Clifton Cooperative Market

Cincinnati, Ohio
May, 2016

INFORMATION FOR PROSPECTIVE LENDERS:

OWNER LOAN PROGRAM

Summary

Clifton Cooperative Market (herein "the Cooperative") is seeking loans from its owners
as an important part of raising the funds needed to finance the development of a retail grocery
store. The loans will bear interest at an annual rate of 0% to 1.5% for 5-year terms, 0% to 2%
for 7-year terms, and 0% to 2.5% for 9-year terms. Within these categories the lender may
choose the interest rate and term of the loan, with limitations as to the total of loans within each
category. Interest will be compounded annually and paid at the maturity of the loan. Loans will
be given a secured interest in the Cooperative's assets. To assure that the secured interest is
fairly allocated to all lenders the Cooperative will empower a trustee to act for the benefit of all
lenders in regard to the collateral for the loans. Owner loans and their secured interest will,
however, be subordinated to loans from banks and other lending institutions. Owner loans
involve significant risks of loss and should be considered only by persons who can afford to
assume such risks. This loan program is intended as an opportunity to enhance the local
availability of consumer goods and services and not as an investment opportunity.

The Cooperative

The Cooperative was incorporated as a cooperative association under the laws of the
State of Ohio in April of 2014. Under its bylaws the Cooperative is required to be operated
exclusively on a cooperative and nonprofit basis. In its bylaws the Cooperative has accordingly
assumed the obligation to be operated in accordance with the cooperative principles adopted by
the 1995 General Assembly of the International Co-operative Alliance. In brief these principles
include: (i) voluntary and open membership; (ii) democratic member control; (iii) member
economic participation; (iv) autonomy and independence of the cooperative; (v) providing
education, training and information; (vi) cooperation with other cooperatives; and (vii) concern for
community. The Cooperative's corporate status is in good standing.
The Cooperative is owned and democratically governed by its owners. Its capital needs
are provided by its owners. The bylaws require that the realized net earnings of the Cooperative
arising from business with owners be allocated and distributed among owners in proportion to
their patronage of the Cooperative and in such manner and at such time as to constitute
patronage dividends within the meaning of federal income tax law.
The Cooperative currently has over 1120 owners and the number is climbing daily. The
Cooperative’s goal is to have 2,000 owners before the store opens.
 The Store Development Project

In early April of 2014 the Cooperative executed a contract to purchase the building that
housed the former IGA at 319 Ludlow Avenue in Clifton. The purchase price under this contract
is $1.65 million. The cooperative purchased the building in April of 2015 for $1.55 million.
With 23,000 square feet of retail space, this building is a perfect fit for the uptrend model
of grocery store as described in national consultant Keith Wicks’ market analysis of this location.
The store has an additional 8,800 square feet on the lower level usable for receiving, storage,
and offices. The store will be the anchor of the Clifton business district. It has an extensive
potential market. In addition to several thousand residents in this target market, the University of
Cincinnati is one mile south with 43,000 students and 10,000 faculty and staff and Cincinnati
State, one mile west, has 20,000 students. The store is projected to bring 15,000 customers per
week into the neighborhood. The property has 55 parking spaces with an additional 91 spaces
in the adjacent Clifton Merchant’s Lot. We are looking at design work to give the space an open,
airy feeling and incorporating Clifton historic photos into the decor. The market analysis
commissioned by the Cooperative was very favorable and encouraging as to the prospects of
the store.
We have negotiated with several national distributors to obtain the best selection of
products at competitive prices. The store is planned to be a full-service market that would
prominently feature local and organic produce, a seafood section, a butcher on premises, and
an extensive selection of beer and wines. We plan to highlight nutrition and to be a social space
as well as the food source. We anticipate that the store will generate 81 full and part time jobs
which will also positively impact the other shops and restaurants on Ludlow Avenue.
Much has been done to further the opening of the store, including incorporation as an
Ohio cooperative association, establishing an initial board of directors, adopting bylaws,
soliciting Cooperative owners, securing the services of numerous consultants, commissioning a
market analysis, raising the funds to purchase the building, hiring a general manger, closing on
nearly $3 million in bank loans, and conducting numerous promotional activities.
Much of the work we started with has been completed, but there is still a lot to do before
the store opens including raising additional funds to provide for sufficient employee training and
startup costs, finalizing interior designs, finalizing the interior merchandising of the store, hiring a
complete staff, and continuing and enhancing the interest and involvement of the Clifton
community.
As the Cooperative has been incorporated for only a few months and has not become
operational it has no historical financial statements. The Cooperative projects the following
operations data subsequent to the opening of the store:

Year 1 Year 2 Year 3

Sales 13,357,032 14,125,176 14,769,508
Cost of goods sold 9,394,600 9,934,894 10,388,083
Gross profit 3,962,400 4,190,282 4,381,425
Operating expenses 3,836,551 4,026,938 4,194,343
Net income $125,849 $163,344 $187,082
 Financing the Store Project

The store project is a substantial undertaking. The following is a summary of the sources
of funding for the project, and the planned uses to which that funding will be put:

Sources of funds
Owner loans and gifts 1,697,108
Shareholder Investment 328,284
Rebatable Inventory Loan 400,000
Inventory Free Fill 125,000
NCB Real Estate Loan 1,875,000
SCC Equipment and Fixture Loan 1,096,538
Total $5,557,592

Uses of funds
Building purchase and buildout 2,577,662
Fixtures & equipment 1,609,931
Inventory 600,000
Pre-Opening Startup Costs 420,000
Operating cash 545,000
Total $5,557,592

To obtain loans from outside parties the Cooperative must be able to demonstrate a
sufficiently high owner financial commitment expressed through share purchases and owner
loans. This was achieved in December of 2015, allowing Clifton Market to close on its two bank
loans. The equipment loan, worth $1,096,538, is from Shared Capital Cooperative. The real
estate and construction loan, worth $1,875,000, is from the National Coop Bank. Both banking
partners are eager and excited to see us succeed. Despite achieving this funding goal,
however, Clifton Market will continue to raise funds from the community. Not only does
increased funding protect from construction and other project overages, it allows the
cooperative an opportunity to reduce our bank loans which will help in the coops operating
bottom line.

Terms of Loans

The Cooperative is seeking $2,000,000 of owner loans, the amount being subject to
various factors that could increase or decrease this amount. This loan program is directed only
to persons who are owners in good standing of the Cooperative and whose principal residence
is in the States of Ohio, Indiana, or Kentucky, and loans will be accepted only from such
persons. The minimum loan amount is $500. There is no maximum loan amount.
Loans will bear interest at an annual rate of from 0% to 1.5% for 5-year terms, 0% to 2%
for 7-year terms, and 0% to 2.5% for 9-year terms. Within these categories, the rate of interest
and term of loan may be selected by the lender, except that, in order to assure that repayment
times for the Cooperative are reasonably spread out, the amount of loans in each category will
be limited to approximately one-third of all loans. Availability of loans within each category will
be on a first-come-first-served basis.
Interest will be compounded annually and added to principal upon which interest is
calculated for the next year. Interest will be paid upon maturity of the loan. Unless a zero
interest rate is chosen, lenders will be required to sign a Form W-9 that certifies to the lender's
social security number or other taxpayer identification number and that back-up withholding
does not apply. This is necessary for the Cooperative to comply with its obligation to issue a
Form 1099-INT if the interest paid upon maturity is $10 or more.
At the request of the lender the promissory note will be issued in joint ownership with the
lender's spouse or domestic partner with the right of survivorship. Upon the death of either
spouse, the other will automatically become the sole owner of the loan, without the note
entering into the estate of the deceased.
Owner loans will be made subordinate to indebtedness to banks and other lending
institutions incurred by the Cooperative both now and in the future (referred to as "senior
indebtedness"). This is necessary in order to not impede the ability of the Cooperative to obtain
other needed loans. Being subordinated would also make owner loans subject to the prior
payment of principal and interest on senior indebtedness which might result in the necessity to
delay the stated maturity date of owner loans. Lenders must be willing to agree to their loans
being so subordinated.
Owner loans will be provided a security interest in property owned by the Cooperative,
including equipment, furniture, fixtures, inventory, supplies, contract rights and general
intangibles. This means that, in the event of a default by the Cooperative, such property will be
available to be liquidated and applied to payment of owner loans on a priority basis over general
creditors of the Cooperative. But, as with principal and interest on owner loans, this security
interest will be subordinated to the security interests of senior indebtedness. This would mean
that the Cooperative property serving as collateral would first be applied to cover the secured
interests of such institutional lenders, and that only the remainder, if any, would be available to
cover the secured interest of owner loans.
Promissory notes may not be transferred or assigned. Upon request of the lender, the
Cooperative may redeem a note before its stated due date, but there can be no assurance that
the Cooperative will be willing and able to do so. The Cooperative intends to distribute annually
to all lenders an annual report, including year-end financial statements. In addition, the
Cooperative intends to distribute interim quarterly financial statements as requested by the
lender as they become available.
Proceeds of owner loans will be used exclusively for the start-up project. Proceeds will
go towards the development and preparation of the property at 319 Ludlow Avenue, Cincinnati,
Ohio 45220 as a full-service grocery store. The intent of this loan program is to provide the
opportunity for owners to support the Cooperative's effort to establish a retail grocery store and
thereby enhance the availability of consumer goods and services. It is not intended, and should
not be construed, as an investment opportunity.

Collateral trust arrangement

To assure fairness in allocating the secured interest of lenders, the Cooperative will
secure a trustee to receive and hold the secured interest in a fiduciary capacity for the benefit of
all lenders under this owner loan program. This serves to assure that all lenders will have an
interest in the property serving as collateral proportional to their outstanding loan balance
irrespective of the order in which their loans were made. This arrangement will be formalized in
a collateral trust agreement executed by the Cooperative and the trustee. Under this agreement
the trustee, in addition to holding the secured interest of lenders, will be empowered to generally
oversee the Cooperative's compliance with its obligations in regard to collateral, to
communicate to lenders matters of importance to their interests that may come to his or her
attention, to call and conduct meetings of lenders as the need may arise, and in the event of a
default to enforce the secured interests of lenders. Granting the secured interest to a trustee
necessarily precludes lenders from individually exercising rights related to their secured interest,
but does not preclude individual action as to other rights accruing to lenders.

Risk factors and suitability standards

A loan to the Cooperative is subject to significant risks which should be carefully

considered by any potential lender. While the Cooperative has listed all the risk factors of which
it is aware, there may be other unrecognized risks which are equally or more significant than
those listed.
The Cooperative is subject to general economic and business conditions both nationally
and regionally. Such risks are of particular concern during deteriorating economic conditions
with uncertain prospects for recovery.
The Cooperative is also subject to risks inherent in the nature of its proposed business
operations. Prominently included among such risks are the highly competitive conditions within
the retail foods sector, the presence in the Cooperative's market area of competitors having far
greater financial resources than the Cooperative, the volatility and unpredictable character of
the retail foods sector in general and the natural foods sector in particular, the Cooperative's
reliance upon a limited number of key personnel having no continuing employment obligations,
and an uncertain ability of the Cooperative to meet its cash obligations as they become due.
The Cooperative is also subject to risks inherent in the character and scope of this
project. These risks are largely beyond the control of the Cooperative's management. The
likelihood of the Cooperative being successful must be considered in the light of difficulties,
complications, delays and unforeseen circumstances encountered in a project of this scope.
There are also risks inherent in the owner loan program. Prominently included among
such risks are that owner loans and their secured interests are subordinated to the loans of
institutional lenders, that the Cooperative is not obligated to maintain a sinking fund to redeem
owner loans, and that lenders cannot convert their loans into cash by selling their promissory
notes.
In view of these risks, making a loan to the Cooperative may be a suitable option for, and
should only be considered by, those persons who understand the nature of the risks involved
and have adequate financial means to assume those risks, forgo liquidity of the funds lent to the
Cooperative, and possibly sustain a loss of those funds.
These suitability standards represent only minimum standards. Prospective lenders are
encouraged to consult their own legal counsel, tax consultant, accountant, or other advisers to
determine whether making a loan to the Cooperative would be appropriate for their
circumstances.
 Obtaining additional information

Any prospective lender having any questions or wishing to review the Cooperative's
records and reports should contact the one of the persons listed in the subsequent section.
Materials that will be made available to prospective lenders include the Cooperative's articles of
incorporation, articles of amendment, bylaws, historical financial statements, financial
projections, business planning materials, brief resumes of current directors, and the collateral
trust agreement.

Making a loan

If you wish to receive further information or to discuss arrangements for making a loan to
the Cooperative please contact Adam Hyland at 513-203-7684 or Charles Marxen at 614-432-
6663. To make a loan to the Cooperative under this owner loan program you must fill out and
sign the Subscription Agreement attached hereto. You may deliver the subscription agreement
to the Cooperative by mail or delivery in person to either of the above-listed persons.
The Cooperative retains the right to decline a proposed loan if it believes that the lender
does not meet the suitability standards stated above. This loan program will remain open only
for a limited period of time not yet established by the Cooperative or until owner loans are fully
subscribed. No agent of the Cooperative is authorized to make any representations contrary to
the representations herein.
Owners who support the Cooperative by participating in this loan program will be playing
a vital role in helping to assure a viable and strong food Cooperative in Clifton in the coming
years. We thank you for supporting the Cooperative by maintaining your owner status and for
considering making a loan to support the Cooperative's store development project.