TZERO’s letter to its Security Token holders

17 Oct, 2018 00:29

October 15, 2018

Dear tZERO Token Holder,

We write to thank you once again for your participation in our historic tZERO Security Token Offering (STO), and to inform you proudly that we have reached another milestone. On October 12, 2018 we completed the issuance and token generation of the tZERO preferred tokens. This represents one of the first Security Token Offerings (STOs) on a decentralized network (public Ethereum mainnet) of true preferred stock. The STO was conducted in compliance with U.S. securities laws, with KYC/AML verification on all investors, and in reliance on the exemptions from registration available under Rule 506(c) of Regulation D and Regulation S.

We would now like to provide you with information on how you can view and retrieve your tokens, as well as preliminary guidance on how we expect secondary token trading will work.

Token Issuance

How to View Your Tokens

We utilized our tZERO token contract (which has gone through rigorous security testing) to mint tokens into tZERO custodial wallets on behalf of our investors.  Your tokens have been issued to a unique address with a personal information hash (one of approximately 1,100) that is designated for you, the token holder, in a tZERO wallet. The details of your unique address will soon be provided directly to you as the individual investor. With this address, you can view the quantity of your tokens as well as the date that they were issued on Etherscan (an Ethereum blockchain explorer). Using your unique address, you will be able to see that your tokens are secure.

Your tokens are, in short, yours: indelibly, immutably, transparently, yours. Until you would like to engage in secondary trading, tokens in your personal wallet will not represent merely a contractual claim against someone else’s contractual claim, against someone else’s contractual claim, against some firm you never heard of that actually owns all the stock you think you own (that is to say, “the current National Market System of the United States”). With our technology, 1) you can hold your tokens in your own wallet representing true ownership of the Security Token, 2) regulators get much greater clarity into the atomic structure of the market, so any mischief is observable by them, and 3) the whole thing is cryptographically protected in ways that make many forms of Wall Street mischief impossible to perform in the first place. In sum, this is the first step in a new and better form of capital market for humanity.

How to Retrieve Your Tokens

To ensure compliance with federal securities law and regulations, and in accordance with the terms of the tokens themselves, your tokens will be locked in tZERO’s wallet for 90 days from issuance. After the 90-day period expires, we intend to offer you the following options to retrieve your tokens:

1. Digital Securities Broker Account – If you would like the opportunity to buy additional tokens or resell them (pursuant to a private resale transaction) on the platform we are in the process of

developing, with a broker dealer partner, you will have the option to open a brokerage account where tokens can be transferred for secondary trading, as further described below.

2. Personal Wallet – If you prefer to hold your tokens in your personal wallet, you will have the option to do so. There will be protections in place to restore your tokens if a wallet is lost or stolen.

We will reach out to you directly by email to confirm either your ETH wallet address or your preference to receive them into an approved broker dealer wallet. tZERO will only distribute tokens to an investor after they confirm their information.

Secondary Trading

Tokens will be issued and locked up until January 10, 2019 (which is 90 days after issuance) before they may be eligible to be resold in private transactions directly with other accredited investors through this platform.  Assuming the platform is ready by then, tZERO will designate an approved broker dealer, through which you should be able to trade your tokens beginning January 10, 2019.  Once the broker is announced, you will have the ability to create an account to resell your tokens or purchase additional tokens on the platform. New investors that are accredited can also open an account with the broker to buy tokens. Peer-to-peer trading will not be permitted, except through this platform.

Beginning August 6, 2019 (one year after consummation of the STO), we expect that your tokens may be resold to non-accredited investors on an approved trading platform that we designate.

In the future, we may register the securities to enable secondary trading in more robust trading environments, such as the domestic (USA) exchange we are building in partnership with BOX Digital Markets, and international securities exchanges as well (with whom such discussions are underway). These initiatives are an ongoing process and we will inform you of updates as they happen.

Timeline

October 12, 2018

Tokens are issued to a tZERO wallet on behalf of token holders. Token holders can view their tokens on Etherscan.

October 12, 2018 – January 10, 2019

Tokens are held in the tZERO wallet for 90 days, in compliance with regulation. Token holders share their account information (ETH wallet address or brokerage account information) with tZERO so that when the 90-day wait period is complete they can receive their tokens. Token holders wishing to sell their tokens or buy additional tokens create a broker dealer account to have the ability to do so in private resale transactions solely among accredited investors.

January 10, 2019

Token holders receive their tokens in either their personal wallet or brokerage account. Token holders should now be eligible to sell their tokens or buy additional tokens using their broker dealer account in private resale transactions solely among accredited investors.

August 6, 2019

Most tokens that are not held by affiliates of tZERO become eligible to be freely resold to non-accredited investors in accordance with the requirements and conditions of Rule 144.

A Note of Apology and Thanks

When we ran the STO, though we disclaimed everything heartily, I (Patrick) did indicate my hope was to have international investors trading 90 days, and domestic (USA) investors one year after the close of our STO. Given that the STO closed on August 6, 2018 that meant international investors would have been trading by November 4, 2018 and domestic investors trading by August 6, 2019. It transpired that the only way to do that would have involved some limited regulatory risk. The path we finally settled on is a path that (we believe) reduces the regulatory risk significantly. Assuming development of our platform continues as intended, the solution provides accredited international and domestic investors the ability to trade 90 days after our issuance date (October 12, 2018), which is January 10, 2019. This delays the time to resell tokens for international investors by 67 days from our target date but improves the time for domestic investors to resell by 208 days. And, as I said, it reduces regulatory risk. So that is why we made the call as we did. We still intend on providing a solution for non-accredited investors to buy and sell tokens on our exchange within a year of the close of our offering.

You have put your faith in us and as a result, our strategic vision is finally becoming a reality. We have said from the beginning that we believe blockchain will disrupt the Capital Markets and with your support that is being achieved. Your capital has provided tZERO with the fuel that we need to bring blockchain to capital markets.

Saum Noursalehi has become the CEO of tZERO. You are going to find that you have an extraordinarily able, Level 5 leader in Saum.  He is the most entrepreneurial technologist with whom I (Patrick) have ever worked. You can expect future communications to originate from Saum.

 

Warm regards,

Patrick Byrne

tZERO, executive chairman and Overstock.com, founder & CEO

Saum Noursalehi

tZERO, CEO