As filed with the Securities and Exchange Commission on November 27, 2019

File No.                    

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 1-A

REGULATION A OFFERING CIRCULAR

UNDER THE SECURITIES ACT OF 1933

MASTERWORKS 005, LLC

(Exact name of issuer as specified in its charter)

Delaware

(State of other jurisdiction of incorporation or organization)

497 Broome Street

New York, New York 10013

Phone: (203) 518-5172

(Address, including zip code, and telephone number,

including area code of issuer’s principal executive office)

Joshua B. Goldstein

General Counsel and Secretary

Masterworks 005, LLC

497 Broome Street

New York, New York 10013

Phone: (203) 518-5172

(Name, address, including zip code, and telephone number,

including area code, of agent for service)

Copy to:

Laura Anthony, Esq.

Craig D. Linder, Esq.

Anthony L.G., PLLC

625 N. Flagler Drive, Suite 600

West Palm Beach, FL 33401

Phone: (561) 514-0936

Fax: (561) 514-0832

An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this preliminary offering circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Securities and Exchange Commission is qualified. This preliminary offering circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a final offering circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the offering circular may be obtained.

MASTERWORKS 005, LLC

Preliminary Offering Circular

November 27, 2019

Subject to Completion

59,438 Class A shares

Representing Class A Limited Liability Company Interests

$1,188,760 Maximum Offering Amount

Masterworks 005, LLC is a Delaware limited liability company formed to facilitate an investment in a single work of art, an oil on linen painting by Alex Katz (b. 1927), entitled Maxine (the “Painting”). We believe that, for many investors, our Class A shares represent an effective means to gain economic exposure to the Painting and, by extension, to the fine art market.

Masterworks 005, LLC, a Delaware limited liability company, is offering up to 59,438 of its Class A shares representing Class A limited liability company interests, for an aggregate purchase price of up to $1,188,760, in a “Tier 2” offering under Regulation A (the “Offering”). The offering price will be $20.00 per Class A share. There is no minimum number of Class A shares that needs to be sold as a condition of closing of this Offering. Subscriptions, once received, are irrevocable by investors but can be rejected by us. This Offering is being conducted on a “best efforts” basis, which means that there is no guarantee that any minimum amount will be sold through our Underwriter, SDDco Brokerage Advisors LLC (“SDDco-BA” or the “Underwriter”), a Securities and Exchange Commission (“SEC”) registered broker-dealer, and a member of the Financial Industry Regulatory Authority (“FINRA”) and Securities Investors Protection Corporation (“SIPC”). SDDco-BA is not purchasing or selling any Class A shares pursuant to this Offering for its own account and will be entitled to receive fees and commissions for sales of the Class A shares offered hereby from Masterworks Administrative Services, LLC not to exceed 3% of the gross proceeds of the Offering if the maximum offering amount is sold. See “Plan of Distribution” in this Offering Circular.

The closing of the Offering will occur on the earlier of (i) the date that subscriptions for the Class A shares offered hereby equal $1,188,760 or (ii) an earlier date determined by the Company in its discretion. The maximum offering period is 365 days from the date of commencement, but we reserve the right to terminate this Offering for any reason at any time. This Offering will commence on the date this Offering is qualified by the SEC.

Our affiliate Masterworks.io, LLC owns an online investment platform located at https://www.masterworks.io/ (the “Masterworks Platform”) that allows investors to acquire ownership of an interest in special purpose companies that invest in distinct artworks or a collection of artworks. Once an investor establishes an account on the Masterworks Platform, they can browse and screen potential artwork investments, view details of an investment and sign contractual documents online.

No public market currently exists for the Class A shares. No assurance can be given that we will be able to establish a trading market for the Class A shares or that any such trading market will be available to all investors.

No sales of Class A shares will be made prior to the qualification of the Offering statement by the SEC. All Class A shares will be initially offered in all jurisdictions at the same price that is set forth in this offering circular.

The Class A shares are to be offered on a “best efforts” basis primarily through the Masterworks Platform. The Company is not offering, and does not anticipate selling, Class A shares in any state where SDDco-BA is not registered as a broker-dealer.

Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov. We retain complete discretion to determine that subscribers are “qualified purchasers” (as defined in Regulation A under the Securities Act) in reliance on the information and representations provided to us regarding their financial situation.

An investment in the Class A shares is subject to certain risks and should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Prospective investors should carefully consider and review the information under the heading “Risk Factors” beginning on page 11.

The SEC does not pass upon the merits of or give its approval to any securities offered or the terms of the Offering, nor does it pass upon the accuracy or completeness of any offering circular or other solicitation materials. These securities are offered pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”); however, the SEC has not made an independent determination that the securities offered are exempt from registration.

We expect that our operations will not cause us to meet the definition of an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), because (1) at all times our sole assets will consist only of cash and a single work of art referred to herein as the “Painting,” neither of which is deemed to be a “security” for purposes of the 1940 Act, and (2) at all times we will not be engaged primarily in owning, holding, investing or trading in “securities” (as such term is used for purposes of the 1940 Act).

Our principal office is located at 497 Broome Street, New York, New York 10013 and our phone number is (203) 518-5172. Our corporate website address is located at www.masterworks.io. Information contained on, or accessible through, the website is not a part of, and is not incorporated by reference into, this offering circular.

This offering circular is following the offering circular format described in Part II of Form 1-A.

SDDCO BROKERAGE ADVISORS LLC

The date of this offering circular is ______, 2019.

TABLE OF CONTENTS

We have not and SDDco-BA has not authorized anyone to provide any information other than that contained or incorporated by reference in this offering circular prepared by us or to which we have referred you. Neither we nor SDDco-BA take responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This offering circular is an offer to sell only the Class A shares offered hereby but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this offering circular is current only as of its date, regardless of the time of delivery of this offering circular or any sale of Class A shares.

For investors outside the United States: We have not done anything that would permit this Offering or possession or distribution of this offering circular in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourselves about and to observe any restrictions relating to the Offering and the distribution of this offering circular.

THIRD PARTY DATA

Certain data included in this offering circular is derived from information provided by third-parties that we believe to be reliable. The discussions contained in this offering circular relating to the Painting, the artist, the art market, and the art industry are taken from third-party sources that the Company believes to be reliable and reasonable, and that the factual information is fair and accurate. Certain data is also based on our good faith estimates which are derived from management’s knowledge of the industry and independent sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. We have not independently verified such third-party information, nor have we ascertained the underlying economic assumptions relied upon therein. The statistical data relating to the art market is difficult to obtain, may be incomplete, out-of-date, or inconsistent and you should not place undue reliance on any statistical or general information related to the art market included in this offering circular. The art market data used in this offering circular involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. While we are not aware of any material misstatements regarding any market, industry or similar data presented herein, such data was derived from third party sources and reliance on such data involves risks and uncertainties.

TRADEMARKS AND COPYRIGHTS

We own or have applied for rights to trademarks or trade names that we use in connection with the operation of our business, including our corporate names, logos and website names. In addition, we own or have the rights to copyrights, trade secrets and other proprietary rights that protect our business. We do not own the copyright to the Painting, as such term is defined below. This offering circular may also contain trademarks, service marks and trade names of other companies, which are the property of their respective owners. Our use or display of third parties’ trademarks, service marks, trade names or products in this offering circular is not intended to, and should not be read to, imply a relationship with or endorsement or sponsorship of us. Solely for convenience, some of the copyrights, trade names and trademarks referred to in this offering circular are listed without their ©, ® and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trade names and trademarks. All other trademarks are the property of their respective owners.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This offering circular contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “plan,” “intend,” “expect,” “outlook,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, or state other forward-looking information. Our ability to predict future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, actual outcomes could differ materially from those set forth or anticipated in our forward-looking statements. Factors that could cause our forward-looking statements to differ from actual outcomes include, but are not limited to, those described under the heading “Risk Factors.” Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this offering circular. Furthermore, except as required by law, we are under no duty to, and do not intend to, update any of our forward-looking statements after the date of this offering circular, whether as a result of new information, future events or otherwise.

STATE LAW EXEMPTION AND PURCHASE RESTRICTIONS

Our Class A shares are being offered and sold only to “qualified purchasers” (as defined in Regulation A under the Securities Act). As a Tier 2 offering pursuant to Regulation A under the Securities Act, this Offering is exempt from state law “Blue Sky” review, subject to meeting certain state filing requirements and complying with certain anti-fraud provisions, to the extent that our Class A shares offered hereby are offered and sold only to “qualified purchasers” or at a time when our Class A shares are listed on a national securities exchange. “Qualified purchasers” include: (i) “accredited investors” under Rule 501(a) of Regulation D and (ii) all other investors so long as their investment in our Class A shares does not represent more than 10% of the greater of their annual income or net worth (for natural persons), or 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons). Accordingly, we reserve the right to reject any investor’s subscription in whole or in part for any reason, including if we determine in our sole and absolute discretion that such investor is not a “qualified purchaser” for purposes of Regulation A.

To determine whether a potential investor is an “accredited investor” for purposes of satisfying one of the tests in the “qualified purchaser” definition, the investor must be a natural person who has:

If the investor is not a natural person, different standards apply. See Rule 501 of Regulation D for more details.

For purposes of determining whether a potential investor is a “qualified purchaser,” annual income and net worth should be calculated as provided in the “accredited investor” definition under Rule 501 of Regulation D. In particular, net worth in all cases should be calculated excluding the value of an investor’s home, home furnishings and automobiles.

USE OF CERTAIN TERMS AND DEFINITIONS

In this offering circular, unless the context indicates otherwise, the following terms have the following meaning:

Dollar amounts throughout this offering circular have been rounded to the nearest whole dollar.

SUMMARY

This summary highlights selected information contained elsewhere in this offering circular. This summary does not contain all of the information you should consider before investing in the Class A shares. You should read this entire offering circular carefully, especially the risks of investing in the Class A shares discussed under “Risk Factors,” before making an investment decision.

Overview

We were formed as a Delaware limited liability company on October 7, 2019 to facilitate an investment in the Painting. Masterworks will manage all maintenance and administrative services relating to the Painting and the Company. We will not conduct any business activities except for activities relating to an investment in, maintenance, promotion and the eventual sale of the Painting. Our strategy will be to display and promote the Painting so as to enhance its value and broaden its exposure to the art-viewing public.

Masterworks agreed to purchase the Painting at Christie’s afternoon sale of Post-War and Contemporary Art on November 14, 2019 for $1,080,669. We are offering 59,438 Class A shares in this Regulation A+ Offering for an aggregate subscription amount of $1,188,760.

We do not expect to generate any revenues or cash flow unless and until the Painting is sold and no profits will be realized by investors unless they are able to sell their Class A shares or the Painting is sold. We will be totally reliant on Masterworks for administrative services and to fund operations.

The Artist

Alex Katz (b. 1927, Brooklyn) began his prolific career in the late 1940s, while New York was on the cusp of becoming the epicenter of the Western Art in the wake of Europe’s destruction in World War II. Though the dominant artistic movements at the time were Abstract Expressionism and Minimalism in the 1940s and 1950s, Katz became steadfastly dedicated to painting commonplace scenes from the daily life of his friends and family.

Since 2000, auction sales of Alex Katz’s paintings has expanded significantly from under $250,000 to nearly $1 million the following year, then exceeding $2.6 million in 2007. In 2018, Katz’s paintings sold for a total hammer price of $8 million (approximately $10 million including buyer’s premium), and in 2019, sales reached a new record high of $14.2 million (approximately $18 million including buyer’s premium). In 2019 year-to-date, Katz’s average hammer price for paintings at auction was $348,139, or approximately $430,000 including buyer’s premium, an increase of 120% from 2018. Prior to 2018, Alex Katz’s work had been achieving average hammer prices of approximately $100,000 for the prior decade. Recent acceleration in auction prices and volume reflect the increasing market attention and widening collector base and appeal of Katz’ work, which currently sells in all major auction houses and art fairs across the United States, Europe, and Asia.

The Painting

Masterworks agreed to acquire Maxine (1974), which hangs at 48 by 72 inches, at Christie’s afternoon sale of Post-War and Contemporary Art in New York for $1,080,669 on November 14, 2019. The image of Maxine Groffsky, who Katz described in an interview with Apollo Magazine as “the literary lady of the time, the most desirable woman in the art world,” is a prime example of Katz’s acclaimed style. Katz painted the portrait following Groffsky’s return to New York from Europe, where she had been the editor of The Paris Review for nearly a decade. Perhaps no less striking than the sitter herself, is the cityscape in the background, where the newly constructed twin towers extend past the top edge of the canvas as the sun sets over the skyline.

The Art Market

The global art market is comprised of a network of auction houses, dealers, galleries, advisors, agents, individual collectors, museums, public institutions, and various experts and service providers engaged the purchase and sale of unique and collectible works of art. According to the 2019 Art Basel Report, global art sales were $67.4 billion in 2018, up 6% from 2017. The same report estimates that global sales have remained between $57 billion and $68 billion over the past decade, except during 2009 when sales declined to approximately $40 billion, which is believed to have been caused by the global financial crises. For the first half of 2019, auction sales by Sotheby’s, Christie’s and Phillips totaled $5.55 billion, down 20% from the same period in 2018, according to the 2019 Deloitte Art and Finance Report. Adjusted for the sale of the Peggy and David Rockefeller Collection held at Christie’s in May 2018, auction sales by these houses in the first half of 2019 were down 9% from the same period in 2018. The Post-War and Contemporary art auction market rose 2.7% to $2.3 billion in the first half of 2019 over the same period in 2018. The global art market is influenced over time by the overall strength and stability of the global economy, geopolitical conditions, capital markets and world events, all of which may affect the willingness of potential buyers and sellers to purchase and sell art. While the global art market is large, its exact size is unknown and statistical data is inconsistent. Much of the uncertainty stems from differing estimates of the size of the private dealer and gallery market, which is based on survey data, but disparities also exist in reported auction sales.

The high-end fine art market, generally defined as works valued in excess of $1 million, is dominated by a small group of ultra-high-net-worth private collectors and institutions with participation narrowing sharply for works valued in excess of $10 million. The fine art market is comprised of two primary sales channels: public auction and private sales. The private sales market operates through a small network of dealers, galleries and art fairs in which transactions are privately negotiated and not publicly reported on a systematic basis. The auction market operates through a group of international and regional auction houses that conduct public sales occurring on specific pre-announced dates and publicly report sales on a regular basis. As a result, the auction market offers relatively greater transparency from a historical transaction reporting standpoint. According to the Art Basel Report, the relative size of the private sales market as compared to the auction market tends to shift based on overall sentiment, where optimism in the market tends to boost auction sales. According to the 2019 Art Basel Report, the auction market in 2018 accounted for 43% of total sales by dollar volume, as compared to 47% in 2017.

Administrative Services

Pursuant to an administrative services agreement between us, Masterworks Cayman and Masterworks, to be entered into prior to the completion of the Offering, the Administrator will fund our ongoing operating costs and expenses and manage all administrative services relating to our business and the Painting. In exchange for these services and as reimbursement for ordinary and necessary administrative costs, we will issue Class A shares to the Administrator at a rate of 1.5% of the total Class A shares outstanding after giving effect to such issuance, per annum. There is no overall limit to the number of shares that may be issued to pay these fees. Any extraordinary or non-routine costs, payments and expenses, if any, relating to our Company or the Painting will be paid for by the Administrator, but will be reimbursed by us upon the sale of the Painting.

Acquisition of the Painting

Masterworks agreed to purchase the Painting at a public auction held by Christie’s International PLC, on November 14, 2019, but the sale has not yet closed and the contract of sale will be assigned to the Company prior to the closing of this Offering. The acquisition of the Painting from Christie’s will occur on the earlier of (i) the closing of this Offering and (ii) February 12, 2020. If this Offering is fully subscribed prior to February 12, 2020, $1,080,669 of the proceeds of this Offering will be used as consideration for the acquisition of the Painting from Christie’s and the remaining $108,091 will be used to pay Masterworks the true-up. If this Offering is not fully subscribed prior to February 12, 2020, pursuant to an intercompany agreement filed as Exhibit 6.2 to the offering statement of which this offering circular forms an integral part, Masterworks will advance us all of the funds required to acquire the Painting, and the net proceeds of the Offering, together with any unsold Shares, if any, will be used to repay the Masterworks advance and pay Masterworks the true-up. In any circumstance in which a closing of this Offering occurs, 59,438 Class A shares will be issued and outstanding, the full purchase price of the Painting and the true-up will be fully paid, the Company will own the Painting and the Company will have no indebtedness. Following the closing of the Offering, title to the Painting will be contributed to a segregated portfolio of Masterworks Cayman in exchange for shares of that segregated portfolio. The Painting will be the only asset of the segregated portfolio, and we will be the only shareholder of that segregated portfolio.

The acquisition of the Painting by the Company will be subject to Christie’s (New York) general conditions of sale, which are filed as Exhibit 6.3 to the offering statement of which this Offering Circular forms an integral part, except Christie’s agreed with Masterworks to extend the time period required for payment and delivery of the Painting to up to ninety (90) days. Pursuant to the conditions of sale, Christie’s provides the Company with a limited five-year warranty of authenticity, subject to certain exceptions as described therein.

Sale of the Painting or the Class A shares

We intend to own the Painting for an indefinite period, although the Painting is effectively perpetually available for sale following the Offering. We, in our sole and absolute discretion, will be able to execute a sale of the Painting at any time and in any manner and, after distribution of the proceeds of such sale, we intend to liquidate our Company. If our Board of Managers determines that shareholders do not have a means to monetize their investment on the seven-year anniversary of the closing of the Offering, the Company will use commercially reasonable efforts to sell the Painting as soon as reasonably practicable, but not later than the ten-year anniversary of the Closing of the Offering. There is no guaranty that any such means for holders of Class A shares to sell those shares or any sale of the Painting will be successful, or if successful, that the net proceeds realized by shareholders from such transaction will be reflective of the estimated fair market value of the shares at such time.

Organizational Structure

The following diagram reflects the planned organizational structure of Masterworks following the Offering and the material relationships between us and Masterworks that will exist following the Offering:

*All entities are Delaware limited liability companies, except Masterworks Cayman, which is a Cayman Islands segregated portfolio company.

An investment in the Class A shares includes a number of risks and uncertainties which are described in the “Risk Factors” section of this offering circular, including the following:

Company Information

We are a manager-managed limited liability company, managed by the Board of Managers. Our principal office is located at 497 Broome Street, New York, New York 10013 and our phone number is (203) 518-5172. Our corporate website address is the website address of Masterworks.io at www.masterworks.io. Information contained on, or accessible through, the website is not a part of, and is not incorporated by reference into, this offering circular.

THE OFFERING

DETERMINATION OF OFFERING PRICE

The price per each Class A share was determined by dividing (1) the sum of (a) purchase price that Masterworks paid for the Painting, $1,080,669, plus (b) approximately 10.00% of such amount, or $108,091 as a true-up payable to Masterworks, by (2) 59,438, which is the maximum number of Class A shares that will be sold in this Offering (or issued to Masterworks if any remain unsold). Masterworks Gallery will own 14,860 Class B shares representing a 20% profits interest in our Company following the Offering and will own Class A shares if and to the extent the Offering is not fully subscribed, since the number of unsold Class A shares, if any, will be paid to Masterworks to repay the advance made by Masterworks to acquire the Painting and to pay the true-up. Prior to this Offering, no public market exists for the Class A shares, and there can be no assurance that a public market will ever exist for the Class A shares. The Company believes that based on the price paid for the Painting at public auction, historical appreciation rates of similar paintings by the same artist and other factors, the per share offering price constitutes a reasonable estimate of the fair value of the Class A shares as of the date of this Offering Circular.

DISTRIBUTION POLICY

We have not declared or paid dividends on the Class A shares since our formation and do not anticipate paying dividends in the foreseeable future on any shares, unless and until the Painting is sold, at which point we will pay any expenses for which we are responsible and make a liquidating distribution to our shareholders in accordance with our operating agreement. There can be no assurance as to the timing of a liquidating distribution or that we will pay a liquidating distribution at all. There are no contractual restrictions on our ability to declare or pay dividends and if any are to be paid in the future, such decision will be at the discretion of our Board of Managers and will depend on our then current financial condition and other factors deemed relevant by the Board of Managers.

RISK FACTORS

The purchase of the Class A shares offered hereby involves a high degree of risk. Each prospective investor should consult his, her or its own counsel, accountant and other advisors as to legal, tax, business, financial, and related aspects of an investment in the securities offered hereby. Prospective investors should carefully consider the following specific risk factors, in addition to the other information set forth in this offering circular, before purchasing the securities offered hereby.

Risks Related to our Business Model

The Company is a new company and our business model is untested.

The Company is a new company that was formed on October 7, 2019 and had no operating history. We cannot make any assurance that our business model can be successful. Since inception, the scope of our operations has been limited to our formation. Our business model includes novel and unique features that are untested. Our operations will be dedicated to acquiring and maintaining the Painting and facilitating the ultimate sale of the Painting. We do not expect to generate any revenues or cash flow until the Painting is sold and no profits will be realized by our investors unless the Painting is sold for more than we acquired it for and there are sufficient funds after all applicable costs, expenses and taxes in order to effectuate a distribution to holders of our Class A shares upon our liquidation. We are not aware of another company that has successfully offered investors securities that represent indirect ownership of an interest in a single work of art. Similarly, there are few, if any, companies that have offered investors securities that represents indirect ownership in a single asset with the sole goal of realizing appreciation on the value of that asset. It is difficult to predict whether this business model will succeed or if there will ever be any value in the Class A shares.

We do not expect to generate any revenues.

Our business activities will be dedicated to maintaining the Painting and facilitating the ultimate sale of the Painting, which may not occur for many years. We intend to own the Painting for an indefinite period, although the Painting will be perpetually available for sale following the Offering and we will evaluate any reasonable third party offers to acquire the Painting. We do not expect to generate any revenues or cash flow unless the Painting is sold and no profits can be realized by our investors unless the Painting is sold for more than we acquired it and there are sufficient funds to effectuate a distribution after paying the applicable costs, taxes and expenses, or the investors sell their Class A shares. Because we do not expect to generate any positive cash flow, we will be completely reliant on Masterworks to fund our operations. Investors should be prepared to hold their Class A shares for an indefinite period, as there can be no assurance that the Class A shares can ever be resold or that the Painting can be sold for more than what we paid for it, or at all.

We have no financial statements, have not yet commenced operations and have no (or nominal) assets or liabilities.

We were formed as a Delaware limited liability company on October 7, 2019 by Masterworks to facilitate investment in the Painting. We have not yet commenced operations and have no (or nominal) assets or liabilities at this time. Accordingly, we have not presented financial statements in this offering circular. We plan to engage an auditor to audit our financial statements after the qualification of this Offering by the SEC. Following this Tier II Regulation A offering, we will include audited financial statements in our annual reports with the SEC on Form 1-K containing our financial statements for such fiscal year, presented in accordance with GAAP, including a balance sheet and statements of operations, company equity and cash flows, with such statements having been audited by an accountant selected by the Company.

We are extremely undiversified as a company since our strategy is investing in a single piece of art.

Our Company was formed to facilitate an investment in, maintain and potentially sell the Painting. We will not invest in any other artwork or assets. Such lack of diversification substantially increases market risks and the risk of loss associated with an investment in our Class A shares. A consequence of limiting our scope of operations to an investment in a single Painting is that the aggregate returns realized by investors are expected to correlate to the change in value of the Painting.

The Painting may be sold at a loss or at a price that results in a liquidating distribution that is below the trading price of the Class A shares, or no liquidating distribution at all.

Any sale of the Painting could be affected at an inopportune time, at a loss and or at a price that would result in a distribution of cash that is less than the price paid by us to acquire the Painting, and our investors could lose part or all of their investment in us. We intend to hold the Painting for an extended period of time and may choose to sell the Painting opportunistically if market conditions are favorable, which we believe is necessary to achieve optimal returns. Although the value of the Painting may decline in the future, we have no current intention nor economic incentive to sell the Painting at a loss. In the future, we may elect to do so if we determine that such a transaction would be necessary to satisfy our fiduciary obligations to our shareholders. Lastly, circumstances may arise that may compel us to sell the Painting at an inopportune time and potentially at a loss, such as if we face litigation, regulatory challenges or if Masterworks ceases to exist. Investors should be prepared to hold their Class A shares for an indefinite period of time, as there can be no assurance that the Class A shares can ever be resold or that the Painting can be sold for more than what we paid for it, or at all.

The timing and potential price of a sale of the Painting are impossible to predict, so investors need to be prepared to own the Class A shares for an uncertain or even indefinite period of time.

We intend to hold the Painting for an indefinite period, although the Painting will be perpetually available for sale following the Offering and we will evaluate any reasonable third party offers to acquire the Painting. In addition, the occurrence of certain events may compel us to sell the Painting. Accordingly, a risk of investing in the Class A shares is the unpredictability of the timing of a sale of the Painting and the unpredictability of funds being available for cash distribution and investors should be prepared for both the possibility they will not receive a cash distribution for many years, if ever, and the contrary possibility that they may receive a liquidating cash distribution at any time following the completion of the Offering. Investors should be prepared to hold their Class A shares for an indefinite period of time, as there can be no assurance that the Class A shares can ever be resold or that the Painting can be sold for more than what we paid for it, or at all.

Our business model involves certain costs, some of which are to be paid for in the issuance of equity which will have a dilutive effect on the holders of our Class A shares.

There are various services required to administer our business and maintain the Painting. Pursuant to an administrative services agreement between us Masterworks Cayman and the Administrator to be entered into prior to the completion of the Offering, the Administrator will manage all administrative services relating to our business and the maintenance of the Painting. The Administrator will pay all ordinary and necessary costs and expenses associated with the administration of our business and maintenance of the Painting. In exchange for these services and incurring these costs, the Administrator will receive equity interests in us. These equity issuances to Masterworks will effectively result in dilution of 1.5% per annum to Class A shareholders in their indirect ownership of the Painting. Such dilutive issuances shall begin following the closing of the Offering. Any extraordinary or non-routine services, if any, will be managed and paid for by the Administrator, but actual third-party costs associated with these extraordinary or non-routine services will be reimbursed in cash upon the sale of the Painting or a sale of our Company, as applicable.

Because we do not expect to generate any positive cash flow, we will be completely reliant on the Administrator to fund our operations. The payment of the foregoing fees will have a dilutive effect on the holders of our Class A shares and will effectively reduce the tangible book value per Class A share over time.

In the event we are able to sell the Painting, your potential investment returns will be lower than the actual appreciation in value of the Painting due to applicable commissions, expenses and taxes to be paid.

In the event the Painting is sold, your distribution of cash proceeds will be reduced by commissions, expenses and taxes incurred as a result of administering, marketing and selling the Painting, as well as dilution from membership interest issuances to Masterworks. Transaction costs incurred as part of the sale of the Painting could be materially impacted by whether we choose or are able to sell the Painting privately or through a public auction. In a public auction, the principal transaction costs are a seller’s commission and buyer’s premium (a form of selling commission, based on a graduated scale set by each auction house), both of which reduce the net proceeds received by a seller from what a buyer ultimately pays. The final reported sales price includes the hammer price (i.e. the price at which the auctioneer declared the winning bid), and the buyer’s premium. The buyer may also separately incur additional sales or VAT taxes, fees or royalties. A seller typically receives the hammer price less the seller’s commission, if any. The economic terms negotiated between the seller and the auction house can vary widely depending on a number of factors, including the value and importance of the specific work, whether the work is sold as an individual piece or part of a larger collection, anticipated demand levels, and other factors. In addition, the proceeds receivable by a seller are less favorable if the work is subject to a pre-auction guaranty. For a work similar to the Painting, we believe that it would be reasonable to expect that the sale would incur no seller’s commission and a buyer’s premium in the range of 7% to 15% (calculated as the buyer’s premium divided by the final reported sales). For example, if the Painting were to sell at auction for a sale price of $1,000,000 (hammer price, plus buyer’s premium), the net proceeds available to the Company as the seller would be expected to be in the range of $820,000 to $910,000, however, the net result could fall outside of this range. The distribution to you upon dissolution of us following a sale will also be taxable to you depending on your tax basis in the Class A shares, the geographic area in which you reside and your local tax laws. In addition, our corporate structure may change which would change the tax treatment of a distribution – See “– The tax treatment of distributions is uncertain and subject to change.”

In addition, Masterworks will be entitled to its 20% profits interest in respect of its Class B shares, plus Class A shares issued by us as administrative fee and expense reimbursement. Accordingly, your investment returns upon a sale of the Painting, if such a sale can occur and if such sale can generate sufficient funds for a distribution after accounting for applicable expenses and taxes, may be significantly lower than the actual rate of appreciation of the Painting.

Risks Associated with an Investment in the Painting

There is no assurance of appreciation of the Painting or sufficient cash distributions resulting from the ultimate sale of the Painting.

There is no assurance that the Painting will appreciate, maintain its present value, or be sold at a profit. The marketability and value of the Painting will depend upon many factors beyond our control. There can be no assurance that there will be a ready market for the Painting, since investment in Painting is generally illiquid, nor is there any assurance that sufficient cash will be generated from the sale of the Painting to compensate members for their investment. Even if the Painting does appreciate in value, the rate of appreciation may be insufficient to cover our administrative costs and expenses.

The value of the Painting is highly subjective and appraised values and auction estimates may differ widely from actual realizable value.

The value of the Painting is inherently subjective given its unique character. Although the pre-sale auction estimate for the Painting at the November 14, 2019 auction held by Christie’s was $1,000,000 - $1,500,000 according to the sale catalogue), investors are cautioned not to put undue emphasis on the auction estimate, which is subject to a number of important qualifications and assumptions. Furthermore, despite the prior pre-sale estimates, Masterworks ultimately agreed to purchase the work for $1,080,669, though closing of the sale will occur on the earlier of (i) closing of this Offering and (ii) February 12, 2020. The future realizable value of a fine artwork may differ widely from auction estimates or its appraised value for a variety of reasons, many of which are unpredictable and impossible to discern. In addition, the net realizable value to a seller is often significantly lower than the published sale price because the net proceeds are typically reduced by all or a portion of the buyer’s premium and there may also be a sales commission.

For non-cash generating assets, such as fine art, valuation is heavily reliant on an analysis of sales history of similar artwork. Experts often differ on which historical sales are comparable and the degree of comparability. The attempt to discern value from historical sales data is extremely challenging for a variety of reasons, including, without limitation:

Accordingly, due to the inherent subjectivity involved in estimating the realizable value of the Painting, any appraisal or estimate of realizable value may prove, with the benefit of hindsight, to be different than the amount ultimately realized upon sale and such differences can be, and often are, material.

The auction market for Alex Katz is limited and there is limited historical data upon which to determine fair market value or project future value.

In contrast to artists such as Andy Warhol and Pablo Picasso who have a relatively large global collector base and a well-established track record of auction sales, the auction market for Alex Katz is far more limited. Accordingly, there is limited publicly available historical transaction data upon which to assess value. Although Katz paintings have achieved significant appreciation rates in recent years, the artist does not have a lengthy auction track record and it is difficult to assess the long term appreciation potential of these works. In addition, recent repeat sales auction history appears to reflect short-term holding or “flipping”, which would indicate speculative collecting that is not uncommon for mid-career blue-chip artists who continue to produce work, but is not necessarily indicative of long term price stability and consistent price appreciation.

An investment in the Painting is subject to various risks, any of which could materially impair the value of the Painting and the market value of our Class A shares.

Investing in Painting is subject to the following risks:

Although Masterworks Gallery agreed to purchase the Painting, the closing of which has not yet occurred, from a reputable auction house and conducted due diligence in connection with its purchase of the Painting, no amount of due diligence can completely insulate a buyer against these risks and if any of these risks materialize, the value of the Painting may decline, and the trading price of the Class A shares would be adversely affected.

If the Painting is eventually displayed in a gallery space or other location, it could be damaged, and insurance may not cover all of the damages, or even if insurance does cover the damages, it may cause the painting to be unsaleable.

It is planned that the Painting will be permanently stored and displayed in the United States, though it might be displayed periodically at an international location. We plan to obtain and maintain insurance coverage for the Painting. However, the painting may be damaged while being displayed and our insurance may not be able to cover all of the damages resulting therefrom, and even if insurance does cover such damages, the damages may result in the Painting being unsaleable. Accordingly, damage or destruction of the Painting will have a material adverse impact on the value of the Painting and, consequently, the value of the Class A shares.

We may have overpaid for the Painting.

We plan to acquire the Painting at the same purchase price paid by Masterworks at a public auction in November 2019, plus we will pay a true-up of equal to approximately 10.00% of the cost of the Painting, or $108,091. Accordingly, if Masterworks overpaid for the Painting, we will have overpaid for the Painting.

We may not be able to find a buyer for the Painting at a reasonable price.

Art is a highly illiquid asset and a significant percentage of objects go unsold when sent to auction. Even in the event that we attempt to sell the Painting, we cannot guarantee that there will be a buyer at any reasonable price. Additionally, if the Painting does go to an auction sale and is not sold, such failure could damage the reputation of the Painting in the marketplace and make it even more difficult to sell in the future.

The global economy, the financial markets and political conditions of various countries can adversely affect the supply of and demand for works of art.

The global art market is influenced over time by the overall strength and stability of the global economy and the financial markets of various countries, although this correlation may not be immediately evident. In addition, global political conditions and world events may affect our business through their effect on the economies of various countries, as well as on the willingness of potential buyers to purchase the Painting in the wake of economic uncertainty. Accordingly, weakness in those economies and financial markets can adversely affect the supply and demand for works of art and the value of the Class A shares. Furthermore, global political conditions may also influence the enactment of legislation that could adversely impact our business.

Temporary popularity of some paintings or categories of art may result in short-term value increases that prove unsustainable as collector tastes shift.

Temporary consumer popularity or “fads” among collectors may lead to short-term or temporary price increases, followed by decreases in value. The demand for specific categories of art and artists is influenced by changing trends in the art market as to which collecting categories and artists are most sought after and by the collecting preferences of individual collectors. These conditions and trends are difficult to predict and may adversely impact our ability to sell the Painting for a profit. These risks of changes in popularity may be greater for a living or emerging artist, as compared to other categories which may have a proven valuation track record over a longer period of time. These trends could result in reduced profitability or a loss upon the sale of the Painting.

We could be exposed to losses in the event of title or authenticity claims.

The buying and selling of artwork can involve potential claims regarding title, provenance and or authenticity of the artwork. Authenticity risk related to works of art may result from incorrect attribution, uncertain attribution, lack of certificate proving the authenticity of the artwork, purchase of a non-authentic artwork, or forgery. In the event of a title or authenticity claim against us by a buyer of the Painting from us, we may or may not have recourse against the seller to us of the Painting, but a claim could nevertheless expose us to losses. In addition, we do not maintain liquid assets to defend or settle any such legal claims and would be reliant on the Administrator to outlay the cost of such defense or settlement.

Ownership of Alex Katz’s work may be concentrated, and any large-scale divestiture of a major Alex Katz collection could negatively affect prices.

If any major collector were to liquidate a large number of Alex Katz paintings, the supply demand dynamic could shift dramatically. A significant increase in the number of Alex Katz paintings available for sale could reduce prices.

The Painting could be subject to damage, theft or deterioration in condition, which could have a material adverse effect on the value of the Painting.

We plan to store the Painting in a protected environment with security measures, but no amount of security can fully protect a painting from damage or theft. The damage or theft of valuable property despite these security measures could have a material adverse impact on the value of the Painting and, consequently, the value of our Class A shares.

Damage to the reputation of the artist could impair the value of the Painting.

The value of a work of art is or can be dependent on the individual brand and reputation of the artist. Although numerous books have been written about the artist, it is possible that art critics or historians will uncover previously unknown facts or allegations about the artist. If any new material revelation were to emerge and such revelation were to cast the artist in a disparaging light, such revelation could negatively affect demand for the Painting, which could diminish or eliminate its value. These reputational risks are greater for living artists, such as Alex Katz.

Changes in opinions by experts in the artwork regarding authenticity could damage or eliminate the value of the Painting.

Authenticity is often completed by art world experts, and opinions often matter more than scientific data. If a well-respected art expert were to opine negatively on the authenticity of the Painting, it could reduce or eliminate the value of the Painting.

Insurance coverage for the Painting does not cover title claims and may not cover all possible contingencies, exposing us to losses resulting from the damage or loss of the Painting.

We plan to maintain insurance coverage for the Painting against damage or loss of the Painting. Our insurance coverage does not cover title claims and may expressly exclude damage caused by war, losses caused by chemical or biological contamination and certain other potential loss scenarios. Accordingly, a successful claim that we do not have valid title and ownership to the Painting, or uncovered damage or destruction of the Painting will have a material adverse impact on the value of our Class A shares.

Industry sales cycles can be unpredictable.

Purchase behavior by collectors is generally unpredictable due primarily to the discretionary nature, relative scarcity and high values of art purchases. An art buyer may typically purchase art when excess liquidity is abundant. When economic conditions preclude art collectors from purchasing the Painting, such a downturn in sales will affect our ability to sell the Painting. Additionally, many art buyers have significant access to credit to facilitate the purchase of artwork and any changes which would cause art collectors to not access credit could have a serious impact on a collector’s ability to purchase the Painting.

Risks Related to our Reliance on the Administrator

We are totally reliant on the Administrator to maintain and sell the Painting and manage our administrative services.

We do not plan to have employees or intend to maintain or generate any cash flow prior to the sale of the Painting. Accordingly, we are totally reliant on the performance of the Administrator under the administrative services agreement to effectuate the decisions of our Board of Managers. We plan to rely on the Administrator to perform or administer all necessary services to maintain the Painting, including obtaining insurance and ensuring appropriate storage. The Administrator is also responsible for all administrative services required to maintain our Company, including professional services, regulatory filings, SEC reporting, tax filings and other matters. The Administrator is a newly formed company and has not yet developed a track record of successful performance of these activities. If the Administrator were to default on its obligations under the administrative services agreement, it would be extremely difficult for us to replace the Administrator or internally manage these functions given our lack of cash flow and lack of employees. Accordingly, in the event of a material default by the Administrator under the administrative services agreement, we would likely be forced to sell the Painting. We cannot provide assurance that the timing and or terms of any such sale would be favorable. Further, Masterworks can withdraw for any reason from its position as our Administrator, provided that such withdrawal would only become effective upon a sale of the Painting.

We are totally reliant on the Administrator to maintain sufficient capital resources to pay our fees, costs and expenses.

Although we believe the Administrator has sufficient capital resources and sources of liquidity to perform its obligations under the administrative services agreement for the foreseeable future, there can be no assurance that the Administrator will be able to maintain sufficient capital to satisfy its obligations in future periods. The Administrator’s capital resources and sources of liquidity will be relied upon by our auditors in determining our likely ability to continue as a going concern. Pursuant to and in accordance with the administrative services agreement, the Administrator is required to maintain cash reserves on hand for so long as the Class A shares remain outstanding sufficient to pay at least one year of estimated expenses to satisfy its obligations under the administrative services agreement. However, there can be no assurance that the Administrator will be able to maintain such cash reserves. If the Administrator’s liquid capital resources and sources of liquidity are insufficient to satisfy its operational requirements, including the management of our Company, for at least one year, our Company may receive qualified audit reports that would likely have a material adverse effect on the value and trading price of our Class A shares.

The Administrator is a newly formed business and could run out of capital.

The Administrator is a newly formed entity which is responsible for paying expenses of maintaining the Painting, including storage and insurance, as well as administrative costs associated with managing publicly traded companies such as ours. In that regard, we anticipate that the Administrator’s fee revenue will be fixed by contract with each entity that it manages, as it is for our Company, but its expenses will be variable and prone to increases based on market and other factors. In addition, because the Administrator intends to manage entities like ours that do not have liquid assets, it will periodically need to outlay capital for unusual or non-recurring expenses that will only be reimbursable upon a subsequent sale of the underlying Painting, which could result in liquidity shortages. The Administrator currently relies on a single investor, Scott W. Lynn, for the vast majority of its capital and liquidity. If Scott Lynn were to cease funding the Administrator for any reason, the Administrator may not be able to identify additional sources of capital.

The Board of Managers will have complete authority to administer our business consistent with the terms and conditions of our operating agreement, other than material amendments to the operating agreement and the administrative services agreement.

The Board of Managers will have sole voting power over all matters, including: mergers, consolidations, acquisitions, winding up and dissolution; except, the Board of Managers shall not have the authority to do any the following without first obtaining the prior approval or consent of the holders of a majority of the voting shares:

Additionally, we, in our sole and absolute discretion, may decide to sell the Painting at any time and in any manner.

If our Board of Managers determines that a Liquidity Option (as defined below) for the Class A shares does not exist on the seven-year anniversary of the closing of the Offering, the Company will use commercially reasonable efforts to sell the Painting as soon as reasonably practicable, but not later than the ten-year anniversary of the Closing of the Offering. A “Liquidity Option” shall refer to a means by which U.S. holders of Class A shares can monetize their investment in the Class A shares: (a) through an alternative trading system, or ATS, as defined in SEC Regulation ATS, a bulletin board connecting potential buyers with potential sellers in compliance with SEC guidelines, brokerage transactions or other means reasonably expected to provide Class A shareholders with an ability to sell their Class A shares on a continuous or episodic basis; (b) pursuant to a repurchase offer or tender offer, effected in compliance with applicable securities laws; or (c) pursuant to a best efforts secondary offering qualified by the SEC pursuant to Regulation A or similar rules in effect at such time, which secondary offering shall be filed with the SEC not later than three months following such seven-year anniversary. There is no guaranty that any such Liquidity Option or sale of the Painting will be successful, or if successful, that the net proceeds realized by shareholders from such transaction will be reflective of the estimated fair market value of the shares at such time. Masterworks will be entitled to reimbursement for costs and expenses associated with any such transaction and may earn fees for such transactions to the extent permitted by applicable laws, rules and regulations, and there can be no assurance that there will be any remaining net proceeds to be distributed after payment of such costs and expenses. The obligation to effect a sale of the Painting in the absence of a Liquidity Option can only be waived by the holders of a majority of the Class A shares.

Members of the Board of Managers may be removed by a majority of the Board of Managers for any reason with or without “cause” or for “cause” as defined in our operating agreement by a vote of the holders of two-thirds (2/3) of the voting shares. This concentration of control in the Board of Managers may delay, deter or prevent acts that would be favored by holders of our Class A shares. The interests of the Board of Managers or the Administrator may not always coincide with our interests or the interests of the holders of our Class A shares. As a result, the market price of our Class A shares could decline, or holders of our Class A shares might not receive a premium over the then-current market price of our Class A shares upon a change in control.

Holders of our Class A shares do not elect or vote on the Administrator and have limited ability to influence decisions regarding our business.

Our operating agreement provides that our assets, affairs and business will be managed under the direction of the Board of Managers. Holders of our Class A shares do not elect or vote on the Board of Managers and can only remove the Board of Managers by a vote of two-thirds (2/3) of the voting shares and only for “cause” as defined in the operating agreement. Accordingly, unlike the holders of common stock in a corporation, holders of Class A shares have only limited voting rights on matters affecting our business, and therefore limited ability to influence decisions regarding our business.

As a non-listed company conducting an exempt offering pursuant to Regulation A, we are not subject to a number of corporate governance requirements, including the requirements for a board of directors or independent board committees.

We do not intend to list the Class A shares on a national securities exchange. As a non-listed company conducting an exempt offering pursuant to Regulation A, we are not subject to a number of corporate governance requirements that an issuer listing on a national stock exchange would be. The Board of Managers is made up of Nigel Glenday, Joshua B. Goldstein, and Leonard J. Sokolow. One of the members of the Board of Managers, Leonard J. Sokolow, serves as the Independent Manager on the Board of Managers (the “Independent Manager”). The Independent Manager serves to protect the interests of the holders of the Class A shares and is tasked with reviewing and approving all related party transactions of our Company with our affiliates and address all conflicts of interest that may arise between us and the holders of the Class A shares and our affiliates. If the Independent Manager resigns from such position on the Board of Managers at any time, the remaining members of the Board of Managers shall appoint a replacement that meets the standards of an independent director pursuant to the standards set forth in NASDAQ Marketplace Rule 4200(a)(15). Accordingly, we do not have, nor are we required to have (i) a board of directors of which a majority consists of “independent” directors under the listing standards of a national stock exchange, (ii) an audit committee composed entirely of independent directors and a written audit committee charter meeting a national stock exchange’s requirements, (iii) a nominating/corporate governance committee composed entirely of independent directors and a written nominating/corporate governance committee charter meeting a national stock exchange’s requirements, (iv) a compensation committee composed entirely of independent directors and a written compensation committee charter meeting the requirements of a national stock exchange, and (v) independent audits of our internal controls. Accordingly, you may not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of a company listed on a national stock exchange.

We are reliant on the integrity of the Masterworks Platform and a security or privacy breach could expose us to liability or damage our reputation.

We will rely on the Masterworks Platform and other systems and technologies, owned or licensed, to communicate with our shareholders. Masterworks also uses mobile devices, social networking and other online activities to communicate with employees and investors. Such uses give rise to cybersecurity risks, including security breach, espionage, system disruption, theft and inadvertent release of information. Masterworks collects sensitive and confidential information, including personal information about investors, and private information about employees. Information security risks have generally increased in recent years due to the rise in new technologies and the increased sophistication and activities of perpetrators of cyber-attacks. The theft, destruction, loss, misappropriation or release of sensitive and/or confidential information, or interference with the Masterworks Platform or any of the Masterworks’ information technology systems or the technology systems of third-parties on which Masterworks relies, could result in business disruption, negative publicity, brand damage, violation of privacy laws and potential liability, any of which could result in a material adverse effect on the value and liquidity of the Class A shares.

Risk of non-compliance with regulations.

The Class A shares are being sold by SDDco-BA, which is a registered broker-dealer under the Securities Exchange Act of 1934 (the “Exchange Act”) and registered in each state where the offer and sales of the Class A shares will occur, and it is anticipated that Class A shares will be offered and sold only in states where SDDco-BA is registered as a broker-dealer. If a regulatory authority determines that the Administrator, which is not a registered broker-dealer under the Exchange Act or any state securities laws, has itself engaged in brokerage activities that require registration, including initial sale of the Class A shares on the Masterworks Platform and permitting a registered broker-dealer to facilitate resales or other liquidity of the Class A shares on the Masterworks Platform, the Administrator may need to stop operating and therefore the Company would not have an entity managing administrative services for the Company or the Painting. In addition, if the Administrator is found to have operated as a ‘broker-dealer’ without being properly registered, there is a risk that Class A shares offered and sold while the Administrator was not registered may be subject to a right of rescission, which may result in the early termination of the Offering.

Risks Relating to Potential Conflicts of Interest

Masterworks financial arrangements may result in misalignment between its interests and the interests of Class A shareholders.

Masterworks and its affiliates will have substantially complete discretion to determine when and if to sell the Painting. Since Masterworks earns administrative fees and incurs maintenance and other ongoing costs for so long as the Painting is owned by us, Masterworks may have economic incentives or disincentives to sell the Painting that are misaligned with the interests of shareholders. Accordingly, there is a risk that Masterworks and its affiliates will have conflicts of interest and no assurance can be given that any such conflicts will be resolved in a manner that is in the best interests of shareholders.

Although Masterworks will own 14,860 Class B shares representing a 20% profits interest in our Company, and will own Class A shares following the Offering, Masterworks may eventually sell its shares.

Masterworks will own 14,860 Class B shares representing a 20% profits interest in our Company following the Offering and will own Class A shares if and to the extent the Offering is undersubscribed. Masterworks will agree to lock-up provisions in our operating agreement, that will prohibit it from selling any Class B shares prior to the one-year anniversary of the Offering, though it is permitted to pledge all of its shares to unaffiliated third-party lenders and such lenders shall not be subject to the lock-up if they obtain ownership of the shares in connection with a default by Masterworks on its indebtedness. After the one-year anniversary, Masterworks will have no restrictions on the disposition of any of its retained shares, other than restrictions imposed by applicable securities laws. Accordingly, the alignment that will exist upon closing of the Offering between Masterworks and our other shareholders may not exist in the future. If Masterworks were to sell a significant portion of its shares, the interests of Masterworks may differ significantly from those of investors in the Offering and subsequent holders of the Class A shares. As a result, we cannot assure investors that Masterworks will execute a discretionary sale of the Painting at a time that is in the best interests of holders of the Class A shares.

In addition, Masterworks may arrange for some of the Class A shares it holds to be sold by a broker pursuant to a “10b5-1 trading plan” pursuant to which Masterworks may sell interests at the discretion of their brokers or pursuant to a formula, subject to volume limitations applicable pursuant to federal securities laws. There is a risk that this may result in too many Class A shares being available for resale and the price of the Class A shares declining as supply outweighs demand.

Masterworks and Members of the Board of Managers and executive officers will have other business interests and obligations to other entities, including interests and obligations relating to the art industry.

Masterworks expects to engage in other business activities, including other activities relating to the art industry. Masterworks may buy and sell other works of art, enter into pre-auction guarantees, establish a gallery (for viewing purposes), establish other entities similar to us and other activities. In addition, neither the Administrator nor its executive officers nor the Board of Managers will be required to manage us as their sole and exclusive function and they will have other business interests and will engage in other activities in addition to those relating to us. We are dependent on the Administrator and its officers and employees to successfully operate us. Their other business interests and activities could divert time and attention from operating our business.

Our operating agreement contains provisions that exculpate the Board of Managers and the administrative services agreement contains provisions that exculpate the Administrator and its affiliates, and certain other persons engaged on behalf of the Administrator from liabilities with respect to certain actions taken, even if such actions are negligent, which also reduces the remedies available to investors for certain acts by such persons.

Our operating agreement limits the liability of the Board of Managers, any of our members, any person who is an officer of ours and any person who serves at the request of the Board of Managers on behalf of us as an officer, director, members of the Board of Managers, Independent Manager, partner, member, stockholder or employee of such person. The administrative services agreement limits the liability of the Administrator, its affiliates, managers, officers and members. None of the foregoing persons shall be liable to us or the Administrator or any other member of us for any action taken or omitted to be taken by it or by other person with respect to us, including any negligent act or failure to act, except in the case of a liability resulting from any of the foregoing person’s own actual fraud, gross negligence, willful misconduct, bad faith, breach of fiduciary duties that have not been waived, reckless disregard of duty or any intentional and material breach of the operating agreement or conduct that is subject of a criminal proceeding (where such person has reasonable cause to believe that such conduct was unlawful). With the prior consent of the Board of Managers, any of the foregoing persons may consult with legal counsel and accountants with respect to our affairs (including interpretations of the operating agreement) and shall be fully protected and justified in any action or inaction which is taken or omitted in good faith, in reliance upon and in accordance with the opinion or advice of such counsel or accountants. In determining whether any of the foregoing persons acted with the requisite degree of care, such person shall be entitled to rely on written or oral reports, opinions, certificates and other statements of the members of the Board of Managers, officers, employees, consultants, attorneys, accountants and professional advisors of us selected with reasonable care; provided, that no such person may rely upon such statements if it believed that such statements were materially false. The foregoing limitations on liability reduce the remedies available to the holders of the Class A shares for actions taken which may negatively affect us.

Scott W. Lynn may Have Conflicts of Interest.

Scott W. Lynn, the founder of Masterworks and the individual responsible for funding Masterworks has effective control over the Company’s operations through contractual arrangements with the Lynn Family Trust 001, which owns 100% of the membership interests of Masterworks. Mr. Lynn is also our Chief Executive Officer and the Chief Executive Officer of our Administrator. Mr. Lynn is an art collector and could have conflicts between business with his personal art collection and the collection of Masterworks, or Mr. Lynn could simply stop funding Masterworks and cause it to cease to exist.

Risks Relating to Ownership of the Class A shares and the Offering

Our Class A shareholders will have very limited voting rights and we will have the ability to sell the Painting without shareholder approval.

Our operating agreement provides that the assets, affairs and business of our Company will be managed under the direction of our Board of Managers. Our Board of Managers, in their sole and absolute discretion, will have the ability to sell the Painting at any time and in any manner. Our shareholders do not elect or vote on our Board of Managers. Our Class A shareholders will have voting rights only with respect to certain matters, primarily relating to amendments to our operating agreement or the administrative services agreement that would adversely change the rights of the Class A shares. Each outstanding Class A share entitles the holder to one vote on all matters submitted to a vote of shareholders, provided, that Class A shares beneficially owned by Masterworks shall not vote. Generally, matters to be voted on by our shareholders must be approved by a majority of the votes cast by all Class A shares present in person or represented by proxy, although the vote to remove a member of the Board of Managers for “cause” requires a two-thirds vote. If any vote occurs, you will be bound by the majority or supermajority vote, as applicable, even if you did not vote with the majority or supermajority.

There is no active public market for our Class A shares and an active trading market may not ever develop or, even if developed, may not be available to all shareholders, may not be sustained or may cease to exist following this Offering, which would adversely impact the market for our Class A shares and make it difficult, or even impossible, to sell your Class A shares.

There is no active market for our Class A shares. Although we may seek to make the Class A shares eligible for trading on a trading platform approved by us or to facilitate brokerage transactions, we cannot provide any assurance that we will do so or that we will choose or be able to maintain that eligibility. Even if the Class A shares are tradeable, we do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market. Further, we do not expect that our Class A shares will be traded on any trading platform within twelve months after the closing of this Offering, if at all. Any such trading platform or brokerage relationships may have rules or restrictions that would prevent certain shareholders from trading based on where they hold citizenship, where they reside, their financial situation or other factors. Investors should be prepared to hold their Class A shares for an indefinite period of time, as there can be no assurance that the Class A shares will ever be tradable.

You may not be able to sell your Class A shares at or above the offering price or at all.

The initial public offering price for our Class A shares is based on based on a simple formula. The price per each Class A share is equal to the quotient of (1) approximately 110% of the purchase price that Masterworks paid for the painting (due to the approximately 10% true-up charged by Masterworks), divided by (2) 59,438, which is the total number of Class A shares offered in this Offering. In addition, Masterworks will own 14,860 Class B shares representing a 20% profits interest in our Company following the closing of this Offering. Prior to this Offering, no public market exists for our Class A shares. You may not be able to sell your Class A shares at or above the initial offering price, or ever. Investors should be prepared to hold their Class A shares for an indefinite period, as there can be no assurance that the Class A shares can ever be tradable.

If you pay part or all of the purchase price for the Class A shares in this Offering in foreign currency, and we do not close the Offering, or choose to reject the subscription, you could have exposure for currency risk.

Investors in this Offering may be able to make payment of the purchase price in the form of foreign currency if we are able to forge and maintain relationships with licensed currency exchange services providers and provided we are able to do so in accordance with SEC and FINRA guidelines. For those investors who pay in foreign currency, we plan to use a third-party service to convert such payment into U.S. dollars at the time a subscription agreement is executed, and then deposit such funds into a segregated non-interest bearing account of ours. If any funds are returned by us or if we choose to reject a subscription or elect not to proceed with the Offering, such funds will be returned by mail via a check in U.S. dollars. Because the U.S. dollar value of foreign currencies is speculative and the value of your foreign currency at the time you make your subscription may differ substantially from its U.S. dollar value in the future. You may lose money if we choose to reject a subscription or elect not to proceed with the Offering and refund your subscription. Any investor who chooses to pay for the Class A shares in this Offering in foreign currency is subject to such fluctuations in the value of such foreign currency and the currency risks stemming therefrom.

We will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. Therefore, we will be subject to ongoing public reporting requirements that are less rigorous than Exchange Act rules for companies that are not “emerging growth companies,” and our investors could receive less information than they might expect to receive from exchange traded public companies.

We will be required to publicly report on an ongoing basis under the reporting rules set forth in Regulation A for Tier 2 issuers. The ongoing reporting requirements under Regulation A are more relaxed than for “emerging growth companies” under the Exchange Act. The differences include, but are not limited to, being required to file only annual and semiannual reports, rather than annual and quarterly reports. Annual reports are due within 120 calendar days after the end of the issuer’s fiscal year, and semiannual reports are due within 90 calendar days after the end of the first six months of the issuer’s fiscal year. Therefore, our investors could receive less information than they might expect to receive from exchange traded public companies.

If our Class A shares ever become tradable, and become subject to the penny stock rules, it would become more difficult to trade our Class A shares.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price per Class A share of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If the price of our Class A shares is less than $5.00 per Class A share, our Class A shares will be deemed a penny stock. The penny stock rules require a broker-dealer, before effecting a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that, before effecting any such transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive:

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our Class A shares, and therefore holders of our Class A shares may have difficulty selling their Class A shares. Investors should be prepared to hold their Class A shares for an indefinite period of time, as there can be no assurance that the Class A shares can ever be tradable.

If our Class A shares are ever able to trade, FINRA sales practice requirements may limit an investors ability to buy and sell our Class A shares.

If our Class A shares are ever able to trade, in addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. The FINRA requirements may make it more difficult for broker-dealers to recommend that their customers buy our Class A shares, which may have the effect of reducing the level of trading activity in our Class A shares. For these and other reasons, broker dealers may not recommend our Class A shares, which could reduce the liquidity of the Class A shares.

Holders of our Class A shares may face significant restrictions on the resale of the Class A shares due to state “Blue Sky” laws or rules restricting participation by foreign citizens.

Each state has its own securities laws, often called “blue sky” laws, which limit sales of securities to a state’s residents unless the securities are registered in that state or qualify for an exemption from registration and govern the reporting requirements for broker-dealers doing business directly or indirectly in the state. Before a security is sold in a state, there must be a registration in place to cover the transaction, or the transaction must be exempt from registration. The applicable broker must be registered in that state. We do not know whether our Class A shares will be registered or exempt from registration under the laws of any state. If our Class A shares are quoted on an alternative trading system, a determination regarding registration will be made by those broker-dealers, if any, who agree to serve as the market-makers for our Class A shares. There may be significant state blue sky law restrictions on the ability of investors to sell, and on purchasers to buy, our Class A shares.

In addition, many trading platforms do not permit non-U.S. citizens or residents to transact on their platforms due primarily to complications associated with obtaining reasonable assurances as to the identity of such individuals and compliance with anti-money laundering, tax and securities laws that would be applicable to such transactions. Accordingly, you should consider the resale market for our Class A shares to be limited, as you may be unable to resell your Class A shares without the significant expense of state registration or qualification, or at all.

There is a risk the Offering will not close.

The Offering is structured in a manner such that regardless of the number of Class A shares sold in the Offering to public investors, the number of shares outstanding will be the same. Masterworks agreed to purchase the Painting on November 14, 2019, but the sale has not yet closed and the contract of sale will be assigned to the Company prior to the closing of this Offering, provided that if this Offering is not fully subscribed prior to February 12, 2020, Masterworks will advance us all of the funds required to acquire the Painting and the net proceeds of the Offering, together with any unsold Shares, will be used to repay the Masterworks advance and pay the true-up. Accordingly, there is neither a set “minimum” number of shares that needs to be sold nor is there any guarantee that a minimum number of shares will be sold in the Offering. Although there are no conditions to the closing of the Offering, there is no guarantee that the Offering will close. There are numerous possible scenarios pursuant to which the offering may be abandoned, including a material adverse change or event in the capital markets or art markets, which could make it impracticable to consummate the Offering. The emergence of material litigation regarding the painting itself and/or involving Masterworks, the outbreak of war or hostilities, or Masterworks or SDDco-BA’s determination that the Offering should be delayed, suspended, or abandoned, due to these or other unforeseeable events.

Sales of our Class A shares under Rule 144 could reduce the price of our stock.

Following this Offering, Masterworks will own 14,860 Class B shares, representing a 20% “profits interest” in our fully diluted equity. Aggregate proceeds from this Offering will not exceed $1,188,760 and not more than 59,438 Class A shares will be sold in this Offering. The Class B shares will be convertible into Class A shares with a value at the time of conversion equal to 20% of the increase in value of our issued and outstanding Class A and Class B shares. Masterworks will agree to lock-up provisions in our operating agreement that will prohibit it from selling any Class B shares prior to the one-year anniversary of the Offering, provided that Masterworks is permitted to pledge all of its shares to unaffiliated third-party lenders and such lenders shall not be subject to the lock-up if they obtain ownership of the shares in connection with a default by Masterworks on its indebtedness. After the one-year anniversary, Masterworks will have no restrictions on the disposition of any of its retained shares, other than restrictions in our operating agreement and those imposed by applicable securities laws. These shares held by our affiliates, shall be “restricted securities” as defined in Rule 144 of the Securities Act. In general, our affiliates must either sell their restricted shares in a transaction exempt from the registration requirements of the of the Securities Act, in which case the buyer would own restricted securities that could not trade freely with the Class A shares sold in this Offering for at least one year from the time of such sale, or they could sell their shares in accordance with Rule 144. Rule 144 requires that these affiliates hold their shares for a period of at least one year, not sell more than one percent of the total issued and outstanding Class A shares in any 90-day period and resell the Class A shares in an unsolicited brokerage transaction at the market price. The availability for sale of substantial amounts of Class A shares under Rule 144 could reduce prevailing market prices for our securities.

This is a fixed price offering and the fixed offering price may not accurately represent the current value of us or our assets at any particular time. Therefore, the purchase price you pay for Class A shares may not be supported by the value of our assets at the time of your purchase.

This is a fixed price offering, which means that the offering price for our Class A shares will not vary based on the underlying value of our assets at any time. Masterworks is retaining 14,860 Class B shares, representing a 20% “profits interest” in our fully diluted equity. The Class B shares retained by Masterworks will entitle Masterworks to 20% of the profit on sale of the Painting or the ability to convert such shares into Class A shares with a value at the time of conversion equal to 20% of the increase in value of our issued and outstanding Class A and Class B shares. Masterworks will pay all costs associated with the development and operation of the Masterworks Platform, costs associated with the acquisition of the Painting and all costs of our organization and this Offering. The offering size includes a true-up payment to Masterworks in the amount of $108,091 from the proceeds of the Offering for acquiring and financing the acquisition of the Painting. Masterworks will be responsible for all ordinary and necessary costs for ongoing administrative services and expenses relating to our Company and the Painting. In respect of these services and expenses, Masterworks will receive equity interests in us. These equity issuances to Masterworks will result in dilution of 1.5% per annum to Class A shareholders. Such dilutive issuances shall commence following the closing of the Offering. Therefore, the fixed offering price established for our Class A shares may not be supported by the current value of the Company or the Painting at the time of the Offering or any particular time in the future.

If we face litigation related to the Offering, we may elect to auction the Painting and the proceeds of any sale at such auction may be insufficient to provide an adequate remedy. Further, if investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.

Our Class A shares have not been registered under the Securities Act and are being offered in reliance upon the exemption provided by Section 3(b) of the Securities Act, including Regulation A promulgated thereunder. We represent that this offering circular does not contain any untrue statements of material fact or omit to state any material fact necessary to make the statements made, in light of all the circumstances under which they are made, not misleading. However, if this representation is inaccurate with respect to a material fact, if this Offering fails to qualify for exemption from registration under the federal securities laws pursuant to Regulation A, or if we fail to register the Class A shares or find an exemption under the securities laws of each state in which we offer the Class A shares, each investor may have the right to rescind his, her or its purchase of the Class A shares and to receive back from us his, her or its purchase price with interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining such judgment may outweigh the benefits. If investors successfully seek rescission, we may elect to sell the Painting and there can be no assurance that the proceeds of any such sale would be an adequate remedy for our investors and we would face severe financial demands we may not be able to meet and it may adversely affect any non-rescinding investors.

If we face litigation, unless such litigation is proven to involve fraud or intentional misconduct on the part of the Administrator or our other affiliates, we may seek to sell the Painting and the Administrator will be entitled to recoup its expenses in connection with defending and or settling such litigation.

Our operating agreement indemnifies the Board of Managers and the administrative services agreement indemnifies the Administrator in all instances not involving fraud or intentional misconduct. In addition, while the Administrator is responsible for all ordinary and necessary expenses incurred in connection with maintaining the Painting and administering our Company, there is an exception for costs incurred in connection with litigation. Accordingly, if there is any litigation involving our Company which does not involve fraud or intentional misconduct, the costs relating to such litigation will be deducted from the funds to be disbursed to holders of Class A shares upon our sale of the Painting and subsequent dissolution.

Because we do not have an audit or compensation committee, holders of our Class A shares will have to rely on our Board of Managers and the Independent Manager to perform these functions.

We do not have an audit or compensation committee comprised of an independent director. Indeed, we do not have any audit or compensation committee. The Board of Managers is made up of Nigel Glenday, Joshua B. Goldstein and Leonard J. Sokolow. One of the members of the Board of Managers, Leonard J. Sokolow, serves as the Independent Manager on the Board of Managers. The Independent Manager serves to protect the interests of the holders of the Class A shares and is tasked with reviewing and approving all related party transactions between us and our affiliates and address all conflicts of interest that may arise between us and the holders of the Class A shares and our affiliates. If the Independent Manager resigns from such position on the Board of Managers at any time, the remaining members of the Board of Managers shall appoint a replacement that meets the standards of an independent director pursuant to the standards set forth on NASDAQ pursuant to NASDAQ Marketplace Rule 4200(a)(15).

The securities industry or art industry analysts may publish detailed research reports on us or the Painting, but it is possible that those parties, as well as the media, commentators, and industry experts, will publish informal commentary or news stories about us or the Painting, which may be negative and may negatively impact the value the Class A shares.

Given the unique features of our business model and this Offering, it is possible that the analysts, media, commentators and industry experts may publicize opinions on the value of the Painting or the Class A shares which may be negative and which may significantly and adversely affect the value of our Class A shares.

Purchasers in this Offering and in the aftermarket will experience dilution in the book value of their investment over time.

The initial offering price per Class A share will be approximately $1.82 above the pro forma net tangible book value per Class A share immediately following this Offering as a result of the true-up amount payable to Masterworks upon closing of the Offering. The Administrator will earn an administrative services fee in the form of Class A shares. These fees will, when issued, effectively further reduce the tangible book value per Class A share over time. Additionally, if the value of the Class A shares increases over time, the number of Class A shares to be issued upon conversion of the Class B shares will also increase over time resulting in additional dilution to holders of our Class A shares.

Risks of investing using a credit card.

We may accept credit cards for subscriptions, provided that any such credit card subscription shall not exceed the lesser of $15,000 or the amount permitted by applicable law, per subscriber. An investment in the Class A shares is a long-term and highly illiquid investment. Payment by credit card may be appropriate for some investors as a temporary funding convenience, but should not be used as a long term means to finance an investment in the Class A shares. Investors contemplating using their credit card to invest are urged to review the SEC’s Investor Alert dated February 14, 2018 entitled: Credit Cards and Investments – A Risky Combination, which is available at https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_riskycombination. Credit card investment will result in incurrence of third-party fees and charges (often ranging from 1.5% - 3.0%), interest obligations which will lower your expected investment returns, and could exceed your actual returns. In addition, if you cannot meet your minimum payment obligation, you may damage your credit profile which would make it more difficult and more expensive to borrow in the future.

Provisions of our Certificate of Formation and our Operating Agreement may delay or prevent a take-over which may not be in the best interests of holders our Class A shares.

Provisions of our Certificate of Formation and the operating agreement may be deemed to have anti-takeover effects, which include, among others, the Board of Managers having sole and exclusive control of the operations of us with the exclusion of the holders of the Class A shares being able to vote upon certain limited circumstances, and may delay, defer or prevent a takeover attempt.

We do not intend to pay distributions in the foreseeable future and may only make a distribution to the holders of our Class A shares if the Painting can be sold at a profit to the price we paid and after the costs and expenses associated with the sale there are sufficient funds to effect a distribution upon the liquidation of the Company.

We do not maintain any cash balances and do not intend to pay any distributions in the foreseeable future and may only make a distribution to the holders of our Class A shares if the Painting can be sold at a profit to the price paid by us and other costs and expenses associated with the sale there are sufficient funds to effect a distribution upon our liquidation. Investors should be prepared to never receive a distribution in connection with their ownership of the Class A shares.

We intend to be taxed as a partnership for U.S. Federal income tax purposes, but the Board of Managers will have the right in its sole discretion to elect that the Company be taxed as a corporation, which could have significant tax consequences for certain holders of the Class A shares.

We currently anticipate that the Company will be taxed as a partnership for U.S. Federal income tax purposes. This means that any gains or losses from the operations of the Company will be passed through to holders of the Class A shares for reporting on their personal tax returns, but the Company will not pay material entity level Federal income taxes upon a sale of the Painting. The Board of Managers has sole discretion to change the tax election such that the Company would be taxed as a corporation for U.S. Federal income purposes, which would mean that the Company would be required to pay entity level U.S. Federal income taxes on gains, if any, from the sale of the Painting. Any such change could adversely impact the net amount of funds you receive, after taxes, from a sale of the Painting.

The tax treatment of an investment in the Company is uncertain and subject to change.

We currently expect to be taxed as a partnership, which means we do not expect to pay entity-level Federal income taxes and any gain or loss arising from a sale of the Painting would be allocated to our shareholders and result in capital gains or capital losses (subject to special rates applicable to collectibles) for our shareholders. In the event our Board of Managers determines that there is a material risk that our partnership status may not be respected by the IRS due to the potential existence of secondary market liquidity for the Class A shares or for other reasons, our Board of Managers may restructure our operations to avoid or minimize entity-level Federal income taxes. Any such restructuring could, among other consequences, cause any gain resulting from a sale of the Painting being taxed at higher rates applicable to ordinary income. Shareholders are urged to consult their advisors with respect to the tax consequences of an investment in the Company in light of their particular circumstances.

Tax risk to investors seeking to invest using their individual retirement accounts, including traditional and self-directed IRAs and 401(k)s.

Section 408(m) of the Internal Revenue Code of the United States treats the acquisition of any collectible, including any work of art, as a distribution from the retirement account. Distributions are taxable to the holder of the account and may be subject to early withdrawal penalties of 10% of such amount if the investor is not at least 59-1/2 years of age. The Internal Revenue Service could take the position that an investment in the Class A shares is tantamount to the acquisition of artwork and therefore should be treated as a taxable distribution. We urge those investors seeking to use their individual retirement accounts to invest in Class A shares to consult with a competent professional tax professional prior to making an investment decision.

By purchasing shares in this Offering, you are bound by the arbitration provisions contained in our subscription agreement which limits your ability to bring class action lawsuits or seek remedies on a class basis.

By purchasing shares in this Offering, investors agree to be bound by the arbitration provisions contained in our subscription agreement which provide that arbitration is the exclusive means for resolving disputes relating to or arising out of the subscription agreement, the shares, the Masterworks Platform, and/or the activities or relationships that involve, lead to, or result from any of the foregoing. Please note that this arbitration provision does not apply to claims made under the federal securities laws. Purchasers of shares in a secondary transaction would also be subject to the same arbitration provisions that are currently in our subscription agreement. Such arbitration provision limits the ability of investors to bring class action lawsuits or similarly seek remedies on a class basis for claims subject to the provision. If invoked, the arbitration is required to be conducted in New York, NY in accordance with New York law. The subscription agreement allows for either the Company or an investor to elect to enter into binding arbitration in the event of any covered claim in which the Company and the investor are adverse parties. While not mandatory, in the event that the Company were to invoke the arbitration clause, the rights of the adverse shareholder to seek redress in court would be severely limited. These restrictions on the ability to bring a class action lawsuit may result in increased costs and/or reduced remedies, to individual investors who wish to pursue claims against the Company.

DILUTION

As of the date of this filing, 100% of the membership interests of the Company are held by Masterworks.

Investors in this Offering will suffer immediate dilution in the net tangible book value per share $1.82 as a result of the true-up to be paid to Masterworks as part of our cost of acquiring the Painting. Fees payable to Masterworks in the form of Class A shares will also result in dilution in the net tangible book value per share of the Class A shares. We estimate that the net tangible book value per share upon closing of the Offering after giving effect to the intended use of proceeds from the Offering will be $18.18.

The Class B shares may also have a dilutive effect following the closing of the Offering. On or prior to the time of qualification of this offering circular by the SEC, the Company will enter into an amended and restated operating agreement which will create two classes of membership interests of the Company in the form of Class A shares and Class B shares (collectively, the “Shares”), and simultaneously, the existing membership interests will convert automatically into 14,860 Class B shares and at that time the Class B shares will become convertible pursuant to a formula into Class A shares. The formula for the conversion of the Class B shares into the Class A shares is as follows:

Definitions for conversion calculation:

Examples of conversion calculation

The following table illustrates the number and percentage of Class A shares (rounded to nearest whole share) that would be issued to Masterworks upon conversion of all of its Class B shares based on hypothetical changes in the trading price or value of the Class A shares:

Pursuant to the foregoing formula, Class A shares will only be issuable upon a conversion of Class B shares if the value of the Class A shares is higher than $20.00 per share. Upon the closing of this Offering, the value of the Class A shares will be $20.00 per share based on the offering price and therefore, no shares will be issuable upon a conversion of Class B shares into Class A shares at such time.

Nominal consideration was paid for the membership interests which will convert into the Class B shares on or prior to the time of qualification of this offering circular by the SEC upon the execution of the amended and restated operating agreement of Masterworks 005, LLC. The aggregate cash cost to Masterworks for the Class B shares (once they are issued) will be $100.00 (representing the cash payment made in consideration of the issuance of membership interests that will convert into Class B shares) or less than $0.01 per share. If in the future the value of the Class A shares increases to where there is a gain in value, based on the above formula, there will be additional dilution.

For example, if the value of the Class A shares is $30 per share, based on the foregoing conversion formula, the Class B shares will be convertible into 4,953 Class A shares if Masterworks decides to convert all of the Class B shares they hold. The new investors ownership interest would be diluted as follows assuming that 59,438 Class A shares are sold in the Offering:

Further, as additional Class A shares are issued to the Administrator as payment for its administrative services, the holders of the Class A shares will suffer dilution.

PLAN OF DISTRIBUTION

SDDco-BA, a New York limited liability company, will manage the sale of the Class A shares as Underwriter pursuant to an engagement letter agreement, a form of which is attached as Exhibit 1.1 to the offering statement of which this offering circular is an integral part (as amended, the “Engagement Agreement”). SDDco-BA shall use its best efforts to find potential purchasers for the Class A shares offered pursuant to this offering circular and may engage other broker-dealers to do so. The Underwriter is under no obligation to take the securities and has not committed to purchase any of the Class A shares offered herein. Subscriptions will be made only through the Masterworks Platform and payment will be made directly to the Company. SDDco-BA shall not directly accept subscriptions or accept payment for the Class A shares. The subscription funds paid by investors as part of the subscription process will be held in a noninterest-bearing segregated account of the Company with Cross River Bank, Inc., or a similar institution and will not be commingled with any other funds and will not be released, unless and until there is a closing of the Offering. SDDco-BA is a broker-dealer registered with the SEC and a member of the FINRA and the SIPC and is registered in each state where the Offering and sale of the Class A shares will occur. All fees and expenses of SDDco-BA will be paid by the Administrator and the Company shall have no responsibility for any amounts payable to SDDco-BA. Accordingly, the gross proceeds from the Offering shall be the same as the net proceeds from the Offering.

Online Subscriptions and Bank Account

Our affiliate Masterworks.io, LLC owns the Masterworks Platform and the principals of Masterworks (including Masterworks Administrative Services, LLC) operate the Masterworks Platform located at https://www.masterworks.io/ that allows investors to acquire interests in special purpose companies that invest in artwork. Through the Masterworks Platform, investors can, once they establish an account, browse and screen potential artwork investments, view details of an investment and sign contractual documents online. After the qualification by the SEC of the offering statement of which this offering circular is a part, the Offering will be conducted through the Masterworks Platform, whereby investors will receive, review, execute and deliver subscription agreements electronically as well as make payment of the purchase price in the form of ACH debit, credit card, or wire transfer into a segregated non-interest bearing account held by us until the closing date of this Offering. The subscription funds paid by investors as part of the subscription process will be held in a noninterest-bearing segregated account of the Company with Cross River Bank, Inc. or a similar institution and will not be commingled with any other funds and will not be released, unless and until there is a closing of the Offering. SDDco-BA will not be responsible for collecting or holding investor funds. We may also permit payment to be made in foreign currency if and to the extent we can establish and maintain relationships with licensed currency exchange services providers and or payment processing entities to facilitate such transactions and provided we are able to do so in accordance with SEC and FINRA guidelines. If we accept credit cards, any such credit card subscription shall not exceed the lesser of $15,000 or the amount permitted by applicable law, per subscriber. Investors contemplating using their credit card to invest are urged to carefully review “Risk Factors – Risks of investing using a credit card.” Credit card investment will result in incurrence of third-party fees and charges, interest obligations which will lower your expected investment returns and could exceed your actual returns. In addition, if you cannot meet your minimum payment obligation, you may damage your credit profile which would make it more difficult and more expensive to borrow in the future. Class A shares will be allocated to a purchaser based on the actual exchange rate in effect at the time a subscription is received. Any form of payment other than U.S. dollars will be converted or exchanged for cash and the cash will be deposited into the segregated account pending the closing. On the closing date, the funds in the account will be released to us and the associated Class A shares will be issued to the investors in this Offering. If there is no closing of this Offering, the funds deposited in the segregated account will be promptly returned to subscribers, without deduction and generally without interest. If any funds are returned by us if we choose to reject a subscription or elect not to proceed with the Offering, such funds will be returned by mail via a check in U.S. dollars.

Upon closing under the terms as set out in this offering circular, funds will be immediately transferred to us (where the funds will be available for use in the operations of the Company’s business in a manner consistent with the “Use of Proceeds” in this offering circular).

Engagement Agreement with the Underwriter.

We and Masterworks Administrative Services, LLC will enter into an engagement letter agreement with the Underwriter, a form of which is attached as Exhibit 1.1 to the offering statement of which this offering circular is an integral part. The term of the engagement agreement will continue for one-year, unless terminated earlier in accordance with its terms. Masterworks is responsible for the payment of all offering fees and expenses, including the following: (i) fees and disbursements of our legal counsel, accountants, and other professionals we engage; (ii) fees and expenses incurred in the production of offering documents, including design, printing, photograph, and written material procurement costs; (iii) all filing fees, including FINRA and blue sky filing fees; (iv) all of the legal fees related to the registration and qualification of the Class A shares under state securities laws and FINRA’s issuance of a No Objections Letter; and (v) other distribution expenses. To the extent that any of these fees and expenses are paid by SDDco-BA with our approval, Masterworks will, upon request, reimburse SDDco-BA for such fees and expenses. In the event the offering does not close or the engagement letter agreement is terminated for any reason other than because of SDDco-BA’s material failure to provide the services contemplated by the engagement letter agreement, the Administrator shall reimburse SDDco-BA for all unreimbursed, reasonable, documented, out-of-pocket fees, expenses, and disbursements, including legal fees. SDDco-BA will be entitled to receive commissions from the Administrator in connection with this Offering which will vary depending on a variety of factors, including the total amount of capital raised by SDDco-BA and other broker-dealers engaged by SDDco-BA to assist in the distribution, provided that commissions payable to SDDco-BA for capital raising activities in connection with this Offering shall not exceed 3.0% of the gross proceeds of the Offering, or $35,663.

In addition, SDDco-BA and representatives of SDDco-BA will receive additional payments in respect of various activities that are not directly attributable to this Offering or any other offering conducted through the Masterworks Platform, but are considered underwriting compensation. These payments relate to (i) a $5,750 monthly retainer for administrative support services, which focus on supervision of the two FINRA registered representatives and their sales practices, including compliance oversight of securities marketing material, investor screening, investor and issuer due diligence and records management, as well as legal fees incurred through the underwriting, and (ii) fixed compensation payments to the two (2) SDDco-BA representatives, which include non-transaction based compensation payable to each representative in the form of salaries and other costs related to the benefits provided to them. These amounts are payable by Masterworks Administrative Services, LLC, which is not an issuer of securities in this Offering or any other proposed offering and such amounts are payable regardless of whether any particular offering is consummated. We and SDDco-BA determined that $9,732 of such payments referenced in (i) and (ii) above are appropriately allocated to this Offering for purposes of determining maximum aggregate underwriting compensation. In making such allocation we and SDDco-BA determined to use an assumed six (6) month estimated allocation period, which reflects a period of time during the pre-qualification testing the waters period and a period of time during the estimated offering period. This assumption, which we believe is a reasonable estimate of the time expended by the representatives on this particular Offering differs from the 365 day maximum offering period. Lastly, SDDco-BA is entitled to reimbursement for out-of-pocket costs of up to $5,000 in connection with this Offering. Accordingly, the maximum amount of underwriting compensation for this Offering will not exceed $50,395, or approximately 4.24% of the gross offering proceeds if the maximum offering is sold. For the avoidance of doubt, the total amount of all items of compensation from any source payable to underwriters, broker dealers, or affiliates thereof will not under any circumstances exceed an amount that equals ten (10) percent of the gross proceeds of the Offering if the maximum offering is sold. All underwriting compensation will become due and payable by Masterworks upon consummation of this Offering, including the commissions and the fees and costs set forth above.

Transfer Agent and Registrar

The Company will act as registrar and maintain the Company’s share register. As of the date of this offering circular, we have not engaged a transfer agent, and do not intend to engage a transfer agent until such time as we determine its necessary or we are required to do so in order to satisfy the conditional exemption contained in Rule 12g5-1(a)(7) of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

Book-Entry Records of Class A shares

Ownership of the Class A shares will be represented in “book-entry” only form directly in the name of the respective owner of the Class A shares and shall be recorded by the Company and that no physical certificates shall be issued, nor received, by the Company or any other person. The Company or Masterworks shall send out email confirmations of positions and notifications of changes “from” us upon each and every event affecting any person’s ownership interest.

Investment Amount Limitations

The maximum investment amount per investor is $100,000 (5,000 Class A shares) and the minimum investment amount per investor is $10,000 (500 Class A shares). We can waive the minimum and maximum purchase requirements by posting such change to our website or on a case-by-case basis in our sole discretion. Subscriptions, once received, are irrevocable by the investors but can be rejected by us.

Generally, no sale may be made to you in this Offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, you are encouraged to refer to www.investor.gov.

As a Tier 2, Regulation A offering, investors must comply with the 10% limitation to investment in the Offering. The only investor in this Offering exempt from this limitation is an accredited investor, an “Accredited Investor,” as defined under Rule 501 of Regulation D. If you meet one of the following tests you should qualify as an Accredited Investor:

Offering Period and Expiration Date

We will commence the sale of the Class A shares as of the date on which the offering statement of which this offering circular is a part is declared qualified by the SEC. The closing of the Offering will occur on the earlier of (i) the date that the subscriptions for the Class A shares offered hereby equal $1,188,760 or (ii) a date determined by the Company in its discretion. The maximum Offering period is 365 days from the date of commencement, but we reserve the right to terminate this Offering for any reason at any time. Masterworks consummated Regulation A offerings by its subsidiaries, Masterworks 001, LLC (Andy Warhol – Marilyn Reversal) and Masterworks 003, LLC (Banksy – Mona Lisa) in the third fiscal quarter of 2019, and is currently facilitating a Regulation A offering by its subsidiaries Masterworks 002, LLC (Claude Monet – Coup de Vent) and Masterworks 004, LLC (Jonas Wood – Hammer 5). The offering circular for the offering by Masterworks 002, LLC was qualified by the SEC on November 4, 2019 and the offering circular for the offering by Masterworks 004, LLC has not yet been qualified by the SEC. The artwork owned by these entities may be liquidated in a three-to-ten year time frame, however, it has not been liquidated as of the date hereof. Other than such offerings, Masterworks has not offered any prior investment programs in which disclosed in the offering materials was a date and time period at which the investment program might be liquidated.

Masterworks Platform

We plan to use the Masterworks Platform website at https://masterworks.io/ to provide notification of this anticipated Offering. Prior to the qualification of the Offering by the SEC, we may post information about this anticipated Offering on the Masterworks Platform website, including prior auction sales of art created by Alex Katz. This offering circular as well as amendments to this offering circular after it has been publicly filed and prior to qualification by the SEC will be furnished to prospective investors for their review via download 24 hours per day, 7 days per week on the website as well.

Procedures for Subscribing

After the qualification by the SEC of the offering statement of which this offering circular is a part, if you decide to subscribe for any Class A shares in this Offering, you should go to the Masterworks Platform website at https://masterworks.io/, and follow the links and procedures described on the website. The website will direct you to receive (upon your acknowledgement that you have had the opportunity to review this offering circular), review, execute and deliver the subscription agreement electronically. The Masterworks Platform provides a secure portal to enable you to subscribe as follows:

Any potential investor will have ample time to review the Subscription Agreement, along with their counsel, prior to making any final investment decision. We will not accept any money until the SEC declares this offering circular qualified.

All funds received from investors in this Offering will be held non-interest bearing segregated bank account of the Company with Cross River Bank, Inc. or a similar institution. SDDco-BA will not be responsible for collecting or holding investor funds. The funds in the account will be released to us only after we close the Offering on the closing date. We intend to complete one closing on the closing date and until that time, the proceeds for the Offering will be kept in the segregated bank account. At the closing, the proceeds will be distributed to us and the associated Class A shares will be issued to the investors in this Offering. If there is no closing or if funds remain in the account upon termination of this Offering without any corresponding closing, the funds deposited in the segregated account will be promptly returned to subscribers, without deduction and generally without interest. Further, for those investors who pay in foreign currency, we plan to use a third-party service to convert such payment into U.S. dollars at the time a foreign currency subscription is received, and then deposit such funds in the account. Class A shares will be allocated to a purchaser based on the actual exchange rate. If any funds are returned by us if we choose to reject a subscription or elect not to proceed with the Offering, such funds will be returned by mail via check in the form of U.S. dollars.

You will be required to represent and warrant in your subscription agreement that you are an accredited investor as defined under Rule 501 of Regulation D or that your investment in the Class A shares does not exceed 10% of your net worth or annual income, whichever is greater, if you are a natural person, or 10% of your revenues or net assets, whichever is greater, calculated as of your most recent fiscal year if you are a non-natural person. By completing and executing your subscription agreement you will also acknowledge and represent that you have received a copy of this offering circular, you are purchasing the Class A shares for your own account and that your rights and responsibilities regarding your Class A shares will be governed by our operating agreement and Certificate of Formation, each filed as an exhibit to the offering statement of which this offering circular forms an integral part. Purchasers of our Class A shares in this Offering and subsequent purchasers will be deemed to become party to the Masterworks 005, LLC operating agreement, a form of which is filed as Exhibit 2.3 to the offering statement of which this offering circular forms an integral part.

Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).

For the purposes of calculating your Net Worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, 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 Class A shares.

In order to purchase Class A shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to our satisfaction, that he or she is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this Offering.

Non-U.S. investors may participate in the Offering by depositing their funds in the non-interest-bearing account. Any such funds that are received shall be held on deposit until the applicable closing of the Offering or returned if the Offering fails to close.

Selling Restrictions

Notice to prospective investors in Canada

The Offering of the Class A shares in Canada is being made on a private placement basis in reliance on exemptions from the prospectus requirements under the securities laws of each applicable Canadian province and territory where the Class A shares may be offered and sold, and therein may only be made with investors that are purchasing as principal and that qualify as both an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus and Registration Exemptions and as a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligation. Any offer and sale of the Class A shares in any province or territory of Canada may only be made through a dealer that is properly registered under the securities legislation of the applicable province or territory wherein the Class A shares are offered and/or sold or, alternatively, by a dealer that qualifies under and is relying upon an exemption from the registration requirements therein.

Any resale of the Class A shares by an investor resident in Canada must be made in accordance with applicable Canadian securities laws, which may require resales to be made in accordance with prospectus and registration requirements, statutory exemptions from the prospectus and registration requirements or under a discretionary exemption from the prospectus and registration requirements granted by the applicable Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the Class A shares outside of Canada.

Upon receipt of this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only. Par la réception de ce document, chaque investisseur canadien confirme par les présentes qu’il a expressément exigé que tous les documents faisant foi ou se rapportant de quelque manière que ce soit à la vente des valeurs mobilières décrites aux présentes (incluant, pour plus de certitude, toute confirmation d’achat ou tout avis) soient rédigés en anglais seulement.

Notice to prospective investors in the European Economic Area

In relation to each Member State of the European Economic Area (each, a “Relevant Member State”), no offer of Class A shares may be made to the public in that Relevant Member State other than:

provided that no such offer of Class A shares shall require us or the representatives to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive.

Each person in a Relevant Member State who initially acquires any Class A shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of the Prospectus Directive. In the case of any Class A shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, each such financial intermediary will be deemed to have represented, acknowledged and agreed that the Class A shares acquired by it in the offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any Class A shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the representatives has been obtained to each such proposed offer or resale.

We, the representatives and their affiliates will rely upon the truth and accuracy of the foregoing representations, acknowledgements and agreements.

This offering circular has been prepared on the basis that any offer of Class A shares in any Relevant Member State will be made pursuant to an exemption under the Prospectus Directive from the requirement to publish a prospectus for offers of Class A shares. Accordingly, any person making or intending to make an offer in that Relevant Member State of Class A shares which are the subject of the Offering contemplated in this offering circular may only do so in circumstances in which no obligation arises for us to publish a prospectus pursuant to Article 3 of the Prospectus Directive in relation to such offer. We have not authorized, nor do we authorize, the making of any offer of Class A shares in circumstances in which an obligation arises for us to publish a prospectus for such offer.

For the purpose of the above provisions, the expression “an offer to the public” in relation to any Class A shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Class A shares to be offered so as to enable an investor to decide to purchase or subscribe the Class A shares, as the same may be varied in the Relevant Member State by any measure implementing the Prospectus Directive in the Relevant Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member States) and includes any relevant implementing measure in the Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.

Notice to prospective investors in the United Kingdom

In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in the Prospectus Directive) (i) who have professional experience in matters relating to investments falling within Article 19 (5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”) and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”).

Any person in the United Kingdom that is not a relevant person should not act or rely on the information included in this document or use it as basis for taking any action. In the United Kingdom, any investment or investment activity that this document relates to may be made or taken exclusively by relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this document or any of its contents.

Notice to Prospective Investors in Switzerland

The Class A shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering or marketing material relating to the Class A shares or this Offering may be publicly distributed or otherwise made publicly available in Switzerland.

Neither this document nor any other offering or marketing material relating to this Offering, our Company, the Class A shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of Class A shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA (FINMA), and the offer of Class A shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of Class A shares.

Notice to Prospective Investors in the Dubai International Financial Centre

This offering circular relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority, or DFSA. This Offering circular is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this offering circular nor taken steps to verify the information set forth herein and has no responsibility for the offering circular. The Class A shares to which this offering circular relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Class A shares offered should conduct their own due diligence on the Class A shares. If you do not understand the contents of this offering circular you should consult an authorized financial advisor.

Notice to Prospective Investors in Australia

No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission, or ASIC, in relation to this Offering. This offering circular does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001, or the Corporations Act, and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.

Any offer in Australia of the Class A shares may only be made to persons, or the Exempt Investors, who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the Class A shares without disclosure to investors under Chapter 6D of the Corporations Act.

The Class A shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under this Offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring Class A shares must observe such Australian on-sale restrictions.

This offering circular contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this offering circular is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.

Notice to prospective investors in China

This offering circular does not constitute a public offer of the Class A shares, whether by sale or subscription, in the People’s Republic of China (the “PRC”). The Class A shares are not being offered or sold directly or indirectly in the PRC to or for the benefit of, legal or natural persons of the PRC.

Further, no legal or natural persons of the PRC may directly or indirectly purchase any of the Class A shares or any beneficial interest therein without obtaining all prior PRC’s governmental approvals that are required, whether statutorily or otherwise. Persons who come into possession of this document are required by the issuer and its representatives to observe these restrictions.

Notice to Prospective Investors in Hong Kong

The Class A shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the Class A shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Class A shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

Notice to Prospective Investors in Japan

The Class A shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

Notice to Prospective Investors in Singapore

This offering circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this offering circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of Class A shares may not be circulated or distributed, nor may the Class A shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

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

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

(b) A trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Class A shares pursuant to an offer made under Section 275 of the SFA except:

(a) To an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;

(b) Where no consideration is or will be given for the transfer;

(c) Where the transfer is by operation of law;

(d) As specified in Section 276(7) of the SFA; or

(e) As specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Class A shares and Debentures) Regulations 2005 of Singapore.

USE OF PROCEEDS TO ISSUER

We expect to receive gross proceeds from this Offering of up to $1,188,760. The Administrator will pay all expenses of the Offering, including fees and expenses associated with qualification of the Offering under Regulation A and all fees and expenses of the Underwriter. Therefore, the gross proceeds from this Offering will equal the net proceeds from this Offering. If this Offering is fully subscribed prior to February 12, 2020, $1,080,669 of the proceeds of this Offering will be used as consideration for the acquisition of the Painting from Christie’s and $108,091 will be used to pay the true-up amount to Masterworks. If this Offering is not fully subscribed prior to February 12, 2020, pursuant to an intercompany agreement filed as Exhibit 6.2 to the offering statement of which this offering circular forms an integral part, Masterworks will advance us all of the funds required to acquire the Painting and the net proceeds of the Offering, together with any unsold Class A shares, if any, will be used to repay the Masterworks advance and to pay Masterworks the true-up amount. In any circumstance in which a closing of this Offering occurs, 59,438 Class A shares will be issued and outstanding, the purchase price of the Painting and the true-up will be fully paid, the Company will own the Painting and the Company will have no indebtedness.

DESCRIPTION OF BUSINESS

The discussions contained in this offering circular relating to Alex Katz, the Painting and the art industry are taken from third-party sources that the Company believes to be reliable and the Company believes that the information from such sources contained herein regarding Alex Katz, the Painting and the art industry is reasonable, and that the factual information therein is fair and accurate.

Overview

We were formed as a Delaware limited liability company on October 7, 2019, by Masterworks to facilitate an investment in the Painting. We are a manager-managed limited liability company managed by a Board of Managers. Upon our formation, Masterworks was issued membership interests of the Company representing 100% of our membership interests. Masterworks Gallery adopted our operating agreement. On or prior to the closing of the offering, we will enter into the administrative services agreement with our Administrator pursuant to which the Administrator will agree to administer the Painting and our business. Our Administrator can withdraw for any reason from its position as our Administrator, provided that such withdrawal shall be effective only following a sale of the Painting.

Masterworks agreed to purchase the Painting at a public auction held by Christie’s in November of 2019, for $1,080,669, though closing of the sale will occur on the earlier of (i) closing of this Offering and (ii) February 12, 2020. We have the right but not the obligation to close on the acquisition of the Painting prior to February 12, 2020. We are offering 59,438 Class A shares in the Offering for aggregate consideration of $1,188,760 (inclusive of a true-up of approximately 10% of the cost of the Painting). The closing of the Offering will occur on the earlier of (i) a date promptly following the date that subscriptions for the Class A shares offered hereby total $1,188,760 or (ii) a date determined by the Company in its discretion. All of the proceeds from this Offering will be used as full consideration for the Painting and the payment of the true-up to Masterworks. Following the closing of the Offering, title to the Painting will be contributed to a segregated portfolio of Masterworks Cayman in exchange for shares of that segregated portfolio. The Painting will be the only asset of the segregated portfolio, and we will be the only shareholder of that segregated portfolio.

We do not expect to generate any revenues or cash flow unless and until the Painting is sold and no profits will be realized by investors unless the Painting is sold for more than we acquired it for, plus the true-up amount and we have sufficient funds after payment of all associated costs and fees in connection with the sale of the Painting, or the investors are able sell their Class A shares for a price higher than they purchased them for. We will be 100% reliant on the Administrator to maintain the Painting and administer our business.

Pursuant to an administrative services agreement among Masterworks and, Masterworks Cayman and us to be entered into prior to the completion of the Offering, Masterworks will manage all of our administrative services and will maintain the Painting. In exchange for these services and paying all ordinary and necessary operating costs and expenses, Masterworks will receive equity interests in us Masterworks will receive equity interests in us. These equity issuances to Masterworks will result in dilution of 1.5% per annum to Class A shareholders. The Administrator will also manage any extraordinary or non-routine services which may be required, from time-to-time, including, without limitation, litigation or services in connection with a sale of the Painting or any sale, merger, third-party tender offer or other similar transaction involving us. Any third-party costs incurred by the Administrator or payments made by the Administrator in connection with litigation or major transactions will be reimbursed upon the sale of the Painting or our Company, as applicable. For more information regarding the administrative services agreement, see “Related Party Transactions.” We will not conduct any business activities except for activities relating to the ownership, maintenance, promotion and the eventual sale of the Painting. Our strategy will be to display and promote the Painting in a manner designed to enhance its provenance and increase its exposure and its value.

Acquisition of the Painting

Masterworks agreed to purchase the Painting at a public auction held by Christie’s International PLC, on November 14, 2019, though closing of the sale will occur on the earlier of (i) closing of this Offering and (ii) February 12, 2020. The contract of sale will be assigned to the Company prior to the closing of this Offering. The acquisition of the Painting from Christie’s will occur on the earlier of (i) the closing of this Offering and (ii) February 12, 2020. If this Offering is fully subscribed prior to February 12, 2020, $1,080,669 of the proceeds of this Offering will be used as consideration for the acquisition of the Painting from Christie’s and the remaining $108,091 will be used to pay Masterworks the true-up. If this Offering is not fully subscribed prior to February 12, 2020, pursuant to an intercompany agreement filed as Exhibit 6.2 to the offering statement of which this offering circular forms an integral part, Masterworks will advance us all of the funds required to acquire the Painting and the net proceeds of the Offering, together with any unsold Shares, if any, will be used to repay the Masterworks advance and pay Masterworks the true-up. In any circumstance in which a closing of this Offering occurs, 59,438 Class A shares will be issued and outstanding, the purchase price of the Painting and the true-up will be fully paid, the Company will own the Painting and the Company will have no indebtedness.

The acquisition of the Painting by the Company will be subject to Christie’s (New York) general conditions of sale, which are filed as Exhibit 6.3 to the offering statement of which this Offering Circular forms an integral part, except Christie’s agreed with Masterworks to extend the time period required for payment and delivery of the Painting to up to ninety (90) days. Pursuant to the conditions of sale, Christie’s provides the Company with a limited five-year warranty of authenticity, subject to certain exceptions as described therein.

Masterworks Experience in the Art Industry

Masterworks is a relatively new organization. Masterworks consummated Regulation A offerings by its subsidiaries, Masterworks 001, LLC (Andy Warhol – Marilyn Reversal) and Masterworks 003, LLC (Banksy – Mona Lisa) in the third fiscal quarter of 2019, and is currently facilitating a Regulation A offering by its subsidiaries Masterworks 002, LLC (Claude Monet – Coup de Vent) and Masterworks 004, LLC (Jonas Wood – Hammer 5). The offering circular for the offering by Masterworks 002, LLC was qualified by the SEC on November 4, 2019 and the offering circular for the offering by Masterworks 004, LLC has not yet been qualified by the SEC. The artwork held by these entities has not been liquidated as of the date hereof. Other than such offerings, Masterworks has not offered any prior investment programs in which disclosed in the offering materials was a date and time period at which the investment program might be liquidated. Scott W. Lynn, our Founder and Chief Executive Officer has been an active collector of postwar and contemporary art for more than fifteen years and has built an internationally-recognized collection of Abstract Expressionism that has included works by Clyfford Still, Barnett Newman, Mark Rothko, Willem de Kooning, and more. In 2017, portions of Mr. Lynn’s collection were exhibited at the Royal Academy in London, the Denver Art Museum, and the Palm Beach Museum. At other periods in time, Mr. Lynn’s collection has been exhibited at museums such as the National Gallery, the Guggenheim (New York), and the Museum of Modern Art. Our acquisition strategy is guided by Mr. Lynn and thus far has relied heavily on various outside consultants and advisors that Mr. Lynn has worked with in his personal collecting. We have hired and continue to hire personnel with backgrounds in art investment and analysis and as such individuals become members of our team, their biographies are posted on the “Our Team” section of the www.masterworks.io website.

About the Art Market

Primary Sources of Data

There are currently a limited number of sources of publicly available data on the art market. Below are three leading sources often relied upon for information:

Statistical data relating to the art market is difficult to obtain, incomplete, or inconsistent. It is a substantially unregulated industry. Accordingly, you should not place undue reliance on any data or general information related to the art market.

Summary

The global art market is comprised of a network of auction houses, dealers, galleries, advisors, agents, individual collectors, museums, public institutions, and various experts and service providers engaged the purchase and sale of unique and collectible works of art. According to the 2019 Art Basel Report, global art sales were $67.4 billion in 2018, up 6% from 2017. The same report estimates that global sales have remained between $57 billion and $68 billion over the past decade, except during 2009 when sales declined to approximately $40 billion which is believed to have been caused by the global financial crises. For the first half of 2019, auction sales by Sotheby’s, Christie’s and Phillips totaled $5.55 billion, down 20% from the same period in 2018, according to the 2019 Deloitte Art and Finance Report. Adjusted for the sale of the Peggy and David Rockefeller Collection held at Christie’s in May 2018, auction sales by these houses in the first half of 2019 were down 9% from the same period in 2018. The Post-War and Contemporary art auction market rose 2.7% to $2.3 billion in the first half of 2019 over the same period in 2018. The global art market is influenced over time by the overall strength and stability of the global economy, geopolitical conditions, capital markets and world events, all of which may affect the willingness of potential buyers and sellers to purchase and sell art. While the global art market is large, but its exact size is unknown and statistical data is inconsistent. Much of the uncertainty stems from differing estimates of the size of the private dealer and gallery market which is based on survey data, but disparities also exist in reported auction sales.

The high-end fine art market, generally defined as works valued in excess of $1 million, is dominated by a small group of ultra-high-net-worth private collectors and institutions, with participation narrowing works valued in excess of $10 million.

The art market is commonly classified into several major collecting categories, the definitions of which may change depending on the auction house or reporting entity, but generally, they include the following:

Art Appraisals, Valuation, and Auction Estimates

The fair market value of art and other unique collectibles is generally assessed by expert appraisers using relative valuation techniques by analyzing historical comparative transactions involving similar works, characteristics of the specific work, supply and demand factors, subjective perceptions of value, among other factors. However there is no efficient market that determines the price of an artwork and there is no standardized art valuation methodology.

There is tremendous variability in the market value of individual artwork by any given artist. These differences are influenced by the perceived quality of the work, materials, condition, color, size, subject matter, provenance and other factors.

Auction houses generally estimate the sale price of a painting prior to conducting a sale. Such sale estimates are intended to provide general guidance to potential bidders regarding the expected price outcome of the artwork, however estimates may not be “arm’s length” and are often negotiated with the selling party. Therefore, they cannot be used as unbiased guidelines in determining the value of an artwork.

Private and Gallery Sales

The private art market is made up of a network of galleries, dealers, art fairs and other intermediaries that sell artwork in privately negotiated transactions. The private dealer and gallery sales market is characterized by its opacity. Galleries and other intermediaries that sell high end art have extensive relationships with figures like artists, critics, collectors and others in the art market and are often committed to long term objectives, such as enhancing the reputation of an artist they represent or the value of their collection. Accordingly, galleries can be highly selective in determining which collectors are permitted to purchase from them, preferring those that are likely to hold works for a long period of time and enhance the provenance of a piece. Most private and gallery sales are confidential. Galleries are often willing to hold inventory for longer periods of time and, generally offer works at posted prices unless there is a longstanding relationship with the buyer. Sellers determine pricing in a private sales model where the dealer or gallery act as an intermediary in negotiating the transactions with a buyer.

According to the Art Basel Report, auction sales accounted for an estimated 43% of total sales by dollar volume, as compared to approximately 47% in 2017. Auction houses are also increasingly participating in the private market, brokering non-auction sales transactions. The relative size of the private dealer and gallery market as compared to the auction market tends to shift based on overall market sentiment, where market optimism tends to bolster auction sales.

Auction Sales

The auction market is made of a network of global and regional auction houses that conduct regular sales of artwork and other collectibles in a public auction format, as well as provide other art-related services. In general, the auction market is more transparent and more democratic than the private sales market as sale prices are determined through open competition, in which any qualified individual can participate and potentially buy the offered work. Interested buyers place sequential ascending bids in a format referred to by economists as an English Auction. Works which are offered for sale by the auction house on behalf of a potential seller, also referred to as a consignor, are often referred to as lots, which may be comprised of one or more items; most artwork is sold as individual lots. Auction sales occur at a fixed time and are a matter of public record. Bidders determine the price of a piece in an auction sale, though the consignor typically sets a reserve floor price below which they would be unwilling to sell the work. A low and high estimate of the sale price is set by the auction house, with the consignor’s input, based on a variety of factors, including the prior sales history, market factors like supply considerations and the reserve price floor. If a consignor does not agree with the estimate range proposed by the auction house, they can elect not to consign the work for sale or can withdraw a consignment. Auction houses often set estimates at levels to either entice bidders to participate or potential consignors to offer their work at auction, thus estimates should not necessarily be viewed as proxies for determining market value.

The price at which an auctioneer declares an item sold at a public auction, referred to as the “hammer price,” does not reflect either the amount realized by a consignor or the price paid by a buyer. In addition to the hammer price, the successful bidder must pay the so-called “buyer’s premium,” which is effectively a commission on the sale that ranges from between 14% and 25% of the hammer price. The economics received by a consignor in an auction can vary widely. For works of relatively low value, consignors may also be required to pay a seller’s commission to the auction house. For higher value works, consignors often pay no commissions and may be entitled to receive a portion of the buyer’s premium, if not the full amount of the purchase price.

The public nature of auction sales poses certain risks for consignors. A work that fails to sell at auction as a result of not attracting a bid in excess of the reserve price, will often be much harder to sell in the future. The rate at which artworks fail to sell at public auction, referred to as the “buy-in rate,” is generally around 30%, according to Artprice. The value of an artwork is highly subjective, so a failure to sell a piece at auction is damaging to the perceived value of the work, a concept referred to the art industry as “burning” the work. A 2008 study by Beggs and Graddy determined that paintings that previously failed to sell at auction returned 30% less in subsequent sales than other paintings.

In order to attract high-value consignments, an auction house may offer a guaranteed minimum price to a consignor. In exchange, the consignor agrees, if the final sale is in excess of the guaranteed amount, to pay the auction house a certain percentage of sale proceeds above the guaranteed amount. To offset the risk of a sale below the amount guaranteed to the consignor, an auction house may also secure a minimum guaranteed bid from a potential buyer, also known as a “third-party guarantee” or “irrevocable bid”. These guarantees effectively provide certainty that a successful sale will occur. The economic terms of guarantees and irrevocable bids are not typically disclosed and can vary widely based on negotiations between the relevant parties.

Auction houses publicly report total sale prices that reflect the hammer price (i.e. the price at which the auctioneer declared the winning bid), plus the buyer’s premium, but tend to exclude applicable taxes, fees and royalties, which are typically paid by the purchaser. The buyer’s premium schedule is published by the auction house and is updated or revised periodically. The buyer’s premium for the New York salesroom of each of the major auction houses as of the date of this offering circular is as follows (percentages and USD amounts relate to the hammer price):

The amount of the published sale price a consignor receives is typically reduced by all or a portion of the buyer’s premium and, in some cases for high value items, a sales commission. The percentage of the buyer’s premium received by the consignor, if any, and the amount of any sales commission payable by the consignor, if any, are negotiated between the consignor and the auction house and vary widely depending on a number of factors, including the value and importance of the specific work, whether the work is sold as an individual piece or part of a larger collection, anticipated demand levels and other factors. For high value items auction houses often waive the sales commission and rebate a portion of the buyer’s premium to the consignor, which is commonly referred to in the industry as an “enhanced hammer.”

Auction houses do not publicly report the economic terms of transactions with consignors, so the Company cannot determine with any degree of confidence what percentage of a sale price would be received by the Company upon consummation of an auction sale. In addition, the economics receivable by a seller are less favorable if the work is subject to a pre-auction guaranty. Based on experience, we believe that it would be reasonable to expect that the net pre-tax cash proceeds receivable by the Company in an auction sale would be in the range of 93% to 82% of the published sale price, however, the net result could fall outside of this range. The existence of any such guarantee arrangement would provide greater certainty of success at auction, but could reduce the sales proceeds received by the Company.

The Artist

The discussions contained in this offering circular relating to Alex Katz, the Painting and the art industry are taken from third-party sources that the Company believes to be reliable and the Company believes that the information from such sources contained herein regarding Alex Katz, the Painting and the art industry is reasonable, and that the factual information therein is fair and accurate.

Alex Katz (b. 1927, Brooklyn) began his prolific career in the late 1940s, while New York was on the cusp of becoming the epicenter of the Western Art in the wake of Europe’s destruction in World War II. Though the dominant artistic movements at the time were Abstract Expressionism and Minimalism in the 1940s and 1950s, Katz became steadfastly dedicated to painting commonplace scenes from the daily life of his friends and family. 

Since 2000, auction sales of Alex Katz’s paintings has expanded significantly from under $250,000 to nearly $1 million the following year, then exceeding $2.6 million in 2007. In 2018, Katz’s paintings sold for a total hammer price of $8 million (approximately $10 million including buyer’s premium), and in 2019 year-to-date, sales reached a new record high of $14.2 million (approximately $18 million including buyer’s premium).

In 2019 year-to-date, Katz’s average hammer price for paintings at auction was $348,139, or approximately $430,000 including buyer’s premium, an increase of 120% from 2018. Prior to 2018, Alex Katz’s work had been achieving average hammer prices of approximately $100,000 for the prior decade. Recent acceleration in auction prices and volume reflect the increasing market attention and widening collector base and appeal of Katz’ work, which currently sells in all major auction houses and art fairs across the United States, Europe, and Asia. 

The artist, whose work is owned by some of the most important institutions of art, including the National Gallery, the Whitney Museum of American Art, MoMA, Metropolitan Museum and numerous international collections, is continuing to see momentum build for his market. His auction record, set with the painting Blue Umbrella, 1972, achieved a realized sale price of $4,151,368 (£ 3,375,000) at Phillip’s in October 2019, nearly 3.5x his prior record which had just been set just this year in February.

The Painting

Masterworks agreed to acquire Maxine (1974), which hangs at 48 by 72 inches, at Christie’s afternoon sale of Post-War and Contemporary Art in New York for $1,080,669 on November 14, 2019. The image of Maxine Groffsky, who Katz described in an interview with Apollo Magazine as “the literary lady of the time, the most desirable woman in the art world,” is a prime example of Katz’s acclaimed style. Katz painted the portrait following Groffsky’s return to New York from Europe, where she had been the editor of The Paris Review for nearly a decade. Perhaps no less striking than the sitter herself, is the cityscape in the background, where the newly constructed twin towers extend past the top edge of the canvas as the sun sets over the skyline.

Provenance

Galerie Thaddaeus Ropac, Paris

Private Collection.

Christie’s, New York, November 14, 2019, lot 857.

Acquired from above by Masterworks.

History of Prior Sales.

The table below includes a summary of total auction sales and average hammer prices of paintings by Alex Katz based on auction sales records as tracked by ArtPrice. Since 2000 through 2019 year-to-date, Alex Katz has sold 479 paintings at auction for a total of $55 million. Since 2000, total auction sales (based on hammer prices) have increased at a 27.9% compound annual growth rate and average hammer prices have increased at a 15.6% compound annual growth rate. This analysis does not include works on paper, prints, editions, multiples or any non-unique works of art by the artist. This analysis also excludes artwork that went “unsold” or were “bought-in” at auction as a result of not meeting the seller’s reserve price. For the purposes of the table below, any sale that was conducted in a foreign currency has been converted to US Dollars at the prevailing exchange rate as of the applicable sale date per ArtPrice. Though we believe this to be a comprehensive list of same-sale pairs, no definitive object-oriented database is known to Masterworks, and therefore, despite our best efforts the list of objects may be incomplete.

Notes

The table below captures sale price information on paintings by Alex Katz which have been sold at least twice at auction, which are referred to as “same-sale pairs”. We believe that same-sale pairs are useful in determining historical price appreciation rates of the specific objects for which such data is available. In order to be included in the data set below, the most recent sale would have had to occur at either Christie’s, Sotheby’s or Phillips, though the work may have initially been purchased from a different auction house. Though we believe this to be a comprehensive list of same-sale pairs, no definitive object-oriented database is known to Masterworks, and therefore, despite our best efforts the list of objects may be incomplete. For the purposes of the table below, any sale that was conducted a foreign currency has been converted to US Dollars at the prevailing exchange rate as of the applicable sale date. The average annual price appreciation of all of the listed same sale pairs is 6.8% and the median is 8.3%. The average annual price appreciation for listed same sale pairs sold since the start of 2018 is 9.9% and the median is 8.4%.

Notes

(1) As reported by the auction house in the most recent sale. Years with an asterisk (*) indicate that the year is approximate (circa)

(2) Size is rounded to the nearest inch, as reported by the auction house in the most recent sale

(3) Purchase and sale prices are shown with auction house buyer’s premium, but exclude any sales taxes, VAT, artist resale right fee or other charges assessed by the auction house

(4) If applicable, prices converted to US dollars based on the prevailing exchange rate as of the date of the transaction

(5) Implied based on the reported realized sale prices. Does not include additional carrying or ownership costs

The table and chart below capture the historical data for selected auctions sales transactions, which are comparable to Alex Katz, Maxine (1974). The set of comparable sales comprise paintings by Alex Katz with the following criteria: i) single figure female portrait created in the 1970s; ii) horizontally oriented; iii) at least 30 inches tall by 30 inches wide; and iv) sold since 1976. The data was sourced from publicly available auction records and does not include private sales. Such data may be incomplete or inaccurate. Although the paintings in the comparables set have similar characteristics to Maxine (1974), each individual painting is unique in terms of artistic content, coloring, condition, provenance and other factors. We, therefore, cannot make any determination or representation that any of the data set forth below is useful in determining the value of the Painting and you are urged not to place undue reliance on such data.  For the purposes of the table below, any sale that was conducted a foreign currency has been converted to US Dollars at the prevailing exchange rate as of the applicable sale date. The realized prices comprised by this set of comparable transactions have increased at an estimated 13.6% compounded annual growth rate.

Note

While the data above reflects historical price appreciation in the value of selected works by Alex Katz, investors in this offering will only receive net proceeds from the sale of the Painting, if any, after the sale of the Painting and only after reduction of fees and expenses payable by the company are paid. In addition, the past performance of Alex Katz paintings is not necessarily indicative of future performance. Accordingly, investors should not place undue reliance on the historical trends reflected in this data.

INDICES ARE UNMANAGED. AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX. INDICES ARE USED FOR COMPARATIVE MODELLING PURPOSES ONLY. THE TIMING OF TRANSACTIONS RELATING TO AN ASSET OR PORTFOLIO, ADVISORY, AND TRANSACTION FEES, AND OTHER MANAGEMENT ACTIVITIES CAN CREATE SIGNIFICANT DIFFERENCES BETWEEN THE PERFORMANCE OF AN INDEX AND AN INVESTMENT SEEKING SIMILAR OR SUPERIOR RELATIVE PERFORMANCE RESULTS.

The above disclosures in this section represent auction sales only and do not purport to include data regarding the total number of Alex Katz paintings currently in existence. The Company has been unable to find a reliable source of information regarding the total number of Alex Katz paintings currently in existence and therefore is unable to provide such information at this time.

Administrative Services

There are various services required to administer our business and maintain the Painting. Pursuant to an administrative services agreement that will be entered into prior to closing between us, Masterworks Cayman and the Administrator to be entered into prior to the completion of the Offering, the Administrator will manage all administrative services relating to our business and the Painting. The Administrator will receive aggregate fees and expense reimbursement for administrative services in the form of Class A shares at a rate of 1.5% of the total Class A shares outstanding, after giving effect to such issuance, per annum, following the closing of the Offering. The foregoing equity issuances to Masterworks will result in dilution to Class A shareholders. The share issuance in respect of fees and routine reimbursements to Masterworks will be made on a quarterly basis in arrears.

Any extraordinary costs or non-routine services, if any, will be managed and paid for by the Administrator, but such extraordinary costs will be reimbursed upon the sale of the Painting or a sale of our Company, as applicable.

Ordinary and necessary entity-level administrative and maintenance costs include:

Ordinary and necessary Painting-level administrative and maintenance costs include:

Extraordinary or non-routine costs for which the Administrator shall be entitled to seek reimbursement from us, as applicable, include:

Our agreements with our affiliated entities raise various conflicts of interests in which the best interest of our Administrator and our affiliates may differ from the best interest of holders of the Class A shares.

Conflicts of Interest include but are not limited to the following: