UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1-K
ANNUAL REPORT
ANNUAL REPORT PURSUANT TO REGULATION A OF THE SECURITIES ACT OF 1933
For the fiscal year ended December 31, 2021
CNote Group, Inc.
(Exact name of issuer as specified in its charter)
Delaware | 81-2784287 |
State of other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
CNote Notes
(Title of each class of securities issued pursuant to Regulation A)
2323 Broadway, Oakland, California 94612
(Full mailing address of principal executive offices)
800-449-6275
(Issuer’s telephone number, including area code)
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PART II
Item 1. | BUSINESS |
Overview
CNote Group, Inc. (hereafter also referred to as “Us”, “We”, “the Company”, or “CNote”) is a financial technology company operating an online impact investment platform at www.mycnote.com. CNote allows individuals and institutions to invest locally to further economic equality, racial justice, gender equity, and address climate change. With the aim of closing the wealth gap, CNote's fixed income and depository solutions provide a diversified and scalable way to support job creation, small business growth, affordable housing development, and lasting economic growth in underserved communities primarily through partnerships with Community Development Financial Institutions (“CDFIs”) across the United States.
As of December 31, 2021, we have thirteen full-time employees and also rely on outside consultants for various technical and business functions. We are located in Oakland, California. Since inception through December 31, 2021, we have offered approximately $84 million to community finance organizations.
CDFIs have been in existence for over 25 years and were created by the Riegle Community Development and Regulatory Improvement Act of 1994, to be regulated by the United States Department of the Treasury through the CDFI Fund. Since then, CDFIs have grown to become an over $185 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 continues to outpace supply, leading many CDFIs to seek new sources of diversified capital. CDFIs can be banks, credit unions, loan funds, microloan funds or venture capital providers, and focus on providing loans to businesses in economically underdeveloped cities and neighborhoods in the United States. CDFIs have grown in stature recently as a key source of local small business funding, including urban and minority-owned businesses, garnering a special allocation of lending capital from the Paycheck Protection Program and Health Care Enhancement Act of 2020.
CNote is a technology-driven platform that allows us to offer capital to community finance organizations. With respect to our debt offerings, we aggregate investors’ funds to provide capital to community finance organizations, primarily to CDFIs, which, in turn, directly provide loans to population segments underserved by traditional banks and lenders, such as women- and minority-owned businesses. The debt offerings on our platform are open to institutional, accredited, and non-accredited investors. Our accredited investors (“Regulation D”) invest via Regulation D of the Securities Act of 1933, as amended from time to time (the “Securities Act”), and our non-accredited investors (“Regulation A+”) invest via Regulation A of the Securities Act by purchasing CNote Notes. Non-accredited investors can only purchase CNote Notes representing an offering as described in the Offering Statement filed with the SEC under Regulation A and qualified effective March 4, 2021 (“Regulation A+ CNote Notes”). Accredited investors have access to other debt offerings.
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Proceeds from CNote Notes may be aggregated with funds from institutional and accredited investors to collectively fund our loans to our CDFI borrowers. Final decisions on use of proceeds allocations are made by management on a loan-by-loan basis.
Under our business model for our loans, we generate revenue by retaining the difference between the interest rate we charge our CDFI borrowers and the interest distributed to CNote Note investors. The interest rates we charge our CDFI borrowers and the interest rates of the CNote Notes are reviewed by management, in view of a variety of macroeconomic and market conditions, including the federal interest rate environment, fluctuations in the cost of capital averages for CDFIs, and the economics facing the Company. We also consider the competitiveness of CNote Notes as compared to rates offered by other investment products.
In 2020, we launched a cash deposit program called Impact CashTM in which the Company facilitates the creation of interest-bearing deposits for the benefit of its clients at community finance depository institutions located in the United States. Deposits include certificates of deposits with terms of 6 to 24 months bearing interest at 0.05% to 0.80%, and money market accounts with variable rates of interest. Balances are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration, as applicable, in an amount up to $250,000. Impact CashTM is designed for scale and targets aggregate deposits per client of $5 million to $50 million.
Regulation A+ CNote Notes
Non-accredited investors can purchase Regulation A+ CNote Notes via our online platform. Regulation A+ CNote Notes are general obligations of the Company, regardless of payments received from any specific CDFI borrower. CNote provides investors with information on CDFI borrowers with which we have partnered in the past and details on the types of projects they fund and their social impact, which may include stories from a CDFI’s prior specific borrowers. However, we do not directly connect investors to CDFI borrowers or to the CDFIs’ borrowers.
Our Regulation A+ CNote Notes pay interest at a current rate of 2% per annum, compounded monthly, fixed for the duration of the Notes. Management may change the interest rate of Regulation A+ CNote Notes offered from time-to-time, in a range from 1.5% to 3.0% per annum. Interest rate changes are at the sole discretion of CNote. Regulation A+ CNote Note investors may choose whether to receive interest on their investments each month, or to have this interest compounded on a monthly basis.
The term for Regulation A+ CNote Notes currently offered is 30 months. Regulation A+ CNote Notes may be repurchased from investors at any time at the par value of outstanding principal plus the interest accrued through the repurchase date. Regulation A+ CNote Notes are held on our platform in electronic form and are not listed on any securities exchange. The transfer of Regulation A+ CNote Notes to third parties is prohibited unless expressly permitted in writing by CNote.
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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 CDFI borrowers and other cash available to the Company. Management retains the discretion to allow investors to withdraw additional amounts, subject to the availability of additional funds.
Our website allows investors to commit to purchase Regulation A+ CNote Notes upon completion of the registration process. We issue Regulation A+ CNote Notes in a series of Closings, which occur within 24 hours or as soon as reasonably practicable after the Company has obtained commitments from investors to purchase an aggregate of at least $500,000 in principal of Regulation A+ CNote Notes. On the Closing Date, funds will be drawn from the investor’s bank account and transferred into the investor’s CNote account. Interest begins accruing from six business days following the investor’s Closing Date (“Accrual Date”). Regulation A+ CNote Notes are issued to the investor on the Accrual Date and held on our platform in electronic form. Regulation A+ CNote Notes can be viewed under the “Documents” tab in the investor’s account dashboard accessed by entering login-credentials.
Proceeds from the sales of Regulation A+ CNote Notes are used to make loans to our CDFI borrowers.
CNote Borrowers
Leveraging our proprietary technology, we aggregate investor capital and make loans to CDFIs. As of December 31, 2021, we have partnered with 32 CDFI borrowers, two of which are themselves lending to a portfolio of CDFIs thereby diversifying our investors’ funds. Since repayment of Regulation A+ CNote Notes to our investors is not tied to any particular loan being repaid but rather comes from our aggregated pool, this diversification further supports our ability to repay our investors and expand our footprint.
We can lend in 46 states and the District of Columbia as a non-bank commercial lender.
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Underwriting Process
We use technology, data analytics, and a proprietary liquidity algorithm to match investors’ funds with the funding needs of our CDFI borrowers. CNote conducts three stages of due diligence on prospective CDFI borrowers, which include (1) internal due diligence following industry best practices, (2) reviewing, if available, opinions from Aeris®, the rating agency that specializes in CDFIs, and/or the opinion of Opportunity Finance Network, the national membership association of CDFIs, and (3) a third-party review by stakeholders, with expertise in the CDFI industry, and with no ties, financial or otherwise, either to us or to the potential CDFI borrower, to provide tertiary, third-party assessments, including geography-specific and product-specific risks.
Our credit policy targets potential CDFI borrowers with high creditworthiness, a stable financial outlook and proven social impact. In order to borrow from CNote, CDFIs must display characteristics indicative of a healthy loan portfolio and a durable financial condition. The factors we consider include repayment rates, loan delinquencies, loan loss reserves, availability of credit enhancements and guarantees, length of time in business, and other financial and credit variables. Additionally, our CDFI borrowers are required to provide us with audited financial and social impact data about their operational and lending activities.
Our due diligence process typically takes at least four to six weeks on average to complete.
We base our determination of what loan amount to approve, how the loan will be priced, and the length of the loan primarily on our due diligence analysis. We also may consider additional factors such as the financial products offered by potential CDFI borrowers or the general economic environment. Our loans are typically issued to CDFI borrowers in the form of a master promissory note, which allows them to make multiple requests for capital. If a CDFI borrower makes additional requests for a loan, we will re-evaluate the CDFI borrower in accordance with our underwriting process. In addition, we conduct these reviews on existing CDFI borrowers on at least a quarterly basis. If the results of our subsequent analyses differ from our initial determination, a CDFI borrower may receive different financial terms on subsequent drawdowns. Our loans to CDFI borrowers are full recourse to the CDFI, and are not reliant on proceeds from the loans each CDFI makes. The loans to CDFI borrowers are not amortizing and CDFI borrowers repay the loans monthly through electronic bank payments.
Loan Servicing
CNote has built a proprietary platform to manage in-house servicing with respect to CNote Notes as well as CDFI loans. Investors can access and manage their account online at www.mycnote.com by entering their login credentials.
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Distinctive Characteristics and Risks
The Company is subject to a number of regulatory requirements. Both the lending and investing industries are regulated by state and federal regulators, and as such, create an environment in which CNote operations can be directly influenced by various regulatory bodies. Changes in regulations, or in the way current or newly enacted state or federal regulations are applied to our business, or the increased cost due to compliance with these regulations, or inadvertent regulatory miscues, could all adversely affect our business. Ongoing compliance with Regulation A+, which is a relatively new regulatory scheme subject to the potential for more, and more frequent, amendments and differing interpretations, and the reporting thereof to the SEC could be more costly than anticipated.
As part of its operations, the Company lends to CDFIs and has yet to endure a major adverse phase in the credit cycle. Worsening economic conditions or a changing political climate may result in decreased demand for our loans, cause our CDFI borrowers’ default rates to increase, or harm our operating results.
CDFIs may be negatively impacted by political or administrative actions, which could include decreased federal or state support for CDFIs or rollback of supportive policies. Losing access to state or federal funding could make it more likely that CDFI borrowers 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.
Finally, the Company is an emerging company with a history of net operating losses. While building the business toward net profit with continuing increases in recurring operating revenue, we rely on outside capital to fund our operations. The Company expects these existing sources to be sufficient to meet anticipated near-term cash operating expenses and capital expenditure requirements. If those funds are insufficient to satisfy liquidity requirements, the Company intends to seek additional equity or debt financing. If we are unable to obtain or maintain profitability, we will not be able to attract investment, compete, or maintain operations. Holders of CNote Notes are exposed to the credit risk of the Company.
Investors should read this report, our other filings with the SEC, and the Offering Statement filed with the SEC with respect to Regulation A+ CNote Notes for a full list of potential risks related to the industry, the Company, and Regulation A+ CNote Notes.
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Tax and Legal Treatment
Investors in CNote Notes will receive interest income. At the end of the calendar year, investors with over $10 of realized interest will receive a Form 1099-INT. The interest earned on CNote Notes will be declared in accordance with the United States Internal Revenue Code of 1986, as amended. An investor’s tax situation will likely vary greatly, and all tax and accounting questions should be directed towards a certified public accountant. CNote does not provide investment, accounting, tax or legal advice to investors in CNote Notes and encourages investors to seek out advice from their professional advisers to fully understand their particular tax situations.
We are not subject to any bankruptcy, receivership, or similar and other legal proceedings.
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of its operations should be read together with the consolidated financial statements and the related notes and other financial information included elsewhere in this filing.
Overview
The Company is an online investment platform that (1) makes loans to CDFIs dispersed across the United States who in turn make loans to underserved communities, and (2) facilitates the creation of interest-bearing deposits for the benefit of its clients in community finance depository institutions located in the United States. As of December 31, 2021, the Company has approximately $59,499,000 outstanding in loans and interest with CDFIs, and has facilitated approximately $48,068,000 in deposits with community finance depository institutions. The Company generates revenue by retaining the difference between the interest earned on deployed funds versus the interest paid to its investors, as well as charging servicing fees on clients’ cash deposited into community finance depository organizations via CNote’s proprietary technology.
Operating Results
Revenues represent interest earned from loans to CDFIs and fees earned on client funds on deposit with community finance depository institutions. In addition, CNote earns servicing fees for consulting work on behalf of foundations and other institutions, and for customization of technology built for internal underwriting and monitoring of CDFIs to institutional clients’ needs.
Operating expenses represent the cost for platform development, sales and marketing (travel, advertising and collateral) and general and administrative expenses (personnel payroll and benefits, professional fees and insurance). Since its inception, the Company has focused on developing its proprietary technology, building up an industry database, setting up the legal framework for its products and establishing industry partnerships.
Revenues
During the fiscal year ended December 31, 2021 the Company generated approximately $2,116,000 in revenue compared to $2,073,000 reported in the fiscal year ended December 31, 2020. The increase in recurring revenue is a result of higher loan origination and customization work for clients, partially offset by a lower interest-rate environment.
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Operating Expenses
For the fiscal year ended December 31, 2021, the Company had operating expenses of approximately $2,691,000 compared to approximately $1,731,000 in the fiscal year ended December 31, 2020. The largest line items of operating expenses were payroll and payroll taxes as well as legal and other professional services supporting continued business development and expansion.
Liquidity and Capital Resources
Sources of Liquidity
To date, the Company has funded operations primarily through Simple Agreements for Future Equity (“SAFEs”) agreements, convertible promissory notes (“convertible notes”) and issuance of Series Seed Preferred Stock (“Preferred Stock”) in its Series Seed financing, and has funded its lending activities through investments by accredited and non-accredited investors in CNote Notes.
Equity and Convertible Debt Financing
On August 25, 2020, the Company entered into a Series Seed financing whereby the Company authorized 11,009,805 shares of its Preferred Stock and issued shares of Preferred Stock in exchange for conversion of the entirety of the Company’s SAFEs in the amount of $1,619,500, the entirety of the outstanding amount of the Company’s convertible notes in the principal amount of $1,725,660 plus accrued interest, and cash consideration of approximately $3,400,000. As of December 31, 2021, the Company has sold and issued a total of 10,851,841 shares of Preferred Stock.
The capital raised has been used to date to develop and maintain the Company’s platform, to fund legal expenses, for marketing and advertising, for expanding operations, and for other general corporate purposes.
Operating and Capital Expenditure Requirements
The Company expects existing funds, together with its recurring operating revenue, to be sufficient to meet anticipated near-term cash operating expenses and capital expenditure requirements. If those funds are insufficient to satisfy liquidity requirements, the Company intends to seek additional equity or debt financing. The sale of equity may result in dilution to our stockholders and those securities may have rights senior to those of our shares of Common Stock and Preferred Stock. If the Company raises additional funds through the issuance of debt, the agreements governing such debt could contain covenants that would restrict our operations and such debt would rank senior to shares of our Common Stock and Preferred Stock. The Company may require additional capital beyond currently anticipated amounts and additional capital may not be available on reasonable terms, or at all.
Trends and Key Factors Affecting Our Performance
Investment in Long-Term Growth.
The core elements of the Company’s growth strategy include acquiring new customers, broadening distribution capabilities through strategic partnerships, extending customer lifetime value, and enhancing data, analytical and customization capabilities. The Company plans to continue to invest significant resources to accomplish these goals, and the Company anticipates that its operating expenses, particularly sales, marketing, and technology expenses, will continue to increase for the foreseeable future. These investments are intended to contribute to long-term growth, but they may affect near-term profitability.
Originations.
The Company’s future growth will continue to depend, in part, on attracting additional investors and deposit account clients while entering into relationships with more CDFI borrowers and community finance depository institutions. The Company plans to increase its sales and marketing spending and seek to attract these investors and clients. We expect to rely on strategic distribution partners, affinity networks and conference and public relations strategies for investor and client growth.
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The Company expects our CDFI borrowers’ need for debt capital to increase in the future. The extent to which the Company can satisfy that increased demand for debt financing will be an important factor in its continued revenue growth. Building relationships with membership industry networks and CDFI coalitions has proven to be a stable source of referrals to CDFI borrowers, and we expect this trend to continue.
COVID-19
In March 2020, COVID-19 began spreading rapidly throughout the world, prompting governments and businesses to take unprecedented measures in response. Such measures included restrictions on travel and business operations, temporary closures of businesses, quarantines and shelter-in-place orders. While the extent of the governmental measures fluctuated over time and varied across jurisdictions, the future impact of the COVID-19 pandemic and the emergence of new COVID-19 variants on the Company’s operational and financial performance is still uncertain and will depend on many factors outside the Company’s control, including, without limitation, the timing, extent, trajectory and duration of the pandemic, vaccination rates, and the effectiveness of vaccines and other treatments, the emergence of new variants, and any renewed imposition of protective public safety measures. Ultimately, we cannot predict the duration of the COVID-19 pandemic. We will continue to monitor macroeconomic conditions to remain flexible and to optimize and evolve our business as appropriate.
Summary of Critical Accounting Policies
This management’s discussion and analysis of the Company’s financial condition and results of operations are based on its consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expenses during the reported period. In accordance with GAAP, the Company bases estimates on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
The Company’s significant accounting policies are fully described in Note 2 to the consolidated financial statements appearing elsewhere in this filing. The Company believes those accounting policies are critical to the process of making significant judgments and estimates in the preparation of our consolidated financial statements.
Forward-Looking Statements
The following information contains certain forward-looking statements. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may,” “could,” “expect,” “estimate,” “anticipate,” “plan,” “predict,” “probable,” “possible,” “should,” “continue,” or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guarantee, or warranty is to be inferred from those forward-looking statements.
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Item 3. | DIRECTORS AND OFFICERS |
Our executive officers and directors, and ages are as follows:
Name | Age | Position | Term of Office | |||
Executive officers: | ||||||
Catherine Berman | 46 | President, Chief Executive Officer, Co-founder, Director | Since June 17, 2016 | |||
Yuliya Tarasava | 38 | Chief Operating Officer, Co-founder, Treasurer, Secretary, Director | Since April 22, 2016 | |||
Significant Employees: |
||||||
Robert Shaw | 34 | Principal Engineer | Since April 8, 2018 | |||
Danielle Burns | 46 | VP, Head of Business Development | Since July 8, 2019 | |||
Stacy Zielinski | 41 | Director of Community Development | Since February 3, 2020 | |||
Patric Glassell | 40 | Vice President of Sales | Since October 5, 2020 | |||
Tamra Thetford | 46 | Director of Impact Evaluation | Since September 21, 2021 | |||
Amanda Glincher | 39 | Director of Marketing | Since November 29, 2021 | |||
Julia Phipps | 31 | Director of Due Diligence | Since December 20, 2021 |
Catherine Berman
Ms. Berman co-founded CNote and has served as our President and Chief Executive Officer and a member of our Board of Directors since June 2016. Before launching CNote, Ms. Berman served as Managing Director of Charles Schwab, one of America’s leading financial services businesses. At Schwab, Ms. Berman led a strategy division focusing on the future of financial services. Prior to Schwab, Ms. Berman maintained a host of management positions including Senior Vice President of Astia (venture capital), Strategy & Operations Manager at Deloitte Consulting, LLP (management consulting) and Vice President of Evins Communications, LLC. Her international work experience spans from India to Israel with extensive work in Central and South America. Her last startup, Global Brigades, grew into a multi-million dollar firm in less than four years and is now the world’s largest student development firm. Ms. Berman graduated magna cum laude from Boston University and received her MBA from the University of Oxford where she founded the Oxford Women in Business Network.
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Yuliya Tarasava
Ms. Tarasava co-founded CNote and has served as our Chief Operating Officer, Treasurer, Secretary and a member of our Board of Directors since the Company’s inception. Ms. Tarasava began her career conducting intensive quantitative research on new market opportunities and designing investment solutions across asset classes for AMG Funds—a $75 billion asset firm providing access to boutique investment strategies. Ms. Tarasava then went on to Summit Rock Advisors, a $10 billion OCIO firm, where she developed and implemented the firm’s proprietary analytics and risk management framework. Most recently, she worked with a high-growth financial services company in Kenya where she led both product development and scale strategy efforts working directly with the company’s chief executive officer. Her prior experience also includes creating an investment education portal in Russia and providing pro-bono consulting for non-profits and startups around the world. Ms. Tarasava graduated magna cum laude from Belarusian State University and received her MS in Finance from Fairfield University.
Robert Shaw
Mr. Shaw is a software engineer with over 10 years of experience building technology, leading projects from idea to launch, and improving engineering teams. Before CNote, Rob ran product engineering at Secureware, a security focused blockchain startup. Prior to Secureware, he was a product manager and engineer at a small design and software engineering consulting firm focused on building solutions for a variety of different businesses. Rob started his career at Aprimo where he worked directly with large teams at Fortune 100 companies building out complex customizations and enterprise integrations. Rob holds a BS in Computer Science from Purdue University.
Amanda Glincher
Ms. Glincher has spent her career in nonprofits and startups that are focused on repairing the world through equitable solutions. Amanda began her time in the fintech space at Ondot System where she launched Card App, the digital-first card management solution for community banks and credit unions. Ondot’s success led to an acquisition by Fiserv in 2020 where Amanda served as director of marketing and was responsible for the marketing of Card Hub (formerly Card App). Prior to working in financial technology, Amanda dedicated her time to both early and growth-stage startups, including serving as marketing lead at AlterG where she rebranded and marketed anti-gravity treadmills in both the medical and athletic arenas. Amanda’s vast non-profit experience early in her career provided insight into the areas where innovation was most needed, allowing her to choose future endeavors that would make a difference in the human experience. Amanda holds a Bachelor’s in Psychology from CSU Sacramento and a Master’s in Non-Profit Management from Gratz College.
Danielle Burns
Ms. Burns is CNote’s Head of Business Development. Prior to joining CNote, Danielle worked for First Affirmative Financial Network in a variety of roles. She most recently served as Vice President of Sales and Marketing on a team responsible for the growth and profitability of the firm’s distribution channels. Danielle began her financial services career in 1994 with Wachovia Corporation where she worked for both Wachovia Bank and Wachovia Securities. Danielle serves on the board of Green America, a not-for-profit membership organization, whose mission is to harness economic power to create a socially just and environmentally sustainable society. Additionally, Danielle serves on the SRI Conference & Community Advisory Board. Danielle is a certified trainer for Walking on the Glass Floor which promotes Diversity and Inclusion for Women in Leadership. Danielle holds an MBA with an emphasis in marketing and the AIF® designation.
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Stacy Zielinski
Ms. Zielinski brings over a decade of experience and deep knowledge of CDFI finance and operations to her role at CNote. She started her career in the community development space developing and managing the technical assistance program for loan clients and overseeing all aspects of business services. She later transitioned into underwriting and led the integration of the SBA Community Advantage Program into WWBIC’s lending program. At Milwaukee Economic Development Corporation (MEDC), Stacy took over the SBA Community Advantage Lending program and maintained her focus on loan origination and underwriting across different lending products. Before joining CNote, Stacy had her own consultancy practice helping CDFIs to align their finance and operations with the industry best practices. Stacy holds an MBA from Alverno College, a BA from Marquette University and brings over a decade of small business experience as owner/operator in the retail and hospitality industries.
Tamra Thetford
Ms. Thetford has a deep knowledge in the community development finance industry, with experience designing impact measurement frameworks at the Aspen Institute and serving as Chief Program Officer for Justine Petersen, a CDFI loan fund. Tamra also conducts broader research on emerging issues that affect low-income Americans. In her work at CNote, Tamra integrates impact measurement and management practices to ensure the deep social impact generated by the CNote community finance network is measured and communicated effectively. Tamra holds a Bachelors in International Studies from American University where she graduated Magna cum Laude.
Julia Phipps
Julia Phipps is a dedicated impact investing professional with a decade of financial services experience. Before joining CNote, Julia was applying her financial sector experience at the New York City Economic Development Corporation. As Vice President of the Strategic Investments Group, Julia structured impact investments to drive inclusive economic development by providing enhanced access to finance to underserved communities. Prior to that, she worked at an institutional hedge fund where she focused on capital markets and financing strategies as well as in credit risk management at Citigroup and Deutsche Bank. Julia graduated from the University of Chicago with a Bachelors in Economics.
Patric Glassell
Mr. Glassell spent 12 years in Banking Sales & Sales Management, both within their Global Markets and Specialized Lending divisions at Morgan Stanley, Merrill Lynch & Wells Fargo leading global teams. Wanting to work in smaller companies, Patric helped create and grow Sales divisions at 2 growing FinTech companies before spending a few years full time consulting and investing for a seed stage Venture Capital Firm. Patric joins CNote excited about its mission and talented team. He is passionate about Socially responsible investments and using technology to disrupt an industry to better serve the underserved.
Family Relationships
None.
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Conflicts of Interest
We do not believe that we are a party to any transactions that contain or give rise to a conflict of interest between any of our directors, officers and major stockholders on the one hand, and CNote on the other hand. Two co-founders have invested $5,000 each through our platform, but we do not believe these small investments present a conflict of interest.
Involvement in Certain Legal Proceedings
None.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
The Company has two directors who also serve as executive officers. Their compensation for the 2021 fiscal year was as follows:
Executive Officers |
Position | Cash Compensation |
Other Compensation |
Total Compensation | ||||
Catherine Berman |
President, Chief Executive Officer, Co-Founder, Director | $150,000 | $55,000 | $205,000 | ||||
Yuliya Tarasava |
Chief Operating Officer, Co-Founder, Treasurer, Secretary, Director | $150,000 | $55,000 | $205,000 |
Executive compensation is set annually, based on several factors including company and individual leadership, performance compensation of competitor peer group, and other factors.
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Item 4.
SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITY HOLDERS
Name and Address of Beneficial Owner(1) |
Amount and nature of beneficial ownership as of December 31, 2021 |
Percent of class |
Catherine Berman | 3,700,000 shares of common stock(2) | 46.4% |
Yuliya Tarasava | 3,300,000 shares of common stock(3) | 41.3% |
All executive officers and directors as a group (2 persons) |
7,000,000 shares of common stock | 87.7% |
________________________
(1) | Unless otherwise noted, the address of each executive officer and director is CNote Group, Inc., 2323 Broadway, Oakland, CA 94612. |
(2) | Includes 3,200,000 shares of common stock outstanding and 500,000 shares of common stock currently issuable pursuant to common stock options held. |
(3) | Includes 2,800,000 shares of common stock outstanding and 500,000 shares of common stock currently issuable pursuant to common stock options held. |
Item 5.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
We do not believe that we are a party to any transactions that contain or give rise to a conflict of interest between any of our directors, officers and major stockholders on the one hand, and CNote on the other hand. The two co-founders, Ms. Berman and Ms. Tarasava, have invested $5,000 each through our platform, but we do not believe these small investments present a conflict of interest.
Item 6. | OTHER INFORMATION |
None.
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Item 7.
CNOTE GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2021 and 2020
Table of Contents
Pages | |
Independent Auditors’ Report | F-2 |
Consolidated Balance Sheets | F-4 |
Consolidated Statements of Operations | F-5 |
Consolidated Statements of Stockholders’ Equity (Deficit) | F-6 |
Consolidated Statements of Cash Flows | F-7 |
Notes to the Consolidated Financial Statements | F-8 |
F-1 |
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors and Stockholders
CNote Group, Inc.
Opinion
We have audited the accompanying consolidated financial statements of CNote Group, Inc. and subsidiary (a Delaware corporation), which comprise the consolidated balance sheets as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes to the consolidated financial statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of CNote Group, Inc as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are required to be independent of CNote Group, Inc. and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about CNote Group, Inc.’s ability to continue as a going concern within one year after the date that the consolidated financial statements are available to be issued.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
F-2 |
In performing an audit in accordance with generally accepted auditing standards, we:
● | Exercise professional judgment and maintain professional skepticism throughout the audit. |
● | Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. |
● | Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of CNote Group, Inc.’s internal control. Accordingly, no such opinion is expressed. |
● | Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the consolidated financial statements. |
● | Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about CNote Group, Inc.’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control related matters that we identified during the audit.
/s/ dbbmckennon
Newport Beach, California
April 29, 2022
F-3 |
CNOTE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2021 AND 2020
2021 | 2020 | |||||||
Assets | ||||||||
Cash and cash equivalents | $ | 3,719,438 | $ | 4,262,597 | ||||
Interest-bearing deposits in banks | 48,067,791 | 25,559,251 | ||||||
Accrued interest receivable | 1,031,175 | 673,429 | ||||||
Loans held for investment | ||||||||
Loans held for investment at amortized cost | 19,283,933 | 22,478,636 | ||||||
Loans held for investment at fair value | 38,403,391 | 9,707,490 | ||||||
Allowance for loan losses | (385,678 | ) | (523,458 | ) | ||||
Net loans held for investment | 57,301,646 | 31,662,668 | ||||||
Other assets | 12,665 | 167,468 | ||||||
Total assets | $ | 110,132,715 | $ | 62,325,413 | ||||
Liabilities and Stockholders' Equity | ||||||||
Notes payable held at amortized cost | $ | 67,948,323 | $ | 47,943,881 | ||||
Notes payable held at fair value | 38,403,391 | 9,707,490 | ||||||
Accrued interest payable | 986,188 | 626,549 | ||||||
Deferred revenue | 479,602 | 403,305 | ||||||
Other liabilities | 236,457 | 56,381 | ||||||
Total liabilities | 108,053,961 | 58,737,606 | ||||||
Commitments and contingencies (Note 5) | - | - | ||||||
Stockholders' Equity | ||||||||
Series seed preferred stock; par value of $0.00001 per share; 11,009,805 shares authorized, 10,851,841 shares issued and outstanding (liquidation preference value of $6,815,740) | 109 | 109 | ||||||
Common stock; par value of $0.00001 per share; 22,200,000 shares authorized, 6,770,442 and 6,653,525 shares issued and outstanding as of December 31, 2021 and 2020, respectively | 68 | 67 | ||||||
Additional paid in capital | 7,762,787 | 7,631,519 | ||||||
Accumulated deficit | (5,684,210 | ) | (4,043,888 | ) | ||||
Total stockholders' equity | 2,078,754 | 3,587,807 | ||||||
Total liabilities and stockholders' equity | $ | 110,132,715 | $ | 62,325,413 |
See accompanying notes to the consolidated financial statements.
F-4 |
CNOTE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
2021 | 2020 | |||||||
Operating Revenues | ||||||||
Interest income on loans | $ | 1,481,826 | $ | 913,526 | ||||
Other interest income | 149,862 | 48,368 | ||||||
Total interest income | 1,631,688 | 961,894 | ||||||
Interest expense | 1,199,942 | 744,603 | ||||||
Net interest income | 431,746 | 217,291 | ||||||
Provision (reduction) for loan losses | (137,780 | ) | 164,438 | |||||
Net interest income after provision for loan losses | 569,526 | 52,853 | ||||||
Other Income | ||||||||
Service fees and other income | 330,057 | 1,064,695 | ||||||
Grants received | 153,849 | 46,151 | ||||||
Total other income | 483,906 | 1,110,846 | ||||||
Net Revenue | 1,053,432 | 1,163,699 | ||||||
Operating Expenses | ||||||||
Salaries and employee benefits | 1,318,935 | 854,508 | ||||||
Professional services | 1,005,380 | 455,543 | ||||||
General and administrative | 294,739 | 399,017 | ||||||
Sales and marketing | 72,300 | 22,355 | ||||||
Total operating expenses | 2,691,354 | 1,731,423 | ||||||
Net operating loss | (1,637,922 | ) | (567,724 | ) | ||||
Non-operating interest expense | - | (49,013 | ) | |||||
Interest expense from beneficial conversion feature of convertible notes | - | (431,415 | ) | |||||
Loss on change in fair value of SAFEs | - | (400,148 | ) | |||||
Net loss before taxes | (1,637,922 | ) | (1,448,300 | ) | ||||
Provision for income taxes | 2,400 | 1,600 | ||||||
Net loss | $ | (1,640,322 | ) | $ | (1,449,900 | ) | ||
Weighted average common shares outstanding - basic and diluted | 6,702,339 | 6,377,131 | ||||||
Basic and diluted net loss per share | $ | (0.24 | ) | $ | (0.23 | ) |
See accompanying notes to the consolidated financial statements.
F-5 |
CNOTE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
Series Seed Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Paid
in Capital | Accumulated
Deficit | Stockholders'
Equity (Deficit) | ||||||||||||||||||||||
December 31, 2019 | - | $ | - | 6,018,750 | $ | 60 | $ | 17,492 | $ | (2,593,988 | ) | $ | (2,576,436 | ) | ||||||||||||||
Issuance of series seed preferred stock for cash and notes, net of offering costs | 4,822,427 | 48 | - | - | 3,303,924 | - | 3,303,972 | |||||||||||||||||||||
Conversion of convertible notes and accrued interest to series seed preferred stock | 3,169,533 | 32 | - | - | 1,804,664 | - | 1,804,696 | |||||||||||||||||||||
Beneficial conversion feature of convertible notes | - | - | - | - | 431,415 | - | 431,415 | |||||||||||||||||||||
Conversion of SAFEs to series seed preferred stock | 2,859,881 | 29 | - | - | 2,019,619 | - | 2,019,648 | |||||||||||||||||||||
Exercise of options to purchase common stock | - | - | 634,775 | 7 | 37,260 | - | 37,267 | |||||||||||||||||||||
Stock-based compensation | - | - | - | - | 17,145 | - | 17,145 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (1,449,900 | ) | (1,449,900 | ) | |||||||||||||||||||
December 31, 2020 | 10,851,841 | 109 | 6,653,525 | 67 | 7,631,519 | (4,043,888 | ) | 3,587,807 | ||||||||||||||||||||
Exercise of options to purchase common stock | - | - | 116,917 | 1 | 5,933 | - | 5,934 | |||||||||||||||||||||
Stock-based compensation | - | - | - | - | 125,335 | - | 125,335 | |||||||||||||||||||||
Net loss | - | - | - | - | - | (1,640,322 | ) | (1,640,322 | ) | |||||||||||||||||||
December 31, 2021 | 10,851,841 | $ | 109 | 6,770,442 | $ | 68 | $ | 7,762,787 | $ | (5,684,210 | ) | $ | 2,078,754 |
See accompanying notes to the consolidated financial statements.
F-6 |
CNOTE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2021 AND 2020
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | (1,640,322 | ) | $ | (1,449,900 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 17,169 | 66,563 | ||||||
Amortization of offering costs recorded as debt discounts | - | 10,500 | ||||||
Stock-based compensation | 125,335 | 17,145 | ||||||
Provision (reduction) for loan losses | (137,780 | ) | 164,438 | |||||
Interest expense from beneficial conversion feature of convertible notes | - | 431,415 | ||||||
Loss on change in fair value of SAFEs | - | 400,148 | ||||||
Changes in operating assets and liabilities: | ||||||||
Accrued interest receivable | (357,747 | ) | (224,903 | ) | ||||
Other assets | 137,632 | (55,956 | ) | |||||
Other liabilities | 80,078 | 31,344 | ||||||
Deferred revenues | 176,297 | (496,695 | ) | |||||
Accrued interest payable | 359,639 | 274,118 | ||||||
Net cash used in operating activities | (1,239,699 | ) | (831,783 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Net lendings under loans receivable | (26,162,222 | ) | (14,357,864 | ) | ||||
Net investment in interest-bearing accounts | (22,508,540 | ) | (25,059,251 | ) | ||||
Net cash used in investing activities | (48,670,762 | ) | (39,417,115 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Net borrowings on notes payable | 49,361,368 | 39,284,421 | ||||||
Proceeds from issuance of series seed preferred stock, net of costs | - | 3,203,973 | ||||||
Proceeds from exercise of options to purchase common stock | 5,934 | 37,267 | ||||||
Issuance of convertible notes | - | 625,000 | ||||||
Net cash provided by financing activities | 49,367,302 | 43,150,661 | ||||||
Increase (decrease) in cash and cash equivalents | (543,159 | ) | 2,901,763 | |||||
Cash and cash equivalents, beginning of year | 4,262,597 | 1,360,834 | ||||||
Cash and cash equivalents, end of year | $ | 3,719,438 | $ | 4,262,597 | ||||
Supplemental disclosures of cash flow information: | ||||||||
Cash paid for interest | $ | 840,303 | $ | 519,498 | ||||
Cash paid for income taxes | $ | 2,400 | $ | 1,600 | ||||
Noncash investing and financing activities: | ||||||||
Issuance of series seed preferred stock for conversion of convertible notes and accrued interest | $ | - | $ | 1,804,696 | ||||
Issuance of series seed preferred stock for conversion of SAFEs | $ | - | $ | 2,019,648 | ||||
Issuance of series seed preferred stock for note receivable | $ | - | $ | 99,999 |
See accompanying notes to the consolidated financial statements.
F-7 |
CNOTE GROUP, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – NATURE OF OPERATIONS
CNote Group, Inc. was incorporated on April 22, 2016 (“Inception”) in the State of Delaware. The Company’s headquarters are located in Oakland, California. The consolidated financial statements of CNote Group, Inc. (which may be referred to as "CNote", the "Company," "we," "us," or "our") are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Through its online platform and proprietary technology, CNote allows individuals and institutions to invest locally to further economic equality, racial justice, gender equity, and address climate change. With the aim of closing the wealth gap, CNote's fixed income and depository solutions provide a diversified and scalable way to support job creation, small business growth, affordable housing development, and lasting economic growth in underserved communities primarily through partnerships with Community Development Financial Institutions (“CDFIs”) dispersed across the United States. CDFIs can be banks, credit unions, loan funds, microloan funds or venture capital providers that focus on providing loans to businesses in economically underdeveloped cities and neighborhoods in the United States and, as such, become qualified as a CDFI by the United States Department of the Treasury. Once qualified, CDFIs are eligible to be partially funded by the United States Department of the Treasury through the CDFI Fund established in 1994.
The Company intends to offer investors competitive rates of return on their investments compared to more traditional lower risk investment vehicles such as cash alternatives and fixed income. The Company earns revenue in a few ways. In addition to the spread (the difference between the rates CNote earns from its CDFI borrowers and the rates it pays to its investors), CNote charges servicing fees on cash deployed on behalf of its clients, and earns consulting fees from foundations and other institutions that are interested in supporting BIPOC communities and promoting the social justice as a part of their investment and programmatic mandates. The consulting work leverages CNote’s knowledge, expertise, and technology in identifying and underwriting CDFIs as well as monitoring and reporting on their financial and social impact performance. The technology built for internal underwriting and monitoring CDFIs can be customized to institutional clients’ needs who invest in CDFIs directly.
In December 2018, the Company formed a wholly-owned subsidiary CNote Lending, LLC, for the purpose of holding a California Finance Lenders license pursuant to the California Financing Law and to make loans to CDFIs. CNote Lending, LLC received its California Finance Lenders license in January 2020.
Management Plans and Going Concern
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
F-8 |
In prior reporting periods, the Company recognized the existence of substantial doubt as to the ability of the Company to continue as a going concern within one year after the date that the financial statements were issued. This doubt was based primarily on the Company’s lack of historical data proving the viability of its business model and of its ability to generate significant revenues under that business model. During six years of operations, the Company has expanded and refined its product offerings to receive consistently increasing revenue in support of a robust business model. Increasing corporate interest in, and commitment to, environmental, social and governance (ESG)-based investing has created increasing demand for CNote’s platform and expertise in impact investing. The Company now generates significant revenue from operations that has consistently increased year over year and is expected to continue to increase substantially. Recent significant commitments by new and existing clients support these expectations and the viability of the Company’s business model and platform offerings. Based on these factors, management estimates that the current capital on hand combined with future cash flows from operations will be sufficient for the Company to operate for a period in excess of one year from the date these financial statements are issued. Accordingly, the going concern doubts that existed as of the end of the prior year have been alleviated.
On August 25, 2020, the Company closed a Series Seed equity financing to sell shares of Preferred Stock. The capital raised has been used to develop and maintain the Company’s platform, to fund legal expenses, for marketing and advertising, for expanding operations, and for other general corporate purposes. The Company anticipates additional financing rounds to raise capital for accelerated growth of the business and has received substantial interest from investors.
F-9 |
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, and the reported amount of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.
Significant estimates include but are not limited to the valuation of loan loss reserves, and the valuation allowance related to deferred tax assets. It is reasonably possible that changes in estimates will occur in the near term.
Cash and Cash Equivalents
The Company maintains its cash with major financial institutions located in the United States of America which it believes to be creditworthy. Balances are insured by the Federal Deposit Insurance Corporation up to $250,000. At times, the Company may maintain balances in excess of the federally insured limits.
Cash equivalents include highly liquid debt instruments purchased with an original maturity of three months or less.
Interest-bearing Deposits in Banks
In connection with its cash management product, the Company facilitates the creation of interest-bearing deposit accounts for the benefit of its clients in community finance depository institutions located in the United States of America. Deposits include certificates of deposits with terms of 6 to 24 months bearing interest at 0.05% to 0.80%, and money market accounts with variable rates of interest. Balances are insured by the Federal Deposit Insurance Corporation or the National Credit Union Administration up to $250,000. At times, the Company may maintain balances in excess of the insured limits. In the normal course of business, the Company expects to hold such instruments to maturity.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants as of the measurement date. Applicable accounting guidance provides an established hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors that market participants would use in valuing the asset or liability. There are three levels of inputs that may be used to measure fair value:
Level 1 – Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – Include other inputs that are directly or indirectly observable in the marketplace.
Level 3 – Unobservable inputs which are supported by little or no market activity.
F-10 |
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Fair-value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2021 and 2020. The respective carrying value of all financial instruments approximated their fair values. These financial instruments include loans held for investment and notes payable and interest receivable and payable.
Effective July 1, 2020, the Company adopted fair value presentation for payment-dependent notes issued under Regulation D. These notes are available only to accredited and institutional investors and under the terms of the notes are dependent upon repayment of a portion of the Company’s loans to CDFIs. The amount and term to maturity of loans funded by these notes match the underlying note. If the loan is repaid in accordance with its terms, the note will be repaid in full according to its terms. If the loan does not fully perform, investors in payment-dependent notes will receive payment of the pro-rata portion of any payments received on the loan. Accordingly, the Company has presented payment-dependent notes issued after the date of the fair-value election at their fair value as represented by the note amount less the amount of loan loss reserve recorded against the related loan receivable from CDFIs. See Note 4.
F-11 |
The following tables present the fair value hierarchy for assets and liabilities measured at fair value at December 31, 2021 and 2020:
December 31, 2021 | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Balance at Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Loans held for investment | $ | - | $ | - | $ | 38,403,391 | $ | 38,403,391 | ||||||||
Total assets | $ | - | $ | - | $ | 38,403,391 | $ | 38,403,391 | ||||||||
Liabilities: | ||||||||||||||||
Notes payable | $ | - | $ | - | $ | 38,403,391 | $ | 38,403,391 | ||||||||
Total liabilities | $ | - | $ | - | $ | 38,403,391 | $ | 38,403,391 |
December 31, 2020 | Level 1 Inputs | Level 2 Inputs | Level 3 Inputs | Balance at Fair Value | ||||||||||||
Assets: | ||||||||||||||||
Loans held for investment | $ | - | $ | - | $ | 9,707,490 | $ | 9,707,490 | ||||||||
Total assets | $ | - | $ | - | $ | 9,707,490 | $ | 9,707,490 | ||||||||
Liabilities: | ||||||||||||||||
Notes payable | $ | - | $ | - | $ | 9,707,490 | $ | 9,707,490 | ||||||||
Total liabilities | $ | - | $ | - | $ | 9,707,490 | $ | 9,707,490 |
The following tables present additional information about Level 3 assets and liabilities measured at fair value at December 31, 2021 and 2020:
Outstanding Principal Balance | Valuation Adjustments | Fair Value | ||||||||||
Balance at December 31, 2019 | $ | - | $ | - | $ | - | ||||||
Loan originations | 9,830,208 | (122,718 | ) | 9,707,490 | ||||||||
Principal payments and retirements | - | - | - | |||||||||
Balance at December 31, 2020 | 9,830,208 | (122,718 | ) | 9,707,490 | ||||||||
Loan originations | 31,935,600 | (719,089 | ) | 31,216,511 | ||||||||
Principal payments and retirements | (2,578,674 | ) | 58,064 | (2,520,610 | ) | |||||||
Balance at December 31, 2021 | $ | 39,187,134 | $ | (783,743 | ) | $ | 38,403,391 |
Outstanding Principal Balance | Valuation Adjustments | Fair Value | ||||||||||
Balance at December 31, 2019 | $ | - | $ | - | $ | - | ||||||
Notes payable issued | 9,830,208 | (122,718 | ) | 9,707,490 | ||||||||
Principal payments and retirements | - | - | - | |||||||||
Balance at December 31, 2020 | 9,830,208 | (122,718 | ) | 9,707,490 | ||||||||
Notes payable issued | 31,935,600 | (719,089 | ) | 31,216,511 | ||||||||
Principal payments and retirements | (2,578,674 | ) | 58,064 | (2,520,610 | ) | |||||||
Balance at December 31, 2021 | $ | 39,187,134 | $ | (783,743 | ) | $ | 38,403,391 |
F-12 |
Loans Held for Investment and Related Notes Payable
Management expects that the terms of the Company’s loans held for investment and the notes payable used to fund the loans held for investment typically will be 30 months or 60 months based on the current operating structure. In the normal course of business, the Company expects to hold such instruments to maturity. However, provisions within the terms of such instruments having 30-month terms allow for liquidity on demand of 10% per quarter. Accordingly, should the need arise, 40% of such loans held for investment and related notes payable can be due on demand within one year.
Internal Use Software
The Company has incurred software development costs to develop software programs to be used solely to meet its internal needs and cloud-based applications used to deliver services. In accordance with ASC 350-40, Internal-Use Software, the Company has capitalized development costs related to these software applications. The Company begins amortization of these costs once the preliminary project stage is complete and it is probable that the project will be completed, the software will be used to perform the function intended, and the value will be recoverable. Reengineering costs, minor modifications and enhancements that do not significantly improve the overall functionality of the software are expensed as incurred. The Company is amortizing the initial release of the software with capitalized costs of $231,366 based on the in-service date over 36 months on a straight-line basis. No software development costs for not yet released programs and applications met the criteria for capitalization in 2021. Amortization of capitalized software development costs recorded to expense was $17,169 and $66,563 for the years ended December 31, 2021 and 2020, respectively. Accumulated amortization as of December 31, 2021 and 2020 was $231,366 and $214,197, respectively.
Simple Agreements for Future Equity (“SAFEs”)
The Company has previously issued several Simple Agreements for Future Equity (“SAFEs”) in exchange for cash financing.
In accordance with their terms, the SAFEs were converted to 2,859,881 shares of Series Seed Preferred Stock (“Preferred Stock”) in the Company’s Series Seed financing in 2020. At the conversion date, the SAFEs were recorded at their fair value by recognizing a loss on change in fair value of $400,148. See Notes 4 and 8.
F-13 |
Convertible Promissory Notes (“convertible notes”)
The Company has previously issued several Convertible Promissory Notes (“convertible notes”).
In accordance with their terms, the convertible notes, and accrued interest totaling $79,036, were converted to 3,169,533 shares of Preferred Stock in the Company’s Series Seed financing in 2020. Upon conversion, the notes’ embedded contingent beneficial conversion feature was no longer contingent and resulted in a discount and immediate accretion of such discount in the amount of $431,415, which was recognized as interest expense from beneficial conversion feature of convertible notes in 2020. See Notes 4 and 8.
Stock Options and Warrants
The Company has issued stock options and warrants to employees and to key advisors as compensation for services performed. The Company has accounted for these awards under ASC section 718 and Accounting Standards Update (“ASU”) 2018-07. Stock-based compensation cost is measured at the grant date based on the fair value of the award using an established option pricing model and is recognized as expense ratably over the requisite service period, which is generally the option or warrant vesting period. See Note 8.
Revenue Recognition and Cost of Revenues
CNote deploys capital from individuals and institutions to CDFIs and on behalf of its clients to community finance depositary institutions. The Company earns interest on its loan deployments, which are a significant source of its revenues. The Company earns interest on client funds deposited in interest-bearing accounts at community finance depositary institutions. All such deployments are governed by signed contracts between the Company on the one hand and either the CDFIs or the community finance depositary institutions on the other hand. Interest income is recorded based on the terms of the master promissory agreement with each CDFI Loan Fund or the terms of Money Market or Certificate of Deposit agreements with depositary institutions. The interest is accrued monthly. If ninety (90) days pass without the interest being paid in accordance with normal disbursement practices per the agreement, then the Company will cease recording revenue until such time that the interest is collected.
CNote aggregates money from individuals and institutions through the Company’s online platform. The Company must pay interest on the capital to its clients. All such loans are governed by signed contracts between the Company and investors. The interest, which accrues according to the agreements’ governing terms of the loans from clients, constitutes the major portion of the Company’s direct cost of interest income. Other direct costs of interest income include the provision for loan loss reserve.
CNote also generates fees from consulting work performed on behalf of foundations and other institutions who as a part of their investment and programmatic mandates are interested in supporting BIPOC communities and promoting social justice. This consulting work leverages CNote’s knowledge, expertise and technology in identifying and underwriting CDFIs as well as monitoring and reporting on their financial and impact performance. The technology built for internal underwriting and monitoring CDFIs can be customized to institutional clients’ needs who invest in CDFIs directly. Revenue for these activities is recognized over the period in which the work is performed and is deferred until recognizable.
F-14 |
From time to time, CNote receives grants from foundations and other institutions. The Company records grants received as revenue when all donor-imposed conditions on the grant have been satisfied and defers revenue which has not yet met the conditions for recognition.
Loan Loss Reserve
The Company establishes a reserve, currently at two percent, for potential losses to loans extended to CDFIs, other than those funded by payment-dependent notes and measured at fair value. The amount of the loan loss reserve was determined based on industry norms and trends, as well as the Company’s historical experience. Since commencing operations, the Company has experienced no delinquencies or charge-offs of loans to CDFIs.
Reversals to the loan loss reserve will happen only when the loans mature. If no loss has occurred on a particular loan, the loss reserve will be reversed and recognized as a reduction of the loan loss reserve at maturity of the loan. On the other hand, if any loan becomes completely unrecoverable, the entire amount of the loan will be charged off against the loan loss reserve, when and if facts and circumstances indicate that such a write off is necessary.
Effective July 1, 2020, the Company adopted fair value presentation for payment-dependent notes issued under Regulation D. The Company has presented payment-dependent notes issued after the date of the fair-value election at their fair value as represented by the note amount less the amount of loan loss reserve recorded against the related loan receivable from CDFIs. The amount recognized in expense by the Company as provision for loan losses is reduced by the portion of the loan loss reserve recorded against such notes. See Note 4.
Nonaccrual Loans
Loans that are 90 days past due as to principal or interest are placed on nonaccrual status, and accrued interest receivable on the loan is reversed. Loans are restored to accrual status when all principal and interest is current and full repayment of the remaining contractual principal and interest is expected.
Advertising
The Company expenses the cost of advertising and promotions as incurred. Advertising costs expensed totaled $50,158 and $6,182 for the years ended December 2021 and 2020, respectively.
Research and Development
The Company incurs research and development costs during the process of researching and developing new technologies and future online offerings. Such costs are expensed as incurred.
Income Taxes
The Company applies ASC section 740. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. At December 31, 2021 and 2020, the Company has established a full reserve against all deferred tax assets.
F-15 |
ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. A tax benefit from an uncertain position is recognized only if it is “more likely than not” that the position is sustainable upon examination by the relevant taxing authority based on its technical merit.
Loss per Common and Common Equivalent Share
The computation of basic earnings per common share is computed using the weighted average number of common shares outstanding during the year. The computation of diluted earnings per common share excludes Common Stock equivalents for the years ended December 31, 2021 and 2020 as they are anti-dilutive. The Common Stock equivalents, which include outstanding convertible Preferred Stock, options, and warrants, excluded from diluted loss per share total 14,135,841 and 12,235,297 share equivalents for the years ended December 31, 2021 and 2020, respectively.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of CNote Group, Inc., its wholly-owned subsidiary, CNote Lending, LLC, and CNote Trust, of which CNote is trustee. All intercompany accounts and transactions have been eliminated in consolidation.
F-16 |
Recent Accounting Pronouncements
ASU 2016-13, as amended by ASU 2019-10, changes the accounting for credit losses measurement on loans and debt securities. For loans and held-to-maturity securities, the Update requires a current expected credit loss (”CECL”) measurement to estimate the allowance for credit losses for the remaining estimated life of the financial asset. The CECL measurement must be developed using historical experience, current conditions, and reasonable and supportable forecasts. The standard will also expand disclosure requirements. Adoption of the new standards is required for the Company effective January 1, 2023. Early adoption is permitted. The Company does not expect the adoption of this standard to materially affect the Company’s consolidated financial statements.
The Financial Accounting Standards Board issues Accounting Standards Updates to amend the authoritative literature in ASC. There have been a number of ASUs to date that amend the original text of ASC. The Company believes those issued to date either (i) provide supplemental guidance, (ii) are technical corrections, (iii) are not applicable to the Company or (iv) are not expected to have a significant impact on the Company.
NOTE 3 – LOANS HELD FOR INVESTMENT AND INTEREST RECEIVABLE
Loans held for investment represent the principal amounts of outstanding loans the Company has made to CDFIs, less loan loss reserves as described below. Interest receivable represents the outstanding interest due from CDFI borrowers.
As of December 31, 2021, the Company has outstanding loans and interest receivable from 32 CDFI borrowers in the gross carrying amount of approximately $59,499,000. Under terms of the respective master promissory notes, the loans earn interest at rates ranging from 1.5% to 4.5% per annum. The loans mature in 30 to 96 months and may be prepaid by the borrower at any time without penalty. For loans with 30-month terms, the Company has the option to request repayment of 10% of the original loan amount on a quarterly basis. These requests are based on the requests of note payable holders disclosed in Note 4.
During the year ended December 31, 2021, the Company was repaid approximately $13,355,000 on the principal of loans held for investment which were used to repay notes payable.
As of December 31, 2020, the Company had outstanding loans and interest receivable from 19 CDFI borrowers totaling approximately $32,982,000. During the year ended December 31, 2020, the Company was repaid approximately $6,912,000 on the principal of loans held for investment which were used to repay notes payable.
The Company has recorded a provision for loan losses, as described in Note 2. The loan loss reserve totaled $385,678 and $523,458 as of December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, all loans were contractually current and no loans had been placed on nonaccrual status. No loans were modified during the years ended December 31, 2021 and 2020.
F-17 |
The table below summarizes the changes in the allowance for credit losses for the years ended December 31, 2021 and 2020:
Allowance for loan losses, December 31, 2019 | $ | 359,020 | ||
Loans charged off | - | |||
Recoveries of previously charged off loans | - | |||
Net charge-offs | - | |||
Provision for loan losses | 164,438 | |||
Allowance for loan losses, December 31, 2020 | $ | 523,458 | ||
Loans charged off | - | |||
Recoveries of previously charged off loans | - | |||
Net charge-offs | - | |||
Provision (reduction) for loan losses | (137,780 | ) | ||
Allowance for loan losses, December 31, 2021 | $ | 385,678 |
F-18 |
As of December 31, 2021, loans held for investment have approximate contractual maturities as follows:
Year Ending December 31, | ||||
2022 | $ | 6,748,000 | ||
2023 | 21,271,000 | |||
2024 | 13,983,000 | |||
2025 | 3,319,000 | |||
2026 | 13,150,000 | |||
Total | $ | 58,471,000 |
NOTE 4 – NOTES PAYABLE, INTEREST PAYABLE AND LONG-TERM LIABILITIES
Notes Payable
Notes payable represent the principal amounts of outstanding borrowings from individual and institutional clients. Interest payable represents the outstanding interest the Company owes to the note holders. Notes payable from clients are not a source of financing for the Company’s operations; rather, they are used to fund CDFI loans held for investment (Note 3) and short-term investments in CDFIs under the Company’s cash management program.
As of December 31, 2021 and 2020, gross notes payable totaled approximately $107,135,000 and $57,774,000, respectively. Notes issued to investors in the Company’s CDFI lending products mature in 30 to 96 months and earn interest at the rate of 1.0% to 4.0% per annum. Additionally, the interest rate may be adjusted to the extent rates earned from loans to CDFIs vary in the future. Notes with original 30-month maturities issued under Regulation D may be rolled over for additional 30-month terms at the option of the holder. Certain notes provide the holder an option to call 10% of the original note balance each quarter. As of December 31, 2021, a total of $29,139 of notes are due to related parties subject to the same terms.
The Company adopted fair value presentation for payment-dependent notes payable issued under Regulation D effective July 1, 2020. These notes are available only to accredited and institutional investors and under the terms of the notes are dependent upon repayment of a portion of the Company’s loans to CDFIs. The amount and term to maturity of loans funded by these notes match the underlying note. If the loan is repaid in accordance with its terms, the note will be repaid in full according to its terms. If the loan does not fully perform, investors in payment-dependent notes will receive payment of the pro-rata portion of any payments received on the loan. Accordingly, the Company has presented payment-dependent notes issued after the date of the fair-value election at their fair value as represented by the note amount less the amount of loan loss reserve recorded against the related loan receivable from CDFIs. At December 31, 2021 and 2020, the Company has recorded a valuation adjustment for notes subject to this presentation in the amount of $783,743 and $122,718, respectively.
F-19 |
As of December 31, 2021, notes payable mature approximately as follows:
Year Ending December 31, | ||||
2022 | $ | 56,844,000 | ||
2023 | 21,462,000 | |||
2024 | 14,185,000 | |||
2025 | 1,994,000 | |||
2026 | 11,650,000 | |||
Thereafter | 1,000,000 | |||
Total | $ | 107,135,000 |
SAFEs
Prior to the Company’s Series Seed financing in 2020, the Company had raised $1,619,500 via the issuance of SAFEs. The SAFEs, in accordance with their terms, were converted to 2,859,881 shares of Preferred Stock in the Company’s Series Seed financing in 2020. The SAFEs were recorded at their fair value at the conversion date by recognizing a loss on change in fair value of $400,148. This fair value was determined to be equivalent to the value of the Preferred Shares issued in exchange for the SAFEs, which was based on the cash selling price of the Preferred shares on that date.
Convertible Notes
Prior to the Company’s Series Seed financing in 2020, the Company had raised $1,725,660 via the issuance of convertible notes bearing interest at four percent per annum. In accordance with their terms, the convertible notes, and accrued interest totaling $79,036, were converted to 3,169,533 shares of Preferred Stock in the Company’s Series Seed financing in 2020. Upon conversion, the notes’ embedded contingent beneficial conversion feature was no longer contingent and resulted in a discount and immediate accretion of such discount in the amount of $431,415, which was recognized as interest expense from beneficial conversion feature of convertible notes in 2020.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Litigation
The Company is not currently involved with and does not know of any pending or threatening litigation against the Company or any of its officers.
F-20 |
NOTE 6 – INCOME TAXES
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The Cares Act includes provisions relating to refundable payroll tax credits, deferment of the employer portion of certain payroll taxes, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. The CARES Act also established a Paycheck Protection Program whereby certain small businesses are eligible for a loan to fund payroll expenses, rent, and related costs.
The Company considered the provisions under the CARES Act and elected not to take advantage of the provisions of CARES Act as the effect of such provisions was not expected to have a material impact on the Company’s results of operations, cash flows and financial statements.
The following table presents the current and deferred tax provision for federal and state income taxes for the years ended December 31, 2021 and 2020:
2021 | 2020 | |||||||
Current tax provision | ||||||||
Federal | $ | - | $ | - | ||||
State | 2,400 | 1,600 | ||||||
Total | $ | 2,400 | $ | 1,600 | ||||
Deferred tax provision (benefit) | ||||||||
Federal | $ | (317,000 | ) | $ | (127,000 | ) | ||
State | (133,000 | ) | (53,000 | ) | ||||
Valuation allowance | 450,000 | 180,000 | ||||||
Total | - | - | ||||||
Total provision for income taxes | $ | 2,400 | $ | 1,600 |
In assessing the potential realization of these deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2021 and 2020, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
F-21 |
The components of our deferred tax assets (liabilities) for federal and state income taxes consisted of the following as of December 31, 2021 and 2020:
2021 | 2020 | |||||||
Deferred tax asset attributable to: | ||||||||
Net operating loss carryover | $ | 1,266,000 | $ | 757,000 | ||||
Temporary differences | 132,000 | 191,000 | ||||||
Valuation allowance | (1,398,000 | ) | (948,000 | ) | ||||
Net deferred tax asset | $ | - | $ | - |
The valuation allowance for deferred tax assets increased to $1,398,000 and $948,000 during the years ended December 31, 2021 and 2020, respectively.
Based on federal tax returns filed, or to be filed, through December 31, 2021, the Company has available approximately $4,245,000 in U.S. tax net operating loss carryforwards, pursuant to the Tax Reform Act of 1986, which assesses the utilization of a Company’s net operating loss carryforwards resulting from retaining continuity of its business operations and changes within its ownership structure. Net operating loss carryforwards of approximately $485,000 start to expire in 2036 or 20 years for federal income tax reporting purposes. Under the CARES Act, net operating loss carryforwards of approximately $3,760,000 arising from tax years beginning after 2017 can be carried forward indefinitely. For California state tax reporting purposes, net operating loss carryforwards cannot be used in tax years beginning on or after January 1, 2020 and before January 1, 2023 in accordance with California Assembly Bill 85. The Company’s net operating loss carryforwards will begin to expire in 2036 for state tax reporting purposes.
The Company is subject to tax in the United States (“U.S.”) and files tax returns in the U.S. Federal jurisdiction and California state jurisdiction. The Company is subject to U.S. Federal, state and local income tax examinations by tax authorities starting in 2016. The Company currently is not under examination by any tax authority.
F-22 |
NOTE 7 – RELATED PARTY TRANSACTIONS
As of December 31, 2021, $29,139 of the individual notes payable are due to Company’s two co-founders and three close relatives of one of the co-founders. See Note 4.
NOTE 8 – STOCKHOLDERS’ EQUITY
Preferred Stock
The Company is authorized to issue 11,009,805 shares of Preferred Stock, each having a par value of $0.00001. The Preferred Stock is convertible to Common Stock at the option of the holder, ranks pari passu with Common Stock with respect to dividends (other than dividends on shares of Common Stock payable in Common Stock) and payments in the event of any voluntary or involuntary dissolution or winding up of the Company. In the event of a Deemed Liquidation Event, as defined in the Company’s Certificate of Incorporation, holders of Preferred Stock shall be entitled to receive preferential payment, before any distribution or payment is made to holders of Common Stock, of an amount defined as the Series Seed Liquidation Amount in the Company’s Certificate of Incorporation. Each holder of Preferred Stock has voting rights equal to the number of shares of Common Stock into which the holder’s Preferred Stock is convertible as of the record date for determining voting eligibility.
On August 25, 2020, the Company issued 10,071,611 Preferred Shares in its Series Seed financing. Of the total shares issued, 4,042,197 shares were issued in exchange for cash consideration of $0.7062 per share, for total proceeds of $2,854,600, 3,169,533 shares were issued in exchange for the Company’s then-outstanding convertible notes having face amount of $1,725,660 and accrued interest of $79,036, and 2,859,881 shares were issued in exchange for the Company’s then-outstanding SAFEs with original purchase amounts totaling $1,619,500.
Subsequent to the closing of the Series Seed financing, the Company issued 638,628 Preferred Shares during the remainder of the year ended December 31, 2020 in exchange for cash totaling $450,999, at a price of $0.7062 per share. In December 2020, the Company issued 141,602 shares at a price of $0.7062 per share in exchange for a note receivable, secured by the shares, with principal amount of $99,999 and a stated interest rate of four percent per annum. The note remained outstanding as of December 31, 2020. The principal amount of the note and contractually accrued interest were paid in February 2021.
As of December 31, 2021 and 2020, 10,851,841 shares of Preferred Stock are issued and outstanding.
Costs of Series Seed Financing
The Company incurred legal costs of $101,627 related to the closing of its Series Seed financing during 2020. These costs were recorded as a reduction of additional paid in capital received in the Series Seed financing.
F-23 |
The Company issued Common Stock purchase warrants for a total of 1,080,000 shares to advisors for services performed in connection with the Series Seed financing. The value of the warrants granted, totaling $53,846, was accounted for as a cost of the financing. As the granting of the warrants is both an increase and a decrease in additional paid in capital, the net effect of the warrants’ issuance on the Company’s equity accounts is $0 for the year ended December 31, 2020. Please see below for discussion of valuation of the warrants at issuance.
Common Stock
The Company is authorized to issue 22,200,000 shares of Common Stock, each having a par value of $0.00001. As of December 31, 2021, 6,770,442 shares of Common Stock are issued and outstanding, 6,000,000 of which are held by the Company’s two co-founders who remain active in the daily operations of the Company. As of December 31, 2020, 6,653,525 shares of Common Stock were issued and outstanding, 6,000,000 of which were held by the Company’s two co-founders.
Stock Options
In 2018, the Company’s Board of Directors adopted the CNote Group, Inc. 2018 Equity Incentive Plan (the “2018 Equity Incentive Plan”). This plan was amended in 2020 to increase the number of shares of Common Stock authorized under the plan. The 2018 Equity Incentive Plan provides for the grant of equity awards to employees, and consultants, including stock options, stock appreciation rights and other stock or cash-based awards. Up to 3,362,207 shares of our Common Stock may be issued pursuant to awards granted under the 2018 Equity Incentive Plan, as amended. The 2018 Equity Incentive Plan is administered by our Board of Directors, has no fixed expiration date, and may be amended, suspended, or terminated by the Board at any time.
In 2021, the Company granted 2,066,423 stock options under the 2018 Equity Incentive Plan to various advisors and employees. The granted options had an exercise price range of $0.150 to $0.165, expire in ten years from the date of the grant, and vest over periods ranging from zero to four years.
F-24 |
The stock options were valued at a total grant date fair value of $217,167 using the Black-Scholes pricing model as indicated below:
Expected life (range) | 3.8-5.0 years | |
Risk-free interest rate (range) | 1.0-1.2% | |
Expected volatility (range) | 93.9-95.1% | |
Annual dividend yield | 0% |
Options granted during 2021 had a weighted average grant date fair value of $0.11 per share and vesting period of 22 months.
In 2020, the Company granted 177,199 stock options under the 2018 Equity Incentive Plan to various advisors and employees. The granted options had an exercise price of $0.07, expire in ten years from the date of the grant, and vest over periods ranging from 21 months to four years.
The stock options were valued at a total grant date fair value of $8,117 using the Black-Scholes pricing model as indicated below:
Expected life (range) | 3.8-4.2 years | |
Risk-free interest rate (range) | 0.2-1.4% | |
Expected volatility (range) | 87.1-93.3% | |
Annual dividend yield | 0% |
The expected life of stock options is calculated using the simplified method which takes into consideration the contractual life and vesting terms of the options.
The risk-free interest rate assumption for options granted is based upon observed interest rates on the United States government securities appropriate for the expected term of the Company's stock options.
The Company determined the expected volatility assumption for options granted using the historical volatility of comparable public companies’ common stock. The Company will continue to monitor peer companies and other relevant factors used to measure expected volatility for future stock option grants, until such time that the Company’s Common Stock has enough market history to use historical volatility.
F-25 |
The dividend yield assumption for options granted is based on the Company's history and expectation of dividend payouts. The Company has never declared or paid any cash dividends on its Common Stock, and the Company does not anticipate paying any cash dividends in the foreseeable future.
Management estimated the fair value of Common Stock by looking at a market approach which takes into consideration the value of development to date and subscriber base.
Stock Purchase Warrants
No Stock Purchase Warrants were granted in 2021.
In April 2020, the Company granted to an advisor a Common Stock Purchase Warrant for the purchase of 75,000 shares at a purchase price of $0.01 per share. The term of the warrant was eight years. The warrant was valued at a total grant date fair value of $4,685 using the Black-Scholes pricing model as indicated below.
Expected life (years) | 4.0 | |
Risk-free interest rate | 0.3% | |
Expected volatility | 87.2% | |
Annual dividend yield | 0% |
In August 2020, for services received in connection with the Company’s Series Seed financing, the Company granted to advisors Common Stock Purchase Warrants for the purchase of 1,080,000 shares at a purchase price of $0.07 per share. The term of the warrants was ten years. The warrants were valued at a total grant date fair value of $53,846 using the Black-Scholes pricing model as indicated below. The value of the warrants was accounted for as a cost of raising capital in connection with the Series Seed financing, as discussed above.
Expected life (years) | 5.0 | |
Risk-free interest rate | 0.3% | |
Expected volatility | 94.7% | |
Annual dividend yield | 0% |
F-26 |
The expected life, risk-free interest rate, expected volatility, and dividend yield assumptions used in pricing the warrants granted were derived as described above for options granted. The warrants remain outstanding as of December 31, 2021.
Share-Based Awards Available for Grant
A summary of share-based awards available for grant under the Company’s 2018 Equity Incentive Plan for the years ended December 31, 2021 and 2020 was as follows:
Shares Available for Grant | ||||
Balance at December 31, 2019 | 1,087,500 | |||
Increase in authorized shares | 1,862,207 | |||
Options granted | (177,199 | ) | ||
Options canceled or expired | 122,192 | |||
Balance at December 31, 2020 | 2,894,700 | |||
Options granted | (2,066,423 | ) | ||
Options canceled or expired | 48,962 | |||
Balance at December 31, 2021 | 877,239 |
Stock Option Activity and Related Share-Based Compensation Expense
A summary of stock option activity for the year ended December 31, 2021 was as follows:
Options Outstanding | ||||||||||||
Number of Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Life (in Years) | ||||||||||
Balance at December 31, 2020 | 228,456 | $ | 0.06 | 8.8 | ||||||||
Granted | 2,066,423 | 0.16 | ||||||||||
Exercised | (116,917 | ) | 0.05 | |||||||||
Canceled or expired | (48,962 | ) | 0.07 | |||||||||
Balance at December 31, 2021 | 2,129,000 | $ | 0.15 | 9.8 |
At December 31, 2021, options for the purchase of 1,173,001 shares at a weighted average price of $0.16 per share and a weighted average remaining contractual life of approximately 9.7 years were vested and exercisable.
F-27 |
Expense for the issuance of stock options and warrants for the years ended December 31, 2021 and 2020 was $125,335 and $17,145, respectively. This expense was recorded in the Company’s consolidated statements of operations as follows:
2021 | 2020 | |||||||
Salaries and employee benefits | $ | 118,364 | $ | 2,119 | ||||
Professional services | 6,971 | 15,026 | ||||||
$ | 125,335 | $ | 17,145 |
The Company will recognize the remaining value of the options through 2026 as follows:
2022 | $ | 20,935 | ||
2023 | 33,593 | |||
2024 | 23,785 | |||
2025 | 15,651 | |||
2026 | 726 | |||
Total | $ | 94,690 |
The Company recognizes stock option forfeitures as they occur, as there is insufficient historical data to accurately determine future forfeiture rates.
F-28 |
NOTE 9 – SUBSEQUENT EVENTS
The Company has evaluated subsequent events that occurred after December 31, 2021 through April 29, 2022, the issuance date of these consolidated financial statements. There have been no events or transactions during this time which would have a material effect on these consolidated financial statements, other than those disclosed.
F-29 |
Item 8. |
EXHIBITS
Exhibit Number | Description | |
2.1.1 | Certificate of Incorporation.** | |
2.2 | Bylaws.** | |
3.1 | Form of Subscription Agreement.* | |
4.1 | Form of CNote Note.* | |
10.1 | Power of Attorney (located on the Signature Page to this Offering Statement).** | |
15.1 | Form of Master Promissory Note.* | |
15.2 | Terms of Use.* |
*Previously filed.
**Filed herewith.
15 |
Pursuant to the requirements of Regulation A, the issuer has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Oakland, State of California, on the 29th day of April, 2022.
CNOTE GROUP, INC. | |
By: /s/ Catherine Berman | |
Name: Catherine Berman | |
Title: President and Chief Executive Officer |
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Catherine Berman and Yuliya Tarasava as his or her true and lawful attorney-in-fact and agent, with full powers of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign this Offering Statement and any and all amendments to this Offering Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and generally to do all such things in his or her name and behalf in his or her capacity as officer and/or director to enable the Company to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes or substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of Regulation A, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the dates indicated.
Name and Signature | Title | Date | ||
/s/ Catherine Berman | President, Chief Executive Officer, | April 29, 2022 | ||
Catherine Berman | Co-Founder, Director, Principal Executive Officer | |||
/s/ Yuliya Tarasava | Chief Operating Officer, Co-Founder, Treasurer, Secretary, Director, Principal Financial and |
April 29, 2022 | ||
Yuliya Tarasava | Accounting Officer |
16
Exhibit 1A-2.1.1
State of Delaware Secretary of Slate Division of Corporations Delivered 01:06 PM 01/10/2022 FELED 01:06 PM 01/10/"2022 AMENDED AND RESTATED SR 20220076948 – File Number 6023424 CERTIFICATE OF INCORPORATION OF CNOTE GROUP, INC. (Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware) CNote Group, Inc., a corporation organized and existing under and by virtue of the provisions of the General Corporation Law of the State of Delaware (the “General Corporation Law”), DOES HEREBY CERTIFY: 1. That the name of this corporation is CNote Group, Inc., and that this corporation was originally incorporated pursuant to the General Corporation Law on April 22, 2016 under the name CNote Group, Inc. 2. That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows: RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety to read as follows: AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF CNOTE GROUP, INC. A PUBLIC BENEFIT CORPORATION FIRST: The name of this public benefit corporation is CNote Group, Inc. (the “Corporation”). SECOND: The address of the registered office of the Corporation in the State of Delaware is 1201 Orange St, Ste. 600, One Commerce Center, Wilmington, DE 19801. The name of its registered agent at such address is Agents and Corporations, Inc. THIRD: The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law. Benefit Corporation. The Corporation shall be a public benefit corporation as contemplated by subchapter XV of the General Corporation Law, or any successor provisions, that US_Active\1 14-998491\V-4 it is intended to operate in a responsible and sustainable manner and to produce a public benefit or benefits, and is to be managed in a manner that balances the pecuniary interests of the Corporation’s stockholders, the best interests of those materially affected by the Corporation’s conduct and the public benefit or benefits identified in this certificate of incorporation. lf the General Corporation Law is amended to alter or further define the management and operation of public benefit corporations, then the Corporation shall be managed and operated in accordance with the General Corporation Law, as so amended. Public Benefit Purposes. The specific public benefit purpose of the Corporation is to advance greater economic and social justice for underserved communities by unlocking access to impact investments. FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 33,209,805. The total number of shares of common stock authorized to be issued is 22,200,000, par value $000001 per share (“Common Stock”). The total number of shares of preferred stock authorized to be issued is 11,009,805, par value $000001 per share (“Preferred Stock”). The following is a statement of the designations and the powers, privileges and rights, and the qualifications, limitations or restrictions thereof in respect of each class of capital stock of the Corporation. A. COMMON STOCK 1. General. The voting, dividend and liquidation rights of the holders of the Common Stock are subject to and qualified by the rights, powers and preferences of the holders of the Preferred Stock set forth herein. 2. Voting. The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and in written actions in lieu of meetings); provided, however, that, except as otherwise required by law, holders of Common Stock, as such, shall not be entitled to vote on any amendment to the Certificate of Incorporation that relates solely to the terms of one or more outstanding series of Preferred Stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other such series, to vote thereon pursuant to the Certificate of Incorporation or pursuant to the General Corporation Law. There shall be no cumulative voting. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of Preferred Stock that may be required by the terms of this Amended and Restated Certificate of Incorporation) the affirmative vote of the holders of shares of capital stock of the Corporation representing a majority of the votes represented by all outstanding shares of capital stock of the Corporation entitled to vote and without a separate class vote by the holders of Common Stock, irrespective of the provisions of Section 242(b)(2) of the General Corporation Law. B. PREFERRED STOCK 4,991,498 of the Preferred Stock are designated as “Series Seed-1 Preferred Stock,” 1,601,857 of the Preferred Stock are designated as “Series Seed-2 Preferred Stock,” 3,972,632 of the Preferred Stock are designated as “Series Seed-3 Preferred Stock,” and 443,818 of the Preferred Stock are designated as “Series Seed-4 Preferred Stock.” The Series Seed-1 Preferred US_Active\1 14998491\V-4 2 Stock, the Series Seed-2 Preferred Stock, the Series Seed-3 Preferred Stock, and the Series Seed- 4 Preferred Stock may collectively be referred to as the “Series Seed Preferred Stock.” The Series Seed Preferred Stock shall have the following rights, preferences, powers, privileges and restrictions, qualifications and limitations. Unless otherwise indicated, references to “sections” or “subsections” in this Part B of this Article Fourth refer to sections and subsections of Part B of this Article Fourth. 1 . Dividends. The Corporation shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Corporation (other than dividends on shares of Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in this Amended and Restated Certificate of Incorporation) the holders of the Series Seed Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series Seed Preferred Stock in an amount at least equal to (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series Seed Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock and (B) the number of shares of Common Stock issuable upon conversion of a share of Series Seed Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series Seed Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the applicable Series Seed Original Issue Price (as defined below); provided that, if the Corporation declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Corporation, the dividend payable to the holders of Series Seed Preferred Stock pursuant to this Section 1 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series Seed Preferred Stock dividend. The “Series Seed Original Issue Price” shall mean $070620 per share in the case of the Series Seed-1 Preferred Stock, $060835 per share in the case of the Series Seed-2 Preferred Stock, $056496 per share in the case of the Series Seed-3 Preferred Stock, and $040557 per share in the case of the Series Seed-4 Preferred Stock, in each case subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to the Preferred Stock. 2. Liquidation. Dissolution or Winding Up: Certain Mergers. Consolidations and Asset Sales. 2.1 Preferential Payments to Holders of Series Seed Preferred Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series Seed Preferred Stock then outstanding shall be entitled to be paid, on a pan passu basis, out of the funds and other assets of the Corporation available for distribution to its stockholders, and in the event of a Deemed Liquidation Event (as defined below), the holders of shares of Series Seed Preferred Stock then outstanding shall be entitled to be paid out of the consideration payable to stockholders in such Deemed Liquidation Event or out of the Available Proceeds (as defined below), as applicable, before any payment shall be made to the holders of US_Active\1 149984-91\V-4 3 Common Stock by reason of their ownership thereof, an amount per share equal to the greater of (i) one (1) times the applicable Series Seed Original Issue Price with respect to such series of Preferred Stock, plus any dividends declared but unpaid thereon, or (ii) such amount per share as would have been payable had all shares of Series Seed Preferred Stock been converted into Common Stock pursuant to Section 4 immediately prior to such liquidation, dissolution, winding up or Deemed Liquidation Event (the amount payable pursuant to this sentence is hereinafter referred to as the “Series Seed Liquidation Amount”). If upon any such liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the funds and other assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series Seed Preferred Stock the full amount to which they shall be entitled under this Subsection 2.1, the holders of shares of Series Seed Preferred Stock shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. 2.2 Payments to Holders of Common Stock. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after the payment in full of all Series Seed Liquidation Amounts required to be paid to the holders of shares of Series Seed Preferred Stock, the remaining assets of the Corporation available for distribution to its stockholders or, in the case of a Deemed Liquidation Event, the consideration not payable to the holders of shares of Series Seed Preferred Stock pursuant to Section 2.1 or the remaining Available Proceeds, as the case may be, shall be distributed among the holders of shares of Common Stock, pro rata based on the number of shares held by each such holder. 2.3 Deemed Liquidation Events. 2.3.1 Definition. Each of the following events shall be considered a “Deemed Liquidation Event” unless the holders of at least a majority of the outstanding shares of Series Seed-1 Preferred Stock (the “Requisite Holders”) elect otherwise by written notice sent to the Corporation at least ten (10) days prior to the effective date of any such event: (a) a merger or consolidation in which (i) the Corporation is a constituent party or (ii) a subsidiary of the Corporation is a constituent party and the Corporation issues shares of its capital stock pursuant to such merger or consolidation, except any such merger or consolidation involving the Corporation or a subsidiary in which the shares of capital stock of the Corporation outstanding immediately prior to such merger or consolidation continue to represent, or are converted into or exchanged for shares of capital stock that represent, immediately following such merger or consolidation, at least a majority, by voting power, of the capital stock of ( 1) the surviving or resulting corporation; or (2) if the surviving or resulting corporation is a wholly owned subsidiary of another corporation immediately following such merger or consolidation, the parent corporation of such surviving or resulting corporation; or US_Active\1 14998491\V-4 4 (b) (1) the sale, lease, transfer, exclusive license or other disposition, in a single transaction or series of related transactions, by the Corporation or any subsidiary of the Corporation of all or substantially all the assets of the Corporation and its subsidiaries taken as a Whole, or (2) the sale or disposition (whether by merger, consolidation or otherwise, and whether in a single transaction or a series of related transactions) of one or more subsidiaries of the Corporation if substantially all of the assets of the Corporation and its subsidiaries taken as a whole are held by such subsidiary or subsidiaries, except where such sale, lease, transfer, exclusive license or other disposition is to a wholly owned subsidiary of the Corporation. 2.3.2 Effecting a Deemed Liquidation Event. (a) The Corporation shall not have the power to effect a Deemed Liquidation Event referred to in Subsection 2.3.1(a)(i[ unless the agreement or plan of merger or consolidation for such transaction (the “Merger Agreement") provides that the consideration payable to the stockholders of the Corporation in such Deemed Liquidation Event shall be paid to the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2.2. (b) In the event of a Deemed Liquidation Event referred to in Subsection 2.3.l(a)(ii[ or 2.3.1(lg[, if the Corporation does not effect a dissolution of the Corporation under the General Corporation Law within ninety (90) days after such Deemed Liquidation Event, then (i) the Corporation shall send a written notice to each holder of Series Seed Preferred Stock (the “Redemption Right Notification”) no later than the ninetieth (90'“) day after the Deemed Liquidation Event advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause; (ii) to require the redemption of such shares of Series Seed Preferred Stock, and (m) if the holders of at least a majority of the then outstanding shares of Series Seed Preferred Stock so request in a written instrument delivered to the Corporation (the “Redemption Request”) not later than one hundred twenty (120) days after such Deemed Liquidation Event, the Corporation shall use the consideration received by the Corporation for such Deemed Liquidation Event (net of any retained liabilities associated with the assets sold or technology licensed, as determined in good faith by the Board of Directors of the Corporation), together with any other assets of the Corporation available for distribution to its stockholders, all to the extent permitted by Delaware law governing distributions to stockholders (the “Available Proceeds”), on the one hundred fiftieth (150‘h) day after such Deemed Liquidation Event (the “Liquidation Redemption Date”), to redeem all outstanding shares of Series Seed Preferred Stock at a price per share equal to the Series Seed Liquidation Amount (the “Redemption Price”). Notwithstanding the foregoing, in the event of a redemption pursuant to the preceding sentence, if the Available Proceeds are not sufficient to redeem all outstanding shares of Series Seed Preferred Stock, the Corporation shall redeem a pro rata portion of each holder’s shares of Series Seed Preferred Stock to the fullest extent of such Available Proceeds, based on the respective amounts which would otherwise be payable in respect of the shares to be redeemed if the Available Proceeds were sufficient to redeem all such shares, and shall redeem the remaining shares as soon as it may lawfully do so under Delaware law governing distributions to stockholders. (c) Following the receipt by the Corporation of the election of holders of Series Seed Preferred Stock to demand redemption as provided in Section 2.3.2§ lg), the Corporation shall send a notice to each holder of Series Seed Preferred Stock stating US_Active\1 149984-91\V-4 5 (i) the number of shares of Series Seed Preferred Stock held by such holder as of the date of such notice, (ii) the price at which such shares of Series Seed Preferred Stock will be redeemed, (m) the date upon which such holder’s right to redeem such shares terminates (as determined in accordance with Section 2.3.2(b[, and (iv) that such holder is to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing the shares of Series Seed Preferred Stock to be redeemed. (d) On or before the Liquidation Redemption Date, each holder of shares of Series Seed Preferred Stock to be redeemed on such Liquidation Redemption Date, unless such holder has exercised his, her or its right to convert such shares as provided in Section 4, shall surrender the certificate or certificates representing such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation, in the manner and at the place designated in the Redemption Right Notification, and thereupon the Redemption Price shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof In the event less than all of the shares of Series Seed Preferred Stock represented by a certificate are redeemed, a new certificate representing the unredeemed shares of Series Seed Preferred Stock shall promptly be issued to such holder. (e) If the Redemption Right Notification shall have been duly given by the Corporation to each holder of shares of Series Seed Preferred Stock and the Redemption Request duly received by the Corporation, and if on the Liquidation Redemption Date, the entire Redemption Price payable upon redemption of the shares of Series Seed Preferred Stock to be redeemed on such Liquidation Redemption Date is paid or tendered for payment or deposited with an independent payment agent so as to be available therefor in a timely manner, then notwithstanding that the certificates evidencing any of the shares of Series Seed Preferred Stock so called for redemption shall not have been surrendered, dividends with respect to such shares of Series Seed Preferred Stock shall cease to accrue after such Liquidation Redemption Date, and all rights with respect to such shares shall forthwith after the Liquidation Redemption Date terminate, except only the right of the holders to receive the Redemption Price without interest upon surrender of their certificate or certificates therefor. (f) Prior to the distribution or redemption provided for in this Subsection 2.3 .21 b ), the Corporation shall not expend or dissipate the consideration received for such Deemed Liquidation Event, except to discharge expenses incurred in connection with such Deemed Liquidation Event or in the ordinary course of business. 2.3.3 Amount Deemed Paid or Distributed. The amount deemed paid or distributed to the holders of capital stock of the Corporation upon any such merger, consolidation, sale, transfer, exclusive license, other disposition or redemption shall be the cash or the fair market value of the property, rights or securities paid or distributed to such holders pursuant to such Deemed Liquidation Event. The value of such property, rights or securities shall be determined in good faith by the Board of Directors of the Corporation, including the approval of the Series Seed Director. U$__AC’liV9\1 14998491\V-4 6 2.3.4 Allocation of Escrow and Contingent Consideration. In the event of a Deemed Liquidation Event pursuant to Subsection 2.3.1(a)(i), if any portion of the consideration payable to the stockholders of the Corporation is payable only upon satisfaction of contingencies (the “Additional Consideration”), the Merger Agreement shall provide that (a) the portion of such consideration that is not Additional Consideration (such portion, the “Initial Consideration”) shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and L2 as if the Initial Consideration were the only consideration payable in connection with such Deemed Liquidation Event; and (b) any Additional Consideration which becomes payable to the stockholders of the Corporation upon satisfaction of such contingencies shall be allocated among the holders of capital stock of the Corporation in accordance with Subsections 2.1 and 2_.2 after taking into account the previous payment of the Initial Consideration as part of the same transaction. For the purposes of this Subsection 2.3.4 consideration placed into escrow or retained as a holdback to be available for satisfaction of indemnification or similar obligations in connection with such Deemed Liquidation Event shall be deemed to be Additional Consideration. 3. Voting. 3.1 General. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of Series Seed Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series Seed Preferred Stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of this Amended and Restated Certificate of Incorporation, holders of Series Seed Preferred Stock shall vote together with the holders of Common Stock as a single class and on an as-converted to Common Stock basis. 3.2 Election of Directors. The holders of record of the shares of Series Seed-1 Preferred Stock, exclusively and as a separate class, shall be entitled to elect one (1) director of the Corporation (the “Series Seed Director") and the holders of record of the shares of Common Stock, exclusively and as a separate class, shall be entitled to elect two (2) directors of the Corporation. Any director elected as provided in the preceding sentence may be removed Without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders. If the holders of shares of Series Seed-1 Preferred Stock or Common Stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the first sentence of this Subsection 3 .2, then any directorship not so filled shall remain vacant until such time as the holders of the Series Seed-1 Preferred Stock or Common Stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of the Corporation other than by the stockholders of the Corporation that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class. The holders of record of the shares of Common Stock and of any other class or series of voting stock (including the Series Seed Preferred Stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total number of directors of the Corporation. At any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a US_Active\1 149984-91\V-4 7 majority of the outstanding shares of the class or series entitled to elect such director shall constitute a quorum for the purpose of electing such director. Except as otherwise provided in this Subsection 3.2, a vacancy in any directorship filled by the holders of any class or series shall be filled only by vote or written consent in lieu of a meeting of the holders of such class or series or by any remaining director or directors elected by the holders of such class or series pursuant to this Subsection 3.2. 3.3 Series Seed Preferred Stock Protective Provisions. At any time when shares of Series Seed-1 Preferred Stock are outstanding, the Corporation shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or this Amended and Restated Certificate of Incorporation) the written consent or affirmative vote of the Requisite Holders given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class, and any such act or transaction entered into without such consent or vote shall be null and void ab initio, and of no force or effect. 3.3.1 amend, alter or repeal any provision of this Amended and Restated Certificate of Incorporation or the Bylaws of the Corporation in a manner that adversely affects the powers, preferences or rights of the Series Seed Preferred Stock; 3.3.2 increase or decrease the authorized number of shares of Series Seed Preferred Stock; 3.3.3 create, or authorize the creation of, issue, or obligate itself to issue, by reclassification or otherwise, any additional class or series of capital stock that is senior to, or pari passu with, the Series Seed Preferred Stock with respect to the distribution of assets on the liquidation, dissolution or winding up of the Corporation or Deemed Liquidation Event, the payment of dividends and rights of redemption, or that otherwise has voting rights other than those granted to the Series Seed Preferred Stock; 3.3.4 reclassify, alter, or amend any existing security of the Corporation (except promissory notes and other financial instruments issued by the Corporation in the ordinary course of its business to retail and institutional investors in connection with the Corporation’s existing and future financial products) in respect of the distribution of assets on the liquidation, dissolution, or winding up of the Corporation or Deemed Liquidation Event, the payment of dividends, or rights of redemption, if such reclassification, alteration, or amendment would render such other security senior to, or pari passu with, the Series Seed Preferred Stock in respect of any such right, preference, or privilege, or that otherwise afford to such security voting rights other than those granted to the Series Seed Preferred Stock; 3.3.5 cause or permit any of its subsidiaries to, without approval of the Board of Directors, including the Series Seed Director, sell, issue, sponsor, create or distribute any digital tokens, cryptocurrency or other blockchain-based assets (collectively, “T0kens”), including through a pre—sale, initial coin offering, token distribution event or crowdfunding, or through the issuance of any instrument convertible into or exchangeable for Tokens; 3.3.6 pay or declare any dividend, or otherwise make any distribution on, any shares of capital stock of the Corporation; US_Active\1 14-998491\V-4 8 3 .3 .7 approve the purchase, redemption or other acquisition by the Corporation of any shares of capital stock other than (i) redemptions of the Preferred Stock as expressly authorized herein, (ii) repurchases, pursuant to restricted stock purchase agreements or similar agreements approved by the Board of Directors, of stock from former employees, officers, directors, consultants or other persons who performed services for the Corporation or any subsidiary in connection with the cessation of such employment or service at the lower of the original purchase price or the then-current fair market value thereof or (m) as approved by the Board of Directors, including the approval of the Series Seed Director; 3.3.8 approve, consent to or effect any merger or consolidation or any other transaction, or series of transactions, that constitutes a Deemed Liquidation Event; 3.3.9 liquidate, dissolve, voluntarily file for bankruptcy, or wind up the business and affairs of the Corporation, or consent to any of the foregoing; 3.3.10 cause or permit any of its subsidiaries to sell, transfer, license, pledge or encumber any material technology or intellectual property of the Company, other than through the grant or licenses in the ordinary course of business, unless otherwise approved by the Board of Directors, including the approval of the Series Seed Director; 3.3.11 increase the number of shares of Common Stock reserved for issuance pursuant to the Stock Plan (as defined below); 3.3.12 approve or consent to any contract or transactions within the scope of Section 144 of the Delaware General Corporation Law; 3.3.13 create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including but not limited to obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security lien, security interest or other indebtedness for borrowed money, if the aggregate indebtedness of the Corporation and its subsidiaries for borrowed money following such action would exceed $500,000 other than (i) indebtedness incurred in the ordinary course of the Corporation’s business, including promissory notes issued to retail and institutional investors in connection with the Corporation’s existing and future financial products and (ii) indebtedness that has received the prior approval of the Board of Directors, including the approval of the Series Seed Director; 3.3.14 create, or hold capital stock in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Corporation, or sell, transfer or otherwise dispose of any capital stock of any direct or indirect subsidiary of the Corporation, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license, or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary, except (i) for transfers of assets by a subsidiary to the Corporation or to a wholly-owned subsidiary of the Corporation, or (ii) as otherwise approved by the Board of Directors, including the Series Seed Director; or US_Active\1 149984-91\V-4 9
3.3.15 increase or decrease the authorized number of directors constituting the Board. 4. Optional Conversion. The holders of the Series Seed Preferred Stock shall have conversion rights as follows (the “Conversion Rights”): 4.1 Right to Convert. 4.1.1 Conversion Ratio. Each share of Series Seed Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, and without the payment of additional consideration by the holder thereof, into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the applicable Series Seed Original Issue Price by the applicable Series Seed Conversion Price (as defined below) in effect at the time of conversion. The “Series Seed Conversion Price” shall initially be equal to the Series Seed Original Purchase Price of such series of Preferred Stock. Such initial Series Seed Conversion Price, and the rate at which shares of Series Seed Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. 4.1.2 Termination of Conversion Rights. In the event of a notice of redemption of any shares of Series Seed Preferred Stock pursuant to Section 6 the Conversion Rights of the shares designated for redemption shall terminate at the close of business on the last full day preceding the date fixed for redemption, unless the redemption price is not fully paid on such redemption date, in which case the Conversion Rights for such shares shall continue until such price is paid in full. In the event of a liquidation, dissolution or winding up of the Corporation or a Deemed Liquidation Event, the Conversion Rights shall terminate at the close of business on the last full day preceding the date fixed for the payment of any such amounts distributable on such event to the holders of Series Seed Preferred Stock. 4.2 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Series Seed Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of a share of Common Stock as determined in good faith by the Board of Directors of the Corporation. Whether or not fractional shares would be issuable upon such conversion shall be determined on the basis of the total number of shares of Series Seed Preferred Stock the holder is at the time converting into Common Stock and the aggregate number of shares of Common Stock issuable upon such conversion. 4.3 Mechanics of Conversion. 4.3.1 Notice of Conversion. In order for a holder of Series Seed Preferred Stock to voluntarily convert shares of Series Seed Preferred Stock into shares of Common Stock, such holder shall (a) provide written notice to the Corporation’s transfer agent at the office of the transfer agent for the Series Seed Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent) that such holder elects to convert all or any number of such holder’s shares of Series Seed Preferred Stock and, if applicable, any event on which such conversion is contingent (a “Contingency Event”) and (b), if such holder’s shares are certificated, surrender the certificate or certificates for such shares of Series Seed US_Active\1 14-99B491\V-4 1 0 Preferred Stock (or, if such registered holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate), at the office of the transfer agent for the Series Seed Preferred Stock (or at the principal office of the Corporation if the Corporation serves as its own transfer agent). Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the shares of Common Stock to be issued. If required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or his, her or its attorney duly authorized in writing. The close of business on the date of receipt by the transfer agent (or by the Corporation if the Corporation serves as its own transfer agent) of such notice and, if applicable, certificates (or lost certificate affidavit and agreement), or, if later, the date on which all Contingency Events have occurred, shall be the time of conversion (the “Conversion Time”), and the shares of Common Stock issuable upon conversion of the specified shares shall be deemed to be outstanding of record as of such date. The Corporation shall, as soon as practicable after the Conversion Time (i) issue and deliver to such holder of Series Seed Preferred Stock, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable upon such conversion in accordance with the provisions hereof and a certificate for the number (if any) of the shares of Series Seed Preferred Stock represented by the surrendered certificate that were not converted into Common Stock, (ii) pay in cash such amount as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and (m) pay all declared but unpaid dividends on the shares of Series Seed Preferred Stock converted. 4.3.2 Reservation of Shares. The Corporation shall at all times when the Series Seed Preferred Stock shall be outstanding, reserve and keep available out of its authorized but unissued capital stock, for the purpose of effecting the conversion of the Series Seed Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding Series Seed Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series Seed Preferred Stock, the Corporation shall take such corporate action as may be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to this Amended and Restated Certificate of Incorporation. Before taking any action which would cause an adjustment reducing the applicable Series Seed Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series Seed Preferred Stock, the Corporation will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Corporation may validly and legally issue fully paid and non-assessable shares of Common Stock at such adjusted Series Seed Conversion Price. 4.3.3 Effect of Conversion. All shares of Series Seed Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate at the Conversion Time, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor, to receive payment in lieu of any fraction of a share otherwise issuable upon such conversion as provided in Subsection 4.2 and to receive payment of US_Active\1 14998491\V-4 1 1 any dividends declared but unpaid thereon. Any shares of Series Seed Preferred Stock so converted shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series Seed Preferred Stock accordingly. 4.3.4 No Further Adjustment. Upon any such conversion, no adjustment to the applicable Series Seed Conversion Price shall be made for any declared but unpaid dividends on the Series Seed Preferred Stock surrendered for conversion or on the Common Stock delivered upon conversion. 4.3.5 Taxes. The Corporation shall pay any and all issue and other similar taxes that may be payable in respect of any issuance or delivery of shares of Common Stock upon conversion of shares of Series Seed Preferred Stock pursuant to this Section 4. The Corporation shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of shares of Common Stock in a name other than that in which the shares of Series Seed Preferred Stock so converted were registered, and no such issuance or delivery shall be made unless and until the person or entity requesting such issuance has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid. 4.4 Adjustments to Series Seed Conversion Price for Diluting Issues. 4.4.1 Special Definitions. For purposes of this Article Fourth, the following definitions shall apply: (a) “Option” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (b) “Series Seed Original Issue Date” shall mean the date on which the first share of Series Seed Preferred Stock was issued. (c) “Convertible Securities” shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options. (d) “Additional Shares of Common Stock” shall mean all shares of Common Stock issued (or, pursuant to Subsection 4.4.3 below, deemed to be issued) by the Corporation after the Series Seed Original Issue Date, other than (1) the following shares of Common Stock and (2) shares of Common Stock deemed issued pursuant to the following Options and Convertible Securities (clauses (1) and (2), collectively, “Exempted Securities”): (i) shares of Common Stock, Options or Convertible Securities issued as a dividend or distribution on Series Seed Preferred Stock; (ii) shares of Common Stock, Options or Convertible Securities issued by reason of a dividend, stock split, split-up or other US_Active\1 14998491\V-4 1 2 (m) (iv) (V) (vi) (vii) US_Active\1 14998491\V-4 1 3 distribution on shares of Common Stock that is covered by Subsection 4.5, gg, 4_.Z or 51_.§ ; shares of Common Stock or Options issued to employees or directors of, or consultants or advisors to, the Corporation or any of its subsidiaries pursuant to a plan, agreement or arrangement approved by the Board of Directors of the Corporation (the “Stock Plan”); shares of Common Stock or Convertible Securities actually issued upon the exercise of Options or shares of Common Stock actually issued upon the conversion or exchange of Convertible Securities, in each case provided such issuance is pursuant to the terms of such Option or Convertible Security; shares of Common Stock, Options or Convertible Securities issued to banks, equipment lessors or other financial institutions, or to real property lessors, pursuant to a debt financing, equipment leasing or real property leasing transaction approved by the Board of Directors of the Corporation, including the Series Seed Director; shares of Common Stock, Options or Convertible Securities issued to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors of the Corporation, including the Series Seed Director; shares of Common Stock, Options or Convertible Securities issued as acquisition consideration pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided that such issuances are approved by the Board of Directors of the Corporation, including the Series Seed Director; or (vii) shares of Common Stock, Options or Convertible Securities issued in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors of the Corporation, including the Series Seed Director. 4.4.2 No Adjustment of Series Seed Conversion Price. No adjustment in the applicable Series Seed Conversion Price shall be made as the result of the issuance or deemed issuance of Additional Shares of Common Stock if the Corporation receives written notice from the Requisite Holders agreeing that no such adjustment shall be made as the result of the issuance or deemed issuance of such Additional Shares of Common Stock. 4.4.3 Deemed Issue of Additional Shares of Common Stock. (a) If the Corporation at any time or from time to time after the Series Seed Original Issue Date shall issue any Options or Convertible Securities (excluding Options or Convertible Securities which are themselves Exempted Securities) or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto, assuming the satisfaction of any conditions to exercisability, convertibility or exchangeability but without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date. (b) If the terms of any Option or Convertible Security, the issuance of which resulted in an adjustment to the applicable Series Seed Conversion Price for a series of Preferred Stock pursuant to the terms of Subsection 4.4.4, are revised as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either (1) any increase or decrease in the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any such Option or Convertible Security or (2) any increase or decrease in the consideration payable to the Corporation upon such exercise, conversion and/or exchange, then, effective upon such increase or decrease becoming effective, the applicable Series Seed Conversion Price computed upon the original issue of such Option or Convertible Security (or upon the occurrence of a record date with respect thereto) shall be readjusted to such Series Seed Conversion Price as would have obtained had such revised terms been in effect upon the original date of issuance of such Option or Convertible Security. Notwithstanding the foregoing, no readjustment pursuant to this clause (b) shall have the effect of increasing the applicable Series Seed Conversion Price for a series of Preferred Stock to an amount which exceeds the lower of (i) the applicable Series Seed Conversion Price for a series of Preferred Stock in effect immediately prior to the original adjustment made as a result of the issuance of such Option or Convertible Security, or (ii) the applicable Series Seed Conversion Price for a series of Preferred Stock that US_Active\1 14998491\V-4 1 4 would have resulted from any issuances of Additional Shares of Common Stock (other than deemed issuances of Additional Shares of Common Stock as a result of the issuance of such Option or Convertible Security) between the original adjustment date and such readjustment date. (c) If the terms of any Option or Convertible Security (excluding Options or Convertible Securities which are themselves Exempted Securities), the issuance of which did not result in an adjustment to the applicable Series Seed Conversion Price for a series of Preferred Stock pursuant to the terms of Subsection 4.4.4 (either because the consideration per share (determined pursuant to Subsection 4.4.5 l of the Additional Shares of Common Stock subject thereto was equal to or greater than the applicable Series Seed Conversion Price then in effect for a series of Preferred Stock, or because such Option or Convertible Security was issued before the Series Seed Original Issue Date), are revised after the Series Seed Original Issue Date as a result of an amendment to such terms or any other adjustment pursuant to the provisions of such Option or Convertible Security (but excluding automatic adjustments to such terms pursuant to anti-dilution or similar provisions of such Option or Convertible Security) to provide for either ( 1) any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security or (2) any decrease in the consideration payable to the Corporation upon such exercise, conversion or exchange, then such Option or Convertible Security, as so amended or adjusted, and the Additional Shares of Common Stock subject thereto (determined in the manner provided in Subsection 4.4.3( a) shall be deemed to have been issued effective upon such increase or decrease becoming effective. (d) Upon the expiration or termination of any unexercised Option or unconverted or unexchanged Convertible Security (or portion thereof) which resulted (either upon its original issuance or upon a revision of its terms) in an adjustment to the applicable Series Seed Conversion Price pursuant to the terms of Subsection 4.4.4 the applicable Series Seed Conversion Price shall be readjusted to such Series Seed Conversion Price as would have obtained had such Option or Convertible Security (or portion thereof) never been issued. (e) If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, is calculable at the time such Option or Convertible Security is issued or amended but is subject to adjustment based upon subsequent events, any adjustment to the applicable Series Seed Conversion Price of any series of Preferred Stock provided for in this Subsection 4.4.3 shall be effected at the time of such issuance or amendment based on such number of shares or amount of consideration without regard to any provisions for subsequent adjustments (and any subsequent adjustments shall be treated as provided in clauses (b) and (c) of this Subsection 4.4.3). If the number of shares of Common Stock issuable upon the exercise, conversion and/or exchange of any Option or Convertible Security, or the consideration payable to the Corporation upon such exercise, conversion and/or exchange, cannot be calculated at all at the time such Option or Convertible Security is issued or amended, any adjustment to the applicable Series Seed Conversion Price of any series of Preferred Stock that would result under the terms of this Subsection 4.4.3 at the time of such issuance or amendment shall instead be effected at the time such number of shares and/or amount of consideration is first calculable (even if subject to subsequent adjustments), assuming for purposes of calculating such adjustment to the applicable US_Active\1 14998491\V-4 1 5 Series Seed Conversion Price that such issuance or amendment took place at the time such calculation can first be made. 4.4.4 Adjustment of Series Seed Conversion Price Upon Issuance of Additional Shares of Common Stock. In the event the Corporation shall at any time after the Series Seed Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Subsection 4.4.3 ), without consideration or for a consideration per share less than the applicable Series Seed Conversion Price in effect immediately prior to such issuance or deemed issuance, then the applicable Series Seed Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest one-hundredth of a cent) determined in accordance with the following formula: CP2 = CP1* (A+ B) + (A+ C). For purposes of the foregoing formula, the following definitions shall apply: (a) “CPZ” shall mean the applicable Series Seed Conversion Price in effect immediately after such issuance or deemed issuance of Additional Shares of Common Stock; (b) “CPI” shall mean the applicable Series Seed Conversion Price in effect immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock; (c) “A” shall mean the number of shares of Common Stock outstanding immediately prior to such issuance or deemed issuance of Additional Shares of Common Stock (treating for this purpose as outstanding all shares of Common Stock issuable upon exercise of Options outstanding immediately prior to such issuance or deemed issuance or upon conversion or exchange of Convertible Securities (including the Series Seed Preferred Stock) outstanding (assuming exercise of any outstanding Options therefor) immediately prior to such issuance or deemed issuance); (d) “B” shall mean the number of shares of Common Stock that would have been issued if such Additional Shares of Common Stock had been issued or deemed issued at a price per share equal to CP1 (determined by dividing the aggregate consideration received by the Corporation in respect of such issue by CP1); and (e) “C” shall mean the number of such Additional Shares of Common Stock issued in such transaction. 4.4.5 Determination of Consideration. For purposes of this Subsection 4.4, the consideration received by the Corporation for the issuance or deemed issuance of any Additional Shares of Common Stock shall be computed as follows: (a) Cash and Property: Such consideration shall: (i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the US_Active\1 14998491\V-4 1 6 Corporation, excluding amounts paid or payable for accrued interest; insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors of the Corporation; and in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (i) and (ii) above, as determined in good faith by the Board of Directors of the Corporation. (b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock Section 4 4 3 relating to Options and Convertible deemed to have been issued pursuant to Securities, shall be determined by dividing US_Active\11499B491\V 4 the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities. 4.4.6 Multiple Closing Dates. In the event the Corporation shall issue on more than one date Additional Shares of Common Stock that are a part of one transaction or a series of related transactions and that would result in an adjustment to the applicable Series Seed Conversion Price pursuant to the terms of Subsection 4.4.4 then, upon the final such issuance, the applicable Series Seed Conversion Price for a series of Preferred Stock shall be readjusted to give effect to all such issuances as if they occurred on the date of the first such issuance (and without giving effect to any additional adjustments as a result of any such subsequent issuances within such period). 4.5 Adjustment for Stock Splits and Combinations. If the Corporation shall at any time or from time to time after the Series Seed Original Issue Date effect a subdivision of the outstanding Common Stock, the applicable Series Seed Conversion Price for each series of Preferred Stock in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase in the aggregate number of shares of Common Stock outstanding. If the Corporation shall at any time or from time to time after the Series Seed Original Issue Date combine the outstanding shares of Common Stock, the applicable Series Seed Conversion Price for each series of Preferred Stock in effect immediately before the combination shall be proportionately increased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in the aggregate number of shares of Common Stock outstanding. Any adjustment under this subsection shall become effective at the close of business on the date the subdivision or combination becomes effective. 4.6 Adjustment for Certain Dividends and Distributions. In the event the Corporation at any time or from time to time alter the Series Seed Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable on the Common Stock in additional shares of Common Stock, then and in each such event the applicable Series Seed Conversion Price for each series of Preferred Stock in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the applicable Series Seed Conversion Price for such series then in effect by a fraction: (1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution.
Notwithstanding the foregoing (a) if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the applicable US_Active\1 14998491\V-4 1 8 Series Seed Conversion Price for such series of Preferred Stock shall be recomputed accordingly as of the close of business on such record date and thereafter the applicable Series Seed Conversion Price shall be adjusted pursuant to this subsection as of the time of actual payment of such dividends or distributions; and (b) no such adjustment shall be made to the Conversion Price of any series of Preferred Stock if the holders of such series of Series Seed Preferred Stock simultaneously receive a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock as they would have received if all outstanding shares of Series Seed Preferred Stock had been converted into Common Stock on the date of such event. 4.7 Adjustments for Other Dividends and Distributions. In the event the Corporation at any time or from time to time after the Series Seed Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Corporation (other than a distribution of shares of Common Stock in respect of outstanding shares of Common Stock) or in other property and the provisions of Section 1 do not apply to such dividend or distribution, then and in each such event the holders of each series of Series Seed Preferred Stock shall receive, simultaneously with the distribution to the holders of Common Stock, a dividend or other distribution of such securities or other property in an amount equal to the amount of such securities or other property as they would have received if all outstanding shares of such series of Series Seed Preferred Stock had been converted into Common Stock on the date of such event. 4.8 Adjustment for Merger or Reorganization, etc. Subject to the provisions of Subsection 2.3 if there shall occur any reorganization, recapitalization, reclassification, consolidation or merger involving the Corporation in which the Common Stock (but not the Series Seed Preferred Stock) is converted into or exchanged for securities, cash or other property (other than a transaction covered by Subsections 4.4, an or 4.1), then, following any such reorganization, recapitalization, reclassification, consolidation or merger, each share of Series Seed Preferred Stock shall thereafter be convertible in lieu of the Common Stock into which it was convertible prior to such event into the kind and amount of securities, cash or other property which a holder of the number of shares of Common Stock of the Corporation issuable upon conversion of one share of Series Seed Preferred Stock immediately prior to such reorganization, recapitalization, reclassification, consolidation or merger would have been entitled to receive pursuant to such transaction; and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Corporation) shall be made in the application of the provisions in this Section 4 with respect to the rights and interests thereafter of the holders of the Series Seed Preferred Stock, to the end that the provisions set forth in this Section 4 (including provisions with respect to changes in and other adjustments of the applicable Series Seed Conversion Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of the Series Seed Preferred Stock. 4.9 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the applicable Series Seed Conversion Price pursuant to this Section 4, the Corporation at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series Seed Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series Seed Preferred Stock is convertible) and showing in detail the facts US_Active\1 14998491\V-4 1 9 upon which such adjustment or readjustment is based. The Corporation shall, as promptly as reasonably practicable after the written request at any time of any holder of Series Seed Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the applicable Series Seed Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series Seed Preferred Stock. 4.10 Notice of Record Date. In the event: (a) the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Series Seed Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or (b) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, or any Deemed Liquidation Event; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Corporation, then, and in each such case, the Corporation will send or cause to be sent to the holders of the Series Seed Preferred Stock a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is proposed to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon the conversion of the Series Seed Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up, and the amount per share and character of such exchange applicable to the Series Seed Preferred Stock and the Common Stock. Such notice shall be sent at least ten (10) days prior to the record date or effective date for the event specified in such notice. 5. Mandatory Conversion. 5.1 Trigger Events. Upon either (a) the closing of the sale of shares of Common Stock to the public in a firm-commitment underwritten public offering, pursuant to an effective registration statement under the Securities Act of 1933, as amended, resulting in at least $50,000,000 of gross proceeds to the Corporation and in connection with such offering the Common Stock is listed for trading on the Nasdaq Stock Market’s National Market, the New York Stock Exchange or another exchange or marketplace approved the Board of Directors or (b) the date and time, or the occurrence of an event, specified by vote or written consent of the holders of at least two-thirds (2/3"‘) of the then outstanding shares of Series Seed Preferred Stock (the time of such closing or the date and time specified or the time of the event specified in such vote or written consent is referred to herein as the “Mandatory Conversion Time”), then (i) all outstanding shares of Series Seed Preferred Stock shall automatically be converted into shares of US_ACtive\1 149984-91\V-4 Common Stock, at the then effective conversion rate as calculated pursuant to Subsection 4.1.1. and (ii) such shares may not be reissued by the Corporation. 5.2 Procedural Requirements. All holders of record of shares of Series Seed Preferred Stock shall be sent written notice of the Mandatory Conversion Time and the place designated for mandatory conversion of all such shares of Series Seed Preferred Stock pursuant to this Section 5. Such notice need not be sent in advance of the occurrence of the Mandatory Conversion Time. Upon receipt of such notice, each holder of shares of Series Seed Preferred Stock in certificated form shall surrender his, her or its certificate or certificates for all such shares (or, if such holder alleges that such certificate has been lost, stolen or destroyed, a lost certificate affidavit and agreement reasonably acceptable to the Corporation to indemnify the Corporation against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of such certificate) to the Corporation at the place designated in such notice. If so required by the Corporation, any certificates surrendered for conversion shall be endorsed or accompanied by Written instrument or instruments of transfer, in form satisfactory to the Corporation, duly executed by the registered holder or by his, her or its attorney duly authorized in writing. All rights with respect to the Series Seed Preferred Stock converted pursuant to Subsection 5 1 including the rights, if any, to receive notices and vote (other than as a holder of Common Stock), will terminate at the Mandatory Conversion Time (notwithstanding the failure of the holder or holders thereof to surrender any certificates at or prior to such time), except only the rights of the holders thereof, upon surrender of any certificate or certificates of such holders (or lost certificate affidavit and agreement) therefor, to receive the items provided for in the next sentence of this Subsection 5.2. As soon as practicable after the Mandatory Conversion Time and, if applicable, the surrender of any certificate or certificates (or lost certificate affidavit and agreement) for Series Seed Preferred Stock, the Corporation shall (a) issue and deliver to such holder, or to his, her or its nominees, a certificate or certificates for the number of full shares of Common Stock issuable on such conversion in accordance with the provisions hereof and (b)pay cash as provided in Subsection 4.2 in lieu of any fraction of a share of Common Stock otherwise issuable upon such conversion and the payment of any declared but unpaid dividends on the shares of Series Seed Preferred Stock converted. Such converted Series Seed Preferred Stock shall be retired and cancelled and may not be reissued as shares of such series, and the Corporation may thereafter take such appropriate action (without the need for stockholder action) as may be necessary to reduce the authorized number of shares of Series Seed Preferred Stock accordingly. 6. Redeemed or Otherwise Acquired Shares. Any shares of Series Seed Preferred Stock that are redeemed or otherwise acquired by the Corporation or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Corporation nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series Seed Preferred Stock following redemption. 7. Waiver. Subject to the provisions of Section 3.3.2, any of the rights, powers, preferences and other terms of the Series Seed Preferred Stock set forth herein may be waived on behalf of all holders of Series Seed Preferred Stock by the affirmative written consent or vote of the Requisite Holders. 8. Notices. Any notice required or permitted by the provisions of this Article Fourth to be given to a holder of shares of Series Seed Preferred Stock shall be mailed, postage prepaid, to the post office address last shown on the records of the Corporation, or given by US_Active\1 14-998491\V-4 2 1 electronic communication in compliance with the provisions of the General Corporation Law, and shall be deemed sent upon such mailing or electronic transmission. FIFTH: Subject to any additional vote required by this Amended and Restated Certificate of Incorporation or Bylaws, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of the Corporation. SIXTH: Subject to any additional vote required by this Amended and Restated Certificate of Incorporation, the number of directors of the Corporation shall be determined in the manner set forth in the Bylaws of the Corporation. Each director shall be entitled to one vote on each matter presented to the Board of Directors. SEVENTH: Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. EIGHTH: Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. The books of the Corporation may be kept outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. NINTH: To the fullest extent permitted by law, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law or any other law of the State of Delaware is amended after approval by the stockholders of this Article Ninth to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law as so amended. Any repeal or modification of the foregoing provisions of this Article Ninth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director occurring prior to, such repeal or modification. TENTH: To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of the Corporation (and any other persons to which General Corporation Law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the General Corporation Law. Any amendment, repeal or modification of the foregoing provisions of this Article Tenth shall not (a) adversely affect any right or protection of any director, officer or other agent of the Corporation existing at the time of such amendment, repeal or modification or (b) increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification. US_Active\1 14998491\V-4 ELEVENTH: The Corporation renounces, to the fullest extent permitted by law, any interest or expectancy of the Corporation in, or in being offered an opportunity to participate in, any Excluded Opportunity. An “Excluded Opportunity” is any matter, transaction or interest that is presented to, or acquired, created or developed by, or which otherwise comes into the possession of (i) any director of the Corporation who is not an employee of the Corporation or any of its subsidiaries, or (ii) any holder of Series Seed Preferred Stock or any partner, member, director, stockholder, employee, affiliate or agent of any such holder, other than someone who is an employee of the Corporation or any of its subsidiaries (collectively, the persons referred to in clauses (i) and (ii) are “Covered Persons”), unless such matter, transaction or interest is presented to, or acquired, created or developed by, or otherwise comes into the possession of, a Covered Person expressly and solely in such Covered Person’s capacity as a director of the Corporation while such Covered Person is performing services in such capacity. Any repeal or modification of this Article Eleventh will only be prospective and will not affect the rights under this Article Eleventh in effect at the time of the occurrence of any actions or omissions to act giving rise to liability. Notwithstanding anything to the contrary contained elsewhere in this Amended and Restated Certificate of Incorporation, the affirmative vote of the Requisite Holders will be required to amend or repeal, or to adopt any provisions inconsistent with this Article Eleventh. TWELFTH: Unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery in the State of Delaware shall be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of fiduciary duty owed by any director, officer or other employee of the Corporation to the Corporation or the Corporation’s stockholders, (m) any action asserting a claim against the Corporation, its directors, officers or employees arising pursuant to any provision of the Delaware General Corporation Law or the Corporation’s certificate of incorporation or bylaws or (iv) any action asserting a claim against the Corporation, its directors, officers or employees governed by the internal affairs doctrine, except for, as to each of (i) through (iv) above, any claim as to which the Court of Chancery determines that there is an indispensable party not subject to the jurisdiction of the Court of Chancery (and the indispensable party does not consent to the personal jurisdiction of the Court of Chancery within ten days following such determination), which is vested in the exclusive jurisdiction of a court or forum other than the Court of Chancery, or for which the Court of Chancery does not have subject matter jurisdiction. If any provision or provisions of this Article Twelfth shall be held to be invalid, illegal or unenforceable as applied to any person or entity or circumstance for any reason whatsoever, then, to the fullest extent permitted by law, the validity, legality and enforceability of such provisions in any other circumstance and of the remaining provisions of this Article Twelfth (including, without limitation, each portion of any sentence of this Article Twelfth containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) and the application of such provision to other persons or entities and circumstances shall not in any way be affected or impaired thereby. THIRTEENTH: For purposes of Section 500 of the California Corporations Code (to the extent applicable), in connection with any repurchase of shares of Common Stock permitted under this Amended and Restated Certificate of Incorporation from employees, officers, directors or consultants of the Corporation in connection with a termination of employment or services pursuant to agreements or arrangements approved by the Board of Directors (in addition to any other consent required under this Amended and Restated Certificate of Incorporation), such repurchase may be made without regard to any “preferential dividends arrears amount” or US_Active\1 14-99B491\V-4 2 3 DoeuSign Envatnpe ID: 03C4EA5F-AEA9-4DB&I\A21-BSZEGDKOD93 “preferential rights amount” (as those terms are defined in Section 500 of the California Corporations Code). Accordingly, for purposes of making any calculation under California Corporations Code Section 500 in connection with such repurchase, the amount of any “preferential dividends arrears amount” or “preferential rights amount” (as those terms are defined therein) shall be deemed to be zero (0). *** 3. That the foregoing amendment and restatement was approved by the holders of the requisite number of shares of this corporation in accordance with Section 228 of the General Corporation Law. 4. That this Certificate of Incorporation, which restates and integrates and further amends the provisions of this Corporation’s Certificate of Incorporation, has been duly adopted in accordance with Sections 242 and 245 of the General Corporation Law. IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly authorized officer of this corporation on this January 10, 2022. Ducu$tqned by: BY; _ _ Catherine Berman, President US Advise\114998491\V-4 24
Exhibit 1A-2.2
AMENDED AND RESTATED
BYLAWS
of
CNOTE GROUP, INC.
TABLE OF CONTENTS
1. | Stockholders | 1 |
2. | Directors | 3 |
3. | Officers | 6 |
4. | Capital Stock | 8 |
5. | Indemnification | 9 |
6. | Periodic Statements and Third-Party Certification | 15 |
7. | Miscellaneous Provisions | 15 |
Bylaws of CNote Group, Inc. |
Bylaws of CNote Group, Inc. (the “Corporation”)
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”).
The Corporation shall include in every notice of a meeting of stockholders a statement to the effect that it is a public benefit corporation formed pursuant to the Delaware Public Benefit Corporations Law (DGCL §§ 361 et seq.).
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.
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(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, the Voting Agreement (as defined below), 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, Voting Agreement, 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, the Voting Agreement, 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.
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(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.
(k) Derivative Suits. Stockholders of the Corporation owning individually or collectively, as of the date of instituting such derivative suit, at least two percent (2%) of the Corporation’s outstanding shares, may maintain a derivative lawsuit to enforce the requirements set forth in DGCL § 365(a).
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, the Certificate of Incorporation, or the Voting Agreement, may exercise the powers of the full Board until the vacancy is filled.
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(b) Number and Qualification. Unless otherwise provided in the Certificate of Incorporation, Voting Agreement, 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. Subject to the Voting Agreement, 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, Voting Agreement, 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 subject to the Corporation’s Certificate of Incorporation and Voting Agreement.
(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.
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(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, the Voting Agreement, 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.
(l) Discharge of Directors. The Board of Directors shall manage or direct the business and affairs of the Corporation in a manner that balances the pecuniary interests of the stockholders of the Corporation, the best interests of those materially affected by the Corporation’s conduct, and the specific public benefit or public benefits identified in the Certificate of Incorporation.
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A director of the Corporation shall not, by virtue of the public benefit provisions or DGCL § 362(a), have any duty to any person on account of any interest of such person in the public benefit or public benefits identified in the Certificate of Incorporation or on account of any interest materially affected by the Corporation’s conduct and, with respect to a decision implicating the balance requirement in DGCL § 365(a), will be deemed to satisfy such director's fiduciary duties to stockholders and the Corporation if such director’s decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve.
(m) The Certificate of Incorporation and the Corporation’s Voting Agreement dated August 25, 2020, by and between the Corporation and the Stockholders (as defined therein) as amended from time to time (the “Voting Agreement”), set forth certain rights of the Corporation’s preferred stockholders with respect to the election of directors.
3. Officers
(a) Enumeration. The officers of the Corporation shall consist of a President, a Treasurer, a Secretary, and such other officers, including, without limitation, a Chief Executive Officer, 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 President, 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.
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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) President. The President shall, subject to the direction of the Board of Directors, have general supervision and control of the Corporation’s business and any action that would typically be taken by a 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 President 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.
Any Assistant Treasurer shall have such powers and 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.
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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.
Every stock certificate issued by Corporation shall note conspicuously that the Corporation is a public benefit corporation formed pursuant to the Delaware Public Benefit Corporations Law (DGCL §§ 361 et seq.).
(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.
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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.
5. Indemnification
(a) Definitions. For purposes of this Section 5:
(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;
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(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.
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(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.
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(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.
Bylaws of CNote Group, Inc. Page 12 |
(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 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.
Bylaws of CNote Group, Inc. Page 13 |
(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.
Bylaws of CNote Group, Inc. Page 14 |
6. Periodic Statements and Third-Party Certification
The Corporation shall no less than biennially provide its stockholders with a statement as to the Corporation’s promotion of the public benefit or public benefits identified in the Certificate of Incorporation and of the best interests of those materially affected by the Corporation’s conduct. The statement shall include:
(a) The objectives the Board of Directors has established to promote such public benefit or public benefits and interests;
(b) The standards the Board of Directors has adopted to measure the Corporation’s progress in promoting such public benefit or public benefits and interests;
(c) Objective factual information based on those standards regarding the Corporation’s success in meeting the objectives for promoting such public benefit or public benefits and interests; and
(d) An assessment of the Corporation’s success in meeting the objectives and promoting such public benefit or public benefits and interests.
7. 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.
Bylaws of CNote Group, Inc. Page 15 |
(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. In the event of a conflict between these Bylaws and the Certificate of Incorporation, the Certificate of Incorporation shall prevail.
(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.
Adopted on January 8, 2022
Bylaws of CNote Group, Inc.
Page 16
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