Private Placement Offering Memorandum
Initially Dated June 28th, 2018

 

THIS DOCUMENT INCLUDES IMPORTANT INFORMATION THAT REPLACES, AND IS IN ADDITION TO, THE INFORMATION PREVIOUSLY AVAILABLE TO YOU — YOU SHOULD READ THIS DOCUMENT CAREFULLY

THE OFFERING PERIOD OF THE PRIVATE PLACEMENT WILL EXPIRE ON THE EARLIER TO OCCUR OF: (I) THE DATE ON WHICH THE MAXIMUM PLACEMENT AMOUNT HAS BEEN SUBSCRIBED FOR AND ACCEPTED BY THE COMPANY AND A FINAL CLOSING WITH RESPECT TO SUCH APPLICABLE SAFTs HAS BEEN CONSUMMATED OR (II) JUNE 28TH, 2019, UNLESS EXTENDED OR EARLIER TERMINATED, IN EACH CASE, IN THE SOLE DISCRETION OF THE COMPANY (SUCH DATE, AS THE SAME MAY BE EXTENDED OR EARLIER TERMINATED, THE “EXPIRATION DATE”).  ALL TERMS NOT DEFINED IN THIS PARAGRAPH HAVE THE MEANING GIVEN TO THEM BELOW.

WITHDRAWAL RIGHTS:  INVESTORS THAT HAVE EXECUTED A SAFT ON OR PRIOR TO THE DATE OF THIS OFFERING MEMORANDUM (JUNE 28TH, 2018) MAY RESCIND THEIR SAFT AND RECEIVE A REFUND OF THEIR INVESTMENT.  SEE “WITHDRAWAL RIGHTS” FOR FURTHER DETAILS.

 

VALOREM FOUNDATION, INC.

Simple Agreements for Future Tokens

 

Valorem Foundation, Inc. (the “Company” or “Valorem Foundation, Inc”) prepared this, Supplemented and Restated Confidential Private Placement Offering Memorandum (as it may be amended or supplemented from time to time, this “Memorandum”) has been prepared by Valorem Foundation, Inc to supersede and replace the Initial Offering Materials in their entirety. To the extent there is any inconsistency between (a) any statement in the Initial Offering Materials and (b) any statement in this Memorandum, the statements in this Memorandum will prevail. You should rely only on this Memorandum and not on the Initial Offering Materials.

 

This Memorandum has been prepared by Valorem Foundation, Inc for use by certain qualified potential purchasers to whom the Company is offering (the “Offering”) the opportunity to purchase the right to acquire, if issued by the Company in the future, Valorem Foundation, Inc Tokens, par value USD $0.50 (the “Tokens”), that the Company will use its commercially reasonable efforts to develop and issue. The foregoing right to acquire Tokens, if issued by the Company in the future, will be embodied in, and documented by, a Simple Agreement for Future Tokens with respect to the Tokens (as may be amended, restated and/or otherwise modified from time to time, a “SAFT” and, together with the Tokens, the “Securities”) to be entered into between the Company and qualified purchasers purchasing such Securities in the Offering. The Company expects to enter into SAFTs on an ongoing basis until on or about June 28th 2019. (as the same may be extended or earlier terminated, the “Expiration Date”). If the Tokens are initially issued by the Company in the future, the date of such issuance, if any, is referred to as the “Token Issuance Date.” As of the date of this Memorandum, the Company has entered into executed SAFTs with approximately 250 purchasers for approximately 15,000,000 million of VLR Tokens out of a total of 200,000,000 VLR tokens.

 

There can be no assurance that Valorem Foundation, Inc will ever issue the Tokens. If Tokens are not issued, purchasers in the Offering will not receive any refund or return of their investment. If Tokens are issued, investors may never receive any benefit from holding the Tokens. Token holders are not entitled to any utility from the Token. A legally compliant trading market for the Tokens may never be developed and peer-to-peer transfers of Tokens will not be permitted unless and until Token holders are notified otherwise by the Company, which may require holders to hold their Tokens indefinitely. An investment in this Offering is highly speculative, and you should only invest if you are prepared to lose your entire investment.

 

Unless the context requires otherwise, in this Memorandum the terms the “Company” and “Valorem Foundation, Inc” refer to advalorem.io, together with its subsidiaries, and all dollar ($) amounts set forth herein refer to United States dollars. The Company currently is a Delaware corporation and expects, prior to the Token Issuance Date, to convert to a Delaware corporation. When and if such conversion does occur, the terms the “Company” and “Valorem Foundation, Inc” will refer, post conversion, to the Delaware corporation to which the Company converted.

 

The Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirement of the Securities Act. Accordingly, the Securities are being offered and sold only (1) to “accredited investors” (as defined in Rule 501 of Regulation D under the Securities Act) in compliance with Rule 506(c) of Regulation D under the Securities Act and (2) in offshore transactions to persons other than “U.S. persons” (as defined in Regulation S under the Securities Act) in reliance upon Regulation S under the Securities Act.

 

None of the Securities and Exchange Commission (the “SEC”), any state securities commission, any foreign securities authority or any other federal, state or foreign regulatory authority has approved or disapproved of these Securities or determined if this Memorandum is truthful or complete. Any representation to the contrary is unlawful and may be a criminal offense.

 

No action has been taken in any jurisdiction to permit a public offering of the Securities.

 

Investing in the Securities involves a high degree of risk. You should carefully consider the risks summarized under “Risk Factors” of this Memorandum for a discussion of important factors you should consider before purchasing Securities.

 

Valorem Foundation, INC.

SIMPLE AGREEMENT FOR FUTURE TOKENS

 

SUMMARY

COMPANY OVERVIEW

TERMS OF THE SECURITIES

RISK FACTORS

SELECTED HISTORICAL FINANCIAL STATEMENTS

USE OF PROCEEDS

DIRECTORS AND MANAGEMENT

PLAN OF DISTRIBUTION

NOTICE TO PURCHASERS

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

DISCLOSURE REQUIRED BY RULE 506(e) OF REGULATION D

ANNEX A — FORM OF SIMPLE AGREEMENT FOR FUTURE TOKENS

ANNEX B — TERMS AND CONDITIONS OF THE VALOREM FOUNDATION, INC TOKEN

ANNEX C — PAYMENT PROCEDURES

ANNEX D — FORM OF NOTICE OF EXERCISE OF WITHDRAWAL RIGHTS

ANNEX E — WHITE PAPER

 

IMPORTANT INFORMATION FOR POTENTIAL PURCHASERS

 

This Memorandum is directed only to qualified potential purchasers to whom it is made available or delivered by, or on behalf of, the Company, and it has been prepared solely for use by prospective purchasers of the Securities. Any reproduction or distribution of this Memorandum, in whole or in part, or the disclosure of its contents, without the prior written consent of the Company, is prohibited.  By accepting this Memorandum you agree to use this Memorandum and its contents solely in connection with your evaluation of a potential investment in the Securities.  Any other use of this Memorandum is prohibited.

 

To purchase Securities, each participating qualified purchaser is required to execute their own SAFT. This Memorandum contains a summary of the material terms of the Securities. However, the summary of the Securities in this Memorandum does not purport to be complete and is subject to and qualified in its entirety by reference (i) in the case of the SAFT, to the actual text of the SAFT to be executed by each qualified purchaser, substantially in the form attached as Annex A hereto, and (ii) in the case of the Tokens, to the terms of a Certificate of Designation that will be filed with the Delaware Secretary of State as part of the Company’s Certificate of Incorporation (the “Certificate of Designation”), the material terms and conditions of which are summarized in Annex B attached hereto (the “Token Terms and Conditions”). The Certificate of Designation and the Token Terms and Conditions will be posted on the Company’s website and available upon request from the Company at no cost. If any of the provisions of the Securities are inconsistent with or contrary to the descriptions or terms in this Memorandum, the terms of the SAFT or the Certificate of Designation (as summarized in the Token Terms and Conditions), as applicable, will control. Furthermore, certain material rights described in the Token Terms and Conditions, such as the dividends which may be declared with respect to the Tokens, are subject to the sole discretion of Valorem Foundation board of directors (the “Board”), in each case without the consent of holders of the Tokens.

 

The Company reserves the right in its sole discretion to reject any commitment in whole or in part by not executing a SAFT. In the event that the Offering is terminated or withdrawn, all funds received in connection with the Offering will be promptly returned to the respective potential purchasers according to the payment procedures contained in Annex C attached hereto. Prior to the Expiration Date, the Company reserves the right to modify the terms of the Offering and the Securities described in this Memorandum in its sole discretion. If the Company amends the terms of the Offering in any material respect, it will provide potential purchasers that have previously funded their commitment at least 3 business days to withdraw from the Offering. Upon any such withdrawal by a purchaser, such withdrawing purchaser’s SAFT will terminate and all funds received in connection with the Offering from such purchaser will be promptly returned to such purchaser without interest. Such refund will be paid in the same currency and in the same amount, without interest, as paid by such Purchaser in accordance with the procedures contained in Annex C attached hereto. For example, an investor who funded 100 Bitcoin will be refunded 100 Bitcoin.

 

The issuance of the Tokens, if any, will be exempt from the registration requirements of the Securities Act pursuant to Section 3(a)(9) of the Securities Act or another available exemption. Upon consummation of such exchange, each applicable SAFT will immediately terminate in accordance with its terms.

 

The Company will not be registered as an investment company under the United States Investment Company Act of 1940, as amended (the “Investment Company Act”). Consequently, purchasers are advised that they will not be afforded any of the protections of the Investment Company Act. See “Risk Factors—The Company is subject to the risk of possibly becoming an investment company under the Investment Company Act.”

 

The Securities described in this Memorandum are subject to legal and contractual restrictions on transferability and resale. For more information on such restrictions, please see the section titled “Notice to Purchasers.”

 

An investment in the Securities involves a high degree of risk, volatility and illiquidity.  A prospective purchaser should thoroughly review the information contained herein and the terms of the Securities and carefully consider whether an investment in the Securities is suitable to the purchaser’s financial situation and goals. Purchasers should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time and should be prepared to lose the full amount of their investment.

 

No person has been authorized to make any statement concerning the Company or the sale of the Securities discussed herein other than as set forth in this Memorandum, and any such statements, if made, must not be relied upon as having been authorized by the Company.  Moreover, purchasers are advised that they should rely solely on the information contained in this Memorandum in considering whether to invest in the Securities. The Company takes no responsibility for, and can provide no assurance as to the reliability of, any information that has been provided to potential purchasers outside of this Memorandum.

 

Purchasers should make their own investigations and evaluations of the Securities, including the merits and risks involved in an investment therein. Prior to any investment, the Company will give purchasers the opportunity to ask questions of, and receive answers and additional information from, the Company concerning the provisions of this Offering, the Securities and other relevant matters, to the extent the Company possesses the same or can acquire it without unreasonable effort or expense.  Purchasers should inform themselves as to the legal requirements applicable to them in respect of the acquisition, holding and disposition of the Securities, and as to the income and other tax consequences to them of such acquisition, holding and disposition.

 

This Memorandum does not constitute an offer to sell, or a solicitation of an offer to buy, any Security in any jurisdiction in which it is unlawful to make such an offer or solicitation.  Each prospective purchaser must comply with all applicable laws and regulations in force in any jurisdiction in which it receives, purchases, offers or sells the Securities and must obtain any consent, approval or permission required for the purchase, offer or sale by it of the Securities under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers or sales. The Company will not have any responsibility in connection with obtaining, or failing to obtain, any such consents, approvals or permissions. The Company is not making any representation to any purchaser regarding the legality of an investment in the Securities by such purchaser.

 

By their participation in the Offering, purchasers will be deemed to have agreed that their participation will constitute their representation, warranty, acknowledgement and agreement to all of the statements about purchasers under the section titled “Notice to Purchasers.” Potential purchasers should carefully read that section of this Memorandum.

 

Prospective purchasers are not to construe this Memorandum as investment, legal, tax, regulatory, financial, accounting or other advice, and this Memorandum is not intended to provide the sole basis for any evaluation of an investment in the Securities.  Prior to entering into a SAFT, a prospective purchaser should consult with its own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and other consequences of an investment in the Securities.

 

Purchasers of the Securities acknowledge that (“Board”), the Company’s ultimate board company, is not the issuer of the Tokens and is not guaranteeing the Tokens or the Offering. To the extent permitted by applicable law, purchasers of the Tokens waive any right to bring any action against the board and its members and officers related to any matter involving the Offering or the issuance of the Securities.

 

Amounts referenced in the SAFT are denominated in United States dollars ($) and purchasers may tender the purchase price payable in connection with the execution of a SAFT in United States dollars, Bitcoin or Ether. Payments in Bitcoin or Ether will be valued in U.S. dollars according to the payment procedures contained in Annex C attached hereto. Such currencies are subject to fluctuations in the rate of exchange and, in the case of digital assets, the exchange valuations. Such fluctuations may have an adverse effect on the number of tokens to be received, as calculated pursuant to the procedures in Annex C, as well as the value, price or income of a purchaser’s investment.

 

Cautionary Statements Regarding Forward-Looking Statements

This Memorandum contains forward-looking statements, including statements relating to the Company’s operations, financial results, business and products. Other statements in this Memorandum, including words such as “anticipate,” “may,” “believe,” “could,” “should,” “estimate,” “expect,” “intend,” “plan,” “predict,” “potential,” “forecasts,” “project,” and other similar expressions, also are forward-looking statements. Forward-looking statements are made based upon management’s current expectations and beliefs concerning future developments and their potential effects on the Company. Such forward-looking statements are not guarantees of future performance. The following important factors, and those important factors described elsewhere in this offering memorandum, including the matters set forth under the section entitled “Risk Factors,” could affect (and in some cases have affected) the Company’s actual results and could cause such results to differ materially from estimates or expectations reflected in such forward-looking statements:

 

·                  there can be no assurance that the Tokens will ever be issued and Tokens, if issued, will be subject to extensive legal and contractual transfer restrictions to comply with our regulatory obligations;

·                  if Tokens are issued, the Company does not expect to pay any dividends for some time into the future and, at issuance, Token holders will not have access to any Discretionary Benefits (as defined herein) or trading market and neither may ever develop;

·                  the tax treatment of the Securities is uncertain;

·                  the potential application of U.S. laws regarding investment securities to the Securities is unclear;

·                  Token transactions may be irreversible and losses due to fraudulent or accidental transactions may not be recoverable;

·                  technological difficulties experienced by the Token Trading System (as defined herein), if developed, may prevent the access or use of a purchaser’s Tokens;

·                  there is no assurance that purchasers of the Securities will receive a return on or of their investment;

·                  the Company’s management will have broad discretion over the use of the net proceeds from this Offering;

·                  holders of the Securities generally will not have voting rights and generally will have no ability to influence the decisions of the Company;

·                  the Securities may be subject to registration under the Exchange Act if the Company has assets above $10 million and more than 2,000 purchasers participate in the Offering;

·                  purchasers may lack information for monitoring their investment;

·                  the Company may be forced to cease operations;

·                  the Securities have no history and will rank junior to the Company’s debt obligations;

·                  the Company does not expect there to be any market makers to develop a trading market in the Tokens;

·                  only certain persons and entities are able to acquire Securities;

·                  there is uncertainty as to what regulatory regime will apply to the Tokens;

·                  the potential application of U.S. laws regarding virtual currencies and money transmission to the Tokens;

·                  the Securities are not legal tender, are not backed by the government, and accounts and value balances are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections;

·                  the Company may not successfully develop, market and launch the Token Trading System;

·                  the Token Trading System may not be widely adopted and may have limited users;

·                  alternative networks may be established that compete with or are more widely used than the Token Trading System;

·                  the Token Trading System may be the target of malicious cyberattacks or may contain exploitable flaws in its underlying code, and if the Token Trading System’s security is compromised, or if the Token Trading System is subjected to attacks that frustrate or thwart the Company’s users’ ability to access the Token Trading System, their Tokens or the Token Trading System’s products and services, users may cut back on or stop using the Token Trading System altogether;

·                  some market participants may oppose the development of distributed ledger or blockchain-based systems like the Token Trading System;

·                  the regulatory regime governing blockchain technologies, cryptocurrencies, digital assets, the Existing Valorem Foundation Platform (as defined herein) and offerings of digital assets, such as the Securities, is uncertain; 

·                  the slowing or stopping of the development or acceptance of blockchain networks and blockchain assets would have an adverse material effect on the successful development and adoption of the Securities;

·                  the prices of blockchain assets are extremely volatile and fluctuations in the price of digital assets could materially and adversely affect the Company’s business, and the Securities may also be subject to significant price volatility;

·                  the Company has limited operating history, which makes it hard to evaluate its ability to generate revenue through operations;

·                  the Company has, to date, relied upon discretionary funding from the Board and if additional discretionary funding were not provided, it would have an adverse impact on the Company’s operations and financial conditions;

·                  there is no assurance that the Company will be able to continue as a going concern;

·                  technology relied upon by the Company for its operations, including the existing, may not function properly;

·                  the Company’s business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, technology, data protection, and other matters;

·                  risks associated with the provision of advisory services;

·                  the popularity of cryptocurrencies and cryptosecurities offerings may decrease in the future, which could have a material impact on the Company’s operations and financial conditions;

·                  dividends paid on the Tokens may detract from capital the Company could deploy to improve its business;

·                  the Company owes significant amounts to Board and has limited cash flow to fund both its ongoing operating costs and debt service, and it may need additional financing to fund its continuing operations;

·                  the Company relies on certain major customers, making it vulnerable to changes in the business and financial condition of, or demand for its services by, such customers;

·                  the value of the Tokens depends, in part, on the utilities the Company may provide to Token holders in the future;

·                  a violation of privacy or data protection laws could have a material adverse effect on the Company and the value of the Token;

·                  the Company and its subsidiaries are, and the Token Trading System, if developed, and the blockchain technology to be utilized by such Token Trading System will be, subject to cyberattacks, security risks and risks of security breaches;

·                  the development and operation of the Valorem Platform requires, and any Token Trading System developed in the future likely will require, technology and intellectual property rights;

·                  the Company may face substantial competition as well as the risk that one or more competitors may obtain patents or other protections covering technology critical to the operation of the Valorem Platform or any future Token Trading System.

 

All forward-looking statements in this Memorandum speak only as of the date hereof.  The Company expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in its expectation with regard thereto or any change in events, conditions, or circumstances on which any such statement is based.

 

THIS OFFERING IS LIMITED SOLELY TO ACCREDITED INVESTORS (AS DEFINED IN REGULATION D UNDER THE SECURITIES ACT) AND IN OFFSHORE TRANSACTIONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) TO NON-U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT) WHO ARE NOT PURCHASING FOR THE ACCOUNT OR BENEFIT OF A U.S. PERSON. ONLY PERSONS OF ADEQUATE FINANCIAL MEANS WHO HAVE NO NEED FOR LIQUIDITY WITH RESPECT TO THIS INVESTMENT SHOULD CONSIDER PURCHASING THE TOKENS OFFERED HEREBY PURSUANT TO A SAFT BECAUSE: (I) AN INVESTMENT IN THE SECURITIES INVOLVES A NUMBER OF SIGNIFICANT RISKS (SEE “RISK FACTORS”); (II) THE TOKENS MAY NEVER BE ISSUED AND (III) NO MARKET FOR THE TOKENS EXISTS, AND A MARKET FOR THE TOKENS MAY NEVER DEVELOP.

 

COMPANY OVERVIEW

Overview of Valorem Foundation, Inc.

 

The Company is a financial technology company focused on the development and commercialization of financial applications of cryptographically-secured, decentralized ledgers—often referred to as distributed ledger or blockchain technologies.

 

Blockchain Services

Valorem Foundation, Inc anticipates that its first commercially available blockchain-based product will be “Valorem Platform” software (the “Advalorem”). The Valorem Platform is currently in production testing, which is being conducted by and Valorem Platform has not yet entered into any commercial licenses with any licensees. The Valorem Platform is intended to help create and manage the reserve lending and investing of users on the Valorem Platform.

 

To date, Valorem Platform has focused on developing its blockchain businesses and exploring opportunities for novel applications of blockchain technology. As a result of its early stage of development, Valorem Foundation, Inc has not yet generated revenue from any commercially available blockchain-based applications.  Nevertheless, the Company has been at the forefront of the effort to bring greater efficiency and transparency to capital markets through the integration of blockchain technology.

 

Recent Developments

White Paper

On January 1st, 2018, the Company issued a White Paper (the “White Paper”) describing its history, business goals and certain aspects of the Tokens. The White Paper, which is available through the link provided in Annex E of this Memorandum, is incorporated by reference into, and made a part of, this Memorandum.

  

Delaware Corporation

All references to Delaware law in this Memorandum should be understood, instead, to refer to corresponding provisions under Delaware law.

 

Appointment of Advisory Board

Valorem Foundation, Inc has announced the appointment to its Advisory Board of several key advisors:

 

VALOREM FOUNDATION, INC ADVISORY BOARD

·                  Val Kleyman

·                  Anurag Makol

·                  Payal Jain

·                  Jared Raia

·                  Mike Shokin

·                  Hariderjit Singh

·                  John Kleppinger

·                  Hans Choi

·                  Navdeep Garg

·                  Kent Wallgren

·                  Dr. Wulf Kaal

 

Consideration paid to Valorem Foundation, Inc Advisory Board members will be included as “Compensatory Tokens.” Members of the Advisory Board will hold Tokens on the same terms and conditions, and subject to the same limitations and restrictions, as other purchasers of Tokens. In connection with the provision of the advisory services for which compensation is being provided, members of the Advisory Board may engage in promotional activities with respect to the VLR Tokens. Members of the Advisory Board are responsible for conducting such promotional activities in accordance with all applicable securities and other laws. In addition, certain members of the Valorem Foundation, Inc Advisory Board may from time to time be involved in projects or have investments in projects that compete with Valorem Foundation, Inc and/or the Valorem Foundation, Inc Token Trading System.  In the aggregate, Valorem Foundation, Inc expects that approximately 2 million Compensatory Tokens will be issued, including to members of the Valorem Foundation, Inc Advisory Board.

  

The Valorem Token Trading System

 

The Company currently intends to leverage its experience and expertise from developing and maintaining the Valorem Foundation, Inc Platform to develop a trading platform that is capable of trading the Tokens and other tokens or coins that are determined to be securities for purposes of U.S. securities laws (the “Valorem Platform”). As of the date of this Memorandum, the Company remains in the preliminary stages of development of such a Valorem Platform. The Token Trading System may never be developed and, even if it is developed, may, for a variety of technological, legal and regulatory reasons, never become operational.  See “Risk Factors—Risks Related to the Development of the Valorem Platform.”

 

Until the Token Trading System is available, or the Company in the future explicitly designates a digital token exchange on which holders of Tokens may transfer or resell their Tokens (such a designated exchange or the Valorem Platform System, referred to as a “Valorem Exchange”), the Tokens will not be transferrable on any trading platform even if there are no legal restrictions on transfer. In addition, peer-to-peer transfers will not be permitted unless and until Token holders are notified otherwise by the Company and informed of the requirements and conditions to do so.  See “Notice to Purchasers.”

 

There can be no assurance that any Valorem Exchange will be chosen or created or that all Token holders will have access to a Valorem Exchange or that peer-to-peer transfers will ever be permitted.

 

Initial Launch of the Securities

 

The Company has entered into SAFTs and expects to enter into additional SAFTs on an ongoing basis until on or about the Expiration Date. The Company is targeting a Token Issuance Date on the 90th day following the Expiration Date.  However, there can be no assurance that the Tokens will be issued as of such date or at all.

 

The Token Trading System is not expected to have been developed by the Token Issuance Date and there can be no assurance that any peer-to-peer transfers will be available on the Token Issuance Date.

 

Potential Future Competitive Landscape

 

Initial coin offerings have, by some accounts, recently surpassed traditional early stage venture capital funding, and, as a result, have drawn a substantial amount of attention, including from U.S. regulators intensely focused on the securities law compliance of such offerings. There is a deep market need for legitimate venues to support security token offerings. While Valorem Foundation, Inc seeks to be a leader in this space and believes it is well-positioned to develop a Valorem Platform, the size of the market opportunity will continue to attract potential competitors seeking to provide trading services for securities tokens. As the Company pursues the development of its proposed Valorem Platform, the Company expects to face significant competition from both emerging financial technology companies and established market participants.

 

Prior SAFT and Token Sales

 

Prior to the Offering, the Company had not previously conducted an offering of SAFTs or Tokens.

  

Legal Proceedings

 

From time to time, the Company may be involved in legal proceedings.  The results of such legal proceedings and claims cannot be predicted with certainty, and regardless of the outcome, legal proceedings could have an adverse impact on the Company’s business or the development and production of the Tokens because of defense and settlement costs, diversion of resources and other factors.
  

At this time, the Company is not aware of any proceedings against it which are expected to have a material adverse effect on its financial position, operations or ability to consummate the development and production of the Tokens.

 

Intellectual Property Matters

 

From time to time, the Company may be the target of patent infringement suits, typically brought by so-called non-practicing entities (commonly known as patent trolls).  Although these suits must be taken seriously, and the Company intends to defend itself vigorously, suits involving non-practicing entities often involve non-material monetary settlements.

 

At this time, the Company is not aware of any patent infringement suits against it, or contemplated to be brought against it, which could have significant effects on its financial position.

 

Overview of Transfer Restrictions Included in this Memorandum

 

This Memorandum describes the legal and contractual transfer restrictions applicable to the Securities. Investors should carefully review this Memorandum, including the transfer restrictions described under “Notice to Purchasers” and “Annex B: Terms and Conditions of the Valorem Platform Token,” which contain important information regarding the Securities.  Investors should consult with their own legal and financial advisors regarding the transfer restrictions to which they will be bound.  The below summary is intended to provide a summary overview of applicable transfer restrictions and are qualified by reference to the transfer restrictions set forth under “Notice to Purchasers” and “Annex B: Terms and Conditions of the Valorem Platform Token.”

 

For U.S. Investors:

 

·                  A SAFT is non-transferable.

·                  Tokens are expected to be issued at or about the 90th day following closing of the offering period.

·                  Tokens issued to U.S. persons are not transferable for one year from the Expiration Date, except that, following the establishment of a sufficient process to verify the identity of subsequent Token holders in order to ensure AML/OFAC compliance for dividend payments and compliance with applicable law (e.g., through the appointment of an SEC-registered transfer agent) and so notifies holders of Tokens thereof and of any applicable conditions, the Company may permit a Compliant Regulation S Sale.  See “Notice to Purchasers” for additional information.

·                  After one year from the Expiration Date, Tokens may be transferred on a designated trading system if Valorem Foundation designates or creates a designated trading platform for the Tokens. To Valorem Foundation knowledge, no such platform currently exists to trade a security token.  Valorem Foundation plans to create an authorized trading system and/or work with an existing platform to permit trading of a security token.  There is no guarantee that Valorem Foundation will be successful in these endeavors.

·                  After one year from the Expiration Date, peer-to-peer transfers will be permitted if Valorem Foundation authorizes peer-to-peer transfer and so notifies holders of Tokens thereof and of any applicable conditions.  Valorem Foundation plans to authorize peer-to-peer transfers as long as a sufficient process can be established to verify the identity of subsequent Token holders in order to ensure AML/OFAC compliance for dividend payments and compliance with applicable law (e.g., through the appointment of an SEC-registered transfer agent).  There is no guarantee that Valorem Foundation, Inc will be able to establish such procedures and authorize peer-to-peer transfers.

 

For non-U.S. Investors:

·                  A SAFT is non-transferable.

·                  Tokens are expected to be issued at or about the 90th day following closing of the offering period.

·                  During the initial one year period from the Expiration Date, Tokens may not be offered or sold to U.S. persons, but may be transferred in Compliant Regulation S Sales if a designated trading platform exists or peer-to-peer transfers is permitted (see next two bullets).

·                  Tokens may be transferred on a designated trading system if Valorem Foundation designates or creates a designated trading platform for the Tokens.  To Valorem Foundation knowledge, no such platform currently exists to trade a security token.  Valorem Foundation plans to create an authorized trading system and/or work with an existing exchange to permit trading of a security token.  There is no guarantee that Valorem Foundation will be successful in these endeavors.

·                  Peer-to-peer transfers will be permitted if Valorem Foundation authorizes peer-to-peer transfers and so notifies holders of Tokens thereof and of any applicable conditions.  Valorem Foundation plans to authorize peer-to-peer transfers as long as a sufficient process can be established to verify the identity of subsequent Token holders in order to ensure AML/OFAC compliance for dividend payments and compliance with applicable law (e.g., through the appointment of an SEC-registered transfer agent).  There is no guarantee that Valorem Foundation will be able to establish such procedures and authorize peer-to-peer transfers.

 

Withdrawal Right

The Company will provide each investor who has executed a SAFT prior to the date of this Memorandum (March 1, 2018) the opportunity to withdraw their entire investment within five business days of the date of this Memorandum.  Investors seeking to exercise this withdrawal right must provide notice in writing (in the form attached as Annex D to this Memorandum) to Valorem Foundation:

 

By overnight courier or certified mail to:

Valorem Foundation, Inc

ATTN: Withdrawal Rights Administrator

850 New Burton Rd

Dover, De 19904

 

A copy of such notice of withdrawal must also be emailed foundation@advalorem.io from the same email address used to sign up to the Valorem Foundation Platform and participate in SAFT.  An investor exercising withdrawal rights may only withdraw such investor’s entire investment. Withdrawal of a portion of an investor’s investment is not permitted.

  

Upon any such withdrawal, the previously executed SAFT will terminate and be void and all funds received with respect to such SAFT will be promptly returned to the respective purchaser without interest in accordance with the procedure set forth in Annex C. Refunds shall be paid in the same currency and in the same amount, without interest, as paid by such Purchaser in accordance with the procedures contained in Annex C attached hereto.  For example, an investor who funded 100 Bitcoin will be refunded 100 Bitcoin.

 

Any investor exercising withdrawal rights shall lose the benefit of any preferential pricing available to such investor in the Pre-Sale Period.  If, following the exercise of withdrawal rights, any investor wishes to participate in the Offering, such participation shall be on the terms applicable at the time of such participation.

 

TERMS OF THE SECURITIES

 

The summary below describes the principal terms of the Securities. Certain of the provisions described below are subject to important limitations and exceptions.  Prospective purchasers should review the SAFT in its entirety, attached hereto as Annex A, and the Token Terms and Conditions, attached hereto as Annex B.  If any of the provisions of the Securities are inconsistent with or contrary to the descriptions or terms in this Memorandum, the terms of the SAFT or the Certificate of Designation (as summarized in the Token Terms and Conditions), as applicable, will control. Upon the Tokens’ issuance, the provisions of the Certificate of Designation will contain the complete terms of the Tokens.

 

Issuer

Valorem Foundation, Inc.

Securities

 

A SAFT providing its holder a right to acquire certain Tokens, if issued in the future; and such Tokens, if so issued.

Tokens will be issued as ERC-20 (or equivalent) compliant tokens.

 

Offering Size

USD $15,000,000.

 Purchasers

Each purchaser of a SAFT (a) if in the United States, or a U.S. Person (as defined in Regulation S under the Securities Act), must be an accredited investor, as defined in Regulation D under the Securities Act or (b) if in an offshore transaction (as defined in Regulation S under the Securities Act), must not be a U.S. Person and must not be purchasing for the account or benefit of a U.S. Person.

 

Transfer

 

A SAFT may not be resold or transferred under any circumstances.

 

Tokens will be “Restricted Securities” under Rule 144 under the Securities Act (“Rule 144”) and subject to legal, as well as contractual, transfer restrictions. See “Notice to Purchasers” for more information.

 

In any case, Token holders will not be able to transfer their Tokens until the Company designates or creates a Designated Exchange or explicitly authorizes peer-to-peer transfers. Peer-to-peer transfers will not be permitted unless and until Token holders are notified otherwise by the Company and informed of the requirements and conditions to do so. There can be no assurance that any Designated Exchange will be designated or created or that peer-to-peer transfers will ever be permitted.

 

Affiliates of a company, including persons who were affiliates of such company at any time during the 90 days prior to the sale of that company’s securities (collectively, “Affiliates”) often rely on Rule 144 in order to publicly resell securities of that company.

 

The Company does not expect Rule 144 to ever be available for resales of the Tokens by Affiliates of the Company. As a result, Affiliates of the Company that acquire Tokens should expect to hold the Tokens indefinitely.

 

Form of Payment for SAFT

The purchase price of the SAFT will be designated in U.S. dollars. Payment will be accepted in U.S. dollars, Bitcoin or Ether. Payments in Bitcoin or Ether will be valued in U.S. dollars according to the payment procedures contained in Annex C attached hereto.

 

Sale Periods

 

During the period which commenced on December 28, 2017 and is expected to run through, and including, June 28th, 2018 (the “Pre-Sale Period”), the Company entered into SAFTs with select strategic purchasers identified by the Company.

 

During the period which is expected to commence on December 28, 2017 and to run through, and including, June 28th, 2018 (the “Subsequent Sale Period”), the Company will enter into SAFTs with select purchasers identified by the Company.

 

The Subsequent Sale Period may be extended or shortened in the Company’s sole discretion. Any extension or shortening of the Subsequent Sale Period will be announced by press release, a supplement to this Memorandum or other available means of notifying purchasers.

 

No assurance can be given that each investor that wishes to participate in the Offering will be able to do so, or to do so at the level at which such investor desires. The Company reserves the right to reject any proposed investment in part or in its entirety in its sole discretion.

 

Payment Instructions

See Annex C for a description of payment procedures to be followed upon execution of a SAFT.

 

The Token Issuance

 

Although the Company will use its commercially reasonable efforts to issue the Tokens, it is not required to issue the Tokens, and SAFT purchasers will not receive any refund or return of investment in the event that the Tokens are not issued.

 

Upon consummation of the Token issuance, each applicable SAFT will immediately terminate in accordance with its terms.

 

See the section entitled “Plan of Distribution” for further information on the mechanics of the Token issuance.

 

SAFT Limitations

 

SAFT holders are not entitled to vote, receive dividends or be deemed the holder of capital stock of the Company in their capacity as a SAFT holder for any purpose, nor will anything contained in this Memorandum be construed to confer on a SAFT holder any of the rights of stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action or to receive notice of meetings, or to receive dividends, subscription rights or otherwise.

 

SAFTs are non-transferable.

 

SAFT holders will have no legal or equitable rights, interests or claims in or to any specific property or assets of the Company. To the extent that a SAFT holder acquires a right to receive any payment from the Company in connection with a SAFT, such right shall be no greater than the right of an unsecured general creditor of the Company.

 

Forward Contract Tax Treatment

 

SAFT holders will be required to treat the SAFTs as prepaid forward contracts for U.S. federal, state and local income taxes, and will not take any position on any tax return, report, statement or tax document that is inconsistent with such treatment.

 

Token Voting Rights

 

Tokens will not have any voting rights except to the extent required by applicable law.

 

Dividends under the Token

 

No Dividends will be paid under this PPM.

 

Token Redemption

 

The Company has the right to redeem the Tokens, in whole or in part, at any time. If fewer than all of the outstanding Tokens are to be redeemed at any time, the Company may choose to redeem the Tokens proportionally from all Token holders, or may choose the Tokens to be redeemed by lot or by any other equitable method.

 

The redemption price for a Token shall be either (i) its fair market value (if any) as determined in good faith by the Board.

 

Token Liquidation Preference

 

In the event of any liquidation, dissolution or winding up of the Company, Token holders shall be entitled to receive, prior and in preference to any distribution of any assets or funds of the Company to other holders of the Company’s equity (except for any class or series of preferred stock designated to be paid prior to, or concurrently with, the Tokens as to payments in liquidation) by reason of their ownership of such Tokens, an amount per Token for each Token held by them equal to USD $0.50. If upon a Liquidation Event and after the payment or setting aside for payment to the holders of any class or series of preferred stock designated to be paid prior to the Tokens, as to a liquidation preference, the assets of the Company lawfully available for distribution to the holders of Tokens and any class or series of preferred stock designated to be paid concurrently with the Tokens, as to a liquidation preference, are insufficient to permit payment in full to all such holders, then the entire assets of the Company legally available for distribution shall be distributed with equal priority and pro rata among the Token holders and holders of any class or series of preferred stock designated to be paid concurrently with the Tokens, as to a liquidation preference, ratably and in proportion to the full amounts they would otherwise be entitled to receive.

 

Effect of Change of Control, Merger, Consolidation and Sale of Assets on Token

 

The merger or consolidation of the Company with any other company, including a merger in which Token holders receive cash or property for their Tokens, or the sale of all or substantially all of the assets of the Company, or any other change of control of the Company, shall not constitute a Liquidation Event and Token holders shall have no preferential rights in connection therewith except to the extent required by applicable law.

 

Termination of SAFT and Tokens

 

If the Tokens are issued, the outstanding SAFTs will terminate in accordance with their terms. Tokens, if issued, shall remain outstanding in perpetuity unless earlier repurchased or redeemed.

 

General Withdrawal Rights

 

Generally, if the Company amends the terms of the Offering subsequent to the date of this Memorandum in any material respect, it will provide purchasers that have previously funded their commitment at least 3 business days to withdraw from the Offering. Upon any such withdrawal, the SAFT will terminate and all funds received in connection with the Offering from such purchasers will be promptly returned to the respective purchasers without interest. Such refund will be paid in the same currency and in the same amount, without interest, as paid by such purchaser in accordance with the procedures contained in Annex C attached hereto. For example, an investor who funded 100 Bitcoin will be refunded 100 Bitcoin.

 

Withdrawal Rights for Prior Purchases

The Company will provide each investor who has executed a SAFT prior to the date of this Memorandum (March 1, 2018) the opportunity to withdraw their entire investment within five business days of the date of this Memorandum. Investors seeking to exercise this withdrawal right must provide notice in writing to Valorem Foundation, Inc by overnight courier or certified mail to: Valorem Foundation, Inc., ATTN: Withdrawal Rights Administrator, 850 New Burton Rd, Dover De 19904. Such notice must be received by Valorem Foundation, Inc at or prior to the close of business (5:00 p.m., New York City time) on March 8, 2018. Such notice must be provided in the form specified in Annex D hereto and must specify, and be executed in, the name of the investor exactly as it appears on such investor’s executed SAFT. An investor exercising withdrawal rights may only withdraw such investor’s entire investment. Withdrawal of a portion of an investor’s investment is not permitted. The Company shall not be required to give effect to (i) defective withdrawal notices not delivered in accordance with these instructions or (ii) withdrawal notices received by Valorem Foundation, Inc after 5:00 p.m., New York City time on March 8, 2018.

 

Amendments

 

The Company reserves the right to amend the terms of the Securities at any time during the Offering prior to the Expiration Date.

 

Documentation

 

To invest, each purchaser will be required to complete such documentation as may be requested by or on behalf of the Company, which may include, without limitation: (1) the execution and delivery of a SAFT, (2) completion of investor qualification requirements and (3) for accredited investors, provision of documents sufficient to enable the verification of such investor’s status.

 

Governing Law

 

The SAFTs will be governed by the law of the State of Delaware. The Tokens will be governed by the law of the State of Delaware.

 

Use of Proceeds

 

At present, the net proceeds of the Offering are expected to be used for (i) the repayment of amounts payable to Board, (ii) the Equity Investments; (iii) the future development of the Tokens and the Token Trading System, (iv) the development of functional utility features that Valorem Foundation, Inc may offer to holders of the Tokens, (v) general corporate purposes, which may include capital expenditures, acquisitions, debt repayments, cybersecurity upgrades, augmenting technology, infrastructure and personnel, development of products and services, and short term investments, among other things, (vi) lobbying law makers and regulatory authorities for the purpose of bringing about changes to laws and regulations related to blockchain technologies, particularly in regards to securities tokens, and (vii) offering, legal and accounting expenses. The failure by the Company’s management to apply these funds effectively could have a material adverse effect on the Company and the value of the Securities.

 

RISK FACTORS

 

An investment in the Securities involves a high degree of risk.  You should consider carefully the risks described below, together with all of the other information contained in this Memorandum, the SAFT and the Token Terms and Conditions, before making an investment decision.  The following risks entail circumstances under which the Company’s business, financial condition, results of operations and prospects could suffer.

 

Risks Related to an Investment in the Securities

 

There can be no assurance that the Tokens will ever be issued and, if the Company fails to issue Tokens, investors have no right to a refund of any portion of their investment.

 

While the Company intends to develop Tokens to be issued to holders of SAFTs, there can be no assurance that it will do so. Should the Company fail to issue the Tokens, investors will be left with only the SAFT, pursuant to which they will not be entitled to any of the rights set forth in the Token Terms and Conditions, including with respect to Dividends. SAFT holders will have no legal or equitable rights, interests or claims to any specific property or assets of the Company. The remaining SAFT would not be expected to possess economic value. Moreover, in the event of the Company’s failure to issue the Tokens, investors have no right to receive a refund or any return of any portion of their investment.  As a result, investors should only invest in a SAFT if they are prepared to lose their entire investment.

 

If Tokens are issued, the Company does not expect to pay any Dividends for some time into the future and, at issuance, Token ownership will not result in access to any Discretionary Benefits.

 

If the Company issues Tokens pursuant to the SAFTs, the terms of such Tokens will be set forth in the Certificate of Designation, as summarized in the Token Terms and Conditions set forth in Annex B.  The Tokens provide that Dividends payable in-kind, in U.S. Dollars, Bitcoin or Ether, in the Company’s sole discretion, will be paid only out of funds lawfully available for such payment when consolidated GAAP net income exceeds the Dividend Amount, and only if declared by the Board. The Board has no obligation to declare Dividends. Currently, the Company does not expect to be in a position to pay Dividends for some time into the future and can provide no assurances as to when Dividends might first be paid, if ever.

 

Token holders shall not be entitled to any Discretionary Benefits as part of the Token and will not have access to any Discretionary Benefits at issuance. Nevertheless, the Company expects to endeavor to create Discretionary Benefits for holders of the Tokens in the future. These will not be a part of the terms and conditions of the Tokens, but rather benefits voluntarily provided by the Company to Token holders. These Discretionary Benefits may be withdrawn or changed at any time by the Board. There can be no assurance that the Company will ever offer any Discretionary Benefits.

 

At issuance, there will be no trading market for the Tokens, and a trading market may never develop.

 

If the Tokens are issued, there will be no trading market available for the Tokens, no Designated Exchange and peer-to-peer transfers will not be permitted unless and until Token holders are notified otherwise by the Company and informed of the requirements to and conditions do so. As a result of recent regulatory developments, conventional crypto exchanges are currently unwilling to list securities tokens, such as the Company’s Tokens.  As a result, when the Tokens become transferable, they may only be traded on very limited range of venues, including U.S. registered exchanges or regulated alternative trading systems for which a Form ATS has been properly submitted to the SEC.  Currently, the Company is unaware of any operational ATS or exchange capable of supporting secondary trading in the Tokens. Moreover, even if legally permitted, by purchasing Tokens, Token holders agree to additional transfer restrictions and shall not be able to effect transfers until such time as the Company informs holders that a Designated Exchange is available or that peer-to-peer transfer processes have been established. As a result, holders of Tokens should be prepared to hold their Tokens indefinitely. See “Notice to Purchasers” for more information.  Moreover, even if the Tokens become transferable, we may rely on technology, including smart contracts, to implement certain restrictions on transferability in accordance with the federal securities laws.  There can be no assurance that such technology will function properly, which could result in technological limitations on transferability and expose the Company to legal and regulatory issues.

 

In the event that the Tokens remain untradeable for a significant period of time or indefinitely, the value of the Tokens would be materially adversely affected.

 

Regulatory authorities may never permit the Token Trading System to become operational.

 

Assuming that Valorem Foundation, Inc is able to develop a Token Trading System, numerous regulatory authorities, including FINRA and the SEC, would need to permit the Token Trading System to become operational.  If FINRA, the SEC or any other regulatory authority objected to the Token Trading System or to aspects of the Token Trading System, such regulatory authorities could prevent the Token Trading System from ever becoming operational.  The regulatory landscape that we expect to navigate in order to achieve an operational Token Trading System is complex, and Valorem Foundation, Inc may never be able to do so successfully.  Any such regulatory issues would have a material adverse impact on our business.

 

Due to the unavailability of Rule 144 for resales of Tokens by affiliates of the Company, Company affiliates may elect not to acquire the Tokens.

 

Assuming that a Designated Exchange ever becomes available for trading of the Tokens, the Company does not expect Rule 144 ever to be available for any resales of Tokens by affiliates of the Company. As a result, affiliates of the Company may be unable to resell the Tokens unless the Company registers their sales. To make it easier for affiliates of the Company to publicly resell Tokens, the Company may in the future consider registering such resales; however, such registration statement may not become or remain effective and the Company has no obligation to register such Tokens. Furthermore, a seller under a registration statement may have liabilities that a seller under Rule 144 does not have. Any or all of these matters may cause affiliates of the Company to elect not to acquire the Tokens, which could depress the value of Tokens.

 

The tax treatment of the Securities is uncertain and there may be adverse tax consequences for purchasers upon certain future events.

 

The tax characterization of the Securities is uncertain, and each purchaser must seek its own tax advice in connection with an investment in the Securities.  An investment in the Securities may result in adverse tax consequences to purchasers, including withholding taxes, income taxes and tax reporting requirements.  See “Certain United States Federal Income Tax Considerations,” herein. Each purchaser should consult with and must rely upon the advice of its own professional tax advisors with respect to the United States and non-U.S. tax treatment of an investment in the Securities.

 

The tax characterization of the Securities also affects the Company’s tax liability in connection with the Offering.  In addition, the accounting consequences are uncertain, and there is a possibility that the proceeds of the Offering might be treated as a liability rather than equity for accounting purposes, which would reduce Valorem Foundation, Inc’s net book value compared to equity treatment, which would prevent Valorem Foundation, Inc from making dividend payments until such time, if ever, that Valorem Foundation, Inc’s net book value increases to a positive amount at least greater than the aggregate amount of any proposed dividend.

 

The potential application of U.S. laws regarding investment securities to the Securities is unclear.

 

The Securities are novel and the application of U.S. federal and state securities laws is unclear in many respects. Because of the differences between the Securities and traditional investment securities, there is a risk that issues that might easily be resolved by existing law if traditional securities were involved may not be easily resolved for the Securities. In addition, because of the novel risks posed by the Securities, it is possible that securities regulators may interpret laws in a manner that adversely affects the value of the Securities.  For example, if applicable securities laws restrict the ability for the Tokens to be transferred, this would have a material adverse effect on the value of the Securities. The occurrence of any such legal or regulatory issues or disputes, or uncertainty about the legal and regulatory framework applicable to the Securities, could have a material adverse effect on the holders of Securities.

 

If the Tokens ever become transferable, Token transactions may be irreversible, and, accordingly, losses due to fraudulent or accidental transactions may not be recoverable.

 

In the event that the Token Trading System is developed and becomes operational, or the Tokens become tradeable on another Designated Exchange or pursuant to permitted peer-to-peer transfers, transactions in the Tokens may be irreversible, and, accordingly, a purchaser of the Tokens may lose all of his or her investment in a variety of circumstances, including in connection with fraudulent or accidental transactions, technology failures or cyber-security breaches.  If applicable, real-time settlement would further increase the risk that correction of trading errors may be impossible and losses due to fraudulent or accidental transactions may not be recoverable.

 

The nature of the Tokens means that any technological difficulties experienced by the Token Trading System, if developed, or any other Designated Exchange may prevent the access or use of a purchaser’s Tokens.

 

Any Designated Exchange, including the Token Trading System, if developed, will be subject to the risk of technological difficulties that may impact trading of the Tokens, which include, without limitation, failures of any blockchain on which the Tokens or the Designated Exchange relies or the the failure of smart contracts to function properly.  Trading in the Tokens will depend on the operation and functionality of the applicable Designated Exchange and if such system were to fail for any reason, trading in the Tokens could be impossible until such failure was corrected and full functionality were restored and tested.  Any such technological difficulties may prevent the access or use of the Tokens.  This could have a material impact on the applicable Designated Exchange’s ability to execute or settle trades of the Tokens, to maintain accurate records of the ownership of the Tokens and to comply with obligations relating to records of the ownership of the Tokens and could have a material adverse effect on the holders of the Tokens.

 

There is no assurance that purchasers of the Securities will receive a return on their investment.

 

The Securities are highly speculative and any return on an investment in the Securities is contingent upon numerous circumstances, many of which (including legal and regulatory conditions) are beyond the Company’s control.  There is no assurance that purchasers will realize any return on their investments or that their entire investments will not be lost. For this reason, each purchaser should carefully read this Memorandum and should consult with their own attorney, financial and tax advisors prior to making any investment decision with respect to the Securities.  Investors should only make an investment in the Securities if they are prepared to lose the entirety of such investment.

 

The Company’s management will have broad discretion over the use of the net proceeds from this Offering.

 

At present, the net proceeds of the Offering are expected to be used for (i) the repayment of amounts payable to Board, (ii) the Equity Investments; (iii) the future development of the Tokens and the Token Trading System, (iv) the development of functional utility features that Valorem Foundation, Inc may offer to holders of the Tokens, (v) general corporate purposes, which may include capital expenditures, acquisitions, debt repayments, cybersecurity upgrades, augmenting technology, infrastructure and personnel, development of products and services, and short term investments, among other things, and (vi) lobbying law makers and regulatory authorities for the purpose of bringing about changes to laws and regulations related to blockchain technologies, particularly in regards to securities tokens, and (vii) offering, legal and accounting expenses. The failure by the Company’s management to apply these funds effectively could have a material adverse effect on the Company and the value of the Securities.

 

Holders of the Securities will generally not have voting rights and will generally have no ability to influence the decisions of the Company.

 

Holders of the Securities have no voting rights, except, with respect to the Tokens, those required by Delaware law. As a result, except with respect to matters required to be submitted to Token holders under Delaware law, all matters submitted to stockholders will be decided by the vote of holders of the Company’s capital stock entitled to vote thereon, which shall not include the Securities.  As a result, holders of the Securities will have no ability to elect directors or, except with respect to matters required to be submitted to Token holders under Delaware law, to determine the outcome of any other matters submitted to a vote of the Company’s stockholders. The interests of holders entitled to vote on such matters may differ from, or conflict with, the interests of Token holders.

 

The Securities may be subject to registration under the Exchange Act if the Company has assets above $10 million and more than 2,000 purchasers participate in the Offering, which would increase the Company’s costs and require substantial attention from management.

 

Companies with total assets above $10 million and more than 2,000 holders of record of its equity securities, or 500 holders of record of its equity securities who are not accredited investors, at the end of their fiscal year must register that class of equity securities with the SEC under the Exchange Act.  The Company could trigger this requirement as a result of the Offering and be required to register the Tokens with the SEC under the Exchange Act, which would be a laborious and expensive process.  Furthermore, if such registration takes place, the Company will have materially higher compliance and reporting costs going forward.

 

Purchasers may lack information for monitoring their investment.

 

The Securities do not have any information rights attached to them (other than certain rights to Company information afforded Token holders under Delaware law), and purchasers may not be able to obtain all the information they would want regarding the Company or the Securities. In particular, investors may not be able to receive information regarding the financial performance of the Company with respect to the ability of the Company to pay Dividends. The Company is not currently registered with the SEC and currently has no periodic reporting requirements. As a result of these difficulties, as well as other uncertainties, a purchaser may not have accurate or accessible information about the Company or the Securities.

 

The Securities have no history.

 

The Securities will be newly formed and have no operating history and are entirely novel in type. Investors will not be able to compare them against other like instruments.  An investment  in the Securities should be evaluated on the basis of the value and prospects of the Tokens, taking into account uncertainties as to the likelihood that the Tokens will be issued, and of the assessment of the prospects of the Company’s business may not prove accurate, and the Company may not achieve its objectives.  Past performance of the Company, or any similar token or SAFT issued by other companies, is not predictive of the Company’s future results, the value and success of the Company’s Securities or the ability of the Company to ever pay Dividends.

 

The Company does not expect there to be any market makers to develop a trading market in the Tokens.

 

Most securities that are publicly traded in the United States have one or more broker-dealers acting as “market makers” for the security. A market maker is a firm that stands ready to buy and sell the security on a regular and continuous basis at publicly quoted prices. In the event that a Designated Exchange is created or developed, the Company does not believe that the Securities will have any market makers, which could contribute to a lack of liquidity in the Securities, and could have a material adverse effect on holders’ ability to trade the Securities.

 

Only certain persons and entities are able to acquire Securities.

 

Only limited categories of persons and entities may purchase Securities. The Company expects that these limitations will limit liquidity in the Securities, and the limitations may have a material adverse effect on the development of any trading market in the Securities. The Securities have not been registered under the Securities Act or any United States state securities laws or under the securities laws of any other jurisdiction and may not be offered or sold within the United States or to, or for the account or benefit of, United States persons except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable U.S. state securities laws. In addition, in offshore transactions the Securities may be purchased only by non-U.S. Persons in accordance with applicable restrictions under the securities laws of the jurisdictions in which they are sold.  Generally, foreign securities laws restrict the categories of persons permitted to purchase securities, such as the Tokens, to specified classes of sophisticated investors.  No action has been taken in any jurisdiction to permit a public offering of the Securities.  Moreover, in addition to legal restrictions, by acquiring Tokens, holders agree to additional transfer restrictions described in this Memorandum.

 

Consequently, it is expected that there will only be a limited number of Token holders, a purchaser of the Securities and an owner of beneficial interests in those Securities must be able to bear the economic risk of their investment in the Securities indefinitely.  For a discussion of certain restrictions on resale and transfer, see “Plan of Distribution” and “Notice to Purchasers.”

 

The Securities are not legal tender, are not backed by the government, and accounts and value balances are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation (“SIPC”) protections.

 

The Securities are not legal tender, are not backed by the government, and accounts and value balances are not subject to Federal Deposit Insurance Corporation or Securities Investor Protection Corporation protections.  Any investment in the Securities is made at the risk of the purchaser.

 

The Tokens are equity securities and are subordinate to existing and future indebtedness of the Company.

 

Tokens are preferred equity interests in the Company. This means that the Tokens will rank junior to all existing and future indebtedness of the Company and to other non-equity claims on the Company with respect to assets available to satisfy claims on the Company, including claims in liquidation.  Additionally, unlike indebtedness, where principal and interest customarily are payable on specified due dates, in the case of Tokens, (1) dividends are payable only when, as, and if declared by the Board, (2) dividends will not accumulate if they are not declared, and (3) because the Company will become a Delaware corporation, the Company will be subject to restrictions on Dividend payments and redemption payments out of lawfully available funds.

 

Further, the Tokens place no restrictions on the business or operations of the Company or on its ability to incur additional indebtedness or engage in any transactions, subject only to the limited voting rights required under Delaware law.

 

In addition, if payment of a Dividend on the Tokens for any period would cause the Company to fail to comply with any applicable law or regulation, the Company will not pay a Dividend for such period and no Dividend will accrue, accumulate or be payable for that dividend period.

 

The Company’s ability to pay Dividends depends upon the results of operations of its subsidiaries.  There are regulatory restrictions upon certain of the Company’s subsidiaries’ ability to make dividend or other payments to the Company.  As a result, there can be no assurance that the Company will have sufficient funds available for the declaration of any Dividend with respect to any dividend period.

 

The Tokens may have lower priority to certain rights and preferences than future tokens or preferred stock of the Company.

 

The Tokens may have lower priority to certain rights and preferences than other tokens and/or preferred stock that the Company issues in the future, which by its terms is expressly higher priority than the Tokens. The terms of any future tokens and/or preferred stock that are higher priority than the Tokens may restrict Dividend payments on the Tokens. In this case, unless full dividends for all such outstanding tokens and preferred stock with higher priority than the Tokens have been declared and paid or set aside for payment, no dividends will be declared or paid and no distribution will be made on any Tokens, and no Tokens will be permitted to be repurchased, redeemed or otherwise acquired by the Company, directly or indirectly, for consideration. This could result in dividends on the Tokens not being paid to you or Tokens not being redeemed.

 

Risks Related to the Development of the Token Trading System

 

The Company may not successfully develop, market and launch any Token Trading System.

 

The Company views the development of the Token Trading System as a key commercial milestone.  The Company remains in the preliminary stages of development of the Token Trading System, and the Token Trading System may never be developed.

 

In addition, the development of the Token Trading System would require significant capital funding, expertise of the Company’s management and time and effort in order to be successful. The Company may have to make changes to the specifications of the Token Trading System for any number of reasons or the Company may be unable to develop the Token Trading System in a way that realizes those specifications or any form of a functioning network.  It is possible that the Tokens and the Token Trading System may not ever be released and there may never be an operational Token or the launch of the Token Trading System may never occur.  The Token Trading System, if successfully developed and maintained, may not meet investor expectations at the time of purchase of Tokens—for example, there can be no assurance that the Token Trading System will provide less expensive or more efficient trading than is possible on currently available trading platforms for traditional securities.  Furthermore, despite good faith efforts to develop and complete the launch of the Token Trading System and subsequently to maintain the Token Trading System, it is still possible that the Token Trading System will experience malfunctions or otherwise fail to be adequately developed or maintained, which may negatively impact the Token Trading System and Tokens.

 

The Company may, but is not obligated to, use the proceeds of this Offering (subject to the Company’s other obligations described under “Use of Proceeds”) to make significant investments to develop and launch a viable Token Trading System and subsequently to build a fulsome network upon which users can realize utility and value. The Company may not have or may not be able to obtain the technical skills, expertise or regulatory approvals needed to successfully develop the Token Trading System and progress it to a successful launch.  While the Company has sought to retain and continue to competitively recruit experts, there may, from time to time, be a general scarcity of management, technical, scientific, research and marketing personnel with appropriate training to develop and maintain the Token Trading System.  In addition, there are significant legal and regulatory considerations that will need to be addressed in order to develop and maintain the Token Trading System, and addressing such considerations will require significant time and resources. There can be no assurance that the Company will be able to develop a Token Trading System that achieves the Company’s goals and satisfies the complex regulatory requirements applicable to SEC-registered exchanges and/or permitted alternative trading systems. If the Company is not successful in its efforts to develop a Token Trading System that is compliant with all regulatory and legal requirements and to demonstrate to users the utility and value of the Token Trading System, it may be impermissible to launch the Token Trading System or there may not be sufficient demand for the Tokens for the launch of the Token Trading System to be commercially viable. As a result, or if the launch does not occur, purchasers of the Securities may lose all of their investment.

 

The Token Trading System may not be widely adopted and may have limited users.

 

It is possible that the Token Trading System, if developed, will not be used by a large number of issuers, broker-dealers or holders of security tokens or that there will be limited public interest in the creation and development of the Token Trading System.  In addition, legal and regulatory developments could render the Token Trading System obsolete or impermissible.  Such a lack of use or interest could negatively impact the development of the Token Trading System, the value of the Tokens and the financial position of the Company.

 

Alternative networks may be established that compete with or are more widely used than the Token Trading System.

 

It is possible that alternative networks could be established that utilize the same or similar protocols as those that will underlie the Token Trading System or that facilitate services that are materially similar to the Token Trading System’s services.  The Token Trading System may compete with these alternative networks, which could negatively impact the Token Trading System and the Tokens.

 

The Token Trading System, the Tokens and any blockchain on which the Company’s products and/or securities may rely may be the target of malicious cyberattacks or may contain exploitable flaws in its underlying code, which may result in security breaches and the loss or theft of Tokens or other tokens that may trade on the Token Trading System.  If such attacks occur or security is compromised, this could expose us to liability and reputational harm and could seriously curtail the utilization of the Tokens and cause a decline in the market price of the Tokens.

 

If the Tokens are issued, and if the Token Trading System is developed, their structural foundation, the software applications and other interfaces or applications upon which they rely or that will be built upon the Token Trading System are unproven, and there can be no assurances that the Token Trading System and the creating, transfer or storage of the Tokens will be uninterrupted or fully secure, which may result in impermissible transfers, a complete loss of users’ Tokens or an unwillingness of users to access, adopt and utilize Valorem Foundation, Inc’s Tokens and/or the Token Trading System.  Further, the Tokens and the Token Trading System (and any technology, including blockchain technology, on which they rely) may also be the target of malicious attacks seeking to identify and exploit weaknesses in the software, the Tokens or the Token Trading System which may result in the loss or theft of Tokens.  For example, if the Company and the Tokens and/or Token Trading System are subject to unknown and known security attacks (such as double-spend attacks, 51% attacks, or other malicious attacks), this may materially and adversely affect the Token Trading System.

 

Some market participants may oppose the development of distributed ledger or blockchain-based systems like those central to the Company’s commercial mission.

 

Many participants in the system currently used for trading securities in the United States may oppose the development of capital markets systems and processes that utilize distributed ledger and blockchain-based systems. The market participants who may oppose such a system may include market participants with significantly greater resources, including financial resources and political influence, than the Company has. The ability of the Company to operate and achieve its commercial goals could be adversely affected by any actions of any such market participants that result in additional regulatory requirements or other activities that make it more difficult for the Company to operate, which could have a material adverse effect on the Company’s operations and financial conditions.

 

Risks Related to Blockchain Technology

 

The regulatory regime governing blockchain technologies, cryptocurrencies, digital assets, the Existing Valorem Foundation, Inc Software Platform and offerings of digital assets, such as the Tokens, is uncertain, and new regulations or policies may materially adversely affect the development and the value of the Tokens.

 

Regulation of digital assets, like the Tokens, and offerings such as this, cryptocurrencies, blockchain technologies, cryptocurrency exchanges and the Existing Valorem Foundation, Inc Software Platform, is currently

undeveloped and likely to rapidly evolve as government agencies take greater interest in them, varies significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty.  Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of the Tokens, tokens generally and, in each case, the technology behind them or the means of transaction in or transferring them.  Failure by the Company or certain users of the Securities to comply with any laws, rules and regulations, some of which may not exist yet or that are subject to interpretations that may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines.

 

Cryptocurrency networks, distributed ledger technologies, and coin and token offerings also face an uncertain regulatory landscape in many foreign jurisdictions such as the European Union, China and Russia.  Various foreign jurisdictions may, in the near future, adopt laws, regulations or directives that affect the Tokens or the Existing Valorem Foundation, Inc Software Platform.  Such laws, regulations or directives may conflict with those of the United States or may directly and negatively impact the Company’s business.  The effect of any future regulatory change is impossible to predict, but such change could be substantial and materially adverse to the adoption and value of the Tokens and the financial performance of the Company.

 

New or changing laws and regulations or interpretations of existing laws and regulations, in the United States and other jurisdictions, may materially and adversely impact the value of the Tokens, including with respect to the Dividends that may be made, the liquidity of the Tokens, the ability to access marketplaces or exchanges on which to trade the Tokens, and the structure, rights and transferability of Tokens.

 

The further development and acceptance of blockchain networks, which are part of a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate.  The slowing or stopping of the development or acceptance of blockchain networks and blockchain assets would have an adverse material effect on the successful development and adoption of the Tokens.

 

The growth of the blockchain industry in general, as well as the blockchain networks on which the Tokens will rely, is subject to a high degree of uncertainty.  The factors affecting the further development of the cryptocurrency and cryptosecurity industry, as well as blockchain networks, include, without limitation:

 

·                  worldwide growth in the adoption and use of cryptocurrencies, cryptosecurities and other blockchain technologies;

·                  government and quasi-government regulation of cryptocurrencies, cryptosecurities and other blockchain assets and their use, or restrictions on or regulation of access to and operation of blockchain networks or similar systems;

·                  the maintenance and development of the open-source software protocol of cryptocurrency or cryptosecurities networks;

·                  changes in consumer demographics and public tastes and preferences;

·                  the availability and popularity of other forms or methods of buying and selling goods and services, or trading assets including new means of using government-backed currencies or existing networks;

·                  general economic conditions and the regulatory environment relating to cryptocurrencies and cryptosecurities; and

·                  a decline in the popularity or acceptance of cryptocurrencies or other blockchain-based tokens would adversely affect the Company’s results of operations.

 

The cryptocurrency and cryptosecurities industries as a whole have been characterized by rapid changes and innovations and are constantly evolving.  Although they have experienced significant growth in recent years, the slowing or stopping of the development, general acceptance and adoption and usage of blockchain networks and blockchain assets may deter or delay the acceptance and adoption of the Tokens.

 

The prices of digital assets are extremely volatile.  Fluctuations in the price of digital assets could materially and adversely affect the Company’s business, and the Tokens may also be subject to significant price volatility.

 

The prices of cryptocurrencies, such as Bitcoin and Ether, and other digital assets have historically been subject to dramatic fluctuations and are highly volatile, and the market price of the Tokens may also be highly volatile.  Several factors may influence the market price, if any, of the Tokens, including, but not limited to:

 

·                  the ability of the Tokens to trade in a secondary market, if at all;

·                  the availability of a Designated Exchange or other trading platform for digital assets;

·                  global digital asset and security token supply;

·                  global digital asset and security token demand, which can be influenced by the growth of retail merchants’ and commercial businesses’ acceptance of digital assets like cryptocurrencies as payment for goods and services, the security of online digital asset exchanges and digital wallets that hold digital assets, the perception that the use and holding of digital assets is SAFT and secure, and the regulatory restrictions on their use;

·                  purchasers’ expectations with respect to the rate of inflation;

·                  changes in the software, software requirements or hardware requirements underlying the Tokens;

·                  changes in the rights, obligations, incentives, or rewards for the various holders of the Tokens;

·                  interest rates;

·                  currency exchange rates, including the rates at which digital assets may be exchanged for fiat currencies;

·                  government-backed currency withdrawal and deposit policies of digital asset exchanges;

·                  interruptions in service from or failures of major digital asset and security token exchange on which digital assets and security tokens are traded;

·                  investment and trading activities of large purchasers, including private and registered funds, that may directly or indirectly invest in securities tokens or other digital assets;

·                  monetary policies of governments, trade restrictions, currency devaluations and revaluations;

·                  regulatory measures, if any, that affect the use of digital assets and security tokens such as the Tokens;

·                  global or regional political, economic or financial events and situations; and

·                  expectations among digital assets participants that the value of security tokens or other digital assets will soon change.

 

A decrease in the price of a single digital asset may cause volatility in the entire digital asset and security token industry and may affect other digital assets including the Tokens.  For example, a security breach that affects purchaser or user confidence in Bitcoin or Ether may affect the industry as a whole and may also cause the price of the Tokens and other digital assets to fluctuate.  Such volatility in the price of the Tokens may result in significant loss over a short period of time.

 

The terms of the Tokens may also lead to additional price volatility.  The value of the Tokens will be tied to the payment of Dividends by the Company.  See “Terms of the Securities.” Consequently, unlike other digital assets, the operations and financial position of the Company will directly impact the price of the Tokens which may create additional volatility based on the Company’s future performance.

 

Risks Related to the Company’s Business

 

The Company has limited operating history, which makes it hard to evaluate its ability to generate revenue through operations.

 

The Company does not have any legally binding commitment from any person, including Board, to contribute additional capital or to make any loan to it.  If Board were to be unable or unwilling to fund the Company’s operations in the future, or if Board were to become the subject of a bankruptcy or other insolvency proceeding, the Company’s operations and financial conditions would be materially adversely impacted. 

 

There is no assurance that the Company will be able to continue as a going concern.

  

Technology relied upon by the Company for its operations, including the Existing Valorem Foundation, Inc Software Platform, may not function properly.

 

The technology relied upon by the Company, including the Existing Valorem Foundation, Inc Software Platform, may not function properly, which would have a material impact on the Company’s operations and financial conditions.

 

Certain of our officers and directors participate in other business ventures and, as a result, may have limited time to devote to our business or may compete with the Company.

 

Certain of our officers and directors participate in other business ventures.  As a result of such participation, management anticipates devoting a portion of their time per month to such other business ventures. Moreover, such outside business ventures may at times compete directly with the Company or result in conflicts of interest in the future.

 

The Company’s business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, technology, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could result in claims, changes to the Company’s business practices, increased cost of operations or otherwise harm the Company’s business.

 

The Company is subject to a variety of laws and regulations in the United States and abroad that involve matters central to its business, including user privacy, blockchain technology, broker dealer, data protection and intellectual property, among others. Foreign data protection, privacy, broker dealer and other laws and regulations are often more restrictive than those in the United States. These U.S. federal and state and foreign laws and regulations are constantly evolving and can be subject to significant change. In addition, the application and interpretation of these laws and regulations are often uncertain, particularly in the new and rapidly evolving industry in which the Company operates.

 

The Company has adopted policies and procedures designed to comply with these laws. The growth of its business and its expansion outside of the United States may increase the potential of violating these laws or its internal policies and procedures. The risk of the Company’s being found in violation of these or other laws and regulations is further increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and are open to a variety of interpretations. Any action brought against the Company for violation of these or other laws or regulations, even if the Company successfully defends against it, could cause the Company to incur significant legal expenses and divert its management’s attention from the operation of its business. If the Company’s operations are found to be in violation of any of these laws and regulations, the Company may be subject to any applicable penalty associated with the violation, including civil and criminal penalties, damages and fines, the Company could be required to refund payments received by it, and it could be required to curtail or cease its operations. Any of the foregoing consequences could seriously harm its business and its financial results. These existing and proposed laws and regulations can be costly to comply with and can delay or impede the development of new products, result in negative publicity, increase its operating costs, require significant management time and attention, and subject the Company to claims or other remedies, including fines or demands that the Company modifies or ceases existing business practices.

  

Strategic investments and acquisitions may detract from the capital that the Company could otherwise deploy to improve its business or to develop the Token Trading System

  

The Company is subject to the risk of possibly becoming an investment company under the Investment Company Act.

 

The Investment Company Act regulates certain companies that invest in, hold or trade securities. As a result of a portion of the Company’s assets consisting of minority investment positions, it runs the risk of inadvertently becoming an investment company, which would require the Company to register under the Investment Company Act. Registered investment companies are subject to extensive, restrictive and potentially adverse regulations relating to, among other things, operating methods, leverage, management, capital structure, dividends and transactions with affiliates. Registered investment companies are not permitted to operate their business in the manner in which the Company operates its business, nor are registered investment companies permitted to have many of the relationships that the Company has with its affiliated companies.

 

To avoid becoming and registering as an investment company under the Investment Company Act, the Company intends to monitor the value of its investments and structure transactions accordingly. As a result, the Company may structure transactions in a less advantageous manner than if it was not subject to such Investment Company Act risks, or the Company may avoid otherwise economically desirable transactions due to this risk. In addition, events beyond the Company’s control, including significant appreciation or depreciation in the market value of certain of its publicly traded holdings or adverse developments with respect to its ownership of certain of its subsidiaries, could result in the Company inadvertently becoming an investment company. If it were established that the Company were an investment company, there would be a risk, among other material adverse consequences, that it could become subject to monetary penalties or injunctive relief, or both, in an action brought by the SEC, that the Company would be unable to enforce contracts with third parties or that third parties could seek to obtain rescission of transactions with the Company undertaken during the period it was established that the Company was an unregistered investment company. If it were established that the Company were an investment company, this would have a material adverse effect on its business and financial operations and its ability to continue as a going concern.

 

The Company may not successfully develop, launch, market or sell its digital locate receipt software.

  

The popularity of cryptocurrencies and cryptosecurities offerings may decrease in the future, which could have a material impact on the cryptocurrency and cryptosecurities industry and the Company’s operations and financial conditions.

 

The Company was founded to develop and commercialize financial technology based on the use of digital assets, digital securities (or cryptosecurities) and blockchain technology. In recent years, cryptocurrencies and cryptosecurities have become more widely accepted among investors and financial institutions, but have been also faced increasingly complex legal and regulatory challenges and, to date, have not benefited from widespread adoption by governments, central banks or established financial institutions. Any significant decrease in the acceptance or popularity of cryptocurrency or cryptosecurity offerings may have a material impact on the Company’s operations and financial conditions. 

 

The Company owes significant amounts to Board and has limited cash flow to fund both its ongoing operating costs and debt service.  The Company may need additional financing to fund its continuing operations.

  

The Company relies on certain major customers, making it vulnerable to changes in the business and financial condition of, or demand for its services by, such customers.

  

The value ascribed to the Tokens by the holders may depend, in part, on the number and scope of Discretionary Benefits that the Company may provide to Token holders in the future.

 

The Company expects to endeavor to create certain Discretionary Benefits for holders of the Tokens in the future.  See “Terms of the Securities.” The terms and conditions of the Tokens do not entitle holders to any Discretionary Benefits, and potential purchasers should not ascribe any value to such Discretionary Benefits in making their investment decision.  If in the future, certain Discretionary Benefits are provided to holders of the Tokens, it is possible that token holders will ascribe some value to these Discretionary Benefits.  However, any such Discretionary Benefits may be terminated and cease at any time and, to the extent that holders are attributing value to such Discretionary Benefits, any such termination or cessation may cause the value of the Tokens to decrease and such decrease may be material.

 

A violation of privacy or data protection laws could have a material adverse effect on the Company and the value of the Tokens.

 

The Company and certain of its subsidiaries and advisors are subject to applicable privacy and data protection laws and regulations. Any violations of laws and regulations relating to the safeguarding of private information could subject the Company or any of them to fines, penalties or other regulatory actions, as well as to civil actions by affected parties. Any such violations could adversely affect the ability of the Company to operate the Token Trading System, which could have a material adverse effect on the Company’s operations and financial conditions.

 

The Company and its subsidiaries are, and the Token Trading System, if developed, and the blockchain technology to be utilized by such Token Trading System will be, subject to cyberattacks, security risks and risks of security breaches. The nature of the Tokens may lead to an increased risk of fraud or cyberattack.

 

The Company and its subsidiaries are, and the Token Trading System, if developed, and the blockhchain technology to be utilized by such Token Trading System will be, subject to cyberattacks, security risks and risks of security breaches. An attack on any of them or a breach of security of any of them could result in a loss of private data, unauthorized trades, and an interruption of trading for an extended period of time. Any such attack or breach could adversely affect the ability of the Company to effectively operate the Token Trading System, which could have a material adverse effect on the Company’s operations and financial conditions.

 

Such an attack may also damage the Company’s reputation and any breach of data security that exposes or compromises the security of any of the technology utilized by the Token Trading System, if developed, to authorize or validate transaction orders, or that enables any unauthorized person to compromise our security protocols, could result in unauthorized trades.

  

The Company may face substantial competition from a number of known and unknown competitors as well as the risk that one or more of them may obtain patents or other protections covering technology critical to the operation of the Existing Valorem Foundation, Inc Software Platform or any future Token Trading System.

 

The Company believes that a number of organizations are or may be working to develop trading systems utilizing distributed ledger or blockchain technologies or other novel technologies that may be competitive with its own technology. Some or all of such organizations may have substantially greater technological expertise, experience with distributed ledger technologies and/or financial resources than the Company or Board has, and many of them appear to be attempting to patent technologies that may be competitive with or similar to the technology the Company has developed. The Company does not have access to detailed information about the technologies these organizations and/or their respective purchasers may be attempting to patent. If one or more other persons, companies or organizations obtains a valid patent covering technology critical to the Existing Valorem Foundation, Inc Software Platform or any future Token Trading System, the Company and the other entities that need the relevant technology in order to enable the Existing Valorem Foundation, Inc Software Platform or Token Trading System to operate as intended might be unable or unwilling to license the technology, and it could become impossible for the Existing Valorem Foundation, Inc Software Platform or Token Trading System to operate, which could have a material adverse effect on the Company.

 

Valorem Foundation, Inc intends to offer advisory services to companies considering or pursuing initial coin offerings, but has not yet been engaged to do so.

 

Valorem Foundation, Inc intends to offer advisory services to companies considering or pursuing initial coin offerings. To date Valorem Foundation, Inc has not been engaged to provide advisory services to any other company considering or pursuing an initial coin offering, and there can be no assurance that Valorem Foundation, Inc will be engaged to provide any such services in the future.

 

PLAN OF DISTRIBUTION

 

SAFT Purchaser Qualifications

 

Only persons of adequate financial means who have no need for present liquidity with respect to this investment should consider purchasing the SAFT offered hereby because: (i) an investment in the Securities involves a number of significant risks (See “Risk Factors”); (ii) the SAFTs are not transferable; and (iii) there is no established trading market for the Tokens and it is possible that one will never develop and the Tokens will never be tradeable or transferable.  This Offering is being made as a private offering that is exempt from registration under the Securities Act and applicable state securities laws.

 

This Offering is limited solely to purchasers (1) who are “accredited investors” as defined Regulation D or (2) who are not “U.S. persons,” as defined in Regulation S, in offshore transactions.

 

To be eligible to participate in the Offering, you will be required to represent to the Company in writing that you are (1) an accredited investor under Regulation D and to provide certain documentation in support of such representation (such required documentation to be decided by the Company in its sole discretion), or (2) a non-U.S. person under Regulation S purchasing in an offshore transaction. You must also represent in writing that you are purchasing the SAFT for your own account and not for the account of others and not with a view to reselling or distributing Securities.

 

Other Requirements

 

In addition to submitting documentation to confirm their status as “accredited investors” or non-”U.S. Persons,” all potential purchasers of the Tokens will need to complete requisite know-your-customer and anti-money laundering procedures to execute a SAFT.

 

The USA PATRIOT Act

 

What is money laundering?

 

How big is the problem and
why is it important?

The USA PATRIOT Act is designed to detect, deter and punish terrorists in the United States and abroad. The Act imposes anti-money laundering requirements on brokerage firms and financial institutions. Since April 24, 2002, all United States brokerage firms have been required to have comprehensive anti-money laundering programs in effect. To help you understand these efforts, the Company wants to provide you with some information about money laundering and the Company’s efforts to help implement the USA PATRIOT Act.

 

Money laundering is the process of disguising illegally obtained money so that the funds appear to come from legitimate sources or activities. Money laundering occurs in connection with a wide variety of crimes, including illegal arms sales, drug trafficking, robbery, fraud, racketeering and terrorism.

 

The use of the United States financial system by criminals to facilitate terrorism or other crimes could taint its financial markets. According to the United States State Department, one recent estimate puts the amount of worldwide money laundering activity at $1 trillion a year.

 

You should check the Office of Foreign Assets Control (the “OFAC”) website at http://www.treas.gov/ofac before making the following representations:

 

(i)                                     you represent that the amounts invested by you in this Offering were not and are not directly or indirectly derived from any activities that contravene Federal, state or international laws and regulations, including anti-money laundering laws and regulations.  Federal regulations and Executive Orders administered by the OFAC prohibit, among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals.  The lists of the OFAC-prohibited countries, territories, individuals and entities can be found on the OFAC website at http://www.treas.gov/ofac.  In addition, the programs administered by the OFAC (the “OFAC Programs”) prohibit dealing with individuals(1) or entities in certain countries, regardless of whether such individuals or entities appear on any OFAC list;

 

(ii)                                  you represent and warrant that none of: (1) you; (2) any person controlling or controlled by you; (3) if you are a privately-held entity, any person having a beneficial interest in you; or (4) any person for whom you are acting as agent or nominee in connection with this investment is a country, territory, entity or individual named on an OFAC list, or a person or entity prohibited under the OFAC Programs.  Please be advised that the Company may not accept any subscription amounts from a prospective purchaser if such purchasers cannot make the representation set forth in the preceding sentence.  You agree to promptly notify the Company should you become aware of any change in the information set forth in any of these representations.  You are advised that, by law, the Company may be obligated to “freeze the account” of any purchaser, either by prohibiting additional subscriptions from it, declining any redemption requests and/or segregating the assets in the account in compliance with governmental regulations, and that the Company may also be required to report such action and to disclose such purchaser’s identity to the OFAC;

 

(iii)                               you represent and warrant that none of: (1) you; (2) any person controlling or controlled by you; (3) if you are a privately-held entity, any person having a beneficial interest in you; or (4) any person for whom you are acting as agent or nominee in connection with this investment is a senior foreign political figure(2), or any immediate family(3) member or close associate(4) of a senior foreign political figure, as such terms are defined in the footnotes below; and

 

(iv)                              if you are affiliated with a non-U.S. banking institution (a “Foreign Bank”), or if you receive deposits from, make payments on behalf of, or handle other financial transactions related to a Foreign Bank, you represent and warrant to the Company that: (1) the Foreign Bank has a fixed address, and not solely an electronic address, in a country in which the Foreign Bank is authorized to conduct banking activities; (2) the Foreign Bank maintains operating records related to its banking activities; (3) the Foreign Bank is subject to inspection by the banking

 

(1)  These individuals include specially designated nationals, specially designated narcotics traffickers and other parties subject to OFAC sanctions and embargo programs.

 

(2)  A “senior foreign political figure” is defined as a senior official in the executive, legislative, administrative, military or judicial branch of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation.  In addition, a “senior foreign political figure” includes any corporation, business or other entity that has been formed by, or for the benefit of, a senior foreign political figure.

 

(3)  “Immediate family” of a senior foreign political figure typically includes such figure’s parents, siblings, spouse, children and in-laws.

 

(4)  A “close associate” of a senior foreign political figure is a person who is widely and publicly known to maintain an unusually close relationship with such senior foreign political figure, and includes a person who is in a position to conduct substantial domestic and international financial transactions on behalf of such senior foreign political figure.

 

authority that licensed the Foreign Bank to conduct its banking activities; and (4) the Foreign Bank does not provide banking services to any other Foreign Bank that does not have a physical presence in any country and that is not a regulated affiliate.

 

The Company is entitled to rely upon the accuracy of your representations.  The Company may, but under no circumstances will it be obligated to, require additional evidence that a prospective purchaser meets the standards set forth above at any time prior to its acceptance of a prospective purchaser’s subscription.  You are not obligated to supply any information so requested by the Company, but the Company may reject a subscription from you or any person who fails to supply such information.

 

How to Subscribe

 

SAFTs may be accessed electronically via www.advalorem.io and will be delivered via email and also available on Adobe Echosign. Prospective purchasers and the Company will review and electronically sign validated SAFT documents and a final executed SAFT agreement will be available to the purchaser on Adobe EchoSign or through the StartEngine front-end user interface.

 

The Token Issuance

 

If developed by the Company, the Tokens will be issued to holders of the SAFTs in a transaction exempted from the registration requirements of the Securities Act pursuant to Section 3(a)(9) of the Securities Act or another available exemption. Upon consummation of the token issuance pursuant to such exemption, each applicable SAFT will immediately terminate in accordance with its terms. While the Company will use its commercially reasonable efforts to create the Tokens, no assurance can be given that they will ever be issued or that the Token Trading System will be developed.

NOTICE TO PURCHASERS

 

This Offering has not been registered or qualified under the securities laws of any jurisdiction anywhere in the world. The SAFTs and the Tokens, if issued, are being offered and sold only in jurisdictions where such registration or qualification is not required, including pursuant to applicable exemptions that generally limit the purchasers who are eligible to purchase the SAFTs and the Tokens, if issued, and that restrict the Securities’ resale. Holders of the SAFTs may never offer, sell, assign, transfer, pledge, encumber or otherwise dispose of the SAFTs. The Tokens may not be offered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of except as permitted under applicable securities laws and the additional restrictions imposed on the Tokens hereunder. In addition, Token holders will not be able to transfer their Tokens until the Company designates or creates a Designated Exchange or notifies Token holders that peer-to-peer transfers will be permitted and provides holders with the requirements and conditions to effect peer-to-peer transfers. Furthermore, there can be no assurance that any Designated Exchange will be chosen or created or that all Token holders will have access to a Designated Exchange or that peer-to-peer transfers will ever be permitted.

 

Notice to Purchasers

 

Neither the SAFTs nor the Tokens, if issued, have been registered under the Securities Act or any securities laws of any state and, unless so registered, the Tokens may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and such other securities laws.  Accordingly, the SAFTs are being initially offered and sold only (1) to “accredited investors” (as defined under Regulation D), in each case, in a private transaction in reliance on, and in compliance with, the exemption from the registration requirements of the Securities Act provided by Rule 506(c) of Regulation D under the Securities Act, and (2) outside the United States to non-U.S. persons in offshore transactions in reliance upon Regulation S under the Securities Act.

 

As used herein, the terms “United States,” “U.S. person” and “offshore transactions” have the meanings given to them in Regulation S under the Securities Act.

 

Representations And Warranties of Purchasers

 

Each purchaser that executes a SAFT will be deemed to have acknowledged, represented and warranted to, and agreed with, the Company as follows:

 

(1)                                 It understands and acknowledges that (i) the issuance of the SAFTs and the Tokens, if issued, has not been and will not be registered under the Securities Act or any other applicable securities law, unless required by applicable law, (ii) the SAFTs are being offered for sale in transactions not requiring registration under the Securities Act or any other applicable U.S. state securities law, (iii) the Tokens, if issued, will be issued in transactions not requiring registration under the Securities Act or any other applicable U.S. state securities law, (iv) the SAFTs are non-transferable and may not be offered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of, and (v) the Tokens may not be offered, sold or otherwise transferred or disposed of, except in compliance with the registration requirements of the Securities Act and any other applicable securities law, or pursuant to an exemption therefrom and, in compliance with the conditions for transfer set forth in paragraphs (5) and (9) below.

 

(2)                                 It acknowledges that this Memorandum relates to an offering that is exempt from registration under the Securities Act and may not comply in important respects with SEC rules that would apply to an offering document relating to a public offering of securities.

 

(3)                                 It is:

 

(a)                                 an “accredited investor” (as defined in Regulation D) acquiring the SAFT, and it is aware that the SAFT and the Tokens, if, as and when issued, are being issued in reliance on an exemption from the registration requirements of the Securities Act; or

 

(b)                                 not a “U.S. person” and it is not acquiring the SAFT and the Tokens for the account or benefit of a “U.S. person,” and it is acquiring such SAFT in an offshore transaction in accordance with all of the requirements of Regulation S under the Securities Act and in accordance with the laws applicable to it in the jurisdiction in which such acquisition is made.

 

(4)                                 It acknowledges that the purchase of a SAFT is also the purchase of Tokens, if, as and when they are issued.

 

(5)                                 In addition to all applicable transfer restrictions under applicable securities laws, it acknowledges and agrees that: (i) holders of the SAFTs may never offer, sell, assign, transfer, pledge, encumber or otherwise dispose of the SAFTs and (ii) the Tokens may not be offered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of until such time as the Company (A) designates or creates a Designated Exchange and notifies Token holders thereof or (B) notifies Token holders that peer-to-peer transfers will be permitted and provides holders with the requirements and conditions to effect peer-to-peer transfers.

 

(6)                                 It acknowledges that neither the Company, nor any of its representatives or affiliates, have made any statement, representation or warranty, express or implied, to it other than the information contained in this Memorandum, which has been delivered to it and upon which it is solely relying in making its investment decision with respect to the Securities.  It has had access to such financial and other information concerning the Company and the Securities as it has deemed necessary in connection with its decision to invest, including an opportunity to ask questions of and request information from the Company, and such information has been made available to it.

 

(7)                                 It is acquiring the SAFT and the Tokens, if, as and when issued, for its own account, or for one or more purchaser accounts for which it is acting as a fiduciary or agent, in each case for investment, and not with a view to, or for offer or sale in connection with, any distribution thereof in violation of the Securities Act or any other applicable securities laws, subject to any requirement of law that the disposition of its property or the property of such purchaser account or accounts be at all times within its or their control and subject to its or their ability to resell the Tokens, if, as and when issued, pursuant to Rule 144A, Regulation S, or any other exemption from registration available under the Securities Act, in each case, subject to the conditions set forth in (9).

 

(8)                                 Each holder of the Securities acknowledges that the Company is not making any representations as to the availability of the exemption provided by Rule 144 for resale of the Tokens, if, as and when issued.

 

(9)                                 Each holder of a SAFT acknowledges that:

 

The SAFT and each Token will contain a legend substantially to the following effect:

 

THIS SECURITY [i.e., the SAFT], AND ANY TOKENS WHEN ISSUED PURSUANT TO IT (THE “TOKENS”), HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY, NOR ANY INTEREST OR PARTICIPATION HEREIN, MAY BE OFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES. EACH HOLDER OF THIS SECURITY, BY ITS ACCEPTANCE HEREOF REPRESENTS THAT (A) IT IS AN “ACCREDITED INVESTOR” (AS DEFINED IN REGULATION D UNDER THE SECURITIES ACT) OR (B) IT IS NOT A “U.S. PERSON” AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT AND IN ACCORDANCE WITH THE LAWS APPLICABLE TO IT IN THE JURISDICTION IN WHICH SUCH ACQUISITION IS MADE.

 

[FOR REGULATION S ONLY (THE “REGULATION S LEGEND”): THE TOKENS WHEN ISSUED WILL BE ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT, AND MAY NOT BE TRANSFERRED IN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, ANY U.S. PERSON (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT (“REGULATION S”)) EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND ALL APPLICABLE STATE SECURITIES LAWS. EXCEPT AS SET FORTH BELOW, THE TOKENS SHALL NOT BE EXCHANGEABLE FOR TOKENS THAT ARE NOT SUBJECT TO A LEGEND CONTAINING RESTRICTIONS ON TRANSFER UNTIL THE EXPIRATION OF THE APPLICABLE ONE-YEAR “DISTRIBUTION COMPLIANCE PERIOD” (WITHIN THE MEANING OF REGULATION S) AND THEN ONLY UPON CERTIFICATION IN A FORM REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT, IF ANY, THAT SUCH TOKENS ARE OWNED EITHER BY NON-U.S. PERSONS OR U.S. PERSONS WHO PURCHASED SUCH INTERESTS IN A TRANSACTION THAT DID NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT.

 

THE HOLDER OF ANY TOKENS AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH TOKENS, PRIOR TO THE EXPIRATION OF THE APPLICABLE ONE-YEAR HOLDING PERIOD WITH RESPECT TO RESTRICTED SECURITIES SET FORTH IN RULE 144 UNDER THE SECURITIES ACT (THE “RESALE RESTRICTION TERMINATION DATE”), ONLY (A) TO THE COMPANY OR ANY OF THE COMPANY’S SUBSIDIARIES, (B) PURSUANT TO A COMPLIANT REGULATION S SALE, OR (C) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, SUBJECT, IN EACH OF THE FOREGOING CASES, TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH PURCHASER ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY APPLICABLE JURISDICTION.

 

HEDGING TRANSACTIONS INVOLVING THE TOKENS MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.]

 

[FOR REGULATION D ONLY (THE “REGULATION D LEGEND”): THE HOLDER OF ANY TOKENS AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH TOKENS, PRIOR TO THE EXPIRATION OF THE APPLICABLE ONE-YEAR HOLDING PERIOD WITH RESPECT TO RESTRICTED SECURITIES SET FORTH IN RULE 144 UNDER THE SECURITIES ACT (THE “RESALE RESTRICTION TERMINATION DATE”), ONLY (A) TO THE COMPANY OR ANY OF THE COMPANY’S SUBSIDIARIES, (B) PURSUANT TO A COMPLIANT REGULATION S SALE OR (C) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, SUBJECT, IN EACH OF THE FOREGOING CASES, TO ANY REQUIREMENT OF LAW

 

THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH PURCHASER ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS, INCLUDING SECURITIES LAWS OF ANY U.S. STATE OR ANY OTHER APPLICABLE JURISDICTION.]

 

A “COMPLIANT REGULATION S SALE” MEANS A SALE, FOLLOWING THE ESTABLISHMENT BY THE ISSUER OF A SUFFICIENT PROCESS TO VERIFY THE IDENTITY OF SUBSEQUENT TOKEN HOLDERS IN ORDER TO ENSURE COMPLIANCE WITH ALL REGULATORY REQUIREMENTS FOR DIVIDEND PAYMENTS AND COMPLIANCE WITH APPLICABLE LAW (E.G., THROUGH THE APPOINTMENT OF AN SEC-REGISTERED TRANSFER AGENT) AND NOTICE TO TOKEN HOLDERS THEREOF AND OF ALL APPLICABLE CONDITIONS, (1) TO A PERSON WHO IS NOT A “U.S. PERSON” THAT OCCURS IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH ALL OF THE REQUIREMENTS OF REGULATION S AND IN ACCORDANCE WITH THE LAWS APPLICABLE TO SUCH SALE IN THE JURISDICTION IN WHICH SUCH SALE AND PURCHASE IS MADE AND (2) FOR WHICH SELLER HAS A REASONABLE BELIEF THAT EACH PERSON TO WHOM THE TOKEN IS TRANSFERRED WILL BE PRESENTED WITH NOTICE SUBSTANTIALLY SIMILAR TO THE “REGULATION S LEGEND” AND WILL HAVE AFFIRMATIVELY SIGNALED HIS, HER OR ITS UNDERSTANDING; PROVIDED, THAT THE COMPANY AND THE TRANSFER AGENT, IF ANY, WITH RESPECT TO THIS TOKEN SHALL HAVE THE RIGHT PRIOR TO PERMITTING ANY SUCH COMPLIANT REGULATION S SALE OCCURRING PRIOR TO THE RESALE RESTRICTION TERMINATION DATE TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM AS TO THE COMPLIANCE OF SUCH COMPLIANT REGULATION S SALE WITH ALL APPLICABLE SECURITIES LAWS.

 

IN ADDITION, AND INCLUDING FOLLOWING THE EXPIRATION OF RESALE RESTRICTION TERMINATION DATE, ANY AFFILIATE OF THE COMPANY (OR PERSON WHO HAS BEEN AN AFFILIATE OF THE COMPANY WITHIN THE IMMEDIATELY PRECEDING THREE MONTHS) SHALL OFFER, SELL OR OTHERWISE TRANSFER TOKENS ONLY (I) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (II) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT OR (III) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (INCLUDING IN ACCORDANCE WITH RULE 144, IF AVAILABLE), SUBJECT IN EACH OF THE FOREGOING CASES, TO ANY REQUIREMENT OF LAW THAT THE DISPOSITION OF ITS PROPERTY OR THE PROPERTY OF SUCH PURCHASER ACCOUNT OR ACCOUNTS BE AT ALL TIMES WITHIN ITS OR THEIR CONTROL AND, IN EACH CASE, IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY U.S. STATE OR ANY OTHER APPLICABLE JURISDICTION.  IN ADDITION, THE COMPANY WIL REQUIRE, PRIOR TO ANY OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (III), THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION OR OTHER INFORMATION SATISFACTORY TO THE COMPANY AND THE COMPANY’S TRANSFER AGENT, IF ANY.

 

THE HOLDER OF THIS SECURITY OR TOKENS BY ITS ACCEPTANCE WILL BE DEEMED TO HAVE REPRESENTED AND WARRANTED THAT EITHER (1) NO PORTION OF THE ASSETS USED BY SUCH HOLDER TO ACQUIRE OR HOLD THIS SECURITY OR TOKEN CONSTITUTES THE ASSETS OF AN EMPLOYEE BENEFIT PLAN THAT IS SUBJECT TO TITLE I OF THE U.S. EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED (“ERISA”), A PLAN TO WHICH SECTION 4975 OF THE U.S. INTERNAL REVENUE CODE OF 1986, AS AMENDED (THE “CODE”) APPLIES (INCLUDING AN INDIVIDUAL RETIREMENT ACCOUNT), AN ENTITY WHOSE UNDERLYING ASSETS ARE CONSIDERED TO INCLUDE PLAN ASSETS OF ANY SUCH EMPLOYEE BENEFIT PLAN, OR PLAN, A GOVERNMENTAL PLAN (AS DEFINED IN SECTION 3(32) OF ERISA), A CHURCH PLAN (AS DEFINED IN SECTION 3(33) OF ERISA) THAT HAS NOT MADE AN

 

ELECTION UNDER SECTION 410(D) OF THE CODE, OR A NON-U.S. PLAN, OR (2)(A) THE HOLDER IS, OR IS USING, THE ASSETS OF A GOVERNMENTAL PLAN, A CHURCH PLAN THAT HAS NOT MADE AN ELECTION UNDER SECTION 410(D) OF THE CODE, OR A NON-U.S. PLAN AND (B) THE ACQUISITION AND HOLDING OF THIS SECURITY OR TOKEN WILL NOT CONSTITUTE A VIOLATION UNDER ANY APPLICABLE PROVISIONS UNDER ANY FEDERAL, STATE, LOCAL, NON-U.S. OR OTHER LAWS OR REGULATIONS THAT REGULATE SUCH PLAN’S INVESTMENTS.

 

Each purchaser of a SAFT acknowledges that by electing not to exercise withdrawal rights available, as described in this Memorandum, such purchaser agrees to be bound by the legends set forth in paragraph (5) and this paragraph (9) notwithstanding any differences appearing in the legend appearing on the SAFT previously delivered to such purchaser. The legends set forth in this paragraph (9) shall be deemed to be set forth on any such SAFT delivered prior to the date of this Memorandum.

 

(10)                          It agrees that it will not transfer Tokens unless it is given reasonable assurance that each person to whom it transfers Tokens receives notice of any restrictions on transfer of such Tokens.

 

(11)                          If it is an acquirer in a transaction that occurs outside the United States within the meaning of Regulation S, it acknowledges that until the expiration of the Distribution Compliance Period (as defined in Regulation S under the Securities Act), any offer or sale of the Tokens within the United States or to a U.S. Person by a dealer (whether or not participating in the offering) may violate the registration requirements of the Securities Act.

 

(12)                          It acknowledges that the Company or its Transfer Agent, if any, for the Tokens will not be required to accept for registration of transfer any Tokens, except upon presentation of evidence (including an opinion of counsel) satisfactory to the Company and the Transfer Agent, if any, that the restrictions set out therein have been complied with.

 

(13)                          It understands that no action has been taken in any jurisdiction in the U.S. or elsewhere by the Company that would result in a public offering of the Securities or the possession, circulation or distribution of this Memorandum or any other material relating to the Company or the Securities in any jurisdiction where action for such purpose is required.  Consequently, any transfer of the Tokens will be subject to the transfer restrictions set forth under this “Notice to Purchasers.”

 

(14)                          It (a) is able to act on its own behalf in the transactions contemplated by this Memorandum, (b) has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its prospective investment in the Securities and (c) (or the account for which it is acting as a fiduciary or agent) has the ability to bear the economic risks of its prospective investment in the Securities, and can afford the complete loss of such investment.

 

(15)                          It acknowledges that the Company will rely upon the truth and accuracy of the acknowledgements, representations, warranties and agreements set forth in this “Notice to Purchasers” section and agrees that, if any acknowledgements, representations, warranties and agreements deemed to have been made by its participation in the Offering are no longer accurate, it will promptly notify the Company.

 

(16)                          If it is acquiring the Securities as a fiduciary or agent for one or more purchaser accounts, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the acknowledgements, representations, warranties and agreements set forth in this “Notice to Purchasers” section on behalf of each such purchaser account.

 

(17)                          Either (i) the Holder is not acquiring or holding such Securities or an interest therein with the assets of (A) an employee benefit plan that is subject to Part 4 of Subtitle B of Title I of ERISA, (B) a “plan” to which Section 4975 of the Code applies (including an individual retirement account), (C) an entity deemed to hold “plan assets” of any of the foregoing by reason of an employee benefit plan’s or plan’s investment in such entity, (D) a governmental plan (as defined in Section 3(32) of ERISA), (E) a church plan (as defined in Section 3(33) of ERISA) that has not made an election under Section 410(d) of the Code, or (F) a non-U.S. plan, or (ii) the Holder is acquiring or holding such Securities or an interest therein with the assets of (A) a governmental plan, a church plan that has not made an election under Section 410(d) of the Code, or a non-U.S. plan and (B) the acquisition and holding of such Securities by the purchaser, throughout the period that it holds the Securities and the disposition of such Securities or an interest therein will not constitute or result in a violation of any provisions of any applicable United States federal, state or local laws or non-U.S. laws that regulate such plan’s investments.

 

Digital Notices

 

The Tokens are digital instruments and, as such, will not contain legends. However, purchasers (including secondary purchasers) of Tokens will be required to be presented with the information required to be provided to such holders pursuant to and in the manner contemplated by Section 202 and Section 151(f) of the Delaware General Corporation Law regarding, among other things, restrictions on transfer of the Tokens, including the legend set forth in paragraph 9 above, and, at a minimum, must affirmatively signal their understanding of the information and provide the Company with certain representations on their investor status and location. The Token Terms and Conditions will be presented at that time as well.

 

SELLING RESTRICTIONS

 

No action may be taken in any jurisdiction that would permit a public offering of the Securities or the possession, circulation or distribution of this Memorandum in any jurisdiction where action for that purpose is required. Accordingly, the Tokens may not be offered or sold, directly or indirectly, and neither this Memorandum nor any other offering material or advertisements in connection with the Tokens may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.

 

Notice to Prospective Purchasers in Australia

 

Neither this Memorandum, nor any other disclosure document in relation to the Securities, has been, will be, or needs to be, lodged with the Australian Securities & Investments Commission.  This Memorandum is not a product disclosure statement under Division 2 of Part 7.9 of the Corporations Act 2001 (CTH) (the “Australia Act”) nor is it a prospectus under Chapter 6D of the Australia Act, and the Securities have not been, and will not be, registered as a managed investment scheme under the Australia Act.

 

An offer of the Securities is made in Australia only to “wholesale clients” as defined by the Australia Act (“Wholesale Clients”), and can only be accepted by a recipient if they are a Wholesale Client.

 

No Securities will be issued or arranged to be issued, and no recommendations to acquire Securities will be made, which would require the provision of a product disclosure statement under Division 2 of Part 7.9 of the Australia Act or the provision of a financial services guide or a statement of advice under Division 2 or 3 of Part 7.7 of the Australia Act.

 

Neither this Memorandum, the offer contained herein nor any other disclosure document in relation to the Securities can be partially or wholly distributed, published, reproduced, transmitted or otherwise made available or disclosed by recipients to any other person in Australia.

 

Notice to Prospective Purchasers in the European Economic Area

 

In relation to each Member State of the European Economic Area (each a “Member State”), which has implemented the Prospectus Directive, the Company has represented and agreed that with effect from and including the date on which the Prospectus Directive is implemented in that Member State it has not made and will not make an offer of the Securities to the public in a Member State, except that it may, with effect from and including such date, make an offer of Securities in a Member State at any time under the following exemptions as provided by the Prospectus Directive:

 

(a)                                 to legal entities which are qualified investors, as defined in the Prospectus Directive;

 

(b)                                 to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive), as permitted under the Prospective Directive;

 

(c)                                  in any other circumstances falling within the scope of Article 3(2) of the Prospectus Directive.

 

For the purposes of the above, (i) the expression an “offer of the Securities to the public” in relation to any Securities in any Member State means the communication in any form and by any means of sufficient information on the terms of the Offering and the Securities to be offered so as to enable an investor to decide to purchase or subscribe the Securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and (ii) the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including Directive 2010/73/EU), and includes any relevant implementing measure in each Member State.

 

Notice to Purchasers in France

 

The Offering is not being made, directly or indirectly, to the public in the Republic of France (“France”). Neither this Memorandum nor any other documents or materials relating to the Offering have been or will be distributed to the public in France and only (i) providers of investment services relating to portfolio management for the account of third parties (personnes fournissant le service d’investissement de gestion de portefeuille pour compte de tiers) and/or (ii) qualified investors (investisseurs qualifiés) acting for their own account (other than individuals), and all as defined in, and in accordance with, Articles L.411-1, L.411-2, D.411-1 and D.411-4, D.734-1, D.744-1, D.754-1 and D.764-1 of the French Code Monétaire et Financier, are eligible to participate in the Offering. Neither this Memorandum nor any other documents or materials relating to the Offering have been or will be submitted for clearance to or approved by the Autorité des marchés financiers. The direct or indirect distribution to the public in France of any so acquired Securities may be made only as provided by Articles L.411-1, L.411-2, L. 412-1 and L.621-8 to L.621-8-3 of the French Code Monétaire et financier and applicable regulations thereunder.

 

This Memorandum, and any related document or material, shall not be considered, nor construed, as any form of financial investment advice, solicitation or advertisement.

 

Notice to Prospective Purchasers in Hong Kong

 

The Securities have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) and any rules made thereunder, or in circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 622) of Hong Kong.

 

No person has issued or had in its possession for the purposes of issue, or will issue or have in its possession of the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Securities, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to the Securities which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the SFO and any rules made thereunder.

 

Notice to Prospect Investors in Israel

 

This Memorandum does not constitute a prospectus under the Israeli Securities Law, 5728-1968, and has not been filed with or approved by the Israel Securities Authority. In Israel, this Memorandum is being distributed only to, and is directed only at, investors listed in the first addendum, or the Addendum, to the Israeli Securities Law, consisting primarily of joint investment in trust funds, provident funds, insurance companies, banks, portfolio managers, investment advisors, members of the Tel Aviv Stock Exchange, underwriters purchasing for their own account, venture capital funds, and entities with shareholders’ equity in excess of NIS 250 million, each as defined in the Addendum (as it may be amended from time to time, collectively referred to as institutional investors). Institutional investors may be required to submit written confirmation that they fall within the scope of the Addendum. In addition, the Company may distribute and direct this Memorandum in Israel, at its sole discretion, to certain other exempt investors or to investors who do not qualify as institutional or exempt investors, provided that the number of such non-qualified investors in Israel shall be no greater than 35 in any 12-month period.

 

Notice to Prospective Purchasers in Singapore

 

Each investor has acknowledged that this Memorandum has not been and will not be registered as a prospectus with the Monetary Authority of Singapore (the “MAS”). Accordingly, this Memorandum and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Securities, may not be circulated or distributed, nor may the Securities be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289 of Singapore) (the “SFA”)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions, specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provisions of the SFA.

 

Where the Securities are subscribed or purchased under Section 275 of the SFA by a relevant person which is: 

(a)                                 a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or

 

(b)                                 a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,

 

securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the units, as the case may be, pursuant to an offer made under Section 275 of the SFA except:

 

(1)                                 to an institutional investor pursuant to Section 274 of the SFA or to a relevant person pursuant to Section 275(1) of the SFA, or to any person pursuant arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

 

(2)                                 where no consideration is or will be given for the transfer;

 

(3)                                 where the transfer is by operation of law;

 

(4)                                 as specified in Section 276(7) of the SFA; and/or

 

(5)                                 as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.

 

By accepting receipt of this Memorandum, any person in Singapore represents and warrants that he is entitled to receive such Memorandum in accordance with the restrictions set forth above and agrees to be bound by the limitations contained herein.

 

Notice to Prospective Purchasers in The Netherlands

 

The Securities may not be offered or sold in The Netherlands to any persons other than qualified investors within the meaning of the Prospectus Directive. For purposes of the above, the expression “Prospectus Directive” shall have the meaning given to it in the paragraph “Notice to Prospective Purchasers in the European Economic Area” above.

 

Notice to Prospective Purchasers in the United Kingdom

 

With respect to offers and sales of the Securities that are the subject of this Memorandum, offers or sales of any of such Securities to persons in the United Kingdom are prohibited in circumstances which have resulted in or will result in such Securities being or becoming the subject of an offer of transferable securities to the public as defined in Section 102B of the Financial Services and Markets Act 2000 (as amended) (the “FSMA”) and all applicable provisions of the FSMA must be complied with, with respect to anything done in relation to such Securities in, from or otherwise involving the United Kingdom.

 

To the extent this Memorandum is distributed in the United Kingdom, it will only be distributed to and directed at: (i) persons who have professional experience in matters relating to investments falling within Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the “FPO”); (ii) high net worth entities and other persons to whom it may otherwise lawfully be communicated falling within Article 49 of the FPO; (iii) certified sophisticated investors falling within Article 50 of the FPO; or (iv) other persons to whom it may lawfully be directed under an exemption

 

contained in the FPO (the persons specified in (i), (ii), (iii) and (iv) above are, together, referred to as “relevant persons”). Persons who are not relevant persons must not act on or rely on this Memorandum or any of its contents. Any investment or investment activity to which this Memorandum relates is available only to relevant persons and will be engaged in only with relevant persons. Relevant persons in receipt of this Memorandum must not distribute, publish, reproduce, or disclose this Memorandum (in whole or in part) to any person who is not a relevant person.

 

In addition, any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received in connection with the issue or sale of such Securities will only be communicated, or be caused to be communicated, in circumstances in which Section 21(1) of the FSMA does not apply to the Company.

 

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

 

The following discussion is a summary of certain U.S. federal income tax considerations relating to the purchase, ownership and disposition of the Tokens and SAFTs. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), existing and proposed Treasury Regulations thereunder, administrative rulings and pronouncements and judicial decisions, all as in effect on the date of this Memorandum and all of which are subject to change or differing interpretations, possibly with retroactive effect.  This discussion is addressed only to beneficial owners of the Tokens and SAFTs that purchase them for cash on original issuance, and to beneficial owners that hold the Tokens or SAFTs as “capital assets” within the meaning of Section 1221 of the Code.

 

This discussion does not address all of the tax considerations that may be relevant to a purchaser of Tokens or SAFTs in light of its particular circumstances or to purchasers that are subject to special rules, such as: banks and other financial institutions; insurance companies; real estate investment trusts and regulated investment companies; tax-exempt organizations; pension funds and retirement plans; brokers and dealers in securities or currencies; traders in securities that elect to use a mark-to-market method of tax accounting; persons that own the Tokens or SAFTs as a position in a hedging transaction; persons that own the Tokens or SAFTs as part of a “straddle,” “conversion” or other integrated transaction for tax purposes; or U.S. Holders (as defined below) whose “functional currency” for tax purposes is not the United States dollar.

 

As used in this discussion, the term “U.S. Holder” means a beneficial owner of a Token or SAFT that is, for U.S. federal income tax purposes, (i) a citizen or individual resident of the United States; (ii) a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust, if (A) a court within the United States is able to exercise primary jurisdiction over administration of the trust and one or more United States persons have authority to control all substantial decisions of the trust or (B) it has a valid election in effect to be treated as a United States person.  As used in this discussion, the term “non-U.S. Holder” means a beneficial owner of Notes or SAFTs (other than a partnership or other entity treated as a partnership or as a disregarded entity for U.S. federal income tax purposes) that is not a U.S. person.

 

The tax treatment of a partnership and each partner thereof will generally depend upon the status and activities of the partnership and such partner.  A holder that is treated as a partnership for U.S. federal income tax purposes or a partner in such partnership should consult its own tax advisor regarding the U.S. federal income tax consequences applicable to it and its partners of the acquisition, ownership and disposition of the Notes or SAFTs.

 

Characterization of the Tokens and SAFTs

 

There are no regulations, published rulings or judicial decisions involving the characterization for US federal income tax purposes of instruments with substantially the same terms as either the Tokens or the SAFTs.  Thus, the characterization of these instruments is uncertain.  It should be expected that the Internal Revenue Service (“IRS”) or a court would determine this characterization based on a consideration and weighing of the characteristics of these instruments.  Except for purposes of withholding on payments to non-US persons discussed below, the Company intends to treat the Tokens as equity in the Company analogous to preferred stock and to treat the SAFTs as a forward contract arrangement to purchase the Tokens on the terms provided.  Other characterizations of each of the Tokens and SAFTs are possible, some of which are discussed briefly below, which may have less favorable US federal income tax consequences for investors.  Potential purchasers are strongly advised to consult their own tax advisors as to the US federal income tax characterization of the Tokens and SAFTs and the consequences to them of the various alternative characterizations.

 

Characteristics of Tokens.

 

As noted, the Company intends generally to treat the Tokens as preferred equity in the Company.  Among the characteristics of the Tokens that support equity treatment are their treatment as a type of stock under Delaware law, their rights to dividends and their rights to participate in proceeds if the Company is liquidated.  Among the characteristics of the Tokens that are less supportive is the non-traditional form of the Tokens.

 

Characteristics of SAFTs.

 

As noted, the Company intends generally to treat the SAFTs as a forward contract to purchase the Tokens and thus a prepaid forward contract to purchase equity of the Company.  Among the characteristics of the SAFTs that support such treatment are their terms providing for purchase of Tokens on fixed terms for a fixed price during each of the Pre-Sale Period and the Subsequent Sale Period, as well as the lack of participation of the SAFTs in dividends and liquidation proceeds.  The SAFTs, however, may remain outstanding indefinitely if Tokens are not issued (unless the SAFTS are redeemed by the Company), which is not a usual feature of a prepaid forward contract.

 

The following is a description of the US federal income consequences of holders that would obtain if the Company’s characterization of the Tokens as preferred equity and the SAFTs as prepaid forward contracts prevails.  Other characterizations are possible, as explained in more detail below, and these could have less favorable US federal income tax consequences for holders.

 

US Holders

 

Tax Treatment of Tokens

 

Dividends

 

For US federal income tax purposes, the gross amount of any cash Dividends paid to US Holders will be treated as ordinary dividend income to the extent paid or deemed paid out of the current or accumulated earnings and profits of the Company (as determined under US federal income tax principles).  Dividends paid by the Company may be eligible for the dividends-received deduction generally allowed to corporate US Holders.

 

To the extent that an amount received by a US Holder exceeds the allocable share of the Company’s current and accumulated earnings and profits, such excess will be applied first to reduce such US Holder’s tax basis in its Tokens and then, to the extent it exceeds the US Holder’s tax basis, it will constitute capital gain from a deemed sale or exchange of such Tokens (see “Gain or Loss upon Sale or Other Disposition of Tokens or Shares”, below).

 

The amount of any distribution paid in property other than cash, including Bitcoin, Ether or additional Tokens (defined as a “PIK Dividend”) will equal the dollar value of the property so distributed, calculated as of the date the dividend is received by a US Holder, and will otherwise be subject to the above rules.

 

Tax Treatment of SAFTs

 

The treatment of the SAFTs as a prepaid forward contract generally means that a US Holder would have has no tax consequences upon acquiring the SAFT.  Upon receipt of the Tokens, the US Holder would be treated as purchasing the Tokens for its original purchase price for the SAFTs plus the price paid for the Tokens, and the holder’s initial tax basis in the Tokens would be the sum of these amounts.

 

In the event no Tokens are issued, it is not clear whether a US Holder would be able to claim a loss with respect to its investment in the SAFTs, unless the Company redeems the SAFTs or the US Holder otherwise disposes of them.

 

Gain or Loss upon Sale or Other Disposition of Tokens or SAFTs

 

In general, a US Holder that sells, exchanges or otherwise disposes of its Tokens or SAFTs (including by redemption) will recognize capital gain or loss in an amount equal to the amount realized for the Tokens and the US Holder’s tax basis in the Tokens or SAFTs disposed of. For non-corporate US Holders, including individuals, any capital gain generally will be subject to US federal income tax at preferential rates (currently a maximum of 20%) if the US Holder’s holding period for the Tokens or SAFTs exceeds one year.  The deductibility of capital losses is subject to significant limitations.

 

Medicare Tax

 

Certain US Holders who are individuals, estates or trusts are required to pay a Medicare tax of 3.8% (in addition to taxes they would otherwise be subject to) on their “net investment income” which would include, among other things, dividends and capital gains from the Tokens and capital gains from the SAFTs.

 

Alternative Characterizations

 

Each of the Tokens and the SAFTs are subject to possible characterizations for US federal income tax purposes different from those described above.  The Tokens could be viewed as a type of “phantom” or derivative stock right that is not itself equity in the Company.  Less likely, the Tokens might be characterized as debt of the Company.  The SAFTs could be viewed as agreements for the present sale stock of the Tokens on a “when issued” basis, or, alternatively, as options to buy the Tokens or, less likely, some type of non-stock right.  US Holders should be aware that several of these characterizations could be disadvantageous for the holder’s US federal income tax treatment, including the timing and characterization of the holder’s income.

 

Holders should also be aware that the IRS has issued guidance, Notice 2014-21, regarding the treatment of “virtual currencies” such as Bitcoin.  The Company believes that the Tokens have important difference from a virtual currency, chiefly that they cannot generally be used as a medium of exchange for goods or services and will be traded, if at all, only in the broker/dealer arrangements described herein.

 

US Holders are strongly encouraged to consult their US tax advisors regarding the US federal income tax characterization of the Tokens and SAFTS and the consequences of these alternative characterizations.

 

Non-US Holders

 

Dividends on Tokens

 

As for US Holders above, Dividends on Tokens to non-US Holders will constitute dividends for US federal income tax purposes to the extent paid from the Company’s current or accumulated earnings and profits, as determined under US federal income tax principles. To the extent Dividends exceed both current and our accumulated earnings and profits, they will be treated as a return of capital and first will reduce the holder’s basis in the Tokens, but not below zero, and then will be treated as gain from the sale of stock, subject to the tax treatment described below in “— Gain on Sale or Other Taxable Disposition of Tokens and SAFTs.”

 

Any dividend paid to a non-US Holder will be subject to US federal withholding tax at a rate of 30% of the gross amount of the dividend, except to the extent that the dividends are “effectively connected” dividends, as described below.  The Company and its paying and withholding agents generally will not apply lower rates of withholding that would be applicable to dividends under an applicable income tax treaty, unless they judge that such lower rate would also be available for each of the alternative characterizations of the transaction.  See “US Holders—Alternative Characterizations”, above.  In order to be eligible for a reduced treaty rate, a non-US Holder must provide the Company with a properly completed IRS Form W-8BEN or W-8BEN-E or other appropriate version of IRS Form W-8 certifying qualification for the reduced rate.  If a non-US Holder holds stock through a financial institution or other agent acting on its behalf, the holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries.  If, after consulting with its tax advisors, a non-US Holder believes it is eligible for a reduced rate of withholding tax pursuant to an income tax treaty that was not applied to the Dividend, such US Holder may obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

 

The above rules fully apply to PIK Dividends.  For PIK Dividends, the amount withheld will be based on the fair market value of the PIK Dividend, and the PIK Dividend amount will be reduced accordingly.  The Company may also withhold up to 30% of the gross amount of the entire distribution even if greater than the amount constituting a dividend, as described above, to the extent provided for in the Treasury Regulations.  Again, a non-US Holder may file a claim for refund with the IRS if it believes an excess amount has been withheld.

 

Dividends and PIK Dividends that are effectively connected with the conduct of a US trade or business (and, if an income tax treaty applies, attributable to a permanent establishment or fixed base maintained in the United States) are exempt from such withholding tax.  In order to obtain this exemption, a non-US Holder must provide an IRS Form W-8ECI (or other successor form) properly certifying such exemption. Such effectively connected dividends, although not subject to US federal withholding tax, are generally taxed at the same graduated rates applicable to US persons, net of certain deductions and credits. In addition, in the case of a corporate non-US Holder, dividends received that are effectively connected with the conduct of a US trade or business may also be subject to a branch profits tax at a rate of 30% or such lower rate as may be specified by an applicable income tax treaty.

 

Gain on Sale or Other Disposition of Tokens and SAFTs

 

A non-US Holder generally will not be required to pay US federal income tax on any gain realized upon the sale or other taxable disposition of Tokens or SAFTs unless (1) the gain is effectively connected with the conduct of a US trade or business by the non-U.S. Holder (and, if an income tax treaty applies, the gain is attributable to a permanent establishment or fixed base maintained in the United States), (2) the non-US Holder is an individual who is present in the United States for a period or periods aggregating 183 days or more during the calendar year in which the sale or disposition occurs and certain other conditions are met, or (3) the Tokens constitute a US real property interest by reason of our status as a “United States real property holding corporation” for US federal income tax purposes, or a USRPHC, at any time within the shorter of the five-year period preceding the disposition or the non-US Holder’s holding period for the Tokens.

 

In general, the Company would be a USRPHC if its “US real property interests” comprised at least 50% of the sum of the fair market value of our worldwide real property interests plus its other assets used or held in a trade or business.  The Company believes that it is not currently and (based upon its projections as to its business) will not become a USRPHC. However, because the USRPHC determination depends on the fair market value of the Company’s US real property relative to the fair market value of our other business assets, there can be no assurance that the Company will not become a USRPHC in the future.

 

A non-US Holder described in (1) above will generally be required to pay tax on the gain derived from the sale (net of certain deductions or credits) under regular graduated US federal income tax rates generally applicable to US persons, and corporate non-US Holders described in (1) above also may be subject to branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. An individual non-US Holder described in (2) above will be required to pay a flat 30% tax on the gain derived from the sale, which tax may be offset by US source capital losses for that year (even though the non-US Holder is not considered a resident of the United States), provided that the non-US Holder has timely filed US federal income tax returns with respect to such losses.  A non-US Holder should seek advice on any applicable income tax or other treaties that may provide for different rules.

 

Information Reporting and Backup Withholding Tax

 

Distributions made to holders and proceeds paid from the sale, exchange, redemption or disposal of Tokens or SAFTs may be subject to information reporting to the IRS. Such payments may be subject to backup withholding taxes unless the holder (i) is a corporation or other exempt recipient or (ii) provides taxpayer identification number and certifies that no loss of exemption from backup withholding has occurred.  Holders that are not US persons generally are not subject to information reporting or backup withholding.  However, such a holder may be required to provide a certification of its non-US status in connection with payments received within the United States or through a US-related financial intermediary to establish that it is an exempt recipient. Backup withholding is not an additional tax; amounts withheld as backup withholding may be credited against a holder’s US federal income tax liability.

 

THE US FEDERAL INCOME TAX TREATMENT OF THE TOKENS AND SAFTS IS NOT CLEAR AND THE FOREGOING DISCUSSION DOES NOT ADDRESS ALL ASPECTS OF US FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER IN LIGHT OF ITS INDIVIDUAL CIRCUMSTANCES, NOR DOES SUCH DISCUSSION ADDRESS ANY ASPECTS OF STATE, LOCAL, OR FOREIGN TAX LAWS OR OF ANY US FEDERAL TAX LAWS OTHER THAN THE INCOME TAX LAWS.  ACCORDINGLY, PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE US FEDERAL INCOME TAX CHARACTERIZATION OF THE TOKENS AND SAFTS, AS WELL AS THE OTHER TAX CONSEQUENCES OF ACQUISITION, OWNERSHIP AND DISPOSITION OF SHARES IN THEIR OWN PARTICULAR CIRCUMSTANCES.

 

DISCLOSURE REQUIRED BY RULE 506(E) OF REGULATION D

 

As a result of NASD Regulation, Inc., Complaint No. C10960146, dated February 3, 1997, Mr. John Tabacco, who from time to time has provided consulting services to the Company, was determined to have violated FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) and was indefinitely barred from association in any capacity with any FINRA member firm.  Mr. John Tabacco no longer has any employment or other affiliation with Valorem Foundation, Inc or its affiliates.  Mr. John Tabacco is not related to Mr. Joseph Tabacco, Jr., a member of Board’s board of directors.