The information in this preliminary offering circular is not complete and may be changed.  These securities may not be sold until the offering statement filed with the Securities and Exchange Commission is qualified.  This preliminary offering circular is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED MAY 31, 2017

 

 CNote Notes

MAXIMUM OFFERING: $50,000,000

MINIMUM OFFERING: $0

CNote Group, Inc., a Delaware corporation (CNote, the Company, us or we), operates an online platform that allows investors to buy the Company’s CNote Notes as described below. In turn, we use investors’ capital to provide loans to Community Development Financial Institutions (CDFIs) and other community lenders, which directly provide loans to under-served population segments, such as women- and minority-owned businesses. Our CNote Notes pay interest at a current rate of 2.5% per annum, compounded monthly, fixed for the duration of the notes. Management may change the interest rate from time-to-time, in a range from 2.5% to 3.5% per annum. However, any change in interest rates will only apply to CNote Notes issued on or after such increase and do not apply to CNote Notes issued prior to any such change. Interest rate changes are at the sole discretion of CNote. An investor may withdraw up to 10% of the investor’s principal and accrued, but unpaid, interest each quarter, generally upon 30 days’ notice and subject to available funds from loans to our lender-partners and other cash available to the Company. Management retains discretion to allow investors to withdraw additional amounts, subject to the availability of additional funds.

 

The Company intends to use the proceeds of this offering exclusively to fund loans to CDFIs and other community lenders. However, management retains discretion to use proceeds for other purposes, including the expenses of this offering, operating expenses, or other corporate expenses.

CNote will offer and sell, on a continuous basis, its CNote Notes (or the securities) described in this offering circular.  This offering circular describes the general terms that apply to the CNote Notes and the manner in which they may be offered and follows the Form 1-A disclosure format.

Investors should be prepared to hold their CNote Notes to maturity. The Company retains the discretion to limit withdrawal requests prior to maturity depending on available funds from loans to our lender-partners and other cash available to the Company. With available funds, CNote pays interest on a monthly or compounded basis. Without availability of additional funds, investors may not receive any interest until the maturity date. CNote Notes are the general obligations of the Company and we reserve the right to assign our obligations under the CNote Notes without first obtaining investor consent.

   

For more information on the CNote Notes being offered, please see the section entitled “Securities Being Offered” beginning on page 38 of this offering circular.  The aggregate initial offering price of the CNote Notes will not exceed $50,000,000 in any 12-month period, and there will be no minimum offering.

We intend to offer the CNote Notes in $0.01 increments on a continuous basis directly through our CNote website located at https://mycnote.com. At the present time, we do not anticipate using any underwriters to offer our securities. We may partner with registered investment advisers or broker-dealers, who may offer CNote Notes on their platforms.

We were incorporated in Delaware in April 2016, and our principal address is 2323 Broadway, Oakland, CA 94612.  Our phone number is (424) 262-6883.

Investing in our securities involves a high degree of risk, including the risk that you could lose all of your investment.  Please read the section entitled “Risk Factors” beginning on page 9 of this offering circular about the risks you should consider before investing.

     

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission.  Information contained in this Preliminary Offering Circular is subject to completion or amendment.  These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified.  This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state.  We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

The approximate date of the proposed sale to the public will be within two calendar days from the date on which the offering is qualified and on a continuous basis.

 

 

IMPORTANT NOTICES TO INVESTORS

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE.  THESE SECURITIES ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION.

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth.  Different rules apply to accredited investors and non-natural persons.  Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A.  For general information on investing, we encourage you to refer to www.investor.gov.

 

 

TABLE OF CONTENTS

 

 

   

 

   

 

 

 

 

 

 

 

 

 

   

 

 

RISK FACTORS

Investing in our CNote Notes is speculative and involves a high degree of risk. Before deciding whether to invest, you should consider carefully the risks and uncertainties described below, our consolidated financial statements and related notes, and all of the other information in this offering circular. If any of the following risks actually occurs, our business, financial condition, results of operations, and prospects could be adversely affected. As a result, the value of our securities could decline, and you could lose part or all of your investment.

Risks Related to Our Industry

The lending industry is highly regulated. Changes in regulations or in the way regulations are applied to our business could adversely affect our business.

Changes in laws or regulations or the regulatory application or judicial interpretation of the laws and regulations applicable to us could adversely affect our ability to operate in the manner in which we currently conduct business or make it more difficult or costly for us to originate or otherwise make additional loans, or for us to collect payments on loans by subjecting us to additional licensing, registration, and other regulatory requirements in the future or otherwise. A material failure to comply with any such laws or regulations could result in regulatory actions, lawsuits, and damage to our reputation, which could have a material adverse effect on our business and financial condition and our ability to originate and service loans and perform our obligations to investors and other constituents.

The initiation of a proceeding relating to one or more allegations or findings of any violation of such laws could result in modifications in our methods of doing business that could impair our ability to collect payments on our loans or to acquire additional loans or could result in the requirement that we pay damages and/or cancel the balance or other amounts owing under loans associated with such violation. We cannot assure you that such claims will not be asserted against us in the future. To the extent it is determined that the loans we make to lender-partners were not originated in accordance with all applicable laws, we may be obligated to repurchase any portion of the loan we had sold to a third party. We may not have adequate resources to make such repurchases.

Worsening economic conditions or a changing political climate may result in decreased demand for our loans, cause our customers’ default rates to increase, and harm our operating results.

Uncertainty and negative trends in general economic conditions in the United States and abroad, including significant tightening of credit markets, historically have created a difficult environment for companies in the lending industry. Many factors, including factors that are beyond our control, may have a detrimental impact on our operating performance. These factors include general economic conditions, the political climate, unemployment levels, energy costs and interest rates, as well as events such as natural disasters, acts of war, terrorism, and catastrophes. The small business borrowers our lender-partners serve may be more sensitive to these macroeconomic factors.

Domestic policy decisions could affect the economic or legal situations of CDFIs and other community lenders, and their small business borrowers. For instance, the national CDFI Fund, which provides funding and support dollars to CDFIs, may be reduced or eliminated. Similarly, regulations promulgated under the Community Reinvestment Act, if altered or repealed, could materially affect CDFIs and other community lenders, and their access to capital.  Losing access to state or federal funding could make it more likely that lender-partners would default on their obligations to us in the event they are unable to collect on the loans they make to borrowers, who, as small businesses, may be more sensitive to macroeconomic factors.

 

Other industry players may begin or increase lending to CDFIs and other community lenders.

Although we believe our online investment platform presents a new opportunity for CDFIs and other community lenders to access capital from individual investors, others are not precluded from entering, and competing in, this arena. We face potential competition from a variety of sources, including newly-formed companies or existing lenders. Competition in the financial technology sector is intense, and we may be unable to compete against other players in the financial technology sector (such as Lending Club, Funding Circle, and OnDeck Capital), small business divisions of commercial banks (such as Capital One and Wells Fargo), and community banks and credit unions. Our competitors, especially banks, have substantially more resources than we do and spend millions of dollars on marketing. If we are unable to attract partners, or repeat partners, our results of operations will be adversely affected.

Competition for our employees is intense, and we may not be able to attract and retain the highly skilled employees whom we need to support our business.

Competition for highly skilled personnel, especially engineering and data analytics personnel, is extremely intense, and we could face difficulty identifying and hiring qualified individuals in many areas of our business. We may not be able to hire and retain such personnel at compensation levels consistent with our compensation and salary structure. Many of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment. In particular, candidates making employment decisions, specifically in high-technology industries, often consider the value of any equity they may receive in connection with their employment. Any significant volatility in the value, or the perceived market value, of our stock after any offering may adversely affect our ability to attract or retain highly skilled technical, financial, marketing, or other personnel.

In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements and the quality of our services and our ability to serve our customers could diminish, resulting in a material adverse effect on our business.

Risks Related to Our Company

We are an early-stage startup with a history of net losses, and we may never become profitable.

In our fiscal year ended December 31, 2016, we had only minimal revenue. We do not expect to be profitable for the foreseeable future. If we are unable to obtain or maintain profitability, we will not be able to attract investment, compete, or maintain operations.

We have a limited operating history in a rapidly evolving industry, which makes it difficult to evaluate our future prospects and may increase the risk that we will not be successful.

We have a limited operating history in an evolving industry that may not develop as expected. Assessing our business and future prospects is challenging in light of the risks and difficulties we may encounter. These risks and difficulties include our ability to:

●

increase the number and total volume of loans and other products we extend to our partners;

●

increase the number and size of partners to whom we extend loans;

 

 

●

improve the terms on which we lend to our customers as our business becomes more efficient;

●

increase the effectiveness of our business to business marketing and lead generation through referral sources;

●

successfully develop and deploy new products;

●

favorably compete with other companies that are currently in, or may in the future enter, the business of access to CDFI investment opportunities;

●

successfully navigate economic conditions and fluctuations in the credit market;

●

effectively manage the growth of our business; and

●

successfully expand our business into adjacent markets.

We may not be able to successfully address these risks and difficulties, which could harm our business and cause our operating results to suffer.

Our risk management efforts may not be effective.

We could incur substantial losses, and our business operations could be disrupted if we are unable to effectively identify, manage, monitor, and mitigate financial risks, such as credit risk, interest rate risk, liquidity risk, and other market-related risk, as well as operational risks related to our business, assets, and liabilities. To the extent our models used to assess the fiscal responsibility and performance of our lender-partners do not adequately identify potential risks, the risk profile of such customers could be higher than anticipated. Our risk management policies, procedures, and techniques may not be sufficient to identify all of the risks we are exposed to, mitigate the risks that we have identified, or identify concentrations of risk or additional risks to which we may become subject in the future.

Our allowance for loan losses will be determined based upon both objective and subjective factors and may not be adequate to absorb loan losses.

We have established a loan loss reserve of approximately 3% of our assets under management, which, may not be adequate to address losses should a lender-partner, irrespective of their full resource obligation, be unable to pay back an investor’s principal and or interest per the agreement.

We are responsible to pay on CNote Notes, regardless of loan losses. As a result, we face the risk that, if our lender-partners fail to repay their loans in full, any such failure could lead us to incur losses directly, as well as indirectly in that investors on our loan platform might be less willing to continue investing in our loans. Actual losses are difficult to forecast, especially if such losses stem from factors beyond our historical experience, and unlike traditional banks, we are not subject to periodic review by bank regulatory agencies of our allowance for loan losses. As a result, there can be no assurance that our allowance for loan losses will be comparable to that of traditional banks subject to different regulatory oversight or sufficient to absorb losses or prevent a material adverse effect on our business, financial condition, and results of operations.

We depend on our reputation to attract both lender-partners and individual investors.

 

 

We depend heavily on our relationships and our reputation to attract lender-partners, many of whom we reach either through our association with OFN or by word of mouth. If for any reason our reputation suffers, we may face difficulties attracting lender-partners, which could in turn affect our ability to make loans and return capital to investors.

If our reputation suffers, we will also face difficulty in attracting additional individual investors. Additionally, to the extent that individual investors may view our products as similar to, or interchangeable with, other alternative investment platforms or marketplace lenders (such as Lending Club, Funding Circle or OnDeck Capital), we may struggle to attract individual investors.

At this stage, many of our loans will be unsecured obligations of our partners.

At this stage, many of our loans to our lender-partners are unsecured obligations. This means that, for those loans, we will not be able to foreclose on any assets of our partners in the event that they default. This may limit our recourse in the event of a default. If our lender-partners are unable to realize collateral on their loans that default, their ability to repay CNote, and consequently our ability to repay the CNote Notes, may be adversely impacted.

We rely on capital to grow our business.

As our business scales and loan volume increases, we will require increasing amounts of capital to build our operations. We have to carefully manage capital as we are not yet profitable. As our business grows, we will require increasing levels of new capital to fund our operational needs. This need for capital will require us to find additional investors. Our inability to attract sufficient capital at all or on favorable terms will impact our ability to grow and remain in business.

We currently rely on existing CDFIs and other community lenders to identify, underwrite and service quality borrowers in their respective under-served segments.

Although we conduct due diligence on potential lender-partners, and continue to monitor their operations once we make loans to these lender-partners, we are nevertheless dependent on our lender-partners’ ability to identify, underwrite and service borrowers in their respective segments. We cannot control their operations once loans are made. Though the loans we make to lender-partners are full recourse to us, and while it has historically rarely happened, it is possible that lender-partners could become insolvent, shut down, or otherwise cease their operations. In these events, our ability to collect on our lender-partners’ loans, and in turn to pay our CNote Note investors, could be compromised.

We rely on both individual investors and institutional investors to invest in our CNote Notes.

We operate in a demand-driven business, thus our inability to describe potential investments in CNote Notes as a low-risk and attractive investment vehicle is a potential risk.

We rely on investors, both individual and institutional, to fund the loans on our platform. If our investors were to significantly curtail investing, lose interest in our investment options, not engage our website often enough to continue investing, or redeploy cash to other purposes, our results could suffer.

We face increasing competition and, if we do not compete effectively, our operating results could be harmed.

We compete with other companies that lend to CDFIs and other community lenders. These companies include traditional banks, foundations and religious institutions. Many of these offer greater ability to be flexible with cost of capital than CNote.  They are also able to deploy a great amount at one time whereas CNote is dependent on its investors’ contributions any given month.

 

 

We face potential competition from future platforms issuing CDFI and similar notes and, if we do not compete effectively, our operating results could be harmed.

When new competitors seek to enter one of our markets, or when existing market participants seek to increase their market share, they sometimes undercut the pricing and/or credit terms prevalent in that market, which could adversely affect our market share or ability to explore new market opportunities.

Our pricing and credit terms could deteriorate if we act to meet these competitive challenges. Further, to the extent that the fees we pay to our strategic partners and borrower referral sources are not competitive with those paid by our competitors, whether on new loans or renewals or both, these partners and sources may choose to direct their business elsewhere. Those competitive pressures could also result in us reducing the cost of capital or being more flexible on the terms we provide to our lender-partners. All of the foregoing could adversely affect our business, results of operations, financial condition, and future growth.

CNote Notes are our full and unconditional obligations. If we are unable to make payments required by the terms of the CNote Notes, you will have an unsecured claim against us. CNote Notes are therefore subject to non-payment by the Company in the event of our bankruptcy or insolvency. In an insolvency proceeding, there can be no assurances that you will recover any remaining funds. Moreover, your claim may be subordinate to that of our senior secured creditors to the extent of the value of their security interests. Holders of CNote Notes would be ranked equally with other unsecured creditors of the Company and payments, if any, would be made pro rata with all such other unsecured creditors of the Company before any class of equity holder but after all senior secured creditors.

In the event the Company would not have enough capital available to support the repayment of outstanding CNote Notes, all outstanding CNote Notes will be general unsecured obligations of the Company and would rank equally in priority with other unsecured creditors, including holders of Simple Agreements for Future Equity or “SAFEs” that have not been converted into equity. The Company’s equity holders, including the holders of equity issued upon conversion of SAFEs, would be subordinated in priority to the repayment of the unsecured creditors, including the holders of CNote Notes. Moreover, in the event of a change of control, holders of SAFEs may elect to be immediately repaid their investment, which may be before holders of CNote Notes are repaid. See below, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Sources of Liquidity—Equity and Debt Financing.”

The collection, processing, storage, use, and disclosure of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements, or differing views of personal privacy rights.

We receive, collect, process, transmit, store and use a large volume of personally identifiable information and other sensitive data from investors and potential investors. There are federal, state, and foreign laws regarding privacy, recording telephone calls, and the storing, sharing, use, disclosure, and protection of personally identifiable information and sensitive data. Specifically, personally identifiable information is increasingly subject to legislation and regulations to protect the privacy of personal information that is collected, processed, and transmitted. Any violations of these laws and regulations may require us to change our business practices or operational structure, address legal claims, and sustain monetary penalties, or other harms to our business.

The regulatory framework for privacy issues in the United States and internationally is constantly evolving and is likely to remain uncertain for the foreseeable future. The interpretation and application of such laws is often uncertain, and such laws may be interpreted and applied in a manner inconsistent with other binding laws or with our current policies and practices. If either we or our third-party service providers are unable to address any privacy concerns, even if unfounded, or to comply with applicable laws and regulations, it could result in additional costs and liability, damage our reputation, and harm our business.

We rely on third-party service providers to deliver our services. Any disruption in services from these service providers, including any disruption of service at their data centers, could interrupt or delay our ability to deliver our service to our investors and lender-partners.

We currently use third-party service providers such as Dwolla to handle many components of our operations. These service providers may themselves rely on third-party data center hosting facilities. The continuous availability of our service depends on the operations of these service providers, on data facilities, on a variety of network service providers, on third-party vendors, and on data center operations staff. In addition, we depend on the ability of our third-party providers to protect the facilities against damage or interruption from natural disasters, power or telecommunications failures, criminal acts, and similar events. If there are any lapses of service or damage to the facilities, we could experience lengthy interruptions in our service as well as delays and additional expenses in arranging new service providers and services. Even with current disaster recovery arrangements, our business could be harmed.

 

 

Design and mechanical errors or failure to follow operations protocols and procedures could cause our systems to fail, resulting in interruptions in our platform. Any such interruptions or delays, whether as a result of third-party error, our own error, natural disasters, or security breaches, whether accidental or willful, could harm our relationships with customers and cause our revenue to decrease and/or our expenses to increase. Also, in the event of damage or interruption, our future insurance policies may not adequately compensate us for any losses that we may incur. These factors in turn could further reduce our revenue and subject us to liability, which could materially adversely affect our business.

We are reliant on the efforts of our management team.

We rely on our management team and need additional key personnel to grow our business, and the loss of key employees or inability to hire key personnel could harm our business. We believe our success has depended, and continues to depend, on the efforts and talents of our executives and employees.

All of our employees are at-will and can leave us at any time.

Our future success depends on our continuing ability to attract, develop, motivate, and retain highly qualified and skilled employees. Qualified individuals are in high demand, and we may incur significant costs to attract and retain them. In addition, the loss of any of our senior management or key employees could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers and other employees are at-will employees, which means they may terminate their employment relationship with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially and adversely affected.

We have a small number of employees, each of whom is important to our success.

We have only three full-time employees. Each of them plays a significant role in our success. Our team covers the following functional duties: engineering and programming, sales and marketing, finance and credit, legal and regulatory, and administration and operations. The loss of any of our employees could have a material adverse impact on our operations. Additionally, because each employee plays such a critical role in a company of this size, any instances of human error or exercises of poor business judgment could negatively impact our company.

Events beyond our control could affect our operations.

Events beyond our control may damage our ability to provide quality CNote Notes to interested borrowers given less quality loans being made or repaid from our lender-partners. In addition, catastrophic events may negatively affect customers’ demand for loans from our lender-partners. Such events include, but are not limited to, fires, earthquakes, terrorist attacks, natural disasters, computer viruses, and telecommunications failures. Despite any precautions we may take, system interruptions and delays could occur if there is a natural disaster, if a third-party provider closes a facility we use without adequate notice for financial or other reasons, or if there are other unanticipated problems at our operations facility.

As we rely heavily on our servers, computer and communications systems, and the Internet to conduct our business and provide high-quality customer service, such disruptions could harm our ability to run our business and cause lengthy delays which could harm our business, results of operations, and financial condition.

 

 

We do not currently have a backup, outside servicing firm to service partner payments.

We currently service all of our loans and although we are negotiating a contract with a potential partner, do not have a backup outside servicer at this time. Loan servicing is an increasingly regulated industry, with various federal and state laws governing the collection of consumer and small business loans, and none of our employees currently devote all of their time to our loans as their time is divided among many responsibilities. Although we are in the process of evaluating potential options, we currently do not have a ready backup servicer in the event that we are suspended from servicing, or are suddenly unable to service our loans.

Our failure to comply with applicable regulations, or our inability to service loans, would adversely affect our operations.

Compliance with Regulation A and reporting to the SEC could be costly.

Compliance with Regulation A could be costly and requires legal and accounting expertise. Because the new rules implementing Title IV of the Jumpstart Our Business Startups Act of 2012 took effect in June 2015, we have no experience complying with the new provisions of Regulation A or making the public filings required by the rule. Besides qualifying this Form 1-A, we must file an annual report on Form 1-K, a semiannual report on Form 1-SA, and current reports on Form 1-U.

Our legal and financial staff may need to be increased in order to comply with Regulation A. Compliance with Regulation A will also require greater expenditures on outside counsel, outside auditors, and financial printers in order to remain in compliance. Failure to remain in compliance with Regulation A may subject us to sanctions, penalties, and reputational damage and would adversely affect our results of operations.

If we are deemed to be an investment company, we may be required to institute burdensome compliance requirements, our activities may be restricted, and this offering may be invalidated.

We do not believe that at any time we will be deemed to be an “investment company” under the Investment Company Act of 1940 (the “1940 Act”) as we do not intend on trading or selling securities and thus believe we are exempt pursuant to Section 3(b)(1) of the 1940 Act.  However, if at any time we are deemed an “investment company” we may be subject to certain restrictions on our operations and the issuance of CNote Notes, and may have imposed upon us certain burdensome requirements, including registration as an investment company, adoption of a specific form of corporate structure, and reporting, recordkeeping, voting, proxy, compliance policies and procedures, as well as additional disclosure requirements. Additionally, as Regulation A is not available to companies that are investment companies registered under, or required to be registered under, the 1940 Act, in the event that we were deemed to be an investment company, the offering, and the CNote Notes sold pursuant to this offering, may be invalidated.

Risks Related to CNote Notes

Holders of CNote Notes are exposed to the credit risk of the Company.

CNote Notes are our full and unconditional obligations. If we are unable to make payments required by the terms of the CNote Notes, you will have an unsecured claim against us. CNote Notes are therefore subject to non-payment by the Company in the event of our bankruptcy or insolvency. In an insolvency proceeding, there can be no assurances that you will recover any remaining funds. Moreover, your claim may be subordinate to that of our senior secured creditors to the extent of the value of their security interests.  Holders of CNote Notes would be ranked equally with other unsecured creditors of the Company and payments, if any, would be made pro rata with all such other unsecured creditors of the Company before any class of equity holder but after all senior secured creditors.

In the event the Company would not have enough capital available to support the repayment of outstanding CNote Notes, all outstanding CNote Notes will be general unsecured obligations of the Company and would rank equally in priority with other unsecured creditors, including holders of Simple Agreements for Future Equity or “SAFEs” that have not been converted into equity. The Company’s equity holders, including the holders of equity issued upon conversion of SAFEs, would be subordinated in priority to the repayment of the unsecured creditors, including the holders of CNote Notes. Moreover, in the event of a change of control, holders of SAFEs may elect to be immediately repaid their investment, which may be before holders of CNote Notes are repaid. See below, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Sources of Liquidity—Equity and Debt Financing.”

Holders of CNote Notes are exposed to the credit risk of our lender-partners.

We extend loans to our lender-partners, which in turn make loans to under-served populations. Although our operations seek to diversify exposure by investing in a variety of lender-partners, if our lender-partners are unable to collect on their loans and are unable to make payments required by the terms of our loans to them, we may be unable to make payments required by the terms of the CNote Notes. As described above, you would then have an unsecured claim against us.

 

 

We currently have a limited number of lender-partners.

We currently have partnered with two lender-partners. In addition, we are in discussions with two additional potential lender-partners about possible partnerships. Thus, our investors capital is concentrated in a limited number of partners. We will not be able to diversify the risks for holders of CNote Notes until we have a greater number of lender-partners.

There has been no public market for CNote Notes, and none is expected to develop.

     

CNote Notes are newly issued securities. Although under Regulation A the securities are not restricted, CNote Notes are currently not liquid securities. No public market has developed nor is expected to develop for CNote Notes, and we do not intend to list CNote Notes on a national securities exchange or interdealer quotational system. You should be prepared to hold your CNote Notes through their maturity dates as CNote Notes currently are not liquid investments, nor do we anticipate that they will be a liquid investment at any time in the foreseeable future.

Our Terms of Use require holders of CNote Notes to submit any disputes to binding arbitration.

     

Our Terms of Use provide that any dispute arising under the CNote Notes must be submitted to binding arbitration. As a result, you may not be able to pursue litigation for any such disputes in state or federal courts against us or our directors or officers, and any awards or remedies determined by the arbitrators may not be appealed. In addition, arbitration rules generally limit discovery, which could impede your ability to bring or sustain claims, and the ability to collect attorneys' fees or other damages may be limited in the arbitration, which may discourage attorneys from agreeing to represent parties wishing to commence such a proceeding.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This offering circular contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us.  The forward-looking statements are contained principally in “Offering Circular Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Description of Business.”  Forward-looking statements include information concerning our possible or assumed future results of operations and expenses, business strategies and plans, competitive position, business environment, and potential growth opportunities.  Forward-looking statements include all statements that are not historical facts.  In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.

Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements.  Those risks include those described in “Risk Factors” and elsewhere in this offering circular.  Given these uncertainties, you should not place undue reliance on any forward-looking statements in this offering circular.  Also, forward-looking statements represent our beliefs and assumptions only as of the date of this offering circular.  You should read this offering circular and the documents that we have filed as exhibits to the Form 1-A of which this offering circular is a part, completely and with the understanding that our actual future results may be materially different from what we expect.

Any forward-looking statement made by us in this offering circular speaks only as of the date on which it is made.  Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.  All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.

 

 

USE OF PROCEEDS

If we sell $50 million of gross proceeds from the sale of our securities under this offering circular, we estimate our net proceeds, after deducting estimated commissions and expenses, will be approximately $50,000,000. Our offering expenses, which we estimate at approximately $200,000, as well as operating expenses and other corporate expenses, will be paid out of cash flow from operations and other capital raised. We intend to maximize the  portion of the proceeds from this offering to fund loans to CDFIs and other community lenders, but our management will retain sole discretion to use funds raised from this offering for other purposes, including general corporate expenses.  See “Risk Factors — Risks Related to Our Company.”

ABOUT THE PLATFORM

Who We Are

We are a recently-formed company operating an online investment platform. We use the majority of investors’ capital to provide loans to Community Development Financial Institutions (CDFIs) and other community lenders that, in turn, directly provide loans to under-served population segments, such as women- and minority-owned businesses. As of May 30, 2017, we have made loans to CDFIs and other community lenders in the aggregate principal amount of $1,267,556 and have received a total of approximately $175,000 in payments. CDFIs have been in existence for over 20 years and originated from the Riegle Community Development and Regulatory Improvement Act of 1994. Over the last two decades, CDFIs have grown to become an approximately $100 billion industry with participation from nearly every major bank in the United States. Despite these traditional sources of funding, the demand for loans made by CDFIs and other community lenders continues to grow faster than available traditional sources of funding, leading many CDFIs and other community lenders to seek new sources of diversified capital.

CNote aims to provide a new source of capital to CDFIs and other community lenders – namely, capital raised from individual investors via our online platform. Our CNote Notes pay interest at a current rate of 2.5% per annum, compounded monthly, fixed for the duration of the notes. Management may change the interest rate from time-to-time, in a range from 2.5% to 3.5% per annum. However, any change in interest rates will only apply to CNote Notes issued on or after such change and do not apply to CNote Notes issued prior to any such change. Interest rate changes are at the sole discretion of CNote. An investor may withdraw up to 10% of the investor’s principal and accrued, but unpaid, interest each quarter, generally upon 30 days’ notice and subject to available funds from loans to our lender-partners and other cash available to the Company. Management retains discretion to allow investors to withdraw additional amounts, subject to the availability of additional funds.

The Company intends to use the proceeds of this offering exclusively to fund loans to CDFIs and other community lenders. However, management retains discretion to use proceeds for other purposes, including the expenses of this offering, operating expenses, or other corporate expenses.

   

CDFI Overview

In order to receive certification by the U.S. Department of the Treasury, CDFIs, which are typically non-profit community lenders, must demonstrate a strong commitment to financial performance and community impact.  Based on a 2014 report by the Opportunity Finance Network (OFN), the national association for CDFIs, we estimate that funding from CDFIs have created over 1,000,000 jobs in the United States since their beginnings, and as of January 2016, the U.S. Department of the Treasury’s CDFI Fund (CDFI Fund) reported that CDFIs have assets totaling over $100 billion, including loans to borrowers such as schools, community centers, affordable housing and minority and women-owned businesses.

CDFIs currently receive the majority of their capital from large financial institutions and foundations. OFN reports that less than 5% of all funding for CDFIs come from individual investors, and of that amount, the bulk comes from accredited investors. In view of these dynamics, and the shortfall of over $600 million facing the CDFI industry as a whole, CNote believes there is an opportunity for individual investors to support these community lenders. By investing in CNote Notes, investors will help support the CDFIs’ mission to provide responsible capital to a variety of borrowers, promoting community development and social impact.

 

 

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2)

CNote Review - CNote conducts its own assessment of each potential lender-partner’s historical financial performance and social impact. This process includes a review of financial statements and current investor diligence package prepared by the lender-partner, interviews with the leadership team and board members of potential lender-partners.

 

3)

Third-Party Review – CNote will engage a third-party social finance committee, with expertise in the CDFI industry, and with no ties, financial or otherwise, either to us or to the potential lender-partner, to provide tertiary, third-party assessments of potential lender-partners, including geo-specific and product-specific risks to be identified.

 

The overall due diligence process typically takes at least four to six weeks to complete.

 

CNote Platform

 

We currently operate an online platform, where investors can manage their accounts and purchase CNote Notes. The CNote Notes, as more fully described in this offering circular, are general obligations of the Company, regardless of payments received from any specific lender-partner.  CNote will provide investors information on  lender-partners we have partnered with in the past and details on the types of projects they fund and their social impact, which may include stories from prior specific borrowers. However, we will not be directly connecting investors to lender-partners or to their borrowers.

 

Prospective CNote Notes investors will create a username and password, and indicate agreement to our terms and conditions and privacy policy.

 

The following features are available to participants in the CNote Notes program through our platform:

 

●          Available Online Directly from Us.   You must purchase CNote Notes directly from us through our platform.

 

●          No Purchase Fees Charged.   We will not charge you any commission or fees to purchase CNote Notes through our platform. However, if you engage any financial intermediaries to manage your account or investments, these intermediaries may charge you commissions or fees.

 

●          Invest as Little as $1.   You will be able to build ownership over time in by making purchases as low as $1.

 

●          Flexible, Secure Payment Options.   You may purchase CNote Notes with funds electronically withdrawn from your checking or savings account using our platform or by a wire transfer.

 

●          Manage Your Portfolio Online.   You can view your investments, returns, and transaction history online, as well as receive tax information and other portfolio reports.

 

Proceeds from the CNote Notes in this offering will be used to make loans to lender-partners. However, CNote Notes are not dependent upon any particular loan and remain at all times the general obligations of CNote. Funds from the CNote Notes contemplated in this offering may be aggregated with funds from our disbursement account along with other funds from institutional and accredited investors to collectively fund the loans to lender-partners.  Final decisions on use of proceeds allocations will be made by management on a loan-by-loan basis.

 

In order to provide investors with insight into the social objectives and impact of our lender-partners, CNote will provide information and stories on historical loans made and projects funded, and may also provide metrics such as percentage of businesses supported by our lender-partners that are, for example, women-owned. These stories and metrics are for informational purposes only, and we do not make any representations about, or solicit contributions to, a particular loan to a particular lender-partner. The Company does not provide information about current investment opportunities and investors do not have the ability to direct their investments in CNote Notes to a particular lender-partner, or to a particular borrower. Past performance is not indicative of future results.

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Exhibit 2.1

Exhibit 2.2

 

 

 

1.            STOCKHOLDERS

 

(a)          Annual Meeting. The annual meeting of stockholders shall be held for the election of directors each year at such place, date and time as shall be designated by the Board of Directors. Any other proper business may be transacted at the annual meeting. If no date for the annual meeting is established or said meeting is not held on the date established as provided above, a special meeting in lieu thereof may be held or there may be action by written consent of the stockholders on matters to be voted on at the annual meeting, and such special meeting or written consent shall have for the purposes of these Bylaws or otherwise all the force and effect of an annual meeting.

 

(b)          Special Meetings. Special meetings of stockholders may be called by the Chief Executive Officer, if one is elected, a President, or by the Board of Directors, but such special meetings may not be called by any other person or persons. The call for the meeting shall state the place, date, hour and purposes of the meeting. Only the purposes specified in the notice of special meeting shall be considered or dealt with at such special meeting.

(c)          Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a notice stating the place, if any, date and hour of the meeting, the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such meeting, and, in the case of a special meeting, the purpose or purposes of the meeting, shall be given by the Secretary (or other person authorized by these Bylaws or by law) not less than ten (10) nor more than sixty (60) days before the meeting to each stockholder entitled to vote thereat and to each stockholder who, under the Certificate of Incorporation or under these Bylaws is entitled to such notice. If mailed, notice is given when deposited in the mail, postage prepaid, directed to such stockholder at such stockholder’s address as it appears in the records of the Corporation. Without limiting the manner by which notice otherwise may be effectively given to stockholders, any notice to stockholders may be given by electronic transmission in the manner provided in Section 232 of the Delaware General Corporation Law (the “DGCL”).

 

If a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place, if any, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken, except that if the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

(d)          Quorum. The holders of a majority in interest of all stock issued, outstanding and entitled to vote at a meeting, present in person or represented by proxy, shall constitute a quorum. Any meeting may be adjourned from time to time by a majority of the votes properly cast upon the question, whether or not a quorum is present. The stockholders present at a duly constituted meeting may continue to transact business until adjournment notwithstanding the withdrawal of enough stockholders to reduce the voting shares below a quorum.

 

(e)          Voting and Proxies. Except as otherwise provided by the Certificate of Incorporation or by law, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by either written proxy or by a transmission permitted by Section 212(c) of the DGCL, but no proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period or is irrevocable and coupled with an interest. Proxies shall be filed with the Secretary of the meeting, or of any adjournment thereof. Except as otherwise limited therein, proxies shall entitle the persons authorized thereby to vote at any adjournment of such meeting.

 

(f)          Action at Meeting. When a quorum is present, any matter before the meeting shall be decided by vote of the holders of a majority of the shares of stock voting on such matter except where a larger vote is required by law, by the Certificate of Incorporation or by these Bylaws. Any election of directors by stockholders shall be determined by a plurality of the votes cast, except where a larger vote is required by law, by the Certificate of Incorporation or by these Bylaws. The Corporation shall not directly or indirectly vote any share of its own stock; provided, however, that the Corporation may vote shares which it holds in a fiduciary capacity to the extent permitted by law.

 

(g)          Presiding Officer. Meetings of stockholders shall be presided over by the Chairman of the Board, if one is elected, or in his or her absence, the Vice Chairman of the Board, if one is elected, or if neither is elected or in their absence, a President. The Board of Directors shall have the authority to appoint a temporary presiding officer to serve at any meeting of the stockholders if the Chairman of the Board, the Vice Chairman of the Board or a President is unable to do so for any reason.

 

(h)          Conduct of Meetings. The Board of Directors may adopt by resolution such rules and regulations for the conduct of the meeting of stockholders as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board of Directors, the presiding officer of any meeting of stockholders shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board of Directors or prescribed by the presiding officer of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) rules and procedures for maintaining order at the meeting and the safety of those present; (iii) limitations on attendance at or participation in the meeting to stockholders of record of the Corporation, their duly authorized and constituted proxies or such other persons as the chairman of the meeting shall determine; (iv) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (v) limitations on the time allotted to questions or comments by participants. Unless and to the extent determined by the Board of Directors or the presiding officer of the meeting, meetings of stockholders shall not be required to be held in accordance with the rules of parliamentary procedure.

 

(i)          Action without a Meeting. Unless otherwise provided in the Certificate of Incorporation, any action required or permitted by law to be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be

necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office, by hand or by certified mail, return receipt requested, or to the Corporation's principal place of business or to the officer of the Corporation having custody of the minute book.  Every written consent shall bear the date of signature and no written consent shall be effective unless, within sixty (60) days of the earliest dated consent delivered pursuant to these Bylaws, written consents signed by a sufficient number of stockholders entitled to take action are delivered to the Corporation in the manner set forth in these Bylaws. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

 

(j)        Stockholder Lists. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Nothing contained in this Section 1(j) shall require the Corporation to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, for a period of at least ten (10) days prior to the meeting in the manner provided by law. The list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law.

 

2.              DIRECTORS

 

(a)          Powers. The business of the Corporation shall be managed by or under the direction of a Board of Directors who may exercise all the powers of the Corporation except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

 

(b)          Number and Qualification. Unless otherwise provided in the Certificate of Incorporation or in these Bylaws, the number of directors which shall constitute the whole Board shall be determined from time to time by resolution of the Board of Directors. Directors need not be stockholders.

 

(c)          Vacancies; Reduction of Board. A majority of the directors then in office, although less than a quorum, or a sole remaining Director, may fill vacancies in the Board of Directors occurring for any reason and newly created directorships resulting from any increase in the authorized number of directors. In lieu of filling any vacancy, the Board of Directors may reduce the number of directors.

 

 

(d)          Tenure. Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, directors shall hold office until their successors are elected and qualified or until their earlier resignation or removal. Any director may resign at any time upon notice given in writing or by electronic transmission to the Corporation. Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

 

(e)          Removal. To the extent permitted by law, a director may be removed from office with or without cause by vote of the holders of majority of the shares of stock entitled to vote in the election of directors.

 

(f)          Meetings. Regular meetings of the Board of Directors may be held without notice at such time, date and place as the Board of Directors may from time to time determine. Special meetings of the Board of Directors may be called, orally or in writing, by the Chief Executive Officer, if one is elected, the President, or by two or more Directors, designating the time, date and place thereof. Directors may participate in meetings of the Board of Directors by means of conference telephone or other communications equipment by means of which all directors participating in the meeting can hear each other, and participation in a meeting in accordance herewith shall constitute presence in person at such meeting.

 

(g)          Notice of Meetings. Notice of the time, date and place of all special meetings of the Board of Directors shall be given to each director by the Secretary, or Assistant Secretary, or in case of the death, absence, incapacity or refusal of such persons, by the officer or one of the directors calling the meeting. Notice shall be given to each director in person, by telephone, or by facsimile, electronic mail or other form of electronic communications, sent to such director’s business or home address at least twenty-four (24) hours in advance of the meeting, or by written notice mailed to such director’s business or home address at least forty- eight (48) hours in advance of the meeting.

 

(h)          Quorum. At any meeting of the Board of Directors, a majority of the total number of directors shall constitute a quorum for the transaction of business. Less than a quorum may adjourn any meeting from time to time and the meeting may be held as adjourned without further notice.

 

(i)          Action at Meeting. At any meeting of the Board of Directors at which a quorum is present, unless otherwise provided in the following sentence, a majority of the directors present may take any action on behalf of the Board of Directors, unless a larger number is required by law, by the Certificate of Incorporation or by these Bylaws. So long as there are two (2) or fewer Directors, any action to be taken by the Board of Directors shall require the approval of all Directors.

 

(j)          Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting if all members of the Board of Directors consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the records of the meetings of the Board of Directors. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

(k)          Committees. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, establish one or more committees, each committee to consist of one or more directors. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.

 

Any such committee, to the extent permitted by law and to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval or (ii) adopting, amending or repealing any provision of these Bylaws.

Except as the Board of Directors may otherwise determine, any such committee may make rules for the conduct of its business, but in the absence of such rules its business shall be conducted so far as possible in the same manner as is provided in these Bylaws for the Board of Directors. All members of such committees shall hold their committee offices at the pleasure of the Board of Directors, and the Board may abolish any committee at any time.

 

3.              OFFICERS

 

(a)          Enumeration. The officers of the Corporation shall consist of one or more Presidents (who, if there is more than one, shall be referred to as Co-Presidents), a Treasurer, a Secretary, and such other officers, including, without limitation, a Chief Executive Officer, a Chief Technology Officer, and one or more Vice Presidents (including Executive Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant Treasurers and Assistant Secretaries, as the Board of Directors may determine. The Board of Directors may elect from among its members a Chairman of the Board and a Vice Chairman of the Board.

 

(b)          Election. The Presidents, Treasurer and Secretary shall be elected annually by the Board of Directors at their first meeting following the annual meeting of stockholders. Other officers may be chosen by the Board of Directors at such meeting or at any other meeting.

 

(c)          Qualification. No officer need be a stockholder or Director. Any two or more offices may be held by the same person. Any officer may be required by the Board of Directors to give bond for the faithful performance of such officer’s duties in such amount and with such sureties as the Board of Directors may determine.

 

(d)          Tenure. Except as otherwise provided by the Certificate of Incorporation or by these Bylaws, each of the officers of the Corporation shall hold office until the first meeting of the Board of Directors following the next annual meeting of stockholders and until such officer’s successor is elected and qualified or until such officer’s earlier resignation or removal. Any officer may resign by delivering his or her written resignation to the Corporation, and such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

 

(e)          Removal. The Board of Directors may remove any officer with or without cause by a vote of a majority of the directors then in office.

 

(f)          Vacancies. Any vacancy in any office may be filled for the unexpired portion of the term by the Board of Directors.

 

(g)          Chairman of the Board and Vice Chairman. Unless otherwise provided by the Board of Directors, the Chairman of the Board of Directors, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

Unless otherwise provided by the Board of Directors, in the absence of the Chairman of the Board, the Vice Chairman of the Board, if one is elected, shall preside, when present, at all meetings of the stockholders and the Board of Directors. The Vice Chairman of the Board shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

(h)          Chief Executive Officer. The Chief Executive Officer, if one is elected, shall have such powers and shall perform such duties as the Board of Directors may from time to time designate.

 

(i)           Presidents. The Presidents shall, subject to the direction of the Board of Directors, each have general supervision and control of the Corporation’s business and any action that would typically be taken by a President may be taken by any Co-President. If there is no Chairman of the Board or Vice Chairman of the Board, a President shall preside, when present, at all meetings of stockholders and the Board of Directors. The Presidents shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

(j)          Treasurer and Assistant Treasurers. The Treasurer shall, subject to the direction of the Board of Directors, have general charge of the financial affairs of the Corporation and shall cause to be kept accurate books of account. The Treasurer shall have custody of all funds, securities, and valuable documents of the Corporation, except as the Board of Directors may otherwise provide. The Treasurer shall have such other powers and shall perform such duties as the Board of Directors may from time to time designate.

 

 

(k)          Secretary and Assistant Secretaries. The Secretary shall record the proceedings of all meetings of the stockholders and the Board of Directors (including committees of the Board) in books kept for that purpose. In the absence of the Secretary from any such meeting an Assistant Secretary, or if such person is absent, a temporary secretary chosen at the meeting, shall record the proceedings thereof. The Secretary shall have charge of the stock ledger (which may, however, be kept by any transfer or other agent of the Corporation) and shall have such other duties and powers as may be designated from time to time by the Board of Directors.

 

Any Assistant Secretary shall have such powers and perform such duties as the Board of

Directors may from time to time designate.

 

(l)          Other Powers and Duties. Subject to these Bylaws, each officer of the Corporation shall have in addition to the duties and powers specifically set forth in these Bylaws, such duties and powers as are customarily incident to such officer’s office, and such duties and powers as may be designated from time to time by the Board of Directors.

 

4.              CAPITAL STOCK

 

(a)          Certificates of Stock. Each stockholder shall be entitled to a certificate of the capital stock of the Corporation in such form as may from time to time be prescribed by the Board of Directors. Such certificate shall be signed by a President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary. Such signatures may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the time of its issue. Every certificate for shares of stock which are subject to any restriction on transfer and every certificate issued when the Corporation is authorized to issue more than one class or series of stock shall contain such legend with respect thereto as is required by law. The Corporation shall be permitted to issue fractional shares.

 

(b)          Transfers. Subject to any restrictions on transfer, shares of stock may be transferred on the books of the Corporation by the surrender to the Corporation or its transfer agent of the certificate therefor properly endorsed or accompanied by a written assignment or power of attorney properly executed, with transfer stamps (if necessary) affixed, and with such proof of the authenticity of signature as the Corporation or its transfer agent may reasonably require.

 

(c)          Record Holders. Except as may otherwise be required by law, by the Certificate of Incorporation or by these Bylaws, the Corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect thereto, regardless of any transfer, pledge or other disposition of such stock, until the shares have been transferred on the books of the Corporation in accordance with the requirements of these Bylaws.

 

 

It shall be the duty of each stockholder to notify the Corporation of such stockholder’s post office address.

(d)          Record Date. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not precede the date on which it is established, and which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, more than ten (10) days after the date on which the record date for stockholder consent without a meeting is established, nor more than sixty (60) days prior to any other action. In such case only stockholders of record on such record date shall be so entitled notwithstanding any transfer of stock on the books of the Corporation after the record date.

 

If no record date is fixed, (i) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held, (ii) the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Corporation by delivery to its registered office in this state, to its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded, and (iii) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

(e)          Lost Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.

 

 

 

(i)       “Corporate Status” describes the status of a person who is serving or has served (A) as a Director of the Corporation, (B) as an Officer of the Corporation, (C) as a Non-Officer Employee of the Corporation, or (D) as a director, partner, trustee, officer, employee or agent of any other corporation, partnership, limited liability company, joint venture, trust, employee benefit plan, foundation, association, organization or other legal entity for which such person is or was serving at the request of the Corporation. For purposes of this Section 5(a)(i), a Director, Officer or Non-Officer Employee of the Corporation who is serving or has served as a director, partner, trustee, officer, employee or agent of a Subsidiary shall be deemed to be serving at the request of the Corporation. Notwithstanding the foregoing, “Corporate Status” shall not include the status of a person who is serving or has served as a director, officer, employee or agent of a constituent corporation absorbed in a merger or consolidation transaction with the Corporation with respect to such person’s activities prior to said transaction, unless specifically authorized by the Board of Directors or the stockholders of the Corporation;

 (ii)       “Director” means any person who serves or has served the Corporation as a director on the Board of Directors of the Corporation;

 

(iii)      “Disinterested Director” means, with respect to each Proceeding in respect of which indemnification is sought hereunder, a Director of the Corporation who is not and was not a party to such Proceeding;

 

(iv)      “Expenses” means all reasonable attorneys fees, retainers, court costs, transcript costs, fees of expert witnesses, private investigators and professional advisors (including, without limitation, accountants and investment bankers), travel expenses, duplicating costs, printing and binding costs, costs of preparation of demonstrative evidence and other courtroom presentation aids and devices, costs incurred in connection with document review, organization, imaging and computerization, telephone charges, postage, delivery service fees, and all other disbursements, costs or expenses of the type customarily incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in, settling or otherwise participating in, a Proceeding;

 

(v)       “Liabilities” means judgments, damages, liabilities, losses, penalties, excise taxes, fines and amounts paid in settlement;

 

(vi)      “Non-Officer Employee” means any person who serves or has served as an employee or agent of the Corporation, but who is not or was not a Director or Officer;

 

(vii)    “Officer” means any person who serves or has served the Corporation as an officer of the Corporation appointed by the Board of Directors of the Corporation;

 

(viii)    “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, inquiry, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative, arbitrative or investigative; and

 

(ix)       “Subsidiary” shall mean any corporation, partnership, limited liability company, joint venture, trust or other entity of which the Corporation owns (either directly or through or together with another Subsidiary of the Corporation) either (i) a general partner, managing member or other similar interest or (ii) (A) 50% or more of the voting power of the voting capital equity interests of such corporation, partnership, limited liability company, joint venture or other entity, or (B) 50% or more of the outstanding voting capital stock or other voting equity interests of such corporation, partnership, limited liability company, joint venture or other entity.

 

 

(b)          Indemnification of Directors and Officers. Subject to the operation of Section 5(d) of these Bylaws, each Director and Officer shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such law permitted the Corporation to provide prior to such amendment), and to the extent authorized in subsections (i) through (iv) of this Section 5(b); provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its Directors and Officers.

(i)        Actions, Suits and Proceedings Other than By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses and Liabilities that are incurred or paid by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein (other than an action by or in the right of the Corporation), which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.

(ii)       Actions, Suits and Proceedings By or In the Right of the Corporation. Each Director and Officer shall be indemnified and held harmless by the Corporation against any and all Expenses that are incurred by such Director or Officer or on such Director’s or Officer’s behalf in connection with any Proceeding or any claim, issue or matter therein by or in the right of the Corporation, which such Director or Officer is, or is threatened to be made, a party to or participant in by reason of such Director’s or Officer’s Corporate Status, if such Director or Officer acted in good faith and in a manner such Director or Officer reasonably believed to be in or not opposed to the best interests of the Corporation; provided, however, that no indemnification shall be made under this Section 5(b)(ii) in respect of any claim, issue or matter as to which such Director or Officer shall have been finally adjudged by a court of competent jurisdiction to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery or another court in which such Proceeding was brought shall determine upon application that, despite adjudication of liability, but in view of all the circumstances of the case, such Director or Officer is fairly and reasonably entitled to indemnification for such Expenses that such court deems proper.

 

(iii)      Survival of Rights. The rights of indemnification provided by this Section 5(b) shall continue as to a Director or Officer after he or she has ceased to be a Director or Officer and shall inure to the benefit of his or her heirs, executors, administrators and personal representatives.

 

 

(iv)     Actions by Directors or Officers. Notwithstanding the foregoing, the Corporation shall indemnify any Director or Officer seeking indemnification in connection with a Proceeding initiated by such Director or Officer only if such Proceeding (including any parts of such Proceeding not initiated by such Director or Officer) was authorized in advance by the Board of Directors of the Corporation, unless such Proceeding was brought to enforce such Officer’s or Director’s rights to indemnification or, in the case of Directors, advancement of Expenses under these Bylaws in accordance with the provisions set forth herein.

 

(c)          Indemnification of Non-Officer Employees. Subject to the operation of Section 5(d) of these Bylaws, each Non-Officer Employee may, in the discretion of the Board of Directors of the Corporation, be indemnified by the Corporation to the fullest extent authorized by the DGCL, as the same exists or may hereafter be amended, against any or all Expenses and Liabilities that are incurred by such Non-Officer Employee or on such Non-Officer Employee’s behalf in connection with any threatened, pending or completed Proceeding, or any claim, issue or matter therein, which such Non-Officer Employee is, or is threatened to be made, a party to or participant in by reason of such Non-Officer Employee’s Corporate Status, if such Non-Officer Employee acted in good faith and in a manner such Non-Officer Employee reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. The rights of indemnification provided by this Section 5(c) shall exist as to a Non-Officer Employee after he or she has ceased to be a Non-Officer Employee and shall inure to the benefit of his or her heirs, personal representatives, executors and administrators. Notwithstanding the foregoing, the Corporation may indemnify any Non-Officer Employee seeking indemnification in connection with a Proceeding initiated by such Non-Officer Employee only if such Proceeding was authorized in advance by the Board of Directors of the Corporation.

 

(d)          Determination. Unless ordered by a court, no indemnification shall be provided pursuant to this Section 5 to a Director, to an Officer or to a Non-Officer Employee unless a determination shall have been made that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal Proceeding, such person had no reasonable cause to believe his or her conduct was unlawful. Such determination shall be made by (i) a majority vote of the Disinterested Directors, even though less than a quorum of the Board of Directors, (ii) a committee comprised of Disinterested Directors, such committee having been designated by a majority vote of the Disinterested Directors (even though less than a quorum), (iii) if there are no such Disinterested Directors, or if a majority of Disinterested Directors so directs, by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation.

 

(e)          Advancement of Expenses to Directors Prior to Final Disposition.

 

(i)        The Corporation shall advance all Expenses incurred by or on behalf of any Director in connection with any Proceeding in which such Director is involved by reason of such Director’s Corporate Status within thirty (30) days after the receipt by the Corporation of a written statement from such Director requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Director and shall be preceded or accompanied by an undertaking by or on behalf of such Director to repay any Expenses so advanced if it shall ultimately be determined that such Director is not entitled to be indemnified against such Expenses. Notwithstanding the foregoing, the Corporation shall advance all Expenses incurred by or on behalf of any Director seeking advancement of expenses hereunder in connection with a Proceeding initiated by such Director only if such Proceeding (including any parts of such Proceeding not initiated by such Director) was (A) authorized by the Board of Directors of the Corporation, or (B) brought to enforce such Director’s rights to indemnification or advancement of Expenses under these Bylaws.

 

(ii)       If a claim for advancement of Expenses hereunder by a Director is not paid in full by the Corporation within thirty (30) days after receipt by the Corporation of documentation of Expenses and the required undertaking, such Director may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and if successful in whole or in part, such Director shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such advancement of Expenses under this Section 5 shall not be a defense to an action brought by a Director for recovery of the unpaid amount of an advancement claim and shall not create a presumption that such advancement is not permissible. The burden of proving that a Director is not entitled to an advancement of expenses shall be on the Corporation.

 

(iii)      In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Director has not met any applicable standard for indemnification set forth in the DGCL.

 

(f)          Advancement of Expenses to Officers and Non-Officer Employees Prior to Final Disposition.

 

(i)        The Corporation may, at the discretion of the Board of Directors of the Corporation, advance any or all Expenses incurred by or on behalf of any Officer or any

Non-Officer Employee in connection with any Proceeding in which such person is involved by reason of his or her Corporate Status as an Officer or Non-Officer Employee upon the receipt by the Corporation of a statement or statements from such Officer or Non-Officer Employee requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by such Officer or Non-Officer Employee and shall be preceded or accompanied by an undertaking by or on behalf of such person to repay any Expenses so advanced if it shall ultimately be determined that such Officer or Non-Officer Employee is not entitled to be indemnified against such Expenses.

 

(ii)       In any suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the Officer or Non-Officer Employee has not met any applicable standard for indemnification set forth in the DGCL.

 

 

(g)          Contractual Nature of Rights.

 

(i)        Subject to Section Article I - 5(h) below, the provisions of this Section 5 shall be deemed to be a contract between the Corporation and each Director and Officer entitled to the benefits hereof at any time while this Section 5 is in effect, in consideration of such person’s past or current and any future performance of services for the Corporation. Neither amendment, repeal or modification of any provision of this Section 5 nor the adoption of any provision of the Certificate of Incorporation inconsistent with this Section 5 shall eliminate or reduce any right conferred by this Section 5 in respect of any act or omission occurring, or any cause of action or claim that accrues or arises or any state of facts existing, at the time of or before such amendment, repeal, modification or adoption of an inconsistent provision (even in the case of a proceeding based on such a state of facts that is commenced after such time), and all rights to indemnification and advancement of Expenses granted herein or arising out of any act or omission shall vest at the time of the act or omission in question, regardless of when or if any proceeding with respect to such act or omission is commenced. The rights to indemnification and to advancement of expenses provided by, or granted pursuant to, this Section 5 shall continue notwithstanding that the person has ceased to be a director or officer of the Corporation and shall inure to the benefit of the estate, heirs, executors, administrators, legatees and distributees of such person.

 

(ii)       If a claim for indemnification hereunder by a Director or Officer is not paid in full by the Corporation within sixty (60) days after receipt by the Corporation of a written claim for indemnification, such Director or Officer may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and if successful in whole or in part, such Director or Officer shall also be entitled to be paid the expenses of prosecuting such claim. The failure of the Corporation (including its Board of Directors or any committee thereof, independent legal counsel, or stockholders) to make a determination concerning the permissibility of such indemnification under this Section 5 shall not be a defense to an action brought by a Director or Officer for recovery of the unpaid amount of an indemnification claim and shall not create a presumption that such indemnification is not permissible. The burden of proving that a Director or Officer is not entitled to indemnification shall be on the Corporation.

 

(iii)      In any suit brought by a Director or Officer to enforce a right to indemnification hereunder, it shall be a defense that such Director or Officer has not met any applicable standard for indemnification set forth in the DGCL.

 

(h)          Non-Exclusivity of Rights. The rights to indemnification and advancement of Expenses set forth in this Section 5 shall not be exclusive of any other right which any Director, Officer, or Non-Officer Employee may have or hereafter acquire under any statute, provision of the Certificate or these Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise. The corporation is specifically authorized to enter into individual contracts with any or all of its Directors, Officers, or Non-Officer Employees respecting indemnification and advances, to the fullest extent not prohibited by the DGCL or any other applicable law. In the event that the Corporation enters into any such contracts, the terms of that contract shall govern the terms and conditions of the indemnification and advancement of expenses of any Director, Officer, or Non-Officer Employee.`

 

 

(i)          Insurance. The Corporation may maintain insurance, at its expense, to protect itself and any Director, Officer or Non-Officer Employee against any liability of any character asserted against or incurred by the Corporation or any such Director, Officer or Non- Officer Employee, or arising out of any such person’s Corporate Status, whether or not the Corporation would have the power to indemnify such person against such liability under the DGCL or the provisions of this Section 5.

 

(j)          Other Indemnification. The Corporation’s obligation, if any, to indemnify or provide advancement of Expenses to any person under this Section 5 as a result of such person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall be reduced by any amount such person may collect as indemnification or advancement of Expenses from such other corporation, partnership, joint venture, trust, employee benefit plan or enterprise (the “Primary Indemnitor”). Any indemnification or advancement of Expenses under this Section 5 owed by the Corporation as a result of a person serving, at the request of the Corporation, as a director, partner, trustee, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise shall only be in excess of, and shall be secondary to, the indemnification or advancement of Expenses available from the applicable Primary Indemnitor(s) and any applicable insurance policies.

 

6.            MISCELLANEOUS PROVISIONS

 

(a)          Fiscal Year. Except as otherwise determined by the Board of Directors, the fiscal year of the Corporation shall end on December 31 of each year.

 

(b)          Seal. The Board of Directors shall have power to adopt and alter the seal of the Corporation.

 

(c)          Execution of Instruments. Subject to any limitations which may be set forth in a resolution of the Board of Directors, all deeds, leases, transfers, contracts, bonds, notes and other obligations to be entered into by the Corporation in the ordinary course of its business without director action may be executed on behalf of the Corporation by, a President, or by any other officer, employee or agent of the Corporation as the Board of Directors may authorize.

 

(d)          Voting of Securities. Unless the Board of Directors otherwise provides, a President, any Vice President or the Treasurer may waive notice of and act on behalf of this Corporation, or appoint another person or persons to act as proxy or attorney in fact for this Corporation with or without discretionary power and/or power of substitution, at any meeting of stockholders or shareholders of any other corporation or organization, any of whose securities are held by this Corporation.

 

(e)          Resident Agent. The Board of Directors may appoint a resident agent upon whom legal process may be served in any action or proceeding against the Corporation.

 

(f)          Corporate Records. The original or attested copies of the Certificate of Incorporation, Bylaws and records of all meetings of the incorporators, stockholders and the Board of Directors and the stock and transfer records, which shall contain the names of all stockholders, their record addresses and the amount of stock held by each, shall be kept at the principal office of the Corporation, at the office of its counsel, or at an office of its transfer agent.

 

 

(g)          Certificate of Incorporation. All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Certificate of Incorporation of the Corporation, as amended and in effect from time to time.

 

(h)          Amendments. These Bylaws may be altered, amended or repealed, and new Bylaws may be adopted, by the stockholders or by the Board of Directors; provided, that (a) the Board of Directors may not alter, amend or repeal any provision of these Bylaws which by law, by the Certificate of Incorporation or by these Bylaws requires action by the stockholders and (b) any alteration, amendment or repeal of these Bylaws by the Board of Directors and any new Bylaw adopted by the Board of Directors may be altered, amended or repealed by the stockholders.

 

(i)          Waiver of Notice. Whenever notice is required to be given under any provision of these Bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any meeting needs to be specified in any written waiver or any waiver by electronic transmission.

5/29/2016

Adopted on _______________

 

 

Exhibit 3.1

 

CNOTE NOTE

 

PRINCIPAL: $                                                                               

EFFECTIVE DATE:                                                                       

 

The Borrower shall be entitled to use the Principal to make loans time to time to its Community Development Financial Institution and community lender partners (each, a “CDFI Loan” and, collectively, the “CDFI Loans”). Notwithstanding anything to the contrary contained herein, the Amount Owed (as defined below) on this Note shall be payable by the Borrower and the Lender shall have recourse to any other assets of the Borrower in order to secure repayment. This Note shall be designated to be part of a Series of Notes issued by the Borrower on the date hereof (the “Closing Date”).

 

2.

Interest.

Beginning with the date immediately following the Closing Date (the “Accrual Date”), this Note shall bear interest according to the terms of this Section 2 (the “Interest”).

 

(a) Unless otherwise adjusted pursuant to Section 2(b), the rate of  Interest shall be two-and-one-half percent (2.50%) per annum (the “Interest Rate”).

 

CNote Note

CNote Group, Inc.

Page 1

 

 

THE BORROWER:   CNote Group, Inc.     By: _________________________   Name: Yuliya Tarasava   Title: Secretary

THE LENDER:   Name: _______________________     _____________________________ (Signature)   Address: _____________________________ _____________________________

THIS INSTRUMENT AND ANY SECURITIES ISSUABLE PURSUANT HERETO HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.  THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR AN EXEMPTION THEREFROM.

CNote Group, Inc

SAFE

(Simple Agreement for Future Equity)

THIS CERTIFIES THAT in exchange for the payment by                            (the “Investor”) of $_____________ (the “Purchase Amount”) on or about                     , CNote Group, Inc, a Delaware corporation (the “Company”), hereby issues to the Investor the right to certain shares of the Company’s capital stock, subject to the terms set forth below.

 

The “Valuation Cap” is $ 6,000,000.  See Section 2 for certain additional defined terms.

 

1.     Events

 

(a)   Equity Financing. If there is an Equity Financing before the expiration or termination of this instrument, the Company will automatically issue to the Investor either: (1) a number of shares of Standard Preferred Stock equal to the Purchase Amount divided by the price per share of the Standard Preferred Stock, if the pre-money valuation is less than or equal to the Valuation Cap; or (2) a number of shares of Safe Preferred Stock equal to the Purchase Amount divided by the Safe Price, if the pre-money valuation is greater than the Valuation Cap.

 

In connection with the issuance of Standard Preferred Stock or Safe Preferred Stock, as applicable, by the Company to the Investor pursuant to this Section 1(a):

 

(i)          The Investor will execute and deliver to the Company all transaction documents related to the Equity Financing; provided, that such documents are the same documents to be entered into with the purchasers of Standard Preferred Stock, with appropriate variations for the Safe Preferred Stock if applicable, and provided further, that such documents have customary exceptions to any drag-along applicable to the Investor, including, without limitation, limited representations and warranties and limited liability and indemnification obligations on the part of the Investor.

 

(b)   Liquidity Event.  If there is a Liquidity Event before the expiration or termination of this instrument, the Investor will, at its option, either (i) receive a cash payment equal to the Purchase Amount (subject to the following paragraph) or (ii) automatically receive from the Company a number of shares of Common Stock equal to the Purchase Amount divided by the Liquidity Price, if the Investor fails to select the cash option.

  

In connection with Section (b)(i), the Purchase Amount will be due and payable by the Company to the Investor immediately prior to, or concurrent with, the consummation of the Liquidity Event. If there are not enough funds to pay the Investor and holders of other Safes (collectively, the “Cash-Out Investors”) in full, then all of the Company’s available funds will be distributed with equal priority and pro rata among the Cash-Out Investors in proportion to their Purchase Amounts, and the Cash-Out Investors will automatically receive the number of shares of Common Stock equal to the remaining unpaid Purchase Amount divided by the Liquidity Price.  In connection with a Change of Control intended to qualify as a tax-free reorganization, the Company may reduce, pro rata, the Purchase Amounts payable to the Cash-Out Investors by the amount determined by its board of directors in good faith to be advisable for such Change of Control to qualify as a tax-free reorganization for U.S. federal income tax purposes, and in such case, the Cash-Out Investors will automatically receive the number of shares of Common Stock equal to the remaining unpaid Purchase Amount divided by the Liquidity Price.

   

 

(c)   Dissolution Event. If there is a Dissolution Event before this instrument expires or terminates, the Company will pay an amount equal to the Purchase Amount, due and payable to the Investor immediately prior to, or concurrent with, the consummation of the Dissolution Event. The Purchase Amount will be paid prior and in preference to any Distribution of any of the assets of the Company to holders of outstanding Capital Stock by reason of their ownership thereof. If immediately prior to the consummation of the Dissolution Event, the assets of the Company legally available for distribution to the Investor and all holders of all other Safes (the “Dissolving Investors”), as determined in good faith by the Company’s board of directors, are insufficient to permit the payment to the Dissolving Investors of their respective Purchase Amounts, then the entire assets of the Company legally available for distribution will be distributed with equal priority and pro rata among the Dissolving Investors in proportion to the Purchase Amounts they would otherwise be entitled to receive pursuant to this Section 1(c).

  

(d)   Termination.  This instrument will expire and terminate (without relieving the Company of any obligations arising from a prior breach of or non-compliance with this instrument) upon either (i) the issuance of stock to the Investor pursuant to Section 1(a) or Section 1(b)(ii); or (ii) the payment, or setting aside for payment, of amounts due the Investor pursuant to Section 1(b)(i) or Section 1(c).

 

2.      Definitions

 

“Capital Stock” means the capital stock of the Company, including, without limitation, the “Common Stock” and the “Preferred Stock.”

 

“Change of Control” means (i) a transaction or series of related transactions in which any “person” or “group” (within the meaning of Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended), directly or indirectly, of more than 50% of the outstanding voting securities of the Company having the right to vote for the election of members of the Company’s board of directors, (ii) any reorganization, merger or consolidation of the Company, other than a transaction or series of related transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Company or such other surviving or resulting entity or (iii) a sale, lease or other disposition of all or substantially all of the assets of the Company.

 

“Company Capitalization” means the sum, as of immediately prior to the Equity Financing, of: (1) all shares of Capital Stock (on an as-converted basis) issued and outstanding, assuming exercise or conversion of all outstanding vested and unvested options, warrants and other convertible securities, but excluding (A) this instrument, (B) all other Safes, and (C) convertible promissory notes; and (2) all shares of Common Stock reserved and available for future grant under any equity incentive or similar plan of the Company, and/or any equity incentive or similar plan to be created or increased in connection with the Equity Financing.

   

  

“Distribution” means the transfer to holders of Capital Stock by reason of their ownership thereof of cash or other property without consideration whether by way of dividend or otherwise, other than dividends on Common Stock payable in Common Stock, or the purchase or redemption of Capital Stock by the Company or its subsidiaries for cash or property other than: (i) repurchases of Common Stock held by employees, officers, directors or consultants of the Company or its subsidiaries pursuant to an agreement providing, as applicable, a right of first refusal or a right to repurchase shares upon termination of such service provider’s employment or services; or (ii) repurchases of Capital Stock in connection with the settlement of disputes with any stockholder.

 

“Dissolution Event” means (i) a voluntary termination of operations, (ii) a general assignment for the benefit of the Company’s creditors or (iii) any other liquidation, dissolution or winding up of the Company (excluding a Liquidity Event), whether voluntary or involuntary.

 

“Equity Financing” means a bona fide transaction or series of transactions with the principal purpose of raising capital, pursuant to which the Company issues and sells Preferred Stock at a fixed pre-money valuation.

  

“Initial Public Offering” means the closing of the Company’s first firm commitment underwritten initial public offering of Common Stock pursuant to a registration statement filed under the Securities Act.

 

“Liquidity Capitalization” means the number, as of immediately prior to the Liquidity Event, of shares of Capital Stock (on an as-converted basis) outstanding, assuming exercise or conversion of all outstanding vested and unvested options, warrants and other convertible securities, but excluding: (i) shares of Common Stock reserved and available for future grant under any equity incentive or similar plan; (ii) this instrument; (iii) other Safes; and (iv) convertible promissory notes.

 

“Liquidity Event” means a Change of Control or an Initial Public Offering.

  

“Liquidity Price” means the price per share equal to the Valuation Cap divided by the Liquidity Capitalization.

  

“Safe” means an instrument containing a future right to shares of Capital Stock, similar in form and content to this instrument, purchased by investors for the purpose of funding the Company’s business operations.

  

“Safe Preferred Stock” means the shares of a series of Preferred Stock issued to the Investor in an Equity Financing, having the identical rights, privileges, preferences and restrictions as the shares of Standard Preferred Stock, other than with respect to: (i) the per share liquidation preference and the conversion price for purposes of price-based anti-dilution protection, which will equal the Safe Price; and (ii) the basis for any dividend rights, which will be based on the Safe Price.

  

“Safe Price” means the price per share equal to the Valuation Cap divided by the Company Capitalization.

   

“Standard Preferred Stock” means the shares of a series of Preferred Stock issued to the investors investing new money in the Company in connection with the initial closing of the Equity Financing.

 

 

3.     Company Representations

 

(a)   The Company is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, and has the power and authority to own, lease and operate its properties and carry on its business as now conducted.

 

(b)   The execution, delivery and performance by the Company of this instrument is within the power of the Company and, other than with respect to the actions to be taken when equity is to be issued to the Investor, has been duly authorized by all necessary actions on the part of the Company. This instrument constitutes a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.  To the knowledge of the Company, it is not in violation of (i) its current certificate of incorporation or bylaws, (ii) any material statute, rule or regulation applicable to the Company or (iii) any material indenture or contract to which the Company is a party or by which it is bound, where, in each case, such violation or default, individually, or together with all such violations or defaults, could reasonably be expected to have a material adverse effect on the Company.

 

(c)   The performance and consummation of the transactions contemplated by this instrument do not and will not: (i) violate any material judgment, statute, rule or regulation applicable to the Company; (ii) result in the acceleration of any material indenture or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any lien upon any property, asset or revenue of the Company or the suspension, forfeiture, or nonrenewal of any material permit, license or authorization applicable to the Company, its business or operations.

 

(d)   No consents or approvals are required in connection with the performance of this instrument, other than: (i) the Company’s corporate approvals; (ii) any qualifications or filings under applicable securities laws; and (iii) necessary corporate approvals for the authorization of Capital Stock issuable pursuant to Section 1.

 

(e)   To its knowledge, the Company owns or possesses (or can obtain on commercially reasonable terms) sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, processes and other intellectual property rights necessary for its business as now conducted and as currently proposed to be conducted, without any conflict with, or infringement of the rights of, others.

 

4.      Investor Representations

 

(a)   The Investor has full legal capacity, power and authority to execute and deliver this instrument and to perform its obligations hereunder. This instrument constitutes valid and binding obligation of the Investor, enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(b)   The Investor is an accredited investor as such term is defined in Rule 501 of Regulation D under the Securities Act. The Investor has been advised that this instrument and the underlying securities have not been registered under the Securities Act, or any state securities laws and, therefore, cannot be resold unless they are registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available. The Investor is purchasing this instrument and the securities to be acquired by the Investor hereunder for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and the Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. The Investor has such knowledge and experience in financial and business matters that the Investor is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment without impairing the Investor’s financial condition and is able to bear the economic risk of such investment for an indefinite period of time.

 

 

5.     Miscellaneous

 

(a)   Any provision of this instrument may be amended, waived or modified only upon the written consent of the Company and the Investor.

 

(b)   Any notice required or permitted by this instrument will be deemed sufficient when delivered personally or by overnight courier or sent by email to the relevant address listed on the signature page, or 48 hours after being deposited in the U.S. mail as certified or registered mail with postage prepaid, addressed to the party to be notified at such party’s address listed on the signature page, as subsequently modified by written notice.

 

(c)   The Investor is not entitled, as a holder of this instrument, to vote or receive dividends or be deemed the holder of Capital Stock for any purpose, nor will anything contained herein be construed to confer on the Investor, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action or to receive notice of meetings, or to receive subscription rights or otherwise until shares have been issued upon the terms described herein.

 

(d)   Neither this instrument nor the rights contained herein may be assigned, by operation of law or otherwise, by either party without the prior written consent of the other; provided, however, that this instrument and/or the rights contained herein may be assigned without the Company’s consent by the Investor to any other entity who directly or indirectly, controls, is controlled by or is under common control with the Investor, including, without limitation, any general partner, managing member, officer or director of the Investor, or any venture capital fund now or hereafter existing which is controlled by one or more general partners or managing members of, or shares the same management company with, the Investor; and provided, further, that the Company may assign this instrument in whole, without the consent of the Investor, in connection with a reincorporation to change the Company’s domicile.

 

(e)   In the event any one or more of the provisions of this instrument is for any reason held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this instrument operate or would prospectively operate to invalidate this instrument, then and in any such event, such provision(s) only will be deemed null and void and will not affect any other provision of this instrument and the remaining provisions of this instrument will remain operative and in full force and effect and will not be affected, prejudiced, or disturbed thereby.

 

(f)   All rights and obligations hereunder will be governed by the laws of the State of California, without regard to the conflicts of law provisions of such jurisdiction.

 

 

 

(Signature page follows)

  

 

IN WITNESS WHEREOF, the undersigned have caused this instrument to be duly executed and delivered.

 

 

Exhibit 4.1

 

SUBSCRIPTION AGREEMENT

CNote Group, Inc.

2323 Broadway

Oakland, CA 94612

Attention: Yuliya Tarasava,

Chief Operating Officer

Ladies and Gentlemen:

The undersigned investor (“Investor”) hereby tenders this Subscription Agreement (the “Agreement”) in connection with such Investor’s purchase, in accordance with the terms hereof, of a promissory note or notes in substantially the form attached hereto as Exhibit A (the “Notes”) from CNote Group, Inc., a Delaware corporation (the “Company”). Investor understands that the Company is offering (the “Offering”) for sale up to $50,000,000 in aggregate principal amount of Notes and that the Offering is being made under Regulation A of the Securities Act of 1933, as amended (the “Securities Act”) with a Registration Number of              , and related Offering Circular, dated as of May 31, 2017 (the “Offering Circular”).

 

1.              Subscription. Subject to the terms and conditions hereof, Investor hereby irrevocably subscribes for Notes in the amount set forth on the signature page hereto, which is payable as described in Section 2. Investor acknowledges that the Notes will be subject to restrictions on transfer as set forth in this Agreement, the Notes, the Securities Act, and any other documentation requested by the Company. The Notes are substantially in the form of Exhibit A attached hereto and hereby incorporated by reference. The closing date for the issuance of notes of a series shall be the last day of the month in which the investor completes the registration process (the "Closing Date"), so long as the investor completes such registration process at least six business days prior to the month-end. Otherwise, an investor's CNote Notes of any series will be deemed issued in the next following month's Closing Date. From the date when an investor completes the registration process until six business days prior to the applicable Closing Date, investors may cancel their subscriptions for CNote Notes. Interest begins accruing from the next day following the investor's Closing Date.

 

2.              Acceptance of Subscription and Issuance of Notes. The Company shall have the sole right, at its sole and absolute discretion, to accept or reject this subscription, in whole or in part, for any reason.

 

(a)          Investor will not be deemed to have purchased any Notes unless and until such time as all of the following conditions have occurred: (A) this Agreement and such other documentation as may be requested by the Company has been duly and validly executed by Investor, delivered to the Company and accepted by the Company and (B) the purchase price for the Notes has been delivered pursuant to instructions provided by the Company.

 

(b)         Notwithstanding anything in this Agreement to the contrary, the Company shall have no obligation to issue any of the Notes to any person who is a resident of a jurisdiction in which the issuance of Notes to him, her or it would constitute a violation of the securities, “blue sky” or other similar laws of such jurisdiction (collectively referred to as the “State Securities Laws”). Investor agrees to pay to the Company the aggregate purchase price for the Notes in the amount set forth on the signature page attached hereto by (i) check payable to the Company, (ii) bank or wire transfer in readily available funds in accordance with the Company’s instructions, (iii) cancellation of indebtedness of the Company or (iv) any combination of the foregoing.

 

 

3.              Representations, Warranties and Covenants of Investor. Investor hereby represents and warrants to the Company and each other person that subscribes for the Notes as follows, which representations and warranties shall survive the applicable closing:

 

(a)         Investor will not sell, transfer, pledge, donate, assign, mortgage, hypothecate or otherwise encumber (each a “Transfer”) the Notes unless (i) the Company consents in writing to any such Trasfer, and (ii) any buyer, transferee, pledgee, donee or assignee, respectively, shall agree in writing to be bound by the terms hereof prior to any such Transfer. Any such recipient of the Notes is referred to herein as a “Transferee”, and the Transferee shall be entitled to the benefits of this Agreement and to enforce this Agreement against the Company as if the Transferee were Investor;

(b)         Investor acknowledges that there is no public market for the Notes, that no market may ever develop for them, and that they have not been approved or disapproved by the Securities and Exchange Commission or any governmental agency;

(c)         Investor recognizes that (i) an investment in the Notes involves a high degree of risk and (ii) no assurance or guarantee has or can be given that an investor in the Company will receive a return of his, her or its capital or realize a profit on such investor’s investment;

(d)         Investor has not relied on any information or representations with respect to the Company or the Offering, other than as expressly set forth the Offering Circular;

 

(e)         Investor has determined that he, she or it can afford to bear the risk of the investment in the Notes, including loss of the entire investment in the Company and he, she or it will not experience personal hardship if such a loss occurs; and

 

 

(f)         Investor is purchasing the Notes solely for his, her or its own account for investment, not for the account of any other person, and not with a view to, or for, any resale, distribution or other transfer thereof.

 

4.              Representations and Warranties of the Company. The Company hereby represents and warrants to Investor that:

 

(a)         Organization, Good Standing and Qualification. The Company is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to do so would have a material adverse effect on its business or properties.

 

(b)         Authorization. All requisite action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of the Notes and the performance of all obligations of the Company hereunder and thereunder has been taken or will be taken prior to the Closing, and this Agreement constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws or court decisions of general application affecting enforcement of creditors' rights generally, and (ii) as limited by laws or court decisions relating to the availability of specific performance, injunctive relief, or other equitable remedies or to equitable principles of general applicability.

 

(c)         Valid Issuance. The Note, when issued in accordance with the provisions thereof, will not violate any preemptive rights or rights of first refusal and will be free of any liens or encumbrances.

(d)        Exempt Offering. The offer, sale and issuance of the Notes are and will be exempt from the registration and prospectus delivery requirements of the Securities Act, and from the registration and qualification requirements of all applicable State Securities Laws.

 

(e)         Approvals. All consents, approvals, orders or authorizations of, or registrations, qualifications, designations, declarations or filings with, any governmental authority or any other person, required on the part of the Company in connection with the valid execution and delivery of this Agreement, the offer, sale and issuance of the Notes, and the consummation of any other transaction contemplated hereby, shall have been obtained.

 

5.              Brokers. Investor has not entered into any agreement to pay any broker’s or finder’s fee to any person with respect to this Agreement or the transactions contemplated hereby.

6.              Survival. All representations, warranties and covenants contained in this Agreement shall survive the acceptance of the subscription by the Company and the consummation of the subscription.

7.              Waiver, Amendment. Neither this Agreement nor any provisions hereof shall be amended or waived except either (a) with the written consent of the Company and the holders of a majority of the principal amount of Notes then outstanding or (b) in a writing by the party or parties against whom such amendment or waiver is sought to be enforced.

 

8.              Successors and Assigns. The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, legal representatives, successors and permitted assigns.

 

9.             Governing Law. This Agreement is to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the State of California to the rights and duties of the parties.

 

10.            Entire Agreement. This Agreement and the Notes constitute the entire agreement between the parties regarding the subject matter contained herein and supersedes all prior or contemporaneous agreements, representations and understandings of the parties.

11.            Counterparts. This Agreement may be executed in two or more facsimiles and/or counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

 

[signature page follows]

 

 

 

 

 

FORM OF CNOTE NOTE

 

[See Exhibit  3.1]

 

 

Exhibit 11.1
        

We consent to the use, in this Offering Statement on Form 1-A, as it may be amended, of our independent auditors’ report dated April 26, 2017 on our audit related to the financial statements of CNote Group, Inc. as of December 31, 2016 and the related statements of operations, stockholders’ equity and cash flows for the period from April 22, 2016 (Inception) to December 31, 2016, and the related notes to the financial statements.

Very truly yours,

/s/ dbbmckennon

Newport Beach, California

May 31, 2017

 

 

---

Exhibit 12.1

 

 

 

 

May 31, 2017

 

 

CNote Group, Inc.

2323 Broadway

Oakland, CA 94612

 

Re:

Offering Statement on Form 1-A

 

Ladies and Gentlemen:

 

We have acted as counsel to CNote Group, Inc., a Delaware corporation (the “Company”), in connection with its filing of an offering statement on Form 1-A (the “Offering Statement”), filed by the Company with the Securities and Exchange Commission (the “Commission”) under the Securities Act of 1933, as amended (the “Securities Act”).  The Offering Statement relates to the proposed issuance and sale on a continuous basis by the Company of up to $50,000,000 in aggregate principal amount of CNote Notes (the “Notes”) pursuant to Rule 251(d)(3)(i)(F) of the Securities Act, as set forth in the Offering Statement.

 

In connection with the filing of the Offering Statement, we have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion. We have relied, without independent verification, on certificates of public officials and, as to matters of fact material to the opinion set forth below, on certificates of officers of the Company. For purposes of this opinion, we have also assumed that (i) the authenticity of original documents and the genuineness of all signatures; (ii) the conformity to the originals of all documents submitted to us as copies; (iii) the legal capacity of all natural persons; (iv) that the Offering Statement and any amendments thereto (including post-effective amendments) will have become effective under the Securities Act; (v) that an appropriate offering circular supplement will have been filed with the Commission with respect to the Notes offered thereby; (vi) that all Notes will be issued and sold in compliance with applicable Federal and state securities laws and in the manner stated in the Offering Statement and the applicable offering circular supplement; and (vii) that the issuance and sale of the Notes by the Company will not, in each case, violate or result in a default under or breach (a) any agreement or instrument binding upon the Company, (b) any law, rule or regulation to which the Company is subject, (c) any applicable requirement or restriction imposed by any court or governmental body having jurisdiction over the Company, or (d) any consent, approval, license, authorization or validation of, or filing, recording or registration with any governmental authority. To the extent the Company’s obligations depend on the enforceability of any agreement against the other parties to such agreement, we have assumed that such agreement is enforceable against such other parties.

The opinion set forth below is limited to (i) the General Corporation Law of the State of Delaware (the “DGCL”), and (ii) with respect to the relevant documents governed by the laws of the State of California, the California General Corporation Law (the “CGCL”). Our opinions as to the DGCL are based solely on a review of the official statutes of the State of Delaware and the applicable provisions of the Delaware Constitution and the reported judicial decisions interpreting such statutes and provisions.  Our opinions as to the CGCL are based solely on a review of the official statutes of the State of California and the applicable provisions of the California Constitution and the reported judicial decisions interpreting such statutes and provisions.

 

 

7 Times Square, New York, New York 10036   Telephone:  212.790.4500  Fax:  212.790.4545 Albany  |  Los Angeles  |  New York  |  Orange County  |  Palo Alto  |  Sacramento  |  San Francisco  |  Washington, D.C.

 

CNote Group, Inc.

May 31, 2017

Page 2

 

 

Our opinion is qualified as to enforceability which may be limited by:

 

(a) applicable bankruptcy, receivership, insolvency, reorganization, moratorium, fraudulent conveyance, fraudulent transfer, preference or other similar laws affecting the enforcement of the rights and remedies of creditors, secured parties and parties to executory contracts generally; and such duties and standards as are or may be imposed on creditors, including, without limitation, good faith, materiality, reasonableness, and fair dealing under any applicable law or judicial decision; and

 

(b) rights to indemnification and contribution which may be limited by applicable law or equitable principles; and

 

(c) general principles of equity, including without limitation, concepts of materiality, reasonableness, good faith and fair dealing, the effect of judicial discretion and possible unavailability of specific performance, injunctive relief or other equitable relief, and limitations on rights of acceleration regardless of whether such enforceability is considered in a proceeding in equity or at law.

 

Based on the foregoing, and subject to the qualifications herein stated, we are of the opinion that the Notes have been duly authorized, and, upon issuance and delivery against payment therefor in accordance with a subscription agreement, the Notes will constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms.

 

We hereby consent to the filing of this opinion as an exhibit to the Offering Statement and to the use of our name wherever it appears in the Offering Statement.  In giving such consent, we do not believe that we are “experts” within the meaning of such term as used in the Securities Act or the rules and regulations of the Commission issued thereunder with respect to any part of the Offering Statement, including this opinion as an exhibit or otherwise.

 

This opinion is expressed as of the date hereof unless otherwise expressly stated, and we disclaim any undertaking to advise you of any subsequent changes in the facts stated or assumed herein or of any subsequent changes in applicable laws.

 

	Very truly yours,
	/s/ Manatt, Phelps & Phillips, LLP
	Manatt, Phelps & Phillips, LLP

 

 

 

---

Exhibit 15.1

 

THIS MASTER PROMISSORY NOTE (THE “NOTE”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES LAWS.  THIS NOTE IS SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED, SOLD, RESOLD, OFFERED FOR SALE OR RESALE, PLEDGED, OR HYPOTHECATED (COLLECTIVELY, “TRANSFERRED” OR, A “TRANSFER”) IN THE ABSENCE OF A REGISTRATION OR QUALIFICATION WITH RESPECT TO THIS NOTE UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL THAT ANY PROPOSED TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS.

 

MASTER PROMISSORY NOTE

Effective Date:          

FOR VALUE RECEIVED, the Borrower hereby promises to pay to the Lender in U.S. dollars the aggregate principal amount (the “Principal”) of such loans (each, a “Loan”) made to the Borrower from time to time, as reflected in Schedule A hereto, and the Interest (as defined in Section 2) pursuant to the terms and conditions set forth in this Note. By accepting each Loan, the Borrower agrees that agrees that such Loan shall be governed by the terms of this Note.

Each Loan shall bear interest according to the terms of this Section 2 (the “Interest” and, together with the Principal, the “Amount Owed”).

Unless prepaid pursuant to Section 4, accelerated pursuant to Section 5, or earlier withdrawn pursuant to Section 6, the Amount Owed for each Loan shall be due and payable to the Lender on the maturity date set forth for such Loan on Schedule A hereto (the “Maturity Date”). There shall be no penalty for payment by the Borrower after the applicable Maturity Date, but Interest shall continue to accrue until payment of the Note is complete.

 

 

All U.S. dollar amounts used in or resulting from the calculation of the Amount Owed shall be rounded to the nearest cent (with one-half cent being rounded upward).

The Lender will regularly provide documentation on balances, projected interest and the withdrawal eligibility schedule and other items necessary to calculate and track payments and deposits.

The Borrower shall have the right, in its sole discretion, at any time and from time to time, to prepay the Amount Owed, in whole or in part, without premium or penalty upon at least ten (10) days’ written notice to the Lender. Notice to The Lender for the purpose of such prepayment shall be deemed to have been given upon the mailing of a copy thereof, postage prepaid, to the address listed on the signature page hereto.

The Lender shall have the right, at its option, to declare the Amount Owed immediately due and payable upon the occurrence of any of the following events: the insolvency of the Borrower, the commission of any act of bankruptcy by the Borrower, the execution by the Borrower of a general assignment for the benefit of creditors, the filing by or against the Borrower of any petition in bankruptcy or any petition for relief under bankruptcy laws for the relief of debtors and the continuation of such petition without dismissal of a period of thirty (30) days or more, or the appointment of a receiver or trustee to take possession of any property or assets of the Borrower.

At any time prior to repayment of the Amount Owed, including prior to the Maturity Date of each Loan, the Lender may withdraw up to ten percent (10%) of the Amount Owed in each fiscal quarter according to the terms of this Section 6 (each, a “Withdrawal Request”).

This Note, including the Principal and any Interest, is a full-recourse obligation of the Borrower. No recourse shall be had directly or indirectly for payment of the Amount Owed or for any claim based thereon against any past, present, or future director, officer, or stockholder of the Borrower, all such liability being expressly waived and released by the acceptance of delivery hereof.

 

 

 

The parties hereto agree to resolve any dispute, claim or controversy arising out of or relating to this Agreement according to the terms of this Section 8. First, the parties hereto agree to attempt in good faith to resolve the dispute through informal resolution. Second, if the dispute is not resolved through informal resolution, the parties hereto agree to attempt in good faith to resolve the dispute through mediation administered by the American Arbitration Association under its Commercial Mediation Procedures, the costs of which shall be divided equally between the Parties. Third, if the dispute is not resolved through informal resolution and mediation, the parties hereto agree to participate in binding arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules. In the event of arbitration (or in the event of a lawsuit if this arbitration clause is deemed invalid or does not apply to a given dispute), the prevailing Party shall be entitled to costs and fees (including reasonable attorneys’ fees). In the event that the dispute resolution procedures in this paragraph are found not to apply to a given claim, or in the event of a claim for injunctive relief as specified in the previous sentence, the Parties agree that any judicial proceeding will be brought in the state courts of San Francisco County, California. Both Parties consent to venue and personal jurisdiction there.

This Note shall be governed by the laws of the State of New York, without regard to conflict of law provisions.

This Note shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. Neither parties hereto may assign its rights or obligations hereunder, whether by operation of law or otherwise, without the prior written consent of the other party, except that the Lender may assign this Note in its entirety, without consent of the Borrower, to its parent, subsidiary, or affiliate or in connection with a merger, acquisition, corporate reorganization, or sale of all or substantially all of its assets. This Note sets forth the entire agreement and understanding of the parties hereto relating to the relationship between the Lender and the Borrower and supersedes all prior or contemporaneous discussions, understandings, and agreements, whether oral or written, between the parties hereto relating to the subject matter of this Note. No terms in this Note may be changed except by an amendment or separate agreement executed in writing by an authorized representative of both parties hereto. Failure by either party hereto to enforce its rights under this Note shall not be deemed to constitute a waiver of its rights to enforce the same or any other provision under this Note. No waiver shall be effective unless made in writing and signed by an authorized representative of the waiving parties hereto. If one or more provisions of this Note are held to be unenforceable under applicable law, such provision shall be excluded from this Note, and the balance of the Note shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

[Remainder of this page intentionally left blank; signature page follows.]

 

 

THE PARTIES HERETO HAVE READ AND UNDERSTOOD THE TERMS OF THIS MASTER PROMISSORY NOTE AND AGREE TO THEM AS OF THE EFFECTIVE DATE.

SCHEDULE A

Table of Loans

As of                               

 

Terms of Use

Last modified: November 16, 2016

CNote Group, Inc. (“Company” or “CNote”) offers the mycnote.com website (the “Website”) and these Terms of Use (“Terms”) govern your access and use of the Website and all services available through the Website (collectively, the “Services”).

Any information that you supply to Company will be governed by these Terms and the Website Privacy Policy, as they may be updated from time to time by Company. You agree to abide by the rules and policies established from time to time by Company.

By using the Website and the Services, you attest that you are at least 18 years old.

Please read these Terms carefully. These Terms govern your access to and use of the Services. By using the Website, you signify your assent to these Terms. Changes may be made to these Terms from time to time. Your continued use of the Website will be deemed acceptance to any amended or updated terms. If you do not agree to any of these Terms, please do not use the Website. Company reserves the right to change, update or cease to offer the Website or any part thereof at any time.

To register, you must enter your email address and select a password. The email address must be an actual address that belongs exclusively to you. You may not use an email address that is used by someone else, and the email address cannot be indecent, or otherwise offensive, or be used in any way that violates the Terms. You may not provide false information during the registration process.

     

Maintaining account security is very important. Company takes commercially reasonable steps to keep the Website secure, however security is not guaranteed. Security also depends on you. You should not reveal your password to anyone. Your account is at risk if you let someone use it inappropriately and your account is subject to termination if you or anyone using your account violates the Terms.

The information you provide may be visible to Company and its employees and contractors who have a need to know such information in order to provide the Services.

You agree to immediately notify Company of any unauthorized use of your account or password. You are fully and solely responsible for the security of your computer system and all activity on your account, even if such activities were not committed by you. Company will not be liable for any losses or damage arising from unauthorized use of your account or password, and you agree to indemnify and hold Company harmless for any improper or illegal use of your account. This includes illegal or improper use by someone to whom you have given permission to use your account. We do not police for, and cannot guarantee that we will learn of or prevent, any inappropriate use of the Services.

If Company believes, in its sole discretion, that a violation of these Terms or any illegal or inappropriate behavior has occurred, Company may take any corrective action deemed appropriate. Company will fully cooperate with any law enforcement authorities or court order requesting or directing Company to disclose the identity of anyone believed to have violated these Terms or to have engaged in illegal behavior in the use of the Services.

If there are no funds in your account, you may terminate your account at any time by emailing support@mycnote.com. Any suspension, termination, or cancellation shall not affect your obligations to Company under these Terms (including but not limited to ownership, intellectual property, indemnification, and limitation of liability), which by their sense and context are intended to survive such suspension, termination, or cancellation.

     

Company hereby grants you a limited, revocable, personal, worldwide, royalty-free, non-exclusive, nonsublicensable and non- assignable license to use the Website and the Services solely for your personal use. Except as expressly permitted herein, you may not copy, further develop, reproduce, republish, modify, alter, download, post, broadcast, transmit or otherwise use the Website or the Services.

You will not remove, alter or conceal any copyright, trademark, service mark or other proprietary rights notices incorporated in the Website or the Services, except as Company may expressly permit. Should you provide Company with comments or suggestions for the modification, correction, improvement or enhancement of the Website or the Services then, subject to the terms and conditions of these Terms, you hereby grant Company a non-exclusive, irrevocable, worldwide, royalty-free license, including the right to sublicense, to use and disclose such comments and suggestions in any manner Company chooses and to display, perform, copy, have copied, make, have made, use, sell, offer to sell, and otherwise dispose of Company’s and its sublicensees’ products and content embodying such comments or suggestions in any manner and via any media Company chooses, but without reference to the source of such comments or suggestions. You understand and acknowledge that you are not entitled to any compensation, whether financial or otherwise, for such comments or suggestions.

In order to use certain parts of the Website, you may be asked to supply certain personal information. All personal information that you provide must be accurate, complete, and kept current.

CNote gives no warranties and makes no claims about Dwolla’s services. CNote is not responsible for the acts or omissions of Dwolla in providing services to you.

When you sign up for an account on the Website, you will also be prompted to sign up for a Dwolla “white label” account. You are responsible for complying with Dwolla Terms when using your Dwolla account. IT IS YOUR RESPONSIBILITY TO READ AND UNDERSTAND THE DWOLLA TERMS AS IT CONTAINS TERMS AND CONDITIONS RELATING TO YOUR DWOLLA ACCOUNT INCLUDING BUT NOT LIMITED TO YOUR RIGHTS, LIMITATIONS, REVERSAL AND OTHER LIABILITIES, LIMITATION OF LIABILITY AND BINDING ARBITRATIONS PROVISIONS.

      

You agree to indemnify CNote for any losses we incur based on your failure to provide accurate, truthful, or complete information to Dwolla, or to use the Website or the Dwolla platform for any unauthorized or illegal purposes. Further, you agree to indemnify CNote for any Reversal Fee (as defined in the Dwolla Terms) assessed against CNote due to insufficient funds in your bank account(s) or due to any reason within your control.

Posts, stores, transmits, offers, or solicits anything that contains the following, or that you know contains links to the following or to locations that in turn contain links to the following: (a) Material that Company determines to be offensive; (b) Material that is defamatory, harassing or threatening; (c) Pornography; (d) Any virus, worm, Trojan horse, or other harmful or disruptive component; (e) Anything that encourages conduct that would be considered dangerous, a criminal offense, give rise to civil liability, violate any law or regulation or is otherwise inappropriate; or (f) Restricts or inhibits use of the Website;  (g) Uses any account or password without prior permission; (g) Obtains or solicits another person’s password or other personal information under false pretenses; Impersonates another user or otherwise misrepresents yourself in any manner, whether to another user, to us, or otherwise; (h) Violates the legal rights of others, including defaming, abuse, stalking or threatening users; (i) Infringes (or results in the infringement of) Company’s or any third party’s intellectual property rights, moral rights, or other rights; (j) Is (or you reasonably believe to be illegal, fraudulent, or unauthorized, or in furtherance of any illegal, counterfeiting, fraudulent, pirating, unauthorized, or violent activity, or that involves (or you reasonably believe to involve) any stolen, illegal, counterfeit, fraudulent, pirated, or unauthorized material; (k) Does not comply with all applicable laws, rules, or regulations, including obtaining all necessary permits, licenses, registrations, etc. In the case of any proposed or actual transaction, “applicable” refers to both your own location and to location(s) of all other parties to the transaction; or would cause Company to be in violation of any law, ordinance, rule, regulation or treaty, or to infringe any right of any third party; (l) Publishes falsehoods or misrepresentations that may damage Company or any third party; (m) Manipulates identifiers, forges headers or other data in order to disguise the origin of content transmitted through the Website or to manipulate your presence on the Services; (n) Disrupts, interferes or harms the Website, servers or networks; or (o) Imposes an unreasonably or disproportionately large load on Company’s infrastructure.

     

 

Company makes no representation or warranty, express or implied, regarding the advisability of investing in anything offered through the Website. The past performance of any investment is not a guide to future performance.

WITHOUT LIMITING ANYTHING IN THE TERMS OF SERVICE, COMPANY MAKES NO WARRANTIES AND BEARS NO LIABILITY WITH RESPECT TO ANY FUND, ANY INVESTMENTS, SECURITIES, PARTNERSHIP INTERESTS, LOANS OR THE PERFORMANCE THEREOF.

The Website content and the views expressed in the content do not necessarily reflect the views of Company as a whole, its directors, officers, employees, shareholders or any part or member thereof or of any third party. No content or information on the Website constitutes, or should be construed as, investment, tax, legal, financial or any other advice.

A variety of factors could cause the actual results and developments of any investment to differ significantly from the results and developments forecasted and implied. Although forward-looking statements contained in the Website, if any, are based upon what Company and its advisors believe are reasonable assumptions, Company cannot assure you that actual results, returns or events will be consistent with these forward-looking statements. Forward-looking statements are made as of the date of being posted to the Website, and Company and its subsidiaries and affiliates assume no obligation, and expressly disclaim any obligation, to update or revise forward-looking statements contained in or incorporated by reference into the Website or the content or any information supplemental thereto to reflect new information, future events or circumstances or otherwise.

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