Private Placement Memorandum

Transcription

1 Private Placement Memorandum Convertible Notes 2016 Vasari Energy, Inc. All rights reserved.

2 CONFIDENTIAL PRIVATE OFFERING MEMORANDUM Vasari Energy, Inc. 10% Convertible Notes $1,000,000 Due December 31, 2017 Vasari Energy, Inc., a Delaware corporation and its subsidiaries (collectively, the Company ) was established to design, develop and operate utility-scale electric power plants that produce reliable and clean energy. Our growth strategy is to own and operate solar and solar energy power plants worldwide. The Company intends to play an active role, as a long-term owner, in all phases of renewable energy generation, from planning and development through construction and commercial operation. The Company believes that this involvement will allow us to better ensure, with our experienced personnel that our projects are well-planned, structured and managed, thus maximizing value creation. We believe that our competitive strengths advantageously position us to enhance our financial performance, expand our business and pursue strategic opportunities in independent power markets both domestically and abroad. Our management team has broad experience in solar project development, transmission line development, meteorology, engineering, permitting, construction, finance, law, asset management, maintenance and operations. Our strategy is to establish land control, stakeholder relationships, meteorological programs, community initiatives and develop transmission solutions in the markets in which we focus and expect to continue to do so in the future. We are offering up to $1,000,000 in principal amount of our 10% Convertible Notes. You must purchase at least $10,000 in principal amount of notes. We will sell the notes in denominations of $1,000 on a continuous basis. Notes will be sold for their principal face amount, $1,000, plus accrued interest from and including the first day of the month in which a note is purchased, to, but excluding, the date of purchase. There are no limitations on our ability to additional indebtedness in the form of Vasari notes or otherwise. The Company reserves the right, in its sole discretion, to accept smaller subscriptions. The Company will sell Notes until the earlier of December 31, 2016 or the date on which the Offering has been sold in its entirety. The Company has the right to extend the Offering. The Notes offered hereby have not been registered under the Securities Act of 1933, as amended (the Act ), or applicable state securities laws, nor has the Securities and Exchange Commission or any state regulatory authority passed upon the accuracy or adequacy of this Memorandum or endorsed the merits of this Offering. Any representation to the contrary is unlawful. The offer and sale of Notes described in this Memorandum have not been registered with the Securities and Exchange Commission under the Act, in reliance upon exemptions from such registration requirements including the exemptions provided under Section 4(2) of the Act and Rule 506 thereunder relating to private offerings. Investing in the Vasari Notes involves certain risks. Before buying any of the Vasari Notes, you should read the risks referenced under the caption Risk Factors beginning on page of this Memorandum. VASARI ENERGY August 10, 2016

3 No person has been authorized to give any information or make any representations other than those contained in this Memorandum and, if given or made, such information or representations must not be relied upon. This Memorandum does not constitute an offer to sell or a solicitation of an offer to buy securities with respect to any person except those particular persons who satisfy the suitability standards described herein. Neither the information contained herein, nor any prior, contemporaneous or subsequent communication should be construed by the prospective investor as legal or tax advice. Each prospective investor should consult his own legal, tax and financial advisors to ascertain the merits and risks of the Offering prior to subscribing for the Vasari Notes offered hereby. Principal Executive Office Our principal executive office is located at the following address: Vasari Energy 9844 Research Dr., Suite 200 Irvine, CA Telephone:

4 The Vasari Notes are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act of 1933, as amended, and applicable state securities laws, pursuant to registration or exemption therefrom. Investors should be aware that they will be required to bear the financial risks of this investment for an indefinite period of time, and the Vasari Notes purchased hereby should be purchased only by investors who have no need for liquidity in their investment. No person has been authorized to give any information or make any representations other than those contained in this Memorandum and, if given or made, such information or representations must not be relied upon. This Memorandum does not constitute an offer to sell or a solicitation of an offer to buy securities with respect to any person except those particular persons who satisfy the suitability standards described herein. Neither the information contained herein, nor any prior, contemporaneous or subsequent communication should be construed by the prospective investor as legal or tax advice. Each prospective investor should consult his own legal, tax and financial advisors to ascertain the merits and risks of the Offering prior to subscribing for the Vasari Notes offered hereby. NOTICE REGARDING PERSONS RECEIVING AN ELECTRONIC TRANSMISSION OF THIS PRIVATE OFFERING MEMORANDUM DISTRIBUTION OF THIS PRIVATE OFFERING MEMORANDUM TO ANY PERSONS (OTHER THAN THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE COMPANY OR ANY SELLING GROUP MEMBER REFERRED TO HEREIN AND THEIR RESPECTIVE AGENTS, AND ANY PERSONS RETAINED TO ADVISE THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE COMPANY WITH RESPECT THERETO) IS UNAUTHORIZED. ANY PHOTOCOPYING, DISCLOSURE OR ALTERATION OF THE CONTENTS OF THIS PRIVATE OFFERING MEMORANDUM, AND ANY FORWARDING OF A COPY OF THIS PRIVATE OFFERING MEMORANDUM OR ANY PORTION THEREOF BY ELECTRONIC MAIL OR ANY OTHER MEANS TO ANY PERSONS (OTHER THAN THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE COMPANY OR A SELLING GROUP MEMBER OR THEIR RESPECTIVE AGENTS, OR ANY PERSONS RETAINED TO ADVISE THE PERSON RECEIVING THIS ELECTRONIC TRANSMISSION FROM THE COMPANY WITH RESPECT THERETO), WITHOUT PRIOR CONSENT FROM THE COMPANY, A SELLING GROUP MEMBER OR AN AGENT OF THE COMPANY OR A SELLING GROUP MEMBER IS PROHIBITED. BY ACCEPTING DELIVERY OF THIS PRIVATE OFFERING MEMORANDUM, THE RECIPIENT AGREES TO THE FOREGOING. NOTICES TO PURCHASERS THIS OFFERING OF VASARI NOTES ( SECURITIES ) IS MADE PURSUANT TO RULE 506 OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT ). THE SECURITIES MAY BE SOLD ONLY TO ACCREDITED INVESTORS, WHICH FOR NATURAL PERSONS ARE INVESTORS WHO MEET CERTAIN MINIMUM ANNUAL INCOME OR NET WORTH THRESHOLDS. THE SECURITIES ARE BEING OFFERED IN RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, AND ARE NOT REQUIRED TO COMPLY WITH SPECIFIC DISCLOSURE REQUIREMENTS THAT APPLY TO REGISTRATION UNDER THE SECURITIES ACT. THE U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY EQUIVALENT STATE OR FOREIGN AGENCIES HAVE NOT PASSED UPON THE MERITS OF OR GIVEN ITS APPROVAL TO THE SECURITIES, THE TERMS OF THE OFFERING, OR THE ACCURACY OR COMPLETENESS OF ANY OFFERING MATERIALS. THE SECURITIES ARE SUBJECT TO LEGAL RESTRICTIONS ON TRANSFER AND RESALE AND INVESTORS SHOULD NOT ASSUME THEY WILL BE ABLE TO RESELL THEIR SECURITIES. INVESTING IN SECURITIES INVOLVES RISK, AND INVESTORS SHOULD BE ABLE TO BEAR THE LOSS OF THEIR INVESTMENT. INVESTMENT IN THE SECURITIES SHOULD BE CONSIDERED HIGHLY SPECULATIVE AND SUITABLE ONLY FOR PERSONS OF ADEQUATE FINANCIAL MEANS WHO HAVE NO NEED FOR LIQUIDITY WITH RESPECT TO THIS INVESTMENT. PURCHASERS OF THE SECURITIES SHOULD

5 HAVE THE FINANCIAL ABILITY AND WILLINGNESS TO ACCEPT THE RISKS (INCLUDING, AMONG OTHER THINGS, THE RISK OF LOSS OF THEIR ENTIRE INVESTMENT AND THE LACK OF LIQUIDITY) AND SHOULD CONSULT THEIR FINANCIAL ADVISORS REGARDING THE APPROPRIATENESS OF MAKING AN INVESTMENT. FURTHERMORE, THE SECURITIES OFFERED ARE NOT SUBJECT TO THE PROTECTIONS OF THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED. THE VASARI NOTES ARE OFFERED SUBJECT TO PRIOR SALE, TO WITHDRAWAL, CANCELLATION OR MODIFICATION WITHOUT NOTICE. IT IS A CONDITION TO THEIR OFFERING THAT CERTAIN LEGAL CONDITIONS ARE MET. NEITHER THE COMPANY, ANY SELLING AGENT NOR ANY BROKER-DEALER IS MAKING ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO ANY OFFEREE OR PURCHASER OF THE VASARI NOTES OFFERED HEREBY REGARDING THE LEGALITY OF ANY INVESTMENT THEREIN BY SUCH OFFEREE OR PURCHASER UNDER APPROPRIATE LEGAL INVESTMENT OR SIMILAR LAWS. THE VASARI NOTES OFFERED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY STATE. THE VASARI NOTES ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS. EACH PROSPECTIVE PURCHASER IS ENCOURAGED TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, MANAGEMENT OF THE COMPANY CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THE COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORTS OR EXPENSE, NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS MEMORANDUM. IF YOU HAVE ANY QUESTIONS WHATSOEVER REGARDING THIS OFFERING, OR DESIRE ANY ADDITIONAL INFORMATION OR DOCUMENTS TO VERIFY OR SUPPLEMENT THE INFORMATION CONTAINED IN THIS MEMORANDUM, PLEASE WRITE OR CALL STEPHEN SMITH AT NOTICE TO RESIDENTS OF ALL U.S. STATES IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

6 TABLE OF CONTENTS You should rely only on the information contained in this Private Placement Memorandum ( Memorandum ). We have not authorized anyone to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this Memorandum is accurate as of the date on the front of this Memorandum only, regardless of the time of delivery of this Memorandum or of any sale of our Notes. Our business, financial condition, results of operations and prospects may have changed since the date indicated on the front cover of this Memorandum. SUMMARY OF THE VASARI NOTES...1 INVESTOR QUALIFICATIONS...4 HOW TO PURCHASE VASARI NOTES...7 USE OF PROCEEDS...7 MARKET OVERVIEW...9 INDUSTRY AND MARKET DATA...9 Overview of the Clean Energy Industry...10 Solar Energy...11 Solar Energy Segments...12 Key Drivers of solar Energy Growth...12 Advantages of Solar Energy...14 BUSINESS...15 General...15 Development Pipeline...15 Strategic Overview...15 Competitive Strengths...16 Sources of Revenue...17 Project Financing...18 Our Development Process...18 Prospecting and Site Selection...19 Land Procurement...19 Solar Resource Assessment...20 Commodity Sales and Management...20 Transmission and Interconnection...20 Permitting...20 Engineering Procurement and Construction Oversight...21 Support Programs...21 Operating and Regulatory Structure...22 Competition...23 Staffing...24 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION...25 DESCRIPTION OF VASARI NOTES...26 Interest...26 Maturity...26 Conversion to Common Stock...26 Eligible Market...27 Conversion Price...27 Conversion Ratio...27

7 Conversion Right...27 Cash or Common Stock...27 Subordination...27 Priority...28 Security...28 Redemption by Us Prior to Maturity...28 Redemption at Request of Holder Prior to Maturity...28 Redemption Upon Your Death...28 Extension After Maturity...28 No Restrictions on Additional Debt or Business...28 Restrictions on Transferability...29 Place, Method and Time of Payment...29 Events of Default...29 No Protection in the Event of a Change of Control; No Obligation to Repurchase...29 Modifications and Amendments...29 Modifications and Amendments with Consent of Holders...30 No Personal Liability of Incorporators, Stockholders, Officers, Directors...31 Reports...31 Service Charges...31 Record of Your Ownership...31 Legal and Administrative Proceedings...31 EXECUTIVE OFFICES AND WEBSITE...32 MANAGEMENT AND BOARD OF DIRECTORS...32 EXECUTIVE COMPENSATION...33 Compensation Philosophy and Objectives...33 Components of Executive Compensation...34 PRINCIPAL STOCKHOLDERS...35 DESCRIPTION OF OUR CAPITAL STOCK...36 Restrictions on Transferability...36 Limitation on Employee and Officer Liability and Indemnification...36 Amendment of the Certificate of Incorporation...37 Amendment of Bylaws...37 PLAN OF DISTRIBUTION...38 Sales Materials...39 Limitation of Offering...39 RISK FACTORS AND POTENTIAL CONFLICTS OF INTEREST...39 Risks Related to the Company...39 Risks Related to Our Operations...44 Risks Related to Our Offering...55 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS...60 MATERIAL FEDERAL INCOME TAX CONSIDERATIONS...61 Characterization of the Vasari Notes...62 Taxation of U.S. Holders...63 Considerations For Tax-Exempt Holders Of Vasari Notes...65 Non-United States Holders...65 State Taxes...68 Exhibit A Exhibit B Form of Convertible Note Subscription Agreement

8 SUMMARY OF THE VASARI NOTES This section summarizes certain of the legal and financial terms of the Vasari Notes that are described in more detail in Description of the Vasari Notes and is intended to provide selected information regarding the Company and the Offering and should be read together with, and is qualified in its entirety by, the detailed information appearing elsewhere in this Memorandum and in the Exhibits (together, the Memorandum ). Each prospective investor is urged to read the entire Memorandum and each of the Exhibits before investing in the Company. As used in this Memorandum, references to we, our, the Company and Vasari Energy are to Vasari Energy and its subsidiaries, unless the context otherwise requires. Issuer... Vasari Energy, Inc., a Delaware corporation and its subsidiaries (collectively, the Company ) was established to design, develop and operate utility-scale electric power plants that produce reliable and clean energy. Our growth strategy is to own and operate solar and solar energy power plants worldwide (each a Project and collectively the Projects ) in accordance with this memorandum (with the Exhibits hereto, the Memorandum ). Securities Offered... We are offering up to $1,000,000 in principal amount of our 10% Convertible Notes. You must purchase at least $10,000 in principal amount of notes. We will sell the notes in denominations of $1,000 on a continuous basis. Notes will be sold for their principal face amount, $1,000, plus accrued interest from and including the first day of the month in which a note is purchased, to, but excluding, the date of purchase. There are no limitations on our ability to additional indebtedness in the form of Vasari Notes or otherwise. Conversion to Common Stock... Eligible Market... Conversion Price... Conversion Ratio... Interest payments... Subject to the terms and restrictions and limitations contained in the Note, the Holder shall have the right, at such Holder's option, at any time after confirmation that sufficient shares are authorized for conversion of Notes, and from time to time, to convert the outstanding Principal Amount under the Note in whole or in part by delivering to the Company a fully executed notice of conversion. Eligible Market means the OTC Bulletin Board, the OTCQX of OTC Markets, the Nasdaq Stock Market, the New York Stock Exchange or the NYSE MKT (f/k/a American Stock Exchange). Conversion Price shall equal $3.00 per share. Conversion Ratio means, at any time, a fraction, of which the numerator is the entire outstanding Principal Amount of this Note (or such portion thereof that is being redeemed or repurchased), and of which the denominator is the Conversion Price as of the date such ratio is being determined. Each note will bear interest from its issue date at a fixed rate per year. We will pay interest only on the notes on January 1st, April 1st, July 1st, and October 1st of each year commencing on the first quarter 1

9 following the date of issue of a note. Interest will be paid without any compounding. The notes will bear interest at an annual rate of 10.00%. Interest will accrue from the first day of the month in which a note is purchased. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months or, in the case of an incomplete month, the number of days elapsed. Maturity and Principal Payments. Prepayment... Renewals... Redemption by You... Redemption in the Event of Death Redemption by Us... Events of Default... The principal balance of each Note will be paid at maturity. The Notes mature on December 31, We may prepay the outstanding principal balance and accrued and unpaid interest of any or all of the Vasari Notes in whole or in part at any time without any penalty or premium. We may, at our discretion, offer any one or more of the following renewal options: (1) renewal at the same term length as the original term length; (2) renewal at a different term length, which we will specify and will be no greater than four years and no less than one year; or (3) renewal at various term lengths which you may choose from and which will be no greater than four years and no less than one year. Other renewal terms may be offered by us at our discretion. If you do not respond or if there are no options for renewal offered to you, then principal and any earned but unpaid interest will be paid to you. Subject to our consent in our sole discretion, we may redeem a Note purchased by you at any time beginning 180 calendar days after the issuance date, with a 180-day interest penalty. This means that you will not receive the last 180 days worth of interest and, if the accrued and unpaid interest is not sufficient to cover the amount of the penalty, then any remaining amount of the interest penalty shall be deducted from the principal amount of the Note. Unless the subordination provisions in our credit agreements with institutions restrict our ability to make the redemption, at the written request of the executor or administrator of your estate or, if your Note is jointly held with another investor, at the written request of your joint investor, we will redeem the Note at any time after death for a redemption price equal to the principal amount plus earned but unpaid interest payable on the Note, without any interest penalty. We will seek to honor any such redemption request as soon as reasonably possible based on our amount of cash on hand at the time and our then current cash needs at the time, but generally within one business week of request. Following the first 180 calendar days after issuance, we may call your Note for redemption at any time upon 30 to 60 days notice. The redemption price will be equal to the principal amount plus accrued and unpaid interest to the date of redemption. An event of default is generally defined as (1) a default in the payment of principal or interest on the Vasari Notes that is not cured for 90 2

10 days, (2) our becoming subject to certain events of bankruptcy or insolvency, or (3) our failure to comply with provisions of the Vasari Notes if such failure is not cured or waived within 60 days after receipt of a specific notice. Physical Delivery of Vasari Notes Plan of Distribution... Qualified Investors... Governing Law... Form and Denomination... Material U.S. Federal Income Tax Considerations... Risk Factors... Cash or Common Stock... The Vasari Notes will be issued in certificated form. If you purchase a Note, an account showing the principal amount of your Note will be established in your name on our books and records. Interest accrued on your Note will also be credited to your account. You will receive a certificate or other instrument evidencing our indebtedness to you. Upon purchase of your Note, we will send you a Note certificate, which describes, among other things, the term, interest rate and principal amount of your Note. We will offer the Vasari Notes on a continuous basis. Vasari Notes will be made available by the Company, by selling agents (the Selling Agents ) and broker-dealers ( Broker-Dealers ) who are members of the Financial Regulatory Authority, Inc. ( FINRA ) that will assist the Company in the placement of Vasari Notes. Vasari Notes will be sold on a best efforts basis. The Offering of the Vasari Notes is strictly limited to those investors who are accredited investors as promulgated in Rule 501 of Regulation D of the Securities Act 1933, as amended. See Investor Qualifications. The Vasari Notes will be governed by, and construed in accordance with, the laws of the State of Delaware, United States of America. The Vasari Notes will be issued in United States dollars in minimum denominations of $1,000, unless otherwise specified in the applicable pricing supplement. For the material U.S. federal income tax consequences of the holding, disposition and conversion of the Vasari Notes, see Material U.S. Federal Income Tax Considerations. See Risk Factors beginning on page 43 and other information included in this Memorandum and any Memorandum supplement for a discussion of factors you should carefully consider before investing in the Vasari Notes. Subject to the terms hereof, the Company shall either (i) pay the Interest Amount in full in cash on each Payment Date or (ii) issue shares of Common Stock in satisfaction of such Interest Amount in accordance with the terms hereof, but not both, at the Company s option. Prior to each Payment Date the Company shall deliver to all the holders of Notes a written irrevocable notice electing to pay such Interest Amount in cash or Common Stock on such Payment Date. All holders of Notes must be treated equally with respect to such payment of Interest Amounts. 3

11 INVESTOR QUALIFICATIONS The offer and sale of the Notes is being made in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended. Accordingly, distribution of this Memorandum has been strictly limited to persons who satisfy the requirements and make the representations set forth below (an Investor ). The Company reserves the right, in its sole discretion, to declare any prospective investor ineligible to purchase Notes based on any information that may become known or available to the Company concerning the suitability of such prospective investor, for any other reason or for no reason at all. Investor Suitability Requirements. Investment in the Notes involves a high degree of risk and is suitable only for persons of substantial financial means who have no need for liquidity in this investment. Notes will be sold only to an Investor who: represents in writing that he, she or it is an accredited investor, as defined under Rule 501 of Regulation D of the Securities Act (a description of the typical criteria for an accredited investor appears below); and satisfies the investor suitability requirements established by Vasari Energy and as may be required under federal or state law. Investor Representations. Each Investor must also represent in writing that he (or she or it) meets, among others, ALL of the following requirements: has received and understands this Memorandum and all exhibits hereto; is basing his decision to invest on the contents of this Memorandum, all exhibits hereto and any applicable pricing supplement, and on the advice of his legal counsel, accountants and financial consultants; understands that an investment in the Notes involves substantial risks, including those risks set forth in this Memorandum in the section entitled Risk Factors ; overall commitment to non-liquid investments is, and after his investment in the Notes will be, reasonable in relation to his net worth and current needs; has adequate means of providing for his financial requirements, both current and anticipated, and has no need for liquidity in this investment; can bear the economic risk of losing his entire investment in the Notes; has such knowledge and experience in business and financial matters as to be capable of evaluating the merits and risks of an investment in the Notes; and is acquiring the Notes for his own account and for investment purposes only and has no contract, undertaking, agreement or arrangement to sell or otherwise transfer or dispose of any Notes. Accredited Investor Requirement. Vasari Energy will only accept subscriptions from Investors who represent in writing that they are accredited investors, as defined under Regulation D of the Securities Act. In addition to certain institutional investors, a prospective Investor who meets one of the following tests should qualify as an accredited investor : the Investor is a natural person who had individual income in excess of $200,000 in each of the two most recent years, or joint income with that person s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year; 4

12 the Investor is a natural person whose individual net worth, or joint net worth with that person s spouse, exceeds $1,000,000 at the time of purchase of the Notes ( net worth is defined as the difference between total assets and total liabilities, excluding his primary residence); the Investor is an entity (including an Individual Retirement Account trust) in which all of the equity owners are accredited investors ; the Investor is a trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Notes, whose purchase is directed by a person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of an investment in the Notes; the Investor is a corporation, limited liability company, partnership or other entity with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Notes; or the Investor is an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder ( ERISA ), in which the investment decision is made by a plan fiduciary (as defined in Section 3(21) of ERISA) which is either a bank, savings and loan association, insurance company, or registered investment adviser; or the employee benefit plan has total assets in excess of $5,000,000; or it is a self-directed plan in which investment decisions are made solely by persons who are accredited investors. In the case of fiduciary accounts, the net worth and/or income suitability requirements may be satisfied by the beneficiary of the account, or by the fiduciary if the fiduciary directly or indirectly provides funds for the purchase of the Notes. Representations with respect to the foregoing and certain other matters will be made by each subscriber for Notes in the Subscription Agreement (the Subscription Agreement ) in the form attached as Exhibit B to this Memorandum. The Manager will rely on the accuracy of each Investor s representations set forth in the Subscription Agreement and may require additional evidence that an Investor satisfies the applicable standards at any time prior to the acceptance of an Investor s subscription. An Investor is not obligated to supply any information so requested by Vasari Energy, but the Company may reject a subscription from any Investor who fails to supply any information so requested. IF YOU DO NOT MEET THE REQUIREMENTS DESCRIBED ABOVE, DO NOT READ FURTHER AND IMMEDIATELY RETURN THIS MEMORANDUM TO THE MANAGER. IN THE EVENT THAT YOU DO NOT MEET SUCH REQUIREMENTS, THIS MEMORANDUM SHALL NOT CONSTITUTE (i) AN OFFER TO SELL NOTES TO YOU; OR (ii) A SOLICITATION FROM YOU OF AN ON OFFER TO PURCHASE NOTES. The written representations made by Investors in their respective Subscription Agreements will be reviewed to determine the suitability of each Investor. The Company will have the right, in its sole discretion, to refuse a subscription for the Notes if Vasari Energy believes that an Investor does not meet the applicable suitability requirements, if the Notes may otherwise constitute an unsuitable investment for the Investor, for any other reason or for no reason at all. In order to assure adherence to the suitability standards described above, requisite suitability standards must be met as set forth in the Subscription Agreement (including the Subscription Agreement Signature Page) which is attached as Exhibit B to this Memorandum. The Company and each person selling the Notes on Vasari Energy s behalf are required to (1) make reasonable efforts to assure that each person purchasing the Notes is suitable in light of such person s age, educational level, knowledge of investments, financial means and other pertinent factors, and (2) maintain records for at least four years of the information used to determine that an investment in the Notes is suitable and appropriate for each investor. 5

13 The Company will rely on the accuracy of each investor s representations set forth in the Subscription Agreement and may require additional evidence that an investor satisfies the applicable standards at any time prior to the acceptance of an investor s subscription. An investor is not obligated to supply any information so requested by the Company, but the Company may reject a subscription from any investor who fails to supply any information so requested. Satisfaction of the suitability requirements by an investor will not necessarily mean that the Notes are a suitable investment for such investor or that the Company will accept the investor as a subscriber. Furthermore, the Company, as appropriate, may modify such requirements in its sole discretion. EACH PROSPECTIVE INVESTOR WILL BE GIVEN AN OPPORTUNITY TO ASK QUESTIONS OF, AND RECEIVE ANSWERS FROM, MANAGEMENT OF THE COMPANY CONCERNING THE TERMS AND CONDITIONS OF THIS OFFERING AND TO OBTAIN ANY ADDITIONAL INFORMATION, TO THE EXTENT THE COMPANY POSSESSES SUCH INFORMATION OR CAN ACQUIRE IT WITHOUT UNREASONABLE EFFORTS OR EXPENSE, NECESSARY TO VERIFY THE ACCURACY OF THE INFORMATION CONTAINED IN THIS MEMORANDUM. IF YOU HAVE ANY QUESTIONS WHATSOEVER REGARDING THIS OFFERING, OR DESIRE ANY ADDITIONAL INFORMATION OR DOCUMENTS TO VERIFY OR SUPPLEMENT THE INFORMATION CONTAINED IN THIS MEMORANDUM, PLEASE WRITE OR CALL THE COMPANY AT THE ADDRESS AND NUMBER LISTED ON THE FRONT OF THIS PRIVATE OFFERING MEMORANDUM. Every state and province has its own securities laws commonly known as "Blue Sky Laws" that can vary from jurisdiction to jurisdiction, including the minimum suitability requirements for investors in each state. As such, each investor must ensure that they meet their state s minimum suitability requirements before investing in our Offering. 6

14 HOW TO PURCHASE VASARI NOTES To purchase the Vasari Notes we are offering pursuant to this Memorandum, you should carefully read this Memorandum and its Exhibits and then proceed as follows: 1. Review the Subscription Agreement ( Subscription Agreement ) found under Exhibit C and any applicable pricing supplement. Complete the information requested, including the total number of Vasari Notes to be purchased, and execute the signature page. By signing the Subscription Agreement, you are also acknowledging that you have received and reviewed this Memorandum and its Exhibits together with a pricing supplement and that you agree to be bound by the terms of the Subscription Agreement and the Private Offering Memorandum. 2. Make a check payable to Vasari Energy in an amount equal to the total purchase price of the Vasari Notes for which you are subscribing. 3. Deliver to Vasari Energy, by mail or in person, the following materials (as applicable): Subscription Agreement Check for full payment of the purchase price of the Vasari Notes These documents should be mailed or delivered to the Company: Vasari Energy 9844 Research Dr., Suite 200 Irvine, California Attn: Investor Relations Investors who would like to purchase Vasari Notes via Federal Funds Wire should send the Subscription Agreement to the address above and request wire instructions from the Company when submitting the Subscription Agreement. Upon receipt of the signed Subscription Agreement, verification of the investor s investment qualifications, and acceptance of the investor s subscription by the Company (in the Company s sole discretion), the Company will notify each investor of receipt and acceptance of the subscription. USE OF PROCEEDS We will receive cash proceeds in varying amounts from time to time as the Vasari Notes are sold. Due to our inability to predict with any certainty whatsoever the amount and timing from inflows of (i) the sale of Vasari Notes, (ii) development fees, (iii) income or capital gains from the sale of permitted projects to utility companies, tax equity investors or other buyers, and (iv) income from operatizing and maintaining solar power plants. We cannot provide any specific allocation of proceeds we will use for any particular purpose. However, we intend to use substantially all of the net offering proceeds as follows, in the following order of priority: (1) to make payments on other borrowings from third parties, including other debt and senior debt; (2) to redeem maturing Vasari Notes and Vasari Notes required to be redeemed by us; (3) to make interest payments on the Vasari Notes; and (4) to the extent we have remaining net proceeds and adequate cash on hand, to fund any one or more of the following activities: for working capital and other general corporate purposes; to advance/invest in a wholly owned or majority owned subsidiary doing any or all of any 7

15 of the above; to make payments on borrowings from affiliates; to make loans to or invest in affiliates; and to redeem Vasari Notes which we have decided to redeem prior to maturity. There is no minimum number or amount of the Vasari Notes that we must sell to receive and use the proceeds from the sale of the Vasari Notes, and we cannot assure you that all or any portion of the Vasari Notes will be sold. In the event that we do not raise sufficient proceeds from our offerings of Vasari Notes to adequately fund our operations, we could curtail the amount of funds we make available to finance our growth plans. Please see Risk Factors Risks Related to Our Offering We are substantially reliant upon the net offering proceeds we receive from the sale of our Vasari Notes to meet our liquidity needs, Risk Factors Risks Related to Our Offering We can provide no assurance that any Vasari Notes will be sold or that we will raise sufficient proceeds to carry out our business plans. 8

16 MARKET OVERVIEW Solar energy is a growing form of renewable energy with numerous economic and environmental benefits that make it an attractive complement to, and/or substitute for, traditional forms of electricity generation. In recent years, the price of PV solar power systems, and accordingly the cost of producing electricity from such systems, has dropped to levels that are competitive with or even below the retail price of electricity in many markets. The rapid price decline that PV solar energy has experienced in recent years opens new possibilities to develop systems in some locations with limited or no financial incentives. The fact that a PV solar power system requires no fuel provides a unique and valuable hedging benefit to owners of such systems relative to traditional electricity generation assets. Once installed, PV solar power systems can function for 25 or more years with relatively less maintenance or oversight, compared to traditional forms of electricity generation. In addition to these economic benefits, PV solar has several environmental benefits. For example, PV solar power systems do not generate any greenhouse gas or other emissions and use no or minimal amounts of water compared to traditional forms of electricity generation. Solar markets worldwide continue to develop, aided by the above factors as well as demand elasticity resulting from declining industry average selling prices, both at the module and system level, which make solar power more affordable to new markets, and we have continued to develop our localized presence and expertise in such markets. The solar industry continues to be characterized by intense pricing competition, both at the module and system levels. In the aggregate, we believe manufacturers of solar modules and cells have, relative to global demand, significant installed production capacity and the ability for additional capacity expansion. We believe the solar industry may from time to time experience periods of structural imbalance between supply and demand (i.e., where production capacity exceeds global demand), and that such periods will put pressure on pricing. Additionally, intense competition at the systems level can result in an environment in which pricing falls rapidly, thereby further increasing demand for solar energy solutions but constraining the ability for project developers; engineering, procurement, and construction ( EPC ) companies; and vertically-integrated solar companies to sustain meaningful and consistent profitability. INDUSTRY AND MARKET DATA Unless otherwise indicated, information contained in this Memorandum concerning the solar power markets, including our market opportunity, is based on information from independent industry analysts, third party sources and management estimates. Management estimates are derived from publicly-available information released by independent industry analysts and third party sources, as well as data from our internal research, and is based on assumptions made by us based on such data and our knowledge of such industry and markets, which we believe to be reasonable. Certain market data presented in this Memorandum has been derived from data included in various solar industry publications, surveys and forecasts. In addition, while we believe the market opportunity information included in this Memorandum is generally reliable and is based on reasonable assumptions, such data involves risks and uncertainties and are subject to change based on various factors, including those discussed under the heading Risk Factors. Unless otherwise specified, we have relied upon the data collected and published by Bloomberg New Energy Finance (as accessed on June 1, 2016) with respect to all of the data included in this Memorandum relating to the size of the various solar and wind energy markets, including the expected growth of our initial target markets over the periods specified herein. Bloomberg New Energy Finance is a market research firm focused on the energy sector. We have cited 2015 market data instead of 2016 in circumstances where 2015 is the most recent period for which historical data is available. See Industry and market data for more information. All references to MW or GWh in this section represent the rated capacity at standard test conditions of energy generating facilities. 9

17 Overview of the Clean Energy Industry Global power generation capacity is forecasted to expand by 47% from 4,739 GW in 2010 to 6,970 GW in Clean power sources, including solar, wind, hydro-electricity and geothermal, as well as natural gas, are expected to account for 76% of the new power generation capacity added globally from 2010 to Solar and wind energy generation are the fastest growing segments of clean energy, with CAGRs of 31% and 14%, respectively, during this period. Through 2020, an estimated $2.1 trillion of investment in global renewable power generation capacity is forecasted to be required, which would realize an average annual investment of approximately $343 billion. We estimate that approximately 35% of these global renewable energy capacity additions will occur in our initial target markets. The following chart reflects the historical and projected evolution of cumulative installed generation capacity from various sources from 2010 to 2020: Global cumulative power generation capacity (in GW), Note: Other represents waste, geothermal and biomass. Source: Bloomberg New Energy Finance Within our initial target markets, cumulative generation capacity from renewable energy sources is expected to grow at a CAGR of 9% from 2014 to 2017, with solar and wind sources expected to grow at a combined CAGR of 23% during this period. by: We expect the renewable generation segment to continue to offer high-growth opportunities driven increasing demand for power sources due to accelerating industrialization, an expanding middle class and the need to develop energy grid infrastructure in our initial target markets; the competitive cost of most clean energy technologies and, most significantly, the ongoing reduction in the cost of solar and wind energy, which will increase the number of markets in which grid parity is achieved; 10

18 transmission and distribution charges and the effects of an aging transmission infrastructure, which enable renewable energy generation sources located at customer sites, or distributed generation, to be more competitive with, or cheaper than, grid-supplied electricity; the replacement of aging and conventional power generation facilities in the face of increasing industry challenges, such as regulatory barriers, increasing costs of and difficulties in obtaining and maintaining applicable permits and the decommissioning of certain types of conventional power generation facilities, such as coal and nuclear facilities; the ability to couple renewable power generation with other forms of power generation, creating a hybrid energy solution capable of providing energy on a 24/7 basis while reducing the average cost of electricity obtained through the system; the desire of energy consumers to lock in predictable rate long-term pricing of a reliable energy source; renewable power generation s ability to utilize freely available sources of fuel, avoiding the risks of price volatility and market disruptions associated with many conventional fuel sources; environmental concerns over conventional power generation; and government policies that encourage development of renewable power, such as national, provincial, state or local renewable portfolio standard programs, which motivate utilities to procure electricity supply from renewable resources. In addition to renewable energy, we expect natural gas to grow as a source of electricity generation due to its relatively low cost and low environmental impact compared to other fossil fuel sources, such as coal and oil. Solar Energy Solar energy is the fastest growing source of cumulative generation capacity, with a projected CAGR of 31% from 2010 to Annual global solar energy installations are expected to increase from 40 GW in 2013 to 85 GW in The following chart reflects the actual and projected growth of annual global solar energy installations from 2010 to 2020: Global annual solar energy installations (in GW), Source: Bloomberg New Energy Finance (1) We expect our future markets to include other markets in Asia (except Japan), Africa, Latin America and the Middle East. (2) Other includes markets in North America, Oceania, Japan and Chile. 11

19 Annual solar energy installations in our initial target markets are expected to add more than 179 GW between 2014 and 2020, representing a CAGR of 32%. From 2015 to 2020, 399 GW of aggregate solar energy generation capacity is expected to be installed globally, requiring total investments of approximately $723 billion. The following chart reflects the expected total annual investment in global solar energy installations from 2015 to 2020: Total annual investment in global solar capacity (in billions), Source: Bloomberg New Energy Finance Solar Energy Segments Solar energy systems can be classified into four segments: (i) utility-scale; (ii) commercial and industrial, or C&I ; (iii) residential; and (iv) off-grid. We are primarily focused on the first two of these segments. The utility-scale segment represents projects where either the purchaser of the electricity or the owner of the system is an electric utility. The C&I segment represents commercial firms, industrial companies, academic institutions, government entities, hospitals, non-profits and all other entities that are neither a utility nor a residential customer that purchase solar power directly from a generation company or a solar power plant. The residential segment represents residential homeowners with solar energy generation capabilities. The off-grid segment specifies projects that serve energy demand that is not interconnected with the electricity grid. In the C&I segment, most commercial or industrial firms do not own the solar assets, but rather sign a PPA with a generation company that owns the assets. Demand for C&I and residential solar is driven largely by customers desire for contracted long-term energy prices, corporate green initiatives, state and federal incentives and/or net metering policies. While solar utility projects compete with other wholesale generation plants, solar energy in the C&I and residential markets competes with the retail price of electricity. The retail electricity price includes generation costs, as well as transmission and distribution charges. Solar generating assets can be located at a customer s site, which reduces the customer s transmission and distribution charges and allows these distributed solar generation assets to compete favorably with the retail cost of electricity. By competing with the retail price of electricity, solar energy is able to reach grid parity and reduce customer electricity costs. The vast majority of utility solar projects are structured so that the utility does not own the generating assets, but rather the utility signs a long-term PPA to buy the electricity from the plant. Demand for utility PPAs is largely driven by (i) the utility s need to meet renewables mandates, (ii) energy demand growth and (iii) the retirement of existing generation assets. Key Drivers of solar Energy Growth We believe the following factors have driven, and will continue to drive, the global growth of solar energy: 12

20 Grid parity. We define grid parity as the point at which renewable energy sources can generate electricity at a cost, excluding any government incentives or subsidies, equal to or lower than prevailing retail electricity prices. The cost of solar energy has undergone a significant decline and is expected to continue to decline going forward. On a global basis, the average total installation cost of solar energy projects is expected to decline by more than 66% in the ten-year period ending in In 2010, the average installation cost per watt of capacity in the utility market was $3.24 and fell to $1.50 in By 2020, this number is expected to fall to $1.09. Conversely, we expect retail electricity prices to continue to rise primarily due to increasing costs of conventional sources of energy, required investments in transmission and distribution infrastructure and increasing regulatory costs for conventional energy sources. We believe accelerating industrialization, an expanding middle class and the need to develop energy grid infrastructure will continue to drive demand in our initial target markets for the foreseeable future. Rising retail electricity prices create a significant and growing market opportunity for lower-cost retail energy. Solar energy may be able to offer C&I customers clean electricity at a price lower than their current utility rate. Whether solar power generation has achieved grid parity is dependent upon a number of factors, including the scale of and technology utilized by the generation project, cost of capital, applicable installation costs and maintenance expenses, local electricity rates, local meteorological characteristics, transmission fees and taxes. As a result, we evaluate grid parity on a project-by-project basis at the time such project achieves its COD. None of our projects in our initial portfolio achieved grid parity at the time of their respective COD. We do, however, believe grid parity has been reached in certain areas within our target markets where our Sponsor is actively pursuing development activities. For example, we believe that grid parity has been achieved in certain Indian states, such as Maharashtra, for certain industrial customers based upon a comparison of energy pricing data provided by the Government of India and recent pricing contained in PPA offers made by our Sponsor. At this time, we do not know the specific timing as to when grid parity will be achieved for any new projects we acquire in our initial target markets. Movement to distributed generation. Although some locations are more suitable than others, solar energy systems can generate electricity nearly anywhere. By contrast, hydroelectric power, wind or geothermal electricity generating systems are site-specific and location is critical. This means power generated by solar energy systems can sometimes be delivered at a relatively low cost to areas that were previously difficult to service, have high transmission and distribution charges, or have high load requirements. Solar power can, in some cases, defer transmission and distribution investments and replace or significantly reduce the use of expensive and environmentally detrimental on-site power generation technologies, such as diesel generators. Distributed solar energy systems provide customers with an alternative to traditional utility energy suppliers. Distributed resources are smaller in unit size and can be constructed at a customer s site, removing the need for lengthy transmission and distribution lines. By bypassing the traditional utility suppliers, distributed energy systems delink the customer s price of power from external factors such as volatile commodity prices, costs of the incumbent energy supplier and transmission and distribution charges. This makes it possible for distributed energy purchasers to buy energy at a predictable and stable price over a long period of time. Within our initial target markets, distributed solar energy systems are particularly attractive in addressing the historical undersupply of energy generation capacity in such markets due to their ease and speed of installation, reliability, scalability and ability to be located near the end customer. Solar power generation typically coincides with the times of peak energy demand and the highest cost of energy. Solar energy systems generate most of their electricity during the afternoon hours, when the energy from the sun is strongest. This generally corresponds to peak demand hours and the most expensive energy prices. 13

21 Acceptance and support for solar energy. Solar energy has gained increased acceptance from the investment community because it: (i) is a reliable and predictable energy output; (ii) has low and predictable operational and maintenance costs; (iii) is lower risk than other energy sources due to minimal asset complexity and use of proven technologies; and (iv) does not face commodity risk. Advantages of Solar Energy Solar energy has several advantages over conventional energy and other forms of renewable energy, and these advantages have been increasingly recognized over time: Environmental Friendliness and Renewability. Solar power is one of the most environmentally friendly cleanest sources of electricity without air or water emissions, noise, vibrations or any waste generation. Peak Energy Generation Ability. Solar power is well-suited to match peak energy needs as maximum sunlight hours generally correspond to peak demand periods when electricity prices are at their highest. Easily Located with End Users. Unlike other renewable resources such as hydroelectric and wind power, solar power can be utilized anywhere that receives sunlight and directly at the site where the power will be used. As a result, solar power avoids the expense of, and energy losses associated with, transmission and distribution of electricity from large-scale electrical plants to end users. No Fluctuations in Operating Costs. Unlike fossil and nuclear fuels, solar energy has no fuel price volatility. Although there is variability in the amount and timing of sunlight over the day, season and year, a properly sized and configured system can be designed for high reliability while supplying electricity on a long-term, fixed-cost basis. Reliability and Durability. Without moving parts or the need for periodic maintenance, solar power systems are among the most reliable forms of electricity generation. Accelerated aging tests have shown that solar modules can operate for at least 25 to 30 years without requiring major maintenance. Modularity. PV systems are easily modularized and scalable, and therefore can be deployed in many different sizes and configurations to meet the specific needs of the user. PV modules are increasingly used to serve as both a power generator and the exterior of a building. Like architectural glass, PV modules can be installed on the roofs and facades of residential and commercial buildings. Increasing Environmental Concerns over Conventional Energy Increasing environmental concerns over the effect of burning fossil fuels have led to the implementation of greenhouse gas reduction strategies by many countries through international treaties such as the Kyoto Protocol and national or regional regulations to reduce air pollution. A significant number of countries, including the United States, Australia, China and certain members of the European Union, have adopted and are expected to continue government initiatives to encourage the development of solar power and other renewable energy sources in order to address these environmental concerns. 14

22 General BUSINESS Vasari Energy, Inc., a Delaware corporation and its subsidiaries (collectively, the Company ) was established to design, develop and operate utility-scale electric power plants that produce reliable and clean energy. Our growth strategy is to own and operate solar and solar energy power plants worldwide (each a Project and collectively the Projects ) in accordance with this memorandum (with the Exhibits hereto, the Memorandum ). The Company intends to play an active role, as a long-term owner, in all phases of renewable energy generation, from planning and development through construction and commercial operation. The Company believes that this involvement will allow us to better ensure, with our experienced personnel that our projects are well-planned, structured and managed, thus maximizing value creation. We believe that our competitive strengths advantageously position us to enhance our financial performance, expand our business and pursue strategic opportunities in independent power markets both domestically and abroad. Our management team has broad experience in solar project development, transmission line development, meteorology, engineering, permitting, construction, finance, law, asset management, maintenance and operations. We have established land control, stakeholder relationships, meteorological programs, community initiatives and developed transmission solutions in the markets in which we focus and expect to continue to do so in the future. Development Pipeline As of June 1, 2016 our pipeline of potential solar and solar energy Projects up to 200 megawatts ( MW ) in California, Arizona, Nevada, and Texas, and with a build out value of approximately $280 million. The Company s business goal is to have approximately 700 MW of operating capacity by the end of We estimate the collective value of our projects to be $148 million. Our ability to complete the Projects in our development pipeline and achieve our targeted capacity is subject to a number of risks and uncertainties. Strategic Overview Vasari Energy s business goal is to be one of the leading owners and operators of renewable electric generating assets in the world. The Company intends to play an active role, as a long-term owner, in all phases of power generation, from planning and development through construction and commercial operation. The Company believes that this involvement allows us to better ensure, with our experienced personnel that our projects are well-planned, structured and managed, thus maximizing value creation. The Company s strategy focuses on developing new projects in locations where we will have an established position or otherwise determine that attractive financial performance can be realized. After completion of a solar energy development project or an acquisition of an existing plant, the Company s business strategy includes enhancing the value of these assets and expanding plant capacity. We also recognize that our principal customers are regulated utilities. We therefore strive to understand the regulatory and economic environment in which the utilities operate so that we may continue to create mutually beneficial relationships and business dealings. In making investment decisions, we evaluate potential project returns against our internally generated rate of return guidelines. We establish these guidelines by identifying a base rate of return and adjusting the base rate by potential risk factors, such as risks associated with project location and stage of project development. We endeavor to mitigate these risks by (1) evaluating all projects and the markets in which they operate, (2) selecting strategic partners with complementary skills and local experience, (3) structuring investments through subsidiaries, (4) managing up-front development costs, (5) utilizing limited recourse financing and (6) linking revenue and expense components where appropriate. In response to the increasing globalization of the independent power market, we intend to organize our operation and development activities into three geographic regions: (1) Americas, (2) Europe, and (3) Asia. Each region 15

23 will be served by one or more teams consisting of business development, operations, finance and legal personnel, and each team is responsible for all our activities within a particular geographic region. Also, we expect to mobilize personnel from outside a particular region when needed in order to assist in the development of specified projects. Our strategy is to develop and operate a portfolio of solar energy Projects in favorable markets. Our management team has broad experience in solar project development, transmission line development, meteorology, engineering, permitting, construction, finance, law, asset management, maintenance and operations. We have established land control, stakeholder relationships, meteorological programs, community initiatives and developed transmission solutions in the markets in which we focus and expect to continue to do so in the future. We continue to engage in prospecting activities, which involve a broad, high-level review of potential sites that may be suitable for solar energy development. We have built our existing pipeline through these prospecting activities and will continue to do so in the future with Projects that we believe meet our investment return standards. We classify our Projects into the following four categories based on their stage of development: operating/under-construction, advanced, intermediate and early. We have defined these categories for internal planning purposes, including projecting our future needs for solar equipment and personnel. The following are key elements of our strategy: Successfully execute and capitalize on our pipeline of existing development Projects. Our goal is to have approximately 700 MW of operating capacity by the end of Expand our pipeline of development Projects. We have assembled a team of employees and experts located in our existing markets who actively search for additional opportunities for solar development. Continue to exploit development opportunities through creative transmission solutions. We have assembled the core internal expertise necessary to develop, build and own significant transmission assets in order to access and develop solar energy Projects in markets that we would otherwise be unable to pursue. Maintain full development and operational control. Our policy is to control the development, construction and operation of all of our solar energy Projects. We believe retaining control over our Projects enhances our credibility, allows us to make rapid decisions and strengthens our relationships with landowners, local communities, regulators and other stakeholders. Substantial local presence and community stakeholder involvement in the markets in which we are active. Our business plan is to open local offices to work cooperatively with the communities in which our solar energy Projects are located in order to better understand their unique issues and concerns. We believe that having local offices and coordinating with our communities allows us to better assess our Projects feasibility and economic viability than developing our Projects remotely. Competitive Strengths We believe that our competitive strengths advantageously position us to enhance our financial performance, expand our business and pursue strategic opportunities in independent power markets both domestically and abroad. Our key competitive strengths are summarized below. Global Presence. Vasari Energy s business goal is to be among the largest developers and independent power producers in the world based on MW generated Our goal is to have approximately 700 MW of operating capacity by the end of In assembling and operating 16

24 this global portfolio, we expect to gain substantial experience and expertise in major U.S. and foreign power markets and, as a result, enjoy access to a broader range of development and acquisition opportunities worldwide. Diversified Asset Portfolio. Our strategy is to diversify our portfolio of power projects and spread our operations across different regions and market segments, thereby allowing us to participate in multiple segments of the domestic and international power markets and reducing the level of risk presented by any particular market. Disciplined Marketing and Risk Management Activities. We plan to use a disciplined approach to energy marketing and risk management that will be centered on our merchant plants and designed primarily to stabilize and enhance the operational and financial performance of those facilities. These activities will also reduce our exposure to energy price fluctuations. Strong and Experienced Project Management Team. We have an experienced project management team that continues to focus on our core competencies and to draw upon our significant domestic and international development and operating experience. Sources of Revenue Our business plan is to generate revenues from the following sources: Electricity sales. We intend to sell the power generated by our solar energy Projects either pursuant to PPAs with local utilities or power companies or directly into the local power grid at market prices. We will seek to hedge a significant portion of the market component of our power sales revenue. Engineering, Procurement and Construction income. The Company expects to generate revenue from providing EPC services to directly to system owners such as utilities, independent solar power project developers and commercial, industrial, and government customers. EPC income will be derived from performing all work for the design and engineering, procurement, construction, program management, commissioning and start-up of the Balance of Plant and the procurement, delivery, assembly, erection, installation, commissioning and start-up of the power system, which work and services will generally include the construction services, materials, equipment, machinery, tools, labor, transportation, administration and other services and items required to complete and deliver to the customer a fully integrated and operational Balance of Plant and the fully assembled, installed, tested and operational power system in accordance with applicable laws and applicable standards. Project Management. Project management is required on every project, with the primary responsibility of managing all aspects of the effort to deliver solar power systems on schedule and within budget. Vasari Energy expects to manage projects where various contractors and subcontractors are involved and multiple activities need to be integrated to ensure the success of the overall project. Project management services include logistics, development of project execution plans, detailed schedules, cost forecasts, progress tracking and reporting, and the integration of the engineering, procurement and construction efforts. Project management is accountable to the customer to deliver the safety, functionality and financial performance requirements of the solar power system. O&M Services. Our strategy includes the performance of standard activities associated with operating and maintaining solar power systems. Solar energy service companies perform such activities pursuant to the scope of services outlined in the underlying contract. These activities are considered necessary to optimize system performance and comply with PPAs, other 17

25 agreements, and regulations. Although the scope of services may vary by contract, O&M service arrangements generally include 24/7 system monitoring, certain PPA and other agreement compliance, North American Electric Reliability Corporation compliance, Large Generator Interconnection Agreement compliance, energy forecasting, performance engineering analysis, regular performance reporting, turn-key maintenance services including spare parts and corrective maintenance repair, warranty management, and environmental services. Operations and maintenance activities can also include routine and outage/turnaround maintenance services, general maintenance and asset management, and restorative, repair, predictive and prevention services. Capital gains. The Company may generate capital gains from projects that are developed by us and brought to the ready to build stage and sold to a utility company or other financially qualified buyer that will carry out the construction and commissioning of a Project and from the sale of an operating power plant. Project Financing Our financing strategy is to utilize a combination of bank loans, credit facilities, tax equity financing, and institutional private equity to purchase solar equipment and construct the Projects. Each project we develop requires a substantial capital investment. Permanent project financing is often arranged immediately prior to the construction of a project. With limited exceptions, this debt financing is for approximately 50% to 80% of each project s costs and is structured on a basis that is nonrecourse to Vasari Energy, Inc. and our other projects. In addition, the collateral security for each project s financing generally will be limited to the physical assets, contracts and cash flow of that project and the Company s ownership interests in that project. In general, we expect that each of our direct or indirect subsidiaries will be organized as a legal entity separate and apart from the Company and our other subsidiaries. Any asset of any of these subsidiaries may not be available to satisfy the Company s obligations or those of any of our other subsidiaries. However, unrestricted cash or other assets that are available for distribution by a subsidiary may, subject to applicable law and the terms of financing arrangements of these subsidiaries, be advanced, loaned, paid as dividends or otherwise distributed or contributed to Vasari Energy. The ability to arrange project financing and the cost of such financing are dependent upon numerous factors, including general economic and capital market conditions, the credit attributes of a project, conditions in energy markets, regulatory developments, credit availability from banks or other lenders, investor confidence in the industry, Vasari Energy and other project participants, the continued success of our other projects, and provisions of tax and securities laws that are conducive to raising capital. Our financial exposure in any equity investment is generally limited by contractual arrangement to the Vasari Energy equity commitment, which is expected to be about 3% to 5% of its share of the aggregate project cost. In some cases, Vasari Energy may be required to provide additional credit support to projects in the form of debt service reserves, contingent equity commitments, revenue shortfall support or other arrangements designed to provide limited support. The Company s organization structure is designed to maximize the number of solar energy assets the Company can acquire, develop, own, operate, and finance while limiting dilution to shareholders. The Company further believes that this organizational structure has the potential to significantly increase its share value. Our Development Process Our development process and activities generally proceed as described below. Some of these tasks are pursued concurrently and as progress is made towards completion, the Project advances through our project classification system. 18

26 It may be necessary for us to secure financing or self-fund our solar equipment purchases and construction costs. We may also enter into tax equity financing transactions to monetize our ITCs, utilize accelerated tax depreciation benefits and investment tax credits, and refinance any outstanding Project financings. Our strategy is to carefully review and monitor investment returns during all phases of the development process to ensure that our Projects continue to meet our investment return standards. We believe that this will allow us to allocate capital among Projects in an efficient manner to optimize our overall investment returns. Prospecting and Site Selection Prospecting is a comprehensive, high-level review in which we complete initial assessments of potential sites to locate new Project opportunities. Prospecting represents our earliest stage of Project development and addresses our core objectives: identification of sites that we believe may be suitable for development, and rudimentary analysis of site viability for solar energy Projects and completion of a fatal flaw analysis. Our meteorology, real estate and transmission teams conduct initial desktop or computerbased reviews of public information, including public solar reports, land records and power transmission maps and our proprietary data, to identify significant impediments that could result in a Project's failure to satisfy our investment objectives. We also make initial assessments of potential sites based on a number of criteria, including topography; solar resource suitability; constructability; access to transmission networks; site size; land ownership; and environmental, zoning and other local and state laws and regulations, including state-sponsored RPS programs. We make these assessments taking into account our business strategy, commercial standards and targeted returns. We also consider the capital cost, size and expansion opportunities of the proposed site and our view of the relevant electricity and REC markets. An important part of the prospecting process is an initial environmental screening or environmental fatal flaw analysis, usually conducted on the basis of publicly available information and sometimes supplemented with a site visit by a qualified professional, to identify already documented or readily apparent environmentally sensitive areas, including unique wildlife habitats, wetlands, culturally significant resources and proximity to wildlife reserves, national parks and scenic areas that are generally not suitable for commercial development. This may also include a preliminary assessment of a Project's potential to pose a hazard to aviation safety. Once a site passes this initial review, we begin more detailed site-specific environmental assessments in connection with our permitting efforts, and establish constraints for solar equipment siting and civil and site engineering. These typically include detailed mapping of wetlands and cultural resources, studies to determine use of the site by migratory or sensitive wildlife and mapping of adjacent residential and other development, all aimed at ensuring that we may safely operate a potential project without detrimental impact on the local environment. Our prospecting effort is regionally focused and is characterized by close working relationships with local permitting authorities, communities and other significant stakeholders. We believe that by entering into dialogue with these groups early, we are better able to incorporate local concerns into our site assessment, leading to effective permit applications and expedited completion of our Projects. Our strategy is to expand our team to include a regional development manager who will lead a team of specialized employees focused on our Project efforts. We believe our experience and pre-existing knowledge improves our prospecting ability in these markets. We believe our ability to understand and interpret site-specific prospecting information has been and will continue to be a key factor in our success in identifying desirable project sites. Land Procurement Land procurement begins as part of the prospecting and site selection process in which we use publicly available data or prior experience to determine if there are any known impediments to securing the land. From there, we conduct initial meetings with local landowners, government officials, community representatives and residents to gauge community support. If these meetings are favorable, we generally negotiate and enter into land purchase agreements or market-based land leases with landowners to secure 19

27 rights to build on the site. In some instances, we may enter into easements with landowners to obtain access to the Project site and/or to obtain rights to construct, operate and maintain collection systems and transmission lines on third-party property pursuant to which we may make a one-time payment to the landowner for such rights. Land procurement may involve negotiations with single or multiple landowners. The final step in this process is to obtain insurable title to the land in order to secure our construction financing. Solar Resource Assessment Because an adequate solar resource is a prerequisite for developing an attractive solar energy project, a solar resource assessment begins at the earliest stage of the development process. Our initial assessment of the available solar resource, developed during our prospecting activities, is based on a desktop review of publicly available solar irradiance maps that we augment, where available, with our own proprietary data. Our meteorological team also prepares computer models to predict solar levels in support of our meteorological activity. Commodity Sales and Management To ensure that a Project meets our investment return objectives and to protect against electricity price volatility, we intend to carefully review our electricity sale options for each of our development projects. As part of this review, we assess the appropriateness of entering into a fixed-price PPA and/or a financial hedge tied to electricity prices to secure project returns and stabilize project revenue streams. The power sale process begins with our identifying potential counterparties, marketing and bidding and, finally, negotiating and executing the PPAs. When we can sell our electricity in liquid power markets we analyze hedging opportunities available to us later in the development process. Transmission and Interconnection The availability of transmission infrastructure is critical to a project's feasibility and is initially ascertained from public sources during our prospecting activities. If existing transmission infrastructure is available, we will attempt to secure our access upon selecting a potential site for development by discussing availability with applicable utilities and filing an application with the appropriate ISO or local electric utility to interconnect with the network. If transmission infrastructure does not exist or is not available, we will study the feasibility of developing and constructing our own transmission line. Permitting Once we have selected a site, we will begin the approval and permitting process with relevant local, state and federal government agencies. This process includes identifying required permits; holding preliminary informational meetings with agencies and stakeholder groups; determining the necessary studies to complete permit applications and conducting such studies; preparing environmental permitting and disclosure reports; holding public hearings; responding to information requests and seeking project approval. Preliminary and pre-final design engineering of the solar energy projects is also completed during this phase, often in an iterative fashion with environmental studies such that adverse impacts are avoided or minimized. Because the permitting process is costly and time consuming, we carefully review all aspects of the Project, including our projected investment returns, before committing significant resources to these efforts. Local. Permitting at the local level (i.e., the municipal or county level) often consists of obtaining a special use or conditional use permit under the provisions of the applicable land use ordinance or code. Obtaining a permit usually depends on the applicant's demonstrating that the Project will conform to development standards specified under the ordinance to ensure that the Project is compatible with existing land uses and protective of natural and human environments. We plant to make a concerted effort to build trust with the community and may enlist local representatives to answer questions and address concerns. 20

28 We also plan to create Project-specific websites to provide the community with readily accessible information. State. We may encounter state level permitting requirements in addition to those imposed locally. These requirements may include comprehensive environmental reviews or may be limited to a specific regulatory program, or may involve both. State level comprehensive reviews typically take from 6 to 24 months from the date of filing to approval. Additional approvals may be required for specific aspects of the Project, such as stream or wetland crossings, stormwater management and highway department authorizations for oversized loads and state road closings. Federal. Projects may also trigger required approvals at the federal level. For example, a Clean Water Act Section 404 permit ( Section 404 Permit ), is required from the U.S. Army Corps of Engineers ( Army Corps ) for the discharge of dredged or fill material to waters of the U.S., including certain wetlands and waterways (e.g., for access road crossings). Additionally, a permit under Section 10 of the Rivers and Harbors Act of 1899, ( Section 10 Permit ), is required from the Army Corps for the construction of any structure in any navigable water of the U.S. or that would affect the course, location, condition or capacity of any navigable water of the U.S. In certain cases it may be advisable to obtain a Section 10 incidental take permit from the U.S. Fish and Wildlife Service if there is a potential for risk to endangered or threatened species. A comprehensive environmental review may be triggered under the National Environmental Policy Act for projects that involve a federal action such as issuance of a federal permit, or granting of a lease for lands administered by the Bureau of Land Management. Engineering Procurement and Construction Oversight Our policy is to actively manage the design and construction of our solar energy Projects. Construction consists of solar array installations, substation construction, interconnection work, balance of plant construction and occasionally construction of long transmission line. We plan to manage solar equipment installation and use outside contractors with whom we enter into contracts to provide all necessary management, supervision, labor, materials, tools, engineering, mobilization, testing and demobilization required to complete construction of the Project. Under these contracts, the subcontractor prepares the site for construction with clearing and grading activities; installs step-up transformers; constructs overhead or underground cables that collect the energy produced by the solar system for delivery to the on-site substation; constructs the on-site substation, as applicable, or modifies an existing substation; builds roadways in and around the Project and in some cases, constructs operating and maintenance buildings or, to the extent they are required, transmission or interconnection facilities. Construction of a typical site takes approximately 9-15 months, with adverse weather conditions causing the largest variation in estimated completion dates. We will actively supervise and oversee all aspects of construction. Support Programs In Europe, renewable energy targets, in conjunction with FiTs, Renewable Obligation Certificates, and other schemes such as tenders for utility-scale PV solar, have contributed to the growth in PV solar markets. Renewable energy targets prescribe how much energy consumption must come from renewable sources, while incentive policies and competitive tender policies are intended to support new supply development by providing certainty to investors. A 2009 European Union ( EU ) directive on renewable energy, which replaced an earlier 2001 directive, sets varying targets for all EU member states in support of the directive s goal of a 20% share of energy from renewable sources in the EU by 2020, and requires national action plans that establish clear pathways for the development of renewable energy sources. Tax incentive programs exist in the U.S. at both the federal and state level and can take the form of investment and production tax credits, accelerated depreciation, and sales and property tax exemptions and abatements. At the federal level, investment tax credits for business and residential solar systems have gone through several cycles of enactment and expiration since the 1980 s. In December 2015, the U.S. Congress extended the 30% federal energy investment tax credit ( ITC ) for both residential and commercial solar 21

29 installations through December 31, The credit will step down to 26% in 2020, 22% in 2021, and remain at 10% permanently beginning in The ITC has been an important economic driver of solar installations in the U.S., and its extension is expected to contribute to greater medium-term demand visibility in the U.S. The positive impact of the ITC has depended to a large degree on the availability of tax equity for project financing, and any significant reduction in the availability of tax equity in the future could make it more difficult to develop and construct projects requiring financing. The eventual step-down of the ITC to 10% underscores the need for the LCOE from solar systems to continue to decline and remain competitive with other sources of energy generation. At the federal level, the Environmental Protection Agency s adoption of a final Clean Power Plan Rule (the Rule ) and implementation of the Rule through state plans offered the possibility of increasing the demand for PV solar generating capacity in certain regions of the U.S. in which PV solar has not historically received significant state-level policy support. However, the adoption and implementation of the Rule has been impacted by litigation against the Rule initiated by states and other stakeholders which has not yet been resolved, and in February 2016, the U.S. Supreme Court stayed implementation of the Rule while such legal challenges are pending. It is therefore premature to assess what the effects of the Rule will be on PV solar markets. The majority of states in the U.S. have enacted legislation adopting Renewable Portfolio Standard ( RPS ) mechanisms. Under an RPS, regulated utilities and other load serving entities are required to procure a specified percentage of their total electricity sales to end-user customers from eligible renewable resources, such as solar generating facilities, by a specified date. Some programs may further require that a specified portion of the total percentage of renewable energy must come from solar generating facilities. RPS legislation and implementing regulations vary significantly from state to state, particularly with respect to the percentage of renewable energy required to achieve the state s RPS, the definition of eligible renewable energy resources, and the extent to which renewable energy credits (certificates representing the generation of renewable energy) qualify for RPS compliance. Measured in terms of the volume of renewable electricity required to meet its RPS mandate, California s RPS program is the most significant in the U.S., and the California market for renewable energy has dominated the western U.S. region for the past several years. First enacted in 2002, California s RPS statute has been amended several times to increase the overall percentage requirement as well as to accelerate the target date for program compliance. Pursuant to amendments enacted by the California Legislature in 2015, the California RPS program now requires utilities and other obligated load serving entities to procure 50% of their retail electricity demand from eligible renewable resources by Operating and Regulatory Structure Various U.S. federal, state and local permits are required to construct solar power plants. The projects in which we develop and construct must conform to all applicable electric reliability, building and safety, and environmental regulations and codes, which vary from place to place and time to time. Solar energy projects are also subject to specific governmental safety and economic regulations. Our projects are often required to comply with numerous U.S. federal, state and local environmental, land use and health and safety laws and regulations and to obtain numerous governmental permits in connection with sustainable infrastructure projects, and we may incur significant additional costs to comply with these requirements. The sale and distribution of electricity at the retail level is subject to state regulation, and the sale of electricity at the wholesale level and interstate transmission of electricity is subject to U.S. federal regulation. While we do not own or operate electric distribution systems or interstate transmission systems, the terms of our financings can be affected by the tariffs, rules and regulations applicable to such systems, as well as the prices that the owners of such systems are able to charge. The construction of power generation projects is typically regulated at the state level, and the operation of these projects also may be subject to state regulation as utilities. At the U.S. federal level, the ownership, operation, and sale of 22

30 power generation facilities may be subject to regulation under the Public Utility Regulatory Policies Act, or PURPA, the FPA and the Public Utility Holding Company Act of 2005, or PUHCA. Certain of our future projects may be subject to rate regulation by the FERC under the FPA. To the extent our future projects are subject to rate regulation they will be required to obtain FERC acceptance of their rate schedules for wholesale sales of energy, capacity and ancillary services. The FERC may revoke or revise an entity s authorization to make wholesale sales at market-based rates if FERC subsequently determines that such entity can exercise market power in transmission or generation, creates barriers to entry or engages in abusive affiliate transactions or market manipulation. Any market-based rate authority that we obtain will be subject to certain market behavior rules. If we are deemed to have violated these rules, we will be subject to potential disgorgement of profits associated with the violation and/or suspension or revocation of our market-based rate authority, as well as potential criminal and civil penalties. If we were to lose market-based rate authority for a project, we would be required to obtain the FERC s acceptance of a cost-based rate schedule and could become subject to, among other things, the burdensome accounting, record keeping and reporting requirements that are imposed on public utilities with cost-based rate schedules. In addition, under certain circumstances, we may also be subject to the reliability standards of the North American Electric Reliability Corporation. If we fail to comply with the mandatory reliability standards, we could be subject to sanctions, including substantial monetary penalties. In addition, the state and U.S. federal regulations that govern qualifying facilities and other power sellers may change, and the effect of these changes on our business cannot be predicted. Sustainable infrastructure projects may require air emissions permits and other permits, which may be difficult to obtain in certain jurisdictions. In addition, the operation of, and electrical interconnection for, our clean energy projects are subject to U.S. federal or state interconnection and U.S. federal reliability standards and rules also set forth in utility tariffs and to rules and operating procedures established by the applicable Independent System Operator or other party who operates the transmission system in a particular region. These tariffs, rules and procedures specify rules, business practices and economic terms to which we are subject and, in many cases, are drafted by the utilities and approved by the utilities state or FERC. In the United States, these regulations and policies are being modified and may continue to be modified, which could have an adverse impact on our existing projects. Customer purchases of, or further investment in the research and development of, alternative energy sources could be deterred by these regulations and policies, which could result in a significant reduction in the potential demand for clean energy project development and investments. Competition The renewable energy and solar energy sectors are highly competitive and continually evolving as participants in these sectors strive to distinguish themselves within their markets and compete within the larger electric power industry. We face intense competition and may continue to result in reduced margins and loss of market share. Certain of our existing or future competitors may be part of larger corporations that have greater financial resources and greater brand name recognition than we do and, as a result, may be better positioned to adapt to changes in the industry or the economy as a whole. Certain competitors may have direct or indirect access to sovereign capital, which could enable such competitors to operate at minimal or negative operating margins for sustained periods of time. In addition, we expect to compete with future entrants into the PV solar industry that offer new technological solutions. We also face competition from semiconductor manufacturers and semiconductor equipment manufacturers or their customers that produce PV solar cells, solar modules, or turn-key production lines. We also face competition from companies that currently offer or are developing other renewable energy technologies (including wind, hydropower, geothermal, biomass, and tidal technologies) and other power generation sources that employ conventional fossil fuels. 23

31 We believe that our primary competitors are the traditional utilities that supply energy to our potential customers. We compete with these traditional utilities primarily based on price, predictability of price, and the ease by which customers can switch to electricity generated by our solar energy systems. We believe that we can compete favorably with traditional utilities based on these factors in the regions we intend to service. Our competitors may be significantly larger than we are, have access to greater capital and other resources and may have other advantages over us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we can. In the face of this competition, we believe that a significant part of our competitive advantage is our management team s experience and industry expertise and the fact that the market for opportunities in sustainable infrastructure projects is underserved by traditional commercial banks and other financial sources. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. For additional information concerning these competitive risks, see Risk Factors We operate in a competitive market and future competition may impact the terms of the financing we offer. An increase in the competition for sources of funding could adversely affect the availability and cost of financing. We also face intense competition in attracting and retaining qualified employees. Our ability to continue to compete effectively will depend upon our ability to attract new employees, retain and motivate our existing employees and to continue to compensate employees competitively. Staffing As of August 15, 2016, we employed seven people. We intend to hire several additional business professionals in the near term in connection with this offering and the implementation of our strategy. 24

32 UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION The unaudited pro forma consolidated statements of earnings (i) are presented based on information currently available, (ii) are intended for informational purposes only, (iii) are not necessarily indicative of and do not purport to represent our operating results, and (iv) do not reflect all actions that may be undertaken by management. Vasari Energy, Inc. Pro-Forma Income Statement All figures are in USD FY16E FY17E FY18E FY189E FY20E Revenue 8,100,000 24,000,000 36,750,000 46,900,000 53,500,000 General and Administrative 1,455,000 3,590,000 5,250,000 6,100,000 6,150,000 Gross profit 6,645,000 20,410,000 31,500,000 40,800,000 47,350,000 Total Salaries & Wages 182,250 1,579,500 2,794,500 2,794,500 2,794,500 Professional Fees 20,000 50,000 65,000 75,000 85,000 Training and development 30,000 31,500 33,075 34,729 36,465 Sales & Marketing Expenses 63, , , , ,584 Insurance 15,000 18,000 21,600 25,920 31,104 Travel 25,000 26,250 27,563 28,941 30,388 Miscellaneous Expenses 54,800 57,540 60,417 63,438 66,610 IT Cost 8,308 21,501 38,040 38,040 38,040 Selling, general and administrative (SG&A) 550, , , , ,000 EBITDA 6,095,000 19,760,000 30,750,000 39,935,000 46,405,000 Depreciation & Amortization EBIT 6,095,000 19,760,000 30,750,000 39,935,000 46,405,000 Interest Expense Earnings Before Tax 6,095,000 19,760,000 30,750,000 39,935,000 46,405,000 Income Tax Expenses(Benefits) 257,808 2,900,876 5,193,524 5,188,873 5,183,769 Net Income 5,837,192 16,859,124 25,556,476 34,746,127 41,221,231 Earnings Per Share $0.21 $0.60 $0.91 $1.24 $1.47 No. of shares Outstanding 28,000,000 28,000,000 28,000,000 28,000,000 28,000,000 25

33 DESCRIPTION OF VASARI NOTES The following is a summary of the material terms of the Vasari Notes. The Vasari Notes: are general obligations of the Company and are not guaranteed by any other person or entity; are not savings accounts, certificates of deposit (CDs) or other deposits and are not insured by the FDIC or any other governmental agency; will be secured by, and paid primarily from, the revenue and other assets of the Company, the composition of which may change over time; will not have the benefit of a sinking fund for the retirement of principal; are convertible into common stock of our company; and will cease to accrue interest after the applicable redemption date under the terms and subject to the conditions of the Note agreement. The Vasari Notes are unregistered and issued without coupons. We may change the interest rates and the maturities of the Vasari Notes as they are offered, provided that no such change shall affect any Note issued prior to the date of change. We may, at our discretion, limit the maximum amount any investor or related investors may maintain in outstanding Vasari Notes. There are no limitations on our ability to additional indebtedness in the form of Vasari notes or otherwise. Interest Each note will bear interest from its issue date at a fixed rate per year. We will pay interest only on the notes on January 1st, April 1st, July 1st, and October 1st of each year commencing on the first quarter following the date of issuance of a note. Interest will be paid without any compounding. The notes will bear interest at an annual rate of 10.00%. Interest will accrue from the first day of the month in which a note is purchased. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months or, in the case of an incomplete month, the number of days elapsed. The Company will cause the paying agent for the Vasari Notes, or the Paying Agent (which will initially be Vasari Energy) to pay any accrued and unpaid interest to the person in whose name the Vasari Note is registered at the close of business on the regular record date relating to such interest payment date. If interest is due at maturity but on a day th at is not an interest payment date, the Company will pay the interest to the person entitled to receive the principal amount. For the purpose of determining the holder at the close of business on a regular record date, the close of business will mean 2:00 P.M., Pacific Time, on that day. If any interest payment date other than the maturity date for any Vasari Notes would otherwise be a day that is not a business day, such interest payment date will be postponed to the next succeeding business day. Maturity The Vasari Notes mature on December 31, Thirty to sixty days prior to redemption, you will receive a letter describing redemption/renewal options, if any, which will specify action(s) needed by you. If you do not respond, principal and unpaid interest will be paid to you. Conversion to Common Stock Subject to the terms and restrictions and limitations contained in the Note, the Holder shall have the right, at such Holder's option, at any time after confirmation that sufficient shares are authorized and from time to time, to convert the outstanding Principal Amount under the Note in whole or in part by delivering to the Company a fully executed notice of conversion. 26

34 Eligible Market Eligible Market means the OTC Bulletin Board, the OTCQX of OTC Markets, the Nasdaq Stock Market, the New York Stock Exchange or the NYSE MKT (f/k/a American Stock Exchange). Conversion Price Subject to the terms and restrictions and limitations contained in the Note, the Conversion Price shall equal $3.00 per share. Conversion Ratio Conversion Ratio means, at any time, a fraction, of which the numerator is the entire outstanding Principal Amount of this Note (or such portion thereof that is being redeemed or repurchased), and of which the denominator is the Conversion Price as of the date such ratio is being determined. Conversion Right Subject to the terms hereof and restrictions and limitations contained the Note, the Holder shall have the right, at such Holder's option, at any time after confirmation that sufficient shares are authorized for conversion of Notes and from time to time, to convert the outstanding Principal Amount under the Note in whole or in part by delivering to the Company a fully executed notice of conversion in the form of conversion notice attached as Exhibit A to the Note (the Conversion Notice ), which may be transmitted by or facsimile. Noteholder represents and warrants that noteholder will not submit a Conversion Notice to the Company without written confirmation from the Company that a sufficient number of authorized shares are available for conversion of Notes to common stock. Cash or Common Stock Subject to the terms hereof, the Company shall either (i) pay the Interest Amount in full in cash on each Payment Date or (ii) issue shares of Common Stock in satisfaction of such Interest Amount in accordance with the terms hereof, but not both, at the Company s option. Prior to each Payment Date the Company shall deliver to all the holders of Notes a written irrevocable notice electing to pay such Interest Amount in cash or Common Stock on such Payment Date. Such notice shall be delivered at least ten (10) Trading Days prior to the applicable Payment Date but no more than twenty (20) days prior to such Payment Date. If such notice is not delivered within the prescribed period set forth in the preceding sentence, then the Interest Amount shall be paid in cash. If the Company elects to pay any Interest Amount in cash on a Payment Date, then on such date the Company shall pay to the Holder an amount equal to the Interest Amount due in satisfaction of such obligation. If the Company elects to pay such Interest Amount in shares of Common Stock, the number of such shares to be issued for such Payment Date shall be the number determined by dividing (x) the Interest Amount due, by (y) 90% of the Conversion Price determined as of the applicable Payment Date. Such shares shall be issued and delivered within business ten (10) Days following such Payment Date and shall be duly authorized, validly issued, fully paid, non-assessable and free and clear of all encumbrances, restrictions and legends. If any Holder does not receive the requisite number of shares of Common Stock in the form required above within such business ten (10) Days, the Holder shall have the option of either (a) requiring the Company to issue and deliver all or a portion of such shares or (b) canceling such election to pay in Common Stock (in whole or in part), in which case the Company shall immediately pay in cash the Interest Amount due hereunder or such portion as the Holder specifies is to be paid in cash instead of being converted. All holders of Notes must be treated equally with respect to such payment of Interest Amounts. Subordination Our obligation to repay the principal of and make interest payments on the Vasari Notes is subordinate in right of payment to all senior debt. This means that if we are unable to pay our debts, when 27

35 due, all of the senior debt would be paid first, before any payment of principal or interest would be made on the Vasari Notes and related party debt which is equal in priority to the Vasari Notes. The term senior debt means all of our debt created, incurred, assumed or guaranteed by us, except debt that by its terms expressly provides that such debt is not senior in right of payment to the Vasari Notes. Debt is generally any indebtedness, contingent or otherwise, in respect of borrowed money, or evidenced by Notes, Vasari Notes, debentures or similar instruments or letters of credit and shall include any guarantee of any such indebtedness. Senior debt includes, without limitation, all of our bank and finance company debt and any line of credit we may incur in the future. The Vasari Notes are not senior debt. As of August 1, 2016, we had approximately $150,000 of senior debt outstanding. Priority The Vasari Notes are subordinate to all of our senior debt and equal to all related party debt. We may at any time borrow money on a secured or unsecured basis that would have priority over the Vasari Notes. Security Vasari Notes will be our senior unsecured obligations, and will not be secured by any collateral. Redemption by Us Prior to Maturity We may redeem any Note, in whole or in part, at any time following the first 180 calendar days after the date of issuance of the Note for a redemption price equal to the principal amount plus any unpaid interest thereon to the date of redemption. We will notify Note holders whose Vasari Notes are to be redeemed not less than 30 nor more than 60 days prior to the date of redemption. Redemption at Request of Holder Prior to Maturity At your written request but subject to the subordination provisions and our consent (which may be withheld in our sole discretion), we will redeem any Note at any time following the first 180 calendar days after the date of issuance of the Note for a redemption price equal to the principal amount plus unpaid interest equal to the stated rate of interest minus a penalty in an amount equal to the interest earned over the last 180 days immediately prior to the redemption date. The penalty will be taken first from any interest accrued but not yet paid on the Note, and to the extent such accrued and unpaid interest does not cover the entire penalty amount, the remainder of the penalty amount shall be reduced from the principal amount of the Note. Redemption Upon Your Death At the written request of the executor of your estate or, if your Note is held jointly with another investor, the surviving joint holder, but subject to the subordination provisions, we will redeem any Note at any time after death for a redemption price equal to the principal amount plus unpaid interest equal to the stated rate of interest, without any penalty. We will seek to honor any such redemption request as soon as reasonably possible based on our cash situation at the time, but generally within 90 days of request. Extension After Maturity Unless we offer, and you accept in writing, a renewal option (which we are not required to do), the maturity of a Note will not be extended from the original maturity date. We will provide you notice of the maturity date of your Note at least 30 days, but not more than 60 days, prior to the original maturity date. Our notice may also describe the redemption/renewal options we are then offering and the action(s) you must take to exercise a redemption or renewal option. No Restrictions on Additional Debt or Business 28

36 We are not restricted from issuing additional securities or incurring additional debt, including senior debt or other secured or unsecured obligations or the manner in which we conduct our business. Restrictions on Transferability There are substantial restrictions on the transferability of the Vasari Notes in the Company s Articles of Incorporation and imposed by state and federal securities laws. Before selling or transferring any Note, an investor must obtain the written consent of the Company and comply with applicable requirements of federal and state securities laws and regulations, including the financial suitability requirements of such laws or regulations. Place, Method and Time of Payment We will pay principal and interest on the Vasari Notes from our offices, or at such other place as we may designate for that purpose; provided, however, that if payments are made by check, they will be mailed to you at your address appearing in the Note register maintained by us. Any payment of principal or interest that is due on a nonbusiness day will be payable on the next business day immediately following that nonbusiness day. Events of Default An event of default is defined as follows: a default in payment of principal or interest on the Vasari Notes when due or payable if such default has not been cured for 90 days; our becoming subject to certain events of bankruptcy or insolvency; or our failure to comply with any agreements or covenants in or provisions of the Vasari Notes or if such failure is not cured or waived within 60 days after we have received notice of such failure from the majority holders of at least a majority in principal amount of the outstanding Vasari Notes. If an event of default occurs and is continuing, the holders of at least a majority in principal amount of the then-outstanding Vasari Notes may declare the principal of and the accrued interest on all outstanding Vasari Notes due and payable. If such a declaration is made, we are required to pay the principal of and interest on all outstanding Vasari Notes immediately, so long as the senior debt has not matured by lapse of time, acceleration or otherwise. Holders of a majority of the aggregate principal amount of the Vasari Notes at the time outstanding may, on behalf of all holders, waive any existing event of default or compliance with any provision of the Vasari Notes, except a default in payment of principal or interest on the Vasari Notes. In addition, holders may waive an existing event of default or compliance with any provision of the Vasari Notes, except in payments of principal or interest on the Vasari Notes, if a majority of the aggregate principal amount of the Vasari Notes in good faith determines that a waiver or consent is in the best interests of the holders of the Vasari Notes. No Protection in the Event of a Change of Control; No Obligation to Repurchase Unless we indicate otherwise in a Memorandum supplement with respect to a particular series of Vasari Notes, the Vasari Notes will not contain any provisions that may afford holders of the Vasari Notes protection in the event the Company undergoes a change of control or in the event of a highly leveraged transaction (whether or not such transaction results in a change of control of the Company). In particular, the Company is not obligated to repurchase your Vasari Notes upon a change of control of the Company. Modifications and Amendments Modifications and Amendments Without Consent of Holders 29

37 The Company may draft supplemental Memorandum at any time, without the consent of any holder of Vasari Notes of the relevant series for the purpose of: conveying, transferring, assigning, mortgaging any property or assets as security for the Vasari Notes; curing any ambiguity or correcting or supplementing any provision contained in the Memorandum, or the Vasari Notes or any supplemental Memorandum, or any pricing supplement, which may be defective or inconsistent with any other provision contained in the Memorandum, the Vasari Notes, the relevant supplemental Memorandum or any other documents in connection with our Vasari Note program, which shall not materially adversely affect the interests of any holder of the Vasari Notes; evidencing the succession of another person to us and the assumption by that successor of our covenants contained in the Memorandum in the Vasari Notes; adding to the Company s covenants for the benefit of the holders of the Vasari Notes or to surrender any right or power conferred in the Memorandum on the Company; adding any additional Events of Default to the Memorandum with respect to any series of Vasari Notes; amending restrictions on transferability of Vasari Notes of any series in any manner that does not materially adversely affect the rights of any holder of Vasari Notes; providing for the issuance of and establishing the forms and terms and conditions of the Vasari Notes; establishing the form of any certifications required to be furnished pursuant to the terms of the Memorandum or any Vasari Notes; amending or supplementing any provision contained in the Memorandum or in any Vasari Notes, provided that such amendment or supplement does not apply to any Vasari Notes of any series created prior to the date of such supplemental Memorandum and entitled to the benefits of such provisions; or making any change to any Vasari Notes to conform the terms thereof to the terms reflected in any pricing supplement (including this Memorandum), Memorandum supplement, offering memorandum or similar offering document used in connection with the initial offering or sale of any Vasari Notes. In the event of a conflict between this Memorandum and the pricing supplement for a series of Vasari Notes, the terms of such pricing supplement shall control and shall supersede this Memorandum with respect to such series of Vasari Notes. In addition, you should read the more detailed information appearing elsewhere in this Memorandum. Modifications and Amendments with Consent of Holders The Company may enter into one or more supplemental Memorandum for the purpose of making any amendment or modification to the Vasari Notes of a series or modifying in any manner the rights of any holder of Vasari Notes with consent of the holder(s) representing at least a majority in aggregate principal amount of Vasari Notes affected by the proposed modification at the time outstanding. However, no such supplemental Memorandum may, without the affirmative consent or affirmative vote of the holder of each Vasari Note affected thereby: change the stated maturity of the principal of, or premium, if any, or any installment of interest, if any, on any such Vasari Note; 30

38 reduce the principal of or any premium on any Vasari Notes or reduce the rate of interest on any Vasari Notes, or reduce the price payable upon the redemption of any Vasari Note (if applicable); change any place of payment in which the principal of, or any premium or interest on, any such Vasari Note is payable; impair the right of any holder of such Vasari Notes to institute suit for the enforcement of any payment on or with respect to such Vasari Notes; reduce the percentage of the aggregate principal amount of such outstanding Vasari Notes, the consent of the holders of which is required for any supplemental Memorandum, or the consent of the holders of which is required for any waiver of defaults thereunder and their consequences provided for in the Memorandum; modify any of the provisions of the Memorandum respecting modifications and amendments, except to increase any percentage specified in the Memorandum or to provide that additional provisions of the Memorandum cannot be modified or waived without the consent of the holder of each such outstanding Vasari Note; or modify in any manner adverse to the interest of any holder of such Vasari Notes the terms and conditions of the Company s obligations, regarding the due and punctual payment of the principal of, interest on or any other amounts due with respect to such Vasari Notes. No Personal Liability of Incorporators, Stockholders, Officers, Directors The Memorandum provides that no recourse shall be had under any obligation, covenant or agreement of the Company in any of the Vasari Notes or because of the creation of any indebtedness represented thereby, against any of the Company s incorporators, stockholders, officers or directors, past, present or future, or of any predecessor or successor entity thereof under any law, statute or constitutional provision or by the enforcement of any assessment or by any legal or equitable proceeding or otherwise. Each holder, by accepting the Vasari Notes, waives and releases all such liability. Reports Security holders will receive annual unaudited financial statements for the Company, generally within 120 days after the end of each fiscal year; unaudited quarterly reports, generally within 45 days after the end of the first three quarters of each fiscal year, and such other information as may be reasonably necessary for the security holder s preparation of tax returns. Service Charges We reserve the right to assess service charges and fees to issue a replacement interest payment check, and, in the event we permit transfer or assignment in our discretion, to transfer or assign a Note. Record of Your Ownership The Vasari Notes will be issued in certificated form. If you purchase a Note, an account showing the principal amount of your Note will be established in your name on our books. Interest accrued on your Note will also be credited to your account. You will receive a certificate or other instrument evidencing our indebtedness to you. Upon purchase of your Note, we will send you a Note Certificate confirmation which confirms, among other things, the term, interest rate and principal amount of your Note. Legal and Administrative Proceedings We are currently not a party to any material legal or administrative proceedings, and we are not aware of any material legal or administrative proceedings threatened against us. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business. 31

39 EXECUTIVE OFFICES AND WEBSITE Our principal executive office is located at 9844 Research Dr., Suite 200, Irvine, CA The telephone number of the Company is (949) We maintain a website at The information on our website is not part of this Memorandum. MANAGEMENT AND BOARD OF DIRECTORS The Company is managed by professionals who have experience in solar system sales and marketing, installation, energy assessment, customer support, power purchase agreements and lease agreements, energy project finance, conventional energy, and utility operations. Vasari Energy expects to add additional senior members who are highly respected executives in the energy industry and who will also bring additional experience and industry relationships to the Company. The following table sets forth information with respect to our officers, directors and key employees as of the date of this Memorandum. The names, ages and positions of each of the executive officers and Directors of the Company, as well as a description of their business experience and past employment are as set forth below: Name Age Position Michael Megarit 57 Chairman and a Director Sam Lipman 64 Executive Vice President of Business Development Stephen Smith 58 Vice President Sam Lipman. Mr. Lipman's background includes more than 15 years of power generation experience as a developer, project and sales manager, and consultant for global energy and independent power producers. Prior to Vasari Energy, Mr. Lipman was director of sales and project development for Eoplly USA, the US subsidiary to Chinese solar module and cell manufacturing company with over $300 million of annual revenue. As Southwest regional manager for Enfinity Corp, a top 10 global PV solar developer, Mr. Lipman planned and developed utility-scale and large distributed photovoltaic solar energy projects throughout the southwestern and western states. As principal with Power Central Associates, Mr. Lipman served as power generation and renewable energy project consultant to GE Energy, where he directed the acquisition and development of 13 natural gas and solar sites representing potential output of 4000 MW to 5000 MW. Michael Megarit. Mr. Megarit has 20 years of experience in domestic and international project finance and corporate finance was responsible for transactions and advisory work in a wide range of industries including energy in the U.S. and emerging markets. Mr. Megarit has been with Vasari Energy since its inception and is responsible for project finance and organization development. Prior to Vasari, Mr. Megarit was president of AllegisOne, Inc. and chairman of its wholly owned subsidiary, AllegisOne Securities, Inc., an NASD registered broker dealer and a principal with Madison Investments for 12 years, an international investment firm specializing in corporate and project finance in emerging markets. While with Madison, Mr. Megarit advised on and completed transactions in excess of $3 billion and was responsible for clients with $100 million to $1 billion in annual revenue including financial institutions and multinational corporations. Stephen Smith. Mr. Smith has over 30 year s experience in the financial services industry including brokering and sales of stocks, bonds, commodities and private equity investments. Mr. Smith s career began in New York on Wall Street in 1978 and continued with positions as Vice President of Sales and Investments for large and small brokerage houses. In 2000 Mr. Smith was Senior VP of Sales for AIG NY based E Business Group, responsible for clients such as Ford Motor Company, 3M, Coca Cola and others. For 12 years Mr. Smith was Managing Principal Partner for multiple commercial REIT offerings, and brokering and sales of large commercial real estate assets both US and abroad. 32

40 Compensation Philosophy and Objectives EXECUTIVE COMPENSATION The primary objectives of the Company s executive compensation program are to: encourage executives to achieve and exceed our short- and long-term strategic and financial performance targets; focus on long-term performance by providing a significant amount of an executive s compensation through programs linked to and dependent upon our long-term success; attract and motivate new executive talent and retain and motivate current executives whose continued employment is crucial to our success and growth; and align executives incentives with the creation of stockholder value. We intend for our programs to support attaining our strategic objectives by aligning the interests of our executive officers with those of our stockholders through performance-based compensation upon achievement of operational and financial performance goals and long-term incentive based compensation tied to overall Company value. The key principles of our compensation philosophy are to: Tie incentive compensation to Company performance. We believe that tying a significant portion of executive compensation to Company performance appropriately rewards executives for achieving strategic performance objectives and positive financial performance. For each of our executives, the aggregate target value of annual cash incentives and long-term equity incentives represent a significantly greater dollar value of compensation than base salary alone. We employ two primary incentive-based compensation structures cash and equity. Under our annual cash incentive program, the compensation committee may award an executive an annual discretionary cash incentive based upon the Company s performance and the executive s individual performance. While incentives are awarded at the compensation committee s discretion, the compensation committee may assess Company performance through achievement of one or more specified performance metrics, including the Company s successful completion of predefined corporate initiatives and project milestones, as well as the executive s individual performance and contribution in achieving these goals. The Company may also make stock option grants to each executive to link a meaningful portion of an executive s compensation to the value of the Company s stock. Pay competitively. We believe that the base salaries and target total compensation for our executives should be competitive relative to public and alternative energy and technology companies. We will typically employ compensation data from various sources, including compensation surveys conducted by independent compensation consultants, and determine benchmark levels for each executive individually. Mix short-term and long-term compensation. We are committed to providing executives with a mix of pay that is reasonable, appropriately reflects performance, and links pay to performance without undue risks. Balance external market competitiveness with internal parity. In setting overall compensation levels for our executives, we will seek to balance market competitiveness with a reasonable level of internal parity. We recognize that external market data can never completely reflect the full extent to which each individual executive demonstrates leadership, makes strategic decisions and contributes to our business results through the execution of their responsibilities. We believe that balancing external competitiveness with a reasonable level of 33

41 internal parity helps to promote a culture of peer equality among the executive team and to recognize the skills and contributions that each executive brings to the organization. In more practical terms this means that, when evaluating compensation levels for a given executive, in addition to considering external market compensation data, the compensation committee may also consider the relative relationship between that executive s target pay level and that of other Company executives. Promote equity ownership among our executives. We believe that it is important for our executives to have an equity ownership stake in the Company. Equity ownership effectively aligns the economic interests of stockholders and executive management. As such, equity grants are and will continue to be an important component of our executives compensation packages. Components of Executive Compensation Presently the material components of executive compensation are: base salary; an annual cash incentive linked to Company and individual performance; long-term incentives in the form of stock option awards; other employee benefits; and for selected executives, additional compensation or other arrangements established via individual agreements with the Company. 34

42 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock (after giving effect to the conversion of all outstanding shares of our preferred stock into common stock effective immediately prior to the completion of this offering) as of August 1, 201. Except as otherwise noted, the address of each person listed in the table is c/o Vasari Energy, Inc., 9844 Research Dr., Suite 200, Irvine, CA The table includes all shares of common stock issuable within 60 days of August 1, 2016 upon the exercise of options and other rights beneficially owned by the indicated stockholders on that date. To our knowledge, except under applicable community property laws or as otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned. The applicable percentage of ownership for each stockholder is based on 25,087,000 shares of common stock outstanding as of August 1, 2016, after giving effect to the conversion of all outstanding shares of our preferred stock into common stock effective immediately prior to the completion of this offering, together with applicable options and warrants for that stockholder. Shares of common stock issuable upon exercise of options and warrants and other rights beneficially owned are deemed outstanding for the purpose of computing the percentage ownership of the person holding these options and other rights, but are not deemed outstanding for computing the percentage ownership of any other person. Prior to Offering Number of Shares of Common Stock Percentage of Common Stock Number of Shares of Common Stock After Offering(1) Percentage of Common Stock Owner Falcon Partners, LLC(2) 18,227, % 18,227, % Common Stock(3) 1,606, % 1,606, % Employees(4) 110, % 3,000, % Series A Preferred(5) 174, % 174, % Series B Preferred(6) 1,167, % 1,167, % Series C Preferred (7) 400, % 400, % Warrants(8) 179, % 179, % Notes(9) % 333, % TOTAL(10) 21,863, % 25,087, % (1) Shares issued and outstanding at the completion of the 10% Convertible Note offering assuming. (2) Falcon Partners, LLC is a majority shareholder of Vasari Energy, Inc. and is controlled by Michael Megarit. (3) Outstanding common stock is based on 1,606,000 shares outstanding as of August 1, 2016 and does not include approximately 7 million shares of common stock available for grant under our equity plans (4) Includes common stock currently owned by employees and shares of common stock reserved for issuance to employees as part of one or more employee stock ownership plans. (5) Assumes 174,000 of Series A Preferred Convertible shares are converted to common stock. (6) Assumes 1,167,000 of Series B Preferred Convertible shares are converted to common stock. (7) Assumes 400,000 of Series C Preferred Convertible shares are converted to common stock. (8) Assumes common stock warrants are exercised to purchase shares of common stock. (9) Shares issued to 10% Convertible Note holders upon full conversion to common stock. (10) All figures of issued shares in this table rely on the filing of the Company s Amended and Restated Articles of Incorporation and authorization of shares. See Description of Our Capital Stock. Some numbers have been rounded. 35

43 DESCRIPTION OF OUR CAPITAL STOCK The following is a summary of our capital stock and certain provisions of our certificate of incorporation and bylaws. This summary is not complete and is qualified in its entirety by the provisions of our certificate of incorporation and bylaws, each as amended to date. The following is a summary of the material terms of our amended and restated certificate of incorporation and our amended and restated bylaws, as each will be in effect upon completion of the offering. To understand them fully, you should read our amended and restated certificate of incorporation and our amended and restated bylaws. On June 30, 2010, the holder of a majority of the Corporation s voting stock approved an Amended and Restated Certificate of Incorporation for the Corporation (the Original A&R Certificate of Incorporation ), which, among other things: (i) increased the Corporation s authorized common stock from Ten Thousand (10,000) shares, par value $0.001, to Seventy Million (70,000,000) shares, par value $0.001; (ii) authorized Thirty Million (30,000,000) shares, no par value, of preferred stock; and (iii) granted the Directors blank check authority as to the authorized preferred stock, such that the Directors could, from time to time, divide and establish any or all of the unissued shares of preferred stock into one or more series, and determine the rights, preferences and limitations of each series, without further approval from the Corporation s shareholders. Despite the approval of a majority of the Corporation s voting stock, a Certificate of Designation setting forth the rights, preferences, privileges and restrictions of the Series A, B and C Preferred Stock has not been filed with the Delaware Division of Corporations. In order to properly authorize sufficient shares of common stock and preferred stock the Directors have been presented with the following documents (i) a Certificate of Validation for Amended and Restated Certificate of Incorporation; (ii) a Certificate of Validation for Certificate of Designation for 10% Series A Convertible Preferred Stock, (iii) a Certificate of Validation for Certificate of Designation for Series B Convertible Preferred Stock; and (iv) a Certificate of Validation for Certificate of Designation for Series C Convertible Preferred Stock. The New Amended and Restated Certificate of Incorporation, among other things, authorizes: (i) an increase the number of shares of common stock which the Corporation is authorized to issue to Seventy Million (70,000,000) shares, par value $0.001, (ii) Thirty Million (30,000,000) shares of preferred stock; and (iii) blank check authority as to the authorized preferred stock, such that the Directors could, from time to time, divide and establish any or all of the unissued shares of preferred stock into one or more series, and determine the rights, preferences and limitations of each series, without further approval from the Corporation s shareholders. Restrictions on Transferability There are substantial restrictions on the transferability of the Shares in the Company s Articles and Bylaws and imposed by state and federal securities laws. Before selling or transferring any Share, an investor must obtain the written consent of the Company and comply with applicable requirements of federal and state securities laws and regulations, including the financial suitability requirements of such laws or regulations. Appropriate legends setting forth the restrictions on transfer of the Shares will be set out in the certificates representing Shares or shares of the common stock received upon conversion of Shares. Limitation on Employee and Officer Liability and Indemnification The Company may indemnify any person who is or was a director, officer, employee or other agent (collectively, an agent ) of the Company, who was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding, whether civil, criminal, administrative or investigative (a proceeding ) (other than an action by or in the right of the Company to procure a judgment in its favor) by reason of the fact that the person is or was an agent of the Company, against expenses, judgments, fines, settlements, and other amounts actually and reasonably incurred, including attorneys fees, in connection with the proceeding if that person acted in good faith and in a manner the person 36

44 reasonably believed to be in the best interests of the Company and, in the case of a criminal proceeding, had no reasonable cause to believe the conduct of the person was unlawful. The Company will also indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action by or in the right of the Company to procure a judgment in its favor by reason of the fact that the person is or was an agent of the Company, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if the person acted in good faith and in a manner the person believed to be in the best interests of the Company and its stockholders. No indemnification will be made: (1) In respect of any claim, issue or matter as to which the person has been adjudged to be liable to the Company in the performance of that person's duty to the Company and its stockholders, unless and only to the extent that the court in which the proceeding is or was pending determines, upon application, that, in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court determines. (2) Of amounts paid in settling or otherwise disposing of a pending action without court approval. (3) Of expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval. To the extent that an agent of the Company has been successful on the merits in defense of any proceeding referred to above or in defense of any claim, issue or matter therein, the agent will be indemnified against expenses actually and reasonably incurred by the agent in connection therewith. Expenses incurred in defending any proceeding may be advanced by the Company prior to the final disposition of the proceeding upon receipt of an undertaking by or on behalf of the agent to repay that amount if it is determined ultimately that the agent is not entitled to be indemnified. This indemnification is not exclusive of any additional rights to indemnification for breach of duty to the Company and its stockholders while acting in the capacity of a director or officer of the Company to the extent the additional rights to indemnification are authorized in the Articles of Incorporation. The indemnification provided above for acts, omissions or transactions while acting in the capacity of, or while serving as, a director or officer of the Company but not involving breach of duty to the Company and its stockholders is not exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors, or otherwise, to the extent the additional rights to indemnification are authorized in the Articles of Incorporation. The Company may purchase and maintain insurance on behalf of any agent of the Company against any liability asserted against or incurred by the agent in that capacity or arising out of the agent's status as such whether or not the Company would have the power to indemnify the agent against that liability. Amendment of the Certificate of Incorporation The Certificate provides that an amendment thereof must first be approved by a majority of the Board of Directors and (with certain exceptions) thereafter must be approved by the holders of a majority of the total votes eligible to be cast by holders of Common Stock with respect to such amendment or repeal. Amendment of Bylaws The Certificate provides that the Bylaws may be amended or repealed by the Board of Directors or by the approval of the outstanding shares (as defined in Delaware General Corporation Law); provided, that a Bylaw amendment specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable board or vice versa may only be adopted by approval of the 37

45 outstanding shares (as defined in Delaware General Corporation Law); provided, further that a Bylaw amendment reducing the fixed number or the minimum number of directors to a number less than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in the case of action by written consent are equal to more than 16 2/3 percent of the outstanding Shares entitled to vote. PLAN OF DISTRIBUTION We are offering up to $1,000,000 in aggregate principal amount of the Vasari Notes. We will offer the Vasari Notes on a continuous basis. Vasari Notes will be made available by the Company, by selling agents (the Selling Agents ) and broker-dealers ( Broker-Dealers ) who are members of the Financial Regulatory Authority, Inc. ( FINRA ) that will assist the Company in the placement of Vasari Notes. The Broker-Dealers may either be independent or related entities of the Company. Vasari Notes will be sold on a best efforts basis. The Company may accept purchases of Vasari Notes net (or partially net) of the Selling Commissions and Expenses from (1) investors purchasing through a registered investment advisor, and (2) investors who contacted the Company directly without the assistance of an investment advisor or a Selling Agent. The selling agreement (the Selling Agreement ) between the Company and the selling agents for the sale of Vasari Notes may require the Company to indemnify such parties under certain circumstances stated therein with respect to certain liabilities, including certain civil liabilities under the Act, which may arise from the use of this Memorandum in connection with the Offering of the Vasari Notes. Insofar as indemnification for liabilities arising under the Act may be permitted to managers, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been advised that, in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. Further limitations on indemnification are provided in the Selling Agreement for the Offering, a copy of which may be obtained upon written request of the Company. Registered Broker-Dealers may sell the Vasari Notes by executing an Agreement with the Company either before or after the effective date of this Memorandum. As described above, it is expected that the Agreement will contain cross-indemnity provisions with respect to certain liabilities, including liabilities under the Act. In addition, Selling Group members may be deemed underwriters as the term is defined in the Act. The Company may pay bonuses to its investment relations employees and independent contractors, but not to its executive officers and directors, for assisting the Company in the placement of the Vasari Notes. If you have questions about the suitability of an investment in the Vasari Notes for you, you should consult with your own investment, tax or other professional financial advisor. Prospective investors will be required to complete an application prior to investing in the Vasari Notes. We reserve the right to reject any investment. If we accept an investment, you should not assume that the Vasari Notes are a suitable and appropriate investment for you. You will not know at the time of investment whether we will be successful in completing the sale of any or all of the Vasari Notes. We reserve the right to withdraw or cancel the offering at any time. In the event of a withdrawal or cancellation, investments received prior to such withdrawal or cancellation will be irrevocable and will be repaid in accordance with the terms of the Vasari Notes. The Vasari Notes are not listed on any securities exchange, and there is no established trading market for the Vasari Notes. We do not expect any trading market to develop for the Vasari Notes. 38

46 Sales Materials The Offering is made only by means of this Memorandum and the Exhibits hereto. Except as described herein, neither the Company nor any other party has authorized the use of other sales materials in connection with the Offering. The Company may respond to specific questions from Broker-Dealers, prospective investors and their advisors. No dealer, salesman or other person has been authorized to give any information or to make any representations other than those contained in this Memorandum and the Exhibits hereto, and, if given or made, such information or representations must not be relied upon. Limitation of Offering The offer and sale of the Vasari Notes offered hereby are made in reliance upon an exemption from the Act. Accordingly, distribution of this Memorandum has been strictly limited to persons satisfying the investor suitability requirements described herein, and this Memorandum does not constitute an offer to sell or a solicitation of an offer to buy with respect to any person not satisfying those qualifications. RISK FACTORS AND POTENTIAL CONFLICTS OF INTEREST Investors should be aware that Notes are speculative and involve a high degree of risk. Investors should carefully read this Memorandum prior to making an investment and should be able to bear the complete loss of their investment. Each prospective investor should consider carefully, among other risks, the following risks, and should consult with his own legal, tax and financial advisors with respect thereto. As used in this Memorandum, references to we, our, the Company and Vasari Energy are to Vasari Energy, Inc. and its subsidiaries, collectively, unless the context otherwise requires. Risks Related to the Company An investment in the Company is speculative. The Company cannot assure that investors in the Company will realize any return on their investment or that they will not lose their entire investment in the Company. For this reason, each prospective subscriber for the Notes should carefully read this Memorandum and all Exhibits to this Memorandum. All such persons or entities should consult with their attorney or business advisor prior to making an investment. Financial projections are highly speculative. Any financial projections included in this Memorandum and all other materials or documents supplied by us should be considered speculative and are qualified in their entirety by the assumptions, information and risks disclosed therein and in this Memorandum. The financial projections have not been prepared based upon certified public accounting standards and have not been reviewed by an independent accountant. The assumptions and facts upon which such projections are based are subject to variations that may arise as future events actually occur. The financial projections included herein are based on assumptions made by us regarding future events. There is no assurance that actual events will correspond with these assumptions. Actual results for any period may or may not approximate such financial projections. Potential investors are advised to consult with their tax and business advisors concerning the validity and reasonableness of the factual, accounting and tax assumptions. Neither we nor any other person or entity makes any representation or warranty as to the future profitability of an investment in our Notes. 39

47 Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful. Our business may not generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness, including the Vasari Notes. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements, including the Vasari Notes. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. If we cannot make scheduled payments on our debt, we will be in default and, as a result: our debt holders could declare all outstanding principal and interest to be due and payable, and we may not be able to make payments on the Vasari Notes or our other indebtedness; our lenders would be entitled to exercise all rights and remedies available to them under the applicable loan documents or applicable laws; and we could be forced into bankruptcy or liquidation, which could result in holders of the Vasari Notes losing their investment. The Company s common stock and the Shares lack liquidity and marketability. Each investor will be required to represent that he is acquiring the Notes for investment and not with a view to distribution or resale, that such investor understands that none of the Notes or the Company s Common Stock are freely transferable and, in any event, that such investor must bear the economic risk of investment in the Notes for an indefinite period of time because: (1) none of the Notes or the Company s Common Stock have been registered under the Act; and (2) none of the Notes or the Company s Common Stock may be sold unless they are subsequently registered or an exemption from such registration is available and such investor complies with the other applicable provisions of the Company s organizational documents. There will be no market for the Notes or any portion thereof, and investors cannot expect to be able to liquidate their investment in case of an emergency. Furthermore, the Company cannot assure investors that a public trading market will develop for the Company s Common Stock. Our private placement memorandum and subscription agreement contains provisions that require individual arbitration of any disputes arising out of or relating in any way to our offering of the Notes, including those under the federal securities laws of the United States. Our subscription agreement provides that, unless our Board of Directors otherwise agrees in writing, any claims, suits, actions or proceedings arising out of or relating in any way to our private placement memorandum, subscription agreement or any interest in Vasari Energy, regardless of whether such claims, suits, actions or proceedings sound in contract, tort, fraud or otherwise, are based on common law, statutory, equitable, legal or other grounds, or are derivative or direct claims, will be finally settled by 40

48 arbitration conducted by three arbitrators (or, in the event the amount of quantified claims and /or estimated monetary value of other claims contained in the applicable request for arbitration is less than $3.0 million, by a sole arbitrator) in Wilmington, Delaware in accordance with the Rules of Arbitration of the International Chamber of Commerce (including the rules relating to costs and fees) existing on the date of our subscription agreement except to the extent those rules are inconsistent with the terms of the arbitration provisions of our subscription agreement, and that such arbitration will be the exclusive manner pursuant to which any such claim, suit, action or proceeding may be resolved. Our subscription agreement expressly provides that the disputes subject to arbitration include, without limitation, any claims, suits or actions under or to interpret, apply or enforce: the provisions of our subscription agreement (including without limitation the validity, scope or enforceability of the arbitration provisions of our subscription agreement or the arbitrability of any such claim, suit, action or proceeding); the duties, obligations or liabilities of us to our shareholders or our Board of Directors, or of our shareholders or Vasari Energy to us; the rights or powers of, or restrictions on, us, our shareholders or our Board of Directors; any provision of the Delaware General Corporation Law or other similar applicable statutes; any other instrument, document, agreement or certificate contemplated either by any provision of the Delaware General Corporation Law relating to us or by our private placement memorandum together with all exhibits; and the federal securities laws of the United States or the securities or antifraud laws of any international, national, state, provincial, territorial, local or other governmental or regulatory authority, including, in each case, the applicable rules and regulations promulgated thereunder. Unless our Board of Directors and the relevant named party or parties otherwise mutually agree in writing: the arbitrator(s) may award declaratory or injunctive relief only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party s individual claim; you may bring claims only in your individual capacity, and not as a plaintiff, class representative or class member, or as a private attorney general, in any purported class or representative proceeding; and the arbitrator(s) may not consolidate more than one person s claims, and may not otherwise preside over any form of a representative or class or consolidated proceeding. By purchasing Notes, you will have agreed and consented to the provisions set forth in our private placement memorandum and subscription agreement, including the provisions regarding individual arbitration of disputes. As a result, shareholders will not be able to bring any action or claim arising out of or relating in any way to the private placement memorandum, subscription agreement or the Notes, including those under the federal securities laws of the United States, in court or as part of any purported class or representative proceeding. We are a development stage company with no operating history and, accordingly, you will have no basis upon which to evaluate our ability to achieve our business objective. We are a recently incorporated development stage company with no operating results to date. The Company s business is subject to the risks inherent in the establishment and development of a new business enterprise. Because the Company was only recently formed and has engaged in little operations as of the 41

49 date of this Memorandum, the Company cannot provide prospective investors with the type of information that would be available from a company with a more substantial history of operations. The Company cannot assure investors that it will ever operate profitably. We will be subject to the significant influence of our current stockholders after this Offering, and their interests may not always coincide with those of our other stockholders. Falcon Partners, LLC, and entities affiliated with it will, in the aggregate, beneficially own a majority of our outstanding Common Stock following the completion of this Offering. Michael Megarit is currently a majority member of Falcon Partners, LLC and is a Director of our Company. Falcon Partners, LLC and Michael Megarit will be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers or other business combination transactions. Because the interests of Falcon Partners, LLC (and Michael Megarit) may not always coincide with those of our other stockholders, such stockholder may influence or cause us to take actions with which our other stockholders disagree. We have broad discretion to use the Offering proceeds, and we may not use these proceeds in a way with which our stockholders agree. The net proceeds of this Offering are not allocated for specific uses other than to generally further our business along with other general corporate purposes. Our management can spend most of the proceeds from this Offering in ways with which our stockholders may not agree. This Memorandum contains forward-looking statements that are based on our current expectations, estimates and projections but are not guarantees of future performance and are subject to risks and uncertainties. This Memorandum contains forward-looking statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as anticipates, expects, intends, plans, believes, seeks, and estimates, and variations of these words and similar expressions, are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. These risks and uncertainties include those described in Risk Factors and elsewhere in this Memorandum. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our management s view only as of the date of this Memorandum. Except as required by law, we undertake no obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Registration exemption. The offering of the Notes pursuant to this Memorandum (the Offering ) is being made in reliance upon the so-called private placement exemption from registration provided by Sections 4(2) and 4(6) of the Securities Act, by Regulation D adopted thereunder and the exemptions from registration provided by the laws of certain states in which it is made. Reliance on these exemptions does not, however, constitute a representation or guaranty that such exemptions are indeed available. The Company may seek to qualify, register or otherwise obtain authorization for the Offering in certain other states if appropriate. If for any reason the Offering is deemed to be non-private (and if no other exemption from registration is available) and the Offering is not registered with the applicable federal or state authorities, the sale of Notes will be deemed to have been made in violation of the applicable laws requiring registration. The Company may not be able to obtain financing required to maintain and grow its business. The Company will need additional funding to execute on its business plan. However, there can be no assurance that the Company will be successful in obtaining such funding on acceptable terms or at all. 42

50 Additional financing will increase risks of an investment in the Company. For example, outside debt financing will constrain the Company s cash flow, and additional equity financing will dilute current investors, including investors who purchase Notes in this Offering. Unspecified use of proceeds. The Company has not specified the use of proceeds and purchasers of Notes will not have an opportunity prior to investing to evaluate any solar system sales opportunities or the relevant economic, financial and other information regarding such operations and, accordingly, will be entirely dependent upon the judgment and ability of the Company and managing the capital of the Company. In the long term, we intend to expand our international activities, which will subject us to a number of risks. Our long-term strategic plans include international expansion, in Europe, Asia and Latin America. We intend to sell, design, install, and maintain solar systems in international locations. Risks inherent to international operations include the following: Inability to work successfully with third parties having local expertise to co-develop international projects; Multiple, conflicting and changing laws and regulations, including export and import restrictions, tax laws and regulations, environmental regulations, labor laws and other government requirements, approvals, permits and licenses and difficulties in enforcing agreements in foreign legal systems; Changes in general economic and political conditions in the countries in which we operate, including changes in government incentives relating to power generation; Political and economic instability, including wars, acts of terrorism, political unrest, boycotts, curtailments of trade and other business restrictions; Difficulties and costs in recruiting and retaining individuals skilled in international business operations; International business practices that may conflict with U.S. customs or legal requirements; Financial risks, such as longer sales and payment cycles and greater difficulty collecting accounts receivable and fluctuations in currency exchange rates relative to the U.S. dollar; and Inability to obtain, maintain or enforce intellectual property rights. Doing business in foreign markets requires us to be able to respond to rapid changes in market, legal, and political conditions in these countries. The success of our business will depend, in part, on our ability to succeed in differing legal, regulatory, economic, social and political environments. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business. You may experience dilution of your ownership interests due to the future issuance of additional shares of our common stock. We are in a capital intensive business and we do not have sufficient funds to finance the growth of our business or to support our projected capital expenditures. As a result, we will require additional funds from further financings, including tax equity financing transactions or sales of common or preferred stock, or other securities that are convertible into or exercisable for our common or preferred stock, to complete the development of new projects, fund project equity and pay the general and administrative costs of our business. We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Our Board of 43

51 Directors may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our articles of incorporation. The preferences and rights of any preferred stock we issue will be as determined by our Board of Directors. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Any such future issuances of such additional shares of common stock or preferred stock or other securities may be at a price (have an exercise price) below the price you paid for your Notes. Risks Related to Our Operations Existing electric utility industry regulations, and changes to regulations, may present technical, regulatory and economic barriers to the purchase and use of solar energy systems that may significantly reduce demand for our solar energy systems. Federal, state and local government regulations and policies concerning the electric utility industry, and internal policies and regulations promulgated by electric utilities, heavily influence the market for electricity generation products and services. These regulations and policies often relate to electricity pricing and the interconnection of customer-owned electricity generation. In the United States, governments and utilities continuously modify these regulations and policies. These regulations and policies could deter customers from purchasing renewable energy, including solar energy systems. This could result in a significant reduction in the potential demand for our solar energy systems. For example, utilities commonly charge fees to larger, industrial customers for disconnecting from the electric grid or for having the capacity to use power from the electric grid for back-up purposes. These fees could increase our customers cost to use our systems and make them less desirable, thereby harming our business, prospects, financial condition and results of operations. In addition, depending on the region, electricity generated by solar energy systems competes most effectively with expensive peak-hour electricity from the electric grid, rather than the less expensive average price of electricity. Modifications to the utilities peak hour pricing policies or rate design, such as to a flat rate, would require us to lower the price of our solar energy systems to compete with the price of electricity from the electric grid. In addition, any changes to government or internal utility regulations and policies that favor electric utilities could reduce our competitiveness and cause a significant reduction in demand for our products and services. For example, certain jurisdictions have proposed assessing fees on customers purchasing energy from solar energy systems or imposing a new charge that would disproportionately impact solar energy system customers who utilize net metering, either of which would increase the cost of energy to those customers and could reduce demand for our solar energy systems. Any similar government or utility policies adopted in the future could reduce demand for our products and services and adversely impact our growth. Our business will depend on the availability of rebates, tax credits and other financial incentives. The expiration, elimination or reduction of these rebates, credits and incentives would adversely impact our business. U.S. federal, state and local government bodies provide incentives to end users, distributors, system integrators and manufacturers of solar energy systems to promote solar electricity in the form of rebates, tax credits and other financial incentives such as system performance payments and payments for renewable energy credits associated with renewable energy generation. We rely on these governmental rebates, tax credits and other financial incentives to lower our cost of capital and to incent fund investors to invest in our funds. These incentives enable us to lower the price we charge customers for energy and for our solar energy systems. However, these incentives may expire on a particular date, end when the allocated funding is exhausted, or be reduced or terminated as solar energy adoption rates increase. These reductions or terminations often occur without warning. 44

52 The federal government currently offers a 30% investment tax credit under Section 48(a)(3) of the Internal Revenue Code, or the Federal ITC, for the installation of certain solar power facilities until December 31, This credit is due to adjust to 10% in Solar energy systems that began construction prior to the end of 2011 were eligible to receive a 30% federal cash grant paid by the U.S. Treasury Department under section 1603 of the American Recovery and Reinvestment Act of 2009, or the U.S. Treasury grant, in lieu of the Federal ITC. Pursuant to the Budget Control Act of 2011, U.S. Treasury grants are subject to sequestration beginning in Specifically, U.S. Treasury grants made on or after March 1, 2013 through September 30, 2013 will be reduced by 8.7%, regardless of when the U.S. Treasury received the application. In addition, applicable authorities may adjust or decrease incentives from time to time or include provisions for minimum domestic content requirements or other requirements to qualify for these incentives. Reductions in, or eliminations or expirations of, governmental incentives could adversely impact our results of operations and ability to compete in our industry by increasing our cost of capital, causing us to increase the prices of our energy and solar energy systems, and reducing the size of our addressable market. In addition, this would adversely impact our ability to attract investment partners and our ability to offer attractive financing to prospective customers. We need to enter into additional substantial financing arrangements to facilitate our customers access to our solar energy systems, and if this financing is not available to us on acceptable terms, if and when needed, our ability to continue to grow our business would be materially adversely impacted. Our future success depends on our ability to raise capital from third-party fund investors to help finance the deployment of our commercial solar energy systems. In particular, our strategy is to seek to reduce the cost of capital through these arrangements to improve our margins or to offset future reductions in government incentives and to maintain the price competitiveness of our solar energy systems. If we are unable to establish new financing funds when needed, or upon desirable terms, to enable our customers access to our solar energy systems with little or no upfront cost, we may be unable to finance installation of our customers systems, or our cost of capital could increase, either of which would have a material adverse effect on our business, financial condition and results of operations. We plan to raise capital sufficient to finance installation of our customers solar energy systems from a number of financial institutions and other large companies. The contract terms in certain of our financing fund documents may condition our ability to draw on financing commitments from the fund investors, including if an event occurs that could reasonably be expected to have a material adverse effect on the fund or in one case on us. If we do not satisfy such condition due to events related to our business or a specific financing fund or developments in our industry, and as a result we are unable to draw on existing commitments, it could have a material adverse effect on our business, liquidity, financial condition and prospects. Solar energy has yet to achieve broad market acceptance and depends on continued support in the form of performance-based incentives, rebates, tax credits and other incentives from federal, state and foreign governments. If this support diminishes, our ability to obtain external financing on acceptable terms, or at all, could be materially adversely affected. In addition, we will face competition for these investor funds. If we are unable to continue to offer a competitive investment profile, we may lose access to these funds or they may only be available on less favorable terms than our competitors. Our current financing sources may be inadequate to support the anticipated growth in our business plans. Our inability to secure financing could lead to cancelled projects and could impair our ability to accept new projects and customers. In addition, our borrowing costs could increase, which would have a material adverse effect on our business, financial condition and results of operations. A material drop in the retail price of utility-generated electricity or electricity from other sources would harm our business, financial condition and results of operations. 45

53 We believe that a customer s decision to buy renewable energy from us will be primarily driven by their desire to pay less for electricity. The customer s decision may also be affected by the cost of other renewable energy sources. Decreases in the retail prices of electricity from the utilities or from other renewable energy sources would harm our ability to offer competitive pricing and could harm our business. The price of electricity from utilities could decrease as a result of: the construction of a significant number of new power generation plants, including nuclear, coal, natural gas or renewable energy technologies; the construction of additional electric transmission and distribution lines; a reduction in the price of natural gas as a result of new drilling techniques or a relaxation of associated regulatory standards; the energy conservation technologies and public initiatives to reduce electricity consumption; and development of new renewable energy technologies that provide less expensive energy. A reduction in utility electricity prices would make the purchase of our solar energy systems or the purchase of energy under our lease and power purchase agreements less economically attractive. In addition, a shift in the timing of peak rates for utility generated electricity to a time of day when solar energy generation is less efficient could make our solar energy system offerings less competitive and reduce demand for our products and services. If the retail price of energy available from utilities were to decrease due to any of these reasons, or others, we would be at a competitive disadvantage, we may be unable to attract new customers and our growth would be limited. A material drop in the retail price of utility-generated electricity would particularly adversely impact our ability to attract commercial customers. Commercial customers comprise a significant and growing portion of our business, and the commercial market for energy is particularly sensitive to price changes. Typically, commercial customers pay less for energy from utilities than residential customers. Because the price we expect to charge commercial customers is only slightly lower than their current retail rate, any decline in the retail rate of energy for commercial entities could have a significant impact on our ability to attract commercial customers. We may be unable to offer solar energy systems for the commercial market that produce electricity at rates that are competitive with the price of retail electricity on a non-subsidized basis. If this were to occur, we would be at a competitive disadvantage to other energy providers and may be unable to attract new commercial customers, and our business would be harmed. Rising interest rates could adversely impact our business. Changes in interest rates could have an adverse impact on our business by increasing our cost of capital. For example: rising interest rates would increase our cost of capital; and rising interest rates may negatively impact our ability to secure financing on favorable terms to facilitate our customers purchase of our solar energy systems or energy generated by our solar energy systems. We expect the majority of our cash flows will be from solar energy systems under lease and power purchase agreements that we will monetize under various financing fund structures. One of the components of this monetization is the present value of the payment streams from the customers who enter into these leases and power purchase agreements. If the rate of return required by the fund investor rises as a result of a rise in interest rates, it will reduce the present value of the customer payment stream and consequently 46

54 reduce the total value derived from this monetization. Rising interest rates could harm our business and financial condition. We are not currently regulated as a utility under applicable law, but we may be subject to regulation as a utility in the future. We believe that Federal law and most state laws will not regulate us as a utility. As a result, we do not expect to be subject to the various federal and state standards, restrictions and regulatory requirements applicable to U.S. utilities. In the United States, we obtain federal and state regulatory exemptions by establishing Qualifying Facility status with the Federal Energy Regulatory Commission for all of our qualifying solar energy projects. In Canada, we also are generally subject to the regulations of the relevant energy regulatory agencies applicable to all producers of electricity under the relevant feed-in tariff regulations (including the feed-in tariff rates), however we are not currently subject to regulation as a utility. Our business strategy includes the continued development of larger solar energy systems in the future for our commercial and government customers, which has the potential to impact our regulatory position. Any local, state, federal or foreign regulations could place significant restrictions on our ability to operate our business and execute our business plan by prohibiting or otherwise restricting our sale of electricity. If we were subject to the same state, federal or foreign regulatory authorities as utilities in the United States or if new regulatory bodies were established to oversee our business in the United States or in foreign markets, then our operating costs would materially increase. A failure to hire and retain a sufficient number of employees in key functions would constrain our growth and our ability to timely complete our customers projects. To support our growth, we need to hire, train, deploy, manage and retain a substantial number of skilled employees. In particular, we need to continue to expand and optimize our sales infrastructure to grow our customer base and our business, and we plan to expand our direct sales force. Identifying and recruiting qualified personnel and training them requires significant time, expense and attention. It can take several months before a new salesperson is fully trained and productive. If we are unable to hire, develop and retain talented sales personnel or if new direct sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or grow our business. To complete future customer projects and to grow our customer base, we need to hire a large number of installers in the relevant markets. Competition for qualified personnel in our industry is increasing, particularly for skilled installers and other personnel involved in the installation of solar energy systems and delivery of energy products and services. We will also compete with the homebuilding and construction industries for skilled labor. As these industries recover and seek to hire additional workers, our cost of labor may increase. The unionization of our labor force could also increase our labor costs. Shortages of skilled labor could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. In addition, because we are headquartered in Orange County, we compete for a limited pool of technical and engineering resources that requires us to pay wages that are competitive with relatively high regional standards for employees in these fields. If we cannot meet our hiring, retention and efficiency goals, we may be unable to complete our customers projects on time, in an acceptable manner or at all. Any significant failures in this regard would materially impair our growth, reputation, business and financial results. If we are required to pay higher compensation than we anticipate, these greater expenses may also adversely impact our financial results and the growth of our business. It is difficult to evaluate our business and prospects due to our limited operating history. 47

55 We are focused primarily on the sales, financing, engineering, installation and monitoring of solar energy systems for commercial and government customers. We may be unsuccessful in significantly broadening our customer base through installation of solar energy systems within our current markets or in new markets we may enter. Additionally, we cannot assure you that we will be successful in generating substantial revenue from our energy efficiency products and services or from any additional energy-related products and services we may introduce in the future. Our limited operating history, combined with the rapidly evolving and competitive nature of our industry, may not provide an adequate basis for you to evaluate our operating and financing results and business prospects. In addition, we only have limited insight into emerging trends that may adversely impact our business, prospects and operating results. As a result, our limited operating history may impair our ability to accurately forecast our future performance. We face competition from both traditional energy companies and renewable energy companies. The solar energy and renewable energy industries are both highly competitive and continually evolving as participants strive to distinguish themselves within their markets and compete with large utilities. We believe that our primary competitors are the traditional utilities that supply energy to our potential customers. We compete with these utilities primarily based on price, predictability of price, and the ease by which customers can switch to electricity generated by our solar energy systems. If we cannot offer compelling value to our customers based on these factors, then our business will not grow. Utilities generally have substantially greater financial, technical, operational and other resources than we do. As a result of their greater size, these competitors may be able to devote more resources to the research, development, promotion and sale of their products or respond more quickly to evolving industry standards and changes in market conditions than we can. Utilities could also offer other value-added products or services that could help them to compete with us even if the cost of electricity they offer is higher than ours. In addition, a majority of utilities sources of electricity is non-solar, which may allow utilities to sell electricity more cheaply than electricity generated by our solar energy systems. We also compete with solar companies in the downstream value chain of solar energy. For example, we face competition from purely finance driven organizations which then subcontract out the installation of solar energy systems, from installation businesses that seek financing from external parties, from large construction companies and utilities, and increasingly from sophisticated electrical and roofing companies. Some of these competitors specialize in either the residential or commercial solar energy markets, and some may provide energy at lower costs than we can. Many of our competitors also have significant brand name recognition and have extensive knowledge of our target markets. For us to remain competitive, we must distinguish ourselves from our competitors by offering an integrated approach that successfully competes with each level of products and services offered by our competitors at various points in the value chain. If our competitors develop an integrated approach similar to ours including sales, financing, engineering, installation, monitoring and efficiency services, this will reduce our marketplace differentiation. We will also face competition in the energy efficiency market and we expect to face competition in additional markets as we introduce energy-related products and services. As the solar industry grows and evolves, we will also face new competitors who are not currently in the market. Our failure to adapt to changing market conditions and to compete successfully with existing or new competitors will limit our growth and will have a material adverse effect on our business and prospects. Our five-year plan to build more than $1 billion in solar energy projects for U.S. military buildings across the country that we anticipate will involve a significant investment in resources and project management over time and will require additional financing funds to support the project. These larger projects create concentrated operating and financial risks. The effect of recognizing revenue or other financial measures on the sale of a larger project, or the failure to recognize revenue or other financial measures as anticipated in a given reporting period because a project is not yet completed under applicable accounting rules by period end, may materially impact our quarterly or annual financial results. In addition, 48

56 if construction, warranty or operational issues arise on a larger project, or if the timing of such projects unexpectedly shifts for other reasons, such issues could have a material impact on our financial results. If we are unable to successfully manage these significant projects in multiple markets, including our related internal processes and external construction management, or if we are unable to continue to attract such significant customers and projects in the future, our financial results would be harmed. We will depend on a limited number of suppliers of solar panels and other system components to adequately meet anticipated demand for our solar energy systems. Any shortage, delay or component price change from these suppliers could result in sales and installation delays, cancellations and loss of market share. We intend to purchase solar panels, inverters and other system components from a limited number of suppliers, making us susceptible to quality issues, shortages and price changes. If we fail to develop, maintain and expand our relationships with these or other suppliers, we may be unable to adequately meet anticipated demand for our solar energy systems, or we may only be able to offer our systems at higher costs or after delays. If one or more of the suppliers that we rely upon to meet anticipated demand ceases or reduces production, we may be unable to quickly identify alternate suppliers or to qualify alternative products on commercially reasonable terms, and we may be unable to satisfy this demand. In particular, there are a limited number of inverter suppliers. Once we design a system for use with a particular inverter, if that type of inverter is not readily available at an anticipated price, we may incur additional delay and expense to redesign the system. There have also been periods of industry-wide shortage of key components, including solar panels, in times of rapid industry growth. The manufacturing infrastructure for some of these components has a long lead time, requires significant capital investment and relies on the continued availability of key commodity materials, potentially resulting in an inability to meet demand for these components. Any decline in the exchange rate of the U.S. dollar compared to the functional currency of our component suppliers could increase our component prices. In addition, the U.S. government has imposed tariffs on solar cells manufactured in China. Based on determinations by the U.S. government, the applicable anti-dumping and countervailing tariff rates range from approximately 8%-255%. Such antidumping and countervailing tariffs are subject to annual review and can be increased if deemed necessary. We plan to purchase solar panels containing cells manufactured outside of China, and therefore may not materially impacted by the tariffs. However, if in the future we purchase solar panels containing cells manufactured in China, our purchase price would reflect the tariff penalties mentioned above. Any of these shortages, delays or price changes could limit our growth, cause cancellations or adversely affect our profitability, and result in loss of market share and damage to our brand. Our operating results may fluctuate from quarter to quarter, which could make our future performance difficult to predict and could cause our operating results for a particular period to fall below expectations. Our quarterly operating results are difficult to predict and may fluctuate significantly in the future. We could experience seasonal and quarterly fluctuations. However, given that we are an early-stage company operating in a rapidly growing industry, those fluctuations may be masked by potential growth rates and thus may not be readily apparent from our operating results. In addition to the other risks described in this Risk Factors section, the following factors could cause our operating results to fluctuate: the expiration or initiation of any rebates or incentives; significant fluctuations in customer demand for our products and services; our ability to complete installations in a timely manner due to market conditions resulting in inconsistently available financing; our ability to continue to expand our operations, and the amount and timing of expenditures 49

57 related to this expansion; actual or anticipated changes in our growth rate relative to our competitors; announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital-raising activities or commitments; changes in our pricing policies or terms or those of our competitors, including utilities; and actual or anticipated developments in our competitors businesses or the competitive landscape. Our financial results may be harmed now that the cost of solar panels has stabilized and could increase in the future. The declining cost of solar panels and the raw materials necessary to manufacture them is a key driver in the pricing of our solar energy systems and customer adoption of this form of renewable energy. Now that solar panel and raw materials prices have stabilized and could increase in the future, our growth potential could be limited and our financial results could suffer. In addition, we plan to purchase a significant portion of the solar panels used in our solar energy systems from manufacturers based in China, some of whom benefit from favorable foreign regulatory regimes and governmental support, including subsidies. If this support were to decrease or be eliminated, or if tariffs imposed by the U.S. government were to increase the prices of these solar panels, our ability to purchase these products on competitive terms or to access specialized technologies from those countries could be restricted. Any of those events could harm our financial results by requiring us to pay higher prices or to purchase solar panels or other system components from alternative, higher-priced sources. In addition, the U.S. government has imposed tariffs on solar cells manufactured in China. These tariffs will increase the price of solar panels containing these Chinese-manufactured cells, which may harm our financial results in the event we purchase such panels. We plan to act as the licensed general contractor for our projects and are subject to risks associated with construction, cost overruns, delays, regulatory compliance and other contingencies, any of which could have a material adverse effect on our business and results of operations. We intend to act as licensed contractor in every community we service, and we to be responsible for every customer installation. For our commercial projects, we plan to be the general contractor and construction manager, and we will rely on licensed subcontractors to install these commercial systems. We may be liable to customers for any damage we cause to their facility, belongings or property during the installation of our systems. For example, could penetrate our customers roofs during the installation process and may incur liability for the failure to adequately weatherproof such penetrations following the completion of construction. In addition, shortages of skilled subcontractor labor for our commercial projects could significantly delay a project or otherwise increase our costs. Because our profit on a particular installation is based in part on assumptions as to the cost of such project, cost overruns, delays or other execution issues may cause us to not achieve our expected margins or cover our costs for that project. In addition, the installation of solar energy systems and the evaluation and modification of buildings as part of our energy efficiency business is subject to oversight and regulation in accordance with national, state and local laws and ordinances relating to building codes, safety, environmental protection, utility interconnection and metering, and related matters. It is difficult and costly to track the requirements of every individual authority having jurisdiction over our installations and to design solar energy systems to comply with these varying standards. Any new government regulations or utility policies pertaining to our systems may result in significant additional expenses to us and our customers and, as a result, could cause a significant reduction in demand for our systems. 50

58 Compliance with occupational safety and health requirements and best practices can be costly, and noncompliance with such requirements may result in potentially significant monetary penalties, operational delays and adverse publicity. The installation of solar energy systems requires our employees to work at heights with complicated and potentially dangerous electrical systems. The evaluation and modification of buildings as part of our energy efficiency business requires our employees to work in locations that may contain potentially dangerous levels of asbestos, lead or mold. We also intend to maintain a fleet of vehicles that our employees use in the course of their work. There is substantial risk of serious injury or death if proper safety procedures are not followed. Our operations are subject to regulation under the U.S. Occupational Safety and Health Act, or OSHA, and equivalent state laws. Changes to OSHA requirements, or stricter interpretation or enforcement of existing laws or regulations, could result in increased costs. If we fail to comply with applicable OSHA regulations, even if no work-related serious injury or death occurs, we may be subject to civil or criminal enforcement and be required to pay substantial penalties, incur significant capital expenditures, or suspend or limit operations. Problems with product quality or performance may cause us to incur warranty expenses and performance guarantee expenses, may lower the residual value of our solar energy systems and may damage our market reputation and cause our financial results to decline. Our customers will require long term solar energy system warranties. Customers who buy energy from us under leases or power purchase agreements will be covered by warranties equal to the length of the term of these agreements typically 20 years. Depending on the state where they live, customers who purchase our solar energy systems for cash will be covered by a warranty up to 10 years in duration. We plan to also make extended warranties available at an additional cost to customers who purchase our solar energy systems for cash. In addition, we expect to provide a pass-through of the inverter and panel manufacturers warranties to our customers, which generally range from 5 to 25 years. One of these thirdparty manufacturers could cease operations and no longer honor these warranties, instead leaving us to fulfill these potential obligations to our customers. Product liability claims against us could result in adverse publicity and potentially significant monetary damages. If one of our solar energy systems or other products injured someone we would be exposed to product liability claims. Because solar energy systems and many of our other current and anticipated products are electricity producing devices, it is possible that consumers could be injured by our products, whether by product malfunctions, defects, improper installation or other causes. We will rely on general liability insurance to cover product liability claims and may not obtain separate product liability insurance. Any product liability claim we face could be expensive to defend and divert management s attention. The successful assertion of product liability claims against us could result in potentially significant monetary damages that could require us to make significant payments, as well as subject us to adverse publicity, damage our reputation and competitive position. Also, any product liability claims and any adverse outcomes may subject us to adverse publicity, damage our reputation and competitive position and adversely affect sales of our systems and other products. If we fail to manage our future growth effectively, we may be unable to execute our business plan, maintain high levels of customer service or adequately address competitive challenges. We intend to expand our business significantly within key markets and in a number of new locations in the future. This growth may place a significant strain on our management, operational and financial infrastructure. In particular, we will be required to expand, train and manage a growing employee base. Our management will also be required to maintain and expand our relationships with customers, suppliers and other third-parties and attract new customers and suppliers, as well as to manage multiple geographic locations. 51

59 In addition, our planned operations, personnel, systems and procedures might be inadequate to support our future growth and may require us to make additional unanticipated investment in our infrastructure. Our success and ability to further scale our business will depend, in part, on our ability to manage these changes in a cost-effective and efficient manner. If we cannot manage our growth, we may be unable to take advantage of market opportunities, execute our business strategies or respond to competitive pressures. This could also result in declines in quality or customer satisfaction, increased costs, difficulties in introducing new products and services or other operational difficulties. Any failure to effectively manage growth could adversely impact our business and reputation. Our growth depends in part on the success of our strategic relationships with third parties. A key component of our growth strategy is to develop or expand our strategic relationships with third parties. For example, we plan to invest resources in establishing relationships with industry leaders, such as trusted retailers and commercial builders, to generate new customers. Identifying partners and negotiating relationships with them requires significant time and resources. If we are unsuccessful in establishing or maintaining our relationships with these third parties, our ability to grow our business could be impaired. Even if we are able to establish these relationships, we may not be able to execute on our goal of leveraging these relationships to meaningfully expand our business and customer base. This would limit our growth potential and our opportunities to generate significant additional revenue or cash receipts. The loss of one or more members of our senior management or key employees may adversely affect our ability to implement our strategy. We depend on our experienced management team, and the loss of one or more key executives could have a negative impact on our business. In particular, we are dependent on the services of our chief executive officer and founder, Michael Megarit. We also depend on our ability to retain and motivate key employees and attract qualified new employees. Neither our chief executive officer nor our key employees are bound by employment agreements for any specific term, and we may be unable to replace key members of our management team and key employees in the event we lose their services. Integrating new employees into our management team could prove disruptive to our operations, require substantial resources and management attention and ultimately prove unsuccessful. An inability to attract and retain sufficient managerial personnel who have critical industry experience and relationships could limit or delay our strategic efforts, which could have a material adverse effect on our business, financial condition and results of operations. The production and installation of solar energy systems depends heavily on suitable meteorological conditions. If meteorological conditions are unexpectedly unfavorable, the electricity production from our solar energy systems may be substantially below our expectations and our ability to timely deploy new systems may be adversely impacted. The energy produced and revenue and cash receipts generated by a solar energy system depend on suitable solar and weather conditions, both of which are beyond our control. Furthermore, components of our systems, such as panels and inverters, could be damaged by severe weather, such as hailstorms or tornadoes. In these circumstances, we generally would be obligated to bear the expense of repairing the damaged solar energy systems that we own. Sustained unfavorable weather also could unexpectedly delay our installation of solar energy systems, leading to increased expenses and decreased revenue and cash receipts in the relevant periods. Weather patterns could change, making it harder to predict the average annual amount of sunlight striking each location where we install. This could make our solar energy systems less economical overall or make individual systems less economical. Any of these events or conditions could harm our business, financial condition and results of operations. 52

60 We do not intend to pay dividends for the foreseeable future. We have never declared or paid any dividends on our common stock. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. Dispute Resolution. Our subscription agreement will provide that the Corporation, the Board of Directors, each of the shareholders, each person in whose name any interest in the Corporation is registered, each other person who acquires an interest in any equity interest in Vasari Energy (the Corporation ) and each other person who is bound by the private placement memorandum, all exhibits thereto and the subscription agreement (collectively, the Consenting Parties and each a Consenting Party ) (1) irrevocably agrees that, unless the Board of Directors shall otherwise agree in writing, any claims, suits, actions or proceedings arising out of or relating in any way to the subscription agreement or any interest in the Corporation (including, without limitation, any claims, suits or actions under or to interpret, apply or enforce (A) the provisions of the private placement memorandum and subscription agreement, including without limitation the validity, scope or enforceability of the arbitration provisions thereof or the arbitrability of any Dispute (as defined below), (B) the duties, obligations or liabilities of the Corporation to the shareholders or the Board of Directors, or of shareholders or the Board of Directors to the Corporation, or among the shareholders and the Board of Directors, (C) the rights or powers of, or restrictions on, the Corporation, the shareholders or the Board of Directors, (D) any provision of Delaware General Corporation Law or other similar applicable statutes, (E) any other instrument, document, agreement or certificate contemplated either by any provision of Delaware General Corporation Law relating to the Corporation or by our subscription agreement, or (F) the federal securities laws of the United States or the securities or antifraud laws of any international, national, state, provincial, territorial, local or other governmental or regulatory authority, including, in each case, the applicable rules and regulations promulgated thereunder (regardless of whether such Disputes (x) sound in contract, tort, fraud or otherwise, (y) are based on common law, statutory, equitable, legal or other grounds, or (z) are derivative or direct claims)) (a Dispute ), shall be finally settled by arbitration conducted by three arbitrators (or, in the event the amount of quantified claims and/or estimated monetary value of other claims contained in the applicable request for arbitration is less than $3.0 million, by a sole arbitrator) in Wilmington, Delaware in accordance with the Rules of Arbitration of the International Chamber of Commerce (including the rules relating to costs and fees) existing on the date of our subscription agreement except to the extent those rules are inconsistent with the terms of the arbitration provisions of our subscription agreement, and that such arbitration shall be the exclusive manner pursuant to which any Dispute shall be resolved; (2) agrees that the subscription agreement involves commerce and is governed by the Federal Arbitration Act and any applicable treaties governing the recognition and enforcement of international arbitration agreements and awards; (3) agrees to take all steps necessary or advisable, including the execution of documents to be filed with the International Court of Arbitration in order to properly submit any Dispute for arbitration pursuant to the arbitration provisions of the subscription agreement; (4) irrevocably waives, to the fullest extent permitted by law, any objection it may have or hereafter have to the submission of any Dispute for arbitration pursuant to the arbitration provisions of the subscription agreement and any right to lay claim to jurisdiction in any venue; (5) agrees that (A) the arbitrator(s) shall be U.S. lawyers, U.S. law professors and/or retired U.S. judges and all arbitrators, including the president of the arbitral tribunal, may be U.S. nationals and (B) the arbitrator(s) shall conduct the proceedings in the English language; (6) agrees that except as required by law (including any disclosure requirement to which the Corporation may be subject under any securities law, rule or regulation or applicable securities exchange rule or requirement) or as may be reasonably required in connection with ancillary judicial proceedings to compel arbitration, to obtain temporary or preliminary judicial relief in aid of arbitration, or to confirm or challenge an arbitration award, the arbitration proceedings, including any hearings, shall be confidential, and the parties shall not disclose any awards, any materials in the proceedings created for the purpose of the arbitration, or any documents produced by another party in the 53

61 proceedings not otherwise in the public domain; (7) irrevocably agrees that, unless the Board of Directors and the relevant named party or parties shall otherwise mutually agree in writing, (A) the arbitrator(s) may award declaratory or injunctive relief only in favor of the individual party seeking relief and only to the extent necessary to provide relief warranted by that party s individual claim, (B) such consenting party may bring claims only in its individual capacity, and not as a plaintiff, class representative or class member, or as a private attorney general in any purported class or representative proceeding, and (C) the arbitrator(s) may not consolidate more than one person s claims, and may not otherwise preside over any form of a representative or class or consolidated proceeding; and (8) agrees that if a Dispute that would be arbitrable under the subscription agreement if brought against a Consenting Party is brought against an employee, officer, director or agent of such Consenting Party or its affiliates (other than Disputes brought by the employer or principal of any such employee, officer, director or agent) for alleged actions or omissions of such employee, officer, director or agent undertaken as an employee, officer, director or agent of such Consenting Party or its affiliates, such employee, officer, director or agent shall be entitled to invoke the arbitration provision of the subscription agreement. Notwithstanding the provisions of the subscription agreement concerning severability, each provision of the arbitration provisions of the subscription agreement shall be deemed material, and shall not be severable and the arbitration provisions of the subscription agreement shall be enforced only in their entirety. Notwithstanding the arbitration provisions in the subscription agreement, any Consenting Party may bring an action or special proceeding for the purpose of compelling a party to arbitrate, seeking temporary or preliminary relief in aid of an arbitration, or enforcing an arbitration award and, for this purpose, each Consenting Party (1) irrevocably agrees that, unless the Board of Directors consents in writing to the selection of an alternative forum, any such action or special proceeding shall be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, any other court located in the State of Delaware with subject matter jurisdiction; (2) irrevocably submits to the exclusive jurisdiction of such courts in connection with any such action or special proceeding; (3) irrevocably agrees not to, and waives any right to, assert in any such action or special proceeding that (A) it is not personally subject to the jurisdiction of such courts or any other court to which proceedings in such courts may be appealed, (B) such action or special proceeding is brought in an inconvenient forum, or (C) the venue of such action or special proceeding is improper; (iv) expressly waives any requirement for the posting of a bond by a party bringing such action or special proceeding; (5) consents to process being served in any such action or special proceeding by mailing, certified mail, return receipt requested, a copy thereof to such party at the address in effect for notices hereunder, and agrees that such service shall constitute good and sufficient service of process and notice thereof; provided that nothing in clause (5) hereof shall affect or limit any right to serve process in any other manner permitted by law; (6) irrevocably waives any and all right to trial by jury in any such claim, suit, action or proceeding; and (7) agrees that proof shall not be required that monetary damages for breach of the provisions of the subscription agreement would be difficult to calculate and that remedies at law would be inadequate. If the arbitrator(s) or any court or tribunal of competent jurisdiction shall refuse to enforce the arbitration provisions of the subscription agreement in their entirety or shall determine that any Dispute is not subject to arbitration as contemplated thereby, then, and only then, shall the following alternative provisions of the subscription agreement concerning exclusive Delaware jurisdiction be applicable. Pursuant to such provisions concerning exclusive Delaware jurisdiction, each Consenting Party, to the fullest extent permitted by law, (1) irrevocably agrees that, unless the Board of Directors consents in writing to the selection of an alternative forum, any claims, suits, actions or proceedings arising out of or relating in any way to our subscription agreement shall be exclusively brought in the Court of Chancery of the State of Delaware or, if such court does not have subject matter jurisdiction thereof, any other court in the State of Delaware with subject matter jurisdiction; (2) irrevocably submits to the exclusive jurisdiction of such courts in connection with any such claim, suit, action or proceeding; (3) irrevocably agrees not to, and waives any right to, assert in any such claim, suit, action or proceeding that (A) it is not personally subject to the jurisdiction of such courts or any other court to which proceedings in such courts may be appealed, 54

62 (B) such claim, suit, action or proceeding is brought in an inconvenient forum, or (C) the venue of such claim, suit, action or proceeding is improper; (4) expressly waives any requirement for the posting of a bond by a party bringing such claim, suit, action or proceeding; (5) consents to process being served in any such claim, suit, action or proceeding by mailing, certified mail, return receipt requested, a copy thereof to such party at the address in effect for notices under our subscription agreement, and agrees that such service shall constitute good and sufficient service of process and notice thereof; provided, that nothing in clause (5) hereof shall affect or limit any right to serve process in any other manner permitted by law; (6) irrevocably waives any and all right to trial by jury in any such claim, suit, action or proceeding; and (7) agrees that proof shall not be required that monetary damages for breach of the provisions of this Agreement would be difficult to calculate and that remedies at law would be inadequate. Risks Related to the Vasari Notes The Vasari Notes may not be a suitable investment for you. The Vasari Notes may not be a suitable investment for you and we advise you to consult your investment, tax and other professional financial advisors prior to deciding whether to invest in the Vasari Notes. The characteristics of the Vasari Notes, including the maturity and interest rate, may not satisfy your investment objectives. The Vasari Notes may not be a suitable investment for you based on your ability to withstand a loss of interest or principal or other aspects of your financial situation, including your income, partners equity, financial needs, investment risk profile, return objectives, investment experience and other factors. Before deciding whether to purchase Vasari Notes, you should consider your investment allocation with respect to the amount of your contemplated investment in the Vasari Notes in relation to your other investment holdings and the diversity of those holdings. The Vasari Notes are risky and speculative investments and the value of the Vasari Notes is dependent on our future operations. The payment of interest and principal will depend in large part on our ability to successfully operate our business and effectively manage our financial condition, as well as conditions generally in the industry we operate. As a result, your right to receive payments on the Vasari Notes will be subject to risks associated with the results of our general operations. Risks Related to Our Offering Registration exemption. The offering of the Vasari Notes pursuant to this Memorandum (the Offering ) is being made in reliance upon the so-called private placement exemption from registration provided by Sections 4(2) and 4(6) of the Securities Act, by Regulation D adopted thereunder and the exemptions from registration provided by the laws of certain states in which it is made. Reliance on these exemptions does not, however, constitute a representation or guaranty that such exemptions are indeed available. The Company may seek to qualify, register or otherwise obtain authorization for the Offering in certain other states if appropriate. If for any reason the Offering is deemed to be non-private (and if no other exemption from registration is available) and the Offering is not registered with the applicable federal or state authorities, the sale of Vasari Notes will be deemed to have been made in violation of the applicable laws requiring registration. We may be substantially reliant upon the net offering proceeds we receive from the sale of our Vasari Notes to meet our liquidity needs. We may be substantially reliant upon the net offering proceeds we receive from the sale of our Vasari Notes in order to meet our liquidity needs. We intend to use these proceeds to fund redemption obligations, make interest payments and to fund our other working capital needs to the extent that other sources of liquidity from our operations are inadequate. However, these other sources of liquidity are subject to risks. We may not be able to attract new investors, have sufficient loan repayments, or have sufficient borrowing capacity when we need additional funds to repay principal and interest on your Vasari 55

63 Notes or redeem your Vasari Notes. If any of these things occur, our liquidity and capital needs may be severely and negatively affected and we may be forced to sell off our loan receivables and other operating assets, or we might be forced to cease our operations. We can provide no assurance that any Vasari Notes will be sold or that we will raise sufficient proceeds to carry out our business plans. We are conducting this offering of Vasari Notes ourselves without any underwriter or placement agent. We have no experience in conducting a Vasari Notes offering or any other securities offering. Although we intend to sell an undetermined principal amount of the Vasari Notes, there is no minimum amount of proceeds that must be received from the sale of the Vasari Notes in order to accept proceeds from Vasari Notes actually sold. Accordingly, we can provide no assurance about the total principal amount of Vasari Notes that will be sold. Therefore, we cannot assure you that we will raise sufficient proceeds to carry out our business plans. Our Vasari Notes are not insured or guaranteed by any third party, so you are dependent upon our ability to manage our business and generate adequate cash flows. Our Vasari Notes are not insured or guaranteed by the Federal Deposit Insurance Corporation ( FDIC ), any governmental agency or any other public or private entity as are certificates of deposit or other accounts offered by banks, savings and loan associations or credit unions. You are dependent upon our ability to effectively manage our business to generate sufficient cash flow, including cash flow from our financing activities, for the repayment of principal at maturity and the ongoing payment of interest on the Vasari Notes. If these sources are inadequate, you could lose your entire investment. Payment on the Vasari Notes is subordinate to the payment of all outstanding present and future senior debt, and we are not limited the amount of senior debt we may incur. The Vasari Notes are subordinate and junior to any and all of our senior debt and equal to any and all currently outstanding affiliate debt. There are no restrictions regarding the amount of senior debt or other indebtedness that we may incur. Upon the maturity of our senior debt, by lapse of time, acceleration or otherwise, the holders of our senior debt have first right to receive payment, in full, prior to any payments being made to you as a Note holder or to holders of our affiliate debt which may be equal to the Vasari Notes. Therefore, you would only be repaid in full if the senior debt is satisfied first and, following satisfaction of the senior debt, there is an amount sufficient to fully satisfy all amounts owed under both the Vasari Notes and the related party Vasari Notes. The Vasari Notes are not senior debt. As of August 1, 2016, we had approximately $150,000 of senior debt outstanding. There is no early warning on your debt if our Company performs poorly. Only interest and principal payment defaults on our debt or similar debt can trigger a default on your debt prior to a bankruptcy. There are limited financial or performance covenants to be maintained under the Vasari Notes and. Therefore, there is no early warning of a possible default by us. Only (i) the non-payment of interest and/or principal on the Vasari Notes by us, (ii) our bankruptcy or insolvency, or (iii) a failure to comply with provisions of the Vasari Notes (if such failure is not cured or waived within 60 days after receipt of a specific notice) could cause a default to occur. There is no sinking fund to ensure repayment of the Vasari Notes at maturity, so you are totally reliant upon our ability to generate adequate cash flows. We do not contribute funds to a separate account, commonly known as a sinking fund, to repay the Vasari Notes upon maturity. Because funds are not set aside periodically for the repayment of the Vasari Notes over their respective terms, you must rely on our combined consolidated cash flows from operations, investing and financing activities and other sources of financing for repayment, such as funds from the sale of the Vasari Notes, loan repayments and other borrowings. To the extent cash flow from 56

64 operations and other sources are not sufficient to repay the Vasari Notes, you may lose all or a part of your investment. Our management has broad discretion over the use of proceeds from this offering. Our management has significant flexibility in applying the net proceeds that we receive from this offering. Although we intend to use the net proceeds we receive from this offering for general corporate purposes, we have not yet finalized all of our anticipated expenditures and therefore cannot provide definitive estimates of the exact amounts to be used for each of the purposes, and therefore, our management will have significant discretion in the allocation of the net proceeds we expect to receive from this offering. The net proceeds of this offering may be used in a manner that does not generate favorable returns. The Company is not required to make an offer to repurchase your Vasari Notes upon a change of control of the Company, and there are no other types of investor protections upon a change of control. The Company is not required to repurchase your Vasari Notes upon a change of control of the Company, nor does this Memorandum contain any other types of protections in the event of a change of control. The Company could engage in many types of transactions, such as mergers, change of control transactions, acquisitions, refinancings or certain recapitalizations, which could substantially affect its capital structure, its management, its capital stock and the market value of the Vasari Notes. Our existing and future secured creditors will have a prior claim on our assets to the extent of the value of the assets securing their indebtedness. The Vasari Notes will be our senior unsecured obligations and will be effectively subordinated to any of our existing and future secured debt, to the extent of the lesser of the value of the assets securing such debt and the obligations secured thereby. See Description of Material Indebtedness for more information. Holders of Vasari Notes will participate ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as Vasari Notes, and potentially with all of our other general creditors, based upon the respective amounts owed to each holder or creditor. In any of the foregoing events, we cannot assure you that there will be sufficient assets to pay amounts due on the Vasari Notes. As a result, holders of Vasari Notes may receive less, ratably, than holders of secured indebtedness. We are not planning to engage an underwriter or other agent to underwrite, place or facilitate the distribution of the Vasari Notes. We are not planning to engage an underwriter or other agent to facilitate the distribution of the Vasari Notes. As a result, holders of Vasari Notes will not have the benefit of any third party due diligence or other types of gatekeeper actions typically taken by an underwriter in an underwritten public offering, including the receipt by the underwriters of comfort letters by the issuer s accountants and legal opinions from outside counsel. The lack of an underwriter may make any offering of Vasari Notes riskier than if we were to engage an underwriter or similar agent that would undertake the types of procedures and documentation that are customary for offerings distributed in an underwritten or firm commitment fashion. Once you submit a subscription agreement, you may not revoke it following the day in which you place your order. Purchase orders for Vasari Notes will generally be processed on the business day following the submission of the order, and you are only permitted to cancel orders prior to 11:59 P.M. (Pacific Time) on the day your order is placed (or, if the order is placed on a Friday, prior to 11:59 P.M. (Pacific Time) on the immediately following Sunday). Therefore, even if circumstances arise after your purchase order has been processed that make you want to reduce the amount of Vasari Notes you originally agreed to purchase, you may nonetheless be bound. 57

65 We reserve the right to reject any purchase orders for Vasari Notes. We reserve the right, in our sole discretion, to reject, in whole or in part, any purchase order for Vasari Notes: that we determine to be unlawful, ineligible, manipulative or mistaken; where the prospective investor does not have sufficient funds in its investor account to settle a purchase order; for any failure by a prospective investor to comply with the requirements of our Memorandum and Company; or for any other reason we may determine or for no reason. We reserve the right to reject any purchase order in order to allow us to comply with all applicable laws and regulations. Other conditions for valid purchase orders, including eligibility of prospective investors, may vary depending on the type of investor or the terms of a particular series of Vasari Notes. As a result of these varying requirements, a purchase order for one particular investor may be rejected while an identical purchase order from a different investor may be accepted. Submitting subscription agreements through broker-dealers may require prospective investors to comply with additional procedures required by their broker-dealer. Prospective investors may choose to submit purchase orders with respect to any offering of Vasari Notes through their own broker-dealer. Different brokerage firms may have different deadlines for accepting instructions from their customers. Accordingly, you should consult the brokerage firm through which you wish to submit a purchase order with respect to such deadlines. Subscription agreements that are submitted indirectly through other persons rather than directly through the Company may be subject to additional risks or delays arising from such other persons systems or operations, or delays or failures in communications, including delays caused by Internet usage. We may incur substantially more debt in the future. The Company and its subsidiaries may incur substantial additional debt in the future. Neither the Company nor its subsidiaries will be restricted from incurring additional debt, securing existing or future debt, or recapitalizing debt, any of which actions could have the effect of diminishing the Company s ability to make payments on the Vasari Notes when due. Our key personnel may leave which could disrupt our operations and harm our business. Our future success depends upon the continued service of our executive officers and other key personnel. None of our officers or key employees is bound by an employment agreement for any specific term. If we lost the services of one or more of our key employees, or if one or more of our executive officers or employees decided to join a competitor or otherwise compete directly or indirectly with us, our business could be harmed. We cannot assure you that we will be able to successfully retain our key personnel or, in the event we were to lose the services of any key personnel, to replace these personnel. If one or more members of our management team were unable or unwilling to continue in their present positions, our operations could be disrupted and our business could be harmed. The Company may not be able to obtain financing required to maintain and grow its business. The Company will need additional funding to execute on its business plan. However, there can be no assurance that the Company will be successful in obtaining such funding on acceptable terms or at all. Additional financing will increase risks of an investment in the Company. For example, outside debt financing will constrain the Company s cash flow, and additional equity financing will dilute current investors, including investors who purchase Vasari Notes in this Offering. 58

66 We have broad discretion to use the Offering proceeds, and we may not use these proceeds in a way with which our Note holders agree. The net proceeds of this Offering are not allocated for specific uses other than to generally further our business along with other general corporate purposes. Our management can spend most of the proceeds from this Offering in ways with which our Note holders may not agree. In the long term, we intend to expand our international activities, which will subject us to a number of risks. Our long-term strategic plans include international expansion, in Europe, Asia and Latin America. We intend to sell, design, install, and maintain solar systems in international locations. Risks inherent to international operations include the following: Inability to work successfully with third parties having local expertise to develop international projects; Multiple, conflicting and changing laws and regulations, including export and import restrictions, tax laws and regulations, environmental regulations, labor laws and other government requirements, approvals, permits and licenses and difficulties in enforcing agreements in foreign legal systems; Changes in general economic and political conditions in the countries in which we operate, including changes in government incentives relating to power generation; Political and economic instability, including wars, acts of terrorism, political unrest, boycotts, curtailments of trade and other business restrictions; Difficulties and costs in recruiting and retaining individuals skilled in international business operations; International business practices that may conflict with U.S. customs or legal requirements; Financial risks, such as longer sales and payment cycles and greater difficulty collecting accounts receivable and fluctuations in currency exchange rates relative to the U.S. dollar; and Inability to obtain, maintain or enforce intellectual property rights. Doing business in foreign markets requires us to be able to respond to rapid changes in market, legal, and political conditions in these countries. The success of our business will depend, in part, on our ability to succeed in differing legal, regulatory, economic, social and political environments. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business. Market fluctuations could adversely affect our businesses in many ways. As an investment banking firm, our businesses are materially affected by conditions in the financial markets and economic conditions generally, both in the United States and elsewhere around the world. The solar energy market and equity and debt markets in the United States and elsewhere have achieved record or near record levels, and this favorable business environment will not continue indefinitely. In the event of a market downturn, our businesses could be adversely affected in many ways, including those described below. Our revenues are likely to decline in such circumstances and, if we were unable to reduce expenses at the same pace, our profit margins would erode. Even in the absence of a market downturn, the Firm is exposed to substantial risk of loss due to market volatility. 59

67 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This Private Offering Memorandum contains forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the Exchange Act ) and the Securities Act of 1933, which are subject to inherent risks, uncertainties, and assumptions that are difficult to predict. All statements in this Memorandum, other than statements of historical fact, are forward-looking statements. These forwardlooking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of The forward-looking statements include statements, among other things, concerning: our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, revenues, gross margin, operating expenses, projected costs, and capital expenditures; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as estimate, expect, anticipate, project, plan, intend, seek, believe, forecast, foresee, likely, may, should, goal, target, might, will, could, predict, continue, and the negative or plural of these words, and other comparable terminology. Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Memorandum based upon information available to us as of the filing date of this Memorandum. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements, including, but not limited to: our expectations regarding the worldwide demand for electricity and the market for renewable energy; our expectations regarding our ability to finance large scale renewable energy projects; our beliefs regarding the importance of environmentally friendly power generation; our beliefs regarding the acceleration of adoption of renewable energy technologies; our expectations regarding advancements in our technologies and cost savings from such advancements; our beliefs regarding our ability to successfully implement our strategies; our beliefs regarding our abilities to secure sufficient funds to meet our cash needs for our operations; and our future business development, results of operations and financial condition and use of the proceeds of this offering; the state of government legislation, regulation and policies that support energy efficiency, renewable energy and sustainable infrastructure projects and that enhance the economic feasibility of energy efficiency, renewable energy and sustainable infrastructure projects and the general market demands for such projects; market trends in our industry, energy markets, commodity prices, interest rates, the debt and lending markets or the general economy; our business and investment strategy; our relationships with originators, investors, market intermediaries and professional advisers; competition from other providers of financing; 60

68 our or any other companies projected operating results; actions and initiatives of the U.S. federal, state and local government and changes to U.S. federal, state and local government policies and the execution and impact of these actions, initiatives and policies; the state of the U.S. economy generally or in specific geographic regions, states or municipalities; our ability to obtain and maintain financing arrangements on favorable terms, including securitizations; general volatility of the securities markets in which we participate; our investment and underwriting process; interest rate and maturity mismatches between our assets and any borrowings used to fund such assets; changes in interest rates and the market value of our target assets; changes in commodity prices; impact of and changes in governmental regulations, tax law and rates, accounting guidance and similar matters; our ability to maintain our exception from registration under the 1940 Act; availability of opportunities to originate energy efficiency, renewable energy and sustainable infrastructure projects; and availability of qualified personnel. MATERIAL FEDERAL INCOME TAX CONSIDERATIONS The following is a general discussion of the material U.S. federal income tax considerations relating to the initial purchase, ownership and disposition of the Vasari Notes by U.S. and non-u.s. holders. This discussion is a summary only and is not a complete analysis of all the potential tax considerations relating to the purchase, ownership and disposition of the Vasari Notes. We have based this summary on the U.S. federal income tax laws in effect as of the date of this Memorandum. However, these laws may change with possible retroactive effect. In addition, we have not obtained, nor do we intend to obtain, a ruling from the IRS or an opinion of counsel with respect to any tax consequences of purchasing, owning or disposing of Vasari Notes. Thus, the IRS could challenge one or more of the tax consequences or matters described in this Memorandum. This discussion is limited to purchasers of Vasari Notes who acquire the Vasari Notes from us in the initial offering and hold the Vasari Notes as capital assets for federal income tax purposes. This discussion does not address all possible tax consequences that may be applicable to you in light of your specific circumstances. For instance, this discussion does not address the alternative minimum tax provisions of the Internal Revenue Code of 1986, or the Code, or special rules applicable to some categories of investors, like some financial institutions, insurance companies, tax-exempt organizations, dealers in securities, real estate investment trusts, regulated investment companies, or persons who hold Vasari Notes as part of a hedge, conversion or constructive sale transaction, straddle or other risk reduction transaction, that may be subject to special rules. This discussion also does not address the tax consequences arising under the laws of any foreign, state or local jurisdiction or U.S. estate and gift tax law as applicable to U.S. holders. 61

69 If you are considering the purchase of a Note, you should consult your own tax advisors as to the particular tax consequences to you of acquiring, holding or otherwise disposing of the Vasari Notes, including the effect and applicability of state, local or foreign tax laws. As used in this discussion, the term U.S. holder means a holder of a Note that is: for United States federal income tax purposes, a citizen or resident of the United States; a corporation, partnership or other entity created or organized in or under the laws of the United States or of any political subdivision thereof or other entity characterized as a corporation or partnership for federal income tax purposes; an estate, the income of which is subject to United States federal income taxation regardless of its source; or a trust, the administration of which is subject to the primary supervision of a court within the United States and which has one or more United States persons with authority to control all substantial decisions, or if the trust was in existence on August 20, 1996, and has elected to continue to be treated as a United States trust. For the purposes of this discussion, a non-u.s. holder means any holder other than a U.S. holder. Characterization of the Vasari Notes The federal income tax consequences of owning Vasari Notes are dependent upon the characterization of the Vasari Notes as debt of Vasari Energy for federal income tax purposes, rather than as equity interests in Vasari Energy or a partnership among the holders of the Vasari Notes and Vasari Energy Vasari Energy believes that the Vasari Notes have been structured in a manner that will allow the Vasari Notes to be characterized as debt of Vasari Energy for federal income tax purposes. However, this is only Vasari Energy s belief, and no ruling from the service or an opinion of counsel has been sought in this regard. Thus, the IRS could successfully challenge this characterization. In the event the Vasari Notes are treated as equity interests in Vasari Energy, the Vasari Notes would be deemed to be ownership interests in a taxable corporation for federal tax purposes. Similarly, if the Vasari Notes were deemed to be equity interests in a partnership among the holders of Vasari Notes and Vasari Energy, the holders likely would be deemed to own interests in a publicly traded partnership taxable as a corporation since the safe harbors to the application of the publicly traded partnership rules likely would not be available. In either event, adverse tax consequences would result to holders. For example, payments of interest and principal on the Vasari Notes would be treated as corporate distributions and dividends to the extent Vasari Energy has current or accumulated earnings and profits. The entire amount of any dividends would be taxable to holders of the Vasari Notes as ordinary income. Distributions and dividends are not deductible by corporations and publicly traded partnerships taxable as corporations. Thus, payments on the Vasari Notes would not be deductible by Vasari Energy if the Vasari Notes were deemed to be equity interests. In most cases, if the Vasari Notes were deemed to be equity interests, Vasari Energy would have less available cash to make payment on the Vasari Notes. In addition to the above, treatment of the Vasari Notes as equity interests could have other adverse effects on some holders. For example, income to non-u.s. holders could (1) be subject to federal income tax withholding, (2) constitute unrelated business taxable income to some tax-exempt entities, including pension funds and some retirement accounts, and (3) cause the timing and amount of income that accrues to holders of Vasari Notes to be different from that described below. Because of these potential adverse effects, you are urged to consult your own tax advisors as to the tax consequences that may apply to your particular situation in the event the Vasari Notes are re- 62

70 characterized as equity interests and as to the likelihood the Vasari Notes could be so re-characterized. The remainder of this discussion assumes that the Vasari Notes are characterized as debt of Vasari Energy. Taxation of U.S. Holders Stated Interest. Under general federal income tax principles, you must include stated interest in income in accordance with your method of tax accounting. Accordingly, if you are using the accrual method of tax accounting, you must include stated interest in income as it accrues. If you are using the cash method of tax accounting, you must include stated interest in income as it is actually or constructively received. Payments of interest to taxable holders of Vasari Notes will constitute portfolio and not passive activity income for the purposes of the passive loss limitations of the Code. Accordingly, income arising from payment on the Vasari Notes will not be subject to reduction by losses from passive activities of a holder. Income attributable to interest payments on the Vasari Notes may be offset by investment expense deductions, subject to the limitation that individual investors may only deduct miscellaneous itemized deductions, including investment expenses, to the extent these deductions exceed 2% of the investor s adjusted gross income. If you pay accrued interest when you purchase your Note, you may deduct the accrued interest from the amount of the first interest payment that you receive when calculating your interest income. See - Note Premium and Market Discount below for the impact this treatment has on the issue price of the Vasari Notes purchased. Original Issue Discount. For Vasari Notes we sell to you at 100% of their face amount, we do not expect that those Vasari Notes will be issued with original issue discount since the issue price of the Vasari Notes will equal the stated redemption price at maturity. We may sell Vasari Notes at a discount to their face amount. For Vasari Notes we sell to you at a discount to their face amount, those Vasari Notes will be issued with original issue discount since the issue price of the Vasari Notes will be less than the stated redemption price at maturity. If a Note is deemed to be issued with original issue discount, the accrual of interest income by its holder will be subject to the rules discussed below. Original issue discount is defined generally as the excess of a debt instrument s stated redemption price at maturity over its issue price, subject to a statutorily-defined DE MINIMIS exception, which is generally one-quarter of 1% of the debt instrument s stated redemption price at maturity multiplied by the number of complete years to maturity from its issue date. The stated redemption price at maturity of a debt instrument is generally the sum of the debt instrument s stated principal amount plus all other payments required, other than payments of qualified stated interest. Generally, qualified stated interest consists of interest that is unconditionally payable in cash or in property at least annually at a single fixed rate. The issue price of a debt instrument that is part of an issue of which a substantial part is sold for money is generally the purchase price of the debt instrument. We believe that interest on the Vasari Notes will be characterized as qualified stated interest for the purposes of calculating original issue discount. However, it may not be so treated. In the event interest on the Vasari Notes is not treated as qualified stated interest, the Vasari Notes could be deemed to be issued with original issue discount, or more original issue discount than anticipated, in which case the timing and amounts of income you realize could be affected. If the Vasari Notes are deemed to be issued with more original issue discount than the statutorilydefined DE MINIMIS amount discussed above, then you, regardless of your method of accounting, would be required to include in gross income, on a constant yield to maturity basis, the sum of the daily portions of original issue discount for the period during the taxable year you held the Vasari Notes even though you may not receive a cash payment representing the original issue discount in that year. Any amount of original issue discount included in income would increase your tax basis in the Note. 63

71 Note Premium And Market Discount. The issue price for Vasari Notes issued directly to you by us under this Memorandum will have an issue price of $1,000 or less, which is equal to or less than the face amount of the Note. In the event the Vasari Notes have an issue price or are acquired for a price in excess of the face amount of the Vasari Notes, the Vasari Notes would be deemed to be issued with or acquired with Note premium. However, the amount of accrued interest you pay will not be included as part of the issue price or the price paid to acquire the Vasari Notes. Vasari Notes acquired by a holder after the date of original issue for a price that is less than the face amount of the Note will have market discount. If the Vasari Notes have Note premium, you may be able to elect to deduct the Note premium using a constant yield method over the remaining term of the Vasari Notes as amortizable Note premium under Section 171 of the Code, provided that the Vasari Notes are held as a capital asset. Except as provided in Treasury Department regulations, amortizable Note premium will be treated as an offset to interest income on the Vasari Notes rather than as a separate deduction item. An election under Section 171 of the Code generally is binding once made and applies to all obligations owned or subsequently acquired by the taxpayer. The market discount provisions of the Code generally provide that, subject to a statutorily-defined DE MINIMIS exception, if you acquire a debt instrument at a market discount and thereafter recognize gain on a disposition of the debt instrument, including a gift, the lesser of the gain or the portion of the market discount that accrued while the debt instrument was held by you will be treated as ordinary interest income at the time of the disposition. For this purpose, an acquisition at a market discount includes an acquisition, other than an acquisition at original issuance, resulting in a basis in the debt instrument below the debt instrument s stated redemption price at maturity. If you acquire a debt instrument at a market discount, and do not elect to include the market discount in income on a current basis, as discussed below, you may be required to defer a portion of any interest incurred or maintained to purchase or carry the debt instrument until you dispose of the debt instrument in a taxable transaction. You may elect to have market discount accrue on a constant interest rate basis, as opposed to a straight-line basis. The current inclusion election, once made, applies to all market discount obligations acquired by you on or after the first day of the first taxable year to which the election applies and may not be revoked without the consent of the IRS. If you elect to include market discount in income in accordance with the preceding sentence, the above rules with respect to the recognition of ordinary income on a sale or select other dispositions of a Note and the deferral of interest deduction on indebtedness related to the Note will not apply. The Vasari Notes provide that they may be redeemed, in whole or in part, before maturity. If some or all of the Vasari Notes are redeemed, each holder of a Note acquired at a market discount would be required to treat the principal payment as ordinary interest income to the extent of any accrued market discount on the Vasari Notes. Disposition Of Vasari Notes. In general, you will recognize gain or loss upon the sale, exchange, redemption or other taxable disposition of a Note measured by the difference between (1) the amount of cash and the fair market value of property received, excluding any portion of the payment that is attributable to accrued interest on the Vasari Notes, and (2) your adjusted basis in the Note as increased by any original issue discount or market discount previously included in income and decreased by any cash payments received, other than payments constituting qualified stated interest, and any amortizable Note premium deducted over the term of the Note. Subject to the market discount rules discussed above, any of this gain or loss generally will be long-term capital gain or loss, provided that the Note was a capital asset in the hands of the holder and was held for more than one year. Non-corporate taxpayers generally are subject to a maximum federal income tax rate of 20% on net long-term capital gains. The terms of the Vasari Notes may be modified upon the consent of a specified percentage of holders and, in some instances, without consent of the holders. In addition, the Vasari Notes may be assumed upon the occurrence of specific transactions involving Vasari Energy The modification or 64

72 assumption of a Note could, in some instances, give rise to a deemed exchange of a Note for a new debt instrument for federal income tax purposes. If an exchange is deemed to occur by reason of a modification or assumption, you could realize gain or loss. Considerations For Tax-Exempt Holders Of Vasari Notes Holders of Vasari Notes that are tax-exempt entities, including charitable corporations, pension, profit sharing or stock bonus plans, keogh plans, individual retirement accounts and some other employee benefit plans are subject to federal income tax on unrelated business taxable income. For example, net income derived from the conduct of a trade or business regularly carried on by a tax-exempt entity or by a partnership in which it is partner is treated as unrelated business taxable income. A $1,000 special deduction is allowed in determining the amount of unrelated business taxable income subject to tax. Tax-exempt entities taxed on their unrelated business taxable income are also subject to the alternative minimum tax for items of tax preference which enter into the computation of unrelated business taxable income. In general, interest income does not constitute unrelated business taxable income. Note however, that under the debt-financed property rules, if tax-exempt holders of Vasari Notes finance the acquisition or holding of Vasari Notes with debt, interest on the Vasari Notes will be taxable as unrelated business taxable income. The Vasari Notes will be treated as debt-financed property if the debt was incurred to acquire the Vasari Notes or debt was incurred after the acquisition of the Vasari Notes so long as the debt would not have been incurred but for the acquisition and, at the time of the acquisition, the incurrence of the debt was foreseeable. Tax-exempt persons who are members of a partnership will be deemed engaged in the trade or business of the partnership. Thus, income from the partnership will be treated as unrelated business taxable income. In addition, income from publicly traded partnerships is no longer excluded from the definition of unrelated business taxable income. Thus, if the Vasari Notes are deemed to be equity interests in a partnership; interest payments on the Vasari Notes could be treated as unrelated business taxable income. Investors who are tax-exempt entities are urged to consult their tax advisors with respect to the application of the foregoing provisions to their particular situations. Non-United States Holders The following discussion is a summary of the principal U.S. federal income consequences resulting from the ownership of the Vasari Notes by non-u.s. holders. However, application of the U.S. federal income tax rules associated with non-u.s. holders is complex and factually sensitive. Thus, if you could be considered to be a non-u.s. holder, you are urged to consult your own tax advisors with respect to the application of the federal income tax rules for your particular situation. A non-united States holder generally will not be subject to United States federal withholding tax with respect to payments of principal and interest (including original issue discount) on Vasari Notes, provided that (i) the holder does not actually or constructively own 10 percent or more of the total combined voting power of all classes of our stock entitled to vote, (ii) the holder is not for United States federal income tax purposes a controlled foreign corporation related to us through stock ownership, (iii) the beneficial owner of the Note certifies to us or our agent under penalties of perjury as to its status as a non-united States holder and complies with applicable identification procedures and (iv) the payment is not a payment of contingent interest (generally a payment based on or determined by reference to income, profits, cash flow, sales, dividends or other comparable attributes of the obligor or a party related to the obligor). Special rules apply to partnerships, estates and trusts and, in certain circumstances, certifications as to foreign status and other matters may be required to be provided by partners and beneficiaries thereof. A non-united States holder of a Note generally will not be subject to United States federal income tax on any gain realized upon the sale, retirement or other disposition of a Note, unless the holder is an 65

73 individual who is present in the United States for 183 days or more during the taxable year of sale, retirement or other disposition and certain other conditions are met. If a non-united States holder of a Note is engaged in a trade or business in the United States and income or gain from the Note is effectively connected with the conduct of such trade or business, the non-united States holder will be exempt from withholding tax if appropriate certification has been provided, but will generally be subject to regular United States income tax on such income and gain in the same manner as if it were a United States holder. In addition, if such non-united States holder is a foreign corporation, it may be subject to a branch profits tax equal to 30 percent (or possible lower rate under an applicable tax treaty) of its effectively connected earnings and profits for the taxable year, subject to adjustments. A Note held by an individual who is a non-united States holder at the time of death will not be subject to United States federal estate tax upon such individual s death if at the time of death (i) such holder does not actually or constructively own 10 percent or more of the total combined voting power of all classes of our stock entitled to vote, (ii) payments with respect to the Note would not have been effectively connected with a United States trade or business of such individual and (iii) payments with respect to the Note would not be considered to be a payment of contingent interest as described above. Backup withholding and information reporting will generally not apply to payments of principal and interest made to a non-united States holder by us on a Note with respect to which the holder has provided the required certification, described above, under penalties of perjury of its non-united States holder status or has otherwise established an exemption. Interest payments to non-united States holders will be subject to information reporting on Form 1042-S. Payments on the sale, exchange or other disposition of a Note by a non-united States holder effected outside the United States to or through a foreign office of a broker will not be subject to backup withholding. However, if such broker is a United States person, a controlled foreign corporation for United States tax purposes, a foreign person 50 percent or more of whose gross income is derived from its conduct of a United States trade or business for a specified threeyear period, a foreign partnership engaged in a United States trade or business or in which United States persons hold more than 50 percent of the income or capital interests, or certain United States branches of foreign banks or insurance companies, information reporting will be required unless the beneficial owner has provided certain required information or documentation to the broker to establish its non-united States status or otherwise establishes an exemption. Payments to or through the United States office of a broker will be subject to backup withholding and information reporting unless the holder certifies under penalties of perjury to its non-united States holder status or otherwise establishes an exemption. Non-United States holders should consult their tax advisors regarding the application of United States federal income tax laws, including information reporting and backup withholding, to their particular situations. Payments of interest to non-u.s. Holders. Subject to the discussion below under Backup Withholding and Information Reporting, payments of interest, including any accruals of original issue discount, received by a non-u.s. holder generally will not be subject to United States federal withholding tax, provided that (1) the non-u.s. holder does not actually or constructively own 10% or more of the total combined voting power of all classes of voting stock of Vasari Energy, (2) the non-u.s. holder is not a controlled foreign corporation that is related to Vasari Energy, actually or constructively, through stock ownership, (3) the beneficial owner of the Note complies with the certification requirements, including delivery of a statement, signed by the holder under penalties of perjury, certifying that the holder is a foreign person and provides its name and address, or (4) the non-u.s. holder is entitled to the benefits of an income tax treaty under which the interest is exempt from United States withholding tax and the non-u.s. holder complies with the reporting requirements. This exemption does not apply to market discount. If a Note is held through a securities clearing organization or other specified financial institutions (an Intermediary ), the Intermediary may provide the relevant signed statement; in that case, however, unless the Intermediary is a qualified intermediary as defined under the Code, the signed statement provided by the Intermediary 66

74 must be accompanied by a copy of a valid Form W-8BEN provided by the non-u.s. beneficial holder of the Note. Payments of interest not exempt from United States federal withholding tax as described above will be subject to a withholding tax at the rate of 30%, subject to reduction under an applicable income tax treaty. Payments of interest on a Note to a non-u.s. holder generally will not be subject to United States federal income tax, as opposed to withholding tax, unless the income is effectively connected with the conduct by the non-u.s. holder of a trade or business in the United States. You should consult your own tax advisor to determine the effects of the application of the United States federal withholding tax to your particular situation. Disposition of the Vasari Notes by non-u.s. Holders. Subject to the discussion below under Backup Withholding and Information Reporting, a non-u.s. holder generally will not be subject to United States federal income tax, and generally no tax will be withheld, with respect to gains realized on the disposition of a Note, unless (1) the gain is effectively connected with a United States trade or business conducted by the non-u.s. holder or (2) the non-u.s. holder is an individual who is present in the United States for 183 or more days during the taxable year of the disposition and other requirements are satisfied. Non-U.S. Holders subject to U.S. Income taxation. If interest and other payments received by a non-u.s. holder with respect to the Vasari Notes, including proceeds from the disposition of the Vasari Notes, are effectively connected with the conduct by the non-u.s. holder of a trade or business within the United States, or the non-u.s. holder is otherwise subject to United States federal income taxation on a net basis with respect to the holder s ownership of the Vasari Notes, or are individuals that have by operation of law become residents in the United States for federal income tax purposes, the non-u.s. holder generally will be subject to the rules described above applicable to U.S. holders of Vasari Notes, subject to any modification provided under an applicable income tax treaty. These non-u.s. holders may also be subject to the branch profits tax, if the holder is a corporation. Backup Withholding and Information Reporting. Non-corporate U.S. holders may be subject to backup withholding at a rate of 30% on payments of principal, premium and interest on, and the proceeds of the disposition of, the Vasari Notes. In general, backup withholding will be imposed only if the U.S. holder (1) fails to furnish its taxpayer identification number ( TIN ), which, for an individual, would be his or her Social Security number, (2) furnishes an incorrect TIN, (3) is notified by the IRS that it has failed to report payments of interest or dividends, or (4) under some circumstances, fails to certify, under penalty of perjury, that it has furnished a correct TIN and has been notified by the IRS that it is subject to backup withholding tax for failure to report interest or dividend payments. In addition, the payments of principal and interest to U.S. holders generally will be subject to information reporting. You should consult your tax advisors regarding your qualification for exemption from backup withholding and the procedure for obtaining an exemption, if applicable. Backup withholding generally will not apply to payments made to a non-u.s. holder of a Note who provides the certification that it is a non-u.s. holder, and the payor does not have actual knowledge that a certificate is false, or otherwise establishes an exemption from backup withholding. Payments by a United States office of a broker of the proceeds of a disposition of the Vasari Notes generally will be subject to backup withholding at a rate of 31% unless the non-u.s. holder certifies it is a non-u.s. holder under penalties of perjury or otherwise establishes an exemption. In addition, if a foreign office of a foreign custodian, foreign nominee or other foreign agent of the beneficial owner, or if a foreign office of a foreign broker pays the proceeds of the sale of a Note to the seller, backup withholding and information reporting will not apply provided that the nominee, custodian, agent or broker is not a United States related person, or a person which derives more than 50% of its gross income for some periods from the conduct of a trade or business in the United States or is a controlled foreign corporation. The payment by a foreign office of a broker that is a United States person or a United States related person of the proceeds of the sale of Vasari Notes will not be subject to backup withholding, but will be subject to information reporting unless the 67

75 broker has documentary evidence in its records that the beneficial owner is not a United States person for purposes of the backup withholding and information reporting requirements and other conditions are met, or the beneficial owner otherwise establishes an exemption. The amount of any backup withholding imposed on a payment to a holder of a Note will be allowed as a credit against the holder s United States federal income tax liability and may entitle the holder to a refund, provided that the required information is furnished to the IRS. State Taxes We make no representations regarding the tax consequences of the purchase, ownership or disposition of the Vasari Notes under the tax laws of any state. You should consult your own tax advisors regarding these state tax consequences. 68

76 CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM EXHIBIT A FORM OF NOTE THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. WITHOUT SUCH REGISTRATION, SUCH SECURITIES MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT UPON DELIVERY TO THE ISSUER OF AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO THE ISSUER OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR ANY RULE OR REGULATION PROMULGATED THEREUNDER. NAME OF NOTEHOLDER: NOTE AMOUNT (USD) $: NOTE DATE: MATURITY DATE: FOR VALUE RECEIVED, Vasari Energy, Inc. (the Issuer ), hereby promises to pay to the order of the above referenced Noteholder (the Noteholder ), the above referenced principal sum (the Note Amount ) in the manner described below. This Note ( Note ) is referred to in and is executed and delivered in connection with that certain Subscription Agreement of even date herewith by and between the Issuer and Noteholder (the Subscription Agreement ) which is incorporated herein by reference for all purposes. Additional rights and obligations of the Issuer and Noteholder are set forth in the Subscription Agreement. 1. REPAYMENT/ MATURITY DATE: The deposit date of Noteholder s funds into the designated account under the control of the Issuer shall be referred to as the Note Date. Unless such date is extended by mutual consent the outstanding principal amount of the Note shall be due and payable to Noteholder on or before December 31, INTEREST: The Note will bear interest from its issue date at a fixed rate per year. We will pay interest only on the notes on January 1st, April 1st, July 1st, and October 1st of each year commencing on the first quarter following the date of issue of a note. Interest will be paid without any compounding. The notes will bear interest at an annual rate of 10.00%. Interest will accrue from the first day of the month in which a note is purchased. Interest on the notes will be computed on the basis of a 360-day year of twelve 30-day months or, in the case of an incomplete month, the number of days elapsed. 3. SECURITY GRANT & COLLATERAL: The Issuer does not grant to Note holder a security interest in any of its assets (hereinafter referred to as Collateral ), including but not limited to bank accounts, leases, production, equipment, etc., as security for the payment and performance of this Note. 4. ACCEPTED CURRENCY: All payments hereunder must be made in United States Currency. 1

77 5. DEFAULT AND ACCELERATION: Issuer shall be in default under this Note upon any of the following: (a) Issuer dissolves, terminates its existence, or declares insolvency; (b) Issuer files for relief under bankruptcy laws or any other laws for the benefit of creditors; or (c) an involuntary petition is filed against Issuer under any bankruptcy laws (unless such petition is dismissed within 30 days). Upon the occurrence of any default Noteholder may declare the unpaid principal of the Note and all accrued interest on this Note immediately due pursuant to applicable law. In the event the Note shall be in default and given to an attorney for collection or enforcement, or if suit is brought for collection or enforcement, or if it is collected or enforced through probate, bankruptcy, or other judicial proceeding, then Issuer shall pay Noteholder all costs of collection and enforcement, including reasonable attorney fees. 6. BINDING EFFECT: The covenants and conditions contained in this Note shall apply to and bind the Issuer and its successors and permitted assigns. 7. CUMULATIVE RIGHTS: The parties rights under this Note are cumulative, and shall not be construed as exclusive of each other unless otherwise required by law. 8. WAIVER: The failure of the Note holder to enforce any part of this Note shall not be deemed a waiver or limitation of the Noteholder s right to subsequently enforce and compel strict compliance with every provision of this Note. Furthermore, no waiver by Noteholder of any default shall operate as a waiver of any other default or the same default on a future occasion. 9. SEVERABILITY: If any part or parts of this Note shall be held unenforceable for any reason, the remainder of this Note shall continue in full force and effect. If any provision of this Note is deemed invalid or unenforceable by any court of competent jurisdiction, and if limiting such provision would make the provision valid, then such provision shall be deemed to be construed as so limited. 10. NOTICE: Any notice required or otherwise given pursuant to this Note shall be in writing and mailed certified return receipt requested, postage prepaid, or delivered by overnight delivery service, addressed as follows: NOTEHOLDER ISSUER: Vasari Energy, Inc Research Dr., Suite 200 Irvine, CA Either party may change such addresses from time to time by providing notice as set forth above. 11. GOVERNING LAW / VENUE: This Note shall be governed by and construed in accordance with the laws of the State of Delaware. Exclusive venue for dispute resolution shall be in the courts of the State of Delaware. [signatures on following page] 2

78 ISSUER: NOTEHOLDER VASARI ENERGY, INC. By: Name: Title: By: Name: Title: 3

79 EXHIBIT B VASARI ENERGY, INC. SUBSCRIPTION AGREEMENT AND INVESTOR REPRESENTATION LETTER Vasari Energy, Inc. (the Company ) shall use its best efforts to keep the information provided in the answers to this Subscription Agreement strictly confidential. The Company may present this Subscription Agreement and the answers contained in it to such parties as they deem advisable if compelled by law or called upon to establish the availability under any federal or state securities laws of an exemption from registration of the private placement or if the contents thereof are relevant to any issue in any action or proceeding to which the Company is a party or by which either is or may be bound. Vasari Energy, Inc Research Dr., Suite 200 Irvine, CA Gentlemen: 1. SUBSCRIPTION (a) The undersigned hereby subscribes for and agrees to purchase 10% Convertible Notes (the Notes ) to be issued by the Company for a purchase price of $1, per Note ($10,000) minimum), for a total purchase price of $ (the Subscription Price ), subject to the terms, conditions, acknowledgments, representations and warranties stated herein and in the Confidential Private Placement Memorandum relating to the offer of up to $1,000,00 of Notes, dated August 1, 2016 (with all Exhibits thereto, the Memorandum ). Simultaneously with the execution and delivery hereof, the undersigned tenders herewith a check payable to the order of VASARI ENERGY representing the Subscription Price for the Notes purchased hereby. (b) The Company has the right to reject this subscription, in whole or in part. If this subscription or any part thereof is rejected, the Company shall promptly return the subscription funds relating to the rejected portion. (c) The undersigned acknowledges that any delivery of information relating to the Notes prior to the determination by the Company of the undersigned s suitability as an investor shall not constitute an offer of securities until such determination of suitability shall be made. 2. REPRESENTATIONS AND WARRANTIES AND COVENANTS The undersigned hereby acknowledges, represents and warrants to, and agrees with, the Company as follows: B-1

80 (a) The undersigned is acquiring the Notes for the undersigned s own account, for investment purposes only, and not with a view to or for or in connection with the resale, public distribution or fractionalization thereof, in whole or in part. Initial Here (b) The undersigned meets the suitability standards for an investor set forth in the Memorandum and described below. Initial Here (c) The undersigned understands that this Offering has not been registered with the Securities and Exchange Commission in reliance on exemptions specified in the Securities Act of 1933, as amended, (the Act ) including the exemptions described in Section 4(2) of the Act and Rule 506 promulgated under the Act, which reliance is based in part upon the undersigned s representations set forth herein. The undersigned understands that the Notes subscribed for herein, the Notes and the Company s common stock have not been registered under applicable federal or state securities laws in any state, and unless registered, none of the Notes or the Company s common stock may be re-offered for sale or resold except in a transaction or as a security exempt under those laws. The undersigned represents that the undersigned has adequate means of providing for the undersigned s current needs and possible personal contingencies, and that the undersigned has no need for liquidity of this investment. It is understood that all documents, records and books pertaining to this investment have been made available for inspection by the undersigned s attorney or the undersigned and the undersigned s representatives, and that the books and records of the Company shall be available upon reasonable notice, for inspection by investors at reasonable hours at its principal place of business. (d) The undersigned has: Initial Here (1) received and carefully read the Memorandum and understands and has evaluated the risks of a purchase of the Notes, including the risks set forth in the Memorandum, and has relied solely (except as indicated in paragraphs (2) and (3) below) on the information contained in the Memorandum. (2) been given the opportunity to ask questions of, and receive answers from, the Company concerning the Company and the Offering and other matters pertaining to this investment, and to obtain any additional information necessary to verify the accuracy of the information contained in the Memorandum or otherwise provided, and has not been furnished any other offering literature or Memorandum except as mentioned herein or in the Memorandum. (3) been furnished with all additional documents and information requested by the undersigned. (4) determined that the Notes are a suitable investment and that the undersigned can bear a complete loss of the investment. Initial Here (e) The undersigned is aware that no resale market exists for the Notes or any portion thereof, thereby requiring this investment to be maintained indefinitely. The undersigned shall not sell or otherwise B-2

81 transfer any of the Notes or the Company s common stock without registration under the Act or an exemption therefrom. The Company is under no obligation to register the Shares or the Company s common stock or to assist in complying with any exemption from registration. Sales or transfers of the Shares or the Company s common stock are further restricted as set forth in the Memorandum. Initial Here (f) The certificates representing the Shares and common stock shall bear a legend in substantially the following form: The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended. These securities have been acquired for investment and may not be offered, sold, transferred, pledged or otherwise disposed of without an effective registration statement under that Act and under any applicable state securities laws unless prior to such disposition the issuer is furnished with an opinion of counsel, in form and substance satisfactory to the issuer, that the proposed transaction shall be exempt from such registration. (g) If the undersigned is a corporation, partnership, trust or other entity, it (1) is authorized and qualified to invest in the Notes and the Company, and the person signing this Agreement on behalf of such entity has been duly authorized to do so, and (2) was not formed for the specific purpose of investing in the Company nor did or shall the shareholders, partners or grantors, as the case may be, of the undersigned entity contribute additional capital for the specific purpose of purchasing the Notes. Initial Here (h) No representation not contained in the Memorandum has been made to the undersigned by the Company, the Selling Agent or any officer, employee, agent or affiliate of either of them. Initial Here (i) Any information the undersigned provided to the Company with respect to the undersigned s financial position and business experience is correct and complete as of the date of this Agreement, and if there should be any material change in such information prior to the issuance of the Notes, the undersigned shall immediately provide such revised and corrected information to the Company. Initial Here (j) There are risks associated with investing in the Notes, including but not limited to those described in the Memorandum. Initial Here (k) The undersigned understands that in the event this Subscription is not accepted, then the funds transmitted herewith shall be returned to the undersigned, and this Subscription Agreement shall be terminated and of no further force or effect. Initial Here (l) The undersigned hereby covenants and agrees that any dispute, controversy or other claim arising under, out of or relating to this Subscription Agreement or any of the transactions contemplated hereby, or any amendment, or interpretation hereof or thereof, shall be determined and settled in binding B-3

82 arbitration in the Orange County, California, in accordance with Title 9 of the California Civil Code and the Code of Civil Procedure, including specifically California Code of Civil Procedure Sections and , and with the rules and procedures of The American Arbitration Association. The prevailing party shall be entitled to an award of its reasonable costs and expenses, including, but not limited to, reasonable attorneys fees, in addition to any other available remedies. Any award rendered therein shall be final and binding on each and all of the parties thereto and their personal representatives, and judgment may be entered thereon in any court of competent jurisdiction. Initial Here worth. (m) The undersigned s investment in the Notes does not exceed ten percent (10%) of his net Initial Here 3. INDEMNITY The undersigned agrees to indemnify and hold harmless the Company, the Selling Agent and their affiliates, and each person, if any, who controls or is controlled by any thereof, within the meaning of Section 15 of the Act, against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all expenses reasonably incurred in investigating, preparing or defending against any litigation commenced or threatened or any claim whatsoever) arising out of or based upon any false representation or warranty or breach or failure by the undersigned to comply with any covenant or agreement made by the undersigned herein or in any other document furnished by the undersigned in connection with this transaction. This indemnification includes, but is not limited to, any damages, losses, liabilities, costs and expenses (including reasonably attorneys fees and costs) incurred by the Company, its officers, directors, employees, agents, affiliates or advisors, defending against any alleged violation of federal or state securities laws which is based upon or related to any untruth or inaccuracy of any of the representations, warranties or agreements contained herein or in any other documents the undersigned has furnished in connection with this transaction. 4. MISCELLANEOUS (a) Neither this Agreement nor any provisions hereof shall be modified, discharged or terminated except by an instrument in writing signed by the party against whom any waiver, change, discharge or termination is sought. (b) Any notice, demand or other communication which any party hereto may be required, or may elect, to give to anyone interested hereunder shall be sufficiently given if (1) deposited, postage prepaid, in the United States mail, registered or certified mail, return receipt requested, addressed to such address as may be given herein, or (2) delivered personally at such address. (c) Except as otherwise provided herein, this Agreement shall bind and benefit the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. If the undersigned is more than one person, the obligations of the undersigned shall be joint and several, and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and his heirs, executors, administrators and successors. (d) This instrument contains the entire agreement of the parties, and there are no representations, covenants or other agreements except as stated or referred to herein. B-4

83 (e) This Agreement is not transferable or assignable by the undersigned. (f) This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts made and to be performed entirely within such state, without regard to its choice of law provisions. (g) All pronouns herein and any variations thereof shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the parties hereto may require. (h) This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. (i) All capitalized terms used herein and not defined herein shall have the meanings ascribed to them in the Memorandum. SIGNATURE PAGE Notes x $1, per Note = $ Type of Ownership for entities (check one): Individual Joint Tenants with Right of Survivorship Revocable (Grantor) Trust Tenants-in-Common Community Property Corporation Tenants by the Entireties Partnership Limited Liability Company Individual Retirement Account Section 501(c)(3) Organization Plan Employee Benefit Irrevocable Trust Other (explain below:) B-5

84 The undersigned meets the standards of an investor set forth in the Memorandum because the undersigned is (please initial all appropriate spaces): (a) A natural person whose individual net worth, or joint net worth along with such person s spouse, as of the date hereof exceeds $1 million; (b) A natural person who had individual income in excess of $200,000 in each of the two most recent years or a joint income with such person s spouse in excess of $300,000 in each of those years, and has a reasonable expectation of achieving the same income level in the current year; (c) Any trust, with total assets in excess of $5 million, not formed for the specific purpose of acquiring the Notes, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the Interests; (d) A bank (as defined in Section 3(a)(2) of the Act), or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Act; an investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of the Investment Company Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5 million; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 ( ERISA ), if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of ERISA, which is either a bank, savings and loan association, insurance company, or registered investment advisor, or if the employee benefit plan has total assets in excess of $5 million or if a self-directed plan, with investment decisions made solely by persons that are Accredited Investors; (e) A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; (f) An organization described in Section 501(c)(3) of the Internal Revenue Code, a corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Interest(s), with total assets in excess of $5 million; (g) A Manager or executive officer of the Company; or (h) An entity in which all of the equity owners satisfy one or more of the above paragraphs. The following information should be provided by the person making the investment decision whether on his or her own behalf or on behalf of an entity: Name of individual making the investment decision: Name(s) as it (they) will appear on account: B-6

85 Investor Social Security or Tax I.D. Number(s): (If Notes are to be held in Joint Tenancy, both Social Security Numbers are required.) Country of Citizenship: A. With respect to the individual or the primary account beneficiary, or grantor, if the investor is a revocable grantor trust: Date of Birth: Home Address: (Street address only) City: State: Zip: address: Telephone Number:( ) Telephone Number to call if there are questions on the information provided on this Subscription Agreement (if different):( ) above: Investor Mailing Address (Please check one): ( ) Home Mailing Address: (Street address only) ( ) Business ( ) Other City: State: Zip: Please indicate to whom distributions should be sent, if not to the mailing address set forth Distribution Address: Name: Mailing Address: (Street address only) City: State: Zip: Account Number (if applicable): Employment Information: Occupation: Title or position: Employer Name: Employer Address: (Street address only) City: State: Zip: B-7

86 Employer s telephone number: ( ) Nature of employer s business and dates employed (if term of employment is less than one year, provide the name, address and telephone number of your prior employer and dates employed): B. To be answered only if the investor is a Trust: Name of Trustee(s) signing on behalf of the Trust: Trustee s Address: (Street address only) City: State: Zip: Trustee s telephone number: ( ) Names of any other Trustees: Date Trust was formed: Is the Trust revocable? Yes No State: (Please attach a copy of the Trust Agreement or other evidence authorizing the Trustee of the Trust to make an investment of this type and authorizing the Trustee of the Trust to execute the documents to purchase the Notes.) C. To be answered only if the investor is a corporation: Date of incorporation: Name and Title of Authorized Officer(s): State of incorporation: Principal business of the corporation: Telephone number: ( ) (Please attach a copy of a properly certified corporate resolution and bylaw provision authorizing the corporation to make an investment of this type and the officer whose name appears on the Subscription Agreement to execute the documents to purchase the Notes.) D. To be answered only if the investor is a Partnership: Year formed: Number of partners: State of formation: Name of General Partner(s) signing on behalf of the Partnership: B-8

87 Partnership s telephone number: ( ) Names of any other General Partners: Are there any Limited Partners? Yes No Principal business of the Partnership: (Please attach a copy of the Partnership Agreement or such portion thereof authorizing the Partnership to make an investment of this type and authorizing the General Partner whose name appears on the Subscription Agreement to execute the documents to purchase the Notes.) E. To be answered only if the investor is an entity not listed in B through D above: Type of entity: Year formed: Principals: State of formation: Name of representative(s) signing on behalf of the entity: Principal purpose of the entity: Entity s telephone number: ( ) (Please attach evidence of the entity s existence and evidence authorizing the entity to make an investment of this type and authorizing the representative whose name appears on the Subscription Agreement to execute the documents to purchase the Notes.) The undersigned has read and executed this Subscription Agreement on this day of, X Signature of Subscriber X Signature of Joint Subscriber, if any Print Name of Subscriber (and title, if applicable) Print Name of Joint Subscriber, if any ACCEPTANCE BY THE COMPANY: Name and Title Date of Acceptance:, 2016 B-9

88 PLEASE MAKE CHECKS PAYABLE TO VASARI ENERGY. Return Subscription Agreement to: Vasari Energy, Inc Research Drive, Suite 200 Irvine, CA WIRE TRANSFER INSTRUCTIONS Vasari Energy, Inc Research Drive, Suite 200 Irvine, CA Account number: Routing Number: Bank of America 500 Newport Center Dr. Newport Beach, CA B-10

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