| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
OFFERING CIRCULAR
For
CF FUND II, LLC
a Pennsylvania Limited Liability Company
| SECURITIES OFFERED | : | PROMISSORY NOTES |
| TOTAL AMOUNT OF | ||
| SECURITIES OFFERED | : | Maximum 400 Promissory Notes |
| MAXIMUM OFFERING AMOUNT | : | $20,000,000 |
| MINIMUM OFFERING AMOUNT | : | $200,000 |
| MINIMUM INVESTMENT AMOUNT | : | $50,000 |
| CONTACT INFORMATION | : | Jeffrey A. Cella |
| 5000 W. Tilghman Street, Suite 249 | ||
| Allentown, PA 18104-9109 | ||
| (484) 712-7372 |
AUGUST 1, 2017
CF Fund II, LLC, (the “LLC” or “Company”) is a Pennsylvania limited liability company. The Company is hereby offering (the “Offering”) by means of this offering circular (the “Offering Circular”) a maximum of four hundred (400) debt securities memorialized by promissory notes (“Promissory Notes” or “Notes”) on an “as needed” basis to qualified investors. As further described in the Offering Circular, the Company was formed and organized recently and has very limited operating history. The Company is a wholly owned subsidiary of Conquest Funding, Inc., a Pennsylvania corporation (the “CFI” or “Parent Company”). CFI is the sole member of the Company, and shall manage the business operations of the Company, including this Offering. The Company was formed with the purpose to (i) primarily fund, make, acquire, and/or purchase loans (“Loans”) originated by CFI; and (ii) secondarily to fund, finance, acquire, purchase, develop, remodel, repair, rent and/or sell real property, including distressed properties, located across the United States (focusing on Pennsylvania, Maryland and New Jersey). The Loans will be secured by real property and/or personal property located across the United States (focusing on Pennsylvania, Maryland and New Jersey). The Company intends to invest most of the Offering proceeds (60% or more) in Loans and the remaining (0-40%) in properties.
This Offering will commence immediately upon qualification of the Offering’s submission to the Securities and Exchange Commission (“SEC” or “Commission”) (the “Effective Date”) and will terminate at the discretion of CFI. The Offering may be closed from time to time, on an as needed basis. The maximum amount of the Offering shall not exceed Twenty Million Dollars ($20,000,000) in accordance with Tier One of Regulation A as set forth under the Securities Act of 1933, as amended, (“Reg A Tier 1”). The Company may, at its sole and absolute discretion, increase the Maximum Offering Amount and number of Promissory Notes offered hereunder, subject to approval by the SEC upon submission by the Company of a post-qualification amendment.
Prospective investors (“Investors”) who execute a subscription agreement will acquire Notes from the LLC and will become a holder of the Notes once the Investor’s investment is deposited into the LLC’s main operating account and subject to the terms and conditions in this Offering Circular, Escrow Agreement (as applicable), and Subscription Agreement. As further explained below, all investments received prior to the Minimum Offering Amount, will be deposited into an interest-bearing escrow account until the Minimum Offering Amount has been raised. (See “Summary of the Offering” and “General Terms of the Notes and Offering” below).
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
An investment in the Company is subject to a variety of restrictions as detailed in the Offering Circular. The Company, and its officers and directors, will receive a variety of compensation and income from the Company and are subject to several conflicts of interest, including (without limitation) the affiliate relationships of the Company and its officers and directors. (See “Risk Factors” p. 26, “Sources of Income to the Company” and “Conflicts of Interest” below.) Prospective Investors should understand and consider that material income tax risks exist associated with investing in the Notes. (See “Income Tax Considerations” below.)
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
THE SECURITIES OFFERED HEREUNDER ARE EXEMPT FROM REGISTRATION. THIS OFFERING CIRCULAR CONTAINS INFORMATION AND DISCLOSURES IN ACCORDANCE TO THE FORMAT SET FORTH IN SEC FORM S-11.
THIS INVESTMENT INVOLVES A DEGREE OF RISK THAT MAY NOT BE SUITABLE FOR ALL INVESTORS. ONLY THOSE INVESTORS WHO CAN BEAR THE LOSS OF A SIGNIFICANT PORTION OF THEIR INVESTMENT SHOULD PARTICIPATE IN THE INVESTMENT. (SEE “RISK FACTORS” BELOW.)
AN OFFERING CIRCULAR PURSUANT TO THE REQUIREMENTS OF REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING CIRCULAR FILED WITH THE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF ANY SUCH STATE. WE ELECT TO SATISFY OUR OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING INVESTORS A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF OUR SALE TO YOU THAT CONTAINS THE URL WHERE THE FINAL OFFERING CIRCULAR OR THE OFFERING CIRCULAR IN WHICH SUCH FINAL OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.
GENERALLY, NO SALE MAY BE MADE TO INVESTORS IF THE AGGREGATE PURCHASE PRICE BY INVESTORS EXCEEDS $20,000,000 IN A TWELVE-MONTH PERIOD, PURSUANT TO THE TERMS OF RULE 251 OF REGULATION A TIER 1 SET FORTH UNDER THE SECURITIES ACT OF 1933 (THE “ACT”).
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THAT INFORMATION AND THOSE REPRESENTATIONS SPECIFICALLY CONTAINED IN THIS OFFERING CIRCULAR; ANY OTHER INFORMATION OR REPRESENTATIONS SHOULD NOT BE RELIED UPON. ANY PROSPECTIVE PURCHASER OF THE NOTES WHO RECEIVES ANY OTHER INFORMATION OR REPRESENTATIONS SHOULD CONTACT THE COMPANY IMMEDIATELY TO DETERMINE THE ACCURACY OF SUCH INFORMATION AND REPRESENTATIONS. NEITHER THE DELIVERY OF THIS OFFERING CIRCULAR NOR ANY SALES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR IN THE INFORMATION SET FORTH HEREIN SINCE THE DATE OF THIS OFFERING CIRCULAR SET FORTH ABOVE.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
PROSPECTIVE PURCHASERS SHOULD NOT REGARD THE CONTENTS OF THIS OFFERING CIRCULAR OR ANY OTHER COMMUNICATION FROM THE COMPANY AS A SUBSTITUTE FOR CAREFUL AND INDEPENDENT TAX AND FINANCIAL PLANNING. EACH POTENTIAL INVESTOR IS ENCOURAGED TO CONSULT WITH HIS, HER OR ITS OWN INDEPENDENT LEGAL COUNSEL, ACCOUNTANT AND OTHER PROFESSIONALS WITH RESPECT TO THE LEGAL AND TAX ASPECTS OF THIS INVESTMENT AND WITH SPECIFIC REFERENCE TO HIS, HER OR ITS OWN TAX SITUATION, PRIOR TO SUBSCRIBING FOR THE NOTES. THE PURCHASE OF NOTES BY AN INDIVIDUAL RETIREMENT ACCOUNT, KEOGH PLAN OR OTHER QUALIFIED RETIREMENT PLAN INVOLVES SPECIAL TAX RISKS AND OTHER CONSIDERATIONS THAT SHOULD BE CAREFULLY CONSIDERED. INCOME EARNED BY QUALIFIED PLANS AS A RESULT OF AN INVESTMENT IN THE COMPANY MAY BE SUBJECT TO FEDERAL INCOME TAXES, EVEN THOUGH SUCH PLANS ARE OTHERWISE TAX EXEMPT. (SEE “INCOME TAX CONSIDERATIONS” AND “ERISA CONSIDERATIONS.”)
THE INFORMATION CONTAINED IN THIS OFFERING CIRCULAR HAS BEEN SUPPLIED BY THE COMPANY. THIS OFFERING CIRCULAR CONTAINS SUMMARIES OF DOCUMENTS NOT CONTAINED IN THIS OFFERING CIRCULAR, BUT ALL SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCES TO THE ACTUAL DOCUMENTS. COPIES OF DOCUMENTS REFERRED TO IN THIS OFFERING CIRCULAR, BUT NOT INCLUDED AS AN EXHIBIT, WILL BE MADE AVAILABLE TO QUALIFIED PROSPECTIVE INVESTORS UPON REQUEST.
RULE 251(D)(3)(I)(F) DISCLOSURE. RULE 251(D)(3)(I)((F) PERMITS REGULATION A OFFERINGS TO CONDUCT ONGOING CONTINUOUS OFFERINGS OF SECURITIES FOR MORE THAN THIRTY (30) DAYS AFTER THE QUALIFICATION DATE IF: (1) THE OFFERING WILL COMMENCE WITHIN TWO (2) DAYS AFTER THE QUALIFICATION DATE; (2) THE OFFERING WILL BE MADE ON A CONTINUOUS AND ONGOING BASIS FOR A PERIOD THAT MAY BE IN EXCESS OF THIRTY (30) DAYS OF THE INITIAL QUALIFICATION DATE; (3) THE OFFERING WILL BE IN AN AMOUNT THAT, AT THE TIME THE OFFERING CIRCULAR IS QUALIFIED, IS REASONABLY EXPECTED TO BE OFFERED AND SOLD WITHIN TWO (2) YEARS FROM THE INITIAL QUALIFICATION DATE; AND (4) THE SECURITIES MAY BE OFFERED AND SOLD ONLY IF NOT MORE THAN THREE (3) YEARS HAVE ELAPSED SINCE THE INITIAL QUALIFICATION DATE OF THE OFFERING, UNLESS A NEW OFFERING CIRCULAR IS SUBMITTED AND FILED BY THE COMPANY PURSUANT TO RULE 251(D)(3)(I)((F) WITH THE SEC COVERING THE REMAINING SECURITIES OFFERED UNDER THE PREVIOUS OFFERING; THEN THE SECURITIES MAY CONTINUE TO BE OFFERED AND SOLD UNTIL THE EARLIER OF THE QUALIFICATION DATE OF THE NEW OFFERING CIRCULAR OR THE ONE HUNDRED EIGHTY (180) CALENDAR DAYS AFTER THE THIRD ANNIVERSARY OF THE INITIAL QUALIFICATION DATE OF THE PRIOR OFFERING CIRCULAR.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
THE COMPANY INTENDS TO OFFER THE NOTES DESCRIBED HEREIN ON A CONTINUOUS AND ONGOING BASIS PURSUANT TO RULE 251(D)(3)(I)(F). PURSUANT TO RULE 251(D)(3)(I)(F), THE COMPANY INTENDS TO COMMENCE THE OFFERING IMMEDIATELY AND NO LATER THAN TWO (2) DAYS FROM THE INITIAL QUALIFICATION DATE. THE COMPANY REASONABLY EXPECTS TO OFFER AND SELL THE SECURITIES STATED IN THIS OFFERING CIRCULAR WITHIN TWO (2) YEARS FROM THE INITIAL QUALIFICATION DATE. ANY REMAINING SECURITIES THAT ARE NOT SOLD IN THIS OFFERING SHALL BE INCORPORATED INTO A FUTURE OFFERING CIRCULAR AFTER TWO (2) YEARS FROM THE INITIAL QUALIFICATION DATE TO “INCLUDE AS PART OF SUCH NEW OFFERING CIRCULAR ANY UNSOLD SECURITIES COVERED BY THE EARLIER OFFERING CIRCULAR BY IDENTIFYING ON THE COVER PAGE OF THE NEW OFFERING CIRCULAR OF THE LATEST AMENDMENT, THE AMOUNT OF SUCH UNSOLD SECURITIES BEING INCLUDED.”
| Price to Public | Underwriting discount and comissions1 | Proceeds to Issuer | Proceeds to Other Persons2 | |||||||||||
| Minimum Investment | $ | 50,000 | Not Applicable | $ | 46,000 | $ | 4,000 | |||||||
| Minimum Offering Amount | $ | 200,000 | Not Applicable | $ | 184,000 | $ | 16,000 | |||||||
| Maximum Offering Amount2 | $ | 20,000,000 | Not Applicable | $ | 18,400,000 | $ | 1,600,000 | |||||||
1. The Company will not use an underwriter for the sale of the Notes.
2. Notes will be offered and sold directly by the Company and its directors, officers and employees. No commissions for selling Notes will be paid to the Company or its directors, officers or employees. The Company may also sell Notes through the services of independent broker/dealers who are members of the Financial Industry Regulatory Authority (“FINRA”) and who will be entitled to receive commissions of up to eight percent (8%) of the gross proceeds received for the sale of Notes. These commissions will be paid by the Company, but such payments will reduce the Company’s working capital.
3. The Maximum Offering Amount for the Company is $20,000,000. The Company may increase the Maximum Offering Amount at its sole and absolute discretion, subject to approval by the SEC.
FOR RESIDENTS OF ALL STATES. THE PRESENCE OF A LEGEND FOR ANY GIVEN STATE REFLECTS ONLY THAT A LEGEND MAY BE REQUIRED BY THAT STATE AND SHOULD NOT BE CONSTRUED TO MEAN AN OFFER OR SALE MAY BE MADE IN ANY PARTICULAR STATE. THIS OFFERING CIRCULAR MAY BE SUPPLEMENTED BY ADDITIONAL STATE LEGENDS. IF YOU ARE UNCERTAIN AS TO WHETHER OR NOT OFFERS OR SALES MAY BE LAWFULLY MADE IN ANY GIVEN STATE, YOU ARE ADVISED TO CONTACT THE COMPANY FOR A CURRENT LIST OF STATES IN WHICH OFFERS OR SALES MAY BE LAWFULLY MADE. AN INVESTMENT IN THIS OFFERING IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF FINANCIAL RISK. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER ALL OF THE RISK FACTORS DESCRIBED BELOW.
FOR RESIDENTS IN PENNSYLVANIA. IF YOU HAVE ACCEPTED AN OFFER TO PURCHASE THESE SECURITIES AND HAVE RECEIVED A WRITTEN NOTICE EXPLAINING YOUR RIGHT TO WITHDRAW YOUR ACCEPTANCE PURSUANT TO SECTION 207(M)(1) OF THE PENNSYLVANIA SECURITIES ACT OF 1972, YOU MAY ELECT, WITHIN TWO BUSINESS DAYS FROM THE DATE OF RECEIPT BY THE ISSUER OF YOUR BINDING CONTRACT OF PURCHASE OR, IN THE CASE OF A TRANSACTION IN WHICH THERE IS NO BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER YOU MAKE THE INITIAL PAYMENT FOR SECURITIES BEING OFFERED, TO WITHDRAW YOUR ACCEPTANCE AND RECEIVED FULL REFUND OF ALL MONIES PAID BY YOU. YOUR WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, YOU NEED ONLY SEND A WRITTEN NOTICE (INCLUDING A NOTICE BY FACSIMILE OR ELECTRONIC MAIL) TO THE ISSUER (OR PLACEMENT AGENT IF ONE IS LISTED ON THE FRONT PAGE OF THE OFFERING CIRCULAR) INDICATING YOUR INTENTION TO WITHDRAW.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
TABLE OF CONTENTS
EXHIBITS
| EXHIBIT A | ARTICLES OF ORGANIZATION * |
| EXHIBIT B | OPERATING AGREEMENT* |
| EXHIBIT C | SUBSCRIPTION AGREEMENT |
| EXHIBIT D | CONSENT OF SPIEGEL ACCOUNTANCY CORPORATION* |
| EXHIBIT E | OPINION OF COUNSEL RE: LEGALITY* |
| EXHIBIT F | FORM OF PROMISSORY NOTE |
| EXHIBIT G | ESCROW AGREEMENT* |
| * | Previously filed |
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
The following information is only a brief summary of, and is qualified in its entirety by, the detailed information appearing elsewhere in this Offering Circular. This Offering Circular, together with the exhibits attached including, but not limited to, the Articles of Organization and operating agreement of the Company (respectively, the “Articles” and the “Operating Agreement”), copies of which are attached hereto as Exhibit A and Exhibit B, should be carefully read in their entirety before any investment decision is made. If there is a conflict between the terms contained in this Offering Circular and the Articles or Operating Agreement, the Articles and Operating Agreement shall prevail and no Investor should rely on any reference herein to the Articles or Operating Agreement without consulting the actual underlying documents.
| The Company |
CF Fund II, LLC is a newly formed Pennsylvania limited liability company. The Company is hereby offering by means of this Offering Circular debt securities memorialized by promissory notes (“Notes” or “Promissory Notes”) on an as needed basis to qualified investors. (See Exhibit F).
The Company is a wholly owned subsidiary of Conquest Funding, Inc., a Pennsylvania corporation. CFI will evaluate and negotiate with Investors in connection with this Offering. CFI will also manage the business operations of the Company, including its lending activities and investments in properties. (See “Description of the Business of CF Fund II, LLC” below). | |
| Conquest Funding, Inc. (the Parent Company). | Conquest Funding, Inc. has been in operations since November 25, 2009, and is the sole owner of the Company. Prior to managing the Company, CFI was a private lending company, lending primarily in Pennsylvania. Currently, CFI intends to manage the business operations of the Company, including this Offering. The Fund intends to fund, make, acquire and/or purchase Loans originated by CFI. Meaning, CFI will conduct the underwriting and approval of all Loans. The Company intends to lend to third-party borrowers, as further discussed below. (See “Property Acquisition Standards and Policies”.) CFI will also select properties for the Company to invest in. (See “Management” below.) | |
| Our Business |
The Company intends to primarily fund, make, acquire, and/or purchase Loans originated by CFI. Meaning, CFI will select which Loans the Company will invest in, and conduct the underwriting and approval of all Loans. All Loans will be secured by real property and/or personal property located across the United States with a primary focus in Pennsylvania, Maryland and New Jersey. The Company also intends to secondarily fund, finance, acquire, purchase, develop, remodel and/or sell real property located across the United States, with a focus in Pennsylvania, Maryland and New Jersey.
The Company intends to invest most of the Offering proceeds (60% or more) in Loans and the remaining (0-40%) in properties. Notwithstanding the foregoing, these percentages may vary depending on the opportunities presented to the Company and varying market conditions. |
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
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The Company intends to make loans to third party borrowers under the lending guidelines established below. (See “Lending Standards and Guidelines” below.) The majority of the Company’s business will be focused in making and funding Loans. All Loans will be owned by the Company and all income from the Loans and investments in properties shall be distributed into the Company, less applicable fees to CFI. (See “Sources of Income to the Company” below.) CFI may, at its discretion, serve as the loan servicer for the Loans. (See “Lending Standards And Policies” below).
CFI will pay all expenses related to the operations of the Company other than interest expenses due to Noteholders. CFI may charge certain fees and expenses as it pertains to Loan servicing, underwriting the Loans, and origination. These fees will be paid by the borrowers on the Loans. (See “Lending Standards and Policies” below). | ||
| The Offering |
In this Offering, the Company is offering Notes to qualified Investors at terms set forth below. Generally, Investors will be entitled to interest payments for the term of the Note, and a balloon payment at maturity. The term of the Notes and the interest rates paid to Investors will vary depending on the amount and term of the Note (see “The Offering” below).
The Notes will be subject to an automatic extension and renewal option electable at the sole and absolute discretion of the Company. Investors who wish to elect to avoid automatic renewal and withdraw their investment from the Note must notify the Company in writing, via certified mail, sixty (60) days prior to the Maturity Date. However, CFI will provide a courtesy notice to each Noteholder ninety (90) days prior to the Maturity Date of the Note in order to remind the Noteholder of the forthcoming Maturity Date and option to withdraw from automatic extension or renewal of the Note (as further described below). (See “Terms of the Offering”.) Notwithstanding the foregoing, after receiving such courtesy notice the Noteholder must nonetheless notify CFI in writing at least sixty (60) days prior to the Maturity Date of the election to withdraw from the automatic extension and renewal of the Note.
The LLC will primarily use the proceeds from the Notes to finance, fund, and/or make Loans secured by real property and/or personal property throughout the United States with a primary focus in Pennsylvania, Maryland and New Jersey. The LLC may also secondarily use proceeds from the Notes to acquire, develop, repair, remodel, rent and/or sell real property located throughout the United States with a focus in Pennsylvania, Maryland and New Jersey. The Company intends to invest most of the Offering proceeds (60% or more) in Loans and the remaining (0-40%) in properties.
For these reasons, the LLC anticipates that it will borrow money from Investors and issue Notes on an as needed basis. |
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
| Suitability Standards | Notes are offered exclusively to certain individuals, Keogh plans, individual retirement accounts and other qualified investors who meet certain minimum standards of income and/or net worth. Each Investor must execute a Subscription Agreement making certain representations and warranties to the Company, including such Investor’s ability to meet certain financial suitability requirements. | |
| Offering of Debt | Subject to certain restrictions set forth under Regulation A, the Maximum Offering Amount shall be a maximum of Twenty Million Dollars ($20,000,000). (See “The Offering” below.) | |
| Selling Commissions | Notes will be offered and sold directly by the Company and its directors, officers and employees. No commissions for selling Notes will be paid to the Company or its directors, officers or employees. The Company may also sell Notes through the services of independent broker/dealers who are members of the Financial Industry Regulatory Authority (“FINRA”) and who will be entitled to receive commissions of up to eight percent (8%) of the gross proceeds received for the sale of Notes. These commissions will be paid by the Company, but such payments will reduce the Company’s working capital. | |
| Minimum Offering Amount |
The minimum offering amount is two hundred thousand dollars ($200,000) (the “Minimum Offering Amount”). The Company will not begin making investments in Loans and/or properties until the Minimum Offering Amount is raised, provided that the Minimum Offering Amount is raised within Three (3) months from the commencement date of this Offering.
In the event the Minimum Offering Amount is not raised within Three (3) months from the commencement of this Offering, all Investor funds shall be returned to the Investor, including interest earned while the funds were held in escrow. | |
| Escrow Account |
All Investor capital contributions received prior to the Minimum Offering Amount will be deposited with Happy State Bank, d/b/a GoldStar Trust Company, a Texas banking association (the “Escrow Agent”) in an interest-bearing escrow account (the “Escrow Account”) until the Minimum Offering Amount is raised in the Offering. Any funds held in escrow will be disbursed in accordance to the Escrow Agreement. (See Exhibit G – Escrow Agreement). When the Company has raised the Minimum Offering Amount, all capital contributions will be disbursed to the bank account of the Company as further discussed below. (See “General Terms of the Notes and Offering” below.)
All capital contributions received from Investors after the Minimum Offering Amount has been raised will be deposited into the Company’s main operating bank account and will not be deposited into the Escrow Account, as further discussed below. An Investor shall become a Noteholder when the escrowed proceeds are released into the Company’s main operating account. Interest on the Note will accrue from the date the Investor proceeds have been deposited into the Company’s main operating account and the Investor is admitted as a Noteholder. |
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
| The Escrow Agent is appointed to act as escrow agent only for the limited purposes set forth in the Escrow Agreement and until the Minimum Offering Amount has been raised (see Exhibit G – Escrow Agreement); the Escrow Agent has not investigated the desirability or advisability of investment in the Notes nor approved, endorsed or passed upon the merits of purchasing the Notes. | ||
| Prior Experience | The officers and directors of the Company have extensive prior experience in the real estate and mortgage industry. (See “Key Personnel” below.) | |
| Prepayment of Note | The Company may prepay all or a portion of any Note before the Maturity Date of the Note in the Company’s sole and absolute discretion. The Company will not incur any penalties for prepaying any Note at any time. | |
| Debt Obligations | The Notes represent debt obligations of the Company, and as such, would entail risks and benefits for the Investors that are customary for creditors, including (without limitation) risk of default and/or non-payment by the borrower (the Company). (See Exhibit F, Form of Promissory Note.) | |
| No Liquidity | There is no public market for the Notes and none is expected to develop in the future. Additionally, there are substantial restrictions on any transferability of Notes. (See “Investment Risks – There is Limited Transferability of Notes and No Public Market for the Notes.” below.) Investors should not make a loan to the Company unless the Investor is able wait until the applicable Maturity Date for a return of the Investor’s money. | |
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Loan Loss Reserve
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CFI intends to retain some portion of the profit in the fund to create a loss reserve (the “Loan Loss Reserve”) to sustain the Company in the event the Company suffers a loss due to one or more Loan defaults and it was unable to fully recover all the principal of the Loan. The exact amount will be determined by CFI from time to time based on the profitability of the Company and on a case by case basis (meaning Loan by Loan). Since the Company’s Loans are collateral based loans and not credit based, ultimately the collateral serves as ultimate security for the Loan and should a borrower begin to show signs of inability to repay the Loan, the collateral provided for said loan will be evaluated for value and ultimate impairment in order to determine the need of a Loan Loss Reserve. The excess profits of the Company will flow to the Parent Company. This is not a true expense as it is not actually paid out, but will be considered a bookkeeping entry to retain part of the profits increasing the equity of the fund. | |
| Leverage |
The Company may borrow funds from financiers, other lenders, or banks for the purpose of funding the Company’s investments in Loans and properties. In order to obtain such additional capital, the Company may assign part or its entire asset portfolio to the lender or investor. Such a transaction involves certain elements of risk and also entails possible adverse tax consequence as detailed later in this Memorandum. (See “Risk Factors – Business Risks, Risks of leveraging the Company’s asset portfolio include assigning a portion of or the entire Company’s asset portfolio as security for obtaining additional capital.”, “Income Tax Considerations”, and “ERISA Considerations” below.)
In addition, any debt incurred by the Company will be senior in payment to Noteholders. (See “Lending Standards and Policies”, “Property Acquisition Guidelines and Policies”, “Risk Factors – Business Risks, Risks of leveraging the Company’s asset portfolio include assigning a portion of or the entire Company’s asset portfolio as security for obtaining additional capital.”, “Income Tax Considerations”, and “ERISA Considerations” below.) |
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Investors should not rely on forward-looking statements because they are inherently uncertain. Investors should not rely on forward-looking statements in this Offering Circular. This Offering Circular contains forward-looking statements that involve risks and uncertainties. We use words such as “anticipated,” “projected”, “forecasted”, “estimated”, “prospective”, “believes,” “expects,” ”plans” “future” “intends,”, “should,” “can”, “could”, “might”, “potential,” “continue,” “may,” “will,” and similar expressions to identify these forward-looking statements. Investors should not place undue reliance on these forward-looking statements, which may apply only as of the date of this Offering Circular.
The Offering and sale of the Notes will be made to Investors through general solicitation, direct solicitation, and marketing efforts. The Company will not utilize an underwriter for the sale of the Notes. The Company may also sell the Notes through the services of an independent broker – dealers who are members of the Financial Industry Regulatory Authority (“FINRA”). FINRA member broker-dealers may be entitled to commissions of up to eight percent (8%) received for the sale of the Notes. These commissions will be paid by the Company, but such payments will reduce the Company’s working capital. The Notes will be offered on an on-going basis and on an as-needed basis based on the demand of Loans and/or opportunities to purchase real property. The Minimum Offering Amount is two hundred thousand dollars ($200,000) and the Maximum Offering Amount is Twenty Million Dollars ($20,000,000). The Company may, at its sole and absolute discretion increase the Maximum Offering Amount, subject to approval of a post-qualification amendment to the LLC’s Form 1-A application. The LLC will only offer and sell Notes as needed for purposes set forth in “Operational Plan” below.
The Company intends to use the Offering proceeds to primarily (i) fund, make, acquire and/or purchase Loans; and/or (ii) fund, finance, acquire, purchase, develop, repair, remodel, rent and/or sell real property. The Company intends to use all of the Offering proceeds, subject to footnote 2 below, to fund the Loans and/or properties, as further described above. The Company will not use the proceeds of the Offering of the Notes for any other purpose other than to fund Loans and acquisitions of properties, except as stated in Footnote 2 in the Use of Proceeds table below. See "Lending Standards and Policies" for a more detailed discussion of the types of loans the Company will make, acquire, and/or purchase and “Property Acquisition Guidelines and Policies” the types of properties it may acquire.
The proceeds from this Offering will not be used to compensate or otherwise make payments to officers, directors or shareholders of the Company. All income earned by the Company and its Parent Company will be sourced from business conducted per the Operational Plan set forth below.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
| Net Proceeds to be Raised Available for Investments1 | Sales Commissions2 | Deployable Proceeds | Estimated Expenses3 | |||||||||||||
| Minimum Offering Amount | $ | 200,000 | $ | 16,000 | $ | 184,000 | N/A | |||||||||
| Midpoint Offering Amount | $ | 10,000,000 | $ | 800,000 | $ | 9,200,000 | N/A | |||||||||
| Maximum Offering Amount | $ | 20,000,000 | $ | 1,600,000 | $ | 18,400,000 | N/A | |||||||||
| Percentage of Net Proceeds | 100 | % | 8 | % | 92 | % | N/A | |||||||||
1. Investments refers to the Company’s investments in Loans and properties. The Company intends to invest most of the Offering proceeds (60% or more) in Loans and the remaining (0-40%) in properties. Notwithstanding the foregoing, these percentages may vary depending on the opportunities presented to the Company and varying market conditions.
2. Notes will be offered and sold directly by the Company and its directors, officers and employees. No commissions for selling Notes will be paid to the Company or its directors, officers or employees. The Company may also sell Notes through the services of independent broker/dealers who are members of the Financial Industry Regulatory Authority (“FINRA”) and who will be entitled to receive commissions of up to eight percent (8%) of the gross proceeds received for the sale of Notes. These commissions will be paid by the Company, but such payments will reduce the Company’s working capital.
3. The Company will not use the proceeds of this Offering for any purpose other than to fund Loans and/or properties, except and to the extent that is necessary as stated in footnote 2 of this table. All other expenses, including administrative expenses, office supplies, and/or accounting costs, will be paid by the Company (through the Company’s income from investments in Loans and/or properties) or CFI. Investors/Noteholders will not be responsible to bear any of the business/operating expenses of the Company.
The foregoing represents our best estimate of the allocation of the proceeds of this Offering based on planned use of funds for the Company’s operations and current objectives. The Company will not raise funds from other sources to finance its investments. Notwithstanding the foregoing, the Company may borrow money from financiers, other lenders, or banks to fund its investments, who are not identified at this moment as the Company does not have any agreements with any financers, lender, or banks to borrow money from.
GENERAL TERMS OF THE NOTES AND OFFERING
This Offering involves the offering and sale of up to four hundred (400) Notes in which the Investor will be an unsecured creditor of the Company. The brief summary of the features of the Notes provided below is qualified in its entirety by the terms and provisions of the actual Notes. In the event of any conflict between the short summary presented below and the actual terms and provisions of the Notes, the latter shall govern. PROSPECTIVE INVESTORS SHOULD CAREFULLY READ THE TERMS AND PROVISIONS OF THE PROMISSORY NOTES IN THEIR ENTIRETY AND EXPRESS WAIVES ANY CAUSE OF ACTION OR CLAIM ASSERTING THAT HE, SHE OR IT RELIED ON THE SUMMARY OF THE NOTE BELOW IN LIEU OF, OR IN CONTRAINDICATION TO, THE TERMS AND PROVISIONS OF THE ACTUAL NOTE.
1. Interest. The Company intends to borrow money from Investors at a fixed Interest Rate (as defined below) per annum in each year through the Maturity Date. Investors who acquire Notes from the Company shall be referred to as “Noteholders”. Generally, Noteholders will be entitled to interest payments for the term of the Notes, and a balloon payment at maturity. Investors will have the option to elect to allow interest payments to accrue until the Note matures or is repaid. The term of the Notes and the interest rates paid to Investors will vary depending on the amount and term of the Notes. Investors will have the option to accrue interest over the life of the Note and receive a lump sum payment at maturity or receive regular interest payments. Interest payments on the Notes will begin thirty (30) days from the effective date of the Note and shall remain payable on a monthly basis, in arrears.
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Notwithstanding the foregoing, at the Noteholder’s sole election, the Noteholder may elect to allow interest payments to accrue until the Note matures or is repaid by providing at least forty-five (45) days’ notice in writing to the Company prior to any interest payment date.
2. Note Term. All Notes will have a continuous and unlimited option to renew and extend the Note at the Maturity Date for another term equivalent to the original term of the Note, exercisable at the sole and absolute discretion of CFI. In the event CFI elects to extend and renew a Note, the original terms of the Note shall govern, including the interest rate. Noteholders that seek to withdraw their investment and avoid automatic extension and renewal of the Note must notify CFI in writing, via certified mail, sixty (60) days prior to the Maturity Date of the Note. CFI will provide a courtesy notice to each Noteholder ninety (90) days prior to the Maturity Date of the Note in order to remind the Noteholder of the forthcoming Maturity Date and option to withdraw from automatic extension or renewal of the Note (as further described above). Notwithstanding the foregoing, after receiving such courtesy notice the Noteholder must nonetheless notify CFI in writing sixty (60) days prior to the Maturity Date of the election to withdraw from the automatic extension and renewal of the Note.
3. Interest Rate and Maturity Date. The interest rate and the term of each Note shall be determined by the Company. Such election is irrevocable and shall apply through the Maturity Date of the Note. These Notes will generally have the features described below.
| Term in months | ||||||||||||||||
| Amount | 6 | 12 | 24 | 36 | ||||||||||||
| $50,000 - $99,999 | 5.0 | % | 6.0 | % | 7.0 | % | 8.0 | % | ||||||||
| $100,000- $299,999 | 5.5 | % | 6.5 | % | 7.5 | % | 8.5 | % | ||||||||
| $300,000- $499,999 | 6.0 | % | 7.0 | % | 8.0 | % | 9.0 | % | ||||||||
| $500,000- $999,999 | 6.5 | % | 7.5 | % | 8.5 | % | 9.5 | % | ||||||||
| $1,000,000 and higher | n/a | 8.0 | % | 9.0 | % | 10.0 | % | |||||||||
The interest rates displayed above are per annum interest rates. The foregoing is a general intended structure for the Notes. While the interest rate and term of each note will be determined by the Company, the interest rates on the Notes will be no less than five percent (5%) and no greater than ten percent (10%). In addition, the term of the Notes will be between six (6) to thirty-six (36) months, subject to the Company’s right to extend and renew the Note or prepay the Note.
Investment in Notes will be subject to CFI’s approval. CFI, in its sole and absolute discretion, may reject, postpone an Investor’s subscription, for any reason. Further, CFI and/or the Company may, at its sole and absolute discretion, accept or require a lesser or greater Minimum Investment Amount. Attached in Exhibit F is a form version of the Promissory Note. (Please refer to the attached Exhibit F, Promissory Note).
4. Prepayment Ability. The Company may (in its sole and absolute discretion) prepay the Notes early at any time for any reason (or no reason) without any prepayment premium or penalty.
5. Payments. Investors will receive monthly payments from the Company as set forth in greater detail in the Note. The Company shall make these monthly payments as interest-only and shall not be required to make any payment of the principal balance until the Maturity Date. Payments shall be made thirty (30) calendar days from the effective date of the Note and shall continue on a monthly basis, in arrears.
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6. Delinquency and Default. As further described in detail in the Note, the Company may be responsible for certain late charges in the event of making delinquent interest payments to Noteholders. In addition, as provided in the Note, certain events of default (that remain uncured) may cause the Note to become accelerated and immediately due and payable to the Noteholder.
7. Financial Information. Within one hundred and twenty (120) days following the end of each fiscal year of the Company (subsequent to the date of the Notes and prior to the Maturity Date), the Company will deliver a copy of its annual financial statements to the Noteholder in the method selected by the Noteholder in the Subscription Agreement and Promissory Note.
8. Dilution. Because this Offering is offering to borrow money from Investors in exchange for Notes, the Company is offering debt securities. Each Note is separate and unique, and is not subject to dilution of the Investors’ percentage ownership in the securities offered.
9. Determination of Note Price. The Notes represent debt obligations of the Company and the offered price per Note is not uniform. The Company will be able to borrow money from Investors at varying amounts, with varying terms and interest rates as set forth above. The varying rates and terms set forth above have been determined arbitrarily by CFI. The amounts of Note investments from Investors may be tied to the Loans and/or properties in which the Company intends to invest. Neither the Company nor CFI represent that the Notes have or will have a market value equal to their principal value or could be resold (if at all) at their original investment amount. The Company’s ability to repay the Notes is subject to the cash availability of the Company, which may be limited as the Company’s resources may be committed to pending loans or invested in existing loans or properties on an ongoing basis.
10. Early Withdrawal. As described in greater detail in the Note, a Noteholder may request an early withdrawal of the original principal balance of his, her or its Note. The Noteholder must notify the Company of its intent for early withdrawal in writing no later than ninety (90) days prior to the intended withdrawal date. The Company may fulfill an early withdrawal request at its sole and absolute discretion and has no commitment (implied or express) to complete a request for early withdrawal. The Company may charge a penalty fee of six percent (6%) of the amount withdrawn (including principal and any interest accrued) and a one hundred-dollar ($100) processing fee if the Company elects to process any early withdrawal request (in whole or in part). For purposes of illustration only, if an Investor makes an early withdrawal request of one hundred thousand dollars ($100,000), then the early withdrawal penalty will be calculated as follows: $100,000 x (.06) = $6,000. Thereafter, the $100,000 amount will be reduced by the $6,000 penalty fee along with the $100 processing fee and the Investor will receive $93,900.
THE COMPANY HAS NO DUTY WHATSOEVER TO HONOR ANY REQUEST FOR AN EARLY WITHDRAWAL OF FUNDS AND THERE IS ABSOLUTELY NO GUARANTEE THAT ANY EARLY WITHDRAWAL REQUEST WILL BE FULFILLED OR COMPLETED AT ANY TIME. ANY FUNDS LOANED TO THE COMPANY ARE NOT READILY AVAILABLE OR FREELY LIQUID. NO INVESTOR HAS ANY GUARANTEE OR RIGHT TO DEMAND THE RETURN OF ANY PORTION OF HIS, HER OR ITS PRINCIPAL BALANCE UNDER THIS NOTE PRIOR TO THE MATURITY DATE.
11. Determination of the Minimum Investment Amount. Due to the nature of the investment, there is no fixed offering price. The minimum investment amount is $50,000 (the “Minimum Investment Amount”). CFI, may, at its sole and absolute discretion, accept or require a lesser or greater Minimum Investment Amount. The Minimum Investment Amount has been arbitrarily determined by the Company and CFI and does not bear any relationship to the assets that have been or are to be acquired by the Company or any other established criteria or indicia for valuing a business. Notwithstanding the foregoing, the Company will generally issue Notes based on the amounts needed to invest in real property, or make loans secured by real property and/or personal property. Neither the Company nor CFI represents that the Notes have or will have a market value equal to their Investment Amount or could be resold (if at all) at their original Investment Amount.
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12. How to Subscribe. To subscribe with the Company and purchase any Notes, a prospective investor must meet certain eligibility and suitability standards, some of which are set forth below. Additionally, a prospective investor must execute and deliver a Subscription Agreement attached hereto, together with payment in the amount of the purchase price payable to the Company. By executing the Subscription Agreement and Investor Questionnaire, an investor makes certain representations and warranties upon which the Company will rely in accepting subscriptions. CAREFULLY READ AND COMPLETE THE SUBSCRIPTION AGREEMENT AND INVESTOR QUESTIONNAIRE.
13. Subscription Agreements. Subscription Agreements from prospective Investors will be accepted or rejected by the Company within ninety (90) days after their receipt. The Company reserves the sole and absolute right to reject any subscription tendered for any reason or no reason, or to accept it in part only. (See “Use of Proceeds” below.) Subscription Agreements are non-cancelable and irrevocable by the Investor and subscription funds are non-refundable for any reason, except with the express written consent of the Company or as expressly set forth herein or in the Subscription Agreement. If accepted by the Company, an Investor shall become a Noteholder only when the Company deposits the Investor’s contribution into the Company’s main operating bank account. Investors will begin earning interest on their Notes immediately upon admission to the Company as a Noteholder.
Notwithstanding the previous paragraph, should the process from depositing an Investor’s funds into the Company’s bank account and acceptance as a Noteholder take longer than ninety (90) days, the Investor may request in writing to recover his, her or its investment funds. If, upon receipt of such request in writing, the Company has not yet accepted the Investor as a Noteholder, then the Company will return the Investor’s funds to the investor and revoke the Subscription Agreement within ten (10) business days of receipt of such request from the Investor.
14. Escrow Account. All Investor capital contributions received prior to the Minimum Offering Amount will be deposited with the Escrow Agent into an interest-bearing Escrow Account until the Minimum Offering Amount has been raised in the Offering. Any funds held in escrow will be disbursed in accordance to the Escrow Agreement. (See Exhibit G – Escrow Agreement). When the Company has raised the Minimum Offering Amount, all capital contributions will be disbursed to the Company’s main operating bank account. Any capital contributions received from Investors after the Minimum Offering Amount is raised, will be deposited into the bank account of the Company and will not be deposited into the Escrow Account. An Investor shall become a Noteholder when the escrowed proceeds are released into the Company’s main operating account. Interest on the Note will accrue from the date the Investor proceeds have been deposited into the Company’s main operating account and the Investor is admitted as a Noteholder. Thereafter, for those Investors whose proceeds are deposited into the Escrow Account, interest payments on the Note will begin thirty (30) days from the date the escrowed proceeds are deposited into the bank account of the Company and shall remain payable on a monthly basis, in arrears. For Investors admitted after the Minimum Offering Amount is raised, payment on the Notes will begin thirty (30) days from the date the on which the investment proceeds are deposited into the Company’s bank account. Investors will not be entitled to receive any interest that accrued while the proceeds were held in the Escrow Account.
The Company shall have Three (3) months from the commencement date of this Offering to raise the Minimum Offering Amount. If the Minimum Offering Amount is not raised within those Three (3) months, the escrowed proceeds shall be released and returned directly to the Investors by the Escrow Agent, together with any interest earned and without deduction for any expenses related to the Escrow Agent.
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If an Investor decides not to proceed with the purchase of the Note within forty-eight (48) hours of investing in the Company, and provided that the Investor’s capital contribution has been deposited to the Escrow Account by such Investor, then the Investor will have the right to notify the Escrow Agent and CFI in writing of such decision and the Escrow Agent shall return the Investor’s investment. In addition, the Investor will not be entitled to receive any interest that accrued while the Investor’s capital contribution was held in the Escrow Account. (See Exhibit G – Escrow Agreement).
Investors shall not be entitled to receive any interest earned on the proceeds while held in the Escrow Account if the Issuer raises the Minimum Offering Amount and the Escrow Agent releases the proceeds to the Issuer’s bank account, or if the Investor decides not to proceed with the purchase of all or any part of the Securities within forty-eight (48) hours of subscribing for the Securities from the Issuer. (See Exhibit G – Escrow Agreement).
15. Leverage. The Company may borrow funds from financiers, other lenders, or banks for the purpose of funding the Company’s investments in Loans and properties. In order to obtain such additional capital, the Company may assign part or its entire asset portfolio to the lender or investor. Such a transaction involves certain elements of risk and also entails possible adverse tax consequence as detailed later in this Memorandum. In addition, any debt incurred by the Company will be senior in payment to Noteholders. (See “Lending Standards and Policies”, “Property Acquisition Guidelines and Policies”, “Risk Factors – Business Risks, Risks of leveraging the Company’s asset portfolio include assigning a portion of or the entire Company’s asset portfolio as security for obtaining additional capital.”, “Income Tax Considerations”, and “ERISA Considerations” below.)
This investment is appropriate only for Investors who have no need for immediate liquidity in their investments and who have adequate means of providing for their current financial needs, obligations and contingencies, even if such investment results in a total loss. Investment in the Notes involves a high degree of risk and is suitable only for an investor whose business and investment experience, either alone or together with a purchaser representative, renders the investor capable of evaluating each and every risk of the proposed investment. CAREFULLY READ THE ENTIRE “RISK FACTORS” SECTION OF THIS OFFERING CIRCULAR.
Each Investor seeking to acquire Notes will be required to represent that he, she or it is purchasing for his, her or its own account for investment purposes. The Company will sell Notes to a maximum of two thousand (2000) “Accredited Investors” and to no more than five hundred (500) non-accredited public investors. All investors, whether deemed “Accredited” or “non-accredited” must meet one of the standards set forth below (as applicable to each investor) and have such knowledge and experience in financial matters, either alone or together with a purchaser representative, to make them capable of evaluating the merits and risks of such an investment in the Notes being offered.
The Notes will be sold to a maximum of Five Hundred (500) non-accredited public investors who meet ONE the following conditions:
| 1. | A minimum annual gross income of seventy thousand dollars ($70,000) AND a minimum net worth of seventy thousand dollars ($70,000); OR |
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| 2. | A minimum net worth of two hundred and fifty thousand dollars ($250,000), exclusive of automobile, home and home furnishings. |
Non-accredited investors who meet one of the conditions set forth above will be allowed to purchase Notes, subject to the approval by CFI. In addition, an investor whose joint income (with that investor’s spouse) meets one of the conditions set forth above will also be able to purchase Notes, subject to the approval by CFI.
In addition, the Notes will be sold to a maximum of two thousand (2000) “Accredited Investors”. To qualify as an “Accredited Investor” an investor must meet ONE of the following conditions:
1. Any natural person who had an individual income in excess of two hundred thousand Dollars ($200,000) in each of the two most recent years or joint income with that person’s spouse in excess of Three Hundred Thousand Dollars ($300,000) in each of those years and who has a reasonable expectation of reaching the same income level in the current year;
2. Any natural person whose individual net worth or joint net worth, with that person’s spouse, at the time of their purchase exceeds One Million Dollars ($1,000,000) (excluding the value of such person’s primary residence);
3. Any bank as defined in Section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act, whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Securities and Exchange Act of 1934 (the “Exchange Act”); any insurance company as defined in Section 2(13) of the Exchange Act; any investment company registered under the Investment Fund Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; any Small Business Investment Fund (SBIC) licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of Five Million Dollars ($5,000,000.00) or, if a self-directed plan, with investment decisions made solely by persons who are Accredited Investors;
4. Any private business development company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940;
5. Any organization described in Section 501(c)(3)(d) of the Internal Revenue Code of 1986, as amended (the “Code”), corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of Five Million Dollars ($5,000,000);
6. Any director or executive officer, or Fund of the issuer of the securities being sold, or any director, executive officer, or Fund of a Fund of that issuer;
7. Any trust, with total assets in excess of Five Million Dollars ($5,000,000), not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Section 506(B)(b)(2)(ii) of the Code; or
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8. Any entity in which all the equity owners are accredited investors as defined above.
The Company’s business objective, on a continuous and ongoing basis, provided the necessary funding is available, is to primarily (i) make, fund, originate, acquire and/or sell Loans secured by real property and/or personal property located in the United States with a focus in Pennsylvania, Maryland and New Jersey; and secondarily (ii) identify, develop, acquire, remodel, rent, sell, transfer and/or sell properties throughout the United States with a focus in Pennsylvania, Maryland and New Jersey. The Company intends to invest most of the Offering proceeds (60% or more) in Loans and the remaining (0-40%) in properties. Notwithstanding the foregoing, these percentages may vary depending on the opportunities presented to the Company and varying market conditions. To fund and/or finance these objectives, the Company, through this Offering, will be raising capital by selling Notes to Investors. The following chart provides an overview of the Company’s anticipated and projected expenditures for each fiscal year.
| Operating Expenses | $ | 275,571 | ||
| Legal & Accounting Expenses | $ | 30,000 | ||
| General and Administrative Expenses | $ | 84,100 |
As a result of the 2008 economic downturn, the banking industry has been faced with increased pressure from Federal Banking regulators due to regulatory requirements such as the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd Frank”).1 The banking industry has been required to comply with increasing regulatory requirements2 and these increases in regulations has made it difficult for borrowers to obtain loans3. Thus, the Company believes this has created an opportunity to provide alternative sources of commercial financing to borrowers such as businesses, investors and developers.
The Company intends to lend to borrowers who may not qualify for loans from traditional lending sources such as banks, but still provide a lending opportunity to the Company. CFI and the Company believe these borrowers tend to have good underlying collateral asset values and remain reasonable lending prospects. The Company will identify these borrowers based on the borrower’s credit history, verifiable income, and real estate experience.
1 See Rising Regulatory Compliance Costs and Their Impact on the Health of Small Financial Institutions: Hearing Before the Subcomm. on Fin. Institutions & Consumer Credit of the H. Comm. On Fin. Servs., 112th Cong. 51-55 (2012) (testimony of William B. Grant, CEO First United Bank & Trust), http://financialservices.house.gov/uploadedfiles/112-122.pdf.
2 Assessing the Impact of the Dodd-Frank Act Four Years Later: Hearing Before the H. Comm. on Fin. Servs., 113th Cong. 2 (2014) (statement of Rep. Jeb Hensarling, Chairman, H. Comm. on Fin. Servs., stating “Dodd-Frank has been the wrong remedy, adding incomprehensible complexity to incomprehensible complexity”); id. at 4 (statement of Rep. Shelley Moore Capito, Member, H. Comm. on Fin. Servs., stating “I think we now see that this legislation is having detrimental impact on our Main Street business and community lenders and consumers”), https://financialservices.house.gov/uploadedfiles/113-94.pdf.
3 Id. at 8 (statement of Rep. Marlin A. Stutzman, Member, H. Comm. on Fin. Servs. stating “What the lenders in front of us do know is that 4 years of Dodd-Frank have left lending more expensive and loans harder to come by for consumers”).
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As an ongoing Offering, the Fund’s overall strategy is to offer short term investment opportunities to Investors in the form of Notes ranging from six (6) to thirty-six (36) months in length. While the Company will focus on making short-term loans to borrowers, as the real estate environment changes, the Company will react and adapt to new lending opportunities. Presently, the vast majority of the Company’s investments will be in the form of Loans (60% or more of Offering proceeds) and the remaining (0-40%) in properties.
The Company intends to focus its lending services in the following areas: (1) traditional purchase and rehab loans; (2) commercial bridge loans; and (3) owner occupied loans.
Purchase and Rehab Loans
Purchase and rehabilitation loans are a financing option for borrowers who seek to purchase and renovate investment properties. Typically, banks and mortgage companies have occupied the role as primary lender for these loans and provided these loans to borrowers who have met the necessary underwriting standards. With new regulations, such as Dodd Frank, banks have reduced lending to borrowers who have less-than-perfect credit scores but wish to qualify for these loans.4
Private lenders have the opportunity to provide financing for various types of investment and owner-occupied properties.5 The Company intends to make purchase and rehabilitation loans to borrowers who need money to purchase properties in need of renovation and rehabilitation. As provided below, the Company will consider the borrower’s credit history, verifiable income and real estate experience, and intends to lend at a loan-to-value ratio of up to seventy five percent (75%) of the property value. (See “Lending Standards and Policies” below.)
Commercial Bridge Loans
Another opportunity the Company will invest in is providing commercial bridge financing. The Company will seek to provide financing to commercial business owners and larger commercial investor borrowers where the property involved is a commercial property, such as office buildings, light industrial buildings, retail stores, service business locations, mixed use buildings, multi-family units and restaurants. In some cases, the property may need rehabilitation and updating to modern standards to attract higher quality tenants. In other cases, the borrower may not be able to qualify with a traditional bank quickly enough to be able to finance the purchase of a low-priced property from a distressed seller. The Company intends to fund commercial bridge loans in terms ranging from twelve (12) to thirty-six (36) months. (See “Lending Standards and Policies” below.)
Owner Occupied Loans
The Company may also finance owner occupied properties, in the event and to the extent that it does, the Company will obtain the necessary lending licenses in the state(s) requiring such licenses. The Company believes that one of the challenges faced by borrowers today is finding a way to finance a property they want to purchase, rehab and live in. Current bank lending regulations make it difficult for banks to provide this type of financing. With tighter underwriting requirements, many borrowers are not able to obtain a loan to purchase their primary residence or improve their primary residence. Potential reasons may include insufficient time at their job, minor credit issues or other situations that keep them from getting financing. CFI believes these loans would provide balance to the portfolio and may enhance the overall product mix by attracting various types of borrowers resulting in a diverse portfolio.
4 See Yanni Raz, From Foreclosed to Fortunes Hard money lenders can give distressed-property investors a boost, Scotsman Guide (July 2015), http://www.hmlinvestments.com/wp-content/uploads/2015/07/RazCOM0715.pdf.
5 See generally Id.
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Other Investments and Future Opportunities
While the Company’s main focus will be lending, from time to time, other opportunities may arise that are beneficial to the Company. As a prudent strategy and under certain circumstances, the Company may take an equity position in a property it would typically lend against. For purposes of an illustration only, a borrower may not have the experience or financial capacity to execute on the purchase of a property. However, if the property easily meets all of the Company’s requirements for financing, the Company could make the purchase and execute with its resources instead of having the project slip away.
Finally, since this is an ongoing Offering that will continue for many years as the real estate market changes, subject to qualification and approval of the Offering, the Company will seek to provide profitable solutions to varying real estate related financing challenges into the future.
DESCRIPTION OF THE BUSINESS OF CF FUND II, LLC
The Company will use the proceeds of this Offering to finance its investments in Loans and properties. The Company will primarily engage in funding, originating, acquiring, managing or selling Loans secured by either mortgages or deeds of trusts secured by real property or secured by personal property. These loans will include (1) traditional purchase and rehab loans; (2) commercial bridge loans; and (3) owner occupied loans. The Company will also, from time to time, acquire, manage, remodel, develop, repair and/or sell real property. At least part of the Company’s capital invested in acquiring properties will be directed towards purchasing properties at a discount to current (or projected) fair market value and seeking to sell these properties at a higher price, and in some instances, to remodel and lease the property. (See “Property Acquisition Guidelines and Policies” below.) Presently, most of the Company’s investments will be in the form of Loans (60% or more of Offering proceeds) in Loans and the remaining (0-40%) in properties. Notwithstanding the foregoing, these percentages may vary depending on the opportunities presented to the Company and varying market conditions.
CFI plans to use a third-party servicing software called “The Mortgage Office” to manage investors’ information and record keeping. The software will also calculate and make interest payments due to Noteholders. As it pertains to investments in Loans and properties, the Company will rely on CFI to underwrite, process and approve all loans funded by the Company, including assembling and/or obtaining all necessary information required to make a funding decision on any loan request. In addition, it is presently anticipated that all loans will be serviced, including collection of loan payments and other services relating to the loan, by the Company through “The Mortgage Office” servicing software. Although the Company may, at any time, retain a third-party loan servicing company or service the loans in-house. The software will calculate, bill and process Loan payments from borrowers, provide various reporting for monthly and year-end statements, and provide additional areas of support where needed. CFI will also evaluate the suitability of any properties purchased by the Company. All Company properties will be managed by CFI. However, CFI may, at its sole and absolute discretion, engage or partner with third party servicers to manage the acquisition, development, construction, leasing, management and sale of the various properties acquired by the Company.
CFI will be managed by Jeffrey A. Cella and Timothy Messerli. Jeff will be primarily responsible for investor relations and borrower underwriting and loan approval, loan documentation and settlements. Tim’s primary function will be asset protection in the field, making sure the properties fit the Company’s guidelines, the borrower’s rehab estimates are reasonable, and the projects are getting completed in a reasonable time frame. He will also be the onsite inspector for any properties provided as collateral for the Loans. Tim will also coordinate the use of other professional personnel such as architects, engineers, safety inspectors, environmental experts for larger commercial transactions where the Company may need these services.
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The Company will seek to admit new investors on an as needed basis, i.e. when capital is needed to fund the Company’s investments in Loans and/or properties. The Company will seek opportunities to fund deals in Loans and properties by advertising its services as a private lender in the market. Once there are loans to fund and/or properties to invest in, the Company will admit new investors into the Company to finance these transactions. In the event a Loan is paid off early by a borrower, the Company intends to redeploy those proceeds into funding new Loans. If a Loan is paid off early and there are no new Loans or properties the Company can redeploy the capital into within a reasonable time period, the Company may, at its discretion, pay off the Notes earlier than the anticipated Maturity Date in the Note. The Company will do this to reduce its interest expense when necessary, but does not anticipate this happening very often. Accordingly, in the event Notes are paid off early, the Company will select such Notes in the order of maturity date, whereas Notes with the sooner Maturity Date will be paid off first.
Sources of income to the Company will come from the interest and fees charged to borrowers on the Loans, as well as from the resale of any properties acquired by the Company for rehabilitation and/or resale. The Company will charge borrowers a higher interest rate than the rates paid to Noteholders in this Offering. All Loans will be owned by the Company and all income from the Loans and investments in properties shall be distributed into the Company, less applicable fees to CFI.
The Company was formed as a Pennsylvania limited liability company in August 20, 2015. Conquest Funding, Inc., a Pennsylvania corporation, is the Company’s sole member, manager and parent company. CFI is owned by Jeff Cella and Tim Messerli. CFI began originating real estate loans in the United States in 2011. CFI previously had an offering of notes, similar to this Offering, whereby CFI raised capital in order to invest in loans and acquire properties or portfolios of properties. CFI’s previously offering of notes was exempt from registration under Rule 506 of Regulation D of the Act. CFI is in the process of winding down its prior offering and, following qualification of this Offering Circular, intends to gradually discontinue its offering of notes, but will continue to provide Loan underwriting, origination, servicing, and administration services to the Company. CFI intends to close its existing offering of notes when all the previously issued notes mature. CFI will not admit any new investors into its offering.
LENDING STANDARDS AND POLICIES
The Company will use the proceeds from this Offering to primarily engage in the funding, originating, acquiring, managing or selling Loans secured by either mortgages or deeds of trusts secured by real property or secured by personal property located around the United States, with a principal focus in Pennsylvania, Maryland and New Jersey. The value and balance of Loans or properties will not be guaranteed by any governmental agency or private entity, but may be guaranteed by affiliates and associates of the underlying borrowers. The Company intends to invest most of the Offering proceeds (60% or more) in Loans and the remaining (0-40%) in properties. Notwithstanding the foregoing, these percentages may vary depending on the opportunities presented to the Company and varying market conditions.
The Company (or its designated third-party agent or representative) will originate its own investment opportunities for Loans and properties and service and manage any Loans or properties in which it may invest or otherwise participate. CFI will underwrite and process all Loans funded by the Company. Loans will be made to third party borrowers. (See “Property Acquisition Guidelines and Standards” below.)
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Subject to the sole and absolute discretion of CFI, the Company may amend, modify, cancel, or revise any of the following at any time. However, any changes made to the lending standards and policies below will be limited to the following: (1) interest rates paid by borrowers on Loans, if modified on any particular Loan, shall be increased or decreased by two (2) points (+/- 2%) from the interest rates stated in Subsection 7 below; and (2) the Loan-to-Value ratios described in Subsection 5 below, if modified in any particular Loan, shall not exceed a Loan-to Value ratio of eighty percent (80%) at any time. If the Company amends, modifies, cancels or revises the interest rate or Loan-to-Value ratios, such changes will be based on and according to prevailing market rates for the Company to remain competitive in the lending market. The Company will not provide notice of any changes to the interest rate or Loan-to-Value ratios described below. Noteholders will not be able to withdraw their investment in the Notes and will need to adhere to the withdrawal terms of each Note.
CFI generally intends to make Loans according to the following lending standards and policies:
1. Lien Priority. The deeds of trusts and mortgages securing the Loans will be first, junior or subordinated lien positions.
2. Location of Real Property Securing Loans. Deeds of trusts and mortgages will be secured by real property located around the United States, with a primary focus in Pennsylvania, Maryland and New Jersey.
3. Borrowers. The Fund will make Loans to third party borrowers. (See “Property Acquisition Guidelines and Standards” below.) All Loans will be originated by CFI, meaning CFI will underwrite and process all Loans funded by the Company.
4. Type of Property. Investment in Loans may involve underlying assets of real property that will generally consist of residential properties, mixed use properties, and commercial properties. The Loans will involve both non-owner occupied investment properties as well as owner occupied properties.
5. Loan-to-Value Ratio. A Loan by the Company will generally not exceed the Loan-to-Value percentage ratios set forth below. The Loan-to-Value ratio is calculated by taking the amount of the Loan combined with the amount of outstanding debt secured by other liens on the property, dividing that by the value of the real property securing the deed of trust or mortgage and multiplying that figure by 100 to come to a percentage. Although “Value” may be determined primarily through CFI’s internal evaluation and professional opinion (based on readily available market information) of the value of the real property provided as collateral, CFI may obtain an independent certified appraiser or non-certified appraiser to do an appraisal on the real property or may obtain a commercial or residential real estate broker’s price opinion (BPO) of value of the real property. Notwithstanding the foregoing, the Company may, in its sole and absolute discretion, exceed the below stated Loan-to-Value ratios at any time, provided that such Loan-to-Value ratios do not exceed Eighty Percent (80%) at any time, and for any reason including (without limitation) if CFI determines in its sole business judgment that a higher loan amount is warranted by the circumstances of that particular loan, such as being able to secure multiple properties, called “cross-collateralization”, personal guaranties, prior loan history with the borrower, market conditions, if mortgage insurance is obtained, or other factors.
The Company plans to routinely re-evaluate the portfolio and Loan-to-Value ratio maximums set forth herein and may revise the Loan-to-Value ratio maximums at any time if it considers it to be in its best interests. Subject to the specific ratios set forth below, CFI will maintain a weighted Loan-to-Value ratio of no more than seventy percent (70%). The value of the property will be calculated on an “after completion” or post-rehabilitation basis. Prospective investors should carefully evaluate and understand that calculation of the ration using such “after completion” values exposes the Loans to additional risks in the event that the rehabilitation is not completed or the value of the rehabilitation is not timely or ultimately achieved.
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| Type of Real Property Securing Loan* | Target and Maximum Loan-to-Value Ratios | |
| Non-Owner-Occupied Residential | Target: 60% to 70%; Maximum: 75% | |
| Owner-Occupied Residential | Target: 60% to 70%; Maximum: 75% | |
| Multi-Family Properties | Target: 60% to 70%; Maximum: 75% | |
| Commercial | Target: 60% to 70%; Maximum: 75% | |
| Construction Loans (1) | Target: 60% to 70%; Maximum: 75% | |
| Unimproved Land | Target: 50%; Maximum: 55% |
* Generally, the real property securing the loan will not be rural land, churches, assisted living facilities, day care centers or theaters.
(1) Determined on an “as completed” value.
6. Terms of Loans to Borrowers. The terms of the Loans will vary, but will generally have a term between six (6) months and twelve (12) months, but may have loan terms exceeding twelve (12) months. The Company does not expect Loans terms to exceed thirty-six (36) months. Most Loans originated or acquired by Company will generally provide for monthly payments of principal and/or interest and a “balloon” payment payable in full at the end of the term. At the end of the term, CFI will require the borrower to pay the loan in full, to refinance the loan, or to sell the real property to pay back the loan.
7. Interest Rates on Loans. The interest rates paid by borrowers on Loans will vary, but will generally be around nine percent (9%) to fifteen percent (15%) per annum. All interest earned on the Loans shall be payable to the Company.
8. Title Insurance. Satisfactory title insurance coverage will be obtained for all Loans and will usually be paid by the borrower. The title insurance policy will name the Company as the insured and provide title insurance in an amount not less than the principal amount of the loan unless there is multiple forms of security for the loan, in which case the Company shall use its business judgment in determining whether and to what extent title insurance shall be required. Title insurance insures only the validity and priority of the deed of trust or mortgage, and does not insure the Company against any loss from other causes, such as (without limitation) diminution in the value of the secured property, loan defaults, and other such losses.
9. Fire and Casualty Insurance. Satisfactory fire and casualty insurance will be obtained for all improved real property loans which insurance will name the Company as its loss payee in the amount equal to the improvements on the real property. (See “Business Risks – Uninsured Losses” below.)
10. Mortgage Insurance. The Company does not intend to, but may if the property otherwise qualifies, arrange for mortgage insurance, which would afford some protection against loss if the Company foreclosed on a loan and there existed insufficient equity in the security property to repay all sums owed.
11. Acquiring Loans from Other Lenders. The Company may also participate in loans with other lenders (including other businesses organized by business partners or affiliates of the Company, by providing funds for or purchasing a fractional undivided interest in a loan meeting the requirements set forth above). In the event the Company acquires loans from other lenders, the Company will receive assignments of all beneficial interest in any loans purchased.
12. Purchase of Loans from Affiliates. The Company may purchase Loans from its Affiliates, so long as the Loans meet the lending requirements set forth above. For the purposes hereof, the term “Affiliates” with respect to any entity shall mean any of the following: (1) a Person that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with the entity, (2) a Person who, directly or indirectly, owns or controls at least ten percent (10%) of the outstanding voting interests of the entity, (3) a Person who is an officer, director, manager or member of the entity, or (4) a Person who is an officer, director, manager, member, general partner, trustee or owns at least ten percent (10%) of the outstanding voting interests of a Person described in clauses (1) through (3) of this sentence. The term “Person” shall mean a natural person or Entity. The term “Entity” shall mean an association, relationship or artificial person through or by means of which an enterprise or activity may be lawfully conducted, including, without limitation, a partnership, trust, limited liability company, corporation, joint venture, cooperative or association.
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13. Equity Participation and Mezzanine Positions. The Company may fund mezzanine mortgage loans at lower than market interest rates in order to obtain an equity interest in the underlying real property in which the Company funds the loan.
14. Credit Evaluations. The Company may consider the income level and general creditworthiness of a borrower to determine his, her or its ability to repay any loan according to its terms in addition to considering the loan-to-value ratios and sources of security for repayment. Loans may be made to borrowers who are in default under other obligations or in bankruptcy or who do not have sources of income that would be sufficient to qualify for loans from other lenders (included but not limited to, banks and/or savings and loan associations. (See Risk Factors – Business Risks, Loan Defaults and Foreclosures below.)
15. Loan Packaging and Servicing. CFI, or their respective affiliates will assemble and/or obtain all necessary information required to make a funding decision on any Loan request. It is presently anticipated that all Loans will be serviced (i.e., loan payments collected and other services relating to the loan) by the Company through a third-party servicing software called “The Mortgage Office”. Although the Company may, at any time, retain a third-party loan servicing company (the “Servicer”). The software will calculate and make interest payments due to Noteholders, bill and process loan payments from borrowers, provide various reporting for monthly and year-end statements and provide additional areas of support where needed. If the Servicer is a third party, the Company will oversee the Servicer. The Company may, in its sole and absolute discretion, decide to service Loans in-house at such time as conditions warrant. CFI may change or replace its Servicer at any time and for any reason in its sole and absolute discretion.
The Company will require the Servicer to adhere to the following Payment, Delinquency, Default and Foreclosure practices, procedures and policies:
(a) Payment. Generally, payments will be payable monthly, on the first (1st) day of each month. Interest is generally prorated to the first (1st) day of the month following the closing of the loan escrow.
(b) Delinquency. Generally, Loans will be considered delinquent if no payment has been received within ten (10) days of the payment due date. Borrower will be notified of delinquency by mail on the twelfth (12th) day after the payment due date and a late charge will be assessed. The Servicer will refer to and rely upon the late charge provisions in the applicable loan documents for each loan.
(c) Default. A Loan will be considered in default if no payment has been received within thirty (30) days of the payment due date. Foreclosure will usually be initiated shortly after the thirty-first (31st) day after a default, with the exact timing to be determined in each instance in the business judgment of the Company, which could be delayed several months depending on borrower circumstances and Loan-to-Value ratio of the security. Any costs of this process are to be posted to the borrower’s account for reimbursement to Company.
(d) Foreclosure. Statutory guidelines for foreclosures in each state are to be followed by the Servicer until the underlying property is liquidated and/or the account is brought current. Any costs of this process are to be posted to the borrower’s account for reimbursement to Company or CFI. If a Loan is completely foreclosed upon and the property reverts back to the Company or CFI, it will be responsible for paying the costs and fees associated with the foreclosure process, maintenance and repair of the property, service of senior liens and resale expenses.
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16. Sale of Loans. The Company does not plan on investing in Loans for the primary purpose of reselling such Loans in the course of business. However, the Company may, at the sole discretion of CFI, sell Loans, or fractional interests in such Loans, when CFI determines that it appears to be advantageous for the Company to do so, based upon then current interest rates, the length of time that the Loan has been held by the Company and the overall investment objectives of the Company.
17. Borrowing/Hypothecation. The Company may borrow funds from financiers, other lenders, or banks for the purpose of making Loans and investing in Loans. In doing so, the Company may assign all or a portion of its loan portfolio as security for such loan(s). The Company anticipates engaging in this type of transaction when the interest rate at which the Company can borrow funds is significantly less than the rate that can be earned by the Company on its Loans, giving the Company the opportunity to earn a profit as a “spread.” Such a transaction involves certain elements of risk and also entails possible adverse tax consequences. In addition, any debt incurred by the Company will be senior in payment to Noteholders. (See herein “Risk Factors – Business Risks, Risks of leveraging the Company’s asset portfolio include assigning a portion of or the entire Company’s asset portfolio as security for obtaining additional capital.”, “Income Tax Considerations”, and “ERISA Considerations” below.) The Company may also elect, in its sole and absolute discretion, to finance its investments with borrowed funds.
18. Custody, Management and Selection of Investments. The Company shall retain ownership, custody and management of all of the Company’s investments including Loans and properties. CFI, in its role as Manager shall have full authority to select, determine, assess, evaluate, execute, manage, service and authorize the Company’s investments.
19. Leverage. The Company may borrow funds to acquire properties in the ordinary course of business. It may also require a line of credit to assure liquidity of its operations, such as to pay off a defaulted first mortgage (in the case of a property acquired due to a borrower defaulting on a Loan) to preserve the Company’s subordinate interest, or to fund a substantial loan when Investor funds are not yet sufficient to do so. The maximum amount of leverage the Company will incur to acquire a property is one to one or hundred percent (100%) of the Company’s assets (asset portfolio) held by the Company. Such leveraging will be senior to Noteholders.
PROPERTY ACQUISITION GUIDELINES AND POLICIES
General Standards for Property Acquisition
The Company will secondarily invest, on an opportunistic basis, in the following business: acquiring, managing, remodeling, developing, repairing, leasing and/or selling real property located throughout the United States, with a primary focus in Pennsylvania, New Jersey and Maryland. At least part of the Company’s capital invested in acquiring properties will be directed towards purchasing properties at a discount to current (or projected) fair market value and seeking to sell these properties at a higher price. This also includes acquiring distressed properties and properties in rehabilitation situations (when the appropriate opportunities arise). The Company may also acquire properties by foreclosing on one or more of its Loans. In addition, the Company may remodel, hold, and lease properties if market conditions negatively affect the Company’s ability to sell properties for profit. These market conditions may include, without limitation, higher interest rates, excess local supply of real estate, falling real estate prices, increasing unemployment, etc. Thus, the Company may hold and lease a property until market conditions improve and allow the Company to sell it for profit.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Properties may be acquired from (without limitation) individuals, entities, institutional investors, financial institutions, governmental agencies and other sellers of real or personal property. The Company intends to invest most of the Offering proceeds (60% or more) in Loans and the remaining (0-40%) in properties. Notwithstanding the foregoing, these percentages may vary depending on the opportunities presented to the Company and varying market conditions.
CFI will evaluate the suitability of any properties purchased by the Company. Although the primary business of the Company is to fund Loans, the Company will also, as opportunities present themselves, engage in the managing, remodeling, developing, repairing, leasing and/or selling real property.
The Company intends to generally acquire and purchase properties based on the following criteria:
1. Location of Real Property Securing Loans. Properties will be located in the United States, with a primary focus in Pennsylvania, Maryland and New Jersey.
2. Maximum Investment. The Company will use the same standards as the Loan-to-Value Ratios set forth above to determine the maximum investment into a property. However, the LLC may use alternative guidelines for particular types of properties as follows:
| Type of Real Property to be Acquired | Maximum Purchase Price-to-Market Value Ratio | |
| Non-Owner-Occupied Residential | Target: 60% to 70%; Maximum: 75% | |
| Owner-Occupied Residential | Target: 60% to 70%; Maximum: 75% | |
| Multi-Family Properties | Target: 60% to 70%; Maximum: 75% | |
| Commercial | Target: 60% to 70%; Maximum: 75% | |
| Construction Loans (1) | Target: 60% to 70%; Maximum: 75% |
CFI plans to routinely re-evaluate the portfolio and purchase price to market value ratio maximums set forth herein and may revise them at that time if it considers it to be in the best interests of the LLC. CFI will inform Noteholders of the new Loan-to-Value ratios when and if CFI re-evaluates them.
3. Remodeling Timeline. The average time it takes to remodel a property, from purchase to finished, is anticipated to last between five (5) to twelve (12) months. Notwithstanding the foregoing, these estimates are not guaranteed and certain properties may take longer to remodel due to, without limitation, the following: construction issues, unexpected environmental conditions, changes in supply and demand, governmental regulations, zoning restrictions, changes in material and labor shortages, increases in the costs of labor and materials, and changes in construction plans and specifications. (See “Business Risks” below.)
4. Distressed Properties. The Company may acquire and otherwise invest, on an opportunistic basis, in distressed properties for purposes of holding, developing, remodeling, rehabilitating, improving, renting and selling the associated and secured properties. Distressed properties are typically properties secured by non-performing notes, or properties impacted by specific issues such as, but not limited to, dilapidation, physical damage, devaluation caused by rezoning, and environmental contamination. The primary intent of the Company is to purchase, invest, or otherwise acquire the distressed properties and properties tied to nonperforming notes and remodel, improve, develop, rehabilitate, hold and sell, and/or subsequently sell the properties for profit. The Company will use an opportunistic investment strategy to invest in distressed properties, unless CFI, in its sole and absolute discretion, determines it is not in the best interests of the Company.
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5. Fire and Casualty Insurance. Satisfactory fire and casualty insurance will be obtained for all properties and will name the LLC as its loss payee. (See “Business Risks – Uninsured Losses”).
6. Title Insurance. Satisfactory title insurance coverage will be obtained for all properties. The title insurance policy will name the LLC as the insured and provide title insurance in an amount not less than the principal amount of the value of the property.
7. Environmental Reports. Environmental reports will not typically be ordered on properties purchased or otherwise acquired by the Company. Notwithstanding the foregoing, if CFI, in its sole and absolute discretion, believes certain conditions exist that would pose a risk of environmental contamination, the Company may require an environmental report on the subject Property.
8. Property Management. It is presently anticipated that all Company properties will be managed by CFI. CFI, at its sole and absolute discretion, may engage or partner with third party servicers to manage the acquisition, development, construction, leasing, management and sale of the various properties acquired by the Company. CFI will oversee these third-party servicers. These third-party servicers will be compensated by the Company. The Company will not be responsible for any sub-servicers engaged by the third part servicers to assist in performing their servicing activities.
9. Leverage. The Company may borrow funds to acquire properties in the ordinary course of business. It may also require a line of credit to assure liquidity of its operations, such as to pay off a defaulted first mortgage (in the case of a property acquired due to a borrower defaulting on a Loan) to preserve the Company’s subordinate interest, or to fund a substantial loan when Investor funds are not yet sufficient to do so. The maximum amount of leverage the Company will incur to acquire a property is one to one or hundred percent (100%) of the Company’s assets (asset portfolio) held by the Company. Such leveraging will be senior to Noteholders.
The Company may attempt (in its sole and absolute discretion) to comply with requests for the early payment of the Notes if the financial position of the Company can accommodate it and the Company elects to do so (provided, that the Company is not under any obligation to permit an early redemption or withdrawal of the Notes requested by any Noteholder). Any investment in the Notes involves a significant degree of risk and is suitable only for investors who have NO NEED FOR LIQUIDITY in their investments. When analyzing this Offering, prospective investors should carefully consider each of the following risks.
The Offering Price and Minimum Investment Amount have been arbitrarily determined by the Company and do not reflect the value of the assets that have been or will be acquired by the Company.
The Offering amount and Minimum Investment Amount have been arbitrarily determined by the Company and CFI and does not bear any relationship to the assets that have been or are to be acquired by the Company or any other established criteria or indicia for valuing a business. CFI, may, at its sole and absolute discretion, accept or require a lesser or greater Minimum Investment Amount. In addition, the assets that are to be acquired by the Company could have a higher or lower value than the Offering price, which may result in the valuation of the Company being lower of higher than the Offering price.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Investment in the Notes is speculative and each Investor assumes the risk of losing his, her, or its entire investment.
Investment in these Notes is speculative and, by investing, each Investor assumes the risk of losing the entire investment. The Company has limited operations as of the date of this Offering Circular and will be solely dependent upon the efforts of its officers and employees the loan and asset portfolio that is developed, all of which are subject to the risks described herein. Accordingly, only investors who are able to bear the loss of their entire investment and who otherwise meet the investor suitability standards should consider purchasing these Notes. (See “Investor Suitability” above.)
The independent auditor’s report discloses doubt as to the Company’s ability to continue as a going concern.
The independent auditor’s report (dated June 30, 2017) expressed concern over the Company’s balance sheet as of June 30, 2017 and indicated that there was substantial doubt as to the Company’s ability to continue as a going concern. Such concerns arise due to the fact that Company is a newly formed company and has a limited operating history. The cash balance in said balance sheet is not sufficient to fund the limited levels of the Company’s operations for any period of time. However, the Company has been utilizing and may utilize funds from the Parent Company, which has agreed to advance funds to allow the Company to operate its business including paying for Offering costs, filing fees and professional fees. In order to execute the plan of operations, the Company will require varying amounts of capital based on the Loans and/or properties the Company intends to fund or acquire. The Company’s ability to commence operations is largely dependent on its ability to raise funds through this Offering and thereby securing Loan and property investments. Prospective Investors should be aware that there is no assurance that the Company will obtain capital investments necessary to commence operations and become profitable. In addition, receipt of capital investments of less than the Maximum Offering Amount will reduce the ability of the Company to spread investment risks through diversification of its loan portfolio.
Conflicts of interest may arise as a result of the Company primarily funding loans originated by CFI, who is the parent company and an affiliate of the Company.
There are important areas in which the interests of the Company and each of its principals, directors, officers and/or affiliates may conflict with one another. To see the potential conflicts of interests that may arise please refer to “Conflicts of Interest” section below. The Company will primarily fund Loans originated by CFI and CFI may receive compensation as a result. This represents a conflict of interest between CFI and the Company since the principals who own and manage CFI also indirectly own and manage the Company and from the fact that the Company will conduct business primarily with CFI. Specifically, the Company will be conducting business primarily with CFI by funding, acquiring, and/or purchasing loans originated by CFI. These will be affiliate transactions and therefore, the terms of the loans may not be the same as if it were agreed upon via a third-party transaction. Notwithstanding the foregoing, the Company will only invest in those loans that are in best interests of the Company and said loans will have terms that are commercially reasonable. It is expected that numerous transactions will occur between the Company and its principals, directors, officers and/or affiliates, and no outside or independent review of these transactions will be performed.
In addition, conflicts of interest may pose a risk to Noteholders due to the fact that the Company and each of its principals, directors, officer, and/or affiliates may be involved in other investments or business similar to the Offering and as a result, may not always act in a manner that is advantageous to the Company and Offering if presented with similar investment or business opportunities.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
There is no Federal Registration therefore there is Limited Governmental Review.
This Offering has not been registered with the U.S. Securities and Exchange Commission which results in limited governmental review. In addition, the Issuer will seek registration with at least two states (New Jersey and Pennsylvania) and any other states it will sell securities in, in order to comply with State securities authority. Currently, the Issuer intends to sell securities in New Jersey and Pennsylvania, subject to registration approval in those two states. No securities will be sold in States where registration for the Offering has not been approved.
There is Limited Transferability of Notes and No Public Market for the Notes.
Although the Company may attempt to redeem Notes (when possible, in the Company’s sole and absolute discretion), there is no public market for the Notes and none is expected to develop in the future. Even if a potential buyer could be found, the transferability of these Notes is limited under Regulation A, as amended. Any sale or transfer of these Notes also requires the prior written consent of the Company. Investors must be capable of bearing the economic risks of this investment with the understanding that these Notes may not be liquidated by resale or redemption and should expect to hold their Notes as a long-term investment.
There is No Guarantee of Reaching Maximum Offering Amount.
There is no assurance that the Company will obtain capital investments equal to the amount required to close the Offering. In addition, receipt of capital investments of less than the Maximum Offering Amount will reduce the ability of the Company to spread investment risks through diversification of its loan portfolio.
There may be Investment Company Act Risks which may result in the Company acquiring legal fees.
The Company intends to avoid becoming subject to the Investment Company Act of 1940, as amended (the “1940 Act”); however, the Company cannot assure prospective investors that under certain conditions, changing circumstances or changes in the law, the Company may not become subject to the 1940 Act in the future as a result of the determination that the Company is an “investment company” within the meaning of the 1940 Act that does not qualify for an exemption as set forth below. Becoming subject to the 1940 Act could have a material adverse effect on the Company. Additionally, the Company could be terminated and liquidated due to the cost of registration under the 1940 Act. In general, the 1940 Act provides that if there are 100 or more investors in a securities offering, then the 1940 Act could apply unless there is an exemption; however, the 1940 Act generally is intended to regulate entities that raise monies where the entity itself “holds itself out as being engaged primarily, or purposes to engage primarily, in the business of investing, reinvesting or trading in securities” (Section 3(a)(1)(A) of the 1940 Act).
The second key definition of an “investment company” under the 1940 Act considers the nature of an entity’s assets. Section 3(a)(1)(C) of the 1940 Act defines “investment company” as any issuer that: “...is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.” Section 3(b)(1) of the 1940 Act provides that a company is not an “investment company” within the meaning of the 1940 Act if it is: “[An] issuer primarily engaged, directly or through a wholly-owned subsidiary or subsidiaries, in a business or businesses other than that of investing, reinvesting, owning, holding, or trading in securities...”
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Section 3(c) of the 1940 Act provides for the following relevant exemptions: “Notwithstanding subsection (a), none of the following persons is an investment company within the meaning of this title: (1) Any issuer whose outstanding securities (other than short- term paper) are beneficially owned by not more than one hundred persons [emphasis added] and which is not making and does not presently propose to make a public offering of its securities. Such issuer shall be deemed to be an investment company for purposes of the limitations set forth in subparagraphs (A)(i) and (B)(i) of section 12(d)(1) governing the purchase or other acquisition by such issuer of any security issued by any registered investment company and the sale of any security issued by any registered open-end investment company to any such issuer. For purposes of this paragraph: (A) Beneficial ownership by a company shall be deemed to be beneficial ownership by one person, except that, if the company owns 10 per centum or more of the outstanding voting securities of the issuer, and is or, but for the exception provided for in this paragraph or paragraph (7), would be an investment company, the beneficial ownership shall be deemed to be that of the holders of such company’s outstanding securities (other than short-term paper). (B) Beneficial ownership by any person who acquires securities or interests in securities of an issuer described in the first sentence of this paragraph shall be deemed to be beneficial ownership by the person from whom such transfer was made, pursuant to such rules and regulations as the Commission shall prescribe as necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of this title, where the transfer was caused by legal separation, divorce, death, or other involuntary event. (5) Any person who is not engaged in the business of issuing redeemable securities, face-amount certificates of the installment type or periodic payment plan certificates, and who is primarily engaged in one or more of the following businesses: (A) Purchasing or otherwise acquiring notes, drafts, acceptances, open accounts receivable, and other obligations representing part or all of the sales price of merchandise, insurance, and services; (B) making loans to manufacturers, wholesalers, and retailers of, and to prospective purchasers of, specified merchandise, insurance, and services; and (C) purchasing or otherwise acquiring mortgages and other liens on and interests in real estate [emphasis added].”
Based upon the above, the Company has been advised by Geraci Law Firm (located in Irvine, California) that the Offering is exempt under the 1940 Act and that the 3(c)(5) exemptions apply. This is due to the fact that the Company does not hold itself out as an investment company and is not in the business of issuing redeemable securities, face-amount certificates or period plan certificates and will be primarily engaged in the business of purchasing, making, funding or otherwise acquiring loans secured by real property and/or personal property. Notwithstanding the foregoing, there are no assurances that this will ultimately be the case. In the event the Company becomes subject to the registration requirements of the 1940 Act, the Company may incur substantial legal fees. This may adversely affect Noteholders in the sense that if the Company does not have funds to pay said legal fees, it may be required to default in certain Notes and Noteholders.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Investors Are Not Independently Represented by the Company’s Attorneys and should seek their own independent counsel.
The Noteholders in the Company have not been represented by independent counsel with respect to this Offering. Attorneys assisting in the formation of the Company and the preparation of this Offering Circular have represented only the Company and its principals and affiliates. (See “Conflicts of Interest” below.)
No Assurance can be provided that the Maximum Offering Amount will be adequate working capital and/or will absolve the need for additional financing.
In the opinion of the Company, if the maximum number of Notes being offered is sold, the Company may have sufficient working capital to achieve its planned operations. However, there can be no assurance that even if the maximum number of Notes is sold that the Company would not be required to seek alternative or additional sources of financing. The Company is not restricted in the application of the funds as provided within this Offering Circular under the caption “Use of Proceeds”.
Provisions in the Note may not be favorable to prospective Investors.
The Company has set the terms of the Note in a manner which is favorable to the Company and has not made an attempt to consider the favorability or suitability of such terms for any prospective Investors.
The Company reserves the right to prepay the Notes early at any time.
The Company may (in its sole and absolute discretion) prepay the Notes early at any time for any reason (or no reason) without incurring any prepayment premium or penalty. Prepayment of a Note involves the risk that the Noteholder will not receive any interest payments on the Note for the time remaining under the term of the Note. For purposes of an example only, if a Noteholder has a Note with a term of twelve (12) months and the Company prepays the Note six (6) months before the Note Maturity Date, the Noteholder will not receive any interest payments owed on the remaining six (6) months of the Note. In addition, the Company will not incur any prepayment penalties or premiums for early payment of a Note.
The nature of debt obligations of the Company entail risks and benefits customary for creditors including default by borrower and/or nonpayment by the borrower.
The Notes represent debt obligations of the Company, and as such, would entail risks and benefits for the Noteholders that are customary for creditors, including (without limitation) risk of default and/or non-payment by the borrower. In the event of any liquidation or bankruptcy or similar event, Noteholders may receive less than the principal amount of their investment.
Noteholders will generally have limited to no control in the management and operation of the Company’s business and its decisions. Other individuals and constituencies (such as shareholders of the Company) may have greater control and rights (including, without limitation, approval or blocking rights with respect to business decisions of the Company) than Noteholders possess. Investors should understand that other participants in the Company may have interests that are substantially different than, and directly adverse to, the interests of Noteholders.
There will be no cross default of the Notes.
The terms and provisions of the Notes do not provide that upon default by the Company on any Note, the Company will declare a default under any and all other Notes. Therefore, no cross default exists with respect to the Notes. In addition, the Company does not intend to and has no obligation to notify any Noteholder (or Investor) if a default under one of the Notes should occur. Nonetheless, the Company will, on a best effort basis, notify Investors of the status of the Company, including but not limited to, providing financial statements certified by a public accountant and loan portfolio performance disclosures.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
The Company may employ leverage, resulting in the Notes being subordinate to any debt incurred by the Company.
Any indebtedness incurred by the Company (e.g. through a credit line, borrowing from a financer, etc.) may expose the Noteholders to substantially greater risk. Any debt incurred by the Company will be senior to the Notes and will have priority of payment. If there are no sufficient cash flows generated from the operations of the Company and the Company has to pay Noteholders, it may affect the Company’s ability to make payments owed to Noteholders. In addition, leverage may involve restrictive covenants, interest obligations and other risks that are customary to organizations that employ leverage in financing their investments.
The Company will invest in assets that have not been identified, therefore, potential Investors will be unable to evaluate the Company’s loan portfolio prior to making their investment.
None of the specific assets in which the Company will invest in are identified at this time. Therefore, any potential investor is unable to evaluate the Loans portfolio to determine whether to invest in the Company. However, the general business goals of the Company are to make Loans as further described herein. The Company may later have specific, identifiable portfolio data which Noteholders may review upon their prior written request to the Company.
The Company has the right to change and mix its investment profile, there is no guarantee that the investment profile will not change substantially over time.
The Company reserves the right, in its sole and absolute discretion, to modify, change or revise its typical investment profile and the mix of Loans that it invests or otherwise participates in, and accordingly, Noteholders have no guarantee, and should not assume that the investment mix and profile of the Company will not change substantially over time.
The Loan Loss Reserve may be insufficient to cover Loan losses, which may ultimately cause the Company to default on one or more Notes.
As further discussed below, CFI intends to retain some portion of the profit in the Company to create a Loan Loss Reserve in order to sustain the Company if it’s unable to fully recover the principal of a Loan in default. The purpose of the Loan Loss Reserve is to help insulate the Noteholders from loss. Although the Loan Loss Reserve will help reduce the impact of Loan defaults temporarily, ultimate repayment/resale of the Loans will be jeopardized if any Loans in default are not eventually repaid or resold, whether by the applicable borrower or by the Company, which may affect available collateral. In addition, the portion of profit reserved to maintain a Loan Loss Reserve may vary and will be based on reserve overages and the weighted risk levels of the Loan portfolio. This may cause reserve amounts to be reduced, eliminated or increased accordingly in the sole and absolute discretion of CFI. Noteholders should understand that a Loan Loss Reserve does not guarantee the Company will not incur a loss if a Loan or Loans result in default, which may ultimately cause the Company to sustain a loss and default on one or more Notes.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
There is reliance on Key Personnel to make all decisions with respect to the management of the Company, therefore, Noteholders will not have a choice in the management decisions.
The key personnel of the Company (currently, the President of CFI) will make virtually all decisions with respect to the management of the Company including, without limitation, the determination as to which loans to make and the terms thereof. The Noteholders will not have a voice in the management decisions of the Company and can exercise only a limited (if any) amount of control over the Company. The Company gives no assurance that the Company will operate at a profit or positive cash flow. The Company is dependent to a substantial degree on the continued services of its key personnel. In the event of the death, incapacity or other termination of key personnel, the business and operations of the Company may be adversely affected. Furthermore, all investments related to specific Loans will be undertaken by the Company without the Noteholders having any ability to directly affect such transactions.
Competition with other lenders may affect the Company’s profitability.
Because of the nature of the Company's business, the Company's profitability will depend to a large degree on the future availability of capital. In particular, the Company will compete with private lenders, institutional lenders and others engaged in the mortgage lending business, many of whom have greater financial resources and experience than the Company.
The competitive conditions of private lending may affect the Company’s profitability and business.
Some of the general competitive conditions in private lending include competing with other lenders with regards to fees, interest rates, reputation and/or quality of service. These conditions may affect the Company’s profitability and ability to make, fund, originate, acquire and/or purchase loans. Furthermore, other private lenders, institutional lenders and others engaged in the mortgage lending business may differ in their loan to value guidelines and criteria, which may affect the Company’s competitiveness with regards to its ability to make, fund, originate and/or acquire certain loans or the geographic area where it makes, funds, originates or acquires a loan, or the value and type of underlying property it is able to secure as collateral for a loan.
The key personnel not required to devote full-time to the business of the Company.
The Company’s key personnel and its officers and directors are not required to devote their respective individual capacities full time to the Company's affairs, but only such time as the affairs of the Company may reasonably require.
No restriction preventing the Company or its affiliates from competing with one another by investing or sponsoring investments similar to those of the Company.
Though they currently have no intention to do so, there is no restriction preventing the Company or any of its affiliates, principals, officers, directors or management from competing with one another by investing in collateral liens or sponsoring the formation of other investment groups like the Company. The Company may make decisions that may at times favor persons other than the Company. Unless otherwise mandatorily required to the contrary by applicable law, the Company and its affiliates, principals and management are exonerated from any liability for investment opportunities given to other persons, including (without limitation) affiliates.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Delays in the participation in the investment yield by Investors may occur.
There may be a delay between the time subscription funds are accepted from Investors and the time when such funds are deposited into the Company and begin to participate in the investment yield offered herein. Such delays may result from the Company having to verify an Investor’s suitability and admissibility as a Noteholder, delays while the Company raises the Minimum Offering Amount, and/or delays in depositing an Investor’s contribution into the Company’s main operating account as a result of lack of availability of Loans to fund by the Company immediately upon an Investor making a contribution to the Company. Any delays between the time subscription funds are accepted and the time when such funds are deposited into the Company shall not be longer than ninety (90) days.
Management and investment practices of the Company are not regulated by Federal or State authorities.
The management and investments of the Company are not supervised or regulated by any Federal or State legal or regulatory authority, except to the extent that the Offering will be qualified by the SEC and cleared by state regulators. In addition, the Company’s lending activities and investments in properties are not regulated and supervised by state authorities in at least the states of Pennsylvania, Maryland, and New Jersey. The Company will not be required to obtain a lending license since it will not make any consumer purpose loans. Lending licensing requirements will vary from state to state. Notwithstanding the foregoing, if required by a state, the Company will obtain all licenses prior to making or funding a Loan.
While the Company will use its best efforts to comply with all laws, including federal, state and local laws and regulations, there is a possibility of governmental action to enforce any alleged violations of lending laws which may result in legal fees and damage awards that would adversely affect the Company and its ability to pay Noteholders.
Investment in the Company involves certain tax and ERISA risks Investors should be aware of.
An investment in the Company involves certain tax risks of general application to all investors and certain other risks specifically applicable to Keogh accounts, Individual Retirement Accounts and other tax-exempt investors. (See “Income Tax Considerations” and “ERISA Considerations” below).
Loan defaults and foreclosures may occur which could potentially adversely affect the profitability of the Company its ability to repay Noteholders.
The Company will invest in Loans and take the risk that borrowers will default on those loans and other risks that lenders typically face, some of which are detailed in this Offering. Loans may be made to borrowers who do not qualify for loans from more traditional sources of financing, such as (without limitation) borrowers who are in default under other obligations or in bankruptcy or who not have sources of income that would be sufficient to qualify for loans from other lenders (including but not limited to, banks and savings and loans associations). Loans may generally provide for a monthly payment from the borrower followed by a “balloon” payment at the loan’s maturity. Borrowers may be unable to pay such a balloon payment and are compelled to refinance the balloon amount into a new loan. Fluctuations in the interest rates, unavailability of mortgage funds, and a decrease in the value of the real property securing the loan could adversely affect the borrower’s ability to refinance their loans at maturity.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
The Company will generally look to the underlying property securing the loan to determine whether to make the loan to the borrower and, to a lesser extent, the credit rating a borrower has. Nonetheless, borrowers will need to demonstrate adequate ability to meet its financial obligations under the terms of any loan which the Company originates or purchases.
To determine the fair market value of the property securing the loan, the Company will primarily rely on an appraisal, the Company’s opinion of value of the property, or other similar opinion. Appraisals are a judgment of an individual appraiser’s interpretation of a property’s value. Due to the differences in individual opinions, values may vary from one appraiser to another. Furthermore, the appraisal is merely the value of the real property at the time the loan is originated. Market fluctuations and other conditions could cause the value of real property to decline over time.
If the borrower defaults on the loan, the Company may take the deed in lieu of foreclosure or be forced to purchase the property at a foreclosure sale. If the Company cannot quickly sell the real property and the property does not produce significant income, the profitability and ability to repay the Company will be adversely affected.
Due to certain provisions of State law that may be applicable to all real estate loans, if real property security proves insufficient to repay amounts owing to the Company, it is unlikely that the Company will be able to recover any deficiency from the borrower.
Finally, the recovery of sums advanced by the Company in making or investing in mortgage loans and protecting its security may also be delayed or impaired by the operation of the federal bankruptcy laws or by irregularities in the manner in which the loan was made. Any borrower has the ability to delay a foreclosure sale for a period ranging from several months to several years by filing a petition in bankruptcy which automatically stays any actions to enforce the terms of the loan. It can be assumed that such delays and the costs associated therewith will reduce the profitability of the Company.
The possible repeal of state usury limits could affect the Company’s profitability and cash flow.
To the extent that any Loans are arranged by or through a mortgage lending license and are therefore generally exempt from the otherwise applicable state’s usury limitation, should this exemption be repealed, the Company may no longer be able to originate loans in excess of the usury limit, potentially reducing its return on investment or forcing it to limit its lending activities or otherwise burdening its profitability and cash flow.
Certain real estate properties may be at risk as a result of certain losses being uninsured, underinsured or not insurable.
The Company intends to maintain comprehensive insurance coverage of the type and amount it believes is customarily obtained by any lender of real estate. There are, however, certain types of losses, generally of a catastrophic nature, such as earthquakes, war and floods, that may be uninsurable or not economically insurable from which the real estate properties may be at risk. In addition, because of coverage limits and deductibles, insurance coverage in the event of a substantial loss may not be sufficient to pay the full current market value or current replacement cost of the underlying investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it unfeasible to use insurance proceeds to replace a property after it has been damaged or destroyed. Under such circumstances, the insurance proceeds received by the Company might not be adequate to restore its economic position with respect to its real estate properties. Additionally, the Company does not intend to require mortgage insurance on Loans, which would protect the Company from losses due to defaults by borrowers.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Fluctuations in interest rates may affect the profitability of the Notes and Noteholders may not be able to liquidate their investment to take advantage of higher available returns.
Mortgage interest rates are subject to abrupt and substantial fluctuations and the purchase of Notes are a relatively illiquid investment. If prevailing interest rates rise above the average interest rate being earned by Notes, the Noteholders may wish to liquidate their investment to take advantage of higher available returns but may be unable to do so due to restrictions on transfer and withdrawal.
The Company, as a lender, may be exposed to the risks of litigation by a borrower, tenant, or other counter-party as a result of the Loan.
The Company will act in good faith and use reasonable judgment in selecting borrowers and making, purchasing, and managing the Loans. However, as a lender the Company is exposed to the risk of litigation by a borrower, tenant or other counter-party for any warranted or unwarranted allegations regarding the terms of any transaction or the actions or representations of the Company in making, managing or foreclosing on Loans. It is impossible to foresee the allegations that a party will bring against the Company, but the Company will use its best efforts to avoid litigation if, in its sole and absolute discretion, it is in the best interests of the Company. If the Company is required to incur legal fees and costs to respond to any lawsuit, the costs and fees could have an adverse impact on the Company’s cash flow and profitability.
Participation with other parties in a Loan may result in lack of control as to when and how to enforce a loan default.
While the Company does not expect to participate in transactions with other parties, there is a possibility that it may do so. When participating in Loans with other lenders the Company may not have control over the determination of when and how to enforce a default, depending on the terms of any participation agreement with the other lenders or owners, other lenders or owners may have varied amounts of input into such decision-making process, including (without limitation) the ultimate decision-making power on if and when to enforce a default. There is no certainty as to who will be a lead lender or lead investor (as applicable) in a situation where the Company participates in ownership of a Loan with another entity.
There are risks of government actions against the Company for alleged violations of lending laws (and other law) which may result in high legal fees and damage awards.
While the Company will use its best efforts to comply with all laws, including federal, state and local laws and regulations, there is a possibility of governmental action to enforce any alleged violations of (without limitation) mortgage lending laws which may result in legal fees and damage awards that would adversely affect the applicable entity.
Risks of leveraging the Company’s asset portfolio include assigning a portion of or the entire Company’s asset portfolio as security for obtaining additional capital.
The Company may borrow funds from any third party sources (including, but not limited to, lenders and investors) to fund investments in Loans and properties. These additional sources of capital may be secured by Loans and assets held by the Company. In order to obtain such additional capital, the Company may assign part or its entire asset portfolio to the lender or investor. Such money may bear interest at a variable rate, whereas the Company may be making fixed rate loans. Therefore, if prevailing interest rates rise, the cost of money could exceed the income earned from that money, thus reducing the Company’s profitability or causing losses.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Risks of real estate ownership that could affect the marketability and profitability of the properties.
There is no assurance that the Company’s owned properties will be profitable or that cash from operations will be available for distribution to the Noteholders. Because real estate, like many other types of long-term investments, historically has experienced significant fluctuations and cycles in value, specific market conditions may result in occasional or permanent reductions in the value of property interests. The marketability and value of the properties will depend upon many factors beyond the control of the Company, including (without limitation):
| · | changes in general or local economic conditions; |
| · | changes in supply of or demand for competing properties in an area (e.g., as a result of over-building); |
| · | changes in interest rates; |
| · | the promulgation and enforcement of governmental regulations relating to land use and zoning restrictions, environmental protection and occupational safety; |
| · | condemnation and other taking of property by the government; |
| · | unavailability of mortgage funds that may increase borrowing costs and/or render the sale of a property difficult; |
| · | unexpected environmental conditions; |
| · | the financial condition of tenants, ground lessees, ground lessors, buyers and sellers of properties; |
| · | changes in real estate taxes and any other operating expenses; |
| · | energy and supply shortages and resulting increases in operating costs or the costs of materials and construction; |
| · | various uninsured, underinsurance or uninsurable risks (such as losses from terrorist acts), including risks for which insurance is unavailable at reasonable rates or with reasonable deductibles; and |
| · | imposition of rent controls. |
There are a number of risks involved in investing in development, redevelopment and undeveloped properties.
The Company anticipates that it will invest in existing properties that require varying degrees of development. In addition, some properties may be under construction or under contract to be developed or redeveloped. Properties that involve development or redevelopment will be subject to the general real estate risks described above and will also be subject to additional risks, such as unanticipated delays or excess costs due to factors beyond the control of the Company. These factors may include (without limitation):
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
| · | strikes; |
| · | adverse weather; |
| · | earthquakes and other "force majeure" events; |
| · | changes in building plans and specifications; |
| · | zoning, entitlement and regulatory concerns, including changes in laws, regulations, elected officials and government staff; |
| · | material and labor shortages; |
| · | increases in the costs of labor and materials; |
| · | changes in construction plans and specifications; |
| · | rising energy costs; and |
| · | delays caused by the foregoing (which could result in unanticipated inflation, the expiration of permits, unforeseen changes in laws, regulations, elected officials and government staff, and losses due to market timing of any sale that is delayed). |
Delays in completing any development or renovation project will cause corresponding delays in the receipt of operating income and, consequently, the distribution of any cash flow by the Company with respect to such property.
There are risks associated with buying contaminated Properties.
The Company may acquire or invest in properties with known environmental conditions for the purpose of remediating the contamination. Following completion of the remediation, such properties would generally be resold to a developer. Such investments would generally be made only in conjunction with an operating partner with specific expertise in such properties and only where the Company believes that the liabilities associated with owning an interest in such a property can be appropriately protected against through insurance, indemnification or otherwise.
Although not likely, properties invested in by the Company that may not comply with the Americans with Disabilities Act and other changes in governmental rules and regulations could have adverse consequences to the Company’s profitability.
Under the Americans with Disabilities Act of 1990 (the "ADA"), all public properties are required to meet certain federal requirements related to access and use by disabled persons. Properties acquired by the Company or in which it makes a property investment may not be in compliance with the ADA. If a property is not in compliance with the ADA, then the Company may be required to make modifications to such property to bring it into compliance, or face the possibility of imposition, or an award, of damages to private litigants. In addition, changes in governmental rules and regulations or enforcement policies affecting the use or operation of the properties, including changes to building, fire and life-safety codes, may occur which could have adverse consequences to the Company.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
The following is a list of all presently known potential conflicts of interest between Company and each of its principals, directors, officers and/or affiliates. More specifically, conflicts of interest may arise in the following situations: (1) loan origination fees and Company profitability, (2) loan servicing by the Company, (3) allocation of management time, services, and functions between various existing CFI and the Company and/or its Affiliates, (4) purchase, sale, hypothecation of the Loan between the Company and its Affiliates, (5) conflicts with entities organized for similar purposes as the Company, (6) competition with Affiliates, (7) sale of properties to Affiliates, and (9) those resulting from the relationship between the principals of CFI and the Company.
The Noteholders must rely on the general fiduciary standards (as and if applicable) and other duties which may apply to such principals, directors, officers and affiliates to prevent unfairness by any of the aforementioned in a transaction with consequences for the Noteholders. It is expected that numerous transactions will occur between the Company and its principals, directors, officers and/or affiliates, and no outside or independent review of these transactions will be performed. ALL PROSPECTIVE INVESTORS SHOULD UNDERSTAND THAT NOTEHOLDERS WILL HAVE ABSOLUTELY NO DIRECT INTEREST, CONTROL, VOTING RIGHTS OR INVOLVEMENT IN THE BUSINESS, AFFAIRS OR GOVERNANCE OF THE COMPANY. EACH PROSPECTIVE INVESTOR SHOULD UNDERSTAND THAT SELF-DEALING AND AFFILIATE-AFFILIATE TRANSACTIONS WILL ROUTINELY OCCUR AS A RESULT OF THE MATTERS CONTEMPLATED HEREIN. ALL PROSPECTIVE INVESTORS ARE STRONGLY ENCOURAGED TO CONSULT THEIR OWN INDEPENDENT LEGAL COUNSEL TO REVIEW AND ADVISE THEM WITH RESPECT TO THIS OFFERING AND OFFERING CIRCULAR.
Conflicts of Interest arising from doing business with CFI.
Currently the Company intends to conduct most of its business of funding, making, acquiring, and/or purchasing Loans from loans that are originated by CFI, who is the manager and parent company of the Company. CFI is owned by Jeff Cella and Tim Messerli, and CFI is the sole member of the Company. CFI previously had an offering of notes, similar to this Offering, whereby CFI raised capital in order to invest in loans and acquire properties or portfolios of properties. CFI’s previously offering of notes was exempt from registration under Rule 506 of Regulation D of the Act. Since the Company will solely be funding Loans that are originated by CFI, this may result in the principals of the Company engaging in transactions that are not to the best advantage of the Company and could be perceived as more financially advantageous to CFI. In addition, CFI will underwrite and process all of the Company’s Loans and said Loans will be made to third party borrowers. Notwithstanding the foregoing, the Company intends to invest in those loans that are in best interests of the Company and the loans will have terms that are commercially reasonable and advantageous to the Company.
Lastly, the majority of the conflicts of interest may largely result from having to allocate management time, services and functions between the Company and CFI as well as deciding which business will be engaged by CFI or the Company, and not necessarily from one transaction being more advantageous to CFI and not the Company.
Loan Fees were not determined through arm’s-length negotiations.
None of the compensation set forth under “Sources of Income to the Company” was determined through arm's-length negotiations. Any change in such fees may have a direct, adverse effect upon the fees that borrowers will pay to the Company, and thus, may reduce the overall profitability and cash flow of the Company. This conflict of interest will exist in connection with every Loan the Company makes.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
The Company will receive compensation for servicing the Loans, but may use a third party as a loan servicer which may result in higher servicing fees.
As set forth below under “Sources of Income to the Company”, the Company and/or its affiliates may receive compensation for servicing the Loans. The Company has reserved the right to retain other firms in addition to, or in lieu of, the Servicer to perform the various brokerage services, loan servicing and other activities in connection with the Loans. Such other firms may or may not be affiliated with the Company. Loan servicing firms not affiliated with the Company may or may not provide comparable services on terms more favorable to the Company.
The Company and each of its principals, directors, officers or affiliates, may engage, for their own account or for the account of others, in other business ventures similar to that of the Company.
The Company and each of its principals, directors, officers or affiliates, may engage, for their own account or for the account of others, in other business ventures similar to that of the Company. Neither the Company nor any Noteholder shall be entitled to any interest therein or therefrom.
The Company may have conflicts of interest in allocating management time, services and functions between various existing companies, the Company and any future companies which it may organize as well as other business ventures in which it or its managers, principals, directors, officers and/or affiliates may be or become involved.
The Company and each of its principals, directors, officers or affiliates, may sell, buy or hypothecate loans (use loans as collateral for another loan) to each other and make a profit without the assistance of independent review or assessment.
The Company and each of its principals, directors, officers or affiliates, may sell, buy or hypothecate loans (use loans as collateral for another loan) to each other, provided that such loans meet the underwriting criteria set forth above. The Company or any of its managers, principals, directors, officers and/or affiliates, may make a profit on the sale of an existing Loan to an affiliated individual or entity. There will be no independent review or assessment of the value of such Loans.
The Company, CFI and their affiliates, may join with other entities in joint venture or co-ownership in certain loans or in the ownership of real property.
The Company and its principals, directors, officers or affiliates, may join with other entities organized for similar purposes as partners, joint venturers or co-owners under some form of ownership in certain loans or in the ownership of real property. The interests such other individuals/entities may conflict and all such individuals/entities may not be able to resolve such conflicts in a manner that serves the best interests of the Company and/or Noteholders.
The Company or any of its Affiliates are not restricted from competing with the Company and may freely compete with the Company.
There is no restriction preventing the Company or any of its affiliates, officers, directors or management from competing with the Company by investing in collateral liens or sponsoring the formation of other investment groups like the Company to invest or otherwise participate in similar areas. Subject only to limitations mandatorily imposed by corporate law, the Company and its affiliates, officers, directors and/or management may freely compete with or against the Company.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
The Company may sell foreclosed properties to Affiliates and the transaction will be subject to conflicts of interest since the Company will have an interest in both parties to the transaction.
In the event that the Company becomes the owner of any real property by reason of foreclosure, the first priority will be to arrange for the sale of the property for a price that will permit the recovery of the full amount of invested capital plus accrued but unpaid interest and other charges, or so much thereof as can reasonably be obtained in light of current market conditions. In order to facilitate such a sale, the Company may, but is not required to, arrange a sale to persons or entities affiliated with it or controlled by it, (e.g. to a limited liability company formed by the Company). The Company will be subject to conflicts of interest in arranging such sales since it will represent or have an interest in both parties to the transaction. There will not be any independent review by any outside parties of such transactions. No assurance can be given that the sale price for property would be fair, reasonable or negotiated at ‘arms-length’.
SOURCES OF INCOME TO THE COMPANY
The principal sources of the Company’s revenues are listed below. CFI will explore other sources of revenues as operations continue. Any and all of the Company’s revenues, including those set forth below, shall be used towards paying the Company’s obligations to the Noteholders. Any remaining income shall be paid to CFI as compensation for services rendered. Any income retained for purposes of a loss reserve shall be determined and established by CFI, at its sole and absolute discretion.
| Form of Compensation | Estimated Amount or Method of Compensation | |
| Income from Loans | ||
| LOAN ORIGINATION FEES | Loan origination fees are collected from borrowers. Such fees generally average between one and ten percent (1-10%) depending on market conditions and different types of loans. Most commonly, such fees represent three to four percent (3%-4%) of the value of the Loan. In many cases, up to one hundred percent (100%) of these loan origination fees will be shared with mortgage brokers and other referral sources. Loan origination fees shall be payable to the Company. Loan origination fees will generally be collected in installments, with some amounts being due up-front and the remainder being collected at settlement. | |
| INTEREST ON LOANS | The Company will also earn interest income from loans made by the Company. Borrowers will pay interest to the Company on a monthly basis on the full amount of their indebtedness. The Company will generally attempt to charge borrowers a higher interest rate (“spread”) than the rates paid to Noteholders in this Offering. | |
| LOAN EXTENSION AND MODIFICATION FEES | Loan extension and modification fees are collected from borrowers and payable to the Company. Such fees are typically between one and three percent (1-3%) of the original loan amount, but could be higher depending on market rates and conditions. | |
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
| LOAN PROCESSING, LOAN DOCUMENTATION AND SIMILAR FEES | Loan processing and loan documentation and other similar fees are collected from the borrower and payable to the Company at prevailing industry rates. | |
| OTHER LOAN FEES |
The Company will earn other loan fees as follows: One Hundred Percent (100%) of each of the following: (1) All late payment fees incurred by borrowers on loans; (2) All default interest incurred by borrowers on defaulted loans; (3) All prepayment penalties incurred by borrowers; and (4) All forbearance fees, extension fees and all other fees incurred by borrowers. | |
| REAL ESTATE COMMISSIONS | CFI or its affiliates may earn real estate commissions to list and sell real estate that the Company has acquired. Such entities may earn up to eight percent (8%) for such a sale. | |
| Income from Properties | ||
| SALE OF PROPERTY |
Additional sources of income to the Company will be from the potential purchase, rehabilitation and resale of Company owned properties. The Company will purchase properties that can be rehabilitated and resold for profit.
The Company intends to purchase properties at a discount to current (or projected) fair market value and subsequently seek to sell these properties at a higher price. This also includes acquiring distressed properties and properties in rehabilitation and subsequently selling them at a higher price. The Company will purchase and otherwise invest in distressed properties and properties tied to nonperforming notes in order to remodel, improve, develop, rehabilitate these properties and either (1) hold and sell the property, or (2) sell the property for profit. The Company does not intend to invest in properties for the purpose of leasing such properties, except as described in “Properties Acquisition Guidelines and Polices” above. | |
| PROPERTY RENTAL | The Company may hold and lease properties if market conditions negatively affect the Company’s ability to sell properties for profit. The Company will hold the property until it is able to sell it for profit. Thus, the Company may earn income derived from the lease payments made by tenants on a monthly basis. | |
| REAL ESTATE COMMISSIONS | CFI or its affiliates may earn real estate commissions to list and sell real estate that the Company has acquired. Such entities may earn up to eight percent (8%) for such a sale. | |
Any and all of the Company’s revenues, including those set forth above, shall be used towards paying the Company’s debt obligations (if any) and obligations to the Noteholders. Any remaining income shall be paid to CFI as compensation for services rendered. Any income retained for purposes of a loss reserve shall be determined and established by CFI, at its sole and absolute discretion. In addition, CFI is not charging an asset management fee. Any income CFI earns (directly or indirectly) will come from the revenue generated from the Loans the Company funds and/or the properties the Company acquires and resells (or leases as applicable), after payment of the Company’s debt obligations (if any) and obligations to Noteholders.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
CF Fund II, LLC, does not have any employees. The management information of the Conquest Funding, Inc, the parent and sole member of CF Fund II, LLC is provided below.
Conquest Funding, Inc., the Parent Company
The Company is a wholly owned subsidiary of CFI. CFI is a privately-owned company and has been in operations since November of 2009, primarily as a consulting services and loan servicer company. Prior to becoming the parent company of CF Fund II, LLC, CFI specialized in purchasing and/or originating loans to/from borrowers who sought short term financing for acquisition and renovation of properties. CFI also engaged in the acquisition of properties. Currently, CFI intends to manage the day to day operations of the LLC, including managing the lending activities of the Company. As it applies to Loans, CFI will underwrite, process, assemble and/or obtain all necessary information required to make a funding decision on any loan request. It is presently anticipated that all Loans will be serviced (i.e., loan payments collected and other services relating to the loan) by the Company through a third-party servicing software called “The Mortgage Office”. As it applies to properties, CFI presently intends to manage the acquisition, development, construction, leasing, management and sale of the various properties acquired by the Company.
In addition, the Company has been utilizing and may utilize funds from CFI, which has agreed to advance funds to allow the Company to operate its business including paying for offering costs, filing fees and professional fees. CFI will not charge any management fees to the Company and will not charge any compensation directly to the Company.
CFI’s chief executive officer and director is Jeffrey Cella. CFI’s senior vice president and chief operating officer is Timothy Messerli. The Company will hire additional officers, directors and employees once sufficient resources have been acquired to support the costs for such positions, including, but not limited to, a loan officer. The loan officer will be critical to support the growth of the Company and to provide a level of management depth. The role of the loan officer will be to help manage the daily flow of activities between prospects, wholesalers/brokers and existing borrowers and to provide a second level of oversight as well as generate additional business for CFI.
The following individuals comprise the officers and directors of CFI as of the date of this Offering Circular:
Key Personnel - Biographies of Directors, Executives Officers, and Significant Employees of CF Fund II, LLC
Jeffrey Cella
President and Chief Executive Officer of Conquest Funding, Inc., Parent Company of the LLC
Jeff has worked in the commercial lending business for a significant number of years, most of those years as a commercial lender for various regional and national banking institutions. He has underwritten many types of commercial loans from small real estate loans to large multimillion dollar commercial and industrial projects. Jeff started his first private equity fund in 2011 with the Conquest Fund targeting the residential real estate investor looking for purchase and rehab loans. Conquest Fund generated over $10 million in loans during that time and never missed an interest payment to any investor. Jeff was also a principal and a key member in starting three other private equity funds with a well-known real estate broker and investor, Donald Wenner of DLP Realty. Jeff served as Senior Vice President and Chief Financial Officer and was key in bringing the fund concept to Don and creating DLP Capital Advisors, a fund management company. While Jeff enjoyed that process he was looking to do something a little different.
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He has always believed that the ability to invest in private investments should be available to everyone, not just Accredited Investors. Upon discovering Regulation A, Jeff decided to create a new offering to invite everyone to participate in this opportunity. He also wanted to widen the scope beyond purchase and rehab loans. Jeff has now created a new offering designed to attract not just the small real estate investor, but also commercial bridge financing opportunities. Jeff’s years of experience in the commercial lending business has allowed him to develop a substantial number of relationships with investors, borrowers and loan brokers.
Jeff is a graduate of Kutztown University holds Bachelors of Science degree in Economics. Jeff’s banking career has provided him with experience in high level service, professionalism and integrity, which he has brought to the private equity business along with a focus on outstanding service and attention to detail. In addition to his many years of lending experience, he is also a real estate investor and owns several single family and multi-family investment properties.
Jeff is responsible for the day to day operations of the Company and is the senior loan officer of the Company. Jeff will utilize his extensive relationships with the financial community to seek additional staff members as the company grows.
Employment History:
| Beginning and End Date |
Company | Position | Description | Approx. Hours per Week | ||||
| May 2011 – Present | Conquest Funding, Inc. (CFI) | Chief Executive Officer | President and Senior Lender, manage all aspects of the company, from raising capital to managing the loan portfolio. Responsibilities include accounting, financial management, operations, loan origination, loan underwriting, loan approval, documentation, and investor relations. | As needed. | ||||
| March 2015 – June, 2017 | Quaint Oak Bank | Commercial loan originator | Generate commercial lending opportunities that meet the Bank’s policies and guidelines. | As needed. | ||||
| August 2012 – March 2015 | DLP Capital Advisors | SVP/Interim CFO | Responsibilities included working with CEO to develop three private equity funds, financial projections, setting up lending company processes and procedures, financial analysis of the borrowers, project analysis, and loan documentation. Along with capital raising, loan origination and investor relations. | 40 hours. |
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
| May 2008 – Present | Conquest Properties, LLC | Managing Member | Manage daily operations of the company including overseeing investments in different properties. | 40 hours. | ||||
| April 2004 – August 2012 | Embassy Bank (Lehigh Valley Branch) | Vice President/Commercial Lending Officer | Responsible for all aspects of the commercial lending process: loan origination, loan structuring, financial analysis, loan approvals, portfolio management, loan presentation to the Board of Directors, delinquency management, workout and asset recovery. | 40 hours. |
Timothy Messerli
Senior Vice President and Chief Operating Officer, Inc., Parent Company of the LLC
For several years, Tim had played a major role in the establishment and growth of the company and is co- owner of CFI. As Senior Vice President and Chief Operating Officer for Conquest Funding, Inc., he has personally inspected most of the properties financed by CFI and will continue to be involved in the property inspection process.
Tim is a Fordham University graduate holding a Bachelor of Science Degree in Accounting.
Tim has an extensive background in management, construction management, finance, budgeting, strategic planning, sales and marketing and human resources. His background includes a diverse skill set ranging from Internal Auditor, National Bank of North America, New York, New York, Director of Operations with Bohlen-Reis Inc. General Contractor in Great Barrington, Massachusetts; Mortgage Consultant, IPI Skyscraper Mortgage Corp., Englewood Cliffs New Jersey; President of The MTR Group LLC, a business consulting company located in Allentown PA.
Tim’s experience with construction, business planning and sales along with his attention to detail is a tremendous asset to CFI. His role going forward will involve all aspects of the business from overseeing the inspection process to working closely with borrowers, raising capital, marketing and developing the overall strategic vision of the company.
Employment History:
| Beginning and End Date |
Company | Position | Description | Approx. Hours per Week | ||||
| September 2015 – Present | Conquest Funding, Inc. | Senior Vice President and Director | Assist in the management of the company. Responsibilities include accounting, financial management, operations, loan origination, loan underwriting, loan approval, documentation, and investor relations. | 40 hours. |
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| September 2013 – Present | The FGC Group, LLC | Owner and President | Manage and oversee all aspects of the company’s business including engaging in the rehabilitation and resale of properties in Lehigh County, Pennsylvania. | As needed. | ||||
| November 2011 – Present | The MTR Group, LLC | Owner and President | Manage all aspects of the company’s business which include managing rental properties in Baltimore, Maryland | As needed. | ||||
| November 2011– Present | The EKC Group LLC | Owner and President | Manage all aspects of the company’s business which include managing rental properties in Baltimore, Maryland | As needed. | ||||
| January 2011 – Present | Independent | Real Estate Investor | Fix and flip properties in Allentown, Pennsylvania and actively rehab, manage rental property portfolio in Baltimore, Maryland. | As needed. | ||||
| January 2011 – September, 2015 | Conquest Funding, Inc. | Independent Consultant | Advise on construction, business planning and sales to CFI. | As needed. |
Compensation of Managers and Executive Officers of CF Fund II, LLC (together with all predecessors, parents, subsidiaries, and affiliates)
| Name | Capacities in which Compensation was Received1 | Cash Compensation Paid in 20162 | Expected Cash Compensation to be Earned in 20173 | Other Compensation4 | Total
| |||||||||||||
| Jeffrey A. Cella | President and Chief Executive Officer of Conquest Funding, Inc. | $ | 7,500 | $ | 10,750 | $ | 20,000 | $ | 38,250 | |||||||||
| Timothy Messerli | Senior Vice President and Director of Conquest Funding, Inc. | $ | 7,500 | $ | 10,750 | $ | 20,000 | $ | 38,250 | |||||||||
1. The Company has no officers or directors. It is managed and wholly owned by Conquest Funding, Inc., a Pennsylvania corporation. The Company is a newly formed entity with no operating history. For these reasons, CFI has yet to receive any compensation in its capacity as Manager of the Company. CFI is not charging an asset management fee and any income it earns (directly or indirectly) will come from any fees and interest paid on the loans the Company funds and/or the properties the Company acquires, neither of which can be identified at this time.
2. In 2016, Jeffrey A. Cella and Timothy Messerli each received a salary of $7,500 for managing the operations of CFI. No portion of this compensation was paid by CF FUND II, LLC.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
3. The numbers presented above in “Cash Compensation to be Earned in 2017” are projections and serve as an example only. These numbers may increase or decrease depending on the volume of loans generated by the Company. Notwithstanding the foregoing, the numbers presented above were calculated based on the following assumptions: Time frame (May 31, 2017 to December 31, 2017), capital raised through the sale of Notes: $2,000,000, amount of capital deployed into loans: $2,000,000. Based on these assumptions the following income would be earned by the Company: (1) interest income from loans $62,500 (assumes 12.5% interest rate paid by borrowers), origination fees and points: $56,000 (assumes 2.8 points), total income: $118,500. From the $118,500, payments to Noteholders would be $45,000 (assumes a 3 month Note with an interest of 9%), with the remaining being paid to CFI ($73,500). CFI would pay the following expenses: (1) Operating expenses: $15,000, (2) General and Administrative expenses: $17,000, Legal and Accounting Expenses: $20,000, total expenses: $52,000. Net income to CFI: $21,500 to be paid to Jeffrey A. Cella and Timothy Messerli as principals of CFI, equally, $10,750 each (paid indirectly by CF Fund II, LLC). The principals of CFI do not have a set salary.
4. For the 2017 year CFI will pay Jeffrey A. Cella and Timothy Messerli a compensation $20,000 (each) for managing the operations of CFI. No portion of the $20,000 compensation was paid from or will be paid from the income generated by CF FUND II, LLC.
CFI’S ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a newly formed company and has a limited operating history. The Company’s current cash balance is $1,000.00 as of June 30, 2017. The cash balance is not sufficient to fund the limited levels of operations for any period of time. The Company has been utilizing and may utilize funds from the Parent Company, which has agreed to advance funds to allow the Company to operate its business including paying for offering costs, filing fees and professional fees. In order to execute the plan of operations, the Company will require varying amounts of capital based on the Loans and/or properties the Company intends to fund or acquire. The Company intends to continuously offer Notes to Investors on an as needed basis to operate its business plan. (See “Operational Plan”, “Description of the Business of CF Fund II, LLC”, and “Lending Standards” above.)
CFI will not charge any management fees to the Company and will not charge any compensation directly to the Company. Typically fund managers receive 1%, 2%, and even 3% right off the top for raising capital before any profit is generated with the capital raised. Because this fund is open to both accredited and non-accredited investors, the Company believes it has an even greater responsibility to all the investors to only be paid after the fund produces a profit. The Company will receive income from the Loans it makes in the form of interest, fee and points and in some situations profit sharing in certain equity transactions, and income from investments in real property (through the purchase, remodeling, and resale of the property for profit). The only expenses the Company will incur are those associated with interest paid to the Noteholders.
In addition, CFI intends to retain some portion of the profit in the fund to create a loss reserve (the “Loan Loss Reserve”) to sustain the Company in the event the Company suffers a loss due to one or more Loan defaults and it was unable to fully recover all the principal of the Loan. The exact amount of the Loan Loss Reserve will be determined by CFI from time to time based on the profitability of the Company and on an as case by case basis. Since the Company’s loans are collateral based loans and not credit based, ultimately the collateral serves as ultimate security for the loan and should a borrower begin to show signs of inability to repay the loan, the collateral provided for said loan will be evaluated for value and ultimate impairment in order to determine the need of a Loan Loss Reserve. The excess profits of the Company will flow to the Parent Company.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Number of Investors Allowed in this Offering
Reg A Tier 1 allows issuers to raise capital from up to five hundred (500) non-accredited investors and two thousand (2000) Accredited Investors. This will allow the Company to raise funds from a broader investor base. The fundraising goal is Twenty Million Dollars ($20,000,000). The Company reserves the right to increase the Maximum Offering Amount, subject to a post-qualifying amendment with the SEC.
Sources of Income to the Company
The Company will earn income from the interest generated from the Loans, loan origination fees and points, plus fees charged for appraisals and inspections, and income from its investments in properties (through the purchase, remodeling, and resale of the property for profit and in some instances, from leasing the property). The Company will consider the borrower’s credit history, experience, financial condition, along with the amount of money the borrower is putting into the transaction. The appraisal fees are the cost the Company will incur and in turn charge the borrower to obtain a third party appraisal on a property. The Company intends to conduct three (3) to four (4) inspections on an average project.
Expenses
Capital will be raised based on an as needed basis, and will depend on the demand for loans and properties. The expenses for salaries, operations, advertising, audits, etc. will be paid by CFI.
Operational Plan
Marketing & Sales
Phase I – The marketing and sales will initially be handled by the principals and those staff members they hire as needed. Both Jeffrey Cella and Timothy Messerli have extensive contacts in the local business community with loan brokers, bankers, real estate agents, real estate wholesalers, property managers, investors, networking groups etc. and will tap those resources first. CFI will be actively looking for borrowers and investors at the same time with a simple message of providing value to our investors and borrowers through quick response times, creative solutions, and understanding the people behind the projects. CFI will also use a web based marketing effort and utilizing the resources and client base from local investment advisors. Phase II will be a larger campaign through direct mail, email, public events, radio spots and printed media to generate a larger awareness that this investment in available to both accredited and non-accredited investors.
Investor and Borrower operations
CFI plans to use a third party servicing software called “The Mortgage Office” to manage the investor and borrower information and record keeping. The software will calculate and make interest payments due to investors, bill and process loan payments from borrowers, provide various reporting for monthly and year-end statements and provide additional areas of support where needed.
Jeff will be primarily responsible for investor relations and borrower underwriting and loan approval, loan documentation and settlements. Tim’s primary function is asset protection in the field, making sure the properties fit our guidelines, the borrower’s rehab estimates are reasonable and the projects are getting completed in a reasonable time frame. He will also be the onsite inspector for many of these properties providing his insight and knowledge regarding each property we take as collateral. Tim will also coordinate the use of other professional personnel such as architects, engineers, safety inspectors, environmental experts for larger commercial transactions where we may need these services. Tim will actively engaged in developing investors and borrowers as part of our overall marketing strategy.
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We anticipate the hiring of an administrative support person and a part time internal accountant within the first 12 months of operations. These expenses are all paid for through CFI and not directly from the Company.
Neither the Company nor any of its directors or officers, are now, or within the past five (5) years have been, involved in any material litigation or arbitration.
Federal Income Tax Aspects
The following discussion generally summarizes the material federal income tax consequences of an investment in the Company based upon the existing provisions of the Internal Revenue Code of 1986, as amended (the “Code”), and applicable Treasury regulations thereunder, current administrative rulings and procedures and applicable judicial decisions. However, it is not intended to be a complete description of all tax consequences to prospective Investors with respect to their investment in the Company. No assurance can be given that the Internal Revenue Service (the “IRS”) will agree with the interpretation of the current federal income tax laws and regulations summarized below. In addition, the Company or the Investors may be subject to state and local taxes in jurisdictions in which the Company may be deemed to be doing business.
ACCORDINGLY, ALL PROSPECTIVE INVESTORS SHOULD INDEPENDENTLY SATISFY THEMSELVES REGARDING THE POTENTIAL FEDERAL AND STATE TAX CONSEQUENCES OF PARTICIPATION IN THE COMPANY AND ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS, ATTORNEYS OR ACCOUNTANTS IN CONNECTION WITH ANY INTEREST IN THE COMPANY. EACH PROSPECTIVE INVESTOR/SHAREHOLDER SHOULD SEEK, AND RELY UPON, THE ADVICE OF THEIR OWN TAX ADVISORS IN EVALUATING THE SUITABILITY OF AN INVESTMENT IN THE COMPANY IN LIGHT OF THEIR PARTICULAR INVESTMENT AND TAX SITUATION.
Tax Law Subject to Change
Frequent and substantial changes have been made, and will likely continue to be made, to the federal and state income tax laws.
The changes made to the tax laws by legislation are pervasive, and in many cases, have yet to be interpreted by the IRS or the
courts.
State and Local Taxes
A description or analysis of the state and local tax consequences of an investment in the Company is beyond the scope of this discussion. Prospective Noteholders are advised to consult their own tax counsel and advisors regarding these consequences and the preparation of any state or local tax returns that an Investor may be required to file.
IRS Audits
Returns filed by the Company are subject to audit by the IRS. The IRS devotes considerable attention to the proper application of the tax laws to corporations. An audit of the Company’s return may lead to adjustments which adversely affect the federal income tax treatment of Notes and cause Noteholders to be liable for tax deficiencies, interest thereon and penalties for underpayment. An audit of the Company’s tax return could also lead to an audit of their individual tax return that may not otherwise have occurred, and to the adjustment of items unrelated to the Company. Prospective investors should make their determination to invest based on the economic considerations of the Company rather than any anticipated tax benefits. Furthermore, the IRS has taken the position in Temp. Reg. 1.163-9T that any interest on income taxes owed by an individual is personal interest, subject to limitations on deduction, regardless of the nature of the activity that produced the income that was the source of the tax.
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| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
Understatement Penalties
The Company will be subject to a substantial understatement penalty in the event that it understates its income tax. The IRS imposes a penalty of 20% on any substantial understatement of income tax. Furthermore, the IRS can charge interest on underpayments of income tax exceeding One Hundred Thousand ($100,000) for any tax year owing by certain corporations at a rate that is higher than the normal interest rate. The Company strongly advises prospective investors to consult with their own tax advisor to be sure that they fully evaluate the proposed tax treatment of Company as described herein.
Accounting and Reports
Annual reports concerning the LLC’s business affairs, including the LLC’s annual income tax return, will be provided to Noteholders who request them in writing. CFI may, at its sole and absolute discretion, designate any person to provide tax and accounting advice to the LLC, at any time and for any reason.
CFI presently intends to maintain the LLC’s books and records on the accrual basis for bookkeeping and accounting purposes, and also intends to use the accrual basis method of reporting income and losses for federal income tax purposes. CFI reserves the right to change such methods of accounting upon written notice to Noteholders. After the LLC reaches One Million Dollars ($1,000,000) in assets under management, CFI further intends, at its sole and absolute discretion, to obtain audited financial statements to be distributed to the Noteholders on an annual basis.
The following is a discussion of how certain requirements of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Code relating to Employee Benefit Plans and certain Other Benefit Arrangements (each as defined below) may affect an investment in the Notes. It is not, however, a complete or comprehensive discussion of all employee benefits aspects of such an investment. If the prospective investors are trustees or other fiduciaries of an Employee Benefit Plan or Other Benefit Arrangement, before purchasing Units, they should consult with their own independent legal counsel to assure that the investment does not violate any of the applicable requirements of ERISA or the Code, including, without limitation, the ERISA fiduciary rules and the prohibited transaction requirements of ERISA and the Code.
ERISA Fiduciary Duties
Under ERISA, persons who serve as trustees or other fiduciaries of an Employee Benefit Plan have certain duties, obligations and responsibilities with respect to the participants and beneficiaries of such plans. Among the ERISA fiduciary duties are the duty to invest the assets of the plan prudently, and the duty to diversify the investment of plan assets so as to minimize the risk of large losses. An “Employee Benefit Plan” is a plan subject to ERISA that is an employee pension benefit plan (such as a defined benefit pension plan or a section 401(k) or 403(b) plan) or any employee welfare benefit plan (such as an employee group health plan).
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Prohibited Transaction Requirements
Section 406 of ERISA and Section 4975 of the Code proscribe certain dealings between Employee Benefit Plans or Other Benefit Arrangements, on the one hand, and “parties-in interest” or “disqualified persons” with respect to those plans or arrangements on the other. An “Other Benefit Arrangement” is a benefit arrangement described in Section 4975(e)(1) of the Code (such as a self-directed individual retirement account (“IRA”), other than an Employee Benefit Plan.
Prohibited transactions include, directly or indirectly, any of the following transactions between an Employee Benefit Plan or Other Benefit Arrangement and a party in interest or disqualified person:
(a) sales or exchanges of property;
(b) lending of money or other extension of credit;
(c) furnishing of goods, services or facilities; and
(d) transfers to, or use by or for the benefit of, a party in interest or disqualified person of any assets of the Employee Benefit Plan or Other Benefit Arrangement.
In addition, prohibited transactions include any transaction where a trustee or other fiduciary of an Employee Benefit Plan or Other Benefit Arrangement:
(a) deals with plan assets for his own account,
(b) acts on the behalf of parties whose interests are adverse to the interest of the plan, or
(c) receives consideration for his own personal account from any party dealing with the plan with respect to plan assets.
The terms “party in interest” under ERISA and “disqualified person” under the Code have similar definitions. The terms include persons who have particular relationships with respect to an Employee Benefit Plan or Other Benefit Arrangement, such as:
(a) fiduciaries;
(b) persons rendering services of any nature to the plan;
(c) employers any of whose employees are participants in the plan, as well as owners of 50% or more of the equity interests of such employers;
(d) spouses, lineal ascendants, lineal descendants, and spouses of such ascendants or descendants of any of the above persons;
(e) employees, officers, directors and 10% or more owners of such fiduciaries, service providers, employers or owners;
(f) entities in which any of the above-described parties hold interests of 50% or more; and
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(g) 10% or more joint venturers or partners of certain of the parties described above.
Certain transactions between Employee Benefit Plans or Other Benefit Arrangements and parties in interest or disqualified persons that would otherwise be prohibited transactions are exempt from the prohibited transaction rules due to the application of certain statutory or regulatory exemptions. In addition, the United States Department of Labor (the “DOL”) has issued class exemptions and individual exemptions for certain types of transactions. Violations of the prohibited transaction rules may require the prohibited transactions to be rescinded and will cause the parties in interest or disqualified persons to be subject to excise taxes under Section 4975 of the Code.
Investments in the Company
If a prospective investor is a fiduciary of an Employee Benefit Plan, the investor must act prudently and ensure that the plan’s assets are adequately diversified to satisfy the ERISA fiduciary duty requirements. Whether an investment in the Company is prudent and whether an Employee Benefit Plan’s investments are adequately diversified must be determined by the plan’s fiduciaries in light of all of the relevant facts and circumstances. A fiduciary should consider, among other factors, the limited marketability of the Notes.
Prospective investors also should be aware that under certain circumstances the DOL may view the underlying assets of the Company as “plan assets” for purposes of the ERISA fiduciary rules and the ERISA and Internal Revenue Code prohibited transaction rules. DOL regulations indicate that Company assets will not be considered plan assets if less than 25% of the value of the Notes is held by Employee Benefit Plans and Other Benefit Arrangements.
The Company anticipates that if any investor is an Employee Benefit Plan subject to ERISA, the Company will limit the investments by all Employee Benefit Plans and Other Benefit Arrangements to ensure that the 25% limit is not exceeded. Because the 25% limit is determined after every subscription or redemption, the Company has the authority to require the redemption of all or some of the Notes held by any Investor that is an Employee Benefit Plan or Other Benefit Arrangement if the continued holding of such Notes, in the sole opinion of the Company, could result in the Company being subject to the ERISA fiduciary rules.
If there are no Employee Benefit Plan investors in the Company, the Company anticipates that investments by Other Benefit Arrangements (such as self-directed IRAs) may exceed the 25% limit. This may cause the underlying assets of the Company to be considered plan assets for purposes of the Code prohibited transaction rules. In such a case, the Other Benefit Arrangement investors must ensure that their investments do not constitute prohibited transactions under Section 4975 of the Code. Such investors should consult with independent legal counsel on these issues.
Special Limitations
The discussion of the ERISA fiduciary aspects and the ERISA and Code prohibited transaction rules contained in this Offering Circular is not intended as a substitute for careful planning. The applicability of ERISA fiduciary rules and the ERISA or Code prohibited transaction rules to Investors may vary from one Investor to another, depending upon that Investor’s situation. Accordingly, prospective investors should consult with their own attorneys, accountants and other personal advisors as to the effect of ERISA and the Code on their situation of a purchase and ownership of the Notes and as to potential changes in the applicable law.
| 51 |
| JOBS ACT / REGULATION A / TIER 1 | CF FUND II, LLC | OFFERING CIRCULAR |
The Company has retained Geraci Law Firm of Irvine, California to advise it in connection with the preparation of this Offering, the Promissory Note, the Subscription Agreement and any other documents related thereto. Geraci Law Firm has not been retained to represent the interests of any Investors or Noteholders in connection with this Offering. All investors that are evaluating or purchasing Promissory Notes should retain their own independent legal counsel to review this Offering, the Offering Circular, the Promissory Note, the Subscription Agreement and any other documents and matters related whatsoever to this Offering, and to advise them accordingly.
ADDITIONAL INFORMATION AND UNDERTAKINGS
The Company undertakes to make available to each prospective investor every opportunity to obtain any additional information from the Company necessary to verify the accuracy of the information contained in this Offering Circular, to the extent that the Company possesses such information or can acquire it without unreasonable effort or expense. This additional information includes, without limitation, all the organizational documents of the Company, recent financial statements for the Company and all other documents or instruments relating to the operation and business of the Company and material to this offering and the transactions contemplated and described in this Offering Circular.
Pursuant to the requirements of Regulation A, as amended, the Company certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this Offering Circular and the correlating Offering Statement to be signed on its behalf, by the undersigned, thereunto duly authorized, in the city of Allentown, Pennsylvania.
| CF Fund II, LLC | |
| /s/ Jeffrey Cella | |
| By: Jeffrey A. Cella, President and CEO of Conquest Funding, Inc., | |
| a Pennsylvania corporation, Parent Company of | |
| CF Fund II, LLC, a Pennsylvania limited liability company. | |
| Date: August 1, 2017 |
| 52 |
Exhibit C
| Purchaser Number: |
CF FUND II, LLC
a Pennsylvania limited liability company
SUBSCRIPTION AGREEMENT
THE PROMISSORY NOTES OF THE COMPANY SUBJECT TO THIS SUBSCRIPTION AGREEMENT ARE SECURITIES WHICH HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”). THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”) DOES NOT PASS UPON THE MERITS OF OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. THE SEC HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES ARE EXEMPT FROM REGISTRATION. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE SEC. THE SEC HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THIS INVESTMENT INVOLVES A DEGREE OF RISK THAT MAY NOT BE SUITABLE FOR ALL PERSONS. ONLY THOSE INVESTORS WHO CAN BEAR THE LOSS OF A SIGNIFICANT PORTION OF THEIR INVESTMENT SHOULD PARTICIPATE IN THE INVESTMENT.
1. SUBSCRIPTION.
| AMOUNT OF INVESTMENT: | $____________________________________ |
(a) The undersigned (“Purchaser”) hereby subscribes to become a holder (“Noteholder”) of promissory notes in CF FUND II, LLC, a Pennsylvania limited liability company (the “Company”), and to purchase through his, her or its investment the amount of promissory notes (“Promissory Notes”) as indicated above, all in accordance with the terms and conditions of this Subscription Agreement, the Promissory Notes, the Articles of Organization (the “Articles”) and Operating Agreement (“Operating Agreement”) of the Company, and the Offering Circular dated August 1, 2017 (the “Offering Circular”).
(b) The Purchaser acknowledges and agrees that this subscription cannot be withdrawn, terminated, or revoked. The Purchaser agrees to become a Noteholder and to be bound by all the terms and conditions of the Promissory Notes. This subscription shall be binding on the heirs, executors, administrators, successors and assigns of the Purchaser. This subscription is not transferable or assignable by the Purchaser, except as expressly provided in the terms and conditions of the actual Promissory Notes.
(c) This subscription may be rejected as a whole or in part by the Company in its sole and absolute discretion. If this subscription is rejected, the Purchaser’s funds shall be returned to the extent of such rejection. This subscription shall be binding on the Company only upon its acceptance of the same.
(d) Neither the execution nor the acceptance of this Subscription Agreement constitutes the Purchaser as a Noteholder, shareholder or secured creditor of the Company. This is an agreement only to purchase the Promissory Notes on a when issued basis; and the Purchaser will become a Noteholder (and not a shareholder or secured creditor) only after the Purchaser’s funds are duly transferred to the account of the Company and the Promissory Notes are issued thereupon to the Purchaser. Until such time, the Purchaser shall have only those rights as may be set forth in this Subscription Agreement.
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
(e) The Purchaser’s rights and responsibilities will be governed by the terms and conditions of this Subscription Agreement, the Offering Circular, and the Promissory Notes. If Purchaser is deemed an Accredited Investor, the Company will rely upon the information provided in this Subscription Agreement to confirm that the Purchaser is an “Accredited Investor” as defined in Regulation D promulgated under the Act. If Purchaser is a non-accredited investor, the Company will reply upon the information provided in this Subscription Agreement to confirm that the Purchaser is sophisticated and meets the non-accredited suitability standards further outlined below, that will allow the investor to purchase Promissory Notes.
(f) Should the process from depositing a Purchaser’s funds into the account of the Company and acceptance as a Noteholder take longer than ninety (90) days, the Purchaser may request in writing to recover his, her or its investment funds. If, upon receipt of such request in writing, the Company has not yet accepted the Purchaser as a Noteholder, then the Company will return the Purchaser’s funds to the Purchaser and revoke the Subscription Agreement within ten (10) business days of receipt of such request from the Purchaser.
(g) Delivery of Financial Information of the Company. Within one hundred and twenty (120) days following the end of each fiscal year of the Company (subsequent to the date of the Promissory Note and prior to the maturity date), the Company will deliver a copy of its annual financial statements to the Purchaser (provided that Purchaser is accepted as a Noteholder). Purchaser hereby consents to delivery of the Company’s financial statements in the method selected below (please check one of the boxes below and provide the requested information):
| ¨ | Electronic mail to: |
| ¨ | Certified mail to the following address: | ||
2. REPRESENTATIONS AND WARRANTIES BY THE PURCHASER. The Purchaser represents, warrants, and agrees as follows:
(a) I have received and read the Offering Circular and its Exhibits, including the Articles and Operating Agreement, and the terms and conditions of the Promissory Notes, and I am thoroughly familiar with the proposed business, operations, properties and financial condition of the Company. I have relied solely upon the Offering Circular and independent investigations made by me or my representative with respect to the investment in Promissory Notes. No oral or written representations beyond the Offering Circular have been made or relied upon.
(b) I have read and understand the Articles and Operating Agreement and understand how the Company functions as a corporate entity. By purchasing the Promissory Notes and executing this Subscription Agreement, I hereby agree to the terms and provisions of the Promissory Notes.
(c) I understand that the Company has limited financial and operating history. I have been furnished with such financial and other information concerning the Company, its management, and its business, as I consider necessary in connection with the investment in Promissory Notes. I have been given the opportunity to discuss any questions and concerns with the Company.
(d) I am purchasing Promissory Notes for my own account (or for a trust if I am a trustee), for investment purposes and not with a view or intention to resell or distribute the same. I have no present intention, agreement, or arrangement to divide my participation with others or to resell, assign, transfer, or otherwise dispose of all or part of the Promissory Notes.
| 2 |
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
(e) I or my investment advisors have such knowledge and experience in financial and business matters that will enable me to utilize the information made available to evaluate the risks of the prospective investment and to make an informed investment decision. I have been advised to consult my own attorney concerning this investment and to consult with independent tax counsel regarding the tax considerations of participating in the Promissory Notes and the Company.
(f) I have carefully reviewed and understand the risks of investing in the Promissory Notes, including (without limitation) those set forth in the Offering Circular and the terms and conditions of the Promissory Notes. I have carefully evaluated my financial resources and investment position and acknowledge that I am able to bear the economic risks of this investment. I further acknowledge that my financial condition is such that I am not under any present necessity or constraint to dispose of the Promissory Notes to satisfy any existent or contemplated debt or undertaking. I have adequate means of providing for my current needs and possible contingencies, have no need for liquidity in my investment, and can afford to lose some or all of my investment.
(g) I have been advised that the Promissory Notes have not been registered under the Securities Act of 1933, as amended (the “Act”), or qualified under any State Securities Laws (the “Law”), on the ground, among others, that no distribution or public offering of the Promissory Notes is to be effected and the Promissory Notes will be issued by the Company in connection with a transaction that does not involve any public offering as defined in the Act or of the Law, and under the respective rules and regulations of the Securities and Exchange Commission.
(h) All information which I have furnished in this Subscription Agreement concerning myself, my financial position, and my knowledge of financial and business matters is correct, current, and complete.
3. INVESTOR SUITABILITY STANDARDS. The Company intends to sell the Promissory Notes to qualified investors, including “accredited investors” and to a maximum of five hundred (500) sophisticated non-accredited investors who meet the conditions set forth below. All investors who are not deemed “accredited” shall supply such information to the Company as the Company may deem necessary (in its sole and absolute discretion) to determine that the investor, or his, her or its purchaser representative, renders the investor capable of evaluating risks of a proposed investment in the Promissory Notes and meets one of the conditions set forth below. All investors, whether deemed “Accredited” or “non-accredited” must meet one of the standards set forth below (as applicable to each investor) and have such knowledge and experience in financial matters, either alone or together with a purchaser representative, to make them capable of evaluating the merits and risks of such an investment in the Notes being offered.
The Notes will be sold to a maximum of five Hundred (500) non-accredited public investors who meet ONE the following conditions: (Please provide Purchaser’s initials next to the category the Purchaser meets below, by providing Purchaser’s initials, Purchaser warrants that such information is true, current, and accurate and Purchaser meets one of the conditions below)
___ 1. A minimum annual gross income of seventy thousand dollars ($70,000) AND a minimum net worth of seventy thousand dollars ($70,000); OR
___ 2. A minimum net worth of two hundred and fifty thousand dollars ($250,000), exclusive of automobile, home and home furnishings.
| 3 |
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
The Notes will also be sold to a maximum of two thousand (2000) “Accredited Investors”. To qualify as an “Accredited Investor” an investor must meet ONE of the following conditions:
(a) Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000.00; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered adviser, or if the employee benefit plan has total assets in excess of $5,000,000.00 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
(b) Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;
(c) Any organization described in section 501(c)(3) of the Internal Revenue Code, limited liability company, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
(d) Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;
(e) Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000.00 (excluding the person’s primary residence);
(f) Any natural person who had an individual income in excess of $200,000.00 in each of the two most recent years or joint income with that person's spouse in excess of $300,000.00 in each of those years and has a reasonable expectation of reaching the same income level in the current year;
(g) Any trust, with total assets in excess of $5,000,000.00, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in § 230.506(b)(2)(ii); or
(h) Any entity in which all of the equity owners are accredited investors.
4. AGREEMENT TO REFRAIN FROM RESALE. The Purchaser agrees not to pledge, hypothecate, sell, transfer, assign or otherwise dispose of any Promissory Notes, nor receive any consideration for Promissory Notes from any person, unless and until prior to any such action:
(a) A registration statement on a form appropriate for the purpose under the Act with respect to the Promissory Notes proposed to be so disposed of shall be then effective and such disposition shall have been appropriately qualified in accordance with applicable securities laws; or
(b) All of the following shall have occurred: (i) the Purchaser shall have furnished the Company with a detailed explanation of the proposed disposition, (ii) the Purchaser shall have furnished the Company with an opinion of the Purchaser's counsel in form and substance satisfactory to the Company to the effect that such disposition will not require registration of such Promissory Notes under the Act or qualification of such Promissory Notes under any other securities law, and (iii) counsel for the Company shall have concurred in such opinion and the Company shall have advised the Purchaser in writing of such concurrence.
| 4 |
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
6. MISCELLANEOUS.
(a) CHOICE OF LAWS: This Subscription Agreement will be governed by and construed in accordance with the laws of the State of Pennsylvania, without giving effect to its choice of laws rules.
(b) ENTIRE AGREEMENT: This Subscription Agreement constitutes the entire agreement between the parties and may be amended only by written agreement between all parties.
(c) BINDING ARBITRATION: Any dispute, claim or controversy arising out of, relating to, in connection with or under this Subscription Agreement, or the breach or threatened breach thereof, will be resolved through confidential binding arbitration under the then prevailing rules of the American Arbitration Association in Allentown, Pennsylvania (or, if arbitration is unavailable in such venue, as close as physically possible to Allentown, Pennsylvania) and any party making a claim hereunder in whatever form hereby submits to jurisdiction and venue in that forum for any and all purposes. The decision of the arbitrator shall be final and judgment on any award thereupon may be entered in any court having jurisdiction thereof. This paragraph 6(c) shall not preclude either party from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.
(d) TERMINATION OF AGREEMENT: If this subscription is rejected by the Company, then this Subscription Agreement shall be null and void and of no further force and effect and no party shall have any rights against any other party hereunder and the Company shall promptly return the funds delivered with this Subscription Agreement.
(e) TAXES. The discussion of the federal income tax considerations arising from investment in the Company, as set forth in the Offering Circular, is general in nature and the federal income tax considerations to the Purchaser of investment in the Promissory Notes will depend on individual circumstances. The Offering Circular does not discuss state income tax considerations, which may apply to all or substantially all Purchasers. There can be no assurance that the Internal Revenue Code or the Regulations under the Code will not be amended in a manner adverse to the interests of the Purchaser or the Company.
(f) DULY AUTHORIZED. If the Purchaser is a limited liability company, partnership, trust, or other entity, the individual(s) signing in its name is(are) duly authorized to execute and deliver this Subscription Agreement on behalf of such entity, and the purchase of the Promissory Notes by such entity will not violate any law or agreement by which it is bound.
(g) PROMISSORY NOTES CONTAIN RESTRICTIVE LEGEND. Any documents or certificates issued to evidence ownership of the Promissory Notes will bear restrictive legends notifying prospective purchasers of the transfer restrictions set forth above, and the Company will not permit transfer of any Promissory Notes on the books of the Company in violation of such restrictions.
| 5 |
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
(h) SUCCESSORS. The representations, warranties and agreements contained in this Subscription Agreement shall be binding on the Purchaser's successors, assigns, heirs and legal representatives and shall inure to the benefit of the respective successors and assigns of the Company and its directors and officers. If the Purchaser is more than one person, the obligations of all of them shall be joint and several, and the representations and warranties contained herein shall be deemed to be made by, and to be binding upon, each such person and his heirs, executors, administrators, successors, and assigns.
(i) INDEMNIFICATION. The Purchaser shall indemnify and defend the Company and its directors and officers from and against any and all liability, damage, cost, or expense (including attorneys’ fees) arising out of or in connection with:
(i) Any inaccuracy in, or breach of, any of the Purchaser’s declarations, representations, warranties or covenants set forth in this document or any other document or writing delivered to the Company;
(ii) Any disposition by the Purchaser of any Promissory Notes in violation of this Agreement, the Articles or Operating Agreement, the terms and conditions of the Promissory Notes or any applicable law; or
(iii) Any action, suit, proceeding or arbitration, whether threatened, pending or actual, alleging any of the foregoing.
(iv) Pennsylvania Residents Disclosure. It is the position of the Pennsylvania Department of Banking and Securities that indemnification in connection with a violation of the securities laws is against public policy and void.
7. FORM OF OWNERSHIP. Please indicate the form in which you will hold title to your Promissory Notes. Please consider this election carefully. Once your subscription is accepted, a change in the form of title constitutes a transfer of the Promissory Notes and will therefore be restricted by the terms of the Promissory Notes and the Act. Purchaser should seek the advice of an attorney in deciding in which of the forms to take ownership of the Promissory Notes as different forms of ownership can have substantially varying gift tax, estate tax, income tax and other consequences.
| ( ) | INDIVIDUAL OWNERSHIP (one signature required). |
| ( ) | COMMUNITY PROPERTY (one signature required if Promissory Notes held in one name, i.e., managing spouse; two signatures required if Promissory Notes held in both names). |
| ( ) | JOINT TENANTS WITH RIGHT TO SURVIVORSHIP (not as tenants in common) (both or all parties must sign). |
| ( ) | TENANTS IN COMMON (both or all parties must sign). |
| ( ) | GENERAL PARTNERSHIP (fill out all documents in the name of the partnership by a partner authorized to sign) |
| ( ) | LIMITED PARTNERSHIP (fill out all documents in the name of the limited partnership by a general partner authorized to sign, and include a copy of the Certificate of Limited Partnership or equivalent) |
| ( ) | LIMITED LIABILITY COMPANY (fill out all documents in the name of the limited liability company by the manager authorized to sign, and include a copy of the Articles of Organization or equivalent) |
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| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
| ( ) | LIMITED LIABILITY COMPANY (fill out all documents in the name of the limited liability company, by the President and Secretary, and include a certified corporate resolution authorizing the signature). |
| ( ) | TRUST (fill out all documents in the name of the trust, by the trustee, and include a copy of the instrument creating the trust and any other documents necessary to show that the investment by the trustee is authorized). The date of the trust must appear on the notarial where indicated. |
| ( ) | IRA or KEOGH plan (fill out all documents in the name of the IRA or Keogh plan, by the beneficiary); the documents must also be executed by the custodian of the plan. |
Please print in the space below the EXACT name the Purchaser desires
on the account and the address for any correspondence and notices.
____________________________________________________
Exact Name(s)
_____________________________________________________
Street Address
_____________________________________________________
City, State, and Zip Code
_____________________________________________________
E-mail address
8. IDENTIFYING INFORMATION.
Individual purchaser(s):
Name of Purchaser: _____________________________________________________________
Social Security No.: __________ - _____ - __________ Date of Birth: ______/______/_______
Name of Co-Purchaser: __________________________________________________________
Social Security No.: __________ - _____ - __________ Date of Birth: ______/______/_______
Name of Co-Purchaser: __________________________________________________________
Social Security No.: __________ - _____ - __________ Date of Birth: ______/______/_______
Name of Co-Purchaser: __________________________________________________________
Social Security No.: __________ - _____ - __________ Date of Birth: ______/______/_______
Family Trust purchaser:
Exact name of Family Trust: ______________________________________________________
______________________________________________________________________________
Federal Tax Identification No. _____________________________________________________
Address (including City, State, and Zip):_____________________________________________
______________________________________________________________________________
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| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
Corporate purchaser:
Name of Limited liability company: _________________________________________________
Federal Tax Identification No.______________________________________________________
State and date of limited liability company: ___________________________________________
Partnership or other business entity purchaser:
Name of Partnership or other business entity: _________________________________________
______________________________________________________________________________
Federal Tax Identification No.: _____________________________________________________
State and date of organization: _____________________________________________________
For limited liability company, business trust, investment company, partnership or other business entity:
Fiscal year end:_______________________________________________________________
Principal place of business ______________________________________________________
Phone number of business ______________________________________________________
What is the entity’s net worth, on a consolidated basis, according to its most recent audited
financial statement? ___________________________________________________________
Company Pension or Profit Sharing Plan purchaser:
Exact Name of the Plan: _________________________________________________________
_____________________________________________________________________________
Name(s) of the Trustee(s): _______________________________________________________
_____________________________________________________________________________
Trustee’s State Residency: _______________________________________________________
Federal Tax Identification No. ____________________________________________________
State and date of organization: ____________________________________________________
Describe and set forth the value of the assets of the Plan or Trust: ________________________
_____________________________________________________________________________
Please identify the person(s) with investment control over the Plan or Trust assets and that
person’s state of residence.
_____________________________________________________________________________
_____________________________________________________________________________
| 8 |
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
Please identify the person(s) responsible for the ministerial duties of administering the Plan or
Trust (the Trustee) and that person’s state of residence.
_____________________________________________________________________________
_____________________________________________________________________________
9. SPECIFIC INFORMATION REQUIRED FROM ENTITIES.
(INDIVIDUALS: SKIP TO SECTION 11 BELOW)
ACCREDITED INVESTOR STATUS OF THE ENTITY
Please select a category for the entity:
_____ (1) A bank as defined in section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in section 3(a)(5)(a) of the Act, whether acting in its individual or fiduciary capacity;
_____ (2) A broker or dealer registered pursuant to section 15 of the Act;
_____ (3) An insurance company as defined in section 2(13) of the Act;
_____ (4) An investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act;
_____ (5) A Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958;
_____ (6) Any plan established and maintained by a State, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000;
_____ (7)* An employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) thereof, which is either a bank, savings and loan association, insurance company or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;
_____ (8) A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
_____ (9) Any organization described in section 501(c)(3) of the Internal Revenue Code, limited liability company, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;
_____ (10)** A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities of the Company being offered, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of the prospective investment in the Company;
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| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
_____ (11)*** An entity in which all the equity owners are accredited investors.
*Note for Certain Employee Benefit Plans:
If you are a self-directed plan that believes it is an "accredited investor" because investment decisions are made solely
by persons that are accredited investors, please complete the information for individuals pursuant to Section 11 with respect to
you and each such person participating in making the investment decision.
**Note for Trusts: If you are a trust that believes it is an "accredited investor", please complete the information
for individuals pursuant to Section 11 with respect to you and each person participating in making the investment decision.
***Note for Certain Entities: If you are an entity that believes it is an "accredited investor" by virtue of the accredited investor status of each equity owner thereof, please complete the information for individuals pursuant to Section 11 with respect to you and each such equity owner.
10. FURTHER REPRESENTATIONS. Purchaser (whether an individual or entity) understands that the Company will be relying on the accuracy and completeness of the statements and responses contained in this Subscription Agreement. Purchaser represents and warrants to the Company as follows:
1. My statements and responses contained in this Subscription Agreement are complete and correct and may be relied on by the Company for the purpose of complying with all applicable security laws and to determine whether I am a suitable investor.
2. I will notify the Company immediately of any material change in any statement or response made in this Subscription Agreement before acceptance by the Company of this subscription.
3. I have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of the prospective investment, or I have consulted with Investment Advisors and other professional advisors who have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of prospective investment.
4. I am able to bear the economic risk of an investment in the Promissory Notes for an indefinite period of time and understand that an investment in the Promissory Notes is illiquid and may result in a complete loss of such investment.
5. Purchaser understands and agrees that the Company is relying upon the truthfulness of the certification being made by Purchaser as to Purchaser’s status as an Accredited Investor (as applicable) for the reason checked in Section 9 above or Section 11 below. Purchaser further understands and agrees that the Company may request to be shown, in confidence, documentation reasonably satisfactory to the Company supporting the certification by the Purchaser as to the Purchaser’s status as an Accredited Investor. The Company reserves the right to refuse to accept any subscription as to which the Company is not satisfied (in its sole and absolute discretion) that the Purchaser is an Accredited Investor.
6. Purchaser understands and agrees that the Company is relying upon the truthfulness of the certification being made by Purchaser as to Purchaser’s suitability as a non-accredited investor (as applicable) for the reason checked in Section 3 above or Section 11 below. Purchaser further understands and agrees that the Company may request to be shown, in confidence, documentation (including but not limited to income tax returns, bank statements, W-2 forms, etc.) reasonably satisfactory to the Company supporting the certification by the Purchaser as to the Purchaser’s financial condition and capability to meet the non-accredited investor suitability standards set forth in Section 3 above and Section 11 below. The Company reserves the right to refuse to accept any subscription as to which the Company is not satisfied (in its sole and absolute discretion) that the Purchaser is an Accredited Investor.
7. Purchaser agrees and understands that in making this investment, Purchaser: (a) must have sufficient knowledge and experience in such financial and business matters to be capable of evaluating the merits and risks of a purchase of the Promissory Notes; or (b) must retain the services of an “Investment Advisor” (who may be an attorney, accountant, or other financial adviser unaffiliated with, and who is not compensated by, the Company or any affiliate or selling agent of the Company, directly or indirectly) for the purpose of aiding in the evaluation of this particular transaction.
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| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
11. SPECIFIC INFORMATION REQUIRED FROM INDIVIDUALS.
SUITABILITY OF NON-ACCREDITED INVESTOR:
Please select and initial a category for the individual:
___ 1. A minimum annual gross income of seventy thousand dollars ($70,000) AND a minimum net worth of seventy thousand dollars ($70,000); OR
___ 2. A minimum net worth of two hundred and fifty thousand dollars ($250,000), exclusive of automobile, home and home furnishings.
ACCREDITED INVESTOR STATUS OF INDIVIDUAL:
Please select a category for the individual:
_____ (1) Any natural person who had an individual income in excess of Two Hundred Thousand Dollars ($200,000) in each of the two most recent years or joint income with that person’s spouse in excess of Three Hundred Thousand Dollars ($300,000) in each of those years and who has a reasonable expectation of reaching the same income level in the current year;
_____ (2) Any natural person whose individual net worth or joint net worth, with that person’s spouse, at the time of their purchase exceeds One Million Dollars ($1,000,000.00) (excluding the person’s primary residence);
_____ (3) A director or executive officer of the Company
12. INVESTMENT EXPERIENCE OF PURCHASER.
ALL PURCHASERS SHOULD COMPLETE THIS SECTION
If Purchaser is not an individual, please provide the following information about each officer, general partner, and/or other person who will participate in the decision to purchase the Promissory Notes.
Person No. 1:
Educational background (name of college attended, major, degree obtained, if any, and year):
_______________________________________________________________________
Investing courses attended (list the name of each, sponsor, and date of attendance):
_______________________________________________________________________
Any professional licenses or registrations, including bar admissions, accounting certifications, real estate brokerage licenses, and SEC or state broker/dealer registrations held:
_______________________________________________________________________
| 11 |
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
Person No. 2:
Educational background (name of college attended, major, degree obtained, if any, and year):
_______________________________________________________________________
Investing courses attended (list the name of each, sponsor, and date of attendance):
_______________________________________________________________________
Any professional licenses or registrations, including bar admissions, accounting certifications, real estate brokerage licenses, and SEC or state broker/dealer registrations held:
________________________________________________________________________
Has Purchaser had the following investment experience? Check all that apply:
| ¨ | Stock Market investing for at least two (2) years in self-managed accounts. |
| ¨ | Real Estate investing for at least two (2) years. |
| ¨ | Investing in trust deeds for at least two (2) years. |
| ¨ | Bond investing in self-managed accounts. |
| ¨ | Mutual Fund investing. |
| Do you have an “Investment Advisor” in order to meet the requirement under #6 of Section 10 above |
| YES ¨ (If yes, the information below must be completed) | NO ¨ |
| Name of Advisor(s) and Relationship: |
| Advisor’s Address: |
| City: | State: | Zip Code: |
| Advisor’s Phone Number: | ( ) | - |
| Qualifications of the Advisor(s): | |
| 12 |
13. PENNSYLVANIA RESIDENTS ONLY. If you have accepted an offer to purchase these securities and have received a written notice explaining your right to withdraw your acceptance pursuant to section 207(m)(1) of the Pennsylvania Securities Act of 1972, you may elect, within two business days from the date of receipt by the issuer of your binding contract of purchase or, in the case of a transaction in which there is no binding contract of purchase, within two business days after you make the initial payment for securities being offered, to withdraw your acceptance and received full refund of all monies paid by you. Your withdrawal will be without any further liability to any person. To accomplish this withdrawal, you need only send a written notice (including a notice by facsimile or electronic mail) to the issuer (or placement agent if one is listed on the front page of the Offering Circular) indicating your intention to withdraw.
[Signature Page to Subscription Agreement follows]
| 13 |
| SUBSCRIPTION AGREEMENT | CF FUND II, LLC |
[Signature Page to Subscription Agreement]
FOR GOOD AND VALID CONSIDERATION, the receipt and sufficiency of which are hereby acknowledged, the Purchaser, intending to be legally bound, has executed this Subscription Agreement this ___________ day of _________________________, 20________.
BY PURCHASING PROMISSORY NOTES AND EXECUTING THIS SUBSCRIPTION AGREEMENT, EACH PURCHASER HEREBY AGREES, UPON ACCEPTANCE BY THE COMPANY, TO BE LEGALLY BOUND BY THE TERMS OF THE PROMISSORY NOTES.
| Name of Entity (if applicable)(printed or typed) |
| Purchaser Signature | Co-Purchaser Signature | |
| Name and title (if applicable) of person signing | Name and title (if applicable) of person signing | |
| Co-Purchaser Signature | Co-Purchaser Signature | |
| Name and title (if applicable) of person signing | Name and title (if applicable) of person signing |
ACCEPTANCE: (NOT VALID UNTIL ACCEPTED BY COMPANY)
ACCEPTANCE
The Company has accepted this Subscription Agreement as of this ___day of ________________, 20___, by the signature of a duly authorized representative.
| CF FUND II, LLC | ||
| a Pennsylvania limited liability company | ||
| By: | ||
| Name: | Jeffrey A. Cella | |
| Title: | President and Chief Executive Officer of Conquest Funding, Inc., Parent Company of CF FUND II, LLC | |
| 14 |
Exhibit F
PROMISSORY NOTE
THE SALE OF THESE PROMISSORY NOTES HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND IS MADE IN RELIANCE UPON THE EXEMPTIONS FROM SUCH REGISTRATION REQUIREMENTS SET FORTH IN REGULATION A PROMULGATED THEREUNDER. THESE PROMISSORY NOTES ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANFER OR DISPOSITION PURSUANT TO THE OFFERING CIRCULAR OF THE UNDERSIGNED BORROWER THROUGH WHICH THESE PROMISSORY NOTES ARE TO BE ISSUED. ANY PURCHASER OF THESE PROMISSORY NOTES SHOULD READ AND UNDERSTAND THE OFFERING CIRCULAR OF THE UNDERSIGNED BORROWER THROUGH WHICH THESE PROMISSORY NOTES ARE TO BE ISSUED.
| $ .00 | Date: , 20__ | |
| Allentown, Pennsylvania |
FOR VALUE RECEIVED, the undersigned, CF FUND II, LLC, a Pennsylvania limited liability company (“Borrower”), hereby promises to pay to (“Lender”), the principal sum of Dollars ($ .00), together with interest on the unpaid principal balance of this Promissory Note (the “Note”), as follows:
1. Interest. Interest on the unpaid principal balance will accrue from the date the proceeds have been distributed to or on behalf of the Borrower (the “Date of Advance”) at a fixed Interest Rate per annum in each year through the Maturity Date. Interest shall be computed based on a 30-day month, 360-day year. Interest payments will continue until the Note is fully paid, with any and all unpaid principal and interest due and payable on the date that is exactly the Note Term from the date of the Note (the “Maturity Date”), unless such Maturity Date is extended or renewed as provided in the Note or as otherwise agreed to in writing by Lender and Borrower.
For the purposes hereof, as of the date hereof, the Lender shall select the Interest Rate and Term below. Such election is irrevocable and shall apply through the Maturity Date of the Note.
Please check below and initial to the left of your selection:
| For a Note Term of six (6) months, the applicable Interest Rate will be | ||
| defined as Percent ( %) annually (hereinafter, “Six Month Note”). | ||
| For a Note Term of one (1) year, the applicable Interest Rate will be | ||
| defined as Percent ( %) annually (hereinafter, “One Year Note”). | ||
| For a Note Term of two (2) years, the applicable Interest Rate will be | ||
| defined as Percent ( %) annually (hereinafter, “Two Year Note”). | ||
| For a Note Term of three (3) years, the applicable Interest Rate will be | ||
| defined as Percent ( %) annually (hereinafter, “Three Year Note”). |
| 1 |
At Borrower’s reasonable discretion, upon the Maturity Date of Note, the term of the Note will rollover automatically into a new term with the same Interest Rate, Payment Schedule, Term, and any other material provision. If Lender elects not to rollover the term of the Note automatically, Lender shall provide Borrower with 60 days’ written notice, via certified mail, of such election prior to the maturity date of (insert maturity date).
Borrower will provide a courtesy written notice to the Lender ninety (90) days prior to the Maturity Date, via certified mail as set forth in Section 10 below, in order to remind Lender of the forthcoming Maturity Date and option withdraw from automatic extension or renewal of the Note. Notwithstanding the foregoing, after receiving such courtesy notice Lender must nonetheless notify Borrower in writing sixty (60) days prior to the Maturity Date of Lender’s election to withdraw from the automatic extension and renewal of the Note.
Interest on the unpaid
principal balance will accrue interest starting on the date (the “Interest Date”) on which the investment proceeds
have been distributed by the Lender to, or on behalf of, the Borrower following acceptance of the Lender’s subscription agreement
by the
Borrower, payment of such interest will be made thirty (30) days from Interest Date.
2. Payment of Interest.
2.1 Payments. Lender will receive monthly payments from Borrower on the following schedule:
Please check below and initial to the left of your selection:
| For a Six Month Note, each monthly installment payment shall be in the | ||
| amount of Dollars ($ . ). | ||
| For a One Year Note, each monthly installment payment shall be in the | ||
| amount of Dollars ($ . ). | ||
| For a Two Year Note, each monthly installment payment shall be in the | ||
| amount of Dollars ($ . ). | ||
| For a Three Year Note, each monthly installment payment shall be in the | ||
| amount of Dollars ($ . ). |
Borrower shall make these payments as interest-only and shall not be required to make any payment of the principal balance until the Maturity Date. Payments shall be made on the same day each month beginning thirty (30) days from the Interest Date until maturity unless deferred at the Lender’s request. Notwithstanding the foregoing, Lender may elect to receive the interest-only payments monthly, or may defer receipt of the interest-only payments until the Maturity Date.
Please check below and initial to the left of your selection:
| Lender elects to receive monthly installment payments each | ||
| month. |
| 2 |
| Lender elects to defer receipt of the interest-only | ||
| payments until the Maturity Date. |
Notwithstanding the foregoing, at Lender’s sole election, given in writing at least forty five (45) days prior to any interest payment date, Lender may forego the receipt for such interest payment whereby such payment will be rolled over into the principal balance of the Note and interest shall accrue at the stated interest rate on the new principal balance of the Note.
2.2 Order of Application of Payments. Unless otherwise agreed to in writing by the parties or required by applicable law, each payment under this Note shall be credited in the following order: (a) Late Charges due to Lender; (b) interest payable under the Note, including accrued but unpaid interest, and (c) principal amount outstanding under the Note.
2.3 Delivery of Payments. Payments shall be made to Lender at his, her or its address, which is provided in Section 10 below, or to another address if so designated in writing by Lender.
3. Late Charge. Borrower acknowledges and agrees that default in the payment of any sum due under this Note will result in losses and additional expenses to Lender in servicing the indebtedness evidenced by this Note, handling such delinquent payments, and meeting its other financial obligations.
4. Default.
4.1 Events of Default. On (a) Borrower's failure to make any three (3) consecutive payments due under this Note when due and payable (not including when payment is deferred by Lender as described in Section 2.1 above) upon receipt of written notice from Lender of such failure, (b) any breach of any other material covenant or obligation in this Note, or (c) the occurrence of events specified in Section 8 below, an event of default (“Event of Default”) shall have occurred. If an Event of Default occurs that remains uncured after written notice of such Event of Default from Lender to Borrower, then Lender may, at its option, declare this Note (including, without limitation, all accrued interest) due and payable immediately regardless of the Maturity Date. If an Event of Default occurs that remains uncured, in lieu of payment in full to Lender, Borrower may, at its sole option, assign the income stream secured by certain assets that it holds directly to Lender.
4.2 Cure. Upon the occurrence of any Event of Default, the Borrower shall have thirty (30) days from the date of written notice from Lender of such Event of Default to cure such Event of Default; provided, that if the cure is of a nature that reasonably requires under the circumstances greater than thirty (30) days to cure such Event of Default, then Borrower shall only have the obligation to have initiated within thirty (30) days of Lender’s notice of the Event of Default reasonable steps to produce a cure.
5. Prepayment Option.
5.1 No Prepayment Premium or Penalty. If Borrower prepays this Note in whole or in part at any time from the date of this Note, no prepayment premium or penalty shall be due to Lender. All prepayments of principal on this Note shall be applied to the most remote principal installment or installments then unpaid.
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5.2 Ability to Pay Prepayment. Borrower may, at its sole option, elect to prepay all or any portion of the Note, including any unpaid principal balance, at any time and shall give Lender five (5) days prior written notice of its intention to prepay all or any portion of this Note. Said notice shall include the amount Borrower intends to prepay.
5.3 Prepayment Waivers. BORROWER AND LENDER EXPRESSLY ACKNOWLEDGE AND AGREE THAT BORROWER HAS THE RIGHT TO PREPAY THIS PROMISSORY NOTE AT ANY TIME AS PROVIDED IN THIS SECTION 5 HEREOF. BORROWER AND LENDER FURTHER ACKNOWLEDGE AND AGREE THAT THERE SHALL BE NO PREPAYMENT PREMIUM OR PENALTY DUE TO THE LENDER IN CONNECTION WITH ANY PREPAYMENT OF THE NOTE, INCLUDING ANY UNPAID PRINCIPAL BALANCE, BY BORROWER.
| BORROWER’S INITIALS: | |
| LENDER’S INITIALS: |
6. Early Withdrawal.
6.1 Early Withdrawal. A Lender may request an early withdrawal of the original principal balance of his, her or its Note. The Borrower may fulfill an early withdrawal request at its sole and absolute discretion and has no commitment (implied or express) to complete a request for early withdrawal. The Borrower may charge a penalty fee of six percent (6%) of the amount withdrawn (including principal and any interest accrued) and a one hundred dollar ($100) processing fee if the Borrower elects to process any early withdrawal request (in whole or in part). This will be calculated by multiplying the total amount withdrawn (including principal and interest) by six percent (6%) in order to determine what the penalty is. The requested amount will then be deducted by that calculated six percent (6%) amount along with the one hundred dollar ($100) processing fee. For purposes of illustration only, if a Lender makes an early withdrawal request of one hundred thousand dollars ($100,000), then the early withdrawal penalty will be calculated as follows: $100,000 x (.06) = $6,000. Thereafter, the $100,000 amount will be reduced by the $6,000 penalty fee along with the $100 processing fee and the Lender will receive $93,900. The Borrower retains the right to deny any requests for early withdrawal at its sole and absolute discretion.
6.2 Ability to Request Early Withdrawal. Lender may request an early withdrawal of any portion of the original principal balance of this Note by giving Borrower ninety (90) days prior written notice of its intention to request an early withdrawal of its original principal balance, in whole or in part, under this Note. Said notice shall include the amount Lender requests to withdraw. Notwithstanding the foregoing, the Borrower may fulfill the early withdrawal request at its sole and absolute discretion and has no commitment (implied, express or otherwise) to complete a request for early withdrawal. Lender understands and agrees that Borrower has no obligation to complete a request for early withdrawal and may not fulfill the Lender’s request for any reason or no reason at all. Lender acknowledges and agrees that the Note is not a liquid investment and may in fact be highly illiquid, resulting in a partial or total inability for Lender to receive a withdrawal of any portion of its original principal balance prior to the Maturity Date.
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6.3 Early Withdrawal Waivers. BORROWER AND LENDER ACKNOWLEDGE AND AGREE THAT LENDER MAY REQUEST AN EARLY WITHDRAWAL OF ITS ORIGINAL PRINCIPAL BALANCE UNDER THIS NOTE. LENDER FURTHER ACKNOWLEDGES AND AGREES THAT BORROWER HAS NO DUTY TO HONOR LENDER’S REQUEST FOR AN EARLY WITHDRAWAL OF FUNDS AND THERE IS ABSOLUTELY NO GUARANTEE THAT ANY EARLY WITHDRAWAL REQUEST WILL BE FULFILLED OR COMPLETED BY BORROWER AT ANY TIME. LENDER UNDERSTANDS AND AGREES THAT ANY FUNDS LOANED TO THE BORROWER ARE NOT READILY AVAILABLE OR FREELY LIQUID. LENDER MAY REQUEST, BUT SHOULD NOT EXPECT TO AND HAS NO RIGHT TO DEMAND, THE RETURN OF ANY PORTION OF ITS ORIGINAL PRINCIPAL BALANCE UNDER THIS NOTE PRIOR TO THE MATURITY DATE.
| BORROWER’S INITIALS: | |
| LENDER’S INITIALS: |
7. Interest on Interest. If any interest payment under this Note is not paid when due, the unpaid interest shall be added to the principal of this Note, shall become and be treated as principal, and shall thereafter bear like interest. For the avoidance of doubt, such additions to the principal of this Note shall not be deemed to constitute the original principal balance of this Note as such term is referenced in Section 6 hereof.
8. Due-on-Sale or Insolvency. If Borrower sells, conveys, assigns or otherwise transfers all or substantially all of the beneficial interest of Borrower (which shall not include a sale or other transfer to any affiliate of Borrower) or commences any proceeding under bankruptcy or insolvency laws, without the prior written consent of Lender, then an Event of Default shall have occurred and Lender may elect to accelerate the Maturity Date and declare the entire unpaid principal, accrued interest and other sums due hereunder to be immediately due and payable pursuant to the provisions of Section 4 hereof.
9. Attorneys’ Fees. In any dispute or litigation arising hereunder or related to this Note, the losing party shall pay the reasonable costs, expenses, and attorneys’ fees paid or incurred by the prevailing party.
10. Notice. Subject to the foregoing, any notice required to be provided in this Note shall be given in writing and shall be sent (a) for personal delivery by a delivery service that provides a record of the date of delivery, the individual to whom delivery was made, and the address where delivery was made; (b) by first-class certified United States mail, postage prepaid, return receipt requested; (c) by electronic mail to Jeff Cella at jeff@conquestfunding.com and/or to the Lender’s electronic email address as provided below; or (d) by a nationally recognized overnight courier service, marked for next day business delivery. All notices shall be addressed to the party to whom such notice is to be given at the following addresses
| Lender: | |||
| Email: | |||
| Borrower: | CF FUND II, LLC | ||
| c/o Conquest Funding, Inc. | |||
| 5000 W. Tilghman Street, Suite 249 | |||
| Allentown, PA 18104-9109 | |||
| Email: jeff@conquestfunding.com | |||
| 5 |
or to such other address as a party may designate by written notice to the other party. All notices shall be deemed effective on the earliest of (a) actual receipt; (b) rejection of delivery by the receiving party; (c) if sent by certified mail, provided there is actual receipt, the third day on which regular United States mail delivery service is provided after the day of mailing or, if sent by overnight delivery service, on the next day on which such service makes next-business-day deliveries after the day of sending.
11. Assignment. This Note inures to and binds the heirs, legal representatives, successors, and permitted assigns of Borrower and Lender; provided, however, that Borrower may not assign this Note, or assign or delegate any of its rights or obligations (except to any affiliate of Borrower), without Lender's prior written consent in each instance. Lender may, upon at least ten (10) business days’ prior written notice to Borrower, transfer this Note or sell or assign participations or other interests in all or any part of this Note. Whenever used herein, the terms “Lender” and “Borrower” shall be deemed to include their respective permitted heirs, legal representatives, successors and permitted assigns.
12. Governing Law and Venue. This Note shall be construed and enforced for all purposes according to the laws of the State of Pennsylvania, excluding its conflicts of law provisions. In any dispute, controversy, claim or cause of action arising from or in connection with this Note, both parties agree to submit to the jurisdiction in Allentown, Pennsylvania or otherwise as required by Section 14 below.
13. Made or Arranged by a Broker. Borrower and Lender acknowledge that this Note may have been made or arranged by a licensed real estate broker or a securities broker-dealer licensed under the Financial Industry Regulatory Authority (“FINRA”) and that the broker’s participation may have been a material factor in consummating this loan.
14. Arbitration. The parties expressly agree that all disputes, claims, controversies and other matters of contention arising out of or relating to this Note, or the performance or breach thereof, shall be submitted to confidential and binding arbitration as specified herein. The arbitration shall take place in Fogelsville, Pennsylvania (or as close thereto as possible, in the event that such venue is not available for the arbitration) and be held before and decided by a single neutral arbitrator, who shall be mutually selected by the parties and shall have experience in evaluating matters similar to the subject matter hereof. If the parties cannot agree as to an arbitrator, each party shall nominate one temporary arbitrator (who shall have experience in evaluating matters similar to the subject matter hereof) and together these two temporary arbitrators shall select the single neutral arbitrator to hold and decide the arbitration between the parties. The parties shall be entitled to undertake reasonable discovery (which shall be kept to a minimum without first securing the approval of the arbitrator) as a part of the arbitration. The final award decision of the arbitrator on all matters of contention between the parties shall be considered final and the arbitrator shall have the power to award to the prevailing party all costs and expenses of the arbitration, including, without limitation, attorneys’ fees.
| 6 |
15. Usury. All agreements between Borrower and Lender are expressly limited, so that in no event or contingency, whether because of the advancement of the proceeds of this Note, acceleration of maturity of the unpaid principal balance, or otherwise, shall the amount paid or agreed to be paid to Lender for the use, forbearance, or retention of the money to be advanced under this Note exceed the highest lawful rate permissible under applicable usury laws. If, under any circumstances, fulfillment of any provision of this Note, after timely performance of such provision is due, shall involve exceeding the limit of validity prescribed by law that a court of competent jurisdiction deems applicable, then, ipso facto, the obligations to be fulfilled shall be reduced to the limit of such validity. If, under any circumstances, Lender shall ever receive as interest an amount that exceeds the highest lawful rate, the amount that would be excessive interest shall be applied to reduce the unpaid principal balance under this Note and not to pay interest, or, if such excessive interest exceeds the unpaid principal balance under this Note, such excess shall be refunded to Borrower. This provision shall control every other provision of all agreements between Borrower and Lender.
16. Representation on Use of Proceeds. Borrower represents and warrants to Lender that the proceeds of this Note will be used solely for business and commercial investment and/or lending, including the funding of loans and acquiring of real property, and that no portion of it will be used for personal, family, or household purposes.
17. No Modifications or Amendments; No Waiver. Except as specified herein, this Note may not be amended, modified or changed, nor shall any waiver of the provisions hereof be effective, except only by an instrument in writing signed by the party against whom enforcement of any waiver, amendment, change, modification or discharge is sought. The lack of enforcement by either party of any of its rights, privileges or benefits under this Note shall not constitute a waiver, whether express or implied, of such rights, privileges or benefits. Additionally, a waiver of any provision in one event shall not be construed as a waiver of any other provision at any time, as a continuing waiver, or as a waiver of such provision on a subsequent event.
18. Severability. Any provision of this Note which shall be held by a court of competent jurisdiction to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision or term hereof, and such other provisions or terms shall remain in full force and effect. In addition, such invalid, void or illegal provision shall be interpreted by the court so that both the intent and objective of the parties with respect to such provision are effectuated to the maximum extent permitted by applicable law.
19. Financial Information. Within one hundred and twenty (120) days following the end of each fiscal year of the Borrower, subsequent to the date of the Notes and prior to the Maturity Date, Borrower will deliver a copy of its annual financial statements to the Lender. Lender hereby consents to delivery of the financial statements as selected below (please check one of the boxes below and provide the requested information):
| ¨ | Electronic mail to: | |
| ¨ | Certified mail to the following address: | |
20. Counterparts; Facsimile. This Note may be executed via facsimile and in separate counterparts, each of which, when so executed shall be deemed an original and all such counterparts shall constitute one and the same original agreement.
21. Headings. Section and paragraph headings are for reference only and shall not affect the interpretation or meaning of any provisions of this Note.
[Signature Page Follows]
| 7 |
IN WITNESS WHEREOF, each of Borrower and Lender has executed this Note as of the date first set forth above.
| BORROWER: | ||
| CF FUND II, LLC, | ||
| a Pennsylvania limited liability company | ||
| By: | ||
| Name: Jeffrey A. Cella, President and CEO of Conquest Funding, Inc., a Pennsylvania corporation, Parent Company of CF Fund II, LLC | ||
| LENDER: | ||
| By: | ||
| Name: | ||
| By: | ||
| Name: | ||
| 8 |