Facilitating Parachute Manufacturing in Collaboration with Paradigm Parachute and Defense, Inc.
The Business - Drop Zone Canopy Company, LLC (“The SPV” or “DZCC") acquires raw materials for, and advances labor costs to, Paradigm Parachute and Defense (“Paradigm") to manufacture and sell high quality, precision, military style parachute systems and associated defense products to commercial, government, and humanitarian customers worldwide.
Market Opportunity – To fulfill up to $16,400,000 of Paradigm’s contracts being pursued with the U.S. Department of Defense, Uganda, and Safran (a private defense conglomerate), DZCC will procure and own raw materials and advance labor costs. Lenders will have a perfected security interest in the materials, the finished parachutes, and the accounts of DZCC.
Paradigm, like other smaller, veteran-owned parachute manufacturers, has dedicated carveouts and, at times, is the only vendor applicant for contracts with, for example, AAA-rated countries’ departments of defense.
The company grew revenue 97% in 2022 and has $7.5M in contracted backlog, in addition to the 3 contracts referenced above
Management Team – Paradigm’s management has decades of military service specific to parachute operations and related safety inspection with the U.S. Army. Subsequently, they have held senior management positions at Safran, the largest parachute manufacturer in the world.
Drop Zone Canopy Company, LLC (the “Issuer”, “The Company”, or “Borrower”) is issuing up to $3,500,000 in senior secured promissory notes (the “Notes” or “Securities”) to acquire raw materials and advance labor costs to manufacture and sell parachutes.
Paradigm, founded in August 2019, provides high quality, precision manufactured, personnel, cargo, and deceleration parachute products to global commercial, humanitarian, and government customers. Paradigm specializes in meeting smaller contract requirements.
Paradigm has developed an extensive customer base spanning four continents
The Company’s Co-CEOs Aaron Nazaruk and Alexander Alvarado have a combined 30 years of experience across military airborne defense units, defense contracting business development and sales, and engineering.
Paradigm recently earned a University of West Florida Project Sky Industry Resilience and Diversification Fund Grant Approval worth $660K (non-dilutive)
Tranche I issuance amount: up to $1,000,000; Aggregate issuance amount: $3,500,000
Interest - 12.0% interest, payable monthly
Amortization – Principal payments shall follow a mortgage style amortization beginning on the ninth month following the closing of each Tranche
Maturity – May 1st, 2025.
Collateral – Collateralized by all inventory and accounts of the SPV.
Paradigm must successfully execute production to the specifications provided by each customer.
Changes in national defense budgets have a direct impact on the size and quantity of contracts available for Paradigm to win.
Labor shortages and longer supply chain times could continue to cause challenges for manufacturers across the industry.
*This list is non-exhaustive and only meant as a high level overview of the major risks of investment.
*AN INVESTMENT IN THE NOTES IS SPECULATIVE AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL MEANS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT AND HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT. RETURNS CANNOT BE GUARANTEED.
Military parachute customers have use for a wide range of parachute products including personnel, cargo, extraction, and aerial delivery parachutes.
Even in more peaceful times, militaries have a high demand for parachutes because they are essential in training exercise.
Though humanitarian and commercial use parachutes don’t drive as much demand as their military use counterparts, the demand for them has been growing due to recent increases in parachute sports and humanitarian outreach
The industry has seen a growing demand for manufacturers who can fulfill small contracts (US DoD has steadily increased funding for small business contracts.
The parachute defense industry has become saturated with large manufacturers that don’t have the bandwidth to fill small contracts/purchase orders leaving latent demand for smaller contract manufacturers.
Any conflict that involves a US ally could result in a surge in the demand for Paradigm’s military use parachutes.
Governments around the world may also begin increasing military spending in anticipation of a conflict, even if diplomacy talks prove successful.
Since its inception, Paradigm has effectively capitalized on the scarcity of small business contractors in the parachute industry by positioning itself to be uniquely able to fill small contracts for a wide range of customers all with different custom specifications requirements.
Paradigm’s customers have indicated that Paradigm’s ability to consistently meet each customer’s unique set of specifications is the biggest reason for their trust in Paradigm.
AN INVESTMENT IN THE SECURITIES IS SPECULATIVE AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL MEANS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT AND HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT.
Headquartered in Pensacola, Florida, Paradigm Parachute & Defense (“Paradigm” or the “Company”) was founded in 2019. The Company was founded by co-CEOs Aaron Nazaruk and Alexander Alvarado. Paradigm manufactures personnel, cargo, and deceleration parachutes for commercial, military, and humanitarian use.
Paradigm has set itself apart from its competitors by offering a higher degree of precision manufacturing on a highly consistent basis. Because many of Paradigm’s biggest customers are national defense departments that must adhere to stringent guidelines and specifications, consistent precision manufacturing is often the biggest determinant of which manufacturer wins their contracts. Paradigm has also found a niche in the small defense contracting space. Large defense contracting conglomerates like Safran SA generally will not fill contracts smaller than $15M as it is an inefficient use of their time and resources. This has allowed Paradigm to fill a void in the industry by filling those smaller contracts and in some cases partnering with larger contractors to fill the small orders that they cannot.
Since its inception, Paradigm has formed relationships with some of the world’s largest DoDs and one of the most promising commercial parachute consumers in SpaceX. Paradigm currently has over $7.5MM in secured purchase orders and contracts booked for 2023. In addition to the contracts Paradigm has already secured, the Company has over $16.4MM of contracts that it is actively pursuing in its pipeline.
DZCC is a North Carolina limited liability company organized, owned, and managed by Carolina Financial Group, LLC. DZCC will procure the raw materials and advance labor costs identified by Paradigm as needed to fulfil Paradigm’s sales pipeline.
Paradigm offers a wide variety of parachutes and always stays up to date on the latest specification requirements for its customers. The Company will also carry out custom specifications for customers who require parachutes that are not already included in its list of products. The main scope of products that Paradigm produces are cargo parachutes, extraction parachutes, and training courses. In addition to these products, Paradigm also offers aerial delivery accessories and rigging items.
Paradigm Parachute maintains a contingent of retired military personnel highly qualified and individually skilled in technical support for airlift systems after sales services meeting customer standard or specialized. This includes the overhaul of related air cargo systems products, repair, maintenance, design, installation, test or technical upgrade, or training for military and commercial customers, as applicable.
The staff is highly recognized for their technical skills, application experience and knowledge associated with airdrop development. Paradigm Parachute maintains a Mobile Training Team of both Parachute Riggers and Loadmasters. These individuals are U.S. DOD Retired Military members. The staff holds & maintains civilian and DOD certifications for example but not limited to:
The industry manufactures cargo, personnel, and deceleration parachutes. These parachutes are used for military, commercial, and humanitarian applications. The bulk of sales in the industry are driven by military application in Asia, Australia, and South America.
Over the next five years, Latin America is expected to see higher growth than any other geographical region in the industry. This increase in demand in will largely be driven by military and humanitarian application as the region has recently been experiencing political unrest and aggressively changing weather patterns.
The largest player within the parachute manufacturing industry is Safran SA. Safran, along with the other large manufacturers listed in the chart below dominate the parachute market. While these large manufacturers command a majority of the parachute industry market share, they routinely pass up on contracts smaller than $15 million leaving a niche for Paradigm to operate and excel in. Manufacturers in the parachute industry also benefit from high barriers of entry into the market due to the tremendous amount of expertise and military relationships necessary to break into the market.
The parachute manufacturing industry is expected to grow from $539M to $717M in revenues from 2021 to 2026. Demand from military customers is expected to substantially increase while experts also predict a high rate of growth in the humanitarian market for parachutes. Military parachute demand is expected to increase due to a return to normal military training exercises as the global COVID-19 pandemic begins to wane. Some experts also predict many of the world’s largest defense departments to ramp up training and deployment in response to an increase in global diplomatic uncertainties. The humanitarian growth is predicted to be the result of focused outreach efforts to countries undergoing political unrest.
Market research provided by Mordorintelligence.com ↩
As an update, please see the Paradigm Parachute and Defense updated and projected financials below.
Shipments and payments will occur in a timely manner based on current lead times and accounts receivable terms.
Proceeds from sales of parachutes will begin to fund the cost of parachute production after month 6 of production.
Lead times to procure materials could lengthen, and supply chain disruptions and inventory shortages may be a source of short-term risk.
Contract sizes could be expanded after initial product is received, required an amendment to the current structure.
The preceding financial projections reflect the Company’s best estimated forecasts and are not guaranteed to be accurate. The timing of performance is estimated post-funding. These figures are forward-looking statements and reflect the Company’s views about various future events or expectations. These figures take into account known and unknown risks, uncertainties and other factors and assumptions which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by this forward-looking financial projection. Please see the note regarding forward-looking statements. A full version of this pro-forma financial model is available through carofin.com
This Term Sheet summarizes the principal terms of the senior secured notes of Drop Zone Canopy Company, LLC, a North Carolina limited liability company. The information provided herein is summary in nature and each investor shall review the closing documents for this offering, which shall include but not be limited to a Loan & Security Agreement and a Subscription Agreement.
Up to $3,500,000 of senior secured notes (the “Note” or “Notes”) are being issued by Drop Zone Canopy Company, LLC (“DZCC” or the “Company”) via one or more Tranches (as further defined herein) to procure raw materials and advance labor costs for the manufacturing of parachutes by Paradigm Parachute and Defense, Inc. (“Paradigm”).
Paradigm is in the business of providing high quality, precision manufactured, military style parachute systems and associated defense products to global commercial, government, and humanitarian customers.
The materials purchased by DZCC will be transported and stored by Paradigm at its Pensacola, Florida parachute manufacturing facility before being incorporated into contracted parachute systems on behalf of Paradigm and sold to its customers.
The Notes will be an obligation of DZCC and be secured by the inventory, accounts receivable, and cash of DZCC.
DZCC is a North Carolina limited liability company recently organized, managed, and 100% owned by Carolina Financial Group, LLC for the procurement of raw materials and advancement of labor costs for parachute manufacturing on behalf of Paradigm.
Individuals and institutional investors who qualify as accredited investors as defined by Rule 501 of Regulation D of the U.S. securities laws (each an “Investor” and together the “Investors”).
Up to $3,500,000 of Notes are being issued by DZCC. The Notes shall be issued as a result of a request by Paradigm that DZCC purchase certain raw materials and advance certain labor costs, with each such issuance referred to herein as a “Tranche”.
The minimum investment amount for an investment in the Notes will be $15,000, subject to exception by DZCC.
Funds advanced by Investors but not yet utilized for the purchase of raw materials and/or the advancement of labor costs, and in turn a Tranche, shall remain in the bank account of DZCC (with such funds being referred to herein as “Unallocated Funds”). Unallocated Funds shall not incur interest until a Tranche is issued utilizing such funds. In the event that Unallocated Funds exceed the required amount of funds needed in the issuance of a Tranche, the Unallocated Funds of each Investor shall be allocated to such Tranche based on each Investor’s pro-rata portion of the aggregate Unallocated Funds.
The Notes will pay Investors an annual interest rate equaling 12.0% of any outstanding principal amount, calculated on a 30./360 basis. Payment will be due on the first day of the calendar month following the calendar month after which a Tranche is issued (for illustration purposes only: If a Tranche is issued on April 7th, the first interest payment for such Tranche shall be due on May 1st) and the first day of each month thereafter until the Maturity Date (as defined below).
May 1st, 2025 (the “Maturity Date”), upon which time all outstanding Note principal and interest is due and payable.
Beginning on the first day of the ninth calendar month following the month in which a Tranche is issued, DZCC shall make payments of principal on a straight-line amortization style until the Maturity Date (for illustration purposes only: If a Tranche is issued on April 7th, amortizing principal payments shall begin on January 1st).
The Notes may be prepaid at any time, in whole or in part, but only if investors have been paid, through a combination of previous interest payments and, if necessary, additional amounts at the time of the prepayment, an amount totaling at least one full year of 12.0% interest, based upon their original principal investment. In the event that multiple Tranches are outstanding, any amounts prepaid by DZCC shall be apportioned amongst such tranches based on their pro-rata portion of the aggregate outstanding principal.
It is expected that the first Tranche of Notes will be issued on or before April 7th, 2023. The final Tranche of Notes shall be issued on or before July 31st, 2023.
Investors shall have a perfected security interest in the (i) Accounts, and (ii) Inventory of DZCC (the “Collateral”). DZCC shall file a financing statement against Paradigm perfecting a security interest on Paradigm’s Inventory acquired as a result of a Purchase Advance (as further defined herein).
DZCC shall make certain warranties and representations usual for transactions of this type, including but not limited to: accuracy of financial statements; no material adverse change; absence of litigation; no violation of agreements; compliance with laws; payment of taxes; solvency; compliance with environmental matters; accuracy of information; and validity, and priority and perfection of security interest in the collateral.
Collateral Coverage – The Collateral (with Inventory valued at its cost) will always be in excess of 94% of the outstanding principal balance of the Notes. DZCC will provide Investors with a Borrowing Base Certificate which will perform this calculation and certify whether DZCC is in compliance.
Restricted Member Distributions - If not in compliance with any other covenants associated with the Notes, DZCC shall not, without the prior written the Investors holding a majority of the outstanding principal balance under the Notes, make any distributions on a quarterly basis to its members/shareholders, other than tax distributions, which can be made at any time.
Limitation on Additional Indebtedness – DZCC will not create, incur, assume or permit to be outstanding any indebtedness that exceeds $500,000 and such indebtedness, if any, will not be allowed to place secondary liens or other liens on the Collateral.
As is usual for transactions of this type, including but not limited to performance of obligations; delivery of agreed financial information and compliance certificates; notices of default and litigation; maintenance of satisfactory insurance; compliance with laws; and payment of taxes.
As is usual for transactions of this type, including but not limited to transfer of assets, incurrence of additional debt above the allowable amount, mergers, changes in primary business, etc.
An “Event of Default” under the Notes shall include: (a) the failure to pay when due any required interest or principal; or (b) any warranty, representation, statement, report or certificate made or delivered to the Administrative Agent or the Investors by DZCC or any of DZCC’s officers, directors, employees or agents, now or in the future, shall be untrue or misleading in any material respect; or (c) DZCC shall fail or neglect to perform or shall violate any Financial Covenant, Affirmative Covenant or Negative Covenant as specified in the Loan and Security Agreement supporting the Notes, subject to a 5 business day grace period.
If any interest or principal due to the Investors is not paid when due or DZCC is otherwise in default, the DZCC shall incur an incremental 5% (annualized) “Penalty Fee” per month for so long as such default is in effect. The Penalty Fee shall be based upon the aggregate principal balances of all outstanding Notes together with unpaid interest, subject to a five working day grace period and the occurrence of a force majeure event. Once the default has been remedied, the interest rate will return to 12.0%.
DZCC and Paradigm shall enter into a Materials Purchase Agreement whereby DZCC shall occasionally purchase certain raw materials and advance labor costs required by Paradigm for the manufacturing of its parachutes.
In exchange for the purchases of such materials and advancement of labor, Paradigm shall store such raw materials until utilized by Paradigm in its manufacturing process and repay the amount of such purchases along with certain fees.
Upon the identification of raw materials to be acquired and labor costs to be advanced, Paradigm shall request in writing (each a “Purchase Request”) that DZCC either (1) submit a purchase order to the supplier of such materials and acquire the raw materials, or (2) advance the required funds for such purchase to Paradigm, after which, within 5 business days, Paradigm shall purchase the materials from the supplier. The raw materials shall be stored by Paradigm until utilized in the manufacturing of parachutes (the “Finished Parachutes”).
In addition to the purchase of raw materials identified in a Purchase Request, DZCC shall also advance funds pursuant to a commercially reasonable estimate of labor costs associated with the manufacturing of Finished Parachutes in connection with the Purchase Request.
Upon the issuance of a Purchase Request, DZCC shall issue to Paradigm a summary of each purchase (each a “Purchase Summary”) detailing the total amount of funds utilized in the purchase of such materials ( including the advancement of estimated labor costs, and with the aggregate of each such purchase amount referred to herein as the “Outstanding Purchase Balance”) and a schedule detailing the applicable Balance Reduction Payments and Advance Fees (as further defined herein).
Beginning on the 1st day of the ninth calendar month following the issuance of a Purchase Summary, and on the 1st day of every calendar month thereafter, Paradigm shall make equal monthly payments to reduce the Outstanding Purchase Balance of each Purchase Summary to zero on May 1st, 2025 (each a “Balance Reduction Payment”). For illustration purposes only: If a Purchase Summary is issued on April 7th, Balance Reduction Payments shall begin on January 1st)
Beginning on the first day of the calendar month following the calendar month after in which a Purchase Summary is issued and the first day of each month thereafter until May 1st, 2025, Paradigm shall pay to DZCC a monthly “Advance Fee” in an amount equal to 12.0% (per annum) of the Outstanding Purchase Balance, calculated on a 30/360 basis (for illustration purposes only: If a Purchase Summary is issued on April 7th, the first Advance Fee payment for such Outstanding Purchase Balance shall be due on May 1st)
In the event that Paradigm fails to make any Balance Reduction Payment or pay any Advance Fee when due, the rate at which the Advance Fee is calculated shall be increased by 5.0% for so long as such payment is late, provided that Paradigm shall have a five business day cure period prior to incurring such Late Fee.
Paradigm shall have the option to reduce the Outstanding Purchase Balance of any Purchase Summary ahead of the Payment Schedule, provided that the total payments under such Purchase Summary equal an amount equal to the Outstanding Purchase Balance plus the Advance Fees that would have been earned had the Outstanding Purchase Balance been outstanding for a full year.
DZCC shall receive a monthly management fee equal to $10,000 per month, which shall accrue until paid from funds received by Paradigm from sales of Finished Parachutes.
All purchased materials shall be delivered to and stored at the facilities of Paradigm in Pensacola, FL. Materials purchased by DZCC shall be stored separately from the materials owned by Paradigm and clearly identified as the property of DZCC.
In the event Paradigm has raw materials available in its own inventory to meet the demand for its parachutes, Paradigm shall first use its own raw materials prior to utilizing the raw materials purchased by and belonging to DZCC.
CFG Financial Services, LLC (the “Administrative Agent”), an affiliate of CFS and CFG, shall serve as administrative agent. The role of the Administrative Agent includes: Oversight of DZCC compliance with all Note covenants, processing of interest and principal payments from DZCC to Investors, preparation and payment of all Regulation D filings and other actions required in the administration of the Notes on behalf of the Investors.
Carolina Financial Securities, LLC (“CFS”). CFS, a FINRA-registered broker dealer, is the exclusive Placement Agent for the Offering and will receive a placement fee payable by DZCC equal to 6.0% of the gross proceeds received by DZCC as a result of the Offering. Such placement fee will be equal to 4.0% for gross proceeds received by DZCC from Investors that are shareholders of Paradigm. CFS may share up to 50% of its fees with Carofin, LLC, an affiliated Broker-Dealer, for its assistance in the placement of the Offering.
The Placement Fee will be allocated towards each Tranche as each such Tranche is issued and payable directly from DZCC to CFS. (for illustration purposes only: if a tranche is issued for $1,000,000 worth of materials, the total Outstanding Purchase Balance payable by Paradigm shall be $1,063,829.79).
*(Returns cannot be guaranteed)
What is Carofin?
Carofin is a FINRA broker dealer, an investment bank headquartered in Brevard, North Carolina, that specializes in financing smaller businesses. Carofin’s parent company Carolina Financial Group, LLC, was established in 1995 and its affiliates have privately placed over $1.2 billion of debt and equity securities.
Is this security registered with the Securities Exchange Commission (S.E.C.)?
No. It is being privately placed under Rule 506c of Regulation D of the S.E.C.
Must Investors in the Company be Accredited Investors?
Yes. They must have household income of $300,000 (for married couples) OR a net worth of $1,000,000, excluding the value of their primary residence, OR qualify for an institutional category of investor.
How is the Note’s Interest Paid?
Interest is paid in cash to investors on a monthly basis by CFG Financial Services, an affiliate of Carofin and administrative agent of the Note. If any interest payable date falls on a weekend or holiday the distribution will be made on the subsequent business day.
How and When is My Investment Returned?
The Note’s principal begins amortizing on the ninth month following the issuance of a Tranche, with the principal amount of each Tranche being reduced to zero on or before May 1st, 2025.. These returns cannot be guaranteed.
Can DZCC Prepay the Note Before the Maturity Date?
DZCC has the right to prepay the principal amount at any time during the life of the note. If DZCC prepays before paying 12 months of interest on a Tranche, DZCC shalll distribute an amount equal to that had the investors earned 12 months of interest and their principal over the life of the Note. In the event that multiple Tranches are outstanding, any prepayment amounts shall be allocated amongst such Tranches on a pro-rata basis.
What Protections do I have as an Investor?
Covenants have been built into the note as safety measure for debt investors and notification mechanisms for Carofin if a company’s financial position changes. Some of the Note’s covenants are:
What Happens if DZCC Defaults on a Payment or Violates a Covenant?
In the event of a default CFG Financial Services, an affiliate of Carofin and administrative agent during the life of the Notes, will notify the Issuer of such default or violation, interface with the Issuer to understand the underlying causes of such default and expected curing timeline, and work with Investors on any required forbearance or recovery of collateral.
Will Investors Continue to Receive Information About the Note After Issuance?
Given its role as the administrative agent, CFG Financial Services is able to keep Investors informed about any unexpected changes in the Issuer's business, covenant compliance, or any potential prepayments or defaults.
What if I have questions in the future about the Note’s performance?
Carofin will distribute updates to investors at least quarterly, including account statements. You should feel free to also email Carofin at [email protected] or telephone us at 828.393.0088
AN INVESTMENT IN THE NOTES IS SPECULATIVE AND IS SUITABLE ONLY FOR PERSONS OF SUBSTANTIAL FINANCIAL MEANS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT AND HAVE NO NEED FOR LIQUIDITY IN THIS INVESTMENT. AN INVESTMENT IN THE SECURITIES OFFERED HEREIN SHOULD NOT BE A MAJOR PART OF YOUR INVESTMENT PORTFOLIO. YOU SHOULD REVIEW THE RISKS OF THIS INVESTMENT WITH YOUR LEGAL OR FINANCIAL ADVISORS.
THIS OFFERING INVOLVES SUBSTANTIAL RISKS. THESE RISKS INCLUDE, BY WAY OF ILLUSTRATION AND NOT LIMITATION, THE FOLLOWING: RISKS ASSOCIATED WITH THE FACT THAT THE MEMBERS WILL NOT HAVE THE RIGHT TO VOTE ON OR APPROVE MOST DECISIONS REGARDING THE BUSINESS AND, AS SUCH, WILL NOT BE IN CONTROL OF THEIR INVESTMENTS IN NOTES OF THE COMPANY AND THE BUSINESS; AND THE OPERATION OF THE COMPANY INVOLVES TRANSACTIONS BETWEEN THE COMPANY, THE MANAGER, AND THE OWNER WHICH MAY INVOLVE CONFLICTS OF INTEREST.
THE NOTES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM, AND WITH THE PRIOR CONSENT OF THE MANAGER, WHICH CONSENT MAY BE WITHHELD IN THE MANAGER’S SOLE DISCRETION. PROSPECTIVE INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
SOME OF THE INFORMATION IN THIS PRESENTATION MAY CONTAIN “FORWARD-LOOKING” STATEMENTS. YOU CAN IDENTIFY SUCH STATEMENTS BY THE USE OF FORWARD-LOOKING WORDS SUCH AS “MAY,” “ANTICIPATE,” “ESTIMATE,” “COULD,” “SHOULD,” “WOULD,” “EXPECT,” “BELIEVE,” “WILL,” “PLAN,” “INTEND,” “PROJECT,” “PREDICT,” “POTENTIAL” OR OTHER SIMILAR WORDS. THESE TYPES OF STATEMENTS DISCUSS FUTURE EXPECTATIONS OR CONTAIN PROJECTIONS OR ESTIMATES WHICH MAY OR MAY NOT HAPPEN AS PROJECTED HEREIN. WHEN CONSIDERING SUCH FORWARD-LOOKING STATEMENTS, YOU SHOULD KEEP IN MIND THE RISK FACTORS LISTED BELOW, WHICH COULD CAUSE THE COMPANY’S ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN ANY FORWARD-LOOKING STATEMENT.
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS IN CONJUNCTION WITH THE OTHER INFORMATION ABOUT THE NOTES BEFORE PARTICIPATING IN THIS OFFERING. THE RISKS DISCUSSED IN THIS PRESENTATION CAN ADVERSELY AFFECT THE COMPANY’S OPERATION, OPERATING RESULTS, FINANCIAL CONDITION AND PROSPECTS FOR SUCCESS. THIS COULD CAUSE THE VALUE OF THE SECURITIES OFFERED HEREIN TO DECLINE AND COULD CAUSE YOU TO LOSE PART OR ALL OF YOU INVESTMENT. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES THE COMPANY FACES BUT DO REPRESENT THOSE RISKS AND UNCERTAINTIES KNOWN TO THE COMPANY AND THAT THE COMPANY BELIEVES ARE MATERIAL TO THE COMPANY’S FUTURE OPERATING PERFORMANCE.
The Loan being offered should be considered a speculative investment. The ability of DZCC to achieve its objectives may be determined by factors beyond its control that cannot be predicted at this time. Consequently, there can be no assurance that DZCC and Paradigm’s efforts to continue its business operations will prove to be sufficient to enable DZCC to generate the funds required to repay the Loan. Anyone investing in the Loan should do so only if they are financially able to sustain the loss of their entire investment and should recognize that such a possibility exists.
A fundamental risk, relating to all Loans, is a chance that DZCC will fail to make a principal and interest payment when due. Borrowers with higher credit risks typically offer higher yields for this added risk, such as DZCC. Changes in financial conditions of DZCC, changes in economic and political conditions in general, changes in economic or political conditions specific to DZCC and Paradigm are factors that may have an adverse impact on DZCC’s credit quality and security values.
This offering is predicated upon the Loan and Security Agreement between DZCC and the Investors for the repayment of its borrowings from the Investors, and, if necessary, on the third-party sale of the Collateral, which secures the Notes. If the Agreement becomes unenforceable or is not honored by DZCC for any reason it will have a severe adverse effect on the sale of the collateral.
The DZCC’s business is initially dependent on the Parachute industry. If demand were greatly diminished, it could affect the DZCC and Paradigm’s ability to sell product to its current customers and it would have to seek new markets for its product.
As this Loan is a private transaction, there is currently no public market for the Notes being offered herein. This Note is not a publicly registered security and will have no secondary sale liquidity.
Investors in the Notes shall hold a first priority perfected security interest in the inventory and Accounts of DZCC. It is possible that the value of the Inventory and Accounts is reduced in the event of a sale to repay the Investors and that the amount recovered for such collateral is insufficient to repay any outstanding amounts in full.
CFG Financial Services, LLC, the Administrative Agent for this Offering is also the administrative agent for those loans issued by Paradigm pursuant to that certain Loan and Security Agreement dated March 1st, 2022 (the “Paradigm Notes”). In addition, certain Investors in this Offering may also be lenders under the Paradigm LSA or shareholders of Paradigm. As such, CFG FS, shareholders and the holders of the Paradigm Notes may have interests adverse of Paradigm to the Investors in the Notes.
The Loan and Security Agreement contains certain aspects which may affect Investors as a whole upon the consent of a Investors holding a certain threshold of outstanding principal and without the affirmative consent of other Investors, which may include affiliates and employees of Paradigm as well as other parties with conflicts of interest. As such, purchasers of the Securities shall carefully weigh how such governance mechanics may adversely affect them as it pertains to their membership in the Company.
Any substantial decline in the demand for products sold by DZCC and Paradigm, but not limited to, the introduction of substitute products, may cause a decline in the market value of DZCC’s product and negatively impact DZCC’s financial performance.
Pricing for parachutes varies significantly depending on market conditions. This may negatively impact DZCC’s financial performance.
Outbreaks of disease and other events, which may be beyond the company’s control, producers who sell materials to Paradigm, could significantly affect demand for its products, consumer perceptions of products, the availability of materials for purchase and its ability to conduct its operations.
Success for Paradigm’s and DZCC’s business depends, in part, on the quality and safety of Paradigm’s products. If the products are found to be defective or unsafe, or if they otherwise fail to meet customer standards, relationships with customers could suffer. Further, Paradigm’s reputation could be diminished, and Paradigm could lose sales and/or become subject to liability claims, any of which could result in a material adverse effect on the business.
Paradigm and DZCC’s activities are subject to international, federal, and state laws. Paradigm’s activities are expected to have a variety of regulatory oversight as development proceeds. Development of any of Paradigm’s operations will be dependent on Paradigm satisfying regulatory guidelines and, where required, being approved by governmental authorities. Paradigm intends to conduct their business activities in a compliant manner and in accordance with all applicable laws but may still be subject to accidents or other unforeseen events which may compromise its performance, and which may have adverse financial implications.
Changes in the laws, regulations and policies including the interpretation or enforcement thereof, that are germane to Paradigm’s industry, can affect its business including changes in accounting standards, tax laws, data privacy as well as anti-corruption laws. Additionally, as Paradigm continues to sell and expand its international business, it may be subject to laws relating to selective distribution, environmental or climate change laws, trade accords and customs regulations could adversely affect Paradigm’s distribution endeavors.
Paradigm competes with other companies in the industry. Competitors include companies that may have greater financial and other resources than Paradigm. Additionally, these competitors may use pricing or other strategies to prevent Paradigm from achieving its business development objectives. This may have a material adverse impact on the financial position and prospects of Paradigm.
Due to the size of the organization, Paradigm has a significant reliance on certain key employees, particularly Aaron Nazaruk and Alexander Alvarado. If Paradigm is unable to retain key employees it could jeopardize Paradigm’s ability to implement its business plan, its relationships with its customers, and its financial stability.
Paradigm expects to continue to grow its overall operations and this may strain Paradigm’s resources. Any inability to manage growth effectively would have a material adverse effect on Paradigm’s business.
DZCC reserves the right to accept or reject any proposed investment in its sole discretion. Subject to this discretion, it intends to accept investments on a “first-come, first-served” basis, with the consequence that Lenders will be allocated a portion of the total Offering, based upon the amounts they have committed, in the order in which such commitments have been accepted. DZCC is not required to accept all commitments tendered to it. There is no assurance, therefore, that your commitment will necessarily be accepted in whole or in part by it should it raise more or less funds than are needed to make its investments.
The financial projections contained in this Offering Summary and any supplements represent Paradigm and DZCC’s estimated results of operations. The financial projections have been prepared upon the basis of assumptions and estimates which may differ from actual events and/or circumstances.
Paradigm and DZCC has not requested and will not request any tax ruling from the IRS regarding the tax consequences of their activities. Accordingly, there is no certainty as to the tax consequences of participating in the Loan. Paradigm and DZCC have not sought or obtained a legal opinion with respect to the tax treatment of the offering proceeds or issuance of the Loan. Accordingly, Investors are urged to consult their own tax advisor with respect to the federal and state tax consequences arising from participation in this Offering.
There is a possibility that the IRS will audit DZCC’s income tax returns. If DZCC’s income tax returns are audited, your return might also be audited.
No assurance can be given that the current Congress or any future Congress will not enact federal income tax legislation that could adversely affect the tax consequences of participating in the Loan.
Potential investors should not rely exclusively on one aspect of the security structure, such as the debt service capacity of the Company when making an investment decision on whether or not to participate in this Offering.
In addition to the above risks, businesses are often subject to risks not foreseen or fully appreciated by management. Prospective investors reviewing this Offering Summary should keep in mind other possible risks that could be important to the success of their investment in the Notes.
These securities have not been registered with the Securities and Exchange Commission (the “SEC” or the “Commission”), or with any state securities commission or any other regulatory authority. The securities are being offered in reliance upon an exemption from the registration requirement of federal and state securities laws and cannot be resold unless the securities are subsequently registered under such laws or unless an exemption from registration is available. Neither the SEC nor any other agency has passed on, recommended or endorsed the merits of this offering (this “Offering”) or the accuracy or adequacy of these confidential offering documents (the “Offering Package”). Any representation to the contrary is unlawful.
These securities are offered through Carofin, LLC, Member of FINRA/SIPC. Carolina Financial Securities is an affiliate of Carofin and both Broker-Dealers are affiliates of Carolina Financial Group, LLC. Documents have been prepared by Carolina Financial Securities and have been reviewed and approved by the management of the Company. The information contained herein has not been independently verified and is dependent on information provided by the Company to Carolina Financial Securities, LLC.
Our firms seek to present vital capital with meaningful investment opportunities through the fundamental analysis of the businesses we seek to finance. Such analysis is usually conducted through a First Principles approach.
When we provide you with a recommendation, we have to act in your best interest and not put our interest ahead of yours. At the same time, the way we make money creates some conflicts with your interests. You should understand and ask U.S. about these conflicts because they can affect the recommendations we provide you. Here are some examples to help you understand what this means:
Proprietary Products: Our firms will often present investments that are only available through them, which may result in a higher placement fee. The Firms will receive the placement fee regardless of your investment performing as expected.
Administrative Agent Services: CFG Financial Services, LLC, an affiliate of our firms, will act as Administrative agent for the securities while they are outstanding. Given that our firms have an interest in providing recurring services to the Issuer, while the administrative agent looks after the interests of investors, there may be a conflict of interest between the firms and its affiliates. Furthermore, CFG Financial Services is also the administrative agent for certain loans issued by Paradigm Parachute and Defense, Inc., pursuant to that certain Loan and Security Agreement dated March 1st, 2022. As such, CFG Financial Services may also represent certain investors that may have interests adverse to Investors in the Offering.
Our firms offer brokerage services to accredited investors, exclusively through the sale of private placements. the offerings we bring to market are carefully selected, and any recommendation you may receive from U.S. will be limited to these offerings. Therefore, we may be unable to adequately compare the risks and benefits of the offerings we bring to offerings presented by other financial professionals. While our firms will often present new investments and discuss such investment’s risks and benefits with you, the ultimate authority to make such investment rests solely with you.
Our firms do not hold any investor cash or securities, and securities offered by U.S. often have no easily assessable market value, so our firms will not monitor the market value of your investment on an ongoing basis. The investments we present often require a minimum investment of $5,000 for equity offerings and $10,000 for debt offerings.
Fees and costs may reduce any amount of money you make on your investments over time. Our firms are mostly compensated through placement fees, which are payable by the issuer, meaning that the firms will be compensated by receiving a percentage of the funds raised in an offering, regardless of the investment performing as expected. Such placement fee is usually between 3% and 7% (please find the specific Placement Fee for this offering in the “Placement Agent Fees” section of the “Security Terms”. Given that different investments have different placement fees, we may often have a conflict of interest when presenting these investments to you. The Firms’ bankers are often compensated by receiving a percentage of the placement fee, and may have their own conflict of interest when presenting you with offerings they structure.
The information contained herein is for informational purposes only and is not intended for further distribution. The information does not constitute a complete description of any investment or investment performance. This document is in no way a solicitation nor is it an offer to sell securities nor is it advice or recommendation regarding any investment. The information is not directed to any person who is not believed to qualify under the definition of an Accredited Investor under the rules of Regulation D of the 1933 Securities and Exchange Act. No security listed in this document or otherwise offered through Carolina Financial Securities, LLC or Carofin, LLC may be purchased without prior receipt of a complete Private Placement Memorandum or other official offer to sell.
Due diligence materials related to this Borrower and the Offering are available to you through Carolina Financial Securities’ affiliated marketplace, Carofin. If you have not received your login information to access Carofin.com, please contact your company representative to have access granted.
The Company will not offer, sell or issue any Securities in any jurisdiction where it is unlawful to do so or where laws, rules, regulations or orders would require the Company, in its sole discretion, to incur costs, obligations or time delays disproportionate to the net proceeds the Company will realize from such offers, sales or issuances. Neither this Offering Package nor any subscription agreement shall constitute an offer to sell or a solicitation of an offer to purchase any Securities in any jurisdiction in which such transactions would be unlawful.
Private placements are high risk and illiquid investments. As with other investments, you can lose some or all of your investment. Nothing in this document should be interpreted to state or imply that past results indicate future performance, nor should it be interpreted that FINRA, the SEC or any other securities regulator approves of any of these securities. Additionally, there are no warranties expressed or implied as to accuracy, completeness, or results obtained from any information provided in this document. Investing in private securities transactions bears risk, in part due to the following factors: there is no secondary market for the securities; there is credit risk; where there is collateral as security for the investment, its value may be imped if it is sold. Please see the Private Placement Memorandum (PPM), and the complete list of contents of this Offering Package for a more detailed explanation of the securities Summary of Terms, Investor Suitability Standards, Confidentiality, Securities Matters and Risk Factors.
Caution Regarding Forward-Looking Statements
Certain statements in this Summary Offering Material may be “Forward-looking” in that they do not discuss historical facts but instead note future expectations, projections, intentions, or other items relating to the future. We caution you to be aware of the speculative nature of forward-looking statements as these statements are not guarantees of performance or results.
Forward-looking statements, which are generally prefaced by the words “may,” “anticipate,” “estimate,” “could,” “should,” “would,” “expect,” “believe,” “will,” “plan,” “project,” “intend,” and similar terms, are subject to known and unknown risks, uncertainties and other facts that may cause our actual results or performance to differ materially from those contemplated by the forward-looking statements.
Although these forward-looking statements reflect our good faith belief based on current expectations, estimates and projections about, among other things, the industry and the markets in which we operate, they are not guarantees of future performance. Whether actual results will conform to our expectations and predictions is subject to several known and unknown risks and uncertainties, including risks and uncertainties discussed in this Summary Offering Material.
Consequently, all the forward-looking statements made in this Summary Offering Material are qualified by these cautionary statements and there can be no assurance that the actual results anticipated by U.S. will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, U.S. or our business or operations. Risks, uncertainties, and factors that could cause actual results to differ materially from those projected are discussed in the “Risk Factors” section of this Summary Offering Material. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Considering these risks, uncertainties, and assumptions, the forward-looking events discussed in the Summary Offering Material might not occur.
State Securities Laws:
The Company will not offer, sell or issue any securities in any jurisdiction where it is unlawful to do so or where laws, rules, regulations or orders would require the Company, in its sole discretion, to incur costs, obligations or time delays disproportionate to the net proceeds the Company will realize from such offers, sales or issuances. Neither this Offering Package nor any subscription agreement shall constitute an offer to sell or a solicitation of an offer to purchase any securities in any jurisdiction in which such transactions would be unlawful.