URGENT
STRICTLY CONFIDENTIAL
FOR ADDRESSEE ONLY
Dear CipherMine 'shareholder',
We write to you in your capacity as a 'shareholder' of CipherMine ('CM'). This is an important communication sent to you by Wood Technology LLP ('WT'). As CM's Business Plan indicated, Kate Craig-Wood has at all times acted through WT. WT is also the legal owner of the mining hardware referred to below (see section 4.2 of CM's Business Plan).
You may wish to take legal advice on this communication and its implications for you.
The purpose of this communication
---------------------------------
The purpose of this communication is: (1) to inform you that CM is unlikely to be in a position to meet its liabilities; and (2) to propose a way forward with a view to minimising any potential exposure of CM 'shareholders' such as yourself.
This communication therefore requires a response from you by midnight (GMT) on 15 September 2014.
CM's assets and liabilities
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CM's assets consist of:
1. The mining hardware purchased with the proceeds of the CM B1'bond' (the 'Bond') which was issued last year. Due to rising mining difficulty, that hardware is estimated to have a residual resale value of approximately EUR 10,000;
2. A 'share' in the start-up crowdfunding platform CipherTrade ('CT Share') based on a contribution at the relevant time by CM of USD $20,000; and
3. Any remaining cryptocurrency mined since the last payments to CM 'shareholders' and 'bondholders'. At the date of this communication, this is estimated to have value of approximately EUR 7,500.
CM's principal liability consists of the Bond, which has a total redemption value of approximately EUR 360,000. The maturity date of the 'Bond' is 9 September 2014.
Early redemption requests/ 'Bond' maturity
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Some requests for early redemption have been received but it has not been possible to settle those requests. On 9 September 2014, CM is unlikely to be in a position to meet its liabilities. No further payments will therefore be made, either to CM 'shareholders' or 'bondholders'.
CM's failure
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>From the start, CM's failure was a possibility which was highlighted in various sections of CM's Business Plan. CM's Business Plan contained a number of warnings to that effect.
CM's failure is the result of an exponential increase in mining difficultly. The situation was further aggravated by the fact that the value of BTC has increased six-fold over the last year or so, and by HashFast LLC, a major supplier of hardware to CM, going out of business (please see
http://docs.ciphermine.com/HashFast%20bankruptcy%20notice.pdf).
Your potential liability
------------------------
CM was described as a "virtual company” by LTC-Global (and accordingly referred to as such in the CM Business Plan). However, as a matter of English law, CM may be considered a general partnership. If that is the case, then the 'shareholders' of CM - which includes yourself - would all be considered partners. As partners, they would all be jointly and severally liable for CM's debts, including the 'Bond'. It is therefore possible that 'bondholders' may seek to take legal action against CM's 'shareholders', including yourself, to seek to recover that debt. However, if 'bondholders' accept the restructure plan proposed below, that risk might be mitigated.
The restructure plan
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The following restructure plan is proposed:
1. Incorporate a new limited liability company ('New Company');
2. Transfer the CT Share to the New Company;
3. Make shares in the New Company available to 'bondholders' on a pro rata basis;
4. Sell CM's mining assets and make the proceeds of sale available to the 'bondholders' on a pro rata basis, along with any remaining cryptocurrency mined since the last payments to CM 'shareholders' and 'bondholders'.
Next steps
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If a majority of the votes agree (one vote per share - see section 6.6 of CM's Business Plan), then this restructure plan can be proposed to 'bondholders'. Consent to this restructure plan will then be sought from a majority of 'bondholders'. However there is no guarantee that this restructure plan will be approved by them. The 'bondholders' may chose to reject the proposed re-structure and seek to enforce the debt against all CM's 'shareholders'.
Please note that if 'bondholders' seek instead to enforce their rights against WT (through which Kate Craig-Wood acted at all times), it is necessary for WT to reserve its right to seek an indemnity from CM's 'shareholders', which includes yourself.
Please confirm if you are for or against the proposed restructure plan by sending an email, by midnight (GMT) on 15 September 2014, to
legal@ciphermine.com with your full name, the email address you used to register with LTC Global (litecoinglobal.com) quoting the original public withdrawal address given, or CipherTrade and your vote by indicating 'Yes' or 'No' in the subject line.
Yours faithfully,
Wood Technology LLP
