cash
Flow from Operations |
Distributions
per $1,000 Invested |
Estimated
Value per Share (if applicable) |
ILS Growth Fund I LP | 06/01/2018 | Present (Evergreen) | $96,074,935 | $104,310,346 (Assets/Liabilities) | $20,111,376 (Revenue/Expenses/Net Income) | $76,450,899 | $209.33 | $50,000 |
ILS Income Fund I LP | 06/01/2018 | Present (Evergreen) | $12,612,247 | $12,684,231 (Assets/Liabilities) | $2,467,685 (Revenue/Expenses/Net Income) | $10,193,573 | $195.66 | $50,000 |
SEC Guidance Notes to Table III: Operating Results of Prior Programs
· | If the sponsor does not have a “public track record” and does not have at least five prior programs with similar investment objectives, then Guide 5 calls for performance disclosure of all prior programs that have closed in the most recent five years. Based on our reviews of non-traded REIT registration statements, we do not believe voluminous disclosure about non-public prior programs with different investment objectives is useful to investors in the current offering and we believe it may obscure other more important disclosure. Therefore, in these cases, we do not object if the registrant includes only the most recent additional programs that have closed in the most recent five years such that the maximum number of programs presented in the table is five. |
· | We do not object if Table III is limited to summary GAAP balance sheet, income statement and cash flow from operation data, distribution data per $1,000 invested, including data on the relationship of cash flow from operations to total distributions paid, and estimated value per share if disclosed to program investors. We believe this information adequately summarizes the size, leverage, profitability and distribution-paying abilities of prior programs. We also believe that the tax-related data in Table III, while material to investors in real estate limited partnerships given the pass-through tax treatment of partnerships, is not material to investors in non-traded REITs as REITs are not pass-through vehicles for tax purposes. |
TABLE IV: RESULTS OF COMPLETED PROGRAMS
Program
Name |
Date Closed | Duration
(Months) |
Aggregate
Amount Raised |
Annualized
Return on Investment |
Median
Annual Leverage |
Aggregate
Compensation Paid to Sponsor |
ILS Growth Fund I LP | Present (Evergreen) | 62+ | $96,074,935 | Overall 4.19%; Last12Mths 10.8% | 10% | $4,001,034 |
ILS Income Fund I LP | Present (Evergreen) | 62+ | $12,612,247 | Overall 3.91%; Last12Mths 9.3% | 5% | $492,881 |
SEC Guidance Notes Table IV: Results of Completed Programs
· | Consistent with the terms of Guide 5, we have traditionally requested that non-traded REITs provide Table IV data for programs that have completed operations (i.e., no longer hold properties) in the most recent five years. In our reviews of non-traded REIT registration statements, we have observed that disclosing only five years of data may result in the omission of prior program data about large, public programs that can provide useful information to potential investors about a sponsor’s track record over a complete real estate cycle. Therefore, we may request Table IV data for completed public programs with similar investment objectives that have completed operations in the most recent ten years. |
· | If the sponsor does not have a “public track record” and does not have at least five prior programs with similar investment objectives, then Guide 5 calls for performance disclosure of all prior programs completed in the last five years. In our reviews of non-traded REIT registration statements, we have observed that the Guide 5 standards often result in voluminous disclosure about non-public prior programs with different investment objectives, which may not be useful to investors in the current offering and may obscure other, more important disclosure. Therefore, for sponsors that do not have a “public track record” and do not have at least five prior programs with similar investment objectives completed in the last five years, we do not object if the registrant includes only the most recent additional programs completed in the last five years such that the total number of programs covered by the table is five. |
· | Table IV provides information about returns on investment in completed prior programs and puts those returns in context by disclosing the size, leverage, duration and aggregate compensation paid to the sponsor of the completed prior programs. Table IV also calls for data regarding federal income tax results and sources of distributions. Because non-traded REITs are not pass-through vehicles for tax purposes, we do not believe that the tax-related disclosure in Table IV is material to investors in non-traded REITs. In addition, while we believe source of distribution data is important to evaluating the quality and sustainability of distributions in an ongoing program, we do not think this data is relevant to evaluating the returns of a closed program where sustainability is no longer in question. Therefore, we do not object if the information in Table IV is limited to the date closed, duration (months), aggregate dollar amount raised, annualized return on investment, and median annual leverage. |
· | In addition, information about the aggregate compensation paid or reimbursed to the sponsor or its affiliates may be useful to investors in Table IV, where they can see total compensation amounts in comparison to total returns to investors. Therefore, we do not object to the omission of Table II so long as the registrant includes compensation data in Table IV. |
TABLE V: SALES OR DISPOSAL OF LOANS
Item
No. |
Date
of Sale/Disposal |
Title
of Each Class of Property |
Principal
Amount of Notes |
Nature
and Amount of Consideration Received |
Gain
or (Loss) on Sale/Disposal |
Name
and Business Address of Purchaser |
Relationship
to Issuer |
Terms
of Transaction |
Purpose
of Transaction |
1 | Various | Secured Note from Affiliate ILS Lending LLC | $0.00 (None since sold back at Principal Amount) | Cash: $0.00 (None since sold back at Principal Amount) | $0.00 (None since sold back at Principal Amount) | ILS Lending LLC 210 Market Street El Campo TX 77437 |
Affiliate | Sale at principle plus accrued interest for no loss of interest income or Asset Value | To buy back loan that is in Default to Affiliate to Dispose of |
SEC Guidance Notes to Table V: Sales or Disposals of Properties
· | Table V is designed to disclose to an investor the profit or loss upon the sale of properties, and the positive or negative operating cash flows during the holding period. We frequently remind registrants that the “total” column should reflect the total investment in the property, including closing costs. Therefore, the total column will be the sum of “original mortgage financing” and “total acquisition cost, capital improvement, closing and soft costs.” The last column reflects the cumulative net property operating cash receipts less expenses over the holding period. The table will therefore enable an investor to calculate the profit or loss upon the sale of the property, and will disclose the positive or negative operating cash flows during the holding period. |
Exhibit 1A-15.2
BUSINESS ENTITY DIAGRAM
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