This is the third part in our series answering frequently asked questions concerning eICN (read Part I and Part II).
Please note that certain details concerning eICN are still being polished in cooperation with external legal advisors. Where we discuss legal matters below, we are not giving any legal advice or opinion but rather conveying to you our understanding of the current legal environment, predominantly in Liechtenstein.
Will the amount of eICN tokens that will be created by ICONOMI AG be the current circulation of ICN tokens, minus the number converted to ETH, and minus the number neither converted to ETH nor to eICN?
- ICN tokens exchanged for eICN tokens
eICN tokens will be issued and allotted to all ICN token holders who validly submit their non-binding interest and accept the offer for exchanging their ICN tokens for eICN tokens.
2. ICN tokens exchanged for ETH
The exchange of ICN tokens for ETH in the first stage will be made by ICONOMI Inc., which is incorporated in St. Vincent (ICONOMI SV) as the current holder of the assets that will be used to settle obligations arising from the exchange of ICN tokens for ETH. These ICN tokens will be exchanged for eICN tokens and will become treasury eICN tokens without any corresponding rights (e.g. voting rights, dividend rights, liquidation proceeds).
In the additional periods of ICN tokens exchange in 2019, the exchange of ICN tokens for ETH may be made by ICONOMI Inc., ICONOMI AG, or any other entity in the ICONOMI group.
3. Unexchanged ICN tokens
All other eICN tokens that are not issued and allotted to ICN holders under point 1. or to a treasury of ICONOMI under point 2. will be (pre)issued to the floating account. These eICN tokens will be available for exchange in all subscription periods in 2019. After the end of each subscription period, eICN tokens will be transferred from the floating account and allotted to the eICN token holders who accept the exchange offer. All other eICN tokens that are not allotted to eICN token holders in 2019 will be subject to decision in late 2019.
Conclusion
eICN token holders will not be diluted by the transformation of ICN to eICN. Their share of eICN tokens compared to their previous share of ICN tokens will stay the same. However, their voting rights, net profit stake, and liquidation proceeds from their eICN tokens will increase in the case of treasury eICN tokens (treasury eICN tokens will not grant any rights). Additionally, it should be noted that treasury eICN tokens remain part of the capital of the company ICONOMI AG and therefore represent part of the value of the company.
Why did you select Liechtenstein as the jurisdiction for establishing ICONOMI AG and issuing eICN?
As the voting moratorium neared its end, we knew we had to find a working solution for ICN token holders, as this was one of the rights envisioned in our whitepaper. We have started looking toward a more traditional corporate governance, because the setup as described in the white paper was not clear enough.
We have done a comparative analysis of multiple jurisdictions, such as the UK, Malta, Slovenia, Switzerland, and Liechtenstein, which was ultimately chosen for a number of reasons.
The ability to directly issue tokens was the main reason, as was the fact that Liechtenstein allows the company itself to keep the registry of equity holders. The latter is extremely important, as it simplifies the issuance of tokens. Currently, central registries are not yet adapted to blockchain and tokens. Liechtenstein is also a reputable country in the financial sector, offering numerous banks willing to cooperate with fintech companies such as ICONOMI. The legal environment is extremely stable, and they are keen to embrace technological progress.
What is a Genussschein?
A Genussschein is a non-voting equity security widely used in Germany, Switzerland, and Liechtenstein. This financial instrument has been in use for more than 100 years and has gained trust and legal certainty in the financial world. Even though Genussschein is a non-voting type of security, eICN holders will have the right to vote on governance issues.
Why did you decide to issue security tokens (Genussschein) instead of regular shares?
When we were setting up the corporate governance of ICONOMI, we had in mind that ICN token holders are from all over the world and that we cannot limit their rights based only on their geographical location. At the same time, we wanted to make sure we were still at the cutting edge of technological and legal progress; tokenization was not just an option for us, but a must.
Furthermore, we wanted to make sure the model of corporate governance was sustainable and appropriate for such a structure of token holders. Therefore, we had to find a solution that would enable us to have electronic voting and that would not require a General Meeting with physical attendance.
At the same time, we needed a voting model that would enable the company to operate normally. This is why the right to vote will be exercised through the platform and with a relative majority (in certain cases, possibly a qualified majority, i.e., 75% of votes cast), because we believe that any kind of absolute majority would seriously limit the ability to make certain decisions. Also, this kind of equity security enables us to issue tokens directly, without any intermediate steps between the allocation of the security and its tokenization. As this process will be fairly straightforward, we will also be able to list the eICN token on the appropriate exchanges as soon as they are up and running.
We have decided to go in this direction because it is easier, more economical, and safer to perform the vote by issuing Genussschein rather than shares in ICONOMI AG. The right to vote is not incorporated in the Genussschein by default, but in the case of ICONOMI AG, the right will be given to eICN token holders as an obligation, which means it will still be legally enforceable. Although the right to vote is de iure incorporated in the shares, we believe its exercise would be extremely difficult in reality, as eICN holders are dispersed all around the globe and the law is not flexible enough to adapt such a model to the entire population of eICN holders. Therefore, we went in the direction of using the principles of the right to vote incorporated in the shares and adapting it to the actual circumstances. At the same time, we will be able to make the voting as easy as possible for eICN token holders, meaning there will be no need to do anything by hand, travel anywhere, use snail mail, find proxies, etc.
What are other benefits of Genussschein?
Doing it this way is also more tax-efficient, as there is no stamp duty on capital increase. If we went any other way, the stamp duty on the capital increase would be 1% of the sum of the capital increase, which, based on the book value of assets, would amount to several hundred thousand CHF.
Additionally, issuing the Genussschein enables us to maintain the 1 ICN = 1 eICN exchange ratio, since the Genussschein does not have a mandatory minimum nominal value (which in the case of shares amounts to 1 CHF). One more legal requirement that issuing Genussschein alleviates is paying at least 1 CHF of newly issued shares in a fiat currency, meaning issuing shares would require ICN holders who subscribe to new shares of ICONOMI AG to pay at least 1 CHF to ICONOMI AG for every share they receive. We deem such a requirement untenable and have therefore searched for alternative solutions.
Are there any well-known examples of companies issuing Genussschein?
As already mentioned above, Genussschein is a widely used type of security in Germany, Switzerland, and Liechtenstein. One of the biggest joint-stock companies with issued Genussschein is Roche Holding AG. Roche is a Swiss multinational healthcare company that operates worldwide and has its headquarters located in Basel, Switzerland. Roche Holding AG has issued Genussschein on the basis of the resolution of the Annual General Meeting of Roche Holding AG in 2001. Roche’s Genussschein are quoted on the SIX Swiss Exchange in Zurich, Switzerland. SIX is the leading Swiss stock exchange. Roche’s bearer shares are also quoted on the same exchange, whereas the price of both financial instruments is very similar and correlated.
Who gets the voting shares in ICONOMI AG?
ICONOMI AG is set up with the share capital of CHF 50,000, divided into shares. All of these shares will be owned by the ICONOMI foundation, which means the foundation gets all the voting shares. The foundation will be obliged to follow the decisions eICN token holders make in regard to the matters voting will be set up for on the platform itself.
What is a foundation?
The foundation is a legal entity without shareholders and is not intended to conduct any active business activity on its own. The foundation is formed by the founder, who gives away the necessary assets (in our case, shares in ICONOMI AG), assigns the beneficiaries, and stipulates the foundation’s purpose. After formation, the foundation itself becomes the legal owner of these assets (in our case, the sole shareholder of ICONOMI AG).
In the case of ICONOMI’s foundation, the founder will be a local trustee. A 100% share in ICONOMI AG will represent the assets of the foundation, and eICN token holders will be the beneficiaries of the foundation.
Who owns the foundation?
The purpose of the foundation is to ensure that eICN token holders’ right to vote is exercised properly. Therefore, the foundation will have to follow the will of the eICN token holders, as it will be expressed via voting on the ICONOMI platform.
Technically, the foundation will not be owned by anyone. Its sole purpose will be to pursue the benefit of ICONOMI AG and instruct the board of ICONOMI AG to implement decisions voted on by eICN holders.
Is the obligation to enable voting a legally enforceable obligation?
Yes it is. We have clearly stated in the relevant General Terms that we will enable voting. As your acceptance of the General Terms establishes a contractual relationship between you and ICONOMI, this is legally enforceable, naturally. This commitment will also be included in the offering document, on the basis of which the subscription of eICN tokens will be made.
How do we guarantee that voting results will be implemented?
If the Board of Directors of ICONOMI AG does not implement the decision, the Board of the foundation not only has the option, but the legal obligation to sue the board of ICONOMI AG.
What about the new issuance of Genussschein (i.e., eICN tokens)?
New issuance of eICN tokens will be possible only if eICN token holders vote for it. The resolution for new issuance of eICN tokens will be validly adopted only by a required majority of eICN token holders’ votes. Details about the required majority for certain decisions will be determined.
How will net profits be distributed between shareholders of ICONOMI AG and holders of eICN tokens?
There will be only one shareholder of ICONOMI AG: the ICONOMI foundation. The foundation will not receive any share of the profits whatsoever. Instead, the foundation will vote on the profit distribution according to the voting done by eICN token holders. eICN token holders will receive the entire distributable portion of the profit. The profit sharing scheme (i.e., the distributable portion of the profit) will be determined by a resolution of the General Meeting of the shareholders of ICONOMI AG, where the eICN token holders will be represented by the foundation as the only shareholder.
The foundation will vote at the General Meeting in line with the decisions and resolutions adopted by eICN token holders through the established eICN holder voting process. This means that the foundation will execute the will of eICN token holders through the General Meeting.
Will all eICN tokens be equal and have the same rights? If not, what privileges/restrictions will some shares have that others won’t?
All eICN tokens issued will be the same financial instrument (Genussschein) and of the same class and have the same rights incorporated. The whole setup is done in such a way that eICN token holders have 100% of the voting rights and are entitled to the profit sharing scheme that would be confirmed by voting on the platform. They also have the right to the distribution of 100% of net remaining assets if the company is liquidated.
What happens to ICONOMI’s own ICN tokens (including the equivalent of 888 ETH from Q3 that wasn’t burned)?
These ICN tokens will be exchanged for eICN tokens and held in the treasury. They will be part of the balance sheet of ICONOMI AG.
How do we select the board of ICONOMI AG and the foundation? Will we ever allow eICN holders to propose or vote on board members of ICONOMI AG and/or the foundation?
The Board of Directors of ICONOMI AG consists of five Members elected by the General Meeting. However, the first board is appointed in the Deed of Formation, as is the usual practice.
The term of office for a Member of the Board will be initially three years and thereafter six years (provided that the appointment resolution does not determine a shorter term of office). As already stated in other answers, eICN holders will be able to vote on the Board of Directors through the foundation. After the vote, the foundation will implement eICN holders’ decision and name Members of the Board of Directors. To sum it up, eICN holders will have the right to propose candidates and vote on them.
Where can I find an official document about the offering of eICN tokens?
We are preparing an offering document that will include all necessary information so you can make an informed decision about whether to exchange ICN tokens for eICN security tokens. The offering document will be available to each ICN token holder who validly submits his or her non-binding interest for exchanging ICN tokens for eICN tokens before the offering and subscription of eICN tokens starts.
Due to the fact that eICN tokens will be offered only to ICN token holders who validly submit non-binding interest for exchanging ICN tokens for eICN tokens, we sum up all the most important matters about eICN tokens in our answers above.
For a simple overview of the process, be sure to read our blog post Everything You Need to Know about eICN.
We hope this information will help you decide regarding the submission of non-binding interest for eICN tokens. You can start the process now!
We would like to assure our token holders that all actions leading up to the issuance of eICN tokens are done with the benefit of ICN token holders in mind. To this end, we sincerely thank ICN holders and especially future eICN holders for their continued support.
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