TABLE OF CONTENTS
As filed with the Securities and Exchange Commission on February 13, 2023
Registration No. 333-      ​
​
​
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
​
Form S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933​
​
HUT 8 CORP.
​
​
Delaware
(State or other jurisdiction of
incorporation or organization)
​ ​
7374
(Primary Standard Industrial
Classification Code Number)
​ ​
92-2056803
(IRS Employer
Identification No.)
​
c/o U.S Data Mining Group, Inc.
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Phone: (305) 224-6427
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
​
Corporation Service Company
251 Little Falls Drive
Wilmington, Delaware 19808
Phone: (650) 560-4753
(Name, address, including zip code, and telephone number, including area code, of agent for service)
​
Copies to:
​
Ryan J. Dzierniejko
June S. Dipchand
Skadden, Arps, Slate,
Meagher & Flom LLP
One Manhattan West
New York, NY 10001
(212) 735-3000
​ ​
Curtis Cusinato
Matthew Hunt
Bennett Jones LLP
3400 One First Canadian Place
Toronto, ON M5X 1A4
(416) 863-1200
​ ​
Aniss Amdiss
Chief Legal Officer and Corporate Secretary,
Hut 8 Mining Corp.
24 Duncan Street, Suite 500
Toronto, ON M5V 2B8
(647) 256-1992
​ ​
Daniella G. Silberstein
Raffael M. Fiumara
Greenberg Traurig, P.A.
333 S.E. 2nd Avenue, Suite 4400
Miami, FL 33131
(305) 579-0500
​ ​
Amanda Linett
Stikeman Elliott LLP
5300 Commerce Court West
199 Bay Street
Toronto, ON, M5L 1B9
(416) 869-5500
​
Approximate date of commencement of proposed sale of the securities to the public:   As soon as practicable after this registration statement becomes effective and upon consummation of the merger described in the enclosed prospectus.
If the securities being registered on this Form are to be offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated file” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
​
Large accelerated filer
☐
​
 ​ ​
Accelerated filer
☐
​
 ​
​
Non-accelerated filer
☒
​
 ​ ​
Smaller reporting company
☐
​
 ​
​ ​ ​ ​
Emerging growth company
☒
​
 ​
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒
If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule I3e-4(i) (Cross-Border Issuer Tender Offer)
☐
​
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
☐
​
​
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the SEC, acting pursuant to said section 8(a), may determine.
​
​
TABLE OF CONTENTS
The information in this prospectus is not complete and may be changed. We may not distribute or issue the securities being registered pursuant to the registration statement (of which this preliminary prospectus forms a part) until the registration statement, as filed with the Securities and Exchange Commission, is effective. This preliminary prospectus is not an offer to sell nor should it be considered a solicitation of an offer to buy the securities described herein in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 13, 2023
[MISSING IMAGE: lg_hut8-4clr.jpg]
44,231,514 SHARES OF COMMON STOCK, PAR VALUE $0.01 PER SHARE
TO BE ISSUED IN CONNECTION WITH THE PROPOSED MERGER OF U.S. DATA MINING GROUP, INC. AND MERGER SUB, A WHOLLY-OWNED SUBSIDIARY OF HUT 8 CORP.
This prospectus of Hut 8 Corp., a Delaware corporation (“New Hut,” “us” or “we”), relates to shares of New Hut common stock, par value $0.01 per share (“New Hut common stock” or “New Hut Shares”), to be issued to the holders of capital stock of U.S. Data Mining Group, Inc., a Nevada corporation doing business as “US BITCOIN” ​(“USBTC”), as provided for by a Business Combination Agreement dated February 6, 2023, by and among Hut 8 Mining Corp., a corporation existing under the laws of British Columbia (“Hut 8”), USBTC and New Hut (the “Business Combination Agreement”). A copy of the Business Combination Agreement and the plan of arrangement (“Plan of Arrangement”) is attached as an exhibit to the registration statement on Form S-4 (the “Registration Statement”) of which this prospectus forms a part.
Pursuant to the Business Combination Agreement, (i) Hut 8 and its direct wholly-owned subsidiary, Hut 8 Holdings Inc., a corporation existing under the laws of British Columbia, will, as part of a court-sanctioned plan of arrangement (the “Arrangement”) under the Business Corporations Act (British Columbia) (the “BCBCA”), be amalgamated to continue as one British Columbia corporation (“Hut Amalco”), with the capital of Hut Amalco being the same as the capital of Hut 8 (the “Amalgamation”), (ii) following the Amalgamation, and pursuant to the Arrangement, each common share of Hut Amalco (other than any shares held by dissenting shareholders) will be exchanged for 0.2000 of a share of New Hut common stock (the “Hut 8 Share Exchange”), which will effectively result in a consolidation of the common shares of Hut 8 (the “Hut Shares”) on a five to one (5 to 1) basis and (iii) following the completion of the Arrangement, a newly-formed direct wholly-owned Nevada subsidiary of New Hut (“Merger Sub”) will merge with and into USBTC, with each share of Series A preferred stock of USBTC, $0.00001 par value per share (“Series A Preferred”), Series B preferred stock of USBTC, $0.00001 par value per share (“Series B Preferred”), Series B-1 preferred stock of USBTC, $0.00001 par value per share (“Series B-1 Preferred”) and common stock of USBTC, $0.00001 par value per share (“USBTC common stock”), being exchanged for 0.6716 of a share of New Hut common stock in a merger executed in accordance with the relevant provisions of the Nevada Revised Statutes (the “NRS”), as amended (the “Merger,” and together with the Arrangement, the “Business Combination”). The shares of New Hut common stock issued to shareholders of Hut 8 (the “Hut 8 shareholders”) under the Arrangement will be issued pursuant to an exemption from registration under Section 3(a)(10) of the U.S. Securities Act of 1933, as amended (the “Securities Act”). As a result of the Business Combination, both Hut Amalco and USBTC will become wholly-owned subsidiaries of New Hut. New Hut intends to list its shares on the Nasdaq Stock Exchange (“Nasdaq”) and the Toronto Stock Exchange (the “TSX”) under the trading symbol “HUT” following the completion of the Business Combination, subject to the approval of Nasdaq and the TSX.
New Hut is an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012 and applicable rules of the United States Securities and Exchange Commission (“SEC”), and therefore is eligible to rely on reduced public company reporting requirements.
This is not a proxy statement. We are not asking you for a proxy and you are requested not to send us a proxy.
We encourage you to carefully read this prospectus and the documents incorporated by reference in this prospectus in their entirety, including the section titled “Risk Factors” beginning on page 27 of this prospectus.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
TABLE OF CONTENTS
 
ADDITIONAL INFORMATION
This prospectus incorporates by reference important business and financial information about Hut 8 from other documents that may not be included in or delivered with this prospectus. For a listing of the documents incorporated by reference into this prospectus, see the section entitled “Where You Can Find Additional Information.” You can obtain the documents incorporated by reference into this prospectus through Hut 8’s profile on the SEC website at www.sec.gov and also on the SEDAR website maintained by the Canadian Securities Administrators at www.sedar.com. Copies of the documents incorporated by reference into this prospectus may also be obtained on request without charge from the Corporate Secretary of Hut 8 at Suite 500, 24 Duncan Street, Toronto, Ontario, Canada, M5V 2B8, by telephone at 647-256-1992.
As a result of registering the securities offered hereby, New Hut will become subject to the information and reporting requirements of the Exchange Act and, in accordance therewith, will file reports and other information with the SEC. Reports and other information that will be filed by New Hut will be available at the SEC website at www.sec.gov.
IMPORTANT NOTE ABOUT THIS PROSPECTUS
This document, which forms part of a Registration Statement filed with the SEC by New Hut (File No. 333-               ), constitutes a prospectus of New Hut under Section 5 of the Securities Act with respect to the shares of New Hut common stock to be issued to USBTC stockholders (as defined herein) pursuant to the Merger.
All information concerning Hut 8 contained in this prospectus has been furnished by Hut 8 and all information concerning USBTC contained in this prospectus has been furnished by USBTC. Hut 8 does not have independent knowledge of the matters set forth herein regarding USBTC or its subsidiaries, and USBTC does not have independent knowledge of the matters set forth herein regarding Hut 8 or its subsidiaries.
You should rely only on the information contained in or incorporated by reference into this prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is not lawful to make any such offer or solicitation.
This prospectus is dated                , 2023, and you should not assume that the information contained in this prospectus is accurate as of any date other than such date. Neither the delivery of this prospectus nor the issuance by New Hut of shares of New Hut common stock registered hereunder shall, under any circumstances, create any implication that there has been no change in the assets, properties or affairs of New Hut, Hut 8 or USBTC since such date or that the information contained herein is correct as of any time subsequent to such date.
CURRENCY AND EXCHANGE RATE DATA
Unless otherwise specified, currency amounts referenced in this prospectus are in U.S. dollars. References to “$” or “US$” are to U.S. dollars and references to “C$” are to Canadian dollars.
The following table lists, for each period presented, the high and low exchange rates, the average of the exchange rates during the period indicated, and the exchange rates at the end of the period indicated, of one U.S. dollar in exchange for Canadian dollars, based on the closing exchange rate published by the Bank of Canada for the applicable periods.
​ ​ ​
Year ended December 31,
​
​ ​ ​
2022
​ ​
2021
​
High
​ ​ ​ $ 1.3856 ​ ​ ​ ​ $ 1.2942 ​ ​
Low
​ ​ ​ $ 1.2451 ​ ​ ​ ​ $ 1.2040 ​ ​
Average
​ ​ ​ $ 1.3011 ​ ​ ​ ​ $ 1.2535 ​ ​
Period-End
​ ​ ​ $ 1.3544 ​ ​ ​ ​ $ 1.2678 ​ ​
TABLE OF CONTENTS​​
 
TABLE OF CONTENTS
​ ​ ​ ​ ​ 1 ​ ​
​ ​ ​ ​ ​ 7 ​ ​
​ ​ ​ ​ ​ 17 ​ ​
​ ​ ​ ​ ​ 19 ​ ​
​ ​ ​ ​ ​ 22 ​ ​
​ ​ ​ ​ ​ 23 ​ ​
​ ​ ​ ​ ​ 24 ​ ​
​ ​ ​ ​ ​ 25 ​ ​
​ ​ ​ ​ ​ 27 ​ ​
​ ​ ​ ​ ​ 75 ​ ​
​ ​ ​ ​ ​ 75 ​ ​
​ ​ ​ ​ ​ 75 ​ ​
​ ​ ​ ​ ​ 80 ​ ​
​ ​ ​ ​ ​ 81 ​ ​
​ ​ ​ ​ ​ 82 ​ ​
​ ​ ​ ​ ​ 86 ​ ​
​ ​ ​ ​ ​ 92 ​ ​
​ ​ ​ ​ ​ 92 ​ ​
​ ​ ​ ​ ​ 93 ​ ​
​ ​ ​ ​ ​ 94 ​ ​
​ ​ ​ ​ ​ 95 ​ ​
​ ​ ​ ​ ​ 95 ​ ​
​ ​ ​ ​ ​ 95 ​ ​
​ ​ ​ ​ ​ 95 ​ ​
​ ​ ​ ​ ​ 96 ​ ​
​ ​ ​ ​ ​ 96 ​ ​
​ ​ ​ ​ ​ 96 ​ ​
​ ​ ​ ​ ​ 96 ​ ​
​ ​ ​ ​ ​ 97 ​ ​
​ ​ ​ ​ ​ 98 ​ ​
​ ​ ​ ​ ​ 99 ​ ​
​ ​ ​ ​ ​ 99 ​ ​
​ ​ ​ ​ ​ 101 ​ ​
​ ​ ​ ​ ​ 101 ​ ​
​ ​ ​ ​ ​ 102 ​ ​
​ ​ ​ ​ ​ 103 ​ ​
​ ​ ​ ​ ​ 103 ​ ​
​ ​ ​ ​ ​ 106 ​ ​
​ ​ ​ ​ ​ 109 ​ ​
​ ​ ​ ​ ​ 111 ​ ​
​ ​ ​ ​ ​ 111 ​ ​
​ ​ ​ ​ ​ 114 ​ ​
​ ​ ​ ​ ​ 116 ​ ​
​ ​ ​ ​ ​ 117 ​ ​
​ ​ ​ ​ ​ 118 ​ ​
​ ​ ​ ​ ​ 118 ​ ​
​ ​ ​ ​ ​ 119 ​ ​
​ ​ ​ ​ ​ 119 ​ ​
​ ​ ​ ​ ​ 119 ​ ​
​ ​ ​ ​ ​ 119 ​ ​
​
i
TABLE OF CONTENTS​​
 
​ ​ ​ ​ ​ 122 ​ ​
​ ​ ​ ​ ​ 125 ​ ​
​ ​ ​ ​ ​ 126 ​ ​
​ ​ ​ ​ ​ 127 ​ ​
​ ​ ​ ​ ​ 129 ​ ​
​ ​ ​ ​ ​ 142 ​ ​
​ ​ ​ ​ ​ 162 ​ ​
​ ​ ​ ​ ​ 168 ​ ​
​ ​ ​ ​ ​ 173 ​ ​
​ ​ ​ ​ ​ 175 ​ ​
​ ​ ​ ​ ​ 178 ​ ​
​ ​ ​ ​ ​ 180 ​ ​
​ ​ ​ ​ ​ 194 ​ ​
​ ​ ​ ​ ​ 207 ​ ​
​ ​ ​ ​ ​ 209 ​ ​
​ ​ ​ ​ ​ 211 ​ ​
​ ​ ​ ​ ​ 211 ​ ​
​ ​ ​ ​ ​ 211 ​ ​
​ ​ ​ ​ ​ 211 ​ ​
​ ​ ​ ​ ​ 212 ​ ​
​ ​ ​ ​ ​ F-1 ​ ​
​ ​ ​ ​ ​ II-1 ​ ​
​
ii
TABLE OF CONTENTS​
 
QUESTIONS AND ANSWERS ABOUT THE BUSINESS COMBINATION
The following questions and answers briefly address some questions that you, as a securityholder of USBTC, may have regarding the Business Combination. These questions and answers, as well as the summary section that follows, are not meant to be a substitute for the information contained in the remainder of this prospectus, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this prospectus. You are urged to read this prospectus in its entirety. Additional important information is also contained in the documents incorporated by reference in and the exhibits to the Registration Statement of which this prospectus forms a part. You should pay special attention to the “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 25 of this prospectus and to the “Risk Factors” beginning on page 27 of this prospectus.
Why am I receiving this prospectus?
New Hut is providing this prospectus to the USBTC stockholders (the “USBTC stockholders”) because New Hut has entered into the Business Combination Agreement, pursuant to which Merger Sub will merge with and into USBTC, with each share of Series A Preferred, Series B Preferred, Series B-1 Preferred and USBTC common stock being exchanged for 0.6716 of a share of New Hut common stock in a merger executed in accordance with the relevant provisions of the NRS. As a result of the Merger, USBTC will become a wholly-owned subsidiary of New Hut. Pursuant to the Registration Statement of which this prospectus forms a part, New Hut is registering shares of New Hut common stock issuable to USBTC stockholders upon the consummation of the Business Combination (the “Closing”), in accordance with the Business Combination Agreement. Applicable requirements of the federal securities laws require New Hut to provide you with information regarding the Business Combination. This prospectus contains important information about the Business Combination, the Business Combination Agreement, and certain related matters, and you should read this prospectus carefully. However, please be aware that this prospectus is not a proxy statement or notice of meeting and that we are not asking you for a proxy and you are requested not to send us a proxy.
The Merger must be approved by at least (i) a majority of the voting power of the outstanding USBTC capital stock, voting together as a single class on an as-converted basis, and (ii) separately, the holders of a majority of the outstanding shares of the Series A Preferred (voting together as a single and separate class on an as-converted basis) including the affirmative vote of JHS Bitcoin Mining LLC (“JHS”) (the “USBTC Stockholder Approval”). Following the effectiveness of the Registration Statement of which this prospectus forms a part, USBTC intends to solicit the USBTC Stockholder Approval by way of a written consent of the USBTC stockholders (the “USBTC Consent”).
The Arrangement will require the approval of at least 662∕3% of the votes cast by the Hut 8 shareholders present in person or represented by proxy at a special meeting of Hut 8 shareholders held for the purpose of approving the Business Combination and the transactions contemplated thereby (the “Hut 8 Meeting”). Securityholders of USBTC will not be required to vote on or approve the Arrangement.
Why are the two companies proposing the Business Combination?
The Business Combination is expected to create a strengthened player in the digital asset mining, hosting, managed infrastructure operations, and high performance computing space with strong financial and operating metrics. New Hut will be led by a combined board of directors and management team of Bitcoin miners, energy experts, and business leaders, bringing together the powerful cultures, strengths, and capabilities of both Hut 8 and USBTC.
Key strategic advantages of the Business Combination include:
A strengthened financial position and flexibility
New Hut aims to benefit from a combined balance sheet with greater financial stability, which is expected to strengthen New Hut’s ability to navigate market cycles and increases New Hut’s flexibility to grow and invest in new opportunities. New Hut anticipates being included in new stock indexes and improved access to capital given its increased scale and new U.S. headquarters.
TABLE OF CONTENTS
 
An accelerated diversification strategy for New Hut
New Hut is expected to have an enhanced revenue profile from distinct business lines. New Hut is expected to generate monthly recurring revenue from: hosting services denominated in fiat from existing long-term clients, managed infrastructure operations for Bitcoin mining sites looking to maximize the potential of their facilities, hardware equipment sales to customers, and the MicroBT-certified repair center business serving customers across North America and Northern Europe.
Maintaining commitment to advancing the high performance computing traditional data center business
New Hut will be committed to the continued advancement of the high performance computing business, which continues to be a key focus of New Hut’s diversified strategy and is expected to generate monthly recurring revenue from approximately 370 North American customers.
A strengthened, proven and trusted senior leadership team and board of directors with a track record of value creation
The combined New Hut executive team will lead approximately 210 team members to deliver on the existing and proven strategy of growing long-term sustainable operations.
A growing pipeline of opportunities
New Hut will benefit from a strong pipeline of growth opportunities at existing, greenfield and brownfield sites.
Enhancing New Hut’s position in one of the world’s high-potential Bitcoin mining regions
The Business Combination looks to solidify New Hut as a Bitcoin mining entity with operating capacity at high-quality sites in Alberta, Canada, and Texas, Nebraska, and New York in the United States.
Advancing commitment to driving improvements across all ESG metrics
The Business Combination will improve New Hut’s overall energy mix to include wind, hydro and nuclear sources solidifying the Hut 8 and USBTC team’s commitment and focus on ESG goals.
Improving New Hut’s energy expertise and hedging capabilities
The USBTC team will bring significant leadership in energy origination, development, demand response, hedging, grid stabilization and analytics to New Hut, which will enhance New Hut’s ability to better plan around stable and predictable energy usage and mitigate fluctuating prices across markets.
To review the reasons for the Business Combination in greater detail, see the sections titled “The Business Combination — The Hut 8 Board’s Reasons for the Business Combination” and “The Business Combination — The USBTC Board’s Reasons for the Business Combination” beginning on pages 80 and 81, respectively, of this prospectus.
What will USBTC stockholders and Hut 8 securityholders receive in the Business Combination?
Pursuant to the terms of the Business Combination Agreement, each share of Series A Preferred, Series B Preferred, Series B-1 Preferred and USBTC common stock will be exchanged for 0.6716 of a share of New Hut common stock (the “USBTC Exchange Ratio”). In addition, each option to purchase USBTC common stock (a “USBTC Option”) outstanding immediately prior to Closing shall automatically be exchanged for an option (each, a “USBTC Replacement Option”) entitling the holder to purchase that number of shares of New Hut common stock equal to the product obtained when the number of shares of USBTC common stock subject to such USBTC Option immediately prior to the Closing is multiplied by the USBTC Exchange Ratio (rounded down to the nearest whole share), at an exercise price for each share of New Hut common stock that may be purchased under such USBTC Replacement Option equal to the quotient obtained when the exercise price per share of USBTC common stock, as of immediately prior to the Closing, under such exchanged
2
TABLE OF CONTENTS
 
USBTC Option is divided by the USBTC Exchange Ratio (rounded up to the nearest whole cent). See the section entitled “The Business Combination Agreement — Treatment of USBTC Securities,” beginning on page 101 of this prospectus.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each Hut 8 common share outstanding immediately prior to the effective time of the Arrangement (other than any such shares in respect of which a registered Hut 8 shareholder validly exercises dissent rights) will be exchanged for 0.2000 of a share of New Hut common stock (the “Hut 8 Exchange Ratio”). The Hut 8 Exchange Ratio effectively results in a consolidation of the existing Hut Shares on a five to one (5 to 1) basis.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each option to purchase Hut 8 common shares (a “Hut 8 Option”) outstanding immediately prior to the effective time of the Arrangement shall automatically be exchanged for an option (each, a “Hut 8 Replacement Option”) entitling the holder to purchase that number of shares of New Hut common stock equal to the product obtained when the number of Hut 8 common shares subject to such Hut 8 Options immediately prior to the effective time of the Arrangement is multiplied by the Hut 8 Exchange Ratio (rounded down to the nearest whole share), at an exercise price for each share of New Hut common stock that may be purchased under such Hut 8 Replacement Option equal to the quotient obtained when the exercise price per Hut 8 common share, as of immediately prior to the effective time of the Arrangement, under the applicable exchanged Hut 8 Option is divided by the Hut 8 Exchange Ratio (rounded up to the nearest whole cent).
In accordance with the Business Combination Agreement, pursuant to the Arrangement, the terms of each Hut 8 restricted share unit (each a “Hut 8 RSU”) outstanding immediately prior to the effective time of the Arrangement will be adjusted so that upon settlement each holder of a Hut 8 RSU shall be entitled to receive either (i) a cash payment equal to the product of the market value of a share of New Hut common stock and the Hut 8 Exchange Ratio, (ii) that number of shares of New Hut common stock equal to the Hut 8 Exchange Ratio or (iii) a combination of cash and shares of New Hut common stock.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, the terms of each Hut 8 deferred share unit (each a “Hut 8 DSU”) outstanding immediately prior to the effective time of the Arrangement will be adjusted so that upon settlement each holder of a Hut 8 DSU shall be entitled to receive either (i) a cash payment equal to the product of the market value of a share of New Hut common stock and the Hut 8 Exchange Ratio, (ii) that number of shares of New Hut common stock equal to the Hut 8 Exchange Ratio or (iii) a combination of cash and shares of New Hut common stock.
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each holder of common share purchase warrants of Hut 8 issued on June 15, 2021 (each a “Hut 8 June 2021 Warrant”) shall be entitled to receive (and such holder shall accept) upon the exercise of such holder’s Hut 8 June 2021 Warrant, in lieu of Hut 8 common shares to which such holder was theretofore entitled upon such exercise, that number of shares of New Hut common stock equal to the product obtained when the number of Hut 8 common shares subject to such Hut 8 June 2021 Warrant immediately prior to the effective time of the Arrangement is multiplied by the Hut 8 Exchange Ratio, at an exercise price for each share of New Hut common stock equal to the quotient obtained when the exercise price per Hut 8 common share under such Hut 8 June 2021 Warrant is divided by the Hut 8 Exchange Ratio (provided that (A) no fractional share of New Hut common stock will be issued upon any particular exercise of Hut 8 June 2021 Warrants, and the aggregate number of shares of New Hut common stock to be issued upon exercise by a holder of one or more Hut 8 June 2021 Warrants shall be rounded down to the nearest whole number, and (B) the aggregate exercise price payable on any particular exercise of Hut 8 June 2021 Warrants shall be rounded up to the nearest whole cent).
In accordance with the Business Combination Agreement, pursuant to the Arrangement, each holder of warrants to acquire Hut 8 common shares issued by Hut 8 on June 15, 2021 and expiring on June 15, 2023, and warrants to acquire Hut 8 common shares issued by Hut 8 on September 17, 2021 and expiring on September 17, 2026 (together, “Hut 8 Compensation Warrants”) shall be entitled to receive (and such holder shall accept) upon the exercise of such holder’s Hut 8 Compensation Warrant, in lieu of Hut 8 common shares to which such holder was entitled upon such exercise, that number of shares of New Hut common stock equal to the product obtained when the number of Hut common shares subject to such Hut 8 Compensation Warrant immediately prior to the effective time of the Arrangement is multiplied by the Hut 8 Exchange
3
TABLE OF CONTENTS
 
Ratio, at an exercise price for each share of New Hut common stock equal to the quotient obtained when the exercise price per Hut 8 common share under the former Hut 8 Compensation Warrant is divided by the Hut 8 Exchange Ratio (provided that (A) no fractional share of New Hut common stock will be issued upon any particular exercise of Hut 8 Compensation Warrants, and the aggregate number of shares of New Hut common stock to be issued upon exercise by a holder of one or more Hut 8 Compensation Warrants shall be rounded down to the nearest whole number, and (B) the aggregate exercise price payable on any particular exercise of Hut 8 Compensation Warrants shall be rounded up to the nearest whole cent). For more information, please see “The Business Combination Agreement — Treatment of Hut Securities; Plan of Arrangement,” beginning on page 99 of this prospectus.
As a result of the Business Combination, Hut 8 shareholders and USBTC stockholders will each own, as a group, approximately 50% of the common stock of New Hut, with New Hut having an expected approximately 88.5 million shares of its common stock outstanding, in each case on a fully-diluted in-the-money basis. The below chart illustrates the impact of the Hut 8 Exchange Ratio and the USBTC Exchange Ratio on a fully-diluted basis, assuming the exercise of all fully vested in-the-money derivative securities:
[MISSING IMAGE: fc_hut8usbitcoin-4clr.jpg]
What happens if the Business Combination is not completed?
If the Business Combination is not completed for any reason, USBTC stockholders will not receive any consideration for their USBTC securities, and neither USBTC nor Hut 8 will be acquired by New Hut. If the Business Combination Agreement is terminated under certain circumstances, Hut 8 may be required to pay USBTC a termination fee of US$10,000,000, as described under the section titled “The Business Combination Agreement — Termination” beginning on page 116 of this prospectus.
If I am a USBTC stockholder, how will I receive the consideration to which I will become entitled pursuant to the Business Combination Agreement?
Prior to the Closing, New Hut will appoint Computershare Investor Services Inc. (the “Depositary”) or another depositary mutually agreed to by Hut 8 and USBTC for purposes of exchanging certain consideration to be paid under the Business Combination Agreement.
After receipt by the Depositary of (i) a letter of transmittal and (ii) instructions for use in effecting the surrender of USBTC certificates in exchange for the applicable consideration, if applicable and required, New Hut will cause the Depositary, following completion of the Business Combination, to issue the amount of shares of New Hut common stock that such USBTC stockholder has the right to receive pursuant to the Business Combination Agreement.
4
TABLE OF CONTENTS
 
Are there any important risks related to the Business Combination or Hut 8’s or USBTC’s businesses of which I should be aware?
Yes, there are important risks related to the Business Combination and Hut 8’s, USBTC’s and the combined company’s businesses. We urge you to read carefully and in its entirety the section titled “Risk Factors” beginning on page 27 of this prospectus as well as the additional risk factors concerning Hut 8 that are incorporated into this prospectus by reference.
Are USBTC stockholders entitled to seek appraisal or dissenter’s rights?
Under applicable Nevada law, stockholders of a Nevada corporation may, subject to certain conditions, be entitled to dissent from a transaction and demand payment of the fair value of such stockholder’s securities in the event of certain corporate actions, including certain mergers. Under Nevada law, USBTC stockholders are entitled to dissenters’ rights if exercised in accordance with applicable law. For additional information, please see the sections titled “The Business Combination — USBTC Stockholder Appraisal and Dissenter’s Rights” and “Appraisal and Dissenter’s Rights” beginning on pages 95 and 211, respectively, of this prospectus.
Are Hut 8 Shareholders entitled to seek appraisal or dissenter’s rights?
Registered holders of Hut Shares may exercise rights of dissent in connection with the Arrangement under Section 238 of the BCBCA, as modified by the Interim Order, the Final Order and the Plan of Arrangement (each as defined herein), provided that the written objection to the special resolution approving the Arrangement to be adopted by Hut 8 shareholders at the Hut 8 Meeting (the “Arrangement Resolution”) must be provided not later than 4:00 p.m. Toronto time two Business Days immediately preceding the date of the Hut 8 Meeting. See the section entitled “The Business Combination Agreement — Dissenting Shares” beginning on page 101 of this prospectus.
What are the U.S. federal income tax consequences of the Merger to U.S. USBTC stockholders?
New Hut, Hut 8 and USBTC each intend that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, be treated as an exchange by Hut 8 shareholders and USBTC stockholders, respectively, that qualifies under Section 351(a) of the Code. If the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, were to so qualify, then neither gain nor loss generally will be recognized by USBTC stockholders upon the exchange of USBTC common stock for New Hut common stock in the Merger. The Arrangement and the Merger are not conditioned on the receipt of an opinion of counsel that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code, and there can be no assurance that such an opinion of counsel can or will be obtained. In addition, neither Hut 8 nor USBTC has requested, and neither intends to request, any ruling from the IRS as to the U.S. federal income tax consequences of the Arrangement and the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to the parties’ position that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, qualify under Section 351(a) of the Code. Accordingly, if there is a final determination that the Merger is a taxable exchange for United States federal income tax purposes, then a USBTC stockholder that is a United States person that exchanges USBTC common stock in the Merger would generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value (determined as of the Merger Effective Time) of the New Hut common stock received and (ii) the holder’s adjusted tax basis in the USBTC common stock exchanged therefor. For a more complete discussion of the United States federal income tax consequences of the Merger, see the section entitled “U.S. Federal Income Tax Consequences” beginning on page 122.
What are the conditions to the completion of the Business Combination?
Completion of the Business Combination is subject to certain closing conditions, including, but not limited to, the effectiveness of the Registration Statement, the Hut 8 Shareholder Approval, the USBTC Stockholder Approval, receipt of required regulatory approvals and satisfaction (or, to the extent permitted by applicable law, waiver) of other conditions to the consummation of the Business Combination contained in the Business Combination Agreement. For more information, see the section entitled “The Business Combination Agreement — Conditions to Completion of the Business Combination” beginning on page 114.
5
TABLE OF CONTENTS
 
When is the Business Combination expected to be completed?
Hut 8 and USBTC currently expect the Business Combination to close in the second quarter of 2023, subject to the receipt of required court orders and regulatory approvals and the satisfaction (or, to the extent permitted by applicable law, waiver) of the other conditions to the Business Combination contained in the Business Combination Agreement. However, it is possible that factors outside the control of Hut 8 and USBTC could require Hut 8 and USBTC to complete the Business Combination at a later time or not complete the Business Combination at all.
Will the New Hut common stock issued to USBTC stockholders pursuant to the Business Combination be traded on an exchange?
Yes. It is a condition to completion of the Business Combination that the shares of New Hut common stock to be issued to Hut 8 shareholders and USBTC stockholders in the Business Combination be approved for listing on both Nasdaq and the TSX.
Who can help answer my questions?
If you are a USBTC stockholder and would like a copy of this prospectus, or if you have questions about the Business Combination or the other matters discussed in this document, you should submit a request in writing to the Corporate Secretary of USBTC at 1221 Brickell Avenue, Suite 900, Miami, Florida 33131 or by telephone at (305) 224-6427.
Where can I find more information about Hut 8 and USBTC?
You can find more information about Hut 8 and USBTC from the various sources described under “Where You Can Find More Information” beginning on page 211 of this prospectus.
6
TABLE OF CONTENTS​​
 
SUMMARY
This summary highlights selected information included in this prospectus and may not contain all of the information that is important to you. To better understand the Business Combination, you should carefully read this entire prospectus and its exhibits and the other documents referred to in this prospectus. Additional important information about Hut 8 is also contained in the exhibits to the Registration Statement of which this prospectus forms a part, and in the documents incorporated by reference into this prospectus. For a description of, and instructions as to how to obtain, this information, see the section titled “Where You Can Find More Information” beginning on page 211 of this prospectus. Each item in this summary includes a page reference directing you to a more complete description of that item.
Parties to the Business Combination Agreement
Hut 8
Hut 8 is a large innovation-focused digital asset miner, led by a team of business-building technologists, bullish on Bitcoin, blockchain, Web 3.0, and bridging the nascent and traditional high performance computing worlds. With two digital asset mining sites located in Southern Alberta and a third site in North Bay, Ontario, all located in Canada, Hut 8 has a high capacity rate and large inventory of unencumbered, self-mined Bitcoin. With 36,000 square feet of geo-diverse data centre space and cloud capacity connected to electrical grids powered by significant renewables and emission-free resources, Hut 8 is revolutionizing conventional assets to create the first hybrid data centre model that serves both the traditional high performance compute (Web 2.0) and nascent digital asset computing sectors, blockchain gaming, and Web 3.0. Hut 8 was the first Canadian digital asset miner to list on the Nasdaq Global Select Market.
Hut 8 Mining Corp.
24 Duncan Street, Suite 500
Toronto, ON M5V 2B8
Phone: (647) 256-1992
Hut 8’s common shares are listed on Nasdaq and the TSX under the symbol “HUT.”
For additional information about Hut 8, see the section titled “Information about Hut 8” beginning on page 125 of this prospectus.
USBTC
USBTC is an industrial-scale operator of Bitcoin mining sites. The company’s strategy is to design, build and operate sites where there is access to low-cost and sustainable sources of electricity. The company operates four sites across the United States with access to approximately 730 megawatts (“MW”) of electricity and fully built out rack space.
USBTC has several revenue streams: self-mining, hosting, managed infrastructure operations and equipment sales. Self-mining refers to all USBTC-owned machines that contribute computing power to mining pools in exchange for Bitcoin. Hosting refers to USBTC operating third party-owned machines at its sites in exchange for a hosting fee. Managed infrastructure operations refers to USBTC operating third-party-owned Bitcoin mining sites in exchange for a property management fee. Equipment sales refers to USBTC selling mining or infrastructure equipment to third-parties.
USBTC owns and operates a Bitcoin mining facility in Niagara Falls, New York with access to approximately 50 MW of electricity (the “Alpha Site”). USBTC also owns a 50% interest in a joint venture with a leading North American energy company (the “King Mountain JV”). The King Mountain JV owns a Bitcoin mining site in Upton County, Texas with access to approximately 280 MW of electricity (the “Echo Site”). The Echo Site is co-located at a behind-the-meter wind farm.
USBTC is the site operator for three Bitcoin mining sites through its US Mining Infrastructure Operations subsidiaries (“USMIO”). USMIO leads all aspects of site operations, including accounting, curtailment and customer relations if the site owner is also a hosting provider. The first site is located in Kearney, Nebraska and has access to approximately 100 MW of electricity (the “Charlie Site”). The second site is located in
7
TABLE OF CONTENTS​
 
Granbury, Texas and has access to approximately 300 MW of electricity (the “Delta Site”). The third site is the Echo Site owned by the King Mountain JV, which has access to approximately 280 MW of electricity. USBTC views its managed infrastructure operations business as a strategic partnership with its clients; the company structures its property management agreements to incentivize the long-term growth and sustainability of its clients’ sites.
USBTC was incorporated under the laws of the State of Nevada on December 4, 2020 under the name U.S. Data Group, Inc. USBTC changed its name to U.S. Data Mining Group, Inc. on December 15, 2020, and does business as “US BITCOIN CORP.”
U.S. Data Mining Group, Inc. dba US BITCOIN CORP.
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Phone: (305) 224-6427
For additional information about USBTC, see the section titled “Information about USBTC” beginning on page 129 of this prospectus.
New Hut
New Hut is a corporation incorporated in the State of Delaware on January 27, 2023 for the purpose of effecting the Business Combination. To date, New Hut has not conducted any activities other than those incident to its formation, the execution of the Business Combination Agreement, the preparation of regulatory filings made in connection with the transactions contemplated by the Business Combination Agreement and other matters related to such transactions. After completion of the transactions contemplated by the Business Combination Agreement, New Hut will be the parent entity and successor corporation to Hut 8 and USBTC. New Hut intends to list its shares on Nasdaq and the TSX under the trading symbol “HUT” following the completion of the Business Combination, subject to the approval of Nasdaq and the TSX.
Hut 8 Corp.
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Phone: (305) 224-6427
For additional information about New Hut, see the section titled “Information about New Hut Upon Completion of the Business Combination” beginning on page 175 of this prospectus.
The Business Combination and the Business Combination Agreement
The terms and conditions of the Business Combination described below are contained in the Business Combination Agreement, which is attached to this document as an exhibit to the Registration Statement of which this prospectus forms a part and is incorporated by reference herein in its entirety. You are encouraged to read the Business Combination Agreement carefully, as it is the legal document that governs the Business Combination.
If the Arrangement Resolution is passed and all other conditions to closing of the Business Combination are satisfied, then pursuant to the Arrangement (i) Hut 8 and its wholly-owned subsidiary, Hut 8 Holdings Inc., will be amalgamated by way of a short-form vertical amalgamation, with Hut Amalco having the same capital as the capital of Hut 8 immediately prior to the Amalgamation, and (ii) following the Amalgamation, the common shares in the capital of Hut Amalco (other than any shares in respect of which a registered Hut 8 shareholder has validly exercised dissent rights) will be exchanged for shares of New Hut common stock based on the Hut 8 Exchange Ratio. Following the completion of the Arrangement, pursuant to the Merger, Merger Sub will be merged with and into USBTC, with USBTC surviving the Merger as a subsidiary of New Hut. Pursuant to the Merger, holders of USBTC capital stock will receive shares of New Hut common stock based on the USBTC Exchange Ratio. As a result of the Business Combination, among other things, New Hut will become the ultimate parent of Hut 8, USBTC, and their respective subsidiaries. New Hut intends to list its shares on Nasdaq and the TSX under the trading symbol “HUT” following the completion of the Business
8
TABLE OF CONTENTS​​​​
 
Combination, subject to the approval of Nasdaq and the TSX. Consequently, following the closing, New Hut stockholders are expected to be able to trade their New Hut common stock on either exchange, in either currency.
For more information, see the section titled “The Business Combination Agreement” beginning on page 96 of this prospectus.
Hut 8 Board’s Reasons for the Business Combination
At a meeting held on February 6, 2023, the Board of Directors of Hut 8 (the “Hut 8 Board”) unanimously determined that (i) the Business Combination was consistent with and in furtherance of the long-term business strategy of Hut 8 and in the best interests of Hut 8, and (ii) consummation of the Business Combination on the terms and conditions substantially as set forth in the Business Combination Agreement were advisable and in the best interests of Hut 8. In evaluating and ultimately approving the transactions contemplated by the Business Combination Agreement, the Hut 8 Board engaged in numerous discussions, including with Hut 8’s management and its financial and legal advisors, held meetings, received materials for review and consideration and considered a variety of alternatives available to the company. For additional information, please read the section titled “The Business Combination — The Hut 8 Board’s Reasons for the Business Combination” beginning on page 80 of this prospectus.
USBTC Board’s Reasons for the Business Combination
The Board of Directors of USBTC (the “USBTC Board”) has unanimously determined that the Business Combination Agreement, the Merger and the Business Combination are in the best interests of, and are fair to USBTC and the USBTC stockholders. In evaluating and ultimately approving the transactions contemplated by the Business Combination Agreement, the USBTC Board engaged in numerous discussions, including with USBTC’s management and its financial and legal advisors, held meetings, received materials for review and consideration and considered a variety of alternatives available to the company. For additional information, please read the section titled “The Business Combination — The USBTC Board’s Reasons for the Business Combination” beginning on page 81 of this prospectus.
Fairness Opinion of Stifel GMP
Hut 8 retained Stifel Nicolaus Canada Inc. (“Stifel GMP”) to act as its financial advisor in connection with the Business Combination. On February 6, 2023, Stifel GMP rendered its opinion to the Hut 8 Board to the effect that, as of that date and based upon and subject to the assumptions, limitations and qualifications and other matters set forth therein, the USBTC Exchange Ratio was fair, from a financial point of view, to Hut 8.
The full text of Stifel GMP’s opinion, dated as of February 6, 2023, which describes the assumptions made, procedures followed, matters considered and limitations on the reviews undertaken, is attached as an exhibit to the Registration Statement of which this prospectus forms a part. The summary of the Stifel GMP written opinion set forth herein is qualified in its entirety by reference to the full text of its written opinion. The holders of Hut 8 stock are urged to read the Stifel GMP opinion carefully and in its entirety. Stifel GMP provided its opinion for the information and assistance of the Hut 8 Board. The Stifel GMP opinion does not constitute a recommendation as to how the Hut 8 Board, Hut 8 shareholders or USBTC stockholders should vote or act with respect to the Business Combination.
For additional information, please read the section titled “The Business Combination — Fairness Opinion of Stifel GMP” beginning on page 82 of this prospectus.
Fairness Opinion of Kroll, LLC
On February 6, 2023, Kroll, LLC (“Duff & Phelps” or “Kroll”), operating through its Duff & Phelps Opinions Practice, rendered its oral opinion to the Hut 8 Board (which was subsequently confirmed in writing by delivery of its written opinion dated the same date) to the effect that, subject to the assumptions, qualifications, limitations and other matters considered by Duff & Phelps in connection with the preparation of its opinion, as of such date, the USBTC Exchange Ratio in the proposed Business Combination was fair, from a financial point of view, to Hut 8.
9
TABLE OF CONTENTS​​
 
The full text of Duff & Phelps’ opinion is included as an exhibit to the Registration Statement of which this prospectus forms a part and describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Duff & Phelps. The summary of Duff & Phelps’ opinion in this prospectus is qualified in its entirety by reference to the full text of the opinion. Neither Duff & Phelps’ opinion nor the summary of its opinion and the related analyses set forth in this prospectus is intended to be or constitutes a recommendation to any shareholder of the Company as to how such holder should act with respect to the proposed Business Combination.
For additional information, please read the section titled “The Business Combination — Fairness Opinion of Kroll” beginning on page 86 of this prospectus.
No Solicitation of Alternative Transactions
Pursuant to the Business Combination Agreement, among other restrictions, Hut 8 and its subsidiaries shall not, directly or indirectly, do or authorize or permit any of its subsidiaries or representatives to do, any of the following:
•
solicit, initiate, encourage or otherwise knowingly facilitate any inquiries, proposals or offers relating to any acquisition proposal or that may reasonably be expected to constitute or lead to an acquisition proposal;
​
•
enter into, engage in, continue or otherwise participate in any discussions or negotiations with any party (other than USBTC) regarding any acquisition proposal;
​
•
withdraw, amend, modify or qualify, or publicly propose or state an intention to withdraw, amend, modify of qualify, the board recommendation;
​
•
accept, approve, endorse or recommend, execute or enter into, or publicly propose to accept, approve, endorse or recommend, execute or enter into, any letter of intent, agreement in principle, agreement, arrangement, offer or understanding in respect of an acquisition proposal;
​
•
accept, approve, endorse or recommend, or publicly propose to accept, approve, endorse or recommend, or take no position or remain neutral with respect to, any acquisition proposal;
​
•
cause its representative to conduct any solicitation, encouragement, discussion, negotiation, or other activities with parties other than USBTC with respect any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to, an acquisition proposal; or
​
•
continue access to and disclosure of any of its confidential information, including any data room and any confidential information, properties, facilities, books and records of Hut 8 or its subsidiaries.
​
Hut 8 is required within two (2) business days of the date of the Business Combination Agreement to request and exercise all rights it has to require: (i) the return or destruction of all copies of any confidential information regarding Hut 8 or any of its subsidiaries provided to any party other than USBTC who has entered into a confidentiality agreement or similar agreement with Hut 8 relating to an acquisition proposal and (ii) the destruction of all material including such confidential information regarding Hut 8 or any of its subsidiaries using commercially reasonable efforts to ensure compliance.
Hut 8 shall promptly notify USBTC, at first orally, and then within twenty-four (24) hours in writing, of any acquisition inquiry, proposal, offer or request, and shall provide USBTC with copies of all material received in respect of the proposal. Hut 8 shall keep USBTC reasonably informed of the status of material developments. For additional information, please read the section titled “The Business Combination Agreement — Solicitation” beginning on page 111 of this prospectus.
Regulatory Approvals
The parties are required to execute and file, or join in the execution and filing of, any application, notification or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental entity, whether federal, state, local or foreign, that may be reasonably required, or that Hut 8 or USBTC may reasonably request, in connection with the Business Combination.
10
TABLE OF CONTENTS​
 
Specifically, Hut 8 and USBTC are required to make all applicable filings under the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”) in connection with the Business Combination by February 16, 2023 and neither the Antitrust Division of the United States Department of Justice nor the United States Federal Trade Commission shall object to the consummation of the Business Combination.
The Competition Act (Canada) (“Competition Act”) requires that certain classes of transactions be notified to the Canadian Commissioner of Competition (the “Commissioner”) (“Notifiable Transactions”). The Business Combination constitutes a Notifiable Transaction. Subject to certain limited exceptions, the parties to a Notifiable Transaction cannot complete the transaction until they have submitted the information prescribed pursuant to Subsection 114(1) of the Competition Act to the Commissioner and the applicable waiting period has expired or been terminated by the Commissioner. The waiting period is 30 calendar days after the day on which the parties to the transaction submit the prescribed information, provided that the Commissioner has not notified the parties that the Commissioner requires additional information that is relevant to the Commissioner’s assessment of the transaction (a “Supplementary Information Request”). If there is a Supplementary Information Request, the parties cannot complete their transaction until 30 calendar days after compliance with such Supplementary Information Request. A transaction may be completed before the end of the applicable waiting period if the Commissioner notifies the parties that the Commissioner does not, at such time, intend to challenge the transaction. Alternatively, or in addition to filing the prescribed information, a party to a Notifiable Transaction may apply to the Commissioner for an advance ruling certificate (an “ARC”) or a “no-action” letter, which may be issued by the Commissioner in respect of a proposed transaction if the Commissioner is satisfied that there are not sufficient grounds on which to apply to the Competition Tribunal for an order challenging the transaction.
In connection with the Business Combination, the parties also intend to deliver a notification and listing application to Nasdaq and the TSX regarding the listing of New Hut common stock that will be registered pursuant to the Registration Statement and issued pursuant to the Arrangement.
Neither Hut 8 nor USBTC can provide assurance that any such regulatory approvals will not result in the delay or abandonment of the Business Combination. For additional information, please read the section titled “The Business Combination — Regulatory Approvals” beginning on page 93 of this prospectus.
Conditions to the Completion of the Business Combination
As more fully described in this prospectus and in the Business Combination Agreement, the obligations of Hut 8 and USBTC to complete the Business Combination are subject to the satisfaction of a number of conditions, including the following (among others):
•
the parties have obtained a final order (the “Final Order”) of the Supreme Court of British Columbia (the “Court”) approving the Arrangement under the BCBCA;
​
•
the parties have obtained the consents, authorizations, waivers, clearances, exemptions and approvals of any requisite governmental entity;
​
•
no law or order is in effect that makes the completion of the Business Combination illegal or otherwise prohibits or enjoins Hut 8 and USBTC, as applicable, from completing the Business Combination;
​
•
the required USBTC stockholder approvals and Hut 8 shareholder approvals have been received;
​
•
the Registration Statement has become effective;
​
•
the covenants, representations, and warranties of Hut 8 and USBTC in the Business Combination Agreement have not been breached, subject to certain limitations;
​
•
New Hut has complied with its obligations under the Business Combination Agreement;
​
•
approvals have been obtained to list shares of New Hut common stock on Nasdaq and the TSX;
​
•
holders of not more than 5% of the shares of USBTC common stock and holders of not more than 5% of the Hut Shares have exercised dissent rights, as applicable, subject to certain limitations;
​
•
the New Hut incentive plan has been made effective;
​
•
the amended New Hut organizational documents have been filed and become effective;
​
​
11
TABLE OF CONTENTS
 
•
the executive employment agreements for New Hut have been executed in a manner satisfactory to Hut 8 and USBTC, as applicable; and
​
•
the absence of a material adverse effect as defined in the Business Combination Agreement, subject to certain limitations.
​
For additional information, please read the section titled “The Business Combination Agreement — Conditions to Completion of the Business Combination” beginning on page 114 of this prospectus.
Hut 8 Shareholder Approval
Unless varied by the Interim Order, the Arrangement Resolution must be approved by the affirmative vote of at least two-thirds of the votes cast on the Arrangement Resolution by Hut 8 shareholders present in person or represented by proxy at the Hut 8 Meeting. The Arrangement Resolution must receive such shareholder approval in order for Hut 8 to seek the Final Order of the Court and implement the Arrangement.
For additional information, please read the section titled “The Business Combination — Hut 8 Shareholder Approval” beginning on page 92 of this prospectus.
USBTC Stockholder Approval
Pursuant to USBTC’s fourth amended and restated articles of incorporation (the “USBTC Articles”), the Merger must be approved by at least (i) a majority of the voting power of the outstanding USBTC capital stock, voting together as a single class on an as-converted basis, as applicable, and (ii) separately, the holders of a majority of the outstanding shares of the Series A Preferred (voting together as a single and separate class on an as-converted basis) including the affirmative vote of JHS.
Following the effectiveness of the Registration Statement, of which this prospectus forms a part, USBTC intends to solicit the USBTC Stockholder Approval by way of a written consent of the USBTC stockholders.
USBTC cannot provide assurance that the USBTC Stockholder Approval will be obtained or will not result in the delay or abandonment of the Business Combination.
For additional information, please see the section titled “The Business Combination — USBTC Stockholder Approval” beginning on page 92 of this prospectus.
The Support Agreements
Hut 8 Support Agreements
In connection with Hut’s entry into the Business Combination Agreement, each member of the Hut 8 Board and each senior officer of Hut (the “Hut 8 Supporting Shareholders”) who holds Hut Shares entered into voting and support agreements (the “Hut 8 Support Agreements”) with USBTC to, among other things, (i) vote in favor of the Arrangement Resolution, and (ii) not, without having first obtained the prior written consent of USBTC, directly or indirectly, sell, transfer, grant a security interest in or otherwise dispose of any right or interest in their Hut Shares, all in accordance with the terms of the Hut 8 Support Agreements as further described in this prospectus.
For additional information, please read the section titled “The Business Combination Agreement — The Support Agreements — Hut 8 Support Agreement” beginning on page 119 of this prospectus.
USBTC Stockholder Support Agreement
In connection with USBTC’s entry into the Business Combination Agreement, USBTC directors, executive officers and Jordan Levy and Mario Germano Giuliani (“Germano”), two existing USBTC stockholders (along with all other stockholders that they beneficially control, which includes JHS and MGG Strategic SICAF SIF) who collectively owned, as of February 12, 2023, approximately 42.5% of the outstanding voting securities of USBTC (the “USBTC Supporting Stockholders”) have entered into a stockholder support agreement (the “USBTC Stockholder Support Agreement”) with USBTC and Hut 8, pursuant to which each USBTC Supporting Stockholder agreed to, among other things, following the effectiveness of this Registration
12
TABLE OF CONTENTS​​
 
Statement of which this prospectus forms a part, vote at any meeting of the USBTC stockholders, and execute any action by written consent of the USBTC stockholders, all of such USBTC stockholder’s USBTC securities beneficially owned by such USBTC stockholder at such time in favor of the approval of the Business Combination Agreement as the plan of merger for the Merger and all other transactions contemplated by the Business Combination Agreement.
For additional information, please see the section titled “The Business Combination Agreement — The Support Agreements — USBTC Stockholder Support Agreement” beginning on page 120 of this prospectus.
Termination of the Business Combination Agreement
The Business Combination Agreement may be terminated in certain circumstances, including the following (among others):
•
by the mutual written agreement of Hut 8 and USBTC;
​
•
subject to certain limitations, by either Hut 8 or USBTC if the Business Combination is not consummated by September 30, 2023;
​
•
by either Hut 8 or USBTC following a failure to obtain shareholder consent or stockholder approval, as applicable;
​
•
subject to certain limitations, by either Hut 8 or USBTC upon breach of certain representations, warranties, covenants, agreements, or other obligations of the parties contained in the Business Combination Agreement;
​
•
subject to certain limitations, by either Hut 8 or USBTC upon the occurrence of a material adverse effect as defined in the Business Combination Agreement; and
​
•
by Hut 8 if the Hut 8 Board authorizes Hut 8 to enter into a written agreement with respect to a superior proposal as defined in the Business Combination Agreement, subject to certain limitations.
​
For additional information, please read the section titled “The Business Combination Agreement — Termination” beginning on page 116 of this prospectus.
Termination Fee
Except as otherwise provided in the Business Combination Agreement, New Hut is required to pay all costs and expenses incurred by Hut 8 and USBTC in connection with the Business Combination. If the Business Combination Agreement is terminated under certain circumstances and conditions, Hut 8 and USBTC, as applicable, may be required to pay the other party an expense reimbursement payment for reasonable documented expenses incurred in connection with the Business Combination in an amount not to exceed C$500,000 or C$2,000,000, respectively, depending on the circumstances of termination.
If the Business Combination Agreement is terminated under certain circumstances and conditions, Hut 8 may be required to pay USBTC a termination fee of US$10,000,000.
For additional information, please read the sections titled “The Business Combination Agreement — Termination Fee Payable by Hut 8” and “The Business Combination Agreement — Fees and Expenses” beginning on pages 117 and 118, respectively, of this prospectus.
Interests of Directors and Executive Officers
Certain of Hut 8’s directors and executive officers may have interests in the Business Combination that may be different from, or in addition to, the interests of Hut 8 shareholders generally. The Hut 8 Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and in overseeing the negotiation of, the Business Combination and in approving the Business Combination Agreement.
These interests include, among other things, rights to indemnification and directors’ and officers’ liability insurance that will survive the completion of the Business Combination.
13
TABLE OF CONTENTS​​​
 
Certain of USBTC’s directors and executive officers may have interests in the Business Combination that may be different from, or in addition to, the interests of USBTC stockholders generally. The USBTC Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and in overseeing the negotiation of, the Business Combination and in approving the Business Combination Agreement.
These interests include, among other things, the potential acceleration of the vesting periods for certain USBTC Options held by certain USBTC officers and rights to indemnification and directors’ and officers’ liability insurance that will survive the completion of the Business Combination.
For additional information, please see the section titled “Interests of Hut 8’s Directors and Executive Officers in the Business Combination” and “Interests of USBTC’s Directors and Executive Officers in the Business Combination” beginning on pages 127 and 173, respectively, of this prospectus.
Listing of New Hut Common Stock
New Hut expects to obtain approval to list the shares of New Hut common stock to be issued pursuant to the Business Combination Agreement on Nasdaq and the TSX, which approvals are conditions to the Closing. Accordingly, applications will be made to have the shares of New Hut common stock to be issued pursuant to the Business Combination approved for listing on Nasdaq and the TSX under the symbol “HUT.” For additional information, please read the section titled “The Business Combination — Regulatory Approvals” beginning on page 93 of this prospectus.
Comparison of Rights of USBTC stockholders
USBTC is organized under the laws of the State of Nevada, whereas New Hut is organized under the laws of the State of Delaware. Accordingly, differences in rights of holders of USBTC capital stock compared to New Hut common stock arise from differences between Nevada and Delaware law and their respective constituent documents. As a USBTC stockholder, your rights with respect thereto are governed by Nevada law, as well as USBTC’s organizational documents. Following the completion of the Business Combination, USBTC stockholders will own shares of New Hut common stock and the rights of the USBTC stockholders with respect to the New Hut common stock will be governed by the Delaware General Corporations Law and the New Hut organizational documents. For a description of the key differences and additional information, please see the section titled “Comparison of Rights of Stockholders” beginning on page 180 of this prospectus.
Accounting Treatment of the Business Combination
Anticipated Accounting Treatment
The Business Combination will be accounted for using the acquisition method in accordance with US GAAP. USBTC has preliminarily been identified as the “acquirer” and as a result will obtain control over Hut 8 upon consummation of the Business Combination. Pursuant to the Business Combination, New Hut, which is currently a wholly-owned subsidiary of USBTC incorporated for the purpose of effecting the Business Combination, will issue shares of New Hut common stock to the Hut 8 shareholders and USBTC stockholders to acquire 100% of the share capital of both Hut 8 and USBTC. The Business Combination will be carried out by exchanging equity interests and there is no other consideration being exchanged. The determination of the accounting acquirer where equity interests are exchanged is sometimes unclear, and in the case of the Business Combination requires consideration of factors such as the relative voting rights of the parties, existence of large minority interests, the composition of the governing body and senior management, terms of the exchange of the equity interests, relative sizes of the combining entities and other factors. The purchase consideration will be allocated to the fair value of the acquired assets and liabilities and will be based on management’s best estimate of the fair value based on currently available information. The actual amount allocated to certain identifiable assets could vary as the purchase price allocation is finalized. The preliminary assessment of the accounting acquirer is subject to evaluation and may be impacted by matters such as New Hut board rights related to tie-break votes, the relative fair values of USBTC and Hut 8 at Closing and other considerations set out in ASC 805. A change in the determination of the accounting acquirer would significantly impact the pro forma financial information included in this prospectus as well as the actual accounting for the Business
14
TABLE OF CONTENTS​​
 
Combination at Closing. For additional information, please read the section titled “The Business Combination — Accounting Treatment of the Business Combination” beginning on page 95 of this prospectus.
U.S. Federal Income Tax Consequences
New Hut, Hut 8 and USBTC each intend that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, be treated as an exchange by Hut 8 shareholders and USBTC stockholders, respectively, that qualifies under Section 351(a) of the Code. If the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, were to so qualify, then neither gain nor loss generally will be recognized by USBTC stockholders that are United States persons upon the exchange of USBTC common stock for New Hut common stock in the Merger. The Arrangement and the Merger are not conditioned on the receipt of an opinion of counsel that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code, and there can be no assurance that such an opinion of counsel can or will be obtained. In addition, neither Hut 8 nor USBTC has requested, and neither intends to request, any ruling from the IRS as to the U.S. federal income tax consequences of the Arrangement and the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to the parties’ position that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, qualify under Section 351(a) of the Code. Accordingly, if there is a final determination that the Merger is a taxable exchange for United States federal income tax purposes, then a USBTC stockholder that is a United States person that exchanges USBTC common stock in the Merger would generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value (determined as of the Merger Effective Time) of the New Hut common stock received and (ii) the holder’s adjusted tax basis in the USBTC common stock exchanged therefor. For a more complete discussion of the United States federal income tax consequences of the Merger, see the section entitled “U.S. Federal Income Tax Consequences” beginning on page 122.
USBTC Stockholder Appraisal and Dissenters’ Rights
Under the NRS, any USBTC stockholder who does not vote in favor of or consent to the Merger will have the right to dissent from the Merger and, in lieu of receiving the merger consideration for such shares provided under the Business Combination Agreement, obtain payment of the fair value of the stockholder’s shares, but only if the stockholder (1) delivers to USBTC a statement of intent (as defined in NRS 92A.095) by the date specified in the advance notice statement (as defined in NRS 92A.006) provided in connection with the approval by the USBTC stockholders of the Merger by written consent, (2) demands payment, pursuant to NRS 92A.440, in accordance with a dissenter’s notice sent by USBTC and (3) otherwise complies with all other applicable requirements of under NRS 92A.300 through NRS 92A.500, inclusive, and the definitions relating thereto set forth in NRS Chapter 92A (the “Nevada Dissenter’s Rights Statutes”). If USBTC and a former stockholder that remains entitled to and properly asserts dissenter’s rights cannot agree on as to the fair value, USBTC must then commence a proceeding in Nevada state district court to determine the fair value, which may be more than, equal to, or less than the value of the Merger consideration for such shares provided under the Business Combination Agreement. There is no right of dissent with respect to any share of USBTC stock that was not issued and outstanding on the date of the announcement of the Business Combination to the USBTC stockholders. Failure to follow the procedures set forth in the Nevada Dissenter’s Rights Statutes will result in the forfeiture of dissenter’s rights. You are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising dissenter’s rights, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel. For additional information, please see the sections titled “The Business Combination — USBTC Stockholder Appraisal and Dissenter’s Rights” and “Appraisal and Dissenters’ Rights” beginning on pages 95 and 211, respectively, of this prospectus.
15
TABLE OF CONTENTS​
 
Risk Factors
In evaluating the Business Combination Agreement and the Business Combination, you should carefully read this prospectus and the documents incorporated herein by reference. In particular, you should consider the factors discussed in the section titled “Risk Factors” beginning on page 27 of this prospectus.
16
TABLE OF CONTENTS​
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF HUT 8
You should read the following summary historical financial data of Hut 8 together with Hut 8’s consolidated financial statements and the related notes incorporated by reference in this prospectus and Hut 8’s Management’s Discussion and Analysis for the year ended December 31, 2021, included as Exhibit 99.3 to Hut 8’s Annual Report on Form 40-F for the year ended December 31, 2021, and Hut 8’s Management’s Discussion and Analysis for the three and nine months ended September 30, 2022 and 2021, included as Exhibit 99.3 on Hut 8’s Form 6-K dated November 10, 2022. The summary consolidated statements of operations and comprehensive income (loss) information for the years ended December 31, 2021 and 2020 and the summary consolidated statements of financial position information as of December 31, 2021 have been derived from Hut 8’s audited consolidated financial statements and related notes incorporated by reference in this prospectus. The summary consolidated interim statements of operations and comprehensive income (loss) information for the three and nine months ended September 30, 2022 and 2021 and the summary consolidated interim statements of financial position as of September 30, 2022 have been derived from Hut 8’s unaudited consolidated interim financial statements for the three and nine months ended September 30, 2022 and 2021 and related notes incorporated by reference in this prospectus. Hut 8’s consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board (the “IASB”) and are presented in Canadian dollars. Hut 8’s historical results are not necessarily indicative of the results it expects in the future, and its results for any interim period are not necessarily indicative of results that may be expected for any full year.
​ ​ ​
Nine Months Ended
September 30,
​ ​
Year Ended
December 31,
​
(in thousands of Canadian dollars, except share numbers)
​ ​
2022
​ ​
2021
​ ​
2021
​ ​
2020
​
Consolidated Statements of Operations and Comprehensive Income ​
Revenue
​ ​ ​ $ 128,849 ​ ​ ​ ​ $ 115,873 ​ ​ ​ ​ $ 173,774 ​ ​ ​ ​ $ 40,711 ​ ​
Cost of revenue
​ ​ ​ ​ (130,175) ​ ​ ​ ​ ​ (57,642) ​ ​ ​ ​ ​ (84,976) ​ ​ ​ ​ ​ (59,244) ​ ​
Gross (loss) profit
​ ​ ​ ​ (1,326) ​ ​ ​ ​ ​ 58,231 ​ ​ ​ ​ ​ 88,798 ​ ​ ​ ​ ​ (18,533) ​ ​
General and administrative expenses
​ ​ ​ ​ (35,028) ​ ​ ​ ​ ​ (26,171) ​ ​ ​ ​ ​ (40,265) ​ ​ ​ ​ ​ (5,134) ​ ​
Gain on disposition of digital assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 182 ​ ​ ​ ​ ​ 182 ​ ​ ​ ​ ​ 2,815 ​ ​
Revaluation of digital assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 13,714 ​ ​
Operating (loss) income
​ ​ ​ ​ (36,354) ​ ​ ​ ​ ​ 32,242 ​ ​ ​ ​ ​ 48,715 ​ ​ ​ ​ ​ (7,138) ​ ​
Foreign exchange gain (loss)
​ ​ ​ ​ (1,528) ​ ​ ​ ​ ​ (1,402) ​ ​ ​ ​ ​ (3,143) ​ ​ ​ ​ ​ 409 ​ ​
Finance expense
​ ​ ​ ​ (5,620) ​ ​ ​ ​ ​ (949) ​ ​ ​ ​ ​ (1,355) ​ ​ ​ ​ ​ (2,449) ​ ​
Finance income
​ ​ ​ ​ 920 ​ ​ ​ ​ ​ 2,122 ​ ​ ​ ​ ​ 2,853 ​ ​ ​ ​ ​ 8 ​ ​
Amortization
​ ​ ​ ​ (916) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Gain (loss) on revaluation of warrants liability
​ ​ ​ ​ 94,504 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (114,161) ​ ​ ​ ​ ​ — ​ ​
Reversal of impairment
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 13,156 ​ ​
Other gain
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6 ​ ​
Net (loss) income before tax
​ ​ ​ ​ 51,006 ​ ​ ​ ​ ​ 32,013 ​ ​ ​ ​ ​ (67,090) ​ ​ ​ ​ ​ 3,991 ​ ​
Gain (loss) on revaluation of digital asset
​ ​ ​ ​ (97,558) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Deferred income tax (expense) recovery
​ ​ ​ ​ (9,593) ​ ​ ​ ​ ​ 6,455 ​ ​ ​ ​ ​ (5,620) ​ ​ ​ ​ ​ 15,049 ​ ​
Net (loss) income
​ ​ ​ $ (56,145) ​ ​ ​ ​ $ 38,468 ​ ​ ​ ​ $ (72,710) ​ ​ ​ ​ $ 19,040 ​ ​
Other comprehensive (loss) income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revaluation (loss) gain on digital assets, net of tax
​ ​ ​ ​ (103,540) ​ ​ ​ ​ ​ 46,675 ​ ​ ​ ​ ​ 57,859 ​ ​ ​ ​ ​ 45,681 ​ ​
Totals comprehensive (loss) income
​ ​ ​ $ (159,685) ​ ​ ​ ​ $ 85,143 ​ ​ ​ ​ $ (14,851) ​ ​ ​ ​ $ 64,721 ​ ​
Net income per common share
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Basic
​ ​ ​ $ (0.31) ​ ​ ​ ​ $ 0.30 ​ ​ ​ ​ $ (0.54) ​ ​ ​ ​ $ 0.20 ​ ​
Diluted
​ ​ ​ $ (0.31) ​ ​ ​ ​ $ 0.28 ​ ​ ​ ​ $ (0.54) ​ ​ ​ ​ $ 0.20 ​ ​
17
TABLE OF CONTENTS
 
(in thousands of Canadian dollars)
​ ​
As at September 30, 2022
​ ​
As at December 31, 2021
​
Consolidated Statements of Financial Position ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash and cash equivalents
​ ​ ​ $ 33,021 ​ ​ ​ ​ $ 140,127 ​ ​
Digital assets
​ ​ ​ ​ 223,420 ​ ​ ​ ​ ​ 323,946 ​ ​
Total assets
​ ​ ​ ​ 561,918 ​ ​ ​ ​ ​ 720,709 ​ ​
Total liabilities
​ ​ ​ ​ 67,141 ​ ​ ​ ​ ​ 154,741 ​ ​
Total shareholder’s equity
​ ​ ​ $ 494,777 ​ ​ ​ ​ $ 565,968 ​ ​
18
TABLE OF CONTENTS​
 
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF USBTC
You should read the following summary historical financial data of USBTC together with USBTC’s consolidated financial statements and the related notes included elsewhere in this prospectus and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations of USBTC” section of this prospectus. USBTC has derived the consolidated statement of operations data for the year ended June 30, 2022 and the period from December 4, 2020 (inception) through June 30, 2021 from USBTC’s audited consolidated financial statements for the year ended June 30, 2022 included elsewhere in this prospectus. The consolidated statement of operations data for the three months ended September 30, 2022 and 2021 and the consolidated balance sheet data as of September 30, 2022 have been derived from USBTC’s unaudited condensed consolidated financial statements for the three months ended September 30, 2022 included elsewhere in this prospectus. USBTC’s unaudited interim condensed consolidated financial statements were prepared on the same basis as its audited consolidated financial statements and, in USBTC’s opinion, reflect all adjustments, consisting only of normal recurring adjustments, that are necessary to present fairly in all material respects its financial position and results of operations for such periods in accordance with generally accepted accounting principles (“GAAP”). USBTC’s historical results are not necessarily indicative of the results that may be expected in the future, and its results for any interim period are not necessarily indicative of results that may be expected for any full year.
Consolidated Statement of Operations Data:
​ ​ ​
Three Months Ended
September 30,
​ ​
Year Ended
June 30,
​ ​
December 4,
2020 through
June 30,
​
(in thousands of US dollars)
​ ​
2022
​ ​
2021
​ ​
2022
​ ​
2021
​
Consolidated Statement of Operations Data: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ $ 16,328 ​ ​ ​ ​ $ 4,658 ​ ​ ​ ​ $ 68,164 ​ ​ ​ ​ $ 4,272 ​ ​
Mining equipment sales
​ ​ ​ ​ 3,635 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Hosting services
​ ​ ​ ​ 13,565 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,566 ​ ​ ​ ​ ​ — ​ ​
Total revenue
​ ​ ​ ​ 33,528 ​ ​ ​ ​ ​ 4,658 ​ ​ ​ ​ ​ 73,730 ​ ​ ​ ​ ​ 4,272 ​ ​
Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenues (exclusive of depreciation and amortization shown below)
​ ​ ​ ​ 18,402 ​ ​ ​ ​ ​ 1,671 ​ ​ ​ ​ ​ 25,783 ​ ​ ​ ​ ​ 1,464 ​ ​
Depreciation and amortization
​ ​ ​ ​ 5,754 ​ ​ ​ ​ ​ 501 ​ ​ ​ ​ ​ 11,591 ​ ​ ​ ​ ​ 391 ​ ​
General and administrative
​ ​ ​ ​ 5,864 ​ ​ ​ ​ ​ 2,327 ​ ​ ​ ​ ​ 31,325 ​ ​ ​ ​ ​ 12,144 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ 1,286 ​ ​ ​ ​ ​ 412 ​ ​ ​ ​ ​ 30,301 ​ ​ ​ ​ ​ 1,254 ​ ​
Realized (gain) on sale of cryptocurrency
​ ​ ​ ​ (1,549) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (5,455) ​ ​ ​ ​ ​ — ​ ​
Total costs and expenses
​ ​ ​ ​ 29,757 ​ ​ ​ ​ ​ 4,911 ​ ​ ​ ​ ​ 93,545 ​ ​ ​ ​ ​ 15,253 ​ ​
Operating income (loss)
​ ​ ​ ​ 3,771 ​ ​ ​ ​ ​ (253) ​ ​ ​ ​ ​ (19,815) ​ ​ ​ ​ ​ (10,981) ​ ​
Other expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest expense
​ ​ ​ ​ (4,016) ​ ​ ​ ​ ​ (511) ​ ​ ​ ​ ​ (6,919) ​ ​ ​ ​ ​ (200) ​ ​
Total other expense
​ ​ ​ ​ (4,016) ​ ​ ​ ​ ​ (511) ​ ​ ​ ​ ​ (6,919) ​ ​ ​ ​ ​ (200) ​ ​
Loss before income tax (provision) benefit
​ ​ ​ ​ (245) ​ ​ ​ ​ ​ (764) ​ ​ ​ ​ ​ (26,734) ​ ​ ​ ​ ​ (11,181) ​ ​
Income tax (provision) benefit
​ ​ ​ ​ (315) ​ ​ ​ ​ ​ 204 ​ ​ ​ ​ ​ (5,069) ​ ​ ​ ​ ​ 2,097 ​ ​
Net loss
​ ​ ​ $ (560) ​ ​ ​ ​ $ (560) ​ ​ ​ ​ $ (31,803) ​ ​ ​ ​ $ (9,084) ​ ​
Basic and diluted net loss per share
​ ​ ​ $ (0.01) ​ ​ ​ ​ $ (0.02) ​ ​ ​ ​ $ (0.91) ​ ​ ​ ​ $ (0.32) ​ ​
Basic and diluted weighted average number of shares outstanding
​ ​ ​ ​ 39,563,792 ​ ​ ​ ​ ​ 33,315,164 ​ ​ ​ ​ ​ 34,863,338 ​ ​ ​ ​ ​ 27,959,039 ​ ​
Additional Financial Data ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Adjusted EBITDA(1)
​ ​ ​ $ 12,362 ​ ​ ​ ​ $ 897 ​ ​ ​ ​ $ 7,240 ​ ​ ​ ​ $ (94) ​ ​
​
(1)
Adjusted EBITDA is a non-GAAP financial measure. For the definition of Adjusted EBITDA and a reconciliation to USBTC’s most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Non-GAAP Financial Measure.”
​
​
19
TABLE OF CONTENTS
 
(in thousands of US dollars)
​ ​
As of September 30, 2022
​
Consolidated Balance Sheet Data: ​ ​ ​ ​ ​ ​ ​
Cash and cash equivalents
​ ​ ​ $ 21,401 ​ ​
Cryptocurrency, net
​ ​ ​ ​ 1,693 ​ ​
Total assets
​ ​ ​ ​ 251,555 ​ ​
Long term debt
​ ​ ​ ​ 30,521 ​ ​
Total liabilities
​ ​ ​ ​ 161,675 ​ ​
Additional paid-in capital
​ ​ ​ ​ 32,824 ​ ​
Accumulated deficit
​ ​ ​ ​ (41,447) ​ ​
Total stockholders’ equity
​ ​ ​ ​ 89,880 ​ ​
Total Capitalization
​ ​ ​ ​ 120,401 ​ ​
Non-GAAP Financial Measure
Adjusted EBITDA
USBTC relies on Adjusted EBITDA to evaluate its business, measure its performance, and make strategic decisions. Adjusted EBITDA is a non-GAAP financial measure. USBTC defines Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, further adjusted by the removal of one-time transaction costs, and stock-based compensation expense in the period presented.
The USBTC Board and management team use Adjusted EBITDA to assess its financial performance because it allows them to compare its operating performance on a consistent basis across periods by removing the effects of USBTC’s capital structure (such as varying levels of interest expense and income), asset base (such as depreciation and amortization) and other items (such as one-time costs mentioned above) that impact the comparability of financial results from period to period. USBTC presents Adjusted EBITDA because it believes it provides useful information regarding the factors and trends affecting USBTC’s business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. USBTC believes that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing its financial performance and results of operations across reporting periods by excluding items it does not believe are indicative of its core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. USBTC’s non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons USBTC considers them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future USBTC may incur expenses that are the same as or similar to some of the adjustments in such presentation. USBTC’s presentation of Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in isolation or as a substitute for analysis of USBTC’s results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in USBTC’s industry, USBTC’s definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
The following table presents a reconciliation of Adjusted EBITDA to the GAAP financial measure of net income (loss) for the period from December 4, 2020 (inception) through June 30, 2021, the fiscal year ended June 30, 2022 and for the three months ended September 30, 2022 and 2021.
20
TABLE OF CONTENTS
 
​ ​ ​
Three Months Ended
September 30,
​ ​
Year Ended
June 30,
​ ​
December 4,
2020 through
June 30,
​
(in thousands of US dollars)
​ ​
2022
​ ​
2021
​ ​
2022
​ ​
2021
​
Adjusted EBITDA: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net loss
​ ​ ​ $ (560) ​ ​ ​ ​ $ (560) ​ ​ ​ ​ $ (31,803) ​ ​ ​ ​ $ (9,084) ​ ​
Interest
​ ​ ​ ​ 4,016 ​ ​ ​ ​ ​ 511 ​ ​ ​ ​ ​ 6,919 ​ ​ ​ ​ ​ 200 ​ ​
Income tax provision (benefit)
​ ​ ​ ​ 315 ​ ​ ​ ​ ​ (204) ​ ​ ​ ​ ​ 5,069 ​ ​ ​ ​ ​ (2,097) ​ ​
Depreciation and amortization
​ ​ ​ ​ 5,754 ​ ​ ​ ​ ​ 501 ​ ​ ​ ​ ​ 11,591 ​ ​ ​ ​ ​ 391 ​ ​
One-time costs(1)
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,288 ​ ​ ​ ​ ​ — ​ ​
Stock-based compensation expense
​ ​ ​ ​ 2,837 ​ ​ ​ ​ ​ 649 ​ ​ ​ ​ ​ 9,176 ​ ​ ​ ​ ​ 10,496 ​ ​
Adjusted EBITDA
​ ​ ​ $ 12,362 ​ ​ ​ ​ $ 897 ​ ​ ​ ​ $ 7,240 ​ ​ ​ ​ $ (94) ​ ​
​
(1)
One-time costs represent cash payments of approximately $5.3 million for certain employees and advisors related to their personal income taxes on the issuance of stock grants and a $1.0 million payment made to a government agency associated with the Rescission Offer (as defined below) For more information, see the section titled “Risk Factors — Risks Relating to USBTC’s Business — USBTC has completed a rescission offer of privately issued securities, with one offeree choosing to accept USBTC’s rescission offer to date (the “Rescission Offer”)” beginning on page 48 of this prospectus.
​
​
21
TABLE OF CONTENTS​
 
SELECTED HISTORICAL UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
The following selected unaudited pro forma condensed combined financial data was prepared using the acquisition method of accounting for business combinations under U.S. GAAP, with USBTC being the accounting acquirer. The following information should be read in conjunction with the respective audited consolidated financial statements of Hut 8 and USBTC for the year ended December 31, 2022 and June 30, 2022, respectively, including the respective notes thereto, the historical unaudited financial statements of Hut 8 for the three months ended September 30, 2022, the unaudited financial statements of Hut 8 for the six months ended June 30, 2021 and June 30, 2022, and the historical unaudited financial statements of USBTC for the three months ended September 30, 2022, which are either incorporated by reference into this prospectus or included elsewhere in this prospectus.
The selected unaudited pro forma combined statement of comprehensive income for the three months ended September 30, 2022 and for the year ended June 30, 2022 has been prepared to give effect to the Business Combination as if it occurred on July 1, 2021. The selected unaudited pro forma combined statement of financial position as at September 30, 2022 has been prepared to give effect to the Business Combination as if it had occurred on September 30, 2022.
The selected pro forma condensed combined financial data, which is preliminary in nature, has been derived from, and should be read in conjunction with, the more detailed unaudited pro forma combined financial information of the combined company and the accompanying notes appearing in the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements.” The unaudited pro forma condensed combined financial statements have been presented in accordance with SEC Regulation S-X Article 11 for illustrative purposes only and are not necessarily indicative of what New Hut’s financial position or results of operations actually would have been had the Business Combination been completed as of the dates indicated. In addition, the selected unaudited pro forma condensed combined financial data does not purport to project the future financial position or operating results of the combined company.
(thousands of US dollars)
​ ​
For the Three Months
Ended September 30, 2022
​ ​
For the Year Ended
June 30, 2022
​
Unaudited Pro Forma Combined Statement of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue
​ ​ ​ $ 57,570 ​ ​ ​ ​ $ 238,119 ​ ​
Operating income (loss)
​ ​ ​ ​ (1,367) ​ ​ ​ ​ ​ (77,644) ​ ​
Earnings/(loss) before income tax benefit
​ ​ ​ ​ (4,340) ​ ​ ​ ​ ​ (82,280) ​ ​
Net earnings/(loss)
​ ​ ​ ​ (8,810) ​ ​ ​ ​ ​ (105,164) ​ ​
Earnings/(loss) per common share — basic & diluted
​ ​ ​ ​ (0.13) ​ ​ ​ ​ ​ (1.86) ​ ​
(thousands of US dollars)
​ ​
As at
September 30, 2022
​
Unaudited Pro Forma Combined Balance Sheet ​ ​ ​ ​ ​ ​ ​
Total assets
​ ​ ​ $ 532,762 ​ ​
Total liabilities
​ ​ ​ ​ 120,851 ​ ​
Net assets
​ ​ ​ ​ 411,911 ​ ​
22
TABLE OF CONTENTS​
 
SELECTED UNAUDITED FINANCIAL DATA AS OF JANUARY 31, 2023
The following selected combined unaudited financial information for Hut 8 and USBTC as at January 31, 2023 is for illustrative purposes only and should be read in conjunction with the respective audited consolidated financial statements of Hut 8 and USBTC for the year ended December 31, 2022 and June 30, 2022, respectively, including the respective notes thereto, the historical unaudited financial statements of Hut 8 for the three months ended September 30, 2022, the unaudited financial statements of Hut 8 for the six months ended June 30, 2021 and June 30, 2022, and the historical unaudited financial statements of USBTC for the three months ended September 30, 2022, which are either incorporated by reference into this prospectus or included elsewhere in this prospectus.
The selected combined unaudited financial data below should also be read in conjunction with the unaudited pro forma combined financial information of the combined company and the accompanying notes appearing in the section entitled “Unaudited Pro Forma Condensed Combined Financial Statements,” presented in accordance with SEC Regulation S-X Article 11. These figures should not be viewed as a substitute for Hut’s full interim or annual financial statements prepared in accordance with IFRS, or USBTC’s full interim or annual financial statements prepared in accordance with GAAP, and are not necessarily indicative of what New Hut’s financial position or results of operations actually would have been had the Business Combination been completed as of January 31, 2023. Further, the data below does not purport to project the future financial position or operating results of the combined company. See the sections titled “Risk Factors” and “Cautionary Note Concerning Regarding Forward-Looking Statements” for additional information regarding factors that could impact the actual results of New Hut in the future.
(in thousands of US dollars)
​ ​
As at
January 31, 2023
​
Illustrative combined consolidated total cash (after giving effect to the Business Combination)
​ ​ ​ $ 21,527 ​ ​
Hut 8 total cash
​ ​ ​ ​ 16,048 ​ ​
USBTC total cash
​ ​ ​ ​ 5,479 ​ ​
Illustrative combined consolidated total digital assets (after giving effect to the Business Combination)
​ ​ ​ $ 215,194 ​ ​
Hut 8 total digital assets(1)
​ ​ ​ ​ 214,603 ​ ​
USBTC total digital assets(2)
​ ​ ​ ​ 591 ​ ​
Illustrative combined consolidated total debt (after giving effect to the Business Combination)
​ ​ ​ $ 194,350 ​ ​
Total debt from Hut 8(3)
​ ​ ​ ​ 34,514 ​ ​
Total debt from USBTC (4)
​ ​ ​ ​ 159,836 ​ ​
​
(1)
Reflects Hut 8’s Bitcoin balance of 9,274 and a Bitcoin price of $23,136 as at January 31, 2023. Hut 8 expects to sell 188 Bitcoin from Hut 8’s January production to fund operating costs.
​
(2)
Reflects USBTC’s Bitcoin balance of 26 and a Bitcoin price of $23,136 as at January 31, 2023.
​
(3)
Includes the outstanding amount under a Master Equipment Financing Agreement, dated December 30, 2021, by and among Hut 8 and Trinity Capital Inc. and outstanding lease liabilities.
​
(4)
Includes (i) the Outstanding Loan Amount (as defined below) under the Refinanced Loan Agreement (as defined below) with Anchorage Lending (as defined below), (ii) the outstanding amount under the $10 million term-loan with a third party, (iii) the outstanding promissory notes under the a member loan with TZ Capital Holdings, LLC as at January 31, 2023 (the “Member Loan”), and (iv) outstanding lease liabilities. The Member Loan is not guaranteed by USBTC. Excludes the MEFA Debt (as defined below) with NYDIG (as defined below) which was extinguished on February 3, 2023.
​
​
23
TABLE OF CONTENTS​
 
MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY
Hut 8 Common Shares
Hut 8 common shares have been listed on Nasdaq under the symbol “HUT” since June 15, 2021 and on the TSX under the symbol “HUT” since October 8, 2019. Prior to that date, Hut 8 common shares were listed on the TSX Venture Exchange under the symbol “HUT” from March 6, 2018. Prior to March 6, 2018, there was no public trading market for Hut 8 common shares. As part of the Business Combination, Hut 8 common shares will be delisted from Nasdaq and the TSX.
New Hut expects to obtain approval to list the shares of New Hut common stock on Nasdaq and the TSX under the symbol “HUT,” approvals of which are conditions to closing the Business Combination.
The closing price of Hut 8 common shares on Nasdaq and the TSX on February 6, 2023, the last trading day before the public announcement of the Business Combination Agreement, was $2.38 and C$3.19 per share, respectively. The closing prices of Hut 8 common shares on Nasdaq and the TSX on February 10, 2023, the last practicable trading day prior to the distribution of this prospectus, was $1.68 and C$2.22 per share, respectively.
The market price of Hut 8 common shares is subject to fluctuation. You should anticipate that the market value of the shares of New Hut common stock that you will be entitled to receive under the Business Combination may increase or decrease. You are urged to obtain current market quotations for Hut 8 common shares and to review carefully the other information contained in this prospectus or documents filed with the SEC. For additional information, please see the section titled “Where You Can Find More Information” beginning on page 211 of this prospectus.
Hut 8 has never declared or paid dividends on its capital stock. New Hut currently intends to retain all available funds and future earnings and does not anticipate declaring or paying any cash dividends in the foreseeable future. New Hut may enter into credit agreements or other borrowing arrangements in the future that will restrict its ability to declare or pay cash dividends or make distributions on its capital stock. Any future determination regarding the declaration and payment of dividends on New Hut common stock will be at the discretion of the board of directors of New Hut (the “New Hut Board”) and will depend on then-existing conditions, including New Hut’s results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the New Hut Board deems relevant.
USBTC Capital Stock
None of USBTC’s shares are listed or traded publicly. USBTC is a privately held company, and there is no established public trading market for its securities.
USBTC had 45,696,750 issued and outstanding shares of USBTC common stock and 18,617,250 issued and outstanding shares of USBTC Preferred Stock as of February 12, 2023. The total number of shares of USBTC Preferred Stock consists of 7,824,000 shares of Series A Preferred Stock, 10,000,000 shares of Series B Preferred Stock, and 793,250 shares of Series B-1 Preferred Stock. No shares of Series C Preferred Stock have been issued.
Comparative Per Share Market Price
The following table sets forth the closing sale prices per share of Hut 8 common shares on February 6, 2023 on Nasdaq and the TSX, the last full trading day immediately preceding the public announcement of the Business Combination Agreement, and on February 10, 2023, the latest practicable date prior to the date of this prospectus. USBTC is a privately held company, and there is no established public trading market for its securities.
​ ​ ​
Hut 8 Common Shares
​ ​
USBTC Capital Stock
​
​ ​ ​
Nasdaq
​ ​
TSX
​ ​
—
​
February 6, 2023
​ ​ ​ $ 2.38 ​ ​ ​
C$3.19
​ ​ ​ ​ N/A ​ ​
February 10, 2023
​ ​ ​ $ 1.68 ​ ​ ​
C$2.22
​ ​ ​ ​ N/A ​ ​
24
TABLE OF CONTENTS​
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into this prospectus contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties, as well as assumptions, that, if proven incorrect or do not materialize, could cause the results of Hut 8, USBTC or New Hut following the Business Combination to differ materially from those expressed or implied by these forward-looking statements. Forward-looking statements generally are identified by the words “intend,” “plan,” “may,” “should,” “will,” “project,” “estimate,” “anticipate,” “believe,” “expect,” “continue,” “potential,” “opportunity” and similar expressions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. For example, forward-looking statements include projections of earnings, revenues, synergies, accretion or other financial items; any statements of the plans, strategies and objectives of management for future operations, including the execution of integration and restructuring plans and the anticipated timing of filings, approvals and the closing related to the Business Combination; any statements concerning proposed new products, services or developments; any statements regarding future economic conditions or performance; statements of belief and any statement of assumptions underlying any of the foregoing.
Forward-looking statements in this prospectus may include, for example, statements about:
•
expectations related to the terms and timing of the completion of the Business Combination;
​
•
the occurrence of any event giving rise to the right of a party to terminate the Business Combination Agreement;
​
•
expectations related to the projected capitalization of New Hut following the completion of the Business Combination;
​
•
the expected directors and officers of New Hut after the completion of the Business Combination;
​
•
the expected benefits of the Business Combination;
​
•
the expected financial and business performance following the completion of the Business Combination;
​
•
New Hut’s strategy, future operations, financial position, estimated revenues and losses, projected costs, prospects, and plans;
​
•
the ability to expand the business of New Hut and provide new offerings, services and features and make enhancements to its business;
​
•
potential adverse reactions or changes to business relationships resulting from the announcement or completion of the transactions;
​
•
developments and projections relating to New Hut’s competitors and industries;
​
•
the ability to compete with existing and new competitors in existing and new markets and offerings;
​
•
the ability to acquire new businesses or pursue strategic transactions;
​
•
the ability to protect patents, trademarks, and other intellectual property rights;
​
•
the effect of the substantial additional indebtedness New Hut will incur in connection with the Business Combination;
​
•
the expectations regarding the effects of existing and developing laws and regulations; and
​
•
global and domestic economic conditions and their impact on demand for New Hut’s markets and offerings.
​
The following factors or events, among others, could cause actual results to differ materially from those described in the forward-looking statements:
•
Hut 8’s and USBTC’s ability to establish and maintain strategic collaborations, licensing or other arrangements, and the terms of and timing such arrangements;
​
•
the timing to consummate the Business Combination;
​
25
TABLE OF CONTENTS
 
•
the failure to satisfy the conditions to the Closing;
​
•
the inherent risks, costs and uncertainties associated with integrating the businesses successfully and risks of not achieving all or any of the anticipated benefits and synergies of the Business Combination, or the risk that the anticipated benefits and synergies of the Business Combination may not be fully realized or take longer to realize than expected;
​
•
unexpected costs, liabilities or delays in connection with or with respect to the Business Combination;
​
•
the diversion of Hut 8 and USBTC management time on issues related to the Business Combination;
​
•
the occurrence of any event, change or other circumstance that could give rise to the termination of the Business Combination Agreement;
​
•
the failure to consummate or delay in consummating the Business Combination;
​
•
the effect of the announcement or pendency of the Business Combination on Hut 8’s or USBTC’s customers, employees and business relationships, operating results, ability to retain and hire key personnel and businesses generally;
​
•
changes in the financial or operating performance of Hut 8 or USBTC or more generally due to broader stock market movements and the performance of peer group companies;
​
•
competitive pressures in the markets in which Hut 8 and USBTC operate;
​
•
the risk that the anticipated tax treatment of the Business Combination is not obtained;
​
•
potential legal proceedings relating to the Business Combination and the outcome of any such legal proceeding;
​
•
changes in laws or regulations; and
​
•
changes in general economic conditions.
​
For additional information concerning factors that could cause actual conditions, events or results to materially differ from those described in the forward-looking statements, please refer to the section titled “Risk Factors” beginning on page 27 of this prospectus. Additionally, see the section titled “Where You Can Find More Information” beginning on page 211 of this prospectus.
The risks and uncertainties described and referred to above are not exclusive and further information concerning Hut 8, USBTC and New Hut and their respective businesses, including factors that potentially could materially affect their respective businesses, financial condition or operating results, may emerge from time to time. You are urged to consider these factors carefully in evaluating these forward-looking statements, and not to place undue reliance on any forward-looking statements. The forward-looking statements in this prospectus speak only as of the date of this prospectus. Except as required by law, none of New Hut, Hut 8 or USBTC assumes any obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
26
TABLE OF CONTENTS​​
 
RISK FACTORS
Investing in New Hut and New Hut common stock involves a high degree of risk. In addition to the other information included in this prospectus, including the matters addressed in the section entitled “Cautionary Note Concerning Forward-Looking Statements” beginning on page 25, you should carefully consider the risks described below before deciding whether to invest in New Hut and New Hut common stock, including the risk factors associated with each of the businesses of Hut 8 and USBTC, because these risk factors may affect the operations and financial results of New Hut. Hut 8’s risk factors may be found in its Annual Information Form for the year ended December 31, 2021, included as Exhibit 99.1 to Hut 8’s Annual Report on Form 40-F for the year ended December 31, 2021; in its Management’s Discussion and Analysis for the year ended December 31, 2021, included as Exhibit 99.3 to Hut 8’s Annual Report on Form 40-F for the year ended December 31, 2021; and in its Management’s Discussion and Analysis for the three and nine months ended September 30, 2022 and 2021, included as Exhibit 99.3 to its Form 6-K dated November 10, 2022. Furthermore, you should read and consider the other information in this prospectus and the other documents incorporated by reference herein. See the section entitled “Where You Can Find More Information” beginning on page 211 for the location of information incorporated by reference into this prospectus. Additional risks and uncertainties not presently known to Hut 8 or USBTC or that are not currently believed to be important also may adversely affect the Business Combination and New Hut following the Business Combination.
Risks Related to the Business Combination
Hut 8 shareholders and USBTC stockholders cannot be sure of the value of the Business Combination consideration they will receive.
Hut 8 shareholders and USBTC stockholders will receive a fixed number of shares of New Hut common stock in the Business Combination, rather than a number of shares of New Hut common stock with a particular fixed market value. The values of Hut 8 common shares and USBTC common stock at the effective time may vary significantly from their prices on the date prior to the date the Business Combination Agreement was executed, the date of this prospectus or the date on which Hut 8 shareholders and USBTC stockholders approve the Business Combination. Because the respective Hut 8 and USBTC exchange ratios are fixed and will not be adjusted to reflect any changes in the prices of Hut 8 common shares or USBTC common stock, the market value of the New Hut common stock issued as part of the Business Combination, and the Hut 8 common shares and USBTC common stock surrendered as part of the Business Combination, may be higher or lower than the values of these shares on earlier dates. All of the consideration to be received by Hut 8 shareholders and USBTC stockholders will be New Hut common stock. At the time of approval, Hut 8 shareholders and USBTC stockholders will not know or be able to determine the value of the New Hut common stock they may receive upon completion of the Business Combination. Changes in the prices of Hut 8 common shares and USBTC common stock may result from a variety of factors that are beyond the control of Hut 8 or USBTC, including changes in their respective businesses, operations and prospects, regulatory considerations, governmental actions, and legal proceedings and other developments.
Neither Hut 8 nor USBTC is permitted to terminate the Business Combination Agreement solely because of changes in the prices of either party’s common stock. There is no assurance that the Business Combination will be completed, that there will not be a delay in the completion of the Business Combination, or that all or any of the anticipated benefits of the Business Combination will be obtained.
The Business Combination Agreement may be terminated in accordance with its terms and the Business Combination may not be consummated.
The completion of the Business Combination is subject to the satisfaction or waiver of a number of conditions. Those conditions include, but are not limited to: (i) obtaining the Interim Order and Final Order of the Court on terms consistent with the Business Combination Agreement; (ii) the receipt of requisite approvals by the requisite shareholders of Hut 8 and USBTC; (iii) the absence of certain governmental restraints or prohibitions preventing completion of the Business Combination; (iv) no order, legal prohibition, or injunction preventing or restricting the consummation of the Business Combination; (v) the effectiveness of the registration statement of which this prospectus forms a part and the absence of any threatened or initiated stop order or proceedings by the SEC; (vi) the approval of New Hut’s listing applications with Nasdaq and the TSX on terms satisfactory to each of the parties; (vii) the execution and delivery of executive employment agreements
27
TABLE OF CONTENTS
 
for the leadership team of New Hut; (viii) the effectiveness of a “rolling” or “evergreen” omnibus equity incentive plan (or similar plan) with a number of shares reserved thereunder representing approximately 10% of the fully-diluted capitalization of New Hut, adopted by the board of directors of New Hut immediately after closing; (ix) dissent rights having not been exercised with respect to more than 5.0% of the issued and outstanding shares of Hut 8 and not more than 5.0% of the outstanding USBTC shares remaining eligible to exercise dissenter’s rights under the Nevada Dissenter’s Rights Statutes; (x) the truth and correctness of the representations and warranties made by both parties (generally subject to certain “materiality” and “material adverse effect” qualifiers); (xi) the performance of or compliance with, by Hut 8 and USBTC, their respective obligations, covenants and agreements under the Business Combination Agreement in all material respects; and (xii) the absence since the date of the Business Combination Agreement of any (a) state of facts, circumstance, condition, event, change, development, occurrence, result, effect, action or omission that has had or would reasonably be expected to have, individually in the aggregate, a material adverse effect with respect to the other party or (b) material adverse effect with respect to the other party.
No assurance can be given that the required Hut 8 shareholder and USBTC stockholder consents and approvals, as applicable, will be obtained or that the required conditions to closing will be satisfied. Any delay in completing the Business Combination could cause New Hut not to realize, or to be delayed in realizing, some or all of the benefits that Hut 8 and USBTC expect to achieve if the Business Combination is successfully completed within their expected time frame.
In addition, if the Business Combination is not completed by September 30, 2023, subject to certain limitations, either Hut 8 or USBTC may choose not to proceed with the Business Combination, and the parties can mutually decide to terminate the Business Combination Agreement at any time prior to the consummation of the Business Combination. In addition, Hut 8 or USBTC may elect to terminate the Business Combination Agreement in certain other circumstances. If the Business Combination Agreement is terminated, Hut 8 and USBTC may incur substantial fees in connection with termination of the Business Combination Agreement, including a potential termination fee in certain circumstances, and will not recognize the anticipated benefits of the Business Combination. See “The Business Combination Agreement — Termination” beginning on page 116 of this prospectus.
Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated or cannot be met.
Before the transactions contemplated by the Business Combination Agreement can be completed, various approvals must be obtained from regulatory agencies in the United States and Canada. In deciding whether to grant these approvals, the relevant governmental entities will consider a variety of factors, including the regulatory standing of each of the parties. An adverse development in either party’s regulatory standing or other factors could result in an inability to obtain one or more of the required regulatory approvals or delay receipt of required approvals.
The terms of the approvals that are granted may impose conditions, limitations, obligations or costs, or place restrictions on the conduct of Hut 8’s or USBTC’s business or require changes to the terms of the transactions contemplated by the Business Combination Agreement and the corporate governance updates. There can be no assurance that regulators will not impose any such conditions, limitations, obligations or restrictions and that such conditions, limitations, obligations or restrictions will not have the effect of delaying the completion of any of the transactions contemplated by the Business Combination Agreement and the corporate governance updates, imposing additional material costs on or otherwise reducing the anticipated benefits of the Business Combination if the Business Combination is consummated successfully within the expected timeframe. Nor can there be any assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Business Combination. Additionally, the completion of the Business Combination is conditioned on the absence of certain orders or injunctions issued by any court of competent jurisdiction or other legal restraints that would prohibit or make illegal the consummation of any of the transactions contemplated by the Business Combination Agreement.
Termination of the Business Combination Agreement could negatively impact Hut 8 and/or USBTC.
If the Business Combination Agreement is terminated in accordance with its terms and the Business Combination is not consummated, the ongoing businesses of Hut 8 and USBTC may be adversely affected by
28
TABLE OF CONTENTS
 
a variety of factors. Hut 8’s and USBTC’s respective businesses may be adversely impacted by the failure to pursue other beneficial opportunities during the pendency of the Business Combination, by the failure to obtain the anticipated benefits of completing the Business Combination, by payment of certain costs relating to the Business Combination, and by the focus of their respective managements on the Business Combination for an extended period of time rather than on management opportunities or other issues. The market price of Hut 8 common shares might decline as a result of any such failures to the extent that the current market prices reflect a market assumption that the Business Combination will be completed.
In addition, if the Business Combination Agreement is terminated under certain circumstances, Hut 8 may be required to pay a termination fee of US$10,000,000 to USBTC. See “The Business Combination Agreement — Termination Fee Payable by Hut 8.” Hut 8 or USBTC may also be negatively impacted if the Business Combination Agreement is terminated and their respective boards seek but are unable to find another business combination or strategic transaction offering equivalent or more attractive consideration than the consideration to be provided in the Business Combination, or if the respective companies become subject to litigation related to entering into or failing to consummate the Business Combination, including direct actions by Hut 8 shareholders or USBTC stockholders, as applicable, against the directors and/or officers of Hut 8 or USBTC for breaches of fiduciary duty, or derivative actions brought by Hut 8 or USBTC stockholders in the name of the respective companies.
Hut 8’s and USBTC’s directors and executive officers have interests in the Business Combination that may be different from, or in addition to, the interests of Hut 8 and USBTC stockholders generally.
When considering the recommendations of the boards of directors of Hut 8 or USBTC, as applicable, with respect to the proposals described in this prospectus, Hut 8 shareholders and USBTC stockholders should be aware that the directors and executive officers of each of Hut 8 and USBTC may have interests in the Business Combination and have arrangements that are different from, or in addition to, those of Hut 8 shareholders and USBTC stockholders generally. These interests and arrangements include the continued employment of certain executive officers of Hut 8 and USBTC by New Hut or its subsidiaries, the continued service of certain independent directors of Hut 8 and USBTC as directors of New Hut or its subsidiaries, the treatment in the Business Combination of outstanding equity, other equity-based and incentive awards, other compensation and benefit arrangements, including potential severance payments for certain officers upon termination, and the right to continued indemnification and insurance coverage for former Hut 8 and USBTC directors and officers by New Hut.
Hut 8 shareholders and USBTC stockholders should be aware of these interests when they consider voting or consenting, as applicable, to approve and adopt the Business Combination Agreement.
The Hut 8 Board and USBTC Board were aware of these interests and considered these interests, among other matters, when each approved and declared advisable the Business Combination Agreement and the transactions contemplated by the Business Combination Agreement on the terms and subject to the conditions set forth in the Business Combination Agreement and will recommend that Hut 8 shareholders and USBTC stockholders, respectively, approve the Business Combination Agreement. The interests of Hut 8 and USBTC directors and executive officers are described in more detail in the sections of this prospectus titled “Interests of Hut 8’s Directors and Executive Officers in the Business Combination” and “Interests of USBTC’s Directors and Executive Officers in the Business Combination” beginning on pages 127 and 173, respectively, of this prospectus.
Hut 8 and USBTC will incur significant costs in connection with the Business Combination.
Hut 8 and USBTC have incurred and expect to incur a number of non-recurring costs associated with the Business Combination. These costs and expenses include fees paid to financial, legal and accounting advisors, potential employment-related costs, filing fees, printing expenses and other related charges. Some of these costs are payable by Hut 8 and USBTC regardless of whether the Business Combination is completed. There are also a large number of processes, policies, procedures, operations, technologies and systems that may or must be integrated in connection with the Business Combination and the integration of the two companies’ businesses. While both Hut 8 and USBTC have assumed that a certain level of expenses would be incurred in
29
TABLE OF CONTENTS
 
connection with transactions contemplated by the Business Combination Agreement, there are many factors beyond their control that could affect the total amount or the timing of the integration and implementation expenses.
There may also be additional unanticipated significant costs in connection with the Business Combination that New Hut may not recoup. These costs and expenses could reduce the realization of efficiencies, strategic benefits and additional income Hut 8 and USBTC expect to achieve from the Business Combination. Although Hut 8 and USBTC expect that these benefits will offset the transaction expenses and implementation costs over time, this net benefit may not be achieved in the near term or at all.
The failure to integrate Hut 8’s business and USBTC’s business successfully in the expected time frame could adversely affect New Hut’s future results.
The success of the Business Combination will depend, in large part, on the parties’ ability to realize the anticipated benefits from combining Hut 8’s business with USBTC’s business. A successful integration will require focusing a substantial amount of resources and management attention to the integration process, which may divert resources and focus from the development and operation of Hut 8’s and USBTC’s regular business operations. New Hut’s business or results of operations could also be adversely affected by any issues attributable to either company’s operations that arise or are based on events or actions that occur before the Closing. The integration process is subject to a number of risks and uncertainties, and no assurance can be given as to the realization of anticipated benefits in full or in part or, if realized, the timing of their realization. Failure to achieve these anticipated benefits could result in increased costs and could adversely affect New Hut’s future business, financial conditions, operating results and prospects.
Potential difficulties that may be encountered in the integration process include the following:
•
challenges and difficulties associated with managing the larger, more complex, combined company;
​
•
conforming standards, controls, procedures and policies, and compensation structures between the companies;
​
•
retaining and integrating talent from the two companies, including key employees, while maintaining focus on expanding and maintaining the business;
​
•
consolidating corporate and administrative infrastructures;
​
•
coordinating geographically dispersed organizations;
​
•
addressing possible differences in business backgrounds, corporate cultures and management philosophies;
​
•
potential unknown liabilities and unforeseen expenses, delays or regulatory conditions associated with the Business Combination;
​
•
effecting potential actions that may be required in connection with obtaining regulatory approvals;
​
•
performance shortfalls at one or both of the companies as a result of the diversion of management’s attention caused by completing the Business Combination and integrating the companies’ operations; and
​
•
difficulties in delivering on New Hut’s strategy, including the ability of the Business Combination to accelerate growth in the combined business.
​
Hut 8’s and USBTC’s business relationships may be subject to disruption due to uncertainty associated with the Business Combination, which could have an adverse effect on Hut 8’s and USBTC’s results of operations, cash flows and financial position.
Parties with which Hut 8 and USBTC do business may experience uncertainty associated with the Business Combination, including with respect to current or future business relationships with Hut 8, USBTC or the combined company following the completion of the Business Combination. Hut 8’s and USBTC’s relationships may be subject to disruption as persons with whom Hut 8 and/or USBTC have a business relationship may have concerns about a larger, more international organization, or otherwise, and may delay
30
TABLE OF CONTENTS
 
or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with Hut 8 or USBTC, as applicable, or consider entering into business relationships with parties other than Hut 8 or USBTC. These disruptions could have a material adverse effect on the results of operations, cash flows and financial position of Hut 8, USBTC or New Hut following the completion of the Business Combination, including an adverse effect on the parties’ ability to realize the expected benefits of the Business Combination. The risk, and adverse effect, of any disruption could be exacerbated by a delay in the completion of or failure to complete the Business Combination.
Hut 8 and USBTC will be subject to certain contractual restrictions while the Business Combination is pending.
The Business Combination Agreement restricts each of Hut 8 and USBTC from making certain acquisitions and divestitures, entering into certain contracts, incurring certain indebtedness and expenditures, paying dividends, repurchasing or issuing securities outside of existing share repurchase and equity award programs, and taking other specified actions until the earlier of the completion of the Business Combination or the termination of the Business Combination Agreement without the consent of the other party. These restrictions may prevent Hut 8 and USBTC from pursuing attractive business opportunities that may arise prior to the completion of the Business Combination and could have the effect of delaying or preventing other strategic transactions. Adverse effects arising from the pendency of the Business Combination could be exacerbated by any delays in consummation of the Business Combination or the termination of the Business Combination Agreement. See “The Business Combination Agreement — Covenants Regarding the Conduct of the Business” beginning on page 106.
Uncertainties associated with the Business Combination may cause a loss of management personnel and other key employees, and Hut 8, USBTC and New Hut may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect the future businesses and operations of Hut 8, USBTC and New Hut.
The success of the Business Combination will depend in part on the retention of personnel critical to the business and operations of New Hut due to, for example, their technical skills or management expertise. Competition for qualified personnel can be intense.
Current and prospective employees of Hut 8 and USBTC may experience uncertainty about their future role with Hut 8 and USBTC until strategies with regard to these employees are announced or executed, which may impair Hut 8’s and USBTC’s ability to attract, retain and motivate key personnel prior to and following the Business Combination. Employee retention may be particularly challenging during the pendency of the Business Combination, as employees of Hut 8 and USBTC may experience uncertainty about their future roles with New Hut. If Hut 8 and USBTC are unable to retain personnel, Hut 8 and USBTC could face disruptions in their operations, loss of existing business partners, loss of key information, expertise or know-how, and unanticipated additional recruitment and training costs. In addition, the loss of key personnel could diminish the anticipated benefits of the Business Combination.
If key employees of Hut 8 or USBTC depart, New Hut may have to incur significant costs in identifying, hiring and retaining replacements for departing employees and may lose significant expertise and talent relating to the business of each of Hut 8 or USBTC, and New Hut’s ability to realize the anticipated benefits of the Business Combination may be adversely affected. In addition, there could be disruptions to or distractions for the workforce and management associated with integrating employees into New Hut. Accordingly, no assurance can be given that New Hut will be able to attract or retain key employees of Hut 8 or USBTC to the same extent that those companies have been able to attract or retain their own employees in the past.
The Business Combination and the integration of USBTC may subject New Hut to certain liabilities associated with USBTC or liabilities that may arise in connection with the completion of the Business Combination, as there has been no public market for USBTC capital stock and the lack of a public market makes it difficult to determine the fair market value of USBTC.
The Business Combination and the integration of USBTC with Hut 8 into New Hut may pose special risks, including write-offs or restructuring charges, unanticipated costs, and the loss of key employees. There can be no assurance that the integration will be accomplished effectively or in a timely manner. In addition, the
31
TABLE OF CONTENTS
 
Business Combination and the integration of USBTC will subject New Hut to liabilities that may exist at USBTC or may arise in connection with the completion of the Business Combination, some of which may be unknown. Although Hut 8 and Hut 8 advisers have conducted due diligence on the operations of USBTC, there can be no guarantee that Hut 8 is aware of all liabilities of USBTC. These liabilities, and any additional risks and uncertainties related to the Business Combination not currently known to Hut 8 or that Hut 8 may currently deem immaterial or unlikely to occur, could negatively impact Hut 8’s, USBTC’s or New Hut’s business, financial condition and results of operations, including profitability. Further, USBTC’s business is different in certain ways from Hut 8’s, and USBTC’s results of operations may as a result be affected by factors that differ from those currently affecting Hut 8’s results of operations.
Additionally, the outstanding shares of USBTC capital stock are privately held and are not traded on any public market. The lack of a public market may make it more difficult to determine the fair market value of USBTC than if the outstanding shares of USBTC capital stock were traded publicly. The value ascribed to USBTC capital stock in other contexts, including in private valuations or financings, may not be indicative of the price at which the outstanding shares of USBTC capital stock may have traded if they were traded on a public market. The consideration to be paid to USBTC stockholders in the Business Combination was determined based on negotiations between the parties and likewise may not be indicative of the price at which the outstanding shares of USBTC capital stock may have traded if they were traded on a public market.
The Merger may be treated as a taxable exchange for U.S. federal income tax purposes.
New Hut, Hut 8 and USBTC each intend that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, be treated as an exchange by Hut 8 shareholders and USBTC Stockholders, respectively, that qualifies under Section 351(a) of the Code. If the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, were to so qualify, then neither gain nor loss generally will be recognized by USBTC stockholders that are United Staters persons upon the exchange of USBTC common stock for New Hut common stock in the Merger. The Arrangement and the Merger are not conditioned on the receipt of an opinion of counsel that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify under Section 351(a) of the Code, and there can be no assurance that such an opinion of counsel can or will be obtained. In addition, neither Hut 8 nor USBTC has requested, and neither intends to request, any ruling from the IRS as to the U.S. federal income tax consequences of the Arrangement and the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to the parties’ position that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, qualify under Section 351(a) of the Code. Accordingly, if there is a final determination that the Merger is a taxable exchange for United States federal income tax purposes, then a USBTC stockholder that is a United States person that exchanges USBTC common stock in the Merger would generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value (determined as of the Merger Effective Time) of the New Hut common stock received and (ii) the holder’s adjusted tax basis in the USBTC common stock exchanged therefor. For a more complete discussion of the United States federal income tax consequences of the Merger, see the section entitled “U.S. Federal Income Tax Consequences” beginning on page 122.
Litigation may be instituted against New Hut, members of New Hut’s Board of Directors, Hut 8, members of the Hut 8 Board of Directors, USBTC, members of the USBTC Board of Directors and Merger Sub challenging the Business Combination and adverse judgments in these lawsuits may prevent the Business Combination from becoming effective within the expended timeframe or at all.
Lawsuits in connection with the Business Combination may be filed against Hut 8, USBTC, New Hut, Merger Sub, and/or their respective directors and officers, which could prevent or delay the consummation of the Business Combination and result in additional costs to Hut 8 and USBTC. The ultimate resolution of any lawsuits cannot be predicted with certainty, and an adverse ruling in any such lawsuit may cause the Business Combination to be delayed or not to be completed, which could cause Hut 8 and USBTC not to realize some or all of the anticipated benefits of the Business Combination. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Business Combination is consummated may adversely affect New Hut’s business, financial condition, results of operations and cash flows. Hut 8 and USBTC cannot currently predict the outcome of or reasonably estimate the possible loss or range of loss from any such lawsuits or claims.
32
TABLE OF CONTENTS
 
The Business Combination may be completed even though material adverse changes may result from the announcement of the Business Combination, industry-wide changes or other causes.
In general, either party can refuse to complete the Business Combination if there is a material adverse effect affecting the other party prior to the Closing. However, some types of changes that would result in a material adverse effect of either party are excluded from the definition of a Material Adverse Effect according to the Business Combination Agreement, and do not permit either party to refuse to complete the Business Combination. If such adverse changes occur but Hut 8 and USBTC still complete the Business Combination, the market price of New Hut common stock may suffer. For a more complete discussion of what constitutes a Material Adverse Effect in respect of USBTC or Hut 8 under the Business Combination Agreement, see the section titled “The Business Combination Agreement — Representations and Warranties” beginning on page 103 of this prospectus.
Hut 8 or USBTC may waive one or more of the closing conditions without re-soliciting shareholder approval.
Hut 8 or USBTC may determine to waive, in whole or in part, one or more of the conditions to its obligations to consummate the Business Combination. Hut 8 or USBTC currently expect to evaluate the materiality of any waiver and its effect on Hut 8 shareholders or USBTC stockholders, as applicable, in light of the facts and circumstances at the time to determine whether any amendment of this prospectus, in the case of Hut 8, or any re-solicitation of proxies or voting cards is required in light of such waiver. Any determination whether to waive any condition to the Business Combination or as to re-soliciting shareholder approval or amending this prospectus as a result of a waiver will be made by Hut 8 or USBTC, as applicable, at the time of such waiver based on the facts and circumstances as they exist at that time.
Hut 8 and USBTC will be subject to business uncertainties while the Business Combination is pending.
Uncertainty about the completion or effect of the Business Combination may affect the relationship between Hut 8 and USBTC and their respective suppliers, customers, distributors, licensors and licensees and may have an adverse effect on Hut 8 and USBTC, and consequently on New Hut. This uncertainty may cause strategic partners or others that deal with Hut 8 and USBTC to delay or defer entering into contracts with Hut 8 and USBTC or making other decisions concerning Hut 8 and USBTC or seek to change or cancel existing business relationships with Hut 8 or USBTC, which could negatively affect their respective businesses. Any delay or deferral of those decisions or changes in existing agreements could have a material adverse effect on the respective businesses of Hut 8 and USBTC, regardless of whether the Business Combination is ultimately completed.
Third parties may terminate or alter existing contracts or relationships or with Hut 8 or USBTC.
Each of Hut 8 and USBTC has contracts with customers, vendors, distributors, landlords, licensors, lenders, and other business partners which may require Hut 8 or USBTC, as applicable, to obtain consent from these other parties in connection with the Business Combination. If these consents cannot be obtained, the counterparties to these contracts and other third parties with which Hut 8 and/or USBTC currently have relationships may have the ability to terminate, reduce the scope of or otherwise materially adversely alter their relationships with either or both parties in anticipation of the Business Combination, or with the combined company following the Business Combination. The pursuit of such rights may result in Hut 8, USBTC or New Hut suffering a loss of potential future revenue or incurring liabilities in connection with a breach of such agreements and may lose rights that are material to its business. Any such disruptions could limit New Hut’s ability to achieve the anticipated benefits of the Business Combination. The adverse effect of such disruptions could also be exacerbated by a delay in the completion of the Business Combination or the termination of the Business Combination Agreement.
Both Hut 8 shareholders and USBTC stockholders will have a reduced ownership and voting interest after the Business Combination and will exercise less influence over management.
After the completion of the Business Combination, Hut 8 shareholders and USBTC stockholders will own a smaller percentage of New Hut than they currently own of Hut 8 and USBTC, respectively. It is expected that on a fully-diluted in-the-money basis Hut 8 shareholders will hold approximately 50%, and USBTC stockholders will hold approximately 50%, of the shares of New Hut common stock outstanding immediately
33
TABLE OF CONTENTS
 
after consummation of the Business Combination. Consequently, Hut 8 shareholders, as a group, and USBTC stockholders, as a group, will each have reduced ownership and voting power in the combined company compared to their ownership and voting power in Hut 8 and USBTC, respectively.
Shares of New Hut common stock to be received by Hut 8 shareholders and USBTC stockholders will have rights different from the shares of Hut 8 common shares and USBTC common stock and preferred stock, respectively.
Upon completion of the Business Combination, Hut 8 shareholders and USBTC stockholders will no longer be shareholders of Hut 8 and/or USBTC, as applicable, but will instead be shareholders of New Hut. The rights of former Hut 8 shareholders and USBTC stockholders who become New Hut stockholders will be governed by the New Hut charter and bylaws, each of which will be adopted, prior to the effective time, in substantially the form attached as exhibits to the Registration Statement of which this prospectus forms a part. The rights associated with shares of New Hut common stock are different from the rights associated with shares of Hut 8 common shares or USBTC common and preferred stock. For more information, see the section titled “Comparison of Rights of Stockholders” beginning on page 180 of this prospectus.
The Business Combination Agreement limits Hut 8’s ability to pursue alternatives to the Business Combination and contains provisions that could affect the decisions of a third party considering making an alternative acquisition proposal to Hut 8.
The Business Combination Agreement prohibits Hut 8 from soliciting, initiating, or encouraging alternative proposals with respect to a merger, acquisition or business combination from any third party. Under the terms of the Business Combination Agreement, Hut 8 may, in certain circumstances, communicate and discuss with a third party regarding a superior proposal that, among other criteria, if consummated, would result in such third party acquiring not less than all the outstanding shares of Hut 8 or substantially all of the assets of Hut 8 and the board of directors of Hut 8 in good faith determines to be more financially favorable to shareholders of Hut 8. In addition, before the Hut 8 board enters into a definitive agreement with respect to a superior proposal, USBTC generally has an opportunity to offer to modify the terms of the Business Combination and Hut 8 has an obligation to negotiate in good faith regarding such an offer. Under specified circumstances, upon termination of the combination Business Combination Agreement in connection with a superior proposal, Hut 8 may be required to pay USBTC a termination fee of US$10,000,000. These provisions could affect the decision by a third party to make a competing acquisition proposal, including the structure, pricing, and terms proposed by a third party seeking to acquire or merge with Hut 8.
New Hut’s consolidated indebtedness will increase substantially following completion of the Business Combination. This increased level of indebtedness could adversely affect New Hut, including by decreasing its business flexibility.
Upon completion of the Business Combination, New Hut will assume an estimated $194 million of outstanding net debt of Hut 8 and USBTC. The increased indebtedness could have the effect of, among other things, reducing New Hut’s flexibility to respond to changing business and economic conditions. In addition, the amount of cash required to pay interest on New Hut’s increased indebtedness levels will increase following completion of the Business Combination, and the demands on New Hut’s cash resources will correspondingly increase. The increased levels of indebtedness following completion of the Business Combination could also reduce funds available for capital expenditures, share repurchases and dividends, and other activities and may create competitive disadvantages for New Hut relative to other companies with lower debt levels.
The market price of New Hut’s common stock may be volatile, and holders of New Hut’s common stock could lose a significant portion of their investment due to drops in the market price of New Hut’s common stock following completion of the Business Combination.
The market price of New Hut’s common stock may be volatile, and following completion of the Business Combination shareholders may not be able to resell their New Hut common stock at or above the price at which they acquired the common stock pursuant to the Business Combination Agreement or otherwise due to fluctuations in its market price, including changes in price caused by factors unrelated to the combined company’s operating performance or prospects.
34
TABLE OF CONTENTS​
 
Specific factors that may have a significant effect on the market price for the New Hut’s common stock include, among others, the following:
•
changes in stock market analyst recommendations or earnings estimates regarding the combined company’s common stock, other companies comparable to it or companies in the industries they serve;
​
•
actual or anticipated fluctuations in the combined company’s operating results or future prospects;
​
•
reaction to public announcements by the combined company;
​
•
strategic actions taken by the combined company or its competitors, such as any contemplated business separation, acquisitions or restructurings;
​
•
failure of the combined company to achieve the perceived benefits of the Business Combination, including financial results and anticipated synergies, as rapidly as or to the extent anticipated by financial or industry analysts;
​
•
adverse conditions in the financial market or general U.S. or international economic conditions, including those resulting from war, incidents of terrorism and responses to such events; and
​
•
sales of common stock by the combined company, members of its management team or significant shareholders.
​
Risks Related to the Combined Business
The Business Combination and the expansion of the combined company may lead to an increase in competitive pressure from both existing competitors and new entrants in the already highly competitive digital asset mining industry.
As a result of the Business Combination, New Hut will operate in a greater geographical area than each of Hut 8 and USBTC, separately, does currently. A number of competitors both in North America and around the world conduct digital asset mining operations similar to those conducted by Hut 8 and USBTC. Existing competitors and new entrants in North America and the rest of the world may engage in aggressive customer acquisition campaigns, develop superior offerings or consolidate with other entities and achieve benefits of scale. Such competitive pressures in an already highly competitive market may materially erode New Hut’s market share and negatively impact New Hut’s revenue, and may hinder New Hut’s expansion, which could adversely impact the combined company after the completion of the Business Combination.
Whether or not the Business Combination is completed, the announcement and pendency of the Business Combination will divert significant management resources to complete the Business Combination, which could have an adverse effect on their respective businesses, financial results, and/or market prices.
Whether or not the Business Combination is completed, the announcement and pendency of the Business Combination could cause disruptions in the businesses of Hut 8 and USBTC by directing the attention of management of each of Hut 8 and USBTC toward the completion of the Business Combination. Hut 8 and USBTC have each diverted significant management resources in an effort to complete the Business Combination and are each subject to restrictions contained in the Business Combination Agreement on the conduct of their respective businesses. If the efforts and actions required of Hut 8 and USBTC in order to consummate the Business Combination are more difficult, costly or time consuming than expected, such efforts and actions could result in the additional diversion of each company’s management’s attention and resources or the disruption or interruption of, or the loss of momentum in, each company’s ongoing businesses, which could adversely affect the business and financial results of Hut 8 or USBTC, as applicable. If the Business Combination is not completed, Hut 8 and USBTC will have incurred significant costs, including the diversion of management resources, for which they will have received little or no benefit.
Hut 8 and USBTC will incur significant transaction- and integration-related costs in connection with the Business Combination, and any such costs could adversely affect New Hut’s ability to execute on its integration plan.
Hut 8 and USBTC expect to incur a number of non-recurring costs associated with the Business Combination and combining the operations of the two companies. Additionally, each of Hut 8 and USBTC will incur significant transaction costs related to the Business Combination, some of which must be paid even if the
35
TABLE OF CONTENTS
 
Business Combination is not completed. These costs are substantial and include financial advisory, legal and accounting costs. New Hut also will incur significant integration-related fees and costs related to formulating and implementing integration plans, including facilities and systems consolidation costs and employment-related costs. Hut 8 and USBTC continue to assess the magnitude of these costs, and additional unanticipated costs may be incurred in the Business Combination and the integration of the two companies’ businesses. Although Hut 8 and USBTC expect that the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, should allow New Hut to offset integration-related costs over time, this net benefit may not be achieved in the near term, or at all.
New Hut’s future results will suffer if it does not effectively manage its expanded operations following the Business Combination.
Following the Business Combination, the size of the business of New Hut will increase significantly beyond the current size of either Hut 8’s or USBTC’s current businesses on a stand-alone basis. New Hut’s future success depends, in part, upon its ability to manage this expanded business, which may pose substantial challenges for management, including challenges related to the management and monitoring of new operations and associated increased costs and complexity. There can be no assurance that the combined company will be successful or that it will realize the expected operating efficiencies, cost savings, revenue enhancements and other benefits currently anticipated from the Business Combination.
Coordinating the businesses of Hut 8 and USBTC may be more difficult, costly or time-consuming than expected and New Hut may fail to realize the anticipated benefits of the Business Combination, which may adversely affect New Hut’s business results and negatively affect the value of New Hut’s shares following the Business Combination.
The success of the Business Combination will depend on, among other things, the ability of Hut 8 and USBTC to coordinate their businesses under New Hut in a manner that facilitates growth opportunities. However, Hut 8 and USBTC may not be able to successfully coordinate their respective businesses in a manner that permits anticipated growth to be realized, without adversely affecting current revenues and investments. If the combined company is not able to successfully achieve these objectives, the anticipated benefits of the Business Combination may not be realized fully, or at all, or may take longer to realize than expected. Specifically, the following issues, among others, must be addressed in order to realize the anticipated benefits of the Business Combination so the combined company performs as expected:
•
coordinating the businesses of Hut 8 and USBTC and meeting the capital requirements of the combined company, in a manner that permits the combined company to achieve the growth anticipated to result from the Business Combination;
​
•
coordinating the companies’ technologies;
​
•
coordinating the companies’ operating practices, internal controls and other policies, procedures and processes;
​
•
addressing possible differences in business backgrounds and corporate cultures;
​
•
coordinating geographically dispersed organizations; and
​
•
effecting actions that may be required in connection with obtaining regulatory approvals.
​
Furthermore, the board of directors of New Hut will consist of the certain directors of Hut 8 and certain directors of USBTC. Combining the boards of directors of each company into New Hut’s board could require the reconciliation of differing priorities and philosophies.
An inability to realize the full extent of the anticipated benefits of the Business Combination, as well as any delays encountered in the combination process, could have an adverse effect upon the revenues, level of expenses and operating results of the combined company, which may adversely affect the value of the common stock of the combined company after the completion of the Business Combination. In addition, the actual coordination of the Hut 8 and USBTC businesses under New Hut may result in additional and unforeseen expenses, and the anticipated benefits of the coordination plan may not be realized. If Hut 8 and USBTC are
36
TABLE OF CONTENTS
 
not able to adequately address coordination challenges, they may be unable to successfully coordinate their operations or realize the anticipated benefits of the coordination of the two companies.
The market price of New Hut common stock may decline following the Business Combination.
The market price of New Hut common stock may decline following the Business Combination, and Hut 8 shareholders and USBTC stockholders who receive New Hut common stock as a result of the Business Combination could see a decrease in the value of their investment in New Hut common stock, if, among other things, New Hut is unable to achieve the expected growth in earnings, or if the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from the Business Combination are not realized, or if the transaction costs related to the Business Combination are greater than expected. The market price may also decline if New Hut does not achieve the perceived benefits of the Business Combination as rapidly or to the extent anticipated by investors or financial or industry analysts or if the effect of the Business Combination on New Hut’s financial position, results of operations or cash flows is not consistent with the expectations of investors or financial or industry analysts. In addition, many New Hut stockholders and USBTC stockholders may decide to sell the shares of New Hut common stock they receive as a result of the Business Combination. Any such sales of New Hut common stock could have the effect of depressing the market price for New Hut common stock. Moreover, general fluctuations in stock markets could have a material adverse effect on the market for, or liquidity of, the New Hut common stock, regardless of the actual operating performance of the combined company.
New Hut’s business may be impacted by differences in Canadian and U.S. operations.
Hut 8 currently has its head office and conducts its business operations in Canada, while USBTC has its head office and conducts it business operations in the United States. New Hut expects to maintain the existing physical operations of Hut 8 and USBTC in Canada and the United States, respectively. However, New Hut’s principal executive offices will be located in the United States. Certain existing Hut 8 relationships, including with employees, suppliers, contract research organizations, partners, collaborators, governments and other stakeholders, may be subject to disruption as a result of this shift in management and operations to the United States. Conversely, certain existing USBTC relationships could be impacted as a result of the addition of operations outside of the United States. Specifically, certain stakeholders may be reluctant to engage in business with Hut 8 and/or USBTC prior to, or with New Hut following completion of, the Business Combination, or may impose additional conditions on or apply less favorable terms to transactions involving Hut 8, USBTC and/or New Hut. This could have an adverse effect on the business and operations of Hut 8 and USBTC prior to, or New Hut following, completion of the Business Combination.
The rights of New Hut stockholders under Delaware law may differ from the rights of USBTC stockholders under the Nevada law.
Upon completion of the Business Combination, the rights of New Hut stockholders will be governed by applicable Delaware law. While there will be substantial similarities between their rights after the Business Combination and their rights as stockholders of USBTC prior to the Business Combination, there will be some differences, for example with respect to removal of directors, proxy voting, restrictions on dividends and other distributions, exculpation of officers and directors, appraisal and dissenter’s rights, certain restrictions on business combinations and takeovers, and inspection rights. As shown by the examples above, if the Business Combination is consummated, in certain circumstances, holders of shares of New Hut common stock may be afforded different protections under the Delaware General Corporations Law (the “DGCL”) than USBTC stockholders had under Nevada law. For additional information, please read the section titled “Comparison of Rights of Stockholders” beginning on page 180 of this prospectus.
The Business Combination will result in changes to the Board of Directors at the combined company.
Upon completion of the Business Combination, the composition of the Board of Directors of New Hut will be different from the current boards of Hut 8 and USBTC. New Hut’s Board of Directors will consist of five (5) directors selected by Hut 8 and five (5) directors selected by USBTC. This composition of New Hut’s Board of Directors may affect the future decisions of the company.
37
TABLE OF CONTENTS​
 
The combined company may be exposed to increased litigation, which could have an adverse effect on the combined company’s business and operations.
New Hut may be exposed to increased litigation from shareholders, customers, suppliers, consumers and other third parties due to the combination of Hut 8’s business and USBTC’s business following the Business Combination. Such litigation may have an adverse impact on New Hut’s business and results of operations or may cause disruptions to the New Hut’s operations.
If New Hut fails to develop or maintain an effective system of internal controls in the future, it may not be able to accurately report its financial condition or results of operations, which may adversely affect investor confidence in New Hut and, as a result, the value of the New Hut common stock.
Effective internal controls are necessary for New Hut to provide reliable financial reports, prevent fraud and operate successfully as a public company. If New Hut cannot provide reliable financial reports or prevent fraud, its reputation and operating results would be harmed. If USBTC fails to remediate the material weakness in its internal control over financial reporting or identify any new material weaknesses in the future, it could limit its ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of New Hut’s annual or interim consolidated financial statements. In such case, New Hut may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in its financial reporting and the prices of its securities may decline as a result. New Hut cannot assure you that any measures it may take in the future will be sufficient to avoid potential future material weaknesses.
As a result of being a public company, New Hut will be required, under Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of its internal control over financial reporting beginning in the year following its first annual report required to be filed with the SEC. This assessment will need to include disclosure of any material weaknesses identified by New Hut management in its internal control over financial reporting. Additionally, when New Hut ceases to be an “emerging growth company” under the federal securities laws, New Hut’s independent registered public accounting firm may be required to express an opinion on the effectiveness of New Hut’s internal controls. If New Hut is unable to confirm that New Hut’s internal control over financial reporting is effective, or if its independent registered public accounting firm is unable to express an unqualified opinion on the effectiveness of New Hut’s internal controls, New Hut could lose investor confidence in the accuracy and completeness of its financial reports, which could cause the price of New Hut common stock to decline.
Risks Relating to USBTC’s Business
If USBTC fails to effectively manage its growth, its business, financial condition and results of operations would be harmed.
USBTC is a development stage company with a small management team and is subject to the strains of ongoing development and growth, which will place significant demands on management and operational and financial infrastructure. Although USBTC may not grow as expected, if USBTC fails to manage its growth effectively or to develop and expand its managerial, operational and financial resources and systems, USBTC’s business and financial results would be materially harmed.
USBTC may not be able to manage growth effectively, which could damage its reputation, limit growth and negatively affect USBTC’s operating results. Further, USBTC cannot provide any assurance that it will successfully identify all emerging trends and growth opportunities in its business sector and USBTC may lose out on those opportunities. Such circumstances could have a material adverse effect on USBTC’s business, prospects or operations.
USBTC is an early-stage company with limited operating history and may never become profitable.
USBTC is an early-stage company currently focused on developing Bitcoin mining operations and investing in blockchain-focused technologies, newly formed in December 2020, and has a limited operating history. To date, USBTC has incurred losses as set forth below and may never become profitable. USBTC has built a Bitcoin mining operation, operating specialized computers manufactured by Bitmain, Canaan and MicroBT
38
TABLE OF CONTENTS
 
(also known as “miners”) that generate Bitcoin. USBTC had a net loss of $31.8 million and $9.1 million for the fiscal year ended June 30, 2022 and the period from December 4, 2020 (inception) through June 30, 2021 (audited), respectively. In addition, USBTC had a net loss of $0.6 million and $0.6 million for the three months ended September 30, 2022 and 2021 (unaudited), respectively. As of September 30, 2022, USBTC had an accumulated deficit of $41.4 million.
Additionally, there can be no assurance that additional funding will be available to USBTC for the development of its business, which will require the commitment of substantial resources. USBTC may be required to liquidate its digital assets (including Bitcoin assets) if other capital is not available to it on commercially reasonable terms. Accordingly, you should consider USBTC’s prospects in light of the costs, uncertainties, delays and difficulties frequently encountered by companies in the early stages of development. Potential investors should carefully consider the risks and uncertainties that a company with a limited operating history will face. In particular, potential investors should consider that USBTC may be unable to:
•
successfully implement or execute its business plan, or demonstrate that its business plan is sound;
​
•
adjust to changing conditions or keep pace with increased demand; or
​
•
attract and retain an experienced management team; or raise sufficient funds in the capital markets to effectuate its business plan.
​
USBTC operates in an industry subject to various regulatory and technological uncertainties.
USBTC operates Bitcoin mining operations in New York, Texas, and Nebraska. As Bitcoin, other digital assets, and blockchain technologies evolve and become more widely available, the services and products associated with them may evolve. Future regulations may require USBTC to change its business model to comply fully with federal and state laws regulating power generation, Bitcoin mining, or provision of Bitcoin mining services to third parties.
To remain competitive with peers, USBTC may need to modify aspects of its business model from time to time. USBTC cannot offer any assurance that these or any other changes will be successful or will not result in harm to its business. USBTC may not be able to manage its growth effectively, which could damage its reputation, limit its growth, and negatively affect its operating results. Furthermore, USBTC cannot provide any assurance that it will successfully identify all emerging trends and growth opportunities in the market. As a result, USBTC may not capture those opportunities. Such circumstances could have a material adverse effect on the USBTC’s business, prospects or operations.
The cost of obtaining new and replacement miners and parts has historically been capital-intensive and is likely to continue being capital-intensive, which could materially and adversely affect USBTC’s business, financial condition, and results of operations.
USBTC’s mining operations can only be profitable if the costs, inclusive of hardware and electricity costs, associated with mining digital assets is lower than the price of the digital assets mined at the time of sale. Miners experience ordinary wear and tear from operation and may also face more significant malfunctions caused by factors which may be beyond the company’s control. Additionally, as technology evolves, the company may acquire newer models of miners to remain competitive in the market.
For example, the miners and other equipment purchased by USBTC since the company’s inception will eventually degrade due to ordinary wear and tear from usage and may also be lost or damaged due to factors outside of the USBTC’s control. When this happens, these miners and equipment need to be repaired or replaced. The process of upgrading mines and equipment requires substantial capital investment, and USBTC may face challenges in executing upgrades on a timely and cost-effective basis based on availability of new miners and the company’s access to adequate capital. If USBTC is unable to obtain a sufficient unit volume of miners and equipment at scale, it may be unable to remain competitive in a highly competitive and evolving industry. If this happens, USBTC may not be able to mine digital assets as efficiently or at a comparable scale as competitors. As a result, the company’s business, financial condition, and results of operations could suffer. This could, in turn, materially and adversely affect the trading price of the company’s common stock and investors could lose part or all of their investment.
39
TABLE OF CONTENTS
 
The price of new miners may be linked to the price of Bitcoin and other digital assets, and the cost of obtaining new and replacement miners may increase if the price of Bitcoin rises, which could materially and adversely affect USBTC’s business, financial condition and results of operations.
There are reports indicating that miner manufacturers adjust miner prices based on the price of Bitcoin. As a result, the USBTC’s cost of obtaining new miners can be unpredictable and significantly higher than USBTC’s historical cost of obtaining new miners. USBTC’s business, financial condition, and results of operations are dependent on its ability to sell the Bitcoin it mines at a price greater than its cost to produce Bitcoin. As the cost of obtaining new miners increases, the cost of producing Bitcoin also increases. This requires a corresponding increase in the price of Bitcoin for USBTC to maintain profitability.
USBTC observed a significant increase in market demand for miners when Bitcoin prices rose into the end of the calendar year 2021. Concurrently, USBTC observed a significant increase in the unit price of new model miners in the market. While USBTC cannot know definitively if these two phenomena are linked, it has observed a measurable increase in the price of new miners offered by manufacturers coinciding with a rise in the price of Bitcoin. If this phenomena exists in the future, USBTC may obtain new miners and other hardware from manufacturers or from other third parties at a cost higher than its historical cost.
USBTC incurs a significant upfront capital cost each time it acquires new miners, and the company may not realize the benefit of these capital expenditures. If this occurs, the company’s business, financial condition, and results of operations could be materially and adversely affected should the future price of Bitcoin not be sufficiently high.
USBTC may be unable to purchase miners at scale or face delays or difficulty in obtaining new miners at scale, which could materially and adversely affect its business, financial condition, and results of operations.
In the past, USBTC has observed periods of shortage in new miners available for purchase and a delay in delivery schedules for new miner purchases. There is no assurance that miner manufacturers or any other equipment manufacturers will be able to keep pace with potential surges in demand for mining equipment. It is uncertain how manufacturers will respond to increased global demand and whether they fulfill purchase orders fully and in a timely manner.
In the event that miner manufacturers or other suppliers are not able to keep pace with, or fail to satisfy, demand, USBTC may not be able to purchase miners or other equipment in sufficient quantities or on the delivery schedules required to meet its business needs. Additionally, should any suppliers default on purchase agreements with USBTC, the company may need to pursue recourse under international jurisdictions, which could be costly and time-consuming. Furthermore, there is no guarantee that USBTC would succeed in recovering any of the deposits paid for such purchases, which could materially and adversely affect its business, financial condition, and results of operations.
Miner manufacturers may continue requiring significant advance deposits before orders are fulfilled and delivered.
In the past, miner manufacturers have required advance deposits for miner purchases. If this continues in the future, USBTC may need to tie up significant amounts of cash several months before it receives and is able to deploy purchased miners to generate revenue. These advance deposits further drive the financial burden of operating a capital-intensive business. Miner manufacturers holding a deposit from USBTC may go out of business before delivering purchased miners, or for other reasons fail to deliver the miners associated with the deposit. There is no certainty that, in such circumstances, USBTC would succeed in recovering any of its deposit, which could materially and adversely affect its business, financial condition, and results of operations.
USBTC may acquire other businesses and/or assets or form strategic alliances or joint ventures that could negatively affect its operating results, dilute shareholder ownership, increase debt, or cause it to incur significant expenses; notwithstanding the foregoing, USBTC’s growth may depend on its success in identifying and completing such transactions.
USBTC may seek to pursue additional acquisitions of businesses and/or assets and/or enter into strategic alliances or joint ventures. However, it cannot offer any assurance that any such acquisition or partnership will be successful. USBTC may not be able to identify suitable partners or acquisition candidates and may not be
40
TABLE OF CONTENTS
 
able to complete such transactions on favorable terms, if at all. If USBTC completes any acquisitions, it may not be able to integrate these acquisitions successfully into its existing business. In addition, in the event that USBTC acquires any existing businesses, it may assume unknown or contingent liabilities.
Any future acquisitions also could result in the issuance of stock, incurrence of debt, contingent liabilities or future write-offs of intangible assets or goodwill, any of which could have a negative impact on the company’s business, financial condition, and results of operations. Integration of an acquired company may also disrupt ongoing operations and require management resources that would otherwise be focused on developing and expanding the company’s existing business. USBTC may experience losses related to potential investments in other companies, which could materially and adversely affect its business, financial condition, and results of operations. Furthermore, USBTC may not realize the anticipated benefits of any acquisition, strategic alliance or joint venture if those benefits do not materialize.
Although USBTC expects that the acquisition of the King Mountain JV interest will result in benefits to it, USBTC may not realize those benefits due to unforeseen difficulties.
USBTC recently acquired its 50% interest in the King Mountain JV, including assuming an approximately $96.8 million promissory note in connection with the acquisition. USBTC acquired this interest on an “as is” basis from a bankruptcy administrator or trustee with limited representations, which limits USBTC’s recourse against the sellers of the interest after closing, which in turn may expose us to unexpected material losses or expenses after the closing. USBTC’s diligence investigations with respect to the King Mountain JV were limited, which may also expose us to unexpected material losses or expenses after the closing.
USBTC may be unable to raise the additional capital needed to grow its business.
If the price of Bitcoin declines, and as the company expects to need to raise additional capital to expand its operations and pursue its growth strategy, and to respond to competitive pressures or unanticipated working capital requirements, USBTC may seek but fail to obtain additional debt or equity financing on favorable terms, if at all, which could impair its growth and adversely affect its existing operations. If USBTC were to raise additional equity financing, its shareholders may experience significant dilution of their ownership interest, and the value of their investment could decline. Furthermore, if USBTC were to raise additional debt financing, the company’s debtors would likely have priority over holders of equity with respect to order of payment preference. USBTC may be required to accept terms that restrict its ability to incur additional indebtedness or take other actions, including terms that require it to maintain a specified level of liquidity or other balance sheet ratios that may not be in the interests of other shareholders.
If there are significant changes to the method of validating blockchain transactions, such changes could reduce demand for USBTC’s blockchain hosting services or for USBTC’s miner equipment.
New digital asset transaction protocols are continuously being deployed, and existing and new protocols are in a state of constant change and development. While certain validation protocols currently employ a “proof of work” consensus algorithm, whereby transaction processors are required to expend significant amounts of electrical and computing power to solve complex mathematical problems in order to validate transactions and create new blocks in a blockchain, there may be a shift towards adopting alternative validating protocols. These protocols may include a “proof of stake” algorithm or an algorithm based on a protocol other than proof of work, which may decrease the reliance on computing power as an advantage to validating blocks. USBTC’s transaction processing operations, and, to USBTC’s knowledge, the operations of its potential hosting customers, are currently designed to primarily support a proof of work consensus algorithm. Should the algorithm shift from a proof of work validation method to a proof of stake method, mining would require less energy and may render any company that maintains advantages in the current climate (for example, from lower priced electricity, processing, real estate or hosting) less competitive. As a result of USBTC’s efforts to optimize and improve the efficiency of its digital asset mining operations, USBTC may be exposed to the risk in the future of losing the benefit of its capital investments and the competitive advantage USBTC hopes to gain from this as a result, and may be negatively impacted if a switch to proof of stake validation were to occur. Any such change to transaction validating protocols could have a material adverse effect on USBTC’s business, financial condition and results of operations.
41
TABLE OF CONTENTS
 
Failure to price hosting contracts correctly may lead USBTC to operate these contracts at a loss, which could have a material adverse effect on its business, financial condition, and results of operations.
USBTC hosting contracts may be structured with margin-based or cost-plus pricing that considers the estimated power consumption of hosting client miners and other costs of service. USBTC’s ability to generate a profit on contracts with such pricing structures requires that it accurately forecast these costs over the contracted time period. Failure to do so could have a material adverse effect on the business, financial condition, and results of operations.
Failure of critical systems of the hosting facilities operated by USBTC and the services provided by USBTC could have a material adverse effect on its business, financial condition, and results of operations.
The critical systems of the hosting facilities operated by USBTC and the services provided by USBTC are subject to failure. Any failure in the critical systems of any hosting facility operated by USBTC or services provided by USBTC, including a breakdown in critical plant, equipment or services, routers, switches or other equipment, power supplies or network connectivity, whether or not within the company’s control, could result in service interruptions to the company’s customers and/or damage to equipment, which could significantly disrupt the normal business operations of the company’s customers, harm the company’s reputation, and reduce the company’s revenue. Temporary downtime at any hosting facility operated by USBTC could reduce the amount of Bitcoin mined by the company and thereby reduce the profitability of its hosting customers. The destruction or severe impairment of any of the hosting facilities operated by USBTC could result in significant downtime and loss of customer data. Since the company’s ability to attract and retain customers depends on its ability to provide a reliable service, even minor interruptions in service could harm the company’s reputation and negatively impact its revenue and profitability. Any of these events may result in financial penalty, which could have a material adverse effect on its business, financial condition, and results of operations.
The services provided by USBTC are subject to temporary or permanent interruption by factors that include but are not limited to:
•
Power loss;
​
•
Equipment failure;
​
•
Human error and accidents;
​
•
Theft, sabotage, and vandalism;
​
•
Failure by USBTC or its suppliers to provide adequate service or maintain equipment;
​
•
Network connectivity downtime and fiber cuts;
​
•
Service interruptions resulting from server relocation;
​
•
Security breaches of infrastructure;
​
•
Improper or inadequate building maintenance by the company;
​
•
Physical, electronic, and cybersecurity breaches;
​
•
Animal incursions;
​
•
Fire, earthquake, hurricane, tornado, flood and other natural disasters;
​
•
Extreme temperatures;
​
•
Water damage;
​
•
Public health emergencies; and
​
•
Terrorism.
​
Moreover, service interruptions and equipment failures may expose USBTC to potential legal liability. As the services provided by USBTC may be critical to its customers’ business operations, any disruption in services could result in lost profit or other indirect or consequential damages to its customers. Although customer
42
TABLE OF CONTENTS
 
contracts typically contain provisions limiting the company’s liability, there can be no assurance that a court would enforce any contractual limitations on the company’s liability in the event that one of its customers brings a lawsuit against it as the result of a service interruption that they ascribe to the company. The outcome of any such lawsuit would depend on the specific facts of the case and any legal and policy considerations that the company may not be able to mitigate. In such cases, USBTC may be liable for substantial damage awards, which could have a material adverse effect on its business, financial condition, and results of operations.
USBTC may not be able to obtain new hosting and transaction processing hardware or purchase such hardware at competitive prices during times of high demand, which could have a material adverse effect on its business, financial condition and results of operations.
Historically, an increase in interest and demand for digital assets has led to a shortage of hosting and transaction processing hardware and increased prices. USBTC and its customers and potential customers have experienced, and may in the future experience, difficulty in obtaining new equipment or replacement components for USBTC’s and its customers’ existing equipment, including graphics processing units and application-specific integrated circuit chipsets and computer servers, which has had, and in the future may have, a material impact on the demand for USBTC’s services and associated revenue. Currently, restrictions on digital asset mining in China have increased availability of used mining equipment and decreased prices of new mining equipment. In addition, these restrictions have decreased available mining facilities in China and increased demand for hosting in countries outside of China including the United States. To the extent miners view this used equipment as a viable alternative to purchasing new miners from USBTC, USBTC’s equipment sales may suffer, which could have a material adverse effect on USBTC’s business, financial condition and results of operations.
USBTC’s commercial success depends in large part on its ability to contribute computing power to pools that mine digital assets for the company and its hosting customers, attract and retain customers within the company’s hosting and property management businesses, and sell mining equipment profitably. Increases in power costs or an inability to mine digital assets efficiently at favorable prices will reduce the company’s operating margins, impact its ability to attract and retain customers, and harm its growth prospects and could have a material adverse effect on USBTC’s business, financial condition and results of operations.
USBTC’s growth depends in large part on its ability to contribute computing power to pools that mine digital assets for the company and its hosting customers, attract and retain customers within the company’s hosting and property management businesses, and sell mining equipment profitably. With respect to its hosting and property management businesses, USBTC may not be able to attract and retain customers for a number of reasons, including if:
•
there is a reduction in the demand for USBTC’s services due to macroeconomic factors;
​
•
there is a reduction in demand for USBTC’s services due to a broader secular reduction in demand for such services in the underlying digital asset mining sector;
​
•
USBTC is unable to provide services that meet the needs of existing or potential customers;
​
•
USBTC fails to effectively market the company and its services to potential customers;
​
•
USBTC fails to price its hosting or property management services attractively;
​
•
USBTC provides hosting or property management services that are deemed by existing and potential customers to be inferior to those of its competitors;
​
•
USBTC fails to meet customers’ ongoing and evolving program qualification standards, based on a range of factors, including available power, preferred site design specifications, security considerations and connectivity;
​
•
businesses decide to host or manage sites internally as an alternative to the use of USBTC’s services;
​
•
USBTC fails to successfully communicate the benefits of its services to potential customers;
​
•
USBTC is unable to strengthen awareness of its brand; and
​
•
potential customers are unable to secure the digital asset mining equipment required to engage USBTC in the capacity of a third party hosting provider or property manager.
​
43
TABLE OF CONTENTS
 
If USBTC is unable to obtain hosting or property management customers at favorable terms or at all, it could have a material adverse effect on its business, financial condition and results of operations.
USBTC generates a meaningful share of its hosting revenue from a small number of customers, and the loss of, or a significant decrease in business from, a number of these customers and/or a failure to attract new customers could have a material adverse effect on the company’s business, financial condition, and results of operations.
To date, USBTC has generated a significant share of its hosting revenue from a small number of customers. Any failure to meet customer expectations could result in the cancellation or non-renewal of hosting contracts and loss of associated revenue. Any event leading to the early termination of a hosting contract, including, but not limited to, customer bankruptcy or force majeure events that disrupt facility operations or damage customer miners, could result in the loss of revenue associated with those contracts. If USBTC were unable to offset lost revenue by refilling vacant capacity with other miners in the case of customer churn or by repossessing miners in the case of customer default, it could have a material adverse effect on the company’s business, financial condition, and results of operations.
If USBTC does not accurately predict its hosting facility requirements, it could have a material adverse effect on its business, financial condition and results of operations.
The costs of building out, leasing and maintaining USBTC’s hosting facilities may constitute a significant portion of USBTC’s capital and operating expenses. In order to manage growth and ensure adequate capacity for USBTC’s digital mining operations and new and existing hosting customers while minimizing unnecessary excess capacity costs, USBTC continuously evaluates its short- and long-term data center capacity requirements. If USBTC overestimates its business’ capacity requirements or the demand for its services and therefore secure excess data center capacity, USBTC’s operating margins could be materially reduced. If USBTC underestimates its data center capacity requirements, USBTC may not be able to service the expanding needs of its existing customers and may be required to limit new customer acquisition, which could have a material adverse effect on its business, financial condition and results of operations.
USBTC operates a number of data centers for third party owners under the USMIO brand and cannot execute changes to strategy and operations without owner consent, which could result in suboptimal financial performance and may have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC has entered into property management agreements (“PMAs”) with the owners of Charlie, Delta, and Echo. Under these agreements, USBTC is paid a fixed fee to operate each data center and partakes in an incentive structure that compensates USBTC for introducing and executing initiatives that increase revenue and decrease costs. At times, USBTC may recommend certain changes to a data center’s strategy or operations, including, but not limited to, modification of the data center’s energy curtailment approach, repricing or cancellation or existing customer hosting contracts, or hiring new personnel, to increase revenue, decrease costs, and/or strengthen data center operations.
As the given data center owner must consent to certain changes recommended by USBTC, and as the given owner may not consent to such changes, USBTC will not always have ultimate control over key decisions that drive the financial and operating performance of these data centers. If USBTC is unable to implement decisions required to operate these data centers profitably and effectively, it could negatively impact the revenue and profitability of its partners and harm the reputation of both its partners and USBTC. This could have a material adverse effect on USBTC’s business, financial condition, and results of operations.
Furthermore, if USBTC were to fail to meet the expectations of third party data owners for any reason within or beyond its control, its partners could cancel or decline to renew its contracts with USBTC. If USBTC were unable to offset lost revenue by securing new PMAs, it could have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC faces certain risks associated with its current joint venture and may face similar risks in the future by entering into other joint ventures, and the materialization of any of these risks may have a material adverse effect on the company’s business, financial condition, and results of operations.
Joint ventures inherently involve a lesser degree of control over business strategy and operations, thereby potentially increasing the financial, legal, operational, regulatory, and/or compliance risks associated with
44
TABLE OF CONTENTS
 
them, and require the diversion of financial and management resources from existing operations or alternative opportunities. USBTC may be dependent on partners, controlling shareholders, management, or other persons or entities who control the joint venture and who may have business interests, strategies, or goals that are inconsistent or competitive with those of USBTC. Furthermore, joint venture partners receive access to USBTC’s intellectual property and other resources, which introduces the risk of theft and/or exploitation.
For example, USBTC owns a 50% membership interest in a joint venture with one of the world’s largest renewable energy producers with respect to the Echo data center in King Mountain, Texas. Decision making control over the joint venture’s actions rests in a committee of four member managers, two from each Member of the joint venture (USBTC and its partner). If the member managers of USBTC and its joint venture partner are not aligned with respect to business interests, strategies, or goals, or if the member managers of USBTC and its joint venture partner cannot reach agreement in decision-making processes, there is a risk that USBTC may not be able to operate the King Mountain site optimally from a financial, legal, operational, regulatory, and/or compliance perspective. If this situation materializes, it may have a material adverse effect on the company’s business, financial condition, and results of operations.
Business decisions or other actions or omissions of the partners, controlling shareholders, management, or other persons or entities who control them may adversely affect the value of USBTC’s interest in the joint venture, result in litigation or regulatory action against USBTC, and may otherwise damage USBTC’s reputation and brand. USBTC’s ability to realize value from its joint ventures may be limited by applicable securities laws and regulations. If USBTC fails to address the foregoing risks or other problems encountered in connection with past or future joint ventures, new technologies, services, and other assets, it could have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC faces certain risks associated with its current indebtedness, and failure to service debt under contracted terms may have a material adverse effect on the company’s business, financial condition, and results of operations.
USBTC is subject to a number of risks associated with its indebtedness. USBTC must dedicate a portion of its cash flows from operations to pay debt service costs, and it therefore has less funds available for operations and other purposes. All else being equal, USBTC is more vulnerable to economic downturns and fluctuations in interest rates, less able to withstand competitive pressures and less flexible in reacting to changes in the industry and general economic conditions. If USBTC were to default under any of its existing credit facilities or if its creditors demand payment of a portion or all of its indebtedness, USBTC may not have sufficient funds to make such payments and/or it may result in the repossession of assets encumbered by its creditors.
For example, pursuant to USBTC’s loan agreement with Anchorage Lending CA, LLC (“Anchorage”), USBTC and certain of its subsidiaries are obligated to repay the amount borrowed from Anchorage of approximately $49.0 million. In addition, pursuant to the loan agreement, the outstanding loan amount is secured by certain assets of USBTC and certain of its subsidiaries. In the event that USBTC and/or certain of its subsidiaries fail to pay the outstanding loan amounts or otherwise default under the loan agreement, Anchorage will be entitled to, amongst other remedies, (i) declare the outstanding loan amount immediately due and payable and/or (ii) enforce the rights granted to it pursuant to its security interests, including foreclosing upon the assets subject to the security interest. In addition, USBTC assumed a $96.8 member loan at a subsidiary level in connection with its King Mountain JV acquisition. While USBTC, as a parent entity, is not a guarantor under the loan, in the event that USBTC and/or its subsidiaries fail to pay the outstanding loan amounts or otherwise defaults under the loan, it may have a material adverse effect on USBTC’s business, financial condition and results of operations.
If USBTC is unable to increase the operating scale of its Alpha and Echo data centers as planned, the company will be required to find alternative options to increase the operating scale of its data center portfolio. If this scenario were to materialize and if USBTC was unsuccessful in its effort to expand its operating scale by other means, it may adversely affect your investment.
USBTC plans to increase the operating scale of its Alpha and Echo data centers by energizing additional miners at each site. The company faces several risks as it executes this plan, including, but not limited to, the risk that USBTC fails to secure regulatory approval and the risk that it is not prepared, for reasons within or beyond its control, to energize miners in a timely manner or at all upon their delivery. If USBTC is unable to
45
TABLE OF CONTENTS
 
successfully increase the operating scale of its Alpha and Echo data centers, and if the company were unsuccessful in its effort to expand its operating scale by other means, it may adversely affect your investment.
USBTC may face risks of Internet disruptions, which could have an adverse effect on the price of Bitcoin.
A disruption of the Internet may affect the use of Bitcoin and subsequently the value of USBTC’s securities. Generally, Bitcoin and USBTC’s business of mining digital assets is dependent upon the Internet. A significant disruption in Internet connectivity could disrupt a currency’s network operations until the disruption is resolved and have an adverse effect on the price of Bitcoin and USBTC’s ability to contribute computing power to pools that mine Bitcoin.
USBTC may become dependent on third-party brokers and direct suppliers to source some or all of its miners, and failure to properly manage these relationships, or the failure of these brokers or suppliers to perform as expected, could have a material adverse effect on USBTC’s business, prospects or operations.
While USBTC has historically purchased miners directly from miner manufacturers, it may in the future rely on third-party brokers or other suppliers to source some or all of its miners. USBTC cannot ensure that business interruptions will not occur as a result of the potential failure of these brokers or suppliers to perform as expected, for reasons including, but not limited to, the failure to secure acceptable or a sufficient number of miners for USBTC.
Like USBTC, many of USBTC’s industry peers have purchased mining equipment at scale in the past, which has at times resulted in a worldwide shortage of mining equipment and extended delivery schedules for new miner purchases. USBTC cannot ensure that miner manufacturers will be able to keep pace with potential increases in demand for mining equipment in the future. Furthermore, resource constraints or regulatory barriers could affect USBTC’s ability to purchase and secure miners. For example, China has experienced power shortages in the past, which at times led to business disruptions to certain of USBTC’s miner manufacturer suppliers. There is a possibility that certain miner manufacturers may relocate their manufacturing activities from China to other countries following the September 2021 regulatory blanket ban on digital asset mining and transactions in China. Such factors, including power outages and the relocation of manufacturing activities, could result in cancellations or delays and may negatively impact USBTC’s ability to receive mining equipment on a timely basis or at all.
In the past, increased demand for miners has also limited the supply of miners that brokers can source. USBTC cannot ensure that brokers, if engaged, or suppliers will continue to perform to USBTC’s satisfaction or under commercially attractive terms. Brokers or suppliers may also decline USBTC’s orders to fulfill orders from a competitor, which could harm USBTC’s competitive position. If USBTC’s brokers or suppliers were to not provide services according to USBTC’s needs or to become unable to produce and deliver the volume of miners required by USBTC, USBTC may not be able to find alternative means of purchasing and securing miners in a timely manner. Any delays, interruptions, or increased costs resulting from these dynamics could have a material adverse effect on USBTC’s business, prospects or operations.
USBTC is currently subject to Niagara Falls Litigation. USBTC cannot predict the outcome of the Niagara Falls Litigation or any other legal proceedings with respect to its current and past business activities.
USBTC, and its wholly-owned subsidiary, U.S. Data Technologies Ltd. are defendants in a lawsuit filed by the City of Niagara Falls and the Director of the Department of Code Enforcement of the City of Niagara Falls on November 17, 2022 (City of Niagara Falls, et al. v. U.S. Data Technologies Group Ltd., et al., index no. E178623/2022, Niagara County Supreme Court), pursuant to which the plaintiffs are seeking to enjoin USBTC’s digital asset mining operations in Niagara Falls on the basis of alleged non-compliance with, and absence of required permits under, Niagara Falls’ recently amended zoning ordinance (the “Niagara Falls Litigation”). On December 1, 2022, the Niagara County Supreme Court issued a temporary restraining order directing USBTC to restrain from violating the law, continuing to mine digital assets, and engaging in business on the property. On January 25, 2023, the Niagara County Supreme Court issued its initial determination in which it found that USBTC was in violation of the amended zoning ordinance and the temporary restraining order. The court granted the City of Niagara Fall’s motion for contempt for the USBTC’s violations of the temporary restraining order and imposed a fine of $540,000 due February 1, 2023 if USBTC’s operations were not shut down by January 31, 2023. The court also ruled that if the operation is not shut down by
46
TABLE OF CONTENTS
 
January 31, 2023, and the temporary restraining order continues to be violated, then the fine will increase to $25,000 a day beginning February 1, 2023. The court also denied USBTC’s motion to dismiss and denied USBTC’s motion to vacate the temporary restraining order. On January 31, 2023, USBTC filed motions for leave to: (1) reargue the City of Niagara Falls’ motion for contempt, and (2) reargue USBTC’s motion to vacate the temporary restraining order. A three-day hearing on the City of Niagara Fall’s motion for a preliminary injunction is currently scheduled for March 9, 2023. USBTC believes that the enactment of the recent amendment to the zoning ordinance was procedurally invalid and constitutionally unsound and intends to use all appropriate legal and administrative means in their defense in the Niagara Falls Litigation, including a request for a rehearing as well as an appeal of the initial determination. An adverse outcome of the Niagara Falls Litigation may affect U.S. Data Technologies Group Ltd.’s permits and operations with respect to its Niagara Falls data site.
In addition, responding to lawsuits brought against USBTC and governmental inquiries or legal actions that USBTC may initiate, can often be expensive and time-consuming and disruptive to normal business operations. Moreover, the results of complex legal proceedings and governmental inquiries could adversely affect USBTC’s business, results of operations or financial condition, and USBTC could incur substantial monetary liability and/or be required to change its business practices.
The properties included in USBTC’s mining and hosting network may experience damages, including damages that are not covered by insurance.
USBTC’s current mining and hosting operations in New York, Nebraska and Texas are, and any future mines USBTC establishes will be, subject to a variety of risks relating to physical condition and operation, including:
•
the presence of construction or repair defects or other structural or building damage;
​
•
any noncompliance with or liabilities under applicable environmental, health or safety regulations or requirements or building permit requirements;
​
•
any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods and windstorms; and
​
•
and claims by employees and others for injuries sustained at USBTC properties.
​
For example, a mine could be rendered inoperable, temporarily or permanently, as a result of a fire or other natural disaster or by a terrorist or other attack on the mine. The security and other measures USBTC takes to protect against these risks may not be sufficient. Additionally, a mine could be materially adversely affected by a power outage or loss of access to the electrical grid or loss by the grid of cost-effective sources of electrical power generating capacity. Given the power requirement, it would not be feasible to run miners on back-up power generators in the event of a power outage. USBTC’s insurance may cover all or a portion of the replacement cost of any lost or damaged miners, but does not cover any interruption of its mining activities; USBTC’s insurance therefore may not be adequate to cover the losses it suffers as a result of any of these events. In the event of an uninsured loss, including a loss in excess of insured limits, at any of the mines in its network, such mines may not be adequately repaired in a timely manner or at all and USBTC may lose some or all of the future revenues anticipated to be derived from such mines.
USBTC has previously identified material weaknesses in its internal control over financial reporting. These material weaknesses could continue to adversely affect USBTC’s ability to report its results of operations and financial condition accurately and in a timely manner.
In connection with the preparation of USBTC’s consolidated financial statements as of June 30, 2022 and for the fiscal year ended June 30, 2022, management and its independent registered public accounting firm identified material weaknesses in internal controls over accounting for revenue related transactions, accounting for income taxes, accounting for equity transactions and accounting for complex transactions. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. USBTC’s management is responsible for the internal control over financial reporting of USBTC and is taking steps to address the material weaknesses, including:
47
TABLE OF CONTENTS
 
•
Expanding the accounting and finance functions of USBTC by hiring additional employees within the accounting and finance departments of the USBTC, which has already been initiated and expected to be fully operational by June 30, 2023;
​
•
The engagement of a third-party firm to assist USBTC in its income tax preparation process;
​
•
The engagement of a third-party firm to assist USBTC in its equity accounting processes;
​
•
The engagement of a third-party firm to assist USBTC for its complex revenue and other transactions;
​
•
The implementation of additional, stronger controls relating to its revenue recognition and impairment process on a go forward basis; and
​
•
The implementation of an oversight process where third-party firms are managed by senior team members and reliance on any third-party reports is reviewed and approved by authorized personnel at USBTC.
​
USBTC expects its remediation plan described above to be fully completed by December 31, 2023. USBTC has not incurred any material expenses to date with respect to its remediation plan, and it does not expect to incur any material additional costs through its completion. USBTC will also continue to expend the necessary resources, including accounting-related costs to significantly enhance management oversight. If any of these new or improved controls and systems do not perform as expected, USBTC may experience additional deficiencies in its controls.
There can be no assurance that other material weaknesses will not arise in the future. Any material weaknesses in USBTC’s internal control over financial reporting could cause New Hut to fail to meet its future reporting obligations or could result in material misstatements in its financial statements, which in turn could have an adverse effect on its financial condition. Any material weakness could also adversely affect the results of the periodic management evaluations and, to the extent New Hut is no longer an emerging growth company, the annual auditor attestation reports regarding the effectiveness of New Hut’s internal control over financial reporting that will be required under Section 404 of the Sarbanes- Oxley Act of 2002. Internal control deficiencies could also cause investors to lose confidence in the reported financial information which could have an adverse effect on the trading price of New Hut’s securities.
USBTC has completed a rescission offer of privately issued securities, with one offeree choosing to accept USBTC’s rescission offer to date (the “Rescission Offer”).
In July 2021, USBTC offered to repurchase 31,422 shares of Series A Preferred Stock of USBTC (the “Series A Shares”), 62,431 shares of common stock of USBTC sold during the USBTC’s “founder” round (the “Founder Common Shares”), 37,510 shares of common stock of USBTC sold during the USBTC’s “seed” round (the “Seed Common Shares,” and together with the Founder Common Shares, the “Rescission Offer Common Shares,” and the Series A Shares, the “Rescission Shares”) and up to an aggregate principal amount of $5.87 million promissory notes outstanding plus applicable accrued interest outstanding (the “Promissory Notes,” and together with the Rescission Shares, the “Rescission Securities”). The Rescission Securities were originally purchased in private transactions by certain persons who are or were residents of California, Florida, Illinois, Maryland, Massachusetts, Pennsylvania, Nevada, New Jersey, New York, Texas, Virginia, Washington, Puerto Rico, Canada, the Cayman Islands, Hong Kong and the United Arab Emirates at the time such Rescission Securities were purchased.
Management of USBTC became aware that (i) court orders (the “SEC Orders”) against two of USBTC’s now-former stockholders, John Stetson and Mark Groussman, which, among other things, restrain and enjoin such stockholders from violating certain federal securities laws, may have precluded USBTC from relying on certain federal and state securities exemptions for the offerings since such stockholders may have been deemed “promoters” based on certain of their activities in one or more of the offerings, (ii) it is possible that payments made to certain persons may be deemed as a commission or finder’s fee in connection with one or more of the offerings and (iii) given the fact that proper notification and/or other provisions for an exemption may not have been complied with, the sale of certain Rescission Securities may not have been in compliance with state securities, “blue sky” or other applicable laws. Additionally, a current beneficial owner of securities of USBTC is a family member of a third defendant implicated in the SEC Order. It is possible the USBTC stockholder
48
TABLE OF CONTENTS
 
relationship with such individual could be subject to regulatory scrutiny and alleged by regulators as USBTC acting in concert with the bad actor defendants. Because of the aforementioned items, it is possible that the disclosure provided to subscribers in the aforementioned offerings was incomplete. As a result, USBTC elected to conduct the Rescission Offer. All equity previously held by Messrs. Stetson and Groussman and any of their family members and/or affiliates has been sold to other equity holders of USBTC, and USBTC has taken all other actions necessary as of August 2021 so that Messrs. Stetson and Groussman no longer have any involvement with USBTC.
The Rescission Offer remained open until the earlier of (i) the date on which USBTC received written responses from all offerees and (ii) 30 days after delivery of the Rescission Offer. As of the date of this prospectus, the Rescission Offer has closed and only one holder of 126 Series A Shares elected to have USBTC redeem his investment and rescind his purchase of the Series A Shares. If all securityholders were to have accepted the Rescission Offer, USBTC would have been required to pay approximately $41.2 million in the aggregate. As of the date of this prospectus, USBTC has voluntarily paid off the $5.87 million in Promissory Notes. USBTC has experienced significant negative cash flow from operations to date and may continue to experience significant negative cash flow in the future. While USBTC has experienced historical losses and liquidity issues, it had enough cash or cash equivalents to pay the one holder of Series A Shares. However, in the future, should additional holders of Rescission Securities seek to rescind their prior purchases or should the validity of the Rescission Offer be contested for any reason, USBTC may not have enough cash or cash equivalents to pay any holders of Rescission Securities who may claim they continue to have a right to rescind their purchase of Rescission Securities.
USBTC is subject to orders in three states, Massachusetts, Maryland and Virginia, and its failure to comply with federal and state securities laws and regulations in connection with the Rescission Offer could subject USBTC to additional enforcement actions, monetary fines and penalties, disqualifications under federal securities laws, and impair its ability to raise capital in the future.
USBTC is relying upon exemptions from the securities registration provisions of the federal and state securities laws and regulations in connection with the Rescission Offer. In relying upon such exemptions, USBTC has the burden of ensuring compliance with such laws for the Rescission Offer, including the applicable state anti-fraud provisions. As of the date of this prospectus, USBTC has voluntarily disclosed the Rescission Offer and corresponded with the state securities regulators in the states of California, Maryland, New Jersey, Pennsylvania, Virginia, Massachusetts and Washington regarding the Rescission Offer and has been advised by all such states that no further actions are necessary. Given that USBTC believes that the Rescission Securities were exempt from registration under Section 4(a)(2) of the Securities Act, USBTC does not believe there were any violations of federal securities laws, and as such, has not notified any federal regulators regarding the Rescission Offer.
In connection with the Rescission Offer, the Commonwealth of Massachusetts, Office of the Secretary of the Commonwealth, Securities Division (the “Massachusetts Division”) issued a Consent Order, Docket No. E-2022-0011, on March 22, 2022 (the “Massachusetts Order”) in lieu of a hearing. The Massachusetts Order recited that the Massachusetts Division had conducted an investigation of USBTC pursuant to the Massachusetts Uniform Act, Mass. Gen. Laws c. 110A the (“Massachusetts Securities Act”) and the regulations promulgated thereunder (the “Massachusetts Regulations”), and reviewed self-reported allegations of alleged sales of unregistered securities of USBTC in the State of Massachusetts in potential violation of the Massachusetts Securities Act and Massachusetts Regulations which securities had not been determined to be exempt from registration requirements. As had been agreed by and consented to by USBTC, the Massachusetts Order, in summary, required USBTC to (i) permanently cease and desist from committing violations of the Massachusetts Securities Act; (ii) offer to rescind securities purchase transactions with five Massachusetts residents; (iii) submit the necessary paperwork and pay the necessary fees in order to register the sales to the Massachusetts residents with the Massachusetts Division; and (iv) pay an administrative fine in the amount of $1.0 million. With respect to the requirement to offer rescission, USBTC resent the Rescission Offer provided in July 2021, with additional Massachusetts-specific disclaimers, to the five Massachusetts residents, who collectively held 4,335 Series A Shares, in April 2022. The Massachusetts investors reconfirmed their declination of the offer to rescind. In April 2022, USBTC paid the $1.0 million administrative fine.
In connection with the Rescission Offer, USBTC entered into a Stipulation for Consent Order, Case No. 2021-0127, on November 5, 2021 (the “Maryland Order”) in lieu of a hearing, following receipt of a Consent Order
49
TABLE OF CONTENTS
 
from the Maryland Securities Division of the Office of the Attorney General Division (the “Division”). The Maryland Order recited that the Commissioner had reviewed allegations that unregistered securities of USBTC were sold by USBTC in the State of Maryland in violation of Section 11-101 et seq. of the Maryland Securities Act, Md. Code Ann., Corps. And Ass’ns. (the “Maryland Securities Act”) which securities had not been determined to be exempt from registration requirements. As had been agreed by USBTC, the Maryland Order, in summary, required USBTC to offer to rescind securities purchase transactions with three Maryland residents, admit to the jurisdiction of the Division as to substance and entry of the Maryland Order, and comply with the provisions of the Maryland Securities Act in any and all such future Maryland offers and sales of securities. With respect to the requirement to offer rescission, USBTC resent the Rescission Offer provided in July 2021, with additional Maryland-specific disclaimers, to the three Maryland residents, who collectively held 1,876 Seed Shares and 126 Series A Shares, in November 2021. The Maryland investors reconfirmed their declination of the offer to rescind.
In connection with the Rescission Offer, USBTC entered into a Settlement Order, Case No. 2021-00029, on October 26, 2021 (the “Virginia Order”) in lieu of a hearing, following receipt and approval of the Settlement Order from the Commonwealth of Virginia, State Corporation Commission’s (the “Commission”) Division of Securities and Retail Franchising (Richmond) (the “Virginia Division”). The Virginia Order recited that the Virginia Division had conducted an investigation of USBTC pursuant to Section 13.1-518 of the Virginia Securities Act (the “Virginia Act”) and Section 13.1-501 et seq. of the Code of Virginia, and reviewed self-reported allegations of alleged sales of unregistered securities of USBTC in the State of Virginia in violation of Section 13.1-507 of the Virginia Act which securities had not been determined to be exempt from registration requirements. As had been agreed by and consented to by USBTC, the Virginia Order, in summary, required USBTC to (i) offer to rescind securities purchase transactions with four Virginia residents; (ii) pay to Virginia a monetary penalty and fees to defray the Division investigatory costs in the amounts of $5,000 and $1,000, respectively; (iii) admit to the jurisdiction and authority of the Commission as to substance and entry of the Virginia Order, and (iv) comply with the provisions of the Virginia Securities Act in any and all such future Virginia offers and sales of securities. With respect to the requirement to offer rescission, USBTC resent the Rescission Offer provided in July 2021, with additional Virginia- specific disclaimers, to the four Virginia residents, who collectively held 750 Founder Common Shares, 1,875 Seed Common Shares and 441 Series A Shares, in October 2021. The Virginia investors reconfirmed their declination of the offer to rescind.
If, for any reason, USBTC fails to comply with the applicable state securities exemptions, or has failed in the past to comply, it may, among other things, subject USBTC to both investigations and administrative actions by federal and/or state regulatory agencies, administrative fines and penalties, disqualifications from use of exemptions under federal securities laws, or actions for rescission or for damages. There is no guarantee that USBTC will not become subject to such actions in the future. Such actions, if commenced, could have a material adverse effect on USBTC’s ability to raise necessary capital in the future. While USBTC has always endeavored to fully comply with all such laws, there is no assurance that any non-compliance will not have a material adverse effect on USBTC.
USBTC may continue to have potential liability even after the Rescission Offer is complete.
USBTC issued the Rescission Securities which may not have been exempt from the registration or qualification requirements under the federal and state securities laws of certain states at the time of issuance. In order to address this issue, USBTC made the Rescission Offer to all holders of any outstanding Rescission Securities which may have been issued without an exemption from the registration and qualification requirements under applicable foreign, federal and state securities laws and USBTC has since received responses from all holders of Rescission Securities regarding the Rescission Offer. However, the Securities Act does not provide that a Rescission Offer will extinguish a holder’s right to rescind the purchase of a security that was not registered or exempt from the registration requirements under the Securities Act. Consequently, in the future, holders may choose to exercise their rescission rights. There is no guarantee that this will not happen, and, as such, USBTC may remain liable under the Securities Act for the purchase price of the Rescission Securities subject to the Rescission Offer.
50
TABLE OF CONTENTS
 
USBTC’s Regulatory Related Risks
If USBTC were deemed to be an investment company under the Investment Company Act, applicable restrictions could make it impractical or impossible for USBTC to continue its business as contemplated and could have a material adverse effect on its business, financial condition and results of operations.
Under Sections 3(a)(1)(A) and (C) of the Investment Company Act, a company generally will be deemed to be an “investment company” for purposes of the Investment Company Act if (i) it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities or (ii) it engages, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. USBTC does not believe that it is an “investment company,” as such term is defined in either of those sections of the Investment Company Act. USBTC intends to conduct its operations so that it will not be deemed an investment company.
USBTC believes that it is not engaged in the business of investing, reinvesting, or trading in securities, and USBTC does not hold itself out as being engaged in those activities. To date, the SEC staff have treated Bitcoin as a commodity, but it is possible that the SEC may deem Bitcoins and other digital assets an investment security in the future, although USBTC does not believe any of the Bitcoin it owns, acquires or mines are securities. As a result of USBTC’s investments and its digital asset mining activities, it is possible that the investment securities USBTC holds in the future could exceed 40% of its total assets, exclusive of U.S. government securities and cash items, particularly if such SEC treatment changes, and, accordingly, USBTC could determine that USBTC has become an inadvertent investment company under the second definition above. An inadvertent investment company can avoid being classified as an investment company if it can rely on one of the exclusions or exemptions under the Investment Company Act. One such exemption, Rule 3a-2 under the Investment Company Act, allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. As of the date hereof, USBTC does not believe it is an inadvertent investment company. If USBTC does become an inadvertent investment company in the future, USBTC may take actions to cause the investment securities held by it to be less than 40% of its total assets, which may include acquiring assets with the cash and Bitcoin on hand or liquidating investment securities or Bitcoin or seeking a no-action letter from the SEC if USBTC is unable to acquire sufficient assets or liquidate sufficient investment securities in a timely manner. Liquidating investment securities or Bitcoin could result in losses.
As the Rule 3a-2 exemption is available to a company no more than once every three years, and assuming no other exclusion or exemption is available to USBTC, USBTC would have to keep within the 40% limit for at least three years after it relies on Rule 3a-2 and subsequently cease being an inadvertent investment company. This may limit USBTC’s ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on USBTC’s earnings. In any event, USBTC does not intend to become an investment company engaged in the business of investing and trading securities.
Classification as an investment company under the Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming, expensive and restrictive and would require a restructuring of USBTC’s operations, and USBTC would be very constrained in the kind of business it could do as a registered investment company. Further, USBTC would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the Investment Company Act regime. The cost of such compliance would result in USBTC incurring substantial additional expenses, and the failure to register if required would have a materially adverse impact on USBTC’s operations. Furthermore, USBTC’s classification as an investment company could adversely affect its ability to engage in future combinations, acquisitions or other transactions on a tax-free basis.
51
TABLE OF CONTENTS
 
USBTC is subject to a highly-evolving regulatory landscape and any adverse changes to, or its failure to comply with, any laws and regulations could adversely affect its business, prospects or operations.
USBTC’s business is subject to extensive laws, rules, regulations, policies and legal and regulatory guidance, including those governing securities, commodities, digital asset custody, exchange and transfer, data governance, data protection, cybersecurity and tax. Many of these legal and regulatory regimes were adopted prior to the advent of the Internet, mobile technologies, digital assets and related technologies. As a result, they do not contemplate or address unique issues associated with the digital asset economy, are subject to significant uncertainty, and vary widely across U.S. federal, state and local and international jurisdictions. These legal and regulatory regimes, including the laws, rules and regulations thereunder, evolve frequently and may be modified, interpreted and applied in an inconsistent manner from one jurisdiction to another, and may conflict with one another. Moreover, the complexity and evolving nature of USBTC’s business and the significant uncertainty surrounding the regulation of the digital asset economy requires USBTC to exercise its judgment as to whether certain laws, rules and regulations apply to it, and it is possible that governmental bodies and regulators may disagree with USBTC’s conclusions. To the extent USBTC has not complied with such laws, rules and regulations, USBTC could be subject to significant fines and other regulatory consequences, which could adversely affect its business, prospects or operations. As Bitcoin has grown in popularity and in market size, the Board of Governors of the Federal Reserve System, U.S. Congress and certain U.S. agencies (e.g., the Commodity Futures Trading Commission, the SEC, the Financial Crimes Enforcement Network (“FinCEN”) and the Federal Bureau of Investigation) have begun to examine the operations of the Bitcoin network, Bitcoin users and the Bitcoin exchange market. Regulatory developments and/or USBTC’s business activities may require USBTC to comply with certain regulatory regimes. For example, to the extent that USBTC’s activities cause it to be deemed a money services business under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act, USBTC may be required to comply with FinCEN regulations, including those that would mandate USBTC to implement certain anti-money laundering programs, make certain reports to FinCEN and maintain certain records. Further, to the extent USBTC’s activities cause USBTC to be deemed a money transmitter or other money services business under state law, USBTC may be required to apply for money transmitter or money services business licenses from the states that require license and comply with state money transmitter or money services business laws.
Ongoing and future regulatory actions may impact USBTC’s ability to continue to operate, and such actions could affect USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations.
Blockchain technology may expose USBTC to sanctioned or blocked persons or may result in unintentional or inadvertent violations of sanctions, laws and regulations.
USBTC is subject to the rules enforced by the Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”), including prohibitions on conducting direct or indirect business with persons named on, or owned or controlled by persons named on, OFAC’s various sanctions lists, including the Specially Designated Nationals and Blocked Persons list. USBTC is also prohibited from direct or indirect dealings with persons located in, organized in, or nationals of, jurisdictions subject to U.S. embargos (as of today, Cuba, Iran, North Korea, Syria, and the Crimea region), and may be prohibited from dealing with persons in other jurisdictions subject to limited U.S. sanctions such as Venezuela and Russia. However, because of the pseudonymous nature of blockchain transactions, USBTC may inadvertently and without knowledge directly or indirectly engaging in transactions with or for the benefit of prohibited persons. OFAC sanctions violations are typically regarded as “strict liability” violations, meaning USBTC may be held responsible for transacting with prohibited parties even if USBTC has no knowledge that a particular counter party is a prohibited person under the OFAC sanctions regulations.
If it is determined that USBTC has transacted with prohibited persons, even inadvertently, this could result in reputational harm, the imposition of fines or penalties, and costs associated with governmental inquiries and investigations. All of the foregoing could be substantial.
52
TABLE OF CONTENTS
 
The digital asset economy is novel and has little to no access to policymakers or lobbying organizations, which may harm USBTC’s ability to effectively react to proposed legislation and regulation of digital assets or digital asset platforms adverse to its business.
As digital assets have grown in both popularity and market size, various U.S. federal, state, and local and foreign governmental organizations, consumer agencies and public advocacy groups have been examining the operations of digital asset networks, users and platforms, with a focus on how digital assets can be used to launder the proceeds of illegal activities, fund criminal or terrorist enterprises, and the safety and soundness of platforms and other service providers that hold digital assets for users. Many of these entities have called for heightened regulatory oversight, and have issued consumer advisories describing the risks posed by digital assets to users and investors. For instance, in July 2019, then-U.S. Treasury Secretary Steven Mnuchin stated that he had “very serious concerns” about digital assets. In recent months, members of Congress have made inquiries into the regulation of digital assets, and Gary Gensler, Chair of the SEC, has made public statements regarding increased regulatory oversight of digital assets. Outside the United States, several jurisdictions have banned so-called initial coin offerings, such as China and South Korea, while Canada, Singapore, Hong Kong, have opined that token offerings may constitute securities offerings subject to local securities regulations. In July 2019, the United Kingdom’s Financial Conduct Authority proposed rules to address harm to retail customers arising from the sale of derivatives and exchange-traded notes that reference certain types of digital assets, contending that they are “ill-suited” to retail investors due to extreme volatility, valuation challenges and association with financial crimes. In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading, and in September 2021, Chinese regulators instituted a blanket ban on all digital asset mining and transactions, including overseas digital asset exchange services taking place in China, effectively making all digital asset-related activities illegal in China (the “China Ban”).
The digital asset economy is novel and has little to no access to policymakers and lobbying organizations in many jurisdictions. Competitors from other, more established industries, including traditional financial services, may have greater access to lobbyists or governmental officials, and regulators that are concerned about the potential for digital assets for illicit usage may effect statutory and regulatory changes with minimal or discounted inputs from the digital asset economy. As a result, new laws and regulations may be proposed and adopted in the United States and internationally, or existing laws and regulations may be interpreted in new ways that harm the digital asset economy or digital asset platforms, which could adversely impact USBTC’s business.
Bitcoin’s and other digital assets’ status as a “security,” a “commodity” or a “financial instrument” in any relevant jurisdiction is subject to a high degree of uncertainty and if USBTC is unable to properly characterize a digital asset, USBTC may be subject to regulatory scrutiny, investigations, fines, and other penalties, which may adversely affect USBTC’s business, operating results, and financial condition.
The SEC and its staff have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis. The SEC Staff has indicated that the determination of whether or not a digital asset is a security depends on the characteristics and use of that particular asset. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security. However, the SEC and its staff have taken positions that certain digital assets are “securities” — often in the context of enforcement actions — and USBTC does not currently hold any digital assets for which the SEC or its staff has taken such a position. Prior public statements by senior officials at the SEC indicate that the SEC does not intend to take the position that Bitcoin or Ethereum are securities (in their current forms). Bitcoin and Ethereum are the only digital assets as to which senior officials at the SEC have publicly expressed such a view. Moreover, such statements are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court, cannot be generalized to any other digital asset and may evolve. Similarly, although the SEC’s Strategic Hub for Innovation and Financial Technology published a framework for analyzing whether any given digital asset is a security in April 2019, this framework is also not a rule, regulation, or statement of the SEC and is not binding on the SEC. With respect to all other digital assets, there is currently no certainty under the applicable legal test that such assets are not securities. To date, USBTC only holds Bitcoin which, as stated above, has not been treated as a “security” by the SEC. However, USBTC has implemented an analysis framework to assess whether any digital assets USBTC may hold in the future may be deemed to be a “security” in light of the guidance released to
53
TABLE OF CONTENTS
 
date by the SEC. USBTC’s analysis framework takes into account (i) U.S. federal securities laws, case law and other published guidance, (ii) available information and facts relating to the digital asset and (iii) USBTC’s deep understanding of the digital asset technologies it may choose to hold in the future. In addition, in conducting the legal analysis relating to whether a digital asset constitutes a “security” under the U.S. federal securities laws, USBTC requires that the analysis be performed in close consultation with subject-matter experts from functional areas of USBTC, such as operations, product, data, engineering and security, who can provide significant technical expertise, as well as external legal counsel. Although USBTC’s policies and procedures are intended to enable it to make risk-based assessments regarding the likelihood that a particular digital asset could be deemed a security under applicable laws, including federal securities laws, USBTC’s assessments are not definitive legal determinations or binding as to whether a particular digital asset is a security under such laws. Accordingly, regardless of USBTC’s conclusions, USBTC could be subject to legal or regulatory action in the event the SEC or a court were to determine that a digital asset supported by USBTC’s platform is a “security” under U.S. law.
In November 2022, FTX, a leading digital asset exchange filed for bankruptcy in the Bahamas and the United States which was followed by a criminal indictment against senior management, including the founder. These proceedings had a significant adverse impact on USBTC’s industry. In January 2023, the SEC sued two digital asset companies, Genesis Global Capital, LLC and Gemini Trust Company, LLC, for selling unregistered securities. The SEC’s complaint alleged that digital asset companies’ activities constituted an offer and sale of securities under applicable law and should have been registered with the SEC. Whether there will be additional legislation or regulation of digital assets is uncertain. While USBTC believes its holdings are not a security, USBTC cannot assure you that future legislation or regulation will not have an adverse effect upon USBTC.
To the extent that the SEC or a court determines that any digital assets USBTC holds, or chooses to hold in the future, are securities, that determination could prevent USBTC from continuing to hold or mine those digital assets. It could also result in regulatory enforcement penalties and financial losses in the event that USBTC has liability to its customers and needs to compensate them for any losses or damages. USBTC could be subject to judicial or administrative sanctions for failing to offer or sell the digital asset in compliance with securities registration requirements. Such an action could result in injunctions and cease and desist orders, as well as civil monetary penalties, fines, and disgorgement, criminal liability, and reputational harm. Moreover, the networks on which such digital assets are used might be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, any determination that Bitcoin or ethereum is a security could draw negative publicity and cause a decline in the general acceptance of digital assets. Also, it would make it more difficult for Bitcoin or ethereum, as applicable, to be traded, cleared, and custodied as compared to other digital assets that are not considered to be securities. Lastly, any determination that a digital asset USBTC holds, or chooses to hold in the future, is a “security” may require USBTC to register as an investment company under the Investment Company Act.
Certain digital assets may be deemed to be a “security” under the laws of some jurisdictions but not others. Various foreign jurisdictions may, in the future, adopt additional laws, regulations, or directives that affect the characterization of digital assets as “securities.” If Bitcoin or any other supported digital asset is deemed to be a security under any U.S. federal, state, or foreign jurisdiction, or in a proceeding in a court of law or otherwise, it may have adverse consequences for such supported digital asset. For instance, all transactions in such supported digital asset would have to be registered with the SEC or other foreign authority, or conducted in accordance with an exemption from registration, which could severely limit its liquidity, usability and transactability. Moreover, the networks on which such supported digital assets are utilized may be required to be regulated as securities intermediaries, and subject to applicable rules, which could effectively render the network impracticable for its existing purposes. Further, it could draw negative publicity and a decline in the general acceptance of the digital asset. Also, it may make it difficult for such supported digital asset to be traded, cleared, and custodied as compared to other digital assets that are not considered to be securities.
It may be illegal now, or in the future, to acquire, own, hold, sell or use Bitcoin or other digital assets, participate in blockchains or utilize similar digital assets in one or more countries, the ruling of which would adversely affect its business operations.
Although currently digital assets generally are not regulated or are lightly regulated in most countries, countries such as China and Russia have taken harsh regulatory action to curb the use of digital assets and may continue
54
TABLE OF CONTENTS
 
to take regulatory action in the future that could severely restrict the right to acquire, own, hold, sell or use these digital assets or to exchange them for fiat currency. In 2021, China instituted the China Ban. In other nations, including Russia, it is illegal to accept payment in Bitcoin or other digital assets for consumer transactions, and banking institutions are barred from accepting deposits of Bitcoin. Such restrictions may adversely affect USBTC as the large-scale use of Bitcoin as a means of exchange is presently confined to certain regions globally. Such circumstances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects, or operations and potentially the value of any Bitcoin USBTC mines or otherwise acquires or holds for its own account, ultimately harming investors.
USBTC’s business may be subject to substantial energy regulation and may be adversely affected by legislative or regulatory changes, as well as liability under, or any future inability to comply with, existing or future energy regulations or requirements. USBTC is required to obtain, and to comply with, government permits and approvals.
USBTC’s business may be subject to extensive U.S. federal, state and local laws. Compliance with, or changes to, the requirements under these legal and regulatory regimes may cause USBTC to incur significant additional costs or adversely impact USBTC’s ability to compete on favorable terms with competitors. Failure to comply with such requirements could result in the shutdown of a non-complying facility, the imposition of liens, fines, and/or civil or criminal liability and/or costly litigation before the agencies and/or in state or federal court.
The regulatory environment has undergone significant changes in the last several years due to state and federal policies affecting wholesale competition and the creation of incentives for the addition of large amounts of new renewable generation and, in some cases, transmission. These changes are ongoing, and USBTC cannot predict the future design of the power markets or the ultimate effect that the changing regulatory environment will have on USBTC’s business. If competitive restructuring of the electric power markets is reversed, discontinued, delayed or materially altered, USBTC’s business, financial condition, results of operations and prospects could be negatively impacted.
USBTC may become subject to environmental laws and regulations that could increase its costs of doing business and adversely impact its business, financial condition and results of operations.
USBTC’s operations may be subject to federal, state and local laws and regulations governing air and water quality, hazardous and solid waste disposal and other environmental matters. One or more of these developments could adversely impact USBTC’s operations, increase USBTC’s environmental compliance costs and potentially reduce the extent of USBTC’s business, any of which could have a material adverse effect on USBTC’s business, results of operations and financial condition.
The regulatory and legislative developments related to climate change may materially adversely affect USBTC’s brand, reputation, business, results of operations and financial position.
A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to the increasing focus on climate change and its potential impact, including from governmental bodies, interest groups and stakeholders. For example, the Paris Agreement became effective in November 2016, and signatories are required to submit their most recent emissions goals in the form of nationally determined contributions. Despite USBTC’s sustainability objectives in sourcing electricity from renewable energy sources, given the very significant amount of electrical power required to operate Bitcoin mining machines, as well as the environmental impact of mining for the rare earth metals used in the production of mining servers, the Bitcoin mining industry may become a target for future environmental and energy regulation. Legislation and increased regulation regarding climate change could impose significant costs on USBTC and its suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, costs to purchase renewable energy credits or allowances and other costs to comply with such regulations. Specifically, imposition of a tax or other regulatory fee in a jurisdiction where USBTC operates or on electricity that USBTC purchases could result in substantially higher energy costs, and due to the significant amount of electrical power required to operate Bitcoin mining machines, could in turn put USBTC facilities at a competitive disadvantage. Any future climate change regulations could also negatively impact USBTC’s ability to compete with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact of climate change and how it
55
TABLE OF CONTENTS
 
should be addressed, USBTC cannot predict how legislation and regulation will affect USBTC’s financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by USBTC or other companies in the same industry could harm USBTC’s reputation. Any of the foregoing could have a material adverse effect on USBTC’s financial position, results of operations and cash flows.
USBTC’s cost of compliance with existing and new environmental laws could have a material adverse effect on USBTC.
USBTC is subject to extensive environmental regulation by governmental authorities, including the United States Environmental Protection Agency (“EPA”), and state environmental agencies and/or attorneys general. USBTC may incur significant additional costs beyond those currently contemplated to comply with these regulatory requirements. If USBTC fails to comply with these regulatory requirements, USBTC could be forced to reduce or discontinue operations or become subject to administrative, civil or criminal liabilities and fines. Existing environmental regulations could be revised or reinterpreted, new laws and regulations could be adopted or become applicable to USBTC or its facilities, and future changes in environmental laws and regulations could occur, including potential regulatory and enforcement developments related to air emissions, all of which could result in significant additional costs beyond those currently contemplated to comply with existing requirements. Any of the foregoing could have a material adverse effect on USBTC.
The EPA has recently finalized or proposed several regulatory actions establishing new requirements for control of certain emissions from sources, including electricity generation facilities. While USBTC does not currently own any electricity generation facilities, in the future, the EPA may also propose and finalize additional regulatory actions that may adversely affect USBTC’s ability to cost-effectively develop new generation facilities. Future federal and/or state regulatory actions could require USBTC to install significant additional control equipment, resulting in potentially material costs of compliance for new power generation facilities USBTC may possibly pursue in the future, including capital expenditures, higher operating and fuel costs and potential production curtailments. These costs could have a material adverse effect on USBTC. USBTC may not be able to obtain or maintain all required environmental regulatory approvals. If there is a delay in obtaining any required environmental regulatory approvals, if USBTC fails to obtain, maintain or comply with any such approval or if an approval is retroactively disallowed or adversely modified, the operation of future or current generation facilities could be stopped, disrupted, curtailed or modified or become subject to additional costs. Any such stoppage, disruption, curtailment, modification or additional costs could have a material adverse effect on USBTC.
In addition, USBTC may be responsible for any on-site liabilities associated with the environmental condition of facilities that USBTC has acquired, leased, developed or sold, regardless of when the liabilities arose and whether they are now known or unknown. In connection with certain acquisitions and sales of assets, USBTC may obtain, or be required to provide, indemnification against certain environmental liabilities. Another party could, depending on the circumstances, assert an environmental claim against USBTC or fail to meet its indemnification obligations to USBTC.
USBTC could be materially and adversely affected if currently proposed and/or new regulations are implemented or if new federal or state legislation or regulations are adopted to address global climate change, or if USBTC is subject to lawsuits for alleged damage to persons or property resulting from greenhouse gas (“GHG”) emissions.
There is attention and interest nationally and internationally about global climate change and how GHG emissions, such as CO2, contribute to global climate change. Over the last several years, the U.S. Congress and state and federal authorities have considered and debated several proposals intended to address climate change using different approaches, including a cap on carbon emissions with emitters allowed to trade unused emission allowances (cap-and-trade), a tax on carbon or GHG emissions, incentives for the development of low-carbon technology and federal renewable portfolio standards. A number of federal court cases have been filed in recent years asserting damage claims related to GHG emissions, and the results in those proceedings could establish adverse precedent that might apply to companies (including USBTC) that produce GHG emissions. USBTC could be materially and adversely affected if new federal and/or state legislation or regulations are
56
TABLE OF CONTENTS
 
adopted to address global climate change or if USBTC are subject to lawsuits for alleged damage to persons or property resulting from GHG emissions.
USBTC’s Power Generation-Related Risks
USBTC’s financial performance may be impacted by price fluctuations in the power market, as well other market factors that are beyond USBTC’s control.
USBTC’s revenues, cost of doing business, results of operations and operating cash flows generally may be impacted by price fluctuations in the power market and other market factors beyond USBTC’s control. Market prices for power, capacity and other ancillary services are unpredictable and tend to fluctuate substantially. Unlike most other commodities, electric power can only be stored on a very limited basis and generally must be produced concurrently with its use. As a result, power prices are subject to significant volatility due to supply and demand imbalances, especially in the day-ahead and spot markets. Long- and short-term power prices may also fluctuate substantially due to other factors outside of USBTC’s control, including:
•
changes in generation capacity in USBTC’s markets, including the addition of new supplies of power as a result of the development of new plants, expansion of existing plants, the continued operation of uneconomic power plants due to state subsidies, or additional transmission capacity;
​
•
environmental regulations and legislation;
​
•
electric supply disruptions, including plant outages and transmission disruptions;
​
•
changes in power transmission infrastructure;
​
•
fuel transportation capacity constraints or inefficiencies;
​
•
changes in law, including judicial decisions;
​
•
weather conditions, including extreme weather conditions and seasonal fluctuations, including the effects of climate change;
​
•
changes in commodity prices and the supply of commodities, including but not limited to natural gas, coal and oil;
​
•
changes in the demand for power or in patterns of power usage, including the potential development of demand-side management tools and practices, distributed generation, and more efficient end-use technologies;
​
•
development of new fuels, new technologies and new forms of competition for the production of power;
​
•
fuel price volatility;
​
•
economic and political conditions;
​
•
supply and demand for energy commodities;
​
•
supply chain disruption of electrical components needed to transmit energy;
​
•
availability of competitively priced alternative energy sources;
​
•
ability to procure satisfactory levels of inventory; and
​
•
changes in capacity prices and capacity markets.
​
Such factors and the associated fluctuations in power and prices could affect wholesale power generation profitability and cost of power for USBTC’s Bitcoin mining activities. While USBTC does not generate power for itself today, USBTC may choose to do so in the future. The above risks could apply to USBTC’s current or future energy procurement.
Global conflict, increasing tensions between the United States and Russia, and other effects of the ongoing conflict in Ukraine, could negatively impact USBTC’s business, results of operations, and financial condition.
Global conflict could increase costs and limit availability of energy and other resources USBTC depends upon for its business operations. For example, while USBTC does not operate in Russia or Ukraine, the
57
TABLE OF CONTENTS
 
increasing tensions between the United States and Russia and the other effects of the ongoing conflict in Ukraine have resulted in many broader economic impacts such as the United States imposing sanctions and bans against Russia and Russian products imported into the United States. Such sanctions and bans have impacted and may continue to impact commodity pricing such as fuel and energy costs, making it more expensive for USBTC to conduct its mining operations. Further sanctions, bans or other economic actions in response to the ongoing conflict in Ukraine or in response to any other global conflict could result in an increase in costs, further disruptions to USBTC’s supply chain, and/or a lack of consumer confidence resulting in reduced demand. While the extent of such items is not presently known, any of them could negatively impact USBTC’s business, results of operations, and financial condition.
Maintenance, expansion and refurbishment of power generation facilities involve significant risks that could result in unplanned power outages or reduced output and could have a material adverse effect on USBTC’s Bitcoin mining activities, results of operations, cash flows and financial condition.
USBTC is subject to liability risks relating to the competitive power generation business and its operations. USBTC currently draws power from various power sources, which include the NYISO grid and the ERCOT grid. Those grids and any power plants or facilities that USBTC may acquire in the future require periodic maintenance and repair. Any unexpected failure, including failure associated with breakdowns, forced outages or any unanticipated capital expenditures could result in reduced profitability.
USBTC cannot be certain of the level of capital expenditures that will be required due to changing environmental and safety laws (including changes in the interpretation or enforcement thereof), needed facility repairs and unexpected events (such as natural disasters or terrorist attacks). The unexpected requirement of large capital expenditures could have a material adverse effect on USBTC’s business, liquidity, financial condition and results of operations. If USBTC significantly modifies a unit, USBTC may be required to install the best available control technology or to achieve the lowest achievable emission rates as such terms are defined under the new source review provisions of the federal Clean Air Act, as amended from time to time, which would likely result in substantial additional capital expenditures.
The conduct of USBTC’s physical and commercial operations subjects USBTC to many risks, including risks of potential physical injury, property damage or other financial liability, caused to, or by, employees, customers, contractors, vendors, contractual or financial counterparties and other third parties.
Natural or manmade events may cause the production of power to fall below USBTC’s expectations.
USBTC’s electricity demand depends upon its various power grids’ ability to maintain the working order of their power generation facilities. A natural or manmade disaster, severe weather such as snow and ice storms, or accident could adversely affect the ability of energy source and miners to operate or require USBTC to shut down its facilities, miners or related operations. To the extent USBTC experiences a prolonged interruption with respect to its power source or a transmission outage due to natural or manmade events, USBTC’s supply of electricity could materially decrease. USBTC may also incur significant repair and clean-up costs associated with these events. The effect of the failure of established power sources to operate as planned as described above could have a material adverse effect on USBTC’s business, financial condition and results of operations.
The grids that USBTC relies on for energy may not be able to operate as planned, which may increase USBTC’s expenses and decrease its revenues and have an adverse effect on USBTC’s business, financial condition and results of operations.
The operation of the grids USBTC relies on, including the NYISO and ERCOT grids, as well as USBTC’s information technology systems and other assets and conduct of other activities subjects USBTC to a variety of risks, including the breakdown or failure of equipment, accidents, security breaches, viruses or outages affecting information technology systems, labor disputes, obsolescence, delivery/ transportation problems and disruptions of fuel supply and performance below expected levels. These events may impact USBTC’s ability to conduct its businesses efficiently and lead to increased costs, expenses or losses. Planned and unplanned outages with respect to the power grids that USBTC relies on may require USBTC to purchase power at then-current market prices which could have a negative impact on the cost structure of USBTC’s Bitcoin mining operations.
58
TABLE OF CONTENTS
 
USBTC may be required to obtain, and to comply with, government permits and approvals.
USBTC may be required to obtain, and to comply with, numerous permits and licenses from federal, state and local governmental agencies. The process of obtaining and renewing necessary permits and licenses can be lengthy and complex and can sometimes result in the establishment of conditions that make the project or activity for which the permit or license was sought unprofitable or otherwise unattractive. In addition, such permits or licenses may be subject to denial, revocation or modification under various circumstances. Failure to obtain or comply with the conditions of permits or licenses, or failure to comply with applicable laws or regulations, may result in the delay or temporary suspension of USBTC’s operations.
USBTC’s inability to procure and comply with the permits and licenses that may be required for its operations, or the cost to us of such procurement or compliance, could have a material adverse effect on USBTC. In addition, new environmental legislation or regulations, if enacted, or changed interpretations of existing laws, may cause activities at USBTC’s facilities to need to be changed to avoid violating applicable laws and regulations or elicit claims that historical activities at USBTC’s facilities violated applicable laws and regulations. In addition to the possible imposition of fines in the case of any such violations, USBTC may be required to undertake significant capital investments and obtain additional operating permits or licenses, which could have a material adverse effect on USBTC. For example, on December 21, 2021, the Niagara Falls City Council announced the imposition of a moratorium for 180 days on city approvals or permits for new commercial data centers. This moratorium was extended and the Niagara Falls City Counsel ultimately amended certain zoning ordinances that have had an impact on USBTC. See “Risks Related to USBTC’s Business — USBTC is currently subject to Niagara Falls Litigation. USBTC cannot predict the outcome of the Niagara Falls Litigation or any other legal proceedings with respect to its current and past business activities.” To the extent USBTC is required to obtain additional permits for any expansions or operations in the Niagara Falls regions, USBTC may face delays, and any such delays could have an adverse effect on USBTC’s business operations.
In addition, natural risks such as earthquake, flood, lightning, hurricane and wind, other human-made hazards, such as nuclear accidents, dam failure, gas or other explosions, mine area collapses, fire, structural collapse, machinery failure and other dangerous incidents are inherent risks in its operations. These and other hazards can cause significant personal injury or loss of life, severe damage to and destruction of property, plant, equipment, and transmission lines, contamination of, or damage to, the environment and suspension of operations. Further, USBTC’s employees and contractors work in, and the general public may be exposed to, potentially dangerous environments at or near USBTC’s operations. As a result, employees, contractors, customers and the general public are at risk for serious injury, including loss of life.
USBTC’s Digital Asset Mining Related Risks
The open-source structure of the digital asset network protocol, including Bitcoin, means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the protocol. A failure to properly monitor and upgrade the protocol could damage that network and an investment in USBTC.
The Bitcoin network, for example, operates based on an open-source protocol maintained by contributors, largely on the Bitcoin Core project on GitHub. As an open source project, Bitcoin is not represented by an official organization or authority. As the Bitcoin network protocol is not sold and its use does not generate revenues for contributors, contributors are generally not compensated for maintaining and updating the Bitcoin network protocol. Although the MIT Media Lab’s Digital Currency Initiative funds the current maintainer, Wladimir J. van der Laan, among others, this type of financial incentive is not typical. The lack of guaranteed financial incentive for contributors to maintain or develop the Bitcoin network and the lack of guaranteed resources to adequately address emerging issues with the Bitcoin network may reduce incentives to address the issues adequately or in a timely manner. Changes to a digital asset network which USBTC is mining on may adversely affect an investment in USBTC.
Significant Bitcoin network contributors could propose amendments to the Bitcoin network’s protocols and software that, if accepted and authorized by the Bitcoin network, could adversely affect an investment in USBTC.
Significant Bitcoin network contributors could propose refinements or improvements to the Bitcoin network’s source code through one or more software upgrades that alter the protocols and software that govern the
59
TABLE OF CONTENTS
 
Bitcoin network and the properties of Bitcoin, including the irreversibility of transactions and limitations on the mining of new Bitcoins. Proposals for upgrades and discussions relating thereto take place on online forums. For example, there is an ongoing debate regarding altering the Bitcoin blockchain by increasing the size of blocks to accommodate a larger volume of transactions. Although some proponents support an increase, other market participants oppose an increase to the block size as it may deter miners from confirming transactions and concentrate power into a smaller group of miners. To the extent that a significant majority of the users and miners on the Bitcoin network install such software upgrade(s), the Bitcoin network would be subject to new protocols and software that may adversely affect an investment in USBTC securities.
The further development and acceptance of digital asset networks and other digital assets, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate. The slowing or stopping of the development or acceptance of digital asset systems may adversely affect an investment in USBTC.
Digital assets built on blockchain technology were only introduced in 2008 and remain in the early stages of development. The use of digital assets to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs digital assets, including Bitcoin, based upon a computer-generated mathematical and/or cryptographic protocol. The further growth and development of any digital assets and their underlying networks and other cryptographic and algorithmic protocols governing the creation, transfer and usage of digital assets represent a new and evolving paradigm that is subject to a variety of factors that are difficult to evaluate, including:
•
continued worldwide growth in the adoption and use of digital assets as a medium of exchange;
​
•
governmental and quasi-governmental regulation of Bitcoin and its use, or restrictions on or regulation of access to and operation of the Bitcoin network or similar digital asset systems;
​
•
changes in consumer demographics and public tastes and preferences;
​
•
the maintenance and development of the open-source software protocol of the network, including software updates and changes to network protocols that could introduce bugs or security risks;
​
•
the increased consolidation of contributors to the Bitcoin blockchain through mining pools;
​
•
the availability and popularity of other forms or methods of buying and selling goods and services, including new means of using fiat currencies;
​
•
the use of the networks supporting digital assets for developing smart contracts and distributed applications;
​
•
general economic conditions and the regulatory environment relating to digital assets;
​
•
environmental restrictions on the use of power to mine Bitcoin and a resulting decrease in global Bitcoin mining operations;
​
•
an increase in Bitcoin transaction costs and a resultant reduction in the use of and demand for Bitcoin; and
​
•
negative consumer sentiment and perception of Bitcoin specifically and digital assets generally.
​
The outcome of these factors could have negative effects on USBTC’s ability to continue as a going concern or to pursue its business strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations as well as potentially negative effect on the value of any Bitcoin USBTC mines or otherwise acquires or hold for its own account, which would harm investors in USBTC securities.
USBTC’s reliance on a third-party mining pool service providers, NYDIG, Foundry, Ultimus and ViaBTC, for its mining revenue payouts may have a negative impact on its operations such as a result of cyber-attacks against the mining pool operator and/or USBTC’s limited recourse against the mining pool operator with respect to rewards paid to USBTC.
USBTC receives digital asset mining rewards from its mining activity through third-party mining pool operators, NYDIG, Foundry, Ultimus and ViaBTC. Mining pools allow miners to combine their processing power, increasing their chances of solving a block and getting paid by the network. USBTC provides
60
TABLE OF CONTENTS
 
computing power to mining pools, which use this computing power to operate nodes and validate blocks on the blockchain. The pools then distribute USBTC’s pro-rata share of Bitcoin mined to USBTC based on the computing power USBTC contributes.
Under USBTC’s mining pool agreements with NYDIG, Foundry, Ultimus and ViaBTC, USBTC’s daily payout is calculated based on USBTC’s Hashrate contribution delivered to the pool in the applicable calculation period, after deducting the applicable pool fee, if any. USBTC’s pool fee in relation to these agreements is currently below 1.0% of its daily payout. In addition, pool participants will receive transaction fees as the mining pool solves blocks on a pro rata basis with respect to each pool participant’s Hashrate contributed. USBTC did not use the Ultimus pool prior to October 3, 2022, nor the NYDIG pool prior to September 14, 2021 nor the Foundry pool prior to April 15, 2022.
Furthermore, USBTC may terminate these agreements and withdraw from the mining pool at any time at USBTC’s election by giving notice to the pool operators. Should one of USBTC’s pool operator’s systems suffer downtime due to a cyber-attack, software malfunction or other similar issues, it will negatively impact USBTC’s ability to mine and receive Bitcoin mining rewards. Furthermore, USBTC is dependent on the accuracy of the mining pool operators’ record keeping to accurately record the total processing power provided by USBTC and other mining pool participants to the pool for a given Bitcoin mining application in order to assess the proportion of that total processing power USBTC provided.
While USBTC has internal methods of tracking both its processing power provided and the total used by the pool, the mining pool operator uses its own recordkeeping to determine USBTC’s proportion of a given reward. USBTC has little means of recourse against mining pool operators if USBTC determines the proportion of the reward paid out to USBTC by the mining pool operator is incorrect, other than leaving the pool. If USBTC is unable to consistently obtain accurate proportionate rewards from its mining pool operators, USBTC may experience reduced reward for its efforts, which would have an adverse effect on USBTC’s business and operations.
Banks and financial institutions vary in the services they provide to businesses that engage in Bitcoin-related activities or that accept Bitcoin as payment.
Although a number of significant U.S. banks and investment institutions, such as Goldman Sachs, Citigroup, J. P. Morgan and BlackRock, allow customers to carry and invest in Bitcoin and other digital assets, the acceptance and use by banks of digital assets, including Bitcoin, varies. Additionally, a number of companies and individuals or businesses associated with digital assets may have had and may continue to have their existing banking services discontinued with financial institutions in response to government action, particularly in China, where regulatory response to digital assets has been to exclude their use for ordinary consumer transactions. In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading. In September 2021, Chinese regulators instituted the China Ban. However, in 2020, the Office of the Comptroller of the Currency of the U.S. Treasury Department announced that national banks and federal savings associations may provide digital asset custody services for customers. While USBTC expects Bitcoin to continue to gain greater acceptance by banks and investment institutions, USBTC cannot accurately predict the level and scope of services that these institutions will offer to businesses engaging in Bitcoin or other digital asset related activities.
The usefulness of Bitcoin, the only digital asset USBTC currently mines, as a payment system and the public perception of Bitcoin could be damaged if banks or financial institutions were to close the accounts of businesses engaging in Bitcoin and/or other digital asset-related activities. This could occur as a result of compliance risk, cost, government regulation or public pressure. The risk applies to securities firms, clearance and settlement firms, national stock and derivatives on commodities exchanges, the over-the-counter market, and the Depository Trust Company, which, if any of such entities adopts or implements similar policies, rules or regulations, could negatively affect its relationships with financial institutions and impede USBTC’s ability to convert Bitcoin to fiat currencies. Such factors could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and harm investors.
61
TABLE OF CONTENTS
 
The impact of geopolitical and economic events on the supply and demand for digital assets, including Bitcoin, is uncertain and could lead to increased volatility.
Geopolitical crises may motivate large-scale purchases of Bitcoin and other digital assets, which could increase the price of Bitcoin and other digital assets rapidly. This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior dissipates, adversely affecting the value of USBTC’s inventory following such downward adjustment. Such risks are similar to the risks of purchasing commodities in generally uncertain times, such as the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in Bitcoin as investors focus their investment on less volatile asset classes as a means of hedging their investment risk.
How such supply and demand will be impacted by geopolitical events is largely uncertain but could be harmful to USBTC and investors in its common stock. Political or economic crises may motivate large-scale acquisitions or sales of Bitcoin either globally or impacted markets. Such events could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mine or otherwise acquires or holds for its own account.
Governmental actions may have a materially adverse effect on the digital asset mining industry as a whole, which would have an adverse effect on USBTC’s business and results of operations.
In April 2022, the New York State Assembly voted to approve a bill that would impose a two-year moratorium on issuing air permits to fossil fuel-based electric generating facilities that supply energy to digital asset mining facilities. In effect, this bill would impose a two-year hold on new proof-of-work digital asset mining facilities in New York that use behind-the-meter carbon-based fuel to power their operations or the renewal of permits issued to existing proof-of-work digital asset mining facilities (or their third party energy plant) that seek to increase their behind-the-meter carbon sourced energy. The bill still must be passed by the New York State Senate and signed by the Governor of New York and it is uncertain whether the bill will become law. USBTC does not operate any fossil fuel-based electric generation facilities, nor does it source its electricity from behind-the-meter carbon-based fuel, and would not be subject to the proposed moratorium. However, given the preliminary stage of the proposed bill, it is possible that future amendments or other legislation passed in New York State may have an effect on USBTC.
Because USBTC is unable to influence or predict future regulatory actions taken by governments in the United States, China or elsewhere, USBTC may have little opportunity or ability to respond to rapidly evolving regulatory positions which may have a materially adverse effect on its industry and, therefore, its business and results of operations. If further adverse regulatory action is taken by various governmental entities, USBTC’s business may suffer and investors in its securities may lose part or all of their investment.
USBTC may not be able to compete with other companies, some of whom have greater resources and experience.
USBTC may not be able to compete successfully against present or future competitors. USBTC does not have the resources to compete with larger providers of similar services at this time. The digital asset industry has attracted various high-profile and well-established operators, some of which have substantially greater liquidity and financial resources than USBTC does. Additionally, the number of Bitcoin and other digital asset mining companies has increased in recent years. With the limited resources USBTC has available, USBTC may experience great difficulties in expanding and improving its network of computers to remain competitive. Competition from existing and future competitors, particularly those that have access to competitively priced energy, including energy providers themselves, could result in USBTC’s inability to secure acquisitions and partnerships that USBTC may need to expand its business in the future. This competition from other entities with greater resources, experience and reputations may result in USBTC’s failure to maintain or expand its business, as USBTC may never be able to successfully execute its business plan. If USBTC is unable to expand and remain competitive, its business could be negatively affected which would have an adverse effect on the trading price of its common stock, which would harm investors in USBTC.
62
TABLE OF CONTENTS
 
Acceptance and/or widespread use of Bitcoin and other digital assets is uncertain.
Currently, there is a relatively limited use of any digital assets, with Bitcoin being the most utilized, in the retail and commercial marketplace, thus contributing to price volatility that could adversely affect an investment in USBTC’s common stock. Banks and other established financial institutions may refuse to process funds for Bitcoin transactions, process wire transfers to or from Bitcoin exchanges, Bitcoin-related companies or service providers, or maintain accounts for persons or entities transacting in Bitcoin. Conversely, a significant portion of Bitcoin demand is generated by investors seeking a long-term store of value or speculators seeking to profit from the short- or long-term holding of the asset. Price volatility undermines Bitcoin’s role as a medium of exchange, as retailers are much less likely to accept it as a form of payment. Market capitalization for Bitcoin as a medium of exchange and payment method may always be low.
The relative lack of acceptance of Bitcoin in the retail and commercial marketplace, or a reduction of such use, limits the ability of end users to use Bitcoin to pay for goods and services. Such lack of acceptance or decline in acceptances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of Bitcoin USBTC mines or otherwise acquires or holds for its own account.
The characteristics of digital assets have been, and may in the future continue to be, exploited to facilitate illegal activity such as fraud, money laundering, tax evasion and ransomware scams; if any of USBTC’s customers do so or are alleged to have done so, it could adversely affect USBTC.
Digital currencies and the digital currency industry are relatively new and, in many cases, lightly regulated or largely unregulated. Some types of digital currency have characteristics, such as the speed with which digital currency transactions can be conducted, the ability to conduct transactions without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, the irreversible nature of certain digital currency transactions and encryption technology that anonymizes these transactions, that make digital currency particularly susceptible to use in illegal activity such as fraud, money laundering, tax evasion and ransomware scams. Two prominent examples of marketplaces that accepted digital currency payments for illegal activities include Silk Road, an online marketplace on the dark web that, among other things, facilitated the sale of illegal drugs and forged legal documents using digital currencies and AlphaBay, another darknet market that utilized digital currencies to hide the locations of its servers and identities of its users. Both of these marketplaces were investigated and closed by U.S. law enforcement authorities. U.S. regulators, including the SEC, Commodity Futures Trading Commission, and Federal Trade Commission, as well as non-U.S. regulators, have taken legal action against persons alleged to be engaged in Ponzi schemes and other fraudulent schemes involving digital currencies. In addition, the Federal Bureau of Investigation has noted the increasing use of digital currency in various ransomware scams.
While USBTC believes that its risk management and compliance framework, which includes thorough reviews it conducts as part of its due diligence process, is reasonably designed to detect any such illicit activities conducted by its potential or existing customers, USBTC cannot ensure that it will be able to detect any such illegal activity in all instances. Because the speed, irreversibility and anonymity of certain digital currency transactions make them more difficult to track, fraudulent transactions may be more likely to occur. USBTC, or its potential banking counterparties, may be specifically targeted by individuals seeking to conduct fraudulent transfers, and it may be difficult or impossible for USBTC to detect and avoid such transactions in certain circumstances. If one of USBTC’s customers (or in the case of digital currency exchanges, their customers) were to engage in or be accused of engaging in illegal activities using digital currency, USBTC could be subject to various fines and sanctions, including limitations on its activities, which could also cause reputational damage and adversely affect its business, financial condition and results of operations.
The decentralized nature of digital asset systems may lead to slow or inadequate responses to crises, which may negatively affect USBTC’s business.
The decentralized nature of the governance of digital asset systems may lead to ineffective decision making that slows development or prevents a network from overcoming emergent obstacles. Governance of many digital asset systems is by voluntary consensus and open competition with no clear leadership structure or
63
TABLE OF CONTENTS
 
authority. To the extent lack of clarity in corporate governance of the Bitcoin system leads to ineffective decision making that slows development and growth of Bitcoin, the value of USBTC’s securities may be adversely affected.
Digital assets may have concentrated ownership and large sales or distributions by holders of such digital assets could have an adverse effect on the market price of such digital asset.
Historically, a limited number of Bitcoin wallets held a significant portion of the Bitcoins in circulation. Moreover, it is possible that other persons or entities control multiple wallets that collectively hold a significant number of Bitcoins, even if they individually only hold a small amount, and it is possible that some of these wallets are controlled by the same person or entity. Similar or more concentrated levels of ownership may exist for other digital assets as well. As a result of this concentration of ownership, large sales or distributions by such holders could have an adverse effect on the market price of Bitcoin and other digital assets.
USBTC’s operations, investment strategies and profitability may be adversely affected by competition from other methods of investing in Bitcoin.
USBTC competes with other users and/or companies that are mining Bitcoin and other potential financial vehicles, including securities backed by or linked to Bitcoin through entities similar to USBTC. Market and financial conditions, and other conditions beyond USBTC’s control, may make it more attractive to invest in other financial vehicles, or to invest in Bitcoin directly, which could limit the market for its shares and reduce its liquidity. The emergence of other financial vehicles and exchange-traded funds have been scrutinized by regulators and such scrutiny and the negative impressions or conclusions resulting from such scrutiny could be applicable to USBTC and impact USBTC’s ability to successfully pursue its strategy or operate at all, or to establish or maintain a public market for its securities. Such circumstances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on its business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquires or holds for its own account, and harm investors.
The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or other alternatives.
The development and acceptance of competing blockchain platforms or technologies may cause consumers to use alternative distributed ledgers or an alternative to distributed ledgers altogether. USBTC’s business utilizes presently existent digital ledgers and blockchains and USBTC could face difficulty adapting to emergent digital ledgers, blockchains, or alternatives thereto. This may adversely affect USBTC and its exposure to various blockchain technologies and prevent USBTC from realizing the anticipated profits from its investments. Such circumstances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquires or holds for its own account, and harm investors.
The loss or destruction of private keys required to access any digital assets held in custody for USBTC’s own account may be irreversible. If USBTC is unable to access its private keys or if USBTC experiences a hack or other data loss relating to its ability to access any digital assets, it could cause regulatory scrutiny, reputational harm, and other losses.
Digital assets are generally controllable only by the possessor of the unique private key relating to the digital wallet in which the digital assets are held. While blockchain protocols typically require public addresses to be published when used in a transaction, private keys must be safeguarded and kept private in order to prevent a third party from accessing the digital assets held in such a wallet. To the extent that any of the private keys relating to USBTC’s hot wallet or cold storage containing digital assets held for its own account or for its customers is lost, destroyed, or otherwise compromised or unavailable, and no backup of the private key is accessible, USBTC will be unable to access the digital assets held in the related wallet. Further, USBTC cannot provide assurance that its wallet will not be hacked or compromised. Digital assets and blockchain technologies have been, and may in the future be, subject to security breaches, hacking, or other malicious activities. Any loss of private keys relating to, or hack or other compromise of, digital wallets used to store USBTC’s
64
TABLE OF CONTENTS
 
customers’ digital assets could adversely affect USBTC’s ability to access or sell its digital assets, and subject USBTC to significant financial losses. As such, any loss of private keys due to a hack, employee or service provider misconduct or error, or other compromise by third parties could hurt USBTC’s brand and reputation, result in significant losses, and adversely impact its business. The total value of digital assets in USBTC’s possession and control is significantly greater than the total value of insurance coverage that would compensate USBTC in the event of theft or other loss of funds.
If USBTC or its third-party service providers experience a security breach or cyberattack and unauthorized parties obtain access to its Bitcoin, USBTC may lose some or all of its Bitcoin and its financial condition and results of operations could be materially adversely affected.
Security breaches and cyberattacks are of particular concern with respect to USBTC’s Bitcoin. Bitcoin and other blockchain-based digital assets have been, and may in the future be, subject to security breaches, cyberattacks, or other malicious activities. A successful security breach or cyberattack could result in a partial or total loss of USBTC’s Bitcoin in a manner that may not be covered by insurance or indemnity provisions of the custody agreement with a custodian who holds USBTC’s Bitcoin. Such a loss could have a material adverse effect on USBTC’s financial condition and results of operations.
Although USBTC does not hold any Bitcoin for third parties, its business, financial condition, and results of operations may still be adversely affected by recent events beyond its control.
While USBTC does not hold any Bitcoin for third parties, its business, financial condition, and results of operations could be adversely affected by recent events beyond its control, including the fallout from the Chapter 11 Bankruptcy filings of digital asset exchanges FTX Trading Ltd., et al. (“FTX”) (including its affiliated hedge fund, Alameda Research LLC), digital asset hedge fund Three Arrows Capital (“Three Arrows”), digital asset hosting provider Compute North LLC (“Compute North”), and digital asset lenders Celsius Network LLC, et al. (“Celsius”), Voyager Digital Ltd., et al. (“Voyager”), BlockFi Inc., et al. (“BlockFi”), and Genesis Global Holdco, LLC, et al. (“Genesis”). Most recently, in January 2023, Genesis filed for Chapter 11 bankruptcy. Genesis is owned by Digital Currency Group Inc. (“DCG”), who also owns Foundry Digital LLC, one of USBTC’s mining pool operators, and Genesis Global Trading, Inc., one of USBTC’s digital asset brokers. At this time, USBTC believes that there are no material risks to its business arising from previous exposure to Genesis. USBTC sold approximately 1,822 Bitcoin to Genesis for the period from April 2022 to July 2022, for which USBTC has received all cash settled as part of those transactions.
In September 2022, Compute North filed for Chapter 11 bankruptcy. At the time, Compute North was hosting 500 machines owned by USBTC at one of its Texas facilities. The Texas facility was acquired by a third-party institutional investor that now hosts the 500 machines and also selected USBTC to operate the facility through a formal request-for-proposal process. The Texas facility is what USBTC now refers to as the Delta Site.
Other than Genesis and Compute North, USBTC (i) has no direct exposure to any digital asset entities that have recently filed for Chapter 11 bankruptcy; (ii) has no assets that may not be recovered due to these bankruptcies; and (iii) has no exposure to any other counterparties, customers, custodians or other digital asset market third parties known to USBTC to have (x) experienced material excessive redemptions, withdrawals or suspended redemptions or withdrawal of digital assets, (y) the digital assets of their customers unaccounted for, or (z) experienced material compliance failures. USBTC’s business, financial condition and results of operations may not be immune to unfavorable investor sentiment resulting from these recent developments in the broader digital asset industry.
USBTC may be subject to additional various risks associated with holding digital assets held by custodians in custody for its own account.
USBTC safeguards and keeps its digital assets private by utilizing storage solutions provided by NYDIG Trust Company LLC, Fidelity Digital Asset Services, LLC (“Fidelity’’), and Coinbase Global, Inc., which all require multi-factor authentication and use both cold and hot storage. In light of the significant amount of Bitcoin USBTC holds, USBTC continues to consider a greater degree of diversification in the use of custodial services as the extent of potential risk of loss is dependent, in part, on the degree of diversification. The insurance that covers losses of USBTC’s Bitcoin holdings covers only a small fraction of the value of the
65
TABLE OF CONTENTS
 
entirety of USBTC’s Bitcoin holdings, and there can be no guarantee that such insurance will be maintained as part of the custodial services USBTC has or that such coverage will cover losses with respect to USBTC’s Bitcoin.
In addition, USBTC believes that existing law and the terms and conditions of its contractual arrangements with its custodians would not result in the Bitcoin held by its custodians being considered part of the custodian’s bankruptcy estate were the custodian to file for bankruptcy. However, applicable insolvency law is not fully developed with respect to the holding of digital assets in custodial accounts and, if USBTC’s custodially-held Bitcoin were, in the event of a bankruptcy of any of its custodians, nevertheless considered to be the property of a bankruptcy estate, the Bitcoin custodially-held on USBTC’s behalf could be subject to bankruptcy proceedings and USBTC could be treated as a general unsecured creditor of the custodian, inhibiting its ability to exercise ownership rights with respect to such Bitcoin. Any such outcome could have a material adverse effect on USBTC’s financial condition and the market price of its common stock.
The price of Bitcoin may be affected by the sale of Bitcoin by other vehicles investing in Bitcoin or tracking Bitcoin markets.
The global market for Bitcoin is characterized by supply constraints that differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which Bitcoin is mined permit the creation of a limited, predetermined amount of currency, while others have no limit established on total supply. To the extent that other vehicles investing in Bitcoin or tracking Bitcoin markets form and come to represent a significant proportion of the demand for Bitcoin, large redemptions of the securities of those vehicles and the subsequent sale of Bitcoin by such vehicles could negatively affect Bitcoin prices and therefore affect the value of the Bitcoin inventory USBTC holds. Such events could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquires or holds for its own account.
There are risks related to technological obsolescence, the vulnerability of the global supply chain to Bitcoin hardware disruption, and difficulty in obtaining new hardware which may have a negative effect on USBTC’s business.
USBTC’s mining operations can only be successful and ultimately profitable if the costs of mining Bitcoin, including hardware and electricity costs, associated with mining Bitcoin are lower than the price of a Bitcoin. As USBTC’s mining facility operates, its miners experience ordinary wear and tear and general hardware breakdown, and may also face more significant malfunctions caused by a number of extraneous factors beyond USBTC’s control. The physical degradation of USBTC’s miners will require USBTC to, over time, replace those miners which are no longer functional. Additionally, as the technology evolves, USBTC may be required to acquire newer models of miners to remain competitive in the market. Reports have been released which indicate that players in the mining equipment business adjust the prices of miners according to Bitcoin mining revenues, so the cost of new machines is unpredictable but could be extremely high. As a result, at times, USBTC may obtain miners and other hardware from third parties at premium prices, to the extent they are available. In order to keep pace with technological advances and competition from other mining companies, it will be necessary to purchase new miners, which will eventually need to be repaired or replaced along with other equipment from time to time to stay competitive. This upgrading process requires substantial capital investment, and USBTC may face challenges in doing so on a timely and cost-effective basis. Also, because USBTC expects to depreciate all new miners, USBTC’s reported operating results will be negatively affected.
The global supply chain for Bitcoin miners is presently constrained due to unprecedented demand coupled with a global semiconductor (including microchip) shortage and further amplified due to the COVID-19 pandemic, with a significant portion of available miners being acquired by companies with substantial resources. Semiconductors are utilized in various devices and products and are a crucial component of miners; supply chain constraints coupled with increasing demand has led to increased pricing and limited availability for semiconductors. Prices for both new and older models of miners have been on the rise and these supply constraints are expected to continue for the foreseeable future. China, a major supplier of Bitcoin miners, has seen a production slowdown as a result of COVID-19. Should similar outbreaks or other disruptions to the China-based global supply chain for Bitcoin hardware occur, USBTC may not be able to obtain adequate
66
TABLE OF CONTENTS
 
replacement parts for its existing miners or to obtain additional miners on a timely basis, if at all, or USBTC may only be able to acquire miners at premium prices. Such events could have a material adverse effect on USBTC’s ability to pursue its strategy, which could have a material adverse effect on its business and the value of its securities.
Moreover, USBTC may experience unanticipated disruptions to operations or other difficulties with its supply chain due to volatility in regional markets where its miners are sourced, particularly China and Taiwan, changes in the general macroeconomic outlook, political instability, expropriation or nationalization of property, civil strife, strikes, insurrections, acts of terrorism, acts of war or natural disasters. For example, USBTC’s business operations may be adversely affected by the current and future political environment in China. China’s government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. In May 2021, the Chinese government called for a crackdown on Bitcoin mining and trading. In September 2021, Chinese regulators instituted the China Ban. USBTC’s ability to source miners from China may be adversely affected by changes in Chinese laws and regulations, including those relating to taxation, import and export tariffs and other matters.
USBTC may not adequately respond to price fluctuations and rapidly changing technology, which may negatively affect its business.
Competitive conditions within the Bitcoin industry require that USBTC use sophisticated technology in the operation of its business. The industry for blockchain technology is characterized by rapid technological changes, new product introductions, enhancements and evolving industry standards. New technologies, techniques or products could emerge that might offer better performance than the software and other technologies USBTC currently utilizes, and USBTC may have to manage transitions to these new technologies to remain competitive. USBTC may not be successful, generally or relative to its competitors in the Bitcoin industry, in timely implementing new technology into its systems, or doing so in a cost-effective manner. During the course of implementing any such new technology into its operations, USBTC may experience system interruptions and failures during such implementation. Furthermore, there can be no assurances that USBTC will recognize, in a timely manner or at all, the benefits that it may expect as a result of its implementing new technology into its operations. As a result, USBTC’s business and operations may suffer, and there may be adverse effects on the value of USBTC’s securities.
The Bitcoin reward for successfully uncovering a block will halve several times in the future and Bitcoin value may not adjust to compensate USBTC for the reduction in the rewards USBTC receives from its mining efforts.
Halving is a process incorporated into many proof-of-work consensus algorithms that reduces the coin reward paid to miners over time according to a pre-determined schedule. This reduction in reward spreads out the release of digital assets over a long period of time resulting in an ever smaller number of coins being mined. At a predetermined block, the mining reward is cut in half, hence the term “halving.” For Bitcoin, the reward was initially set at 50 Bitcoin currency rewards per block and this was cut in half to 25 on November 28, 2012 at block 210,000, then again to 12.5 on July 9, 2016 at block 420,000. The most recent halving for Bitcoin happened on May 11, 2020 at block 630,000 and the reward reduced to 6.25. The next halving will likely occur in 2024. This process will reoccur until the total amount of Bitcoin currency rewards issued reaches 21 million, which is expected around 2140. While the Bitcoin price has had a history of price fluctuations around the halving of its rewards, there is no guarantee that the price change will be favorable or would compensate for the reduction in mining reward. If a corresponding and proportionate increase in the trading price of Bitcoin or a proportionate decrease in mining difficulty does not follow these anticipated halving events, the revenue USBTC earns from its Bitcoin mining operations would see a corresponding decrease, which would have a material adverse effect on its business and operations.
USBTC’s future success will depend upon the value of Bitcoin and other digital assets; the value of Bitcoin may be subject to pricing risk and has historically been subject to wide swings.
USBTC’s operating results will depend on the value of Bitcoin because it is the only digital asset it currently mines. Specifically, USBTC’s revenues from its Bitcoin mining operations are based on two factors: (1) the number of Bitcoin rewards USBTC successfully mines and (2) the value of Bitcoin. In addition, USBTC’s operating results are directly impacted by changes in the value of Bitcoin, because under the value
67
TABLE OF CONTENTS
 
measurement model, both realized and unrealized changes will be reflected in USBTC’s statement of operations (i.e., USBTC will be marking Bitcoin to fair value each quarter). This means that USBTC’s operating results will be subject to swings based upon increases or decreases in the value of Bitcoin. Further, USBTC’s current miners are principally utilized for mining Bitcoin and do not generally mine other digital assets, such as ethereum, that are not mined utilizing the “SHA-256 algorithm.” If other digital assets were to achieve acceptance at the expense of Bitcoin causing the value of Bitcoin to decline, or if Bitcoin were to switch its proof of work encryption algorithm from SHA-256 to another algorithm for which USBTC’s miners are not specialized, or the value of Bitcoin were to decline for other reasons, particularly if such decline were significant or over an extended period of time, USBTC’s operating results would be adversely affected, and there could be a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on its business, prospects or operations, and harm investors.
The market price of Bitcoin, which has historically been volatile and is impacted by a variety of factors (including those discussed herein), is determined primarily using data from various exchanges, over-the-counter markets and derivative platforms. Furthermore, such prices may be subject to factors such as those that impact commodities, more so than business activities, which could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory or other conditions. Pricing may be the result of, and may continue to result in, speculation regarding future appreciation in the value of Bitcoin, or USBTC’s share price, inflating and making their market prices more volatile or creating “bubble” type risks for both Bitcoin and shares of USBTC’s securities.
Demand for Bitcoin is driven, in part, by its status as the most prominent and secure digital asset. It is possible that digital assets other than Bitcoin could have features that make them more desirable to a material portion of the digital asset user base, resulting in a reduction in demand for Bitcoin, which could have a negative impact on the price of Bitcoin and adversely affect an investment in USBTC.
Bitcoin, as an asset, holds “first-to-market” advantages over other digital assets. This first-to-market advantage is driven in large part by having the largest user base and, more importantly, the largest mining power in use to secure its blockchain and transaction verification system. Having a large mining network results in greater user confidence regarding the security and long-term stability of a digital asset’s network and its blockchain; as a result, the advantage of more users and miners makes a digital asset more secure, which makes it more attractive to new users and miners, resulting in a network effect that strengthens the first-to-market advantage.
Despite the marked first-mover advantage of the Bitcoin network over other digital asset networks, it is possible that another digital asset could become materially popular due to either a perceived or exposed shortcoming of the Bitcoin network protocol that is not immediately addressed by the Bitcoin contributor community or a perceived advantage of an altcoin that includes features not incorporated into Bitcoin. If a digital asset obtains significant market share (either in market capitalization, mining power or use as a payment technology), this could reduce Bitcoin’s market share as well as other digital assets USBTC may become involved in and have a negative impact on the demand for, and price of, such digital assets and could adversely affect an investment in USBTC. It is possible that USBTC will mine alternative digital assets in the future, but USBTC may not have as much experience to date in comparison to USBTC’s experience mining Bitcoin, which may put USBTC at a competitive disadvantage.
Forks in a digital asset network may occur in the future which may affect the value of Bitcoin held by USBTC.
To the extent that a significant majority of users and miners on a digital asset network install software that changes the digital asset network or properties of a digital asset, including the irreversibility of transactions and limitations on the mining of new digital asset, the digital asset network would be subject to new protocols and software. However, if less than a significant majority of users and miners on the digital asset network consent to the proposed modification, and the modification is not compatible with the software prior to its modification, the consequence would be what is known as a “fork” of the network, with one prong running the pre-modified software and the other running the modified software. The effect of such a fork would be the existence of two versions of the digital asset running in parallel, yet lacking interchangeability and necessitating exchange-type transaction to convert currencies between the two forks. Additionally, it may be unclear following a fork which fork represents the original asset and which is the new asset. Different metrics adopted
68
TABLE OF CONTENTS
 
by industry participants to determine which is the original asset include: referring to the wishes of the core developers of a digital asset, blockchains with the greatest amount of hashing power contributed by miners or validators; or blockchains with the longest chain. A fork in the Bitcoin network could adversely affect an investment in USBTC securities or its ability to operate.
USBTC may not be able to realize the economic benefit of a fork, either immediately or ever, which could adversely affect an investment in its securities. If USBTC holds Bitcoin at the time of a hard fork into two digital assets, industry standards would dictate that USBTC would be expected to hold an equivalent amount of the old and new assets following the fork. However, USBTC may not be able, or it may not be practical, to secure or realize the economic benefit of the new asset for various reasons. For instance, USBTC may determine that there is no safe or practical way to custody the new asset, that trying to do so may pose an unacceptable risk to its holdings in the old asset, or that the costs of taking possession and/or maintaining ownership of the new digital asset exceed the benefits of owning the new digital asset. Additionally, laws, regulation or other factors may prevent us from benefiting from the new asset even if there is a safe and practical way to custody and secure the new asset.
If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the Bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that adversely affects an investment in USBTC.
If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining on any digital asset network, including the Bitcoin network, it may be able to alter the blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the blockchain can add valid blocks. In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new digital assets or transactions using such control. Using alternate blocks, the malicious actor could “double-spend” its own digital assets (i.e., spend the same digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintains control. To the extent that such a malicious actor or botnet does not yield its majority control of the processing power or the digital asset community does not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible. Such changes could adversely affect an investment in USBTC.
For example, in late May and early June 2014, a mining pool known as Ghash.io approached and, during a 24- to 48-hour period in early June may have exceeded, the threshold of 50% of the processing power on the Bitcoin network. To the extent that Ghash.io did exceed 50% of the processing power on the network, reports indicate that such threshold was surpassed for only a short period, and there are no reports of any malicious activity or control of the blockchain performed by Ghash.io. Furthermore, the processing power in the mining pool appears to have been redirected to other pools on a voluntary basis by participants in the Ghash.io pool, as had been done in prior instances when a mining pool exceeded 40% of the processing power on the Bitcoin network.
The approach towards and possible crossing of the 50% threshold indicate a greater risk that a single mining pool could exert authority over the validation of digital asset transactions. To the extent that the digital assets ecosystems do not act to ensure greater decentralization of digital asset mining processing power, the feasibility of a malicious actor obtaining in excess of 50% of the processing power on any digital asset network (e.g., through control of a large mining pool or through hacking such a mining pool) will increase, which may adversely impact an investment in USBTC.
Digital assets, including those maintained by or for USBTC, may be exposed to cybersecurity threats and hacks.
As with any computer code generally, flaws in digital asset codes, including Bitcoin codes, may be exposed by malicious actors. Several errors and defects have been found previously, including those that disabled some functionality for users and exposed users’ information. Exploitations of flaws in the source code that allow malicious actors to take or create money have previously occurred. Despite USBTC’s efforts and processes to prevent breaches, USBTC’s devices, as well as its miners, computer systems and those of third parties that it uses in its operations, are vulnerable to cyber security risks, including cyber-attacks such as viruses and worms, phishing attacks, denial-of-service attacks, physical or electronic break-ins, employee theft or misuse, and
69
TABLE OF CONTENTS
 
similar disruptions from unauthorized tampering with USBTC miners and computer systems or those of third parties that USBTC uses in its operations. Such events could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin USBTC mines or otherwise acquires or holds for its own account.
If the Bitcoin reward for solving blocks and transaction fees is not sufficiently high, USBTC may not have an adequate incentive to continue mining and may cease mining operations, which will likely result in USBTC’s failure to achieve profitability.
As the number of Bitcoins awarded for solving a block in a blockchain decreases, USBTC’s ability to achieve profitability becomes more remote. Decreased use and demand for Bitcoin rewards may adversely affect USBTC’s incentive to expend processing power to solve blocks. If the award of Bitcoin rewards for solving blocks and transaction fees are not sufficiently high, USBTC may not have an adequate incentive to continue mining and may cease its mining operations. Miners ceasing operations would reduce the collective processing power on the network, which would adversely affect the confirmation process for transactions (i.e., temporarily decreasing the speed at which blocks are added to a blockchain until the next scheduled adjustment in difficulty for block solutions) and make the Bitcoin network more vulnerable to a malicious actor or botnet obtaining control in excess of 50 percent of the processing power active on a blockchain, potentially permitting such actor or botnet to manipulate a blockchain in a manner that adversely affects USBTC’s activities. A reduction in confidence in the confirmation process or processing power of the network could result and be irreversible. Such events could have a material adverse effect on USBTC’s ability to continue to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquires or holds for its own account.
Transactional fees may decrease demand for Bitcoin and prevent expansion that could adversely impact an investment in USBTC.
As the number of Bitcoin currency rewards awarded for solving a block in a blockchain decreases, the incentive for miners to continue to contribute to the Bitcoin network may transition from a set reward to transaction fees. In order to incentivize miners to continue to contribute to the Bitcoin network, the Bitcoin network may either formally or informally transition from a set reward to transaction fees earned upon solving a block. This transition could be accomplished by miners independently electing to record in the blocks they solve only those transactions that include payment of a transaction fee. If transaction fees paid for Bitcoin transactions become too high, the marketplace may be reluctant to accept Bitcoin as a means of payment and existing users may be motivated to switch from Bitcoin to another digital asset or to fiat currency. Either the requirement from miners of higher transaction fees in exchange for recording transactions in a blockchain or a software upgrade that automatically charges fees for all transactions may decrease demand for Bitcoin and prevent the expansion of the Bitcoin network to retail merchants and commercial businesses, resulting in a reduction in the price of Bitcoin that could adversely impact an investment in USBTC securities. Decreased use and demand for Bitcoins that USBTC has accumulated may adversely affect their value and may adversely impact an investment in USBTC.
To the extent that the profit margins of Bitcoin mining operations are not sufficiently high, operators of Bitcoin mining operations are more likely to immediately sell Bitcoins earned by mining in the Bitcoin exchange market, resulting in a reduction in the price of Bitcoins that could adversely impact an investment in USBTC.
Bitcoin network mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation ASIC servers. Currently, new processing power brought onto the Bitcoin network is predominantly added by incorporated and unincorporated “professionalized” mining operations. Professionalized mining operations may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. As a result, professionalized mining operations are of a greater scale than prior Bitcoin network miners and have more defined, regular expenses and liabilities. These regular expenses and liabilities require professionalized mining operations to more immediately sell Bitcoins earned from mining operations on a Bitcoin exchange market. The immediate selling of newly mined Bitcoins increases the supply of Bitcoins on the Bitcoin exchange markets, creating downward pressure on the price of Bitcoins.
70
TABLE OF CONTENTS
 
The extent to which the value of Bitcoin mined by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation. A professionalized mining operation may be more likely to sell a higher percentage of its newly mined Bitcoin rapidly if it is operating at a low profit margin-and it may partially or completely cease operations if its profit margin is negative. In a low profit margin environment, a higher percentage could be sold into the Bitcoin exchange market more rapidly, thereby potentially reducing Bitcoin prices. Lower Bitcoin prices could result in further tightening of profit margins, particularly for professionalized mining operations with higher costs and more limited capital reserves, creating a negative effect that may further reduce the price of Bitcoin until mining operations with higher operating costs become unprofitable and remove mining power from the Bitcoin network. The network effect of reduced profit margins resulting in greater sales of newly mined Bitcoin could result in a reduction in the price of Bitcoin that could adversely impact an investment in USBTC.
To the extent that any miners cease to record transactions in solved blocks, transactions that do not include the payment of a transaction fee will not be recorded on the Bitcoin blockchain until a block is solved by a miner that does not require the payment of transaction fees. Any widespread delays in the recording of transactions could result in a loss of confidence in the Bitcoin network which could adversely impact an investment in USBTC.
To the extent that any miners cease to record transaction in solved blocks, such transactions will not be recorded on the blockchain. Currently, there are no known incentives for miners to elect to exclude the recording of transactions in solved blocks; however, to the extent that any such incentives arise (e.g., a collective movement among miners or one or more mining pools forcing Bitcoin users to pay transaction fees as a substitute for or in addition to the award of new Bitcoins upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of transactions on the Bitcoin blockchain. Any systemic delays in the recording and confirmation of transactions on its blockchain could result in greater exposure to double-spending transactions and a loss of confidence in the Bitcoin network, which could adversely impact an investment in USBTC.
Because the number of Bitcoins awarded for solving a block in the Bitcoin network blockchain continually decreases, miners must invest in increasing processing power to maintain their yield of Bitcoins, which might make Bitcoin mining uneconomical for USBTC.
The award of new Bitcoin for solving blocks continually declines, so that Bitcoin miners must invest in increasing processing power in order to maintain or increase their yield of Bitcoin. If the pricing of Bitcoin were to decline significantly, there can be no assurance that USBTC would be able to recover its investment in the computer hardware and processing power required to upgrade its mining operations. There can, moreover, be no assurance that USBTC will have the resources to upgrade its processing power in order to maintain the continuing profitability of its mining operations. Also, the developers of the Bitcoin network or other programmers could propose amendments to the network’s protocols and software that, if accepted, might require USBTC to modify and increase its investment in its Bitcoin mining operations in order to maintain profitability. There can be no assurance, however, that USBTC will be able to do so.
USBTC’s digital assets may be subject to loss, damage, theft or restriction on access. Additionally, incorrect or fraudulent digital asset transactions may be irreversible.
There is a risk that part or all of USBTC’s digital assets could be lost, stolen or destroyed. Digital assets are stored in digital asset sites commonly referred to as “wallets” which may be accessed to exchange a holder’s digital assets. Access to USBTC’s Bitcoin assets could also be restricted by cybercrime (such as a denial of service attack) against a service at which USBTC maintains a hosted wallet. Access to USBTC’s digital currency assets could also be restricted by cybercrime (such as a denial of service attack) against a service at which USBTC maintains a hosted hot wallet. A hot wallet refers to any digital currency wallet that is connected to the Internet. Generally, hot wallets are easier to set up and access than wallets in cold storage, but they are also more susceptible to hackers and other technical vulnerabilities. Cold storage refers to any digital currency wallet that is not connected to the Internet. Cold storage is generally more secure, but is not ideal for rapid or regular transactions. USBTC holds a portion of USBTC’s digital currencies in cold storage to reduce the risk of malfeasance, but this risk cannot be eliminated. USBTC believes that its digital assets will be an appealing target to hackers or malware distributors seeking to destroy, damage or steal USBTC’s digital assets. Hackers or malicious actors may attempt to steal Bitcoins, such as by attacking the Bitcoin network source code,
71
TABLE OF CONTENTS
 
exchange miners, third-party platforms, storage locations or software, USBTC’s general computer systems or networks, or by other means. USBTC cannot guarantee that it will prevent loss, damage or theft, whether caused intentionally, accidentally or by act of God. Access to its digital assets could also be restricted by natural events (such as an earthquake or flood) or human actions (such as a terrorist attack). Any of these events may adversely affect USBTC’s operations and, consequently, an investment in USBTC.
Further, it is possible that, through computer or human error, theft or criminal action, USBTC’s digital assets could be transferred in incorrect amounts or to unauthorized third parties or accounts. In general, Bitcoin transactions are irrevocable, and stolen or incorrectly transferred digital assets may be irretrievable, and USBTC may have extremely limited or no effective means of recovering such Bitcoins. As a result, any incorrectly executed or fraudulent Bitcoin transactions could adversely affect USBTC’s business.
The limited rights of legal recourse against USBTC, and USBTC’s lack of insurance protection, expose USBTC and its stockholders to the risk of loss of its digital assets for which no person is liable.
The digital assets held by us are not insured. Therefore, a loss may be suffered with respect to USBTC’s digital assets which is not covered by insurance and for which no person is liable in damages which could adversely affect USBTC’s operations and, consequently, an investment in USBTC.
Digital assets held by USBTC are not subject to FDIC or SIPC protections.
USBTC does not hold its digital assets with a banking institution or a member of the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”) and, therefore, USBTC’s digital assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.
USBTC may not protect its proprietary technology effectively, which would allow competitors to duplicate its services and products. This would make it more difficult for USBTC to compete with them.
USBTC’s success and ability to compete in its markets depends, in part, upon its proprietary technology. USBTC intends to rely primarily on copyright, trade secret and trademark laws to protect its technology including the source code for its proprietary software, its documentation, and other proprietary information. USBTC cannot assure you that any patent applications it files will be granted or that if they are granted, they will be valid or enforceable. A third party might try to reverse engineer or otherwise obtain and use USBTC’s technology without USBTC’s permission, allowing competitors to duplicate USBTC’s products. USBTC cannot guarantee that others will not readily ascertain by proper means the proprietary technology used in or embodied by its products, services or technology or that others will not independently develop substantially equivalent products, services or technology or that USBTC can meaningfully protect the rights to unpatented products, services or technology. USBTC cannot guarantee that its agreements with its employees, consultants, advisors, sublicensees and strategic partners restricting the disclosure and use of trade secrets, inventions and confidential information relating to USBTC’s products, services or technology will provide meaningful protection. USBTC uses the US BITCOIN CORP word mark and the logo consisting of a stylized letter “B” surrounded by two semi-circular lines and two dots in connection with its business and services, both of which are unregistered service marks of USBTC. USBTC has filed a U.S. service mark registration application for the US BITCOIN CORP word mark with the United States Patent and Trademark Office, but the application has received an initial refusal to register the mark on the Principal Register based on the examiner’s position that the mark is merely descriptive of the services. It is uncertain whether the mark will be granted registration. In addition, the laws of some countries in which USBTC sells its services and products may not protect intellectual property rights to the same extent as the laws of the United States.
USBTC’s services and product features may infringe claims of third-party patents, which could adversely affect its business and profitability.
USBTC is aware some competitors pursue patent protection and at least one has asserted patents as an important part of its business strategy. The holders of rights under these patents might assert that USBTC is infringing their rights. USBTC cannot assure you that its products and services do not infringe on patents held by others or that they will not in the future. If any party asserts claims against USBTC, litigation may have a material adverse effect on USBTC even if USBTC successfully defends itself. Any claims against USBTC,
72
TABLE OF CONTENTS
 
with or without merit, would likely be time-consuming, requiring its management team to dedicate substantial time to addressing the issues presented. Furthermore, many of the parties bringing claims may have greater resources than USBTC does. In lieu of expensive intellectual property litigation, USBTC may seek one or more patent or other intellectual property licenses, but USBTC cannot assure you that it could secure a license on reasonable terms.
Intellectual property rights claims may adversely affect the operation of some or all digital asset networks.
Third parties may assert intellectual property claims relating to the holding and transfer of digital assets and their source code. Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence in some or all digital asset networks’ long-term viability or the ability of end-users to hold and transfer digital assets may adversely affect an investment in USBTC. Additionally, a meritorious intellectual property claim could prevent us and other end-users from accessing some or all digital asset networks or holding or transferring their digital assets. As a result, an intellectual property claim against us or other large digital asset network participants could adversely affect an investment in USBTC.
There is a risk of additional Bitcoin mining capacity from competing Bitcoin miners, which would increase the total network hashrate and decrease its effective market share.
The barriers to entry for new Bitcoin miners are relatively low, which can give rise to additional capacity from competing Bitcoin miners. The Bitcoin protocol responds to increasing total hashrate by increasing the “difficulty” of Bitcoin mining. If this “difficulty” increases at a significantly higher rate, USBTC would need to increase its hashrate at the same rate in order to maintain market share and generate equivalent block rewards. A decrease in USBTC’s effective network hashrate market share would result in a reduction in USBTC’s share of block rewards and transaction fees, which could materially adversely affect its financial performance and financial position.
There is a lack of liquid markets in digital assets, and these markets are subject to possible manipulation.
Digital assets that are represented and trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have rules and regulations regarding marketplace conduct, and monitor investors transacting on such platform for fraud and other improprieties.
These conditions may not necessarily be replicated on a distributed ledger platform, depending on the platform’s controls and other policies. The more lax a distributed ledger platform is about vetting issuers of digital assets or users that transact on the platform, the higher the potential risk for fraud or the manipulation of the ledger due to a control event. These factors may decrease liquidity or volume or may otherwise increase volatility of investment securities or other assets trading on a ledger-based system, which may adversely affect USBTC. Such circumstances could have a material adverse effect on USBTC’s ability to continue as a going concern or to pursue its strategy at all, which could have a material adverse effect on USBTC’s business, prospects or operations and potentially the value of any Bitcoin it mines or otherwise acquire or hold for its own account, and harm investors.
The Bitcoin exchanges on which Bitcoins trade are relatively new and, in most cases, largely unregulated and may therefore be more exposed to fraud and failure than established, regulated exchanges for other assets. In the event the Bitcoin exchanges representing a substantial portion of the volume in Bitcoin trading are involved in fraud or experience security failures or other operational issues, such Bitcoin exchanges’ failures may result in a reduction in the price of Bitcoin and can adversely affect an investment in USBTC.
Bitcoin exchanges on which the Bitcoins trade are new and, in most cases, largely unregulated. Furthermore, many Bitcoin exchanges (including several of the most prominent U.S. Dollar Denominated Bitcoin Exchanges) do not provide the public with significant information regarding their ownership structure, management teams, corporate practices or regulatory compliance. As a result, the marketplace may lose confidence in, or may experience problems relating to, Bitcoin exchanges, including prominent exchanges handling a significant portion of the volume of Bitcoin trading.
A number of Bitcoin exchanges have been closed due to fraud, failure or security breaches. In many of these instances, the customers of such Bitcoin exchanges were not compensated or made whole for the partial or
73
TABLE OF CONTENTS
 
complete losses of their account balances in such Bitcoin exchanges. While smaller Bitcoin exchanges are less likely to have the infrastructure and capitalization that make larger Bitcoin exchanges more stable, larger Bitcoin exchanges are more likely to be appealing targets for hackers and “malware” ​(i.e., software used or programmed by attackers to disrupt computer operation, gather sensitive information or gain access to private computer systems). Furthermore, the collapse of the largest Bitcoin exchange in 2014 suggests that the failure of one component of the overall Bitcoin ecosystem can have consequences for both users of a Bitcoin exchange and the Bitcoin industry as a whole.
A lack of stability in the Bitcoin exchange market and the closure or temporary shutdown of Bitcoin exchanges due to fraud, business failure, hackers or malware, or government-mandated regulation may reduce confidence in the Bitcoin network and result in greater volatility in Bitcoin value. These potential consequences of a Bitcoin exchange’s failure could adversely affect an investment in USBTC.
74
TABLE OF CONTENTS​​​
 
THE BUSINESS COMBINATION
The following is a description of the material aspects of the Business Combination. While we believe that the following description covers the material aspects of the Business Combination, the description may not contain all of the information that is important to you. We encourage you to carefully read this entire prospectus, including the Business Combination Agreement attached as an exhibit to the Registration Statement of which this prospectus forms a part, for a more complete understanding of the Business Combination.
Structure of the Business Combination
The Business Combination will be effected by way of the Arrangement and Merger. Pursuant to the Arrangement, (i) Hut 8 and its wholly-owned subsidiary, Hut 8 Holdings Inc., will be amalgamated by way of a short-form vertical amalgamation, with Hut Amalco having the same capital as the capital of Hut 8 immediately prior to the amalgamation, and (ii) following the amalgamation, the common shares in the capital of Hut Amalco (other than any shares in respect of which a registered Hut 8 shareholder has validly exercised dissent rights) will be exchanged for shares of New Hut common stock based on the Hut 8 Exchange Ratio. Following the completion of the Arrangement, pursuant to the Merger, Merger Sub will be merged with and into USBTC, with USBTC surviving the Merger as a subsidiary of New Hut. Pursuant to the Merger, holders of USBTC capital stock will receive shares of New Hut common stock based on the USBTC Exchange Ratio. As a result of the Business Combination, among other things, New Hut will become the ultimate parent of Hut 8, USBTC, and their respective subsidiaries.
Subject to the terms and conditions set forth in the Business Combination Agreement, Hut 8 shareholders (other than registered Hut 8 shareholders who validly exercise dissent rights) will have the right to receive, for each Hut 8 common share they hold immediately prior to the effective time of the Arrangement, that number of shares of New Hut common stock equal to the Hut 8 Exchange Ratio, and USBTC stockholders will have the right to receive, with respect to each share of Series A Preferred, Series B Preferred, Series B-1 Preferred and USBTC common stock they hold at the effective time of the Merger, that number of shares of New Hut common stock equal to the USBTC Exchange Ratio. Where the aggregate number of shares of New Hut common stock that a Hut 8 shareholder or USBTC stockholder would otherwise be entitled to receive under the Business Combination includes a fractional share of New Hut common stock, the number of shares of New Hut common stock to be received by such Hut 8 shareholder or USBTC stockholder, as applicable, will be rounded down to the nearest whole number and no cash will be paid in lieu of such fractional share of New Hut common stock.
The Business Combination does not contain any provision that would adjust the Hut 8 Exchange Ratio or USBTC Exchange Ratio based on fluctuations in the market value of either company’s capital stock. Because of this, the implied value of the stock consideration to Hut 8 shareholders and USBTC stockholders will fluctuate between now and the completion of the Business Combination and will depend on the market value of New Hut common stock at the time the Business Combination is completed.
In order to be effective, the Business Combination must be approved by the affirmative vote of not less than 662∕3% of the votes cast by Hut 8 shareholders present or represented by proxy and entitled to vote at the Hut 8 Meeting. For the purposes of implementing the Business Combination, USBTC will seek to obtain the USBTC Consent.
Background of the Business Combination
Each of the Hut 8 Board and the USBTC Board and their respective senior management regularly review and discuss their company’s performance, business strategy and competitive position in the digital asset mining industry. In addition, such boards and senior management regularly review and evaluate various strategic alternatives, including acquisitions, dispositions, capital raising, and other strategic transactions, as part of ongoing efforts to strengthen their respective overall business and enhance shareholder value. In particular, the USBTC Board previously considered pursuing an initial public offering in the United States but determined not to proceed, primarily due to market conditions.
As part of this ongoing evaluation, each of the Hut 8 Board and USBTC Board, together with their senior management teams, have from time to time considered various strategic options to accelerate growth and
75
TABLE OF CONTENTS
 
drive value for shareholders, including the possibility of a strategic combination with other companies in the digital asset industry. A number of factors are considered, including the potential for industry consolidation, the highly competitive digital asset mining industry, the large number of existing and new competitors in the industry, and the significant scaling obstacles that are hindering wide spread acceptance of digital assets as a means of payment.
In addition, in the course of each of Hut 8 and USBTC conducting their own strategic reviews and planning, representatives of Hut 8 and USBTC have, from time to time, discussed with various companies in the digital asset mining industry potential business combination transactions that might expand their respective businesses, improve their respective paths to scale, and enhance stockholder value.
On May 9, 2022, Stifel GMP prepared a presentation for Hut 8’s management that highlighted a number of potential acquisition and merger partners. Following the meeting, Hut 8 management continued to evaluate options.
Over the course of the summer in 2022, Jaime Leverton, Chief Executive Officer of Hut 8, and Stifel GMP continued to discuss various strategic alternatives for Hut 8, exploring organic growth and inorganic growth by reviewing the universe of various potential partners for a business combination transaction, as Hut 8 had received a number of inbounds indicating a preliminary high level of interest for a discussion between parties. Stifel GMP continued to evaluate potential options for the company.
Over the course of the summer in 2022, USBTC management undertook a comprehensive strategic planning process for the company. USBTC explored various models to scale the business, including greenfield site expansion, partnerships and joint ventures, and M&A. Michael Ho, co-founder and Chief Executive Officer of USBTC, and Asher Genoot, co-founder and President of USBTC, commenced exploratory conversations with industry peers.
On June 15, 2022, Mr. Ho, USBTC’s Chief Executive Officer, and Joel Block, USBTC’s Chief Financial Officer, had an introductory meeting with the CEO and CFO of another industry participant (“Company A”) to discuss the industry in which their respective companies operated. Each of the parties concluded that there may be future interest in a potential strategic transaction.
On July 18, 2022, Stifel GMP connected Ms. Leverton with Mr. Ho and Mr. Genoot, and the parties discussed the industry in which their respective companies operated. Each of the parties concluded that there was interest in a potential strategic transaction, and following the meeting the parties continued to have further discussions.
On August 13, 2022, Ms. Leverton received an inbound request from a third-party industry participant (“Company B”) to discuss the potential benefits of a business combination between Hut 8 and Company B. Stifel GMP prepared initial views on the potential transaction to members of Hut 8’s management which was shared with the Hut 8 Board.
On August 18, 2022, Stifel GMP prepared a presentation for Hut 8 in regards to a potential business combination with another industry participant (“Company C”). Hut 8 held preliminary discussions with Company C and such discussions did not progress as Company C was determined not to be an attractive option by Hut 8 management.
During the balance of August 2022, Hut 8 explored potential joint venture initiatives with a third industry participant (“Company D”). During this period, Hut 8 management and representatives of Stifel GMP were in contact with Company D and exchanged additional documentation with Company D’s management and representatives. Discussions with Company D did not progress past a preliminary stage.
During August and September 2022, USBTC explored potential strategic transactions with another industry participant (“Company E”). Discussions with Company E did not progress past a preliminary stage.
On September 5, 2022, representatives of Stifel GMP delivered an updated presentation to Ms. Leverton, which presentation was shared with the Hut 8 Board, and provided a broad analysis of various potential partners for a potential acquisition or business combination.
On September 9, 2022 representatives of Stifel GMP verbally explored the idea of a potential business combination of USBTC and Hut 8 with USBTC management. USBTC management expressed interest and the parties continued to have further discussions.
76
TABLE OF CONTENTS
 
On September 15, 2022, Mr. Ho and Mr. Block had a follow-up meeting with the CEO and CFO of Company A, and the parties discussed potential strategic transactions, including a partnership and a business combination transaction. Discussions with Company A did not progress past a preliminary stage.
On September 20, 2022, Hut 8 management and representatives of Stifel GMP delivered a presentation to the Hut 8 Board wherein identifying Company B as a strategic fit to Hut 8’s existing and future operations. The Hut 8 Board supported continuing to pursue advanced discussions with respect to a potential business combination transaction with Company B.
On October 3, 2022, USBTC engaged NYDIG ABL LLC (“NYDIG”) via videoconference to discuss its current financial position and debt obligations with NYDIG and to propose a restructuring of its debt obligations with NYDIG. The parties continued to have further discussions in subsequent months to reach a resolution.
On October 6, 2022, USBTC engaged Anchorage via videoconference to discuss its current financial position and debt obligations with Anchorage and to propose a restructuring of its debt obligations with Anchorage. The parties continued to have further discussions in subsequent months to reach a resolution.
On October 6, 2022, Mr. Genoot and Mr. Block met in-person with the CEO of another industry participant (“Company F”) to discuss a potential strategic transaction. Discussions with Company F did not progress past a preliminary stage.
On October 18, 2022, USBTC was selected by an institutional investor focused on renewable energy assets to operate two digital asset mining sites in Kearney, Nebraska and Granbury, Texas formerly owned and operated by a third party industry participant. USBTC management recognized an opportunity to build a standalone business unit focused on managed infrastructure operations and formed the USMIO business upon being selected as the strategic operator of these sites. USBTC entered into these agreements following a formal request for proposal (RFP)-driven process in connection with the Chapter 11 bankruptcy filing of Compute North, through which the institutional investor became the owner of two digital asset mining sites.
On November 3, 2022, Hut 8 determined they were not going to come to an acceptable agreement with Company B and instructed representatives of Stifel GMP to inform representatives of Company B of the decision and to suspend further discussions with Company B.
On November 4, 2022, USBTC entered into PMAs at the Kearney, Nebraska and Granbury, Texas sites under two USBTC subsidiaries, formalizing USMIO as a revenue-generating business.
On November 15, 2022, USBTC won a bid to acquire from Compute North, via their Chapter 11 bankruptcy process, a 50% membership interest in a joint venture with one of the world’s largest renewable energy producers at the King Mountain, Texas digital asset mining site and assume a senior note in the amount of $96.8 million pursuant to the acquisition. The transaction closed on December 6, 2022 as noted below.
During November 2022, USBTC emerged to Hut 8 as a potential strategic partner after USBTC was selected to operate significant data center assets in Kearney, Nebraska and Granbury, Texas under its USMIO and shortly thereafter won a bid to acquire significant data center assets in King Mountain, Texas from a third party industry participant.
Over the course of several days in November 2022, representatives of Stifel GMP updated the previous presentations for Ms. Leverton, which alternatives were shared with the Hut 8 Board. Further discussions did not materialize with parties other than USBTC as the potential transactions with these various partners were determined to not be suitable either from a strategic or financial perspective.
On November 10, 2022, a mutual non-disclosure agreement was signed between Hut 8 and USBTC to discuss options of a working relationship between the parties.
Between November 18, 2022 and November 20, 2022, Ms. Leverton, Mr. Ho, and representatives of Stifel GMP held a series of in-person meetings to explore and further discuss the benefits and considerations and mechanics of a potential business combination. During the meetings the individuals noted the potential strategic fit between Hut 8 and USBTC as a critical element of a successful integration, highlighting that the operational scale of USBTC and balance sheet of Hut 8 could achieve operational and capital efficiencies.
77
TABLE OF CONTENTS
 
During the meetings, the individuals noted that the businesses presented similar corporate cultures and a complementary geographic presence. The parties further discussed, at a high-level, certain contributions that each company could bring to a potential business combination. With preliminary financial input being provided by Stifel GMP to Hut 8, the parties agreed, subject to further financial diligence, to further consider and explore a potential business combination that could result in a possible merger of relative equals for the shareholders of Hut 8 and the stockholders of USBTC in a combined company. The parties also discussed certain management and governance matters recognizing the minimal overlap in management and the importance of the continued leadership of Bill Tai, Chairman of Hut 8, in any combined company.
On November 19, 2022, Ms. Leverton and Sue Ennis, Vice President of Corporate Development of Hut 8, met with Mr. Ho and the parties reaffirmed interest in engaging in discussions regarding a strategic transaction.
On November 21, 2022, USBTC’s management and the USBTC Board convened for the company’s monthly board meeting . Mr. Ho and Mr. Genoot updated the USBTC Board on a potential business combination with Hut 8, and a discussion ensued regarding the merits of the potential transaction.
On November 23, 2022, representatives of Stifel GMP and representatives of Bennett Jones LLP, Canadian legal counsel to Hut 8 (“Bennett Jones”) and Skadden, Arps, Slate, Meagher & Flom LLP, U.S. legal counsel to Hut 8 (“Skadden”) held a meeting via videoconference to discuss a potential business combination between Hut 8 and USBTC. The parties discussed a number of matters relating to a potential transaction, including valuation considerations, related tax and structuring considerations, and regulatory review.
On November 23, 2022, Mr. Ho, Mr Genoot, and representatives of Stifel GMP held a meeting via videoconference during which Mr. Genoot reaffirmed interest in continuing to pursue a possible business combination involving merger of relative equals, noting the relative contributions of each entity.
On November 23, 2022, Hut 8 and USBTC provided each other’s representatives access to a mutual electronic data room containing due diligence information for each company. This data room was updated regularly throughout the due diligence period.
On November 24, 2022, Ms. Leverton, Mr. Ho, and Mr. Genoot began the first of a series of standing meetings to discuss the status of effecting the proposed transaction.
On December 1, 2022, representatives of Stifel GMP and representatives of USBTC convened an update call via videoconference to discuss matters relating to the legal due diligence for the potential transaction, including the type of diligence materials that would be requested.
On December 5, 2022, Ms. Leverton, Mr. Ho, Mr. Genoot, and representatives from Stifel GMP held a meeting via videoconference to further discuss their interest in pursuing a potential transaction. The parties noted that initial results from their respective business, financial and legal due diligence investigations were positive and generally supported a business combination involving a possible merger of relative equals. At this meeting, representatives of USBTC indicated they would be pursuing financing for shipment of additional miners and raised the possibility of Hut 8 providing a bridge loan for such financing.
On December 6, 2022, USBTC closed its acquisition of a 50% membership interest in a joint venture and assumed a senior note in the amount of $96.8 million pursuant to the acquisition. For further details, see Information About USBTC — Recent Developments — King Mountain JV.
On December 15, 2022, representatives of Stifel GMP held a video conference call with the Hut 8 Board and discussed the mutual indications of interest between Hut 8 and USBTC and provided their initial views on a possible transaction involving the companies based on discussions and communications between the parties to date and other commercial considerations.
On December 20, 2022, Stifel GMP delivered an initial non-binding written letter of intent for a proposed strategic transaction between Hut 8 and USBTC (the “Letter of Intent”).
Between December 20, 2022 and December 30, 2022, representatives of Hut 8, USBTC, and Stifel GMP convened a series of meetings via video conference to discuss and negotiate the terms of the Letter of Intent.
78
TABLE OF CONTENTS
 
On December 21, 2022, USBTC’s senior management and the USBTC Board convened for the USBTC’s monthly board meeting via videoconference. Mr. Ho and Mr. Genoot updated the USBTC Board on the status of the potential transaction.
On December 30, 2022, USBTC engaged Needham & Company, LLC (“Needham”) to act as its financial advisor.
On December 30, 2022, Hut 8 and USBTC signed the Letter of Intent setting out the major commercial terms of the transaction.
Starting on January 3, 2023, standing meetings were held via videoconference on a regular basis to generally discuss the progress of the proposed transaction. In addition to the attendees from senior management of each of Hut 8 and USBTC and representatives from Stifel GMP and Needham, representatives of Canadian and U.S. legal counsel to Hut 8 and USBTC attended the majority of these meetings.
During the balance of January 2023, representatives of Hut 8 and USBTC participated in various business and legal due diligence sessions, along with numerous in person site visits across both companies’ various operating locations. Representatives of Hut 8 visited USBTC sites in New York, Texas, and Nebraska. Representatives of USBTC visited Hut 8 sites in Mississauga, Vaughan, North Bay, Medicine Hat, Drumheller, Kelowna, and Vancouver.
Between January 6, 2023 and January 8, 2023, representatives of Hut 8, USBTC, Bennett Jones, Skadden, Greenberg Traurig, LLP, U.S. legal counsel to USBTC (“Greenberg”), Stikeman Elliott LLP, Canadian legal counsel to USBTC (“Stikeman”), Stifel GMP, and Needham, held a series of meetings via videoconference to discuss tax matters relating to the transaction, including different structuring approaches and the tax implications of different types of consideration.
On January 9, 2023, Hut 8 signed an engagement letter with Stifel GMP to govern the relationship between the parties in respect of a potential transaction between Hut 8 and USBTC.
On January 12, 2023, Hut 8’s legal counsel delivered an initial draft of a Business Combination Agreement to USBTC’s legal counsel.
On January 16, 2023, representatives of Hut 8, USBTC, and their respective legal and financial advisors, held a meeting via videoconference to continue discussions regarding the terms of the transaction.
On January 17, 2023, USBTC’s legal counsel delivered a revised draft of a Business Combination Agreement to Hut 8’s legal counsel. Over the following days, legal counsel for Hut 8 and USBTC continued discussions of the Business Combination Agreement and the other transaction agreements.
On January 22, 2023, the USBTC Board, senior management of USBTC, and representatives of Needham held a meeting via videoconference to provide the USBTC Board with an update regarding Needham’s diligence on the potential synergies, competitive positioning, and pro forma financials of the combined company.
On January 23, 2023, the Hut 8 Board held a meeting via videoconference to discuss the status of the potential transaction.
On January 23, 2023, the USBTC Board and senior management of USBTC convened for the company’s monthly board meeting via videoconference. Mr. Ho and Mr. Genoot updated the USBTC Board on the status of the transaction.
On January 24, 2023, Hut 8 signed an engagement letter with Kroll to govern the relationship between the parties in respect of a potential transaction between Hut 8 and USBTC.
On January 28, 2023, the USBTC Board and senior management held a meeting via videoconference to discuss the status of the potential transaction.
On January 30, 2023, Ms. Leverton, the USBTC Board, and senior management of USBTC held a meeting via videoconference to introduce Ms. Leverton to the USBTC Board and to discuss the status of the potential transaction.
79
TABLE OF CONTENTS​
 
On February 3, 2023, USBTC entered into a Loan, Guaranty and Security Agreement with Anchorage in connection with a restructuring of its debt obligations with Anchorage. On the same day, USBTC entered into an Asset Purchase Agreement with NYDIG, pursuant to which USBTC transferred certain of its assets, including certain of its equipment, real estate, and contracts to NYDIG in full satisfaction of the master equipment financing debt owed by USBTC to NYDIG.
On February 4, 2023, representatives from Hut 8, USBTC, and their respective advisors held a meeting via videoconference to conduct a final discussion on the progress of the potential transaction and its documentation.
On February 6, 2023, the Hut 8 Board, senior management of Hut 8, representatives of Stifel GMP, Kroll, Bennett Jones, and Skadden held a meeting via videoconference to provide the Hut 8 Board with an update regarding the key terms of the potential transaction and to discuss various transactional matters. Legal counsel to Hut 8 also presented an overview on the current draft of the Business Combination Agreement and discussed the transaction agreement and other transaction issues. During this meeting, following a review of the process and methodologies considered by Stifel GMP in evaluating the financial terms of the Business Combination, the Hut Board received oral opinions from Stifel GMP and Kroll that, as of the date of such opinions and subject to the scope of review, assumptions and limitations contained therein, the USBTC Exchange Ratio was fair, from a financial point of view, to Hut 8. Following discussion and consideration of the alternatives available to Hut 8, the Hut 8 Board determined that the transaction with USBTC was in the best interest of Hut 8 as well as Hut 8’s shareholders and approved the Business Combination Agreement and Hut 8’s entry into the agreements related to the transaction.
On February 6, 2023, the USBTC Board held a meeting to consider the proposed transaction, which was attended by members of USBTC senior management, and representatives of Needham, Greenberg, and Stikeman. Following a review of the terms of the Business Combination Agreement and other material terms of the transaction, the USBTC Board approved USBTC’s entry into the agreements related to the transaction, as well as the Merger Consent Approval Transfer (as defined herein).
On February 6, 2023, representatives from each of Hut 8 and USBTC signed the Business Combination Agreement and other transaction documentation.
For more information regarding the Merger Consent Approval Transfer, see “Certain Relationships and Related Party and Other Transactions of USBTC — The Merger Consent Approval Transfer.”
The Hut 8 Board’s Reasons for the Business Combination
In evaluating the Business Combination, the Hut 8 Board, in consultation with Hut 8’s management and financial and legal advisors, engaged in numerous discussions regarding the Business Combination and received various materials for review and consideration.
In reaching its decision to approve the Business Combination, the Hut 8 Board considered a variety of factors, including its knowledge of USBTC’s business, operations, financial condition, results of operations and prospects, as well as the risks in achieving those prospects, including uncertainties associated with achieving financial forecasts. In making its determination, the Hut 8 Board considered a number of factors, including, but limited to, the following:
•
the Hut 8 Board’s belief that the Business Combination would enhance Hut 8’s competitive position by increasing its operating scale and scope, diversifying its business model, and strengthening its balance sheet;
​
•
the Hut 8 Board’s belief that the Business Combination creates greater financial stability through market cycles and allows Hut 8 to grow and invest in new opportunities, including managed infrastructure operations;
​
•
the Hut 8 Board’s belief that through increased scale and U.S. headquarters, Hut 8 would be included in additional stock indices and enjoy improved access to capital;
​
•
the Hut 8 Board’s belief that the Business Combination would optimize data center and self-mining operations;
​
80
TABLE OF CONTENTS​
 
•
the Hut 8 Board’s belief that USBTC’s purpose-built energy and site management software would provide additional opportunities for efficiencies, especially at Hut 8’s Canadian sites;
​
•
the Hut 8 Board’s belief that the combined organization would be led by members of the current management teams of both Hut 8 and USBTC, each of whom would bring distinct and complementary experience and expertise to the management of the combined company;
​
•
the Hut 8 Board’s belief that the USBTC team brings significant leadership in energy origination, development, demand response, hedging, grid stabilization, and analytics significantly enhancing Hut 8’s ability to mitigate fluctuating energy prices across markets;
​
•
the Hut 8 Board’s belief that Hut 8 and USBTC have complementary environmental, social and governance (“ESG”) strategies, are both dedicated to accelerating the global transition to renewable energy, and that the Business Combination would introduce additional renewable and zero carbon emission energy sources to New Hut’s energy portfolio;
​
•
the Hut 8 Board’s expectation that, upon completion of the Business Combination, current Hut 8 shareholders will own approximately 50% of New Hut common stock on a fully-diluted in-the-money basis;
​
•
the Hut 8 Board’s understanding of the business, assets and liabilities, results of operations, financial performance, strategic direction and prospects of each of USBTC and Hut 8; and
​
•
the result of Hut 8’s commercial, financial, and legal due diligence of USBTC and the reputation, business practices, and experience of USBTC and its management.
​
The Hut 8 Board also considered a number of uncertainties and risks in its deliberations concerning the Business Combination, including the following:
•
the expenses incurred and to be incurred in connection with the Business Combination;
​
•
the possible volatility, at least in the short term, of the trading price of the Hut 8 common shares resulting from the announcement of the Business Combination;
​
•
the risk that the Business Combination might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the Business Combination or on the delay or failure to complete the Business Combination on the reputation of Hut 8;
​
•
the risk to the business of Hut 8, operations, and financial results in the event that any of the Business Combination is not consummated as planned;
​
•
the Business Combination Consideration which is in the form of equity and not cash;
​
•
the risk in connection with obtaining the Hut 8 Shareholder Approval; and
​
•
various other risks associated with the combined organization and the Business Combination, including those described in the section entitled “Risk Factors” in this prospectus.
​
The USBTC Board’s Reasons for the Business Combination
In evaluating the Business Combination, the USBTC Board, in consultation with USBTC’s management and financial and legal advisors, engaged in numerous discussions regarding the Business Combination and received various materials for review and consideration.
In reaching its decision to approve the Business Combination, the USBTC Board considered a variety of factors, including its knowledge of Hut 8’s business, operations, financial condition, results of operations and prospects, as well as the risks in achieving those prospects, including uncertainties associated with achieving financial forecasts. In making its determination, the USBTC Board considered a number of factors, including, but limited to, the following:
•
the USBTC Board’s belief that the Business Combination would enhance USBTC’s competitive position by increasing its operating scale and scope, diversifying its business model, and strengthening its balance sheet;
​
81
TABLE OF CONTENTS​
 
•
the USBTC Board’s belief that the Business Combination would accelerate USBTC’s ability to execute on strategic opportunities in USBTC’s pipeline to scale and optimize its data center operations;
​
•
the USBTC Board’s belief that the Business Combination would support USBTC’s ability to continue investing in the development of the purpose-built technology and intellectual property underlying its operations;
​
•
the USBTC Board’s belief that the Business Combination would strengthen USBTC’s resilience to market downturns by further diversifying its revenue streams;
​
•
the USBTC Board’s assessment of the complementary businesses of USBTC and Hut 8 and the potential strategic and financial benefits, including potential synergies, to be realized from the combination of the two companies;
​
•
the USBTC Board’s belief that the combined organization would be led by members of the current management teams of both USBTC and Hut 8, each of whom would bring distinct and complementary experience and expertise to the management of the combined company;
​
•
the USBTC Board’s belief that USBTC and Hut 8 have complementary ESG strategies and are both dedicated to accelerating the global transition to renewable energy;
​
•
the USBTC Board’s belief that the Business Combination will provide existing USBTC shareholders an opportunity to benefit from the increase in liquidity of their ownership positions driven by the dual-listing of the combined organization on Nasdaq and the TSX;
​
•
the USBTC Board’s expectation that, upon completion of the Business Combination, current USBTC stockholders will own approximately 50% of New Hut common stock on a fully-diluted in-the-money basis;
​
•
the USBTC Board’s understanding of the business, assets and liabilities, results of operations, financial performance, strategic direction and prospects of each of USBTC and Hut 8; and
​
•
the result of USBTC’s commercial, financial, and legal due diligence of Hut 8 and the reputation, business practices, and experience of Hut 8 and its management.
​
The USBTC Board also considered a number of uncertainties and risks in its deliberations concerning the Business Combination, including the following:
•
the expenses incurred and to be incurred in connection with the Business Combination;
​
•
the possible volatility, at least in the short term, of the trading price of the Hut 8 common shares resulting from the announcement of the Business Combination;
​
•
the risk that the Business Combination might not be consummated in a timely manner or at all and the potential adverse effect of the public announcement of the Business Combination or on the delay or failure to complete the Business Combination on the reputation of USBTC;
​
•
the risk to the business of USBTC, operations, and financial results in the event that any of the Business Combination is not consummated as planned;
​
•
the Business Combination Consideration which is in the form of equity and not cash;
​
•
the risk in connection with obtaining the USBTC Stockholder Approval;
​
•
the indebtedness of USBTC and its impact on the New Hut’s ability to raise capital as a stand-alone entity;
​
•
the current balance sheet position of USBTC and difficulties to be faced as a standalone company; and
​
•
various other risks associated with the combined organization and the Business Combination, including those described in the section entitled “Risk Factors” in this prospectus.
​
Fairness Opinion of Stifel GMP
Engagement of Stifel GMP
Pursuant to an engagement letter (the “Stifel GMP Engagement Letter”) dated as of January 9, 2023 between Hut 8 and Stifel GMP, Stifel GMP was retained to act as financial advisor to Hut 8 and to prepare and deliver
82
TABLE OF CONTENTS
 
to the Hut 8 Board its opinion as to whether the USBTC Exchange Ratio is fair, from a financial point of view, to Hut 8 (the “Stifel GMP Opinion”).
At the meeting of the Hut 8 Board held on February 6, 2023, Stifel GMP presented its opinion stating that, as of the date of the opinion, and based upon and subject to the assumptions, limitations and qualifications set forth therein, the USBTC Exchange Ratio is fair, from a financial point of view, to Hut 8. The Stifel GMP Opinion was provided to the Hut 8 Board in connection with their evaluation of the fairness of the USBTC Exchange Ratio to Hut 8 pursuant to the Business Combination, and does not address any other aspect of the Business Combination and does not constitute a recommendation as to how the Hut 8 Board, or Hut 8 shareholders or USBTC stockholders, should vote or act with respect to the Business Combination.
Stifel GMP has not been engaged to prepare, and has not prepared, a formal valuation or appraisal of Hut 8 or USBTC, or any of their respective assets, securities or liabilities (whether on a standalone basis or as a combined entity), and the Stifel GMP Opinion should not be construed as such. Further, the Stifel GMP Opinion only considers the USBTC Exchange Ratio as applied to USBTC Options (as defined in the Business Combination Agreement) that have vested and are in-the-money as of the date of the opinion. Any USBTC Options that remain either unvested or out-the-money as of such date are specifically excluded from the conclusions reached in the opinion.
Stifel GMP is not an insider, associate or affiliate (as such terms are defined in the Securities Act (Ontario)) of Hut 8, USBTC or New Hut or any of their respective associates or affiliates. Stifel GMP has in the past provided certain financial advisory services and participated in financings for Hut 8 and USBTC, as applicable, as further described in the Stifel GMP Opinion. There are no understandings, agreements or commitments between Stifel GMP and either Hut 8, USBTC or New Hut with respect to any future business dealings. Stifel GMP may, however, in the future in the ordinary course of business seek to perform financial advisory services for any one or more of them from time to time. In the ordinary course of its business, Stifel GMP acts as a trader and dealer, both as principal and agent, in major financial markets and, as such, may have, today, or in the future, positions in the securities of Hut 8, USBTC or New Hut and, from time to time, may have executed or may execute transactions on behalf of Hut 8, USBTC or New Hut or other clients for which it received or may receive compensation. In addition, as an investment dealer, Stifel GMP conducts research on securities and may, in the ordinary course of its business, provide research reports and investment advice to its clients on investment matters, including research with respect to Hut 8, USBTC or New Hut and/or their respective affiliates or associates.
The Stifel GMP Engagement Letter provides that Stifel GMP will be paid by Hut 8 for the services provided thereunder, including a fixed fee for the delivery of the Stifel GMP Opinion, as well as reimbursement of certain out-of-pocket expenses. Other than with respect to the Stifel GMP Opinion, a substantial portion of the fees payable to Stifel GMP are contingent on completion of the Business Combination or an alternative transaction. In addition, Stifel GMP and its affiliates and their respective directors, officers, employees, shareholders, partners and duly authorized agents are to be indemnified by Hut 8 under certain circumstances from and against certain liabilities arising out of the performance of professional services rendered to Hut 8.
Scope of Review
In connection with rendering the Stifel GMP Opinion, Stifel GMP reviewed and relied upon, or carried out, among other things, the following:
1.
a draft of the Business Combination Agreement dated February 2, 2023;
​
2.
a draft of the Plan of Arrangement dated February 2, 2023;
​
3.
certain publicly available information relating to the business, operations, financial condition and security trading history of Hut 8, USBTC and New Hut, as applicable, and other selected companies Stifel GMP considered relevant;
​
4.
certain internal financial, operating, corporate and other information prepared or provided by or on behalf of Hut 8, USBTC and New Hut, as applicable, relating to the business, operations and financial condition of Hut, USBTC and New Hut, as applicable;
​
83
TABLE OF CONTENTS
 
5.
internal management forecasts, projections, estimates and budgets prepared or provided by or on behalf of management of Hut 8 and USBTC;
​
6.
discussions with management of Hut 8 relating to Hut 8, USBTC and New Hut’s current business, plan, financial condition and prospects;
​
7.
public information with respect to selected precedent transactions Stifel GMP considered relevant;
​
8.
various reports published by equity research analysts and industry sources Stifel GMP considered relevant;
​
9.
a certificate with respect to certain factual matters and the completeness and accuracy of certain information upon which the Stifel GMP Opinion is based, addressed to Stifel GMP and dated as of the date of the Stifel GMP Opinion, provided by senior officers of Hut 8 (the “Hut 8 Certificate”); and
​
10.
such other information, investigations, analyses and discussions as Stifel GMP considered necessary or appropriate in the circumstances.
​
Stifel GMP did not meet with the auditors of Hut 8 or USBTC and, as stipulated below, has assumed, without independent investigation, the accuracy and fair presentation of the audited financial statements of Hut 8 and USBTC and the reports of the auditors thereon, and of the unaudited interim financial statements of Hut 8 and USBTC.
Approach to Financial Fairness
In support of the Stifel GMP Opinion, Stifel GMP performed a variety of financial and comparative analyses. The following is a summary of the material financial analyses performed by Stifel GMP in connection with the preparation of its opinion. It is not a complete description of all analyses underlying such opinion. The preparation of an opinion is a complex process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. As a consequence, neither Stifel GMP’s opinion nor the respective analyses underlying its opinion is readily susceptible to partial analysis or summary description. In arriving at its opinion, Stifel GMP assessed as a whole the results of all analyses undertaken by it with respect to the opinion. While it took into account the results of each analysis in reaching its overall conclusions, Stifel GMP did not make separate or quantifiable judgments regarding individual analyses and did not draw, in isolation, conclusions from or with regard to any individual analysis or factor. Stifel GMP has not attributed any particular weight to any specific analysis or factor but rather based the opinion on a number of qualitative and quantitative factors deemed appropriate by Stifel GMP based on Stifel GMP’s experience in rendering such opinions. Therefore, Stifel GMP believes that the analyses underlying the opinion must be considered as a whole and that selecting portions of its analyses or the factors it considered, without considering all analyses and factors underlying the opinion collectively, could create a misleading or incomplete view of the analyses performed by Stifel GMP in preparing the opinion.
Discounted Cash Flow Analysis
A discounted cash flow analysis uses projected future free cash flows discounted back to the present value using a risk-adjusted rate in order to determine the value of an asset. Hut 8 and USBTC provided Stifel GMP with internally prepared financial projections. These projections formed the basis for Stifel GMP’s discounted cash flow analysis and are subject to the assumptions and risks set forth therein.
Selected Companies Analysis
Stifel GMP considered certain financial data for Hut 8, USBTC and New Hut and selected companies with publicly traded equity securities Stifel GMP deemed relevant.
Selected Transactions Analysis
Stifel GMP considered the financial terms of business transactions Stifel GMP deemed relevant. None of the target companies or transactions in the selected transactions have characteristics identical to the proposed
84
TABLE OF CONTENTS
 
Business Combination. Accordingly, an analysis of selected business combinations is not exact; rather it involves complex considerations and judgments concerning differences in financial and operating characteristics of the target companies in the selected transactions and other factors that could affect the respective acquisition values of the transactions reviewed.
Equity Contribution Analysis
Stifel GMP reviewed and compared the expected financial contribution of Hut 8 to the pro forma company against Hut 8’s expected ownership percentage of the pro forma company implied by the USBTC Exchange Ratio.
Qualitative Rationale
Stifel GMP considered certain other qualitative factors with respect to the Business Combination, including but not limited to, the expected diversification of Hut 8’s business lines and the expertise of the combined board and management teams.
Assumptions and Limitations
With Hut 8’s approval and as provided for in the Stifel GMP Engagement Letter, Stifel GMP has relied upon and has assumed, without independent investigation, the completeness, accuracy and fair presentation of all financial, technical and other information, data, documents, advice, opinions, budgets, projections, estimates, forecasts, representations and other materials obtained by Stifel GMP from public sources, including information relating to Hut 8, USBTC, New Hut and the Business Combination, or provided to Stifel GMP by Hut 8, USBTC and their respective affiliates or advisors or otherwise pursuant to the engagement (collectively, the “Information”) and the Stifel GMP Opinion is conditional upon such completeness, accuracy and fair presentation. Subject to the exercise of professional judgment and except as expressly described herein, Stifel GMP has not attempted to verify independently the accuracy or completeness of any such Information. Furthermore, Stifel GMP has not assumed any obligation to conduct, and has conducted only very limited, physical inspections of the properties or facilities of Hut 8 or USBTC.
The Hut 8 Certificate includes, among other things, representations that: (i) the Information provided to Stifel GMP orally by, or in the presence of, an officer or employee of Hut 8 or any of its subsidiaries or in writing by Hut 8 or any of its subsidiaries or any of its or their representatives in connection with the engagement was, at the date the Information was provided, and is, as of the date of this opinion, complete, true and correct in all material respects, and did not and does not contain a misrepresentation (as defined in the Securities Act (Ontario)); and (ii) since the dates on which such Information was provided to Stifel GMP, except as disclosed in writing to Stifel GMP, there has been no material change, financial or otherwise, in the financial condition, assets, liabilities (contingent or otherwise), business, operations or prospects of Hut 8 or any of its subsidiaries, and no change has occurred in such Information or any part thereof which would have or which could reasonably be expected to have a material effect on the Stifel GMP Opinion.
The Stifel GMP Opinion is rendered as of February 6, 2023 on the basis of securities markets, economic, financial and general business conditions prevailing as at such date, and the condition and prospects, financial and otherwise, of Hut 8 and USBTC as they were reflected in the Information and as they were represented to Stifel GMP in discussions with the management of Hut 8 and USBTC. In rendering the opinion, Stifel GMP has assumed that there are no material changes or material facts relating to Hut 8 or USBTC, or their respective businesses, operations, capital or future prospects which have not been generally disclosed. Any changes therein may affect the opinion and, although Stifel GMP reserves the right to change or withdraw the opinion in such event, Stifel GMP disclaims any obligation to advise any person of any change that may come to its attention or to update the opinion after the date of this opinion. Stifel GMP has also assumed that the executed Business Combination Agreement, along with any ancillary documents to be entered into by Hut 8, USBTC or New Hut in connection with the Business Combination, will not differ in any material respect from the drafts of such documents that Stifel GMP has reviewed.
Stifel GMP is not a legal, tax, accounting or regulatory advisor or expert. Stifel GMP is a financial advisor only and has relied upon, without independent verification, the assessment of Hut 8 and USBTC and their respective legal, tax, accounting and regulatory advisors with respect to legal, tax, accounting and regulatory
85
TABLE OF CONTENTS​
 
matters. Stifel GMP has not made any independent valuation or appraisal of the assets or liabilities of Hut 8 or USBTC, nor has Stifel GMP been furnished with any such appraisals. As such, Stifel GMP was not engaged to review any legal, tax, accounting or regulatory aspects of the Business Combination and accordingly expresses no view thereon. The Business Combination is subject to a number of conditions outside the control of Hut 8 and USBTC, and Stifel GMP has assumed that all conditions precedent to the completion of the Business Combination can and will be satisfied in due course and all consents, permissions, exemptions or orders of relevant regulatory authorities will be obtained, without adverse conditions or qualification and that the Business Combination can and will be completed as currently planned without additional material costs or liabilities to Hut 8 or USBTC. Stifel GMP has also assumed that the Business Combination will be completed in accordance with the terms and conditions of the Business Combination Agreement without waiver of, or amendment to, any term or condition that is any way material to the analyses or the opinion, that the Business Combination will be completed in compliance with applicable laws and that the disclosure relating to Hut 8, USBTC and the Business Combination in any disclosure documents will be accurate and will comply with the requirements of applicable laws. In rendering the opinion, Stifel GMP expresses no view as to the likelihood that the conditions respecting the Business Combination will be satisfied or waived or that the Business Combination will be implemented on a timely basis or at all. The Stifel GMP Opinion does not address the relative merits of the Business Combination as compared to other transaction or business strategies that might be available to Hut 8 or Hut 8’s underlying business decision to effect the Business Combination.
In the analyses and in connection with the preparation of the opinion, Stifel GMP made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Business Combination. While, in the professional opinion of Stifel GMP, the assumptions used in preparing the opinion are reasonable in the current circumstances, some or all of these assumptions may prove to be incorrect.
The summary of the Stifel GMP Opinion described above is qualified in its entirety by the full text of the Stifel GMP Opinion, which sets forth, among other things, the assumptions made, information reviewed, matters considered and limitations on the scope of the review undertaken by Stifel GMP in rendering its opinion.
Stifel GMP has consented to the inclusion of this summary in this prospectus and the inclusion of its opinion as an exhibit to the Registration Statement of which this prospectus forms a part.
Fairness Opinion of Kroll
On February 6, 2023, Kroll, LLC, operating through its Duff & Phelps Opinions Practice, rendered its oral opinion to the Hut 8 Board (which was subsequently confirmed in writing by delivery of its written opinion dated the same date) to the effect that, subject to the assumptions, qualifications, limitations and other matters considered by Duff & Phelps in connection with the preparation of its opinion, as of such date, the USBTC Exchange Ratio in the proposed Business Combination was fair, from a financial point of view, to Hut 8.
The full text of Duff & Phelps’ opinion is included as an exhibit to the Registration Statement of which this prospectus forms a part and describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Duff & Phelps. The summary of Duff & Phelps’ opinion in this prospectus is qualified in its entirety by reference to the full text of the opinion. Neither Duff & Phelps’ opinion nor the summary of its opinion and the related analyses set forth in this prospectus is intended to be or constitutes a recommendation to any shareholder of Hut 8 as to how such holder should act with respect to the proposed Business Combination.
Duff & Phelps’ opinion (i) did not address the merits of the underlying business decision to enter into the proposed Business Combination versus any alternative strategy or transaction; (ii) did not address any transaction related to the proposed Business Combination; (iii) was not a recommendation as to how the Hut 8 Board or any shareholder should vote or act with respect to any matters relating to the proposed Business Combination, or whether to proceed with the proposed Business Combination or any related transaction, and (iv) did not indicate that the USBTC Exchange Ratio was the best possibly attainable under any circumstances; instead, it merely stated whether the USBTC Exchange Ratio in the proposed Business Combination was within a range suggested by certain financial analyses. The decision as to whether to proceed with the proposed Business Combination or any related transaction may depend on an assessment of factors
86
TABLE OF CONTENTS
 
unrelated to the financial analysis on which Duff & Phelps’ opinion was based. Duff & Phelps’ opinion should not be construed as creating any fiduciary or other duty on the part of Duff & Phelps to any party.
Scope of Analysis
In connection with its opinion, Duff & Phelps made such reviews, analyses and inquiries as it deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of its opinion included, but were not limited to, the items summarized below:
•
Reviewed the following documents:
​
•
Hut 8’s annual reports and audited financial statements included in Hut 8’s Form 40-F filed with the SEC for the year ended December 31, 2021 and Hut 8’s unaudited interim financial statements for the quarter ended September 30, 2022 included in the Company’s Form 6-K filed with the SEC;
​
•
Unaudited internal financial information for Hut 8 for the twelve months ended December 31, 2022, which Hut 8 management identified as being the most current financial statements available;
​
•
USBTC’s audited financial statements for the period from December 4, 2020 (inception) through June 30, 2021 included in USBTC’s draft registration statement on Form S-1 as amended and filed with the SEC on August 12, 2022, and USBTC’s internal unaudited financial statements for the fiscal year ended June 30, 2022 and for the three months ended September 30, 2022;
​
•
USBTC’s internal unaudited balance sheet as of December 31, 2022 and pro forma balance sheet as of January 31, 2023, which USBTC management identified as being the most current financial statements available;
​
•
Financial projections for Hut 8 for the years ending December 31, 2023 through 2025 as shown in the file named “Hut 8 Operating Model vF,” prepared and provided to Duff & Phelps by management of Hut 8 (the “Management Projections — Hut 8”);
​
•
Financial projections for USBTC for the years ending December 31, 2023 through 2025 as shown in the file named “USBTC Operating Model — vF,” prepared by management of USBTC and provided to Duff & Phelps and approved by management of Hut 8 (the “Management Projections — USBTC”);
​
•
Financial projections for New Hut after giving effect to the proposed Business Combination for the years ending December 31, 2023 through 2025 as shown in the file named “CombineCo Model VF,” provided to Duff & Phelps by management of Hut 8 and prepared and approved by the managements of Hut 8 and USBTC (the “Management Projections — New Hut,” and together with the Management Projections — Hut 8 and the Management Projections — USBTC, the “Management Projections”);
​
•
Information regarding the equity capitalization of Hut 8 and USBTC prepared by the managements of Hut 8 and USBTC;
​
•
Other internal documents relating to the history, current operations, and probable future outlook of Hut 8 and USBTC provided to Duff & Phelps by the management of Hut 8;
​
•
A letter dated the date of Duff & Phelps’ opinion, from the management of Hut 8 addressed to Duff & Phelps which made certain representations as to historical financial statements, financial projections and the underlying assumptions, and a pro forma schedule of assets and liabilities (including identified contingent liabilities) for Hut 8, USBTC and New Hut (on a post-transaction basis);
​
•
The Confidential Non-Binding Letter of Intent by and between Hut 8 and USBTC dated December 30, 2022; and
​
87
TABLE OF CONTENTS
 
•
A draft dated February 2, 2023 of the Business Combination Agreement, including the plan of arrangement;
​
•
Discussed the information referred to above and the background and other elements of the proposed Business Combination with the management of Hut 8;
​
•
Discussed with the management of Hut 8 the plans and intentions with respect to the management and operation of Hut 8 and USBTC;
​
•
Reviewed the historical trading price and trading volume of the common shares of Hut 8, and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;
​
•
Performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis and an analysis of selected public companies that Duff & Phelps deemed relevant; and
​
•
Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.
​
Assumptions, Qualifications and Limiting Conditions
In performing its analyses and rendering its opinion with respect to the proposed Business Combination, Duff & Phelps, with Hut 8’s consent:
•
Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including the managements of Hut 8 and USBTC, and did not independently verify such information;
​
•
Relied upon the fact that the Hut 8 Board and Hut 8 were advised by counsel as to all legal matters with respect to the proposed Business Combination, including whether all procedures required by law to be taken in connection with the proposed Business Combination were duly, validly and timely taken;
​
•
Assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps by or on behalf of Hut 8 or USBTC, including without limitation, projections, forward looking statements and underlying assumptions, were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps expressed no opinion with respect to such projections or the underlying assumptions;
​
•
Assumed that information supplied and representations made by the managements of Hut 8 and USBTC were substantially accurate regarding Hut 8, USBTC, and the proposed Business Combination;
​
•
Assumed that the representations and warranties made in the Business Combination Agreement were accurate;
​
•
Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conformed in all material respects to the drafts reviewed;
​
•
Assumed that there had been no material change in the assets, liabilities, financial condition, results of operations, business, or prospects of Hut 8 or USBTC since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there was no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;
​
•
Assumed that all of the conditions required to implement the proposed Business Combination would be satisfied and that the proposed Business Combination would be completed in accordance with the Business Combination Agreement without any amendments thereto or any waivers of any terms or conditions thereof; and
​
•
Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the proposed Business Combination would be obtained without any adverse effect on Hut 8, USBTC or New Hut.
​
To the extent that any of the foregoing assumptions or any of the facts on which Duff & Phelps’ opinion is based prove to be untrue in any material respect, its opinion cannot and should not be relied upon.
88
TABLE OF CONTENTS
 
Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of its opinion, Duff & Phelps made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the proposed Business Combination.
Duff & Phelps prepared its opinion effective as of the date thereof. Duff & Phelps’ opinion was necessarily based upon market, economic, financial and other conditions as they existed and could be evaluated as of the date of the opinion, and Duff & Phelps disclaimed any undertaking or obligation to advise any person of any change in any fact or matter affecting its opinion which may come or be brought to the attention of Duff & Phelps after the date of Duff & Phelps’ opinion. In particular, volatility in the price of Bitcoin on any date after the date of Duff & Phelps’ opinion could affect the outcome of the opinion were it given on such date. As Hut 8 was aware, the credit, financial and stock markets had been experiencing unusual volatility and Duff & Phelps expressed no opinion or view as to any potential effects of such volatility on Hut 8, USBTC, or the proposed Business Combination.
Duff & Phelps did not evaluate Hut 8’s or USBTC’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps was not requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the proposed Business Combination, the assets, businesses or operations of Hut 8 or USBTC, or any alternatives to the proposed Business Combination, (ii) negotiate the terms of the proposed Business Combination, and therefore, Duff & Phelps assumed that such terms were the most beneficial terms, from Hut 8’s perspective, that could, under the circumstances, be negotiated among the parties to the Business Combination Agreement and the proposed Business Combination, or (iii) advise Hut 8, the Hut 8 Board or any other party with respect to alternatives to the proposed Business Combination.
Duff & Phelps did not express any opinion as to the market price or value of Hut 8’s common shares, USBTC’s common stock or preferred stock or New Hut’s common stock (or anything else), including after the announcement or the consummation of the proposed Business Combination. Duff & Phelps’ opinion should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of the creditworthiness of Hut 8 or USBTC, as tax advice, or as accounting advice. Duff & Phelps expressed no opinion as to projections, forward-looking statements or underlying assumptions provided in connection with its opinion. Without limiting the generality of the foregoing, Duff & Phelps further did not express an opinion as to the reasonableness or attainability of any projection, forward-looking statement or underlying assumption provided or prepared by or on behalf of Hut 8’s management or USBTC’s management. Duff & Phelps did not make, and assumed no responsibility to make, any representation, or render any opinion, as to any legal matter.
In rendering its opinion, Duff & Phelps did not express any opinion with respect to the amount or nature of any compensation to any of Hut 8’s, USBTC’s or New Hut’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by the public shareholders of the Company in the proposed Business Combination, or with respect to the fairness of any such compensation.
Duff & Phelps’ opinion was furnished solely for the use and benefit of the Hut 8 Board in connection with its consideration of the proposed Business Combination and was not intended to, and did not, confer any rights or remedies upon any other person, and was not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent. However, Duff & Phelps has consented to the inclusion of this summary in this prospectus and the inclusion of its opinion as an exhibit to the Registration Statement of which this prospectus forms a part.
Summary of Material Financial Analyses by Duff & Phelps
Set forth below is a summary of the material financial analyses performed by Duff & Phelps in connection with providing its opinion to the Hut 8 Board. While this summary describes the analyses and factors that Duff & Phelps deemed material in its presentation to the Hut 8 Board, it is not a comprehensive description of all analyses and factors considered by Duff & Phelps. The preparation of a fairness opinion is a complex process that involves various determinations as to appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, neither its opinion nor Duff & Phelps’ underlying analysis is susceptible to partial analysis or summary description. In arriving at its opinion,
89
TABLE OF CONTENTS
 
Duff & Phelps did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Duff & Phelps’ analyses must be considered as a whole and selecting portions of its analyses and of the factors considered by it in rendering its opinion, without considering all analyses and factors, could create a misleading or incomplete view of the evaluation process underlying its opinion. The conclusion reached by Duff & Phelps was based on all analyses and factors taken as a whole, and also on the application of Duff & Phelps’ own experience and judgment.
The financial analyses summarized below include information presented in tabular format. In order for Duff & Phelps’ financial analyses to be fully understood, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses undertaken by Duff & Phelps. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Duff & Phelps’ financial analyses.
Discounted Cash Flow Analysis of Hut 8.   Duff & Phelps performed a discounted cash flow analysis of Hut 8 by calculating the estimated net present value of the projected unlevered free cash flows of Hut 8. For purposes of this analysis, Duff & Phelps took into account the Management Projections — Hut 8, which were approved for use in Duff & Phelps’ analyses by Hut 8. In addition, for purposes of this analysis, Duff & Phelps applied a range of terminal value multiples of 85.0x to 95.0x to Hut 8’s terminal year hashrate and discount rates ranging from 20.0% to 25.0%. The discounted cash flow analysis indicated an implied aggregate enterprise value reference range for Hut 8 of approximately $212,000,000 to $273,000,000.
Discounted Cash Flow Analysis of USBTC.   Duff & Phelps performed a discounted cash flow analysis of USBTC on a sum-of-the parts basis by calculating the estimated net present value of the projected unlevered free cash flows of USBTC’s mining operations and the estimated net present value of the projected unlevered free cash flows of USBTC’s non-mining operations. For purposes of this analysis, Duff & Phelps took into account the Management Projections — USBTC, which were approved for use in Duff & Phelps’ analyses by Hut 8. With respect to USBTC’s mining operations, Duff & Phelps applied a range of terminal value multiples of 85.0x to 95.0x to USBTC’s terminal year hashrate and discount rates ranging from 20.0% to 25.0%. With respect to USBTC’s non-mining operations, Duff & Phelps applied a perpetuity growth rate of 3.0% for purposes of calculating a terminal value and discount rates ranging from 18.0% to 22.0%. The discounted cash flow analysis indicated an implied aggregate enterprise value reference range of approximately $242,000,000 to $302,000,000 for USBTC’s mining operations, $227,000,000 to $282,000,000 for USBTC’s non-mining operations and $469,000,000 to $584,000,000 for USBTC.
Selected Public Companies Analysis.   Duff & Phelps reviewed certain financial data for selected companies with publicly traded equity securities that Duff & Phelps deemed relevant. Share prices used in the selected public companies analysis were based on the closing price of the common stock of the selected companies listed below as of February 2, 2023, and the current hashrates for the selected companies listed below were
90
TABLE OF CONTENTS
 
based on the hashrates most recently reported publicly by such companies. The selected companies and corresponding financial data were:
​ ​ ​
Enterprise Value/ Hashrate
(in exahashes per second)
​
Argo Blockchain plc
​ ​ ​ ​ 88.0× ​ ​
Bit Digital, Inc.
​ ​ ​ ​ 28.5× ​ ​
Bitfarms Ltd.
​ ​ ​ ​ 64.5× ​ ​
Cipher Mining Inc.
​ ​ ​ ​ 98.9× ​ ​
CleanSpark, Inc.
​ ​ ​ ​ 39.9× ​ ​
Coinbase Global, Inc.
​ ​ ​ ​ — ​ ​
DMG Blockchain Solutions Inc.
​ ​ ​ ​ 37.1× ​ ​
HIVE Blockchain Technologies Ltd.
​ ​ ​ ​ 153.4× ​ ​
Iris Energy Limited
​ ​ ​ ​ 64.8× ​ ​
Marathon Digital Holdings, Inc.
​ ​ ​ ​ 147.9× ​ ​
Northern Data AG
​ ​ ​ ​ 36.8× ​ ​
Riot Platforms, Inc.
​ ​ ​ ​ 90.6× ​ ​
Mean
​ ​ ​ ​ 77.3× ​ ​
Median
​ ​ ​ ​ 64.8× ​ ​
Hut 8.   Taking into account the results of the selected companies analysis, Duff & Phelps applied a selected range of 65.0x to 85.0x to Hut 8’s current hashrate. The selected companies analysis indicated an implied aggregate enterprise value reference range for Hut 8 of approximately $212,000,000 to $277,000,000.
USBTC.   Taking into account the results of the selected companies analysis, Duff & Phelps applied a selected range of 70.0x to 90.0x to the current hashrate of USBTC’s mining operations. The selected companies analysis indicated an implied aggregate enterprise value reference range for USBTC’s mining operations of approximately $257,000,000 to $330,000,000. Adding the implied value reference range for USBTC’s non-mining operations indicated by the discounted cash flow analysis of USBTC’s non-mining operations resulted in an implied aggregate enterprise value reference range for USBTC of approximately $484,000,000 to $612,000,000.
New Hut.   Taking into account the results of the selected companies analysis, Duff & Phelps applied a selected range of 75.0x to 95.0x to the proforma hashrate of New Hut’s mining operations. The selected companies analysis indicated an implied aggregate enterprise value reference range for New Hut’s mining operations of approximately $520,000,000 to $658,000,000. Adding the implied value reference range for USBTC’s non-mining operations indicated by the discounted cash flow analysis of USBTC’s non-mining operations resulted in an implied aggregate enterprise value reference range for New Hut of approximately $747,000,000 to $940,000,000.
None of the selected public companies are identical to Hut 8, USBTC or New Hut, and Duff & Phelps does not have access to non-public information regarding these companies. Accordingly, a complete analysis cannot be limited to a quantitative review of the selected public companies and involves complex considerations and judgments concerning differences in financial and operating characteristics of such companies, as well as other factors that could affect their value relative to Hut 8, USBTC and New Hut.
Implied Aggregate Equity and Per Share Value Reference Ranges.   Taking into account the results of its discounted cash flow and selected companies analyses of Hut 8 and USBTC, Duff & Phelps calculated implied aggregate equity value reference ranges of approximately $428,407,000 to $491,407,000 for Hut 8 and $387,607,000 to $508,607,000 for USBTC and implied per share value reference ranges of approximately $9.69 to $11.11 for Hut 8 and $5.89 to $7.72 for USBTC.
Implied Relative Equity Value Contribution.   Comparing (i) the low end of the implied aggregate equity value reference range of USBTC to the low end of the implied aggregate equity value reference range of Hut 8 and (ii) the high end of the implied aggregate equity value reference range of USBTC to the high end of the
91
TABLE OF CONTENTS​​
 
implied aggregate equity value reference range of Hut 8 resulted in an implied relative aggregate equity value contribution of approximately 52.5% to 49.1% for Hut 8 and 47.5% to 50.9% for USBTC, as compared to the aggregate equity ownership percentage resulting from the proposed Business Combination of 50.0% for former Hut 8 shareholders and 50.0% for former USBTC shareholders on a fully-diluted in-the-money basis.
Implied Exchange Ratio Reference Range.   Dividing (i) the low end of the implied per share value reference range of USBTC by the low end of the implied per share value reference range of Hut 8 and (ii) the high end of the implied per share value reference range of USBTC by the high end of the implied per share value reference range of Hut 8 resulted in an implied exchange ratio reference range of approximately 0.6077 to 0.6951, as compared to the USBTC Exchange Ratio in the proposed Business Combination of 0.6716.
Implied Equity Value of Hut 8 and New Hut.   Taking into account the aggregate equity ownership percentage resulting from the proposed Business Combination, Duff & Phelps multiplied the implied aggregate equity value reference range of New Hut indicated by its financial analysis of New Hut by 50.0% and compared the resulting range of approximately $437,007,000 to $533,507,000 to the aggregate implied equity value reference range for Hut 8 of approximately $428,407,000 to $491,407,000.
Other Matters
Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, dispute and legal management consulting, M&A, restructuring, and compliance and regulatory consulting. Since 2005, Duff & Phelps has rendered over 1,100 fairness opinions in transactions aggregating more than $560 billion and is regularly engaged in the valuation of businesses and securities in the preparation of fairness opinions in connection with mergers, acquisitions and other strategic transactions.
Duff & Phelps was retained by Hut 8 to provide an opinion to the Hut 8 Board as to the fairness, from a financial point of view, to Hut 8 of the USBTC Exchange Ratio in the proposed Business Combination. Pursuant to the terms of its engagement, Duff & Phelps became entitled to a fee of $350,000 for its services, half of which became payable in connection with its engagement and the remainder of which became payable upon Duff & Phelps informing the Hut 8 Board that it was prepared to deliver its opinion. No portion of Duff & Phelps’ fee is contingent upon either the conclusion expressed in its opinion or whether the proposed Business Combination is successfully consummated. Furthermore, Duff & Phelps is entitled to be paid additional fees at Duff & Phelps’ standard hourly rates for any time incurred should Duff & Phelps be called upon to support its findings subsequent to the delivery of its opinion. Hut 8 has also agreed to reimburse Duff & Phelps for its out-of-pocket expenses and reasonable fees and expenses of counsel, consultants and advisors retained by Duff & Phelps in connection with the engagement. Hut 8 has also agreed to indemnify Duff & Phelps for certain liabilities arising out of its engagement.
Other than this engagement, during the two years preceding the date of its opinion, Duff & Phelps provided compliance consulting services to an affiliate of USBTC, for which Duff & Phelps received aggregate compensation of less than $50,000, and valuation services to Hut 8, for which Duff & Phelps received aggregate compensation of less than $50,000.
Hut 8 Shareholder Approval
Unless varied by the Interim Order of the Court, the Arrangement Resolution must be approved by the affirmative vote of at least two-thirds of the votes cast on the Arrangement Resolution by Hut 8 shareholders present in person or represented by proxy at the Hut 8 Meeting. The Arrangement Resolution must receive such shareholder approval in order for Hut 8 to seek the Final Order and implement the Arrangement in accordance with the Final Order.
Hut 8 cannot provide assurance that the Hut Stockholder Approval will be obtained or will not result in the delay or abandonment of the Business Combination.
USBTC Stockholder Approval
Pursuant to the USBTC Articles, USBTC must obtain the USBTC Stockholder Approval. Following the effectiveness of the Registration Statement, of which this prospectus forms a part, USBTC intends to solicit the USBTC Stockholder Approval by way of the USBTC Consent.
92
TABLE OF CONTENTS​
 
USBTC cannot provide assurance that the USBTC Stockholder Approval will be obtained or will not result in the delay or abandonment of the Business Combination.
Regulatory Approvals
The parties are required to execute and file, or join in the execution and filing of, any application, notification or other document that may be necessary in order to obtain the authorization, approval or consent of any governmental entity, whether federal, state, local or foreign, that may be reasonably required, or that Hut 8 or USBTC may reasonably request, in connection with the Business Combination.
Neither Hut 8 nor USBTC can provide assurance that any such regulatory approvals will not result in the delay or abandonment of the Business Combination.
U.S. Regulatory Approvals
Under the HSR Act, Hut 8 and USBTC cannot consummate the mergers until Hut 8 and USBTC have notified the Department of Justice’s Antitrust Division and the Federal Trade Commission of the mergers and furnished them with certain information and materials relating to the mergers and the applicable waiting period has terminated or expired. The termination or expiration of the waiting period means the parties have satisfied the regulatory requirements under the HSR Act. Hut 8 and USBTC are required to make all applicable filings under the HSR Act in connection with the Business Combination by February 16, 2023. Hut 8 and USBTC shall request that the HSR approval be processed by the applicable governmental entity on an expedited basis and, to the extent that a public hearing is held, Hut 8 and USBTC shall request the earliest possible hearing date for the consideration of such regulatory approvals. Hut 8 and USBTC filed the required notifications with the Antitrust Division and the FTC on February 8, 2023.
In connection with the Business Combination, the parties also intend to deliver a notification to Nasdaq regarding the listing of New Hut common stock that will be registered pursuant to the Registration Statement and issued under the Arrangement.
Canadian Regulatory Approvals
Stock Exchange
The Business Combination is subject to the receipt of the approval of the TSX, which includes the listing of New Hut common stock that will be registered pursuant to the Registration Statement and any New Hut common stock issuable upon the exercise of any convertible securities of New Hut, in each case subject only to customary listing conditions and post-closing deliveries.
Court
The Arrangement is also subject to certain other conditions, including the approval of the Court. Hut 8 will make an application to the Court and the Court will be asked to make an order approving the Arrangement and to determine that the Arrangement is fair and reasonable. If successful, the Court will grant an interim order (the “Interim Order”) in which the Court sets out the process in order to obtain final approval of the Arrangement from the Court. Subject to the Hut 8 shareholders approving the Arrangement at the Hut 8 Meeting, Hut 8 will, following the Hut 8 Meeting, apply to the Court for a hearing in order to obtain the Final Order. At the hearing for the Final Order, the Court will consider, among other things, the fairness and reasonableness of the Arrangement and the rights of every person affected. The Court may approve the Arrangement either as proposed or as amended in any manner the Court may direct, subject to compliance with such terms and conditions, if any, as the Court deems fit. If the Court approves the Arrangement with amendments, depending on the nature of the amendments, the parties may determine not to complete the transactions contemplated by the Business Combination Agreement.
Assuming the Final Order is granted and the other conditions contained in the Business Combination Agreement are satisfied or waived to the extent legally permissible, then Hut 8 will file the records and information required to be provided to the registrar under Section 292(a) of the BCBCA in respect of the Arrangement, together with a copy of the Final Order to give effect to the Arrangement.
93
TABLE OF CONTENTS​
 
Competition Act
The Competition Act requires that certain classes of transactions be notified to the Commissioner and the Business Combination constitutes such a Notifiable Transaction.
Subject to certain limited exceptions, the parties to a Notifiable Transaction cannot complete the transaction until they have submitted the information prescribed pursuant to Subsection 114(1) of the Competition Act to the Commissioner and the applicable waiting period has expired or been terminated by the Commissioner. The waiting period is 30 calendar days after the day on which the parties to the transaction submit the prescribed information, provided that, before the expiry of this period, the Commissioner has not notified the parties of a Supplementary Information Request. In the event that the Commissioner provides the parties with a Supplementary Information Request, the parties cannot complete their transaction until 30 calendar days after compliance with such Supplementary Information Request, provided that there is no order in effect prohibiting completion of the transaction at the relevant time. A transaction may be completed before the end of the applicable waiting period if the Commissioner notifies the parties that the Commissioner does not, at such time, intend to challenge the transaction by making an application under Section 92 of the Competition Act.
Alternatively, or in addition to filing the prescribed information, a party to a Notifiable Transaction may apply to the Commissioner for an ARC or a “no-action” letter, which may be issued by the Commissioner in respect of a proposed transaction if he is satisfied that there are not sufficient grounds on which to apply to the Competition Tribunal for an order challenging the transaction under Section 92 of the Competition Act. Parties applying for an ARC or “no-action” letter can seek a waiver under paragraph 113(c) from filing the prescribed information pursuant to subsection 114(1) of the Competition Act. The parties applied to the Commissioner for an ARC or a “no-action” letter and a waiver under paragraph 113(c) of the Competition Act on February 13, 2023.
Indemnification
The Business Combination provides that prior to the Effective Date (as defined herein), Hut 8 and USBTC shall purchase customary non-cancellable and fully pre-paid “tail” policies of directors’ and officers’ liability, employment practices liability and fiduciary liability insurance providing protection no less favorable in the aggregate to the protection provided by the policies maintained by Hut 8 or USBTC and any of their respective subsidiaries, which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date; provided that the cost of such policies will not exceed 300% of the annual premiums currently in effect for such directors’ and officers’ liability, employment practices liability and fiduciary liability coverage and that if such insurance coverage is unavailable, then as promptly as practicable following the consummation of the transaction, New Hut will, or if the cost of such a tail policy will exceed such amount, will cause Hut 8 and USBTC and any of their respective subsidiaries, to purchase such tail policies with the best available insurance coverage whose cost will not exceed 300% of the annual premiums currently in effect for such directors’ and officers’ liability, employment practices liability and fiduciary liability coverage. New Hut will, or will cause Hut 8 and USBTC and any of their respective subsidiaries, to, continuously maintain such tail policies in full force and effect without any reduction in scope or coverage for six (6) years from the Effective Date and to abide by their obligations thereunder.
The Business Combination Agreement provides that, from and after the effective time, New Hut agrees that it shall cause Hut 8 and USBTC to honor all rights to indemnification or exculpation presently existing in favor of present and former officers and directors of Hut 8 and USBTC and any of their respective subsidiaries, each referred to as an indemnified party, as of the Effective Date to the extent such indemnified parties have been provided under applicable law, the organizational documents of Hut 8 and USBTC and any of their respective subsidiaries, or under any indemnification agreements in existence and made available as of 12:00 p.m. EST on February 5, 2023. New Hut acknowledges that such rights shall survive the consummation of the transaction and shall continue in full force and effect and shall not be amended in any manner adverse to such indemnified parties for at least six (6) years following the Effective Date.
94
TABLE OF CONTENTS​​​​
 
Listing of New Hut Common Stock
Hut 8 and USBTC expect to obtain approval to list the shares of New Hut common stock to be issued pursuant to the Business Combination Agreement on Nasdaq and the TSX, which approval is a condition to the Closing. Accordingly, application will be made to have the shares of New Hut common stock to be issued pursuant to the Business Combination Agreement approved for listing on Nasdaq and the TSX, under the symbol “HUT.”
USBTC Stockholder Appraisal and Dissenters’ Rights
Under the NRS, any USBTC stockholder who does not vote in favor of or consent to the Merger will have the right to dissent from the Merger and, in lieu of receiving the merger consideration for such shares provided under the Business Combination Agreement, obtain payment of the fair value of the stockholder’s shares, but only if the stockholder (1) delivers to USBTC a statement of intent (as defined in NRS 92A.095) by the date specified in the advance notice statement (as defined in NRS 92A.006) provided in connection with the approval by the USBTC stockholders of the Merger by written consent, (2) demands payment, pursuant to NRS 92A.440, in accordance with a dissenter’s notice sent by USBTC, and (3) otherwise complies with all other applicable requirements of under NRS 92A.300 through NRS 92A.500, inclusive, and the definitions relating thereto set forth in the Nevada Dissenter’s Rights Statutes. If USBTC and a former stockholder that remains entitled to and properly asserts dissenter’s rights cannot agree on as to the fair value, USBTC must then commence a proceeding in Nevada state district court to determine the fair value, which may be more than, equal to, or less than the value of the Merger consideration for such shares provided under the Business Combination Agreement. There is no right of dissent with respect to any share of USBTC stock that was not issued and outstanding on the date of the announcement of the Business Combination to the USBTC stockholders. Failure to follow the procedures set forth in the Nevada Dissenter’s Rights Statutes will result in the forfeiture of dissenter’s rights. You are encouraged to read these provisions carefully and in their entirety. Moreover, due to the complexity of the procedures for exercising dissenter’s rights, stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel.
Withholding Rights
Hut 8, USBTC, New Hut, Merger Subco or the Depositary, as applicable, will each be entitled to deduct and withhold any required taxes from any amount otherwise payable pursuant to the Business Combination Agreement and pay over such withheld amount to the appropriate governmental entity. Any amount so withheld and paid over to or deposited with the applicable governmental entity will be treated for all purposes of the Business Combination Agreement as having been paid to the person in respect of whom the deduction and withholding was made.
Accounting Treatment of the Business Combination
Anticipated Accounting Treatment
The Business Combination will be accounted for using the acquisition method in accordance with US GAAP. USBTC has preliminarily been identified as the “acquirer” and as a result will obtain control over Hut 8 upon consummation of the Business Combination. Pursuant to the Business Combination, New Hut, which is currently a wholly-owned subsidiary of USBTC incorporated for the purpose of effecting the Business Combination, will issue shares of New Hut common stock to the Hut 8 shareholders and USBTC stockholders to acquire 100% of the outstanding share capital of both Hut 8 and USBTC. The Business Combination will be carried out by exchanging equity interests and there is no other consideration being exchanged. The determination of the accounting acquirer where equity interests are exchanged is sometimes unclear, and in the case of the Business Combination requires consideration of factors such as the relative voting rights of the parties, existence of large minority interests, the composition of the governing body and senior management, terms of the exchange of the equity interests, relative sizes of the combining entities and other factors. The purchase consideration will be allocated to the fair value of the acquired assets and liabilities and will be based on management’s best estimate of the fair value based on currently available information. The actual amount allocated to certain identifiable assets could vary as the purchase price allocation is finalized. The preliminary assessment of the accounting acquirer is subject to evaluation and may be impacted by matters such as New Hut board rights related to tie-break votes, the relative fair values of USBTC and Hut 8 at Closing and other considerations set out in ASC 805. A change in the determination of the accounting acquirer would significantly impact the pro forma financial information included in this prospectus as well as the actual accounting for the Business Combination at Closing.
95
TABLE OF CONTENTS​​​​
 
THE BUSINESS COMBINATION AGREEMENT
Explanatory Note Regarding the Business Combination Agreement
The following section summarizes material provisions of the Business Combination Agreement, which is included as an exhibit to the Registration Statement of which this prospectus forms a part and is incorporated by reference herein in its entirety. The summary of the material provisions of the Business Combination Agreement below and elsewhere in this prospectus is qualified in its entirety by reference to the Business Combination Agreement. This summary does not purport to be complete and may not contain all of the information about the Business Combination Agreement that is important to you. The rights and obligations of New Hut, Hut 8 and USBTC are governed by the Business Combination Agreement and not by this summary or any other information contained in or incorporated by reference into this prospectus. Capitalized terms used but not otherwise defined herein shall have the respective meanings ascribed to such terms in the Business Combination Agreement.
The terms of the Business Combination Agreement were the result of arm’s length negotiation between Hut 8 and USBTC, and their respective advisors. Capitalized terms used in the following section but not otherwise defined in this prospectus shall have the respective meanings ascribed to such terms in the Business Combination Agreement, unless otherwise noted. For additional information, please see the section entitled “Where You Can Find More Information” beginning on page 211 of this prospectus.
Structure of the Business Combination
On February 6, 2023, Hut 8, USBTC and New Hut entered into the Business Combination Agreement pursuant to which, among other things, (i) pursuant to the Arrangement (A) Hut 8 and its direct wholly-owned subsidiary, Hut 8 Holdings Inc., will be amalgamated and continue as one British Columbia limited company (Hut Amalco) under the BCBCA, with the capital of Hut Amalco being the same as the capital of Hut 8, and (B) following the Amalgamation, each common share of Hut Amalco (other than any shares held by dissenting shareholders) will being exchanged for 0.2000 of a share of New Hut common stock, and (ii) following the completion of the Arrangement, Merger Sub, a newly-formed direct wholly-owned Delaware subsidiary of New Hut, shall merge with and into USBTC, with each share of USBTC Preferred Stock and USBTC common stock being exchanged for 0.6716 of a share of New Hut common stock in a merger executed in accordance with the relevant provisions of the Nevada Revised Statutes, as amended. As a result of the Business Combination, both Hut Amalco and USBTC will become wholly-owned subsidiaries of New Hut, and Hut 8 shareholders and USBTC stockholders will each own, as a group, approximately 50% of the common stock of New Hut on a fully-diluted in-the-money basis.
In connection with the execution of the Business Combination Agreement, certain directors and officers and such other Persons who are Hut 8 shareholders or USBTC stockholders have agreed to enter into Hut 8 Support Agreements and USBTC Support Agreements, respectively, pursuant to which such directors, officers or Persons agree to vote all of their Hut Shares or USBTC Shares in favor of the Hut Resolutions and USBTC Resolutions, as applicable, as described in section entitled “The Support Agreements” beginning on page 119.
Closing & Effective Time
Subject to obtaining the Final Order approving the Arrangement and the satisfaction of each of the conditions (other than the conditions that by their terms cannot be satisfied until the Effective Date) set out in the Business Combination Agreement, the Closing will occur on the date on which the Arrangement Filings are filed with the Registrar (the “Effective Date”).
Subject to the terms and conditions of the Business Combination Agreement, at Closing and on the Effective Date, the Parties shall cause the consummation of the Arrangement and the Merger to occur in the following order: (i) Hut shall cause the Arrangement Filings to be filed no later than three Business Days after receipt of the Final Order of the Court approving the Arrangement, and (ii) following the Arrangement Effective Time, USBTC and Merger Sub shall cause the Articles of Merger to be filed with the Nevada Secretary of State. The Merger Effective Time (as defined below) shall not occur until after the completion of each of the steps of the Arrangement that commence upon the occurrence of the Arrangement Effective Time, being the time on the Effective Date the Arrangement Filings are filed with the Registrar.
96
TABLE OF CONTENTS​
 
Arrangement
The Arrangement will be implemented in accordance with and subject to the terms and conditions of the Business Combination Agreement, the Plan of Arrangement, the Interim Order and the Final Order.
At the Arrangement Effective Time, each of the events set out below shall occur, and shall be deemed to occur in the following order and sequence at one-minute intervals:
•
The notice of articles of Hut 8 Holdings Inc. shall be altered to the effect that Hut 8 Holdings, Inc. shall be an unlimited liability company.
​
•
The capital of the common shares of Hut 8 Holdings Inc. shall be reduced to $1.00 in the aggregate, without any payment thereon.
​
•
Hut 8 and Hut 8 Holdings, Inc. shall be amalgamated and shall continue as one limited company under the name “Hut 8 Mining Corp.”. The notice of articles and articles of Hut Amalco will be the notice of articles and articles of Hut 8. The issued and outstanding Hut Shares immediately prior to the Arrangement Effective Time will continue to be the issued and outstanding common shares in the capital of Hut Amalco. The common shares of Hut 8 Holdings Inc. issued and outstanding immediately prior to the Arrangement Effective Time will be cancelled without any repayment of capital. Hut Amalco will assume the capital and the registered office of Hut 8, and all the rights and liabilities of Hut 8 and Hut 8 Holdings, Inc. will be the rights and liabilities of Hut Amalco.
​
•
Each Hut Share (other than a Dissent Share) and Hut 8 Option outstanding immediately prior to the Arrangement Effective Time shall be adjusted or exchanged for New Hut securities, as applicable, based on the terms in the Plan of Arrangement. The Hut Omnibus Incentive Plan shall be amended and the terms of each Hut 8 RSU and Hut 8 DSU outstanding immediately prior to the Arrangement Effective Time shall be adjusted so that upon settlement the holder shall be entitled to receive, instead of the cash equivalent of one Hut Share or a Hut Share, either (i) a cash payment equal to the product obtained when Market Value (as defined in the Plan of Arrangement) of one New Hut Share is multiplied by the Hut 8 Exchange Ratio, or (ii) that number of New Hut Shares equal to the Hut 8 Exchange Ratio, or (iii) a combination of cash and New Hut Shares, based on the terms in the Plan of Arrangement. Holders of the Hut Warrants will be entities to receive New Hut Shares in lieu of Hut Shares upon exercise, in accordance with the terms of the Hut Warrants. See the section entitled “Treatment of Hut Securities; Plan of Arrangement” beginning on page 99 for detailed discussion of the treat of outstanding Hut securities.
​
Hut 8 shall prepare, file and diligently pursue an application for the Interim Order which shall provide, among other things, (i) for the class of Persons to whom notice is to be provided in respect of the Arrangement and the Hut 8 Meeting, and the manner for which notice is to be provided; (ii) the record date; (iii) that the requisite approval for the Arrangement Resolutions shall be at least 662∕3% of the votes, and if applicable, majority of the votes excluding votes attached to Hut Shares held by interested parties; (iv) for the grant of Dissent Rights (as defined herein) as contemplated under the Plan of Arrangement, (v) for the notice requirements with respect of the application to the Court for the Final Order; (vi) that the Hut 8 Meeting may be adjourned or postponed by Hut 8 without the need for additional Court approval; (vii) that the Hut 8 Meeting may be held in-person, virtually or hybrid; (viii) that in all other respects, Hut’s Organization Documents will apply to the Hut 8 Meeting; and (ix) that each Hut 8 shareholder shall have the right to appear before the Court at the hearing to approve the Final Order.
In seeking the Interim Order, Hut shall advise the Court of the intention of the Parties to rely upon exemption from registration provided by Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of New Hut Shares and Hut 8 Replacement Options issued pursuant to the Arrangement. Holders entitled to receive Hut Consideration Shares and Hut 8 Replacement Options pursuant to the Arrangement will be advised that such shares and options have not been registered under the U.S. Securities Act.
Upon receipt of the Interim Order, Hut 8 will convene and conduct the Hut 8 Meeting in accordance with the terms of the Business Combination Agreement and the Interim Order. Hut will use commercially reasonable efforts to solicit proxies in favor of the approval of the Hut Resolutions and against any resolutions that are inconsistent with the completion of the Business Combination.
97
TABLE OF CONTENTS​
 
Hut 8 will consult with USBTC with regards to the Hut 8 Meeting and the record date of the Hut 8 Meeting. Hut will inform USBTC as to the aggregate tally of proxies with respect to the Hut Resolutions, advise USBTC of any communication from any Person in opposition of the Arrangement, allow Representatives of USBTC to attend the Hut 8 Meeting, and provide USBTC with certain information of Hut 8 shareholders as requested by USBTC. Hut 8 shall not change the record date for the Hut 8 shareholders unless required by Law or Court, or without the prior written consent of USBTC.
USBTC may move the Hut 8 Meeting date not later than ten Business Days after the originally scheduled date if it falls within the Matching Period for which USBTC may match a Superior Proposal received by Hut from a bona fide Person and which has not been obtained in breach of the Business Combination Agreement.
Hut 8 will prepare and complete the Hut Circular and any other documents required by Law in connection with the Hut 8 Meeting and Arrangement in consultation with USBTC. The Hut Circular will include, among other things, (i) a copy of the Hut Fairness Opinions; (ii) a statement that the Hut 8 Board has received the Hut Fairness Opinions; (iii) a statement that the Hut 8 Board, in consultation with its legal and financial advisors, has determined the Business Combination is fair to Hut 8 shareholders, the Business Combination is in the best interest of Hut 8 shareholders, and recommends that Hut 8 shareholders vote in favor of the Hut Resolutions; and (iv) a statement that each of the directors and officers of Hut 8 or Persons who are a party to the Hut 8 Support Agreements intends to vote in favor of the Hut Resolutions. USBTC will provide Hut in writing all information concerning USBTC reasonably requested by Hut 8 and required by Law to be included in the Hut Circular or other related documents. Hut 8 will make available all documents, correspondence and summary discussions between it and any Securities Authority or other Governmental Entity with respect to the Hut Circular.
If the Interim Order is obtained and the Hut Resolutions are passed in accordance with the Business Combination Agreement, Hut 8 shall as soon as reasonably practical thereafter, and in any event, within three Business Days, take all steps necessary to submit the Arrangement to the Court for approval pursuant to the Final Order.
USBTC may make submission on the hearing for a motion for the Interim Order and the application for the Final Order provided that USBTC advises Hut 8 of the nature of such submissions prior to the hearing and such submissions are consistent with the Business Combination Agreement and the Plan of Arrangement.
U.S. Securities Law Matters Relating to the Arrangement
The Replacement Options and shares of New Hut common stock issuable in exchange for Hut 8 Options and Hut 8 common shares pursuant to the Arrangement have not been and will not be registered under the Securities Act or any state securities laws in reliance upon the exemption from the registration requirements of the Securities Act provided by Section 3(a)(10) thereof and exemptions under applicable state securities laws. The Court will be advised that the Final Order, if granted, will constitute the basis for an exemption from the registration requirements of the Securities Act, pursuant to Section 3(a)(10) thereof, with respect to the issuance of such securities to the holders of Hut 8 Options and Hut 8 common shares, as applicable, pursuant to the Arrangement.
Section 3(a)(10) of the Securities Act exempts the issuance of any security issued in exchange for one or more bona fide outstanding securities from the general requirement of registration where the terms and conditions of such issuance and exchange have been approved by a court of competent jurisdiction that is expressly authorized by law to grant such approval, after a hearing upon the fairness of the terms and conditions of such issuance and exchange at which all persons to whom it is proposed to issue the securities have the right to appear and receive timely notice thereof. Section 3(a)(10) of the Securities Act does not exempt the issuance of securities upon the exercise of securities that were previously issued pursuant to the Section 3(a)(10) of the Securities Act. As a result, the shares of New Hut common stock issuable upon exercise of the Replacement Options issued in exchange for Hut 8 Options pursuant to the Arrangement may not be issued in reliance upon Section 3(a)(10) of the Securities Act and may only be exercised pursuant to an available exemption from the registration requirements of the Securities Act and applicable state securities laws or pursuant to a registration statement under the Securities Act.
The shares of New Hut common stock issued to Hut 8 shareholders pursuant to the Arrangement will be freely tradable under U.S. federal securities laws except by persons who are, or within 90 days prior to the
98
TABLE OF CONTENTS​​
 
consummation of the Arrangement were, “affiliates” ​(as defined in Rule 144 under the U.S. Securities Act) of New Hut. Persons who may be deemed to be affiliates of an issuer generally include individuals or entities that control, are controlled by, or are under common control with, the issuer, whether through the ownership of voting securities, by contract or otherwise, and generally include executive officers and directors of the issuer as well as principal shareholders of the issuer. Any such shares of New Hut common stock issued in the Arrangement and held by such an affiliate (or, if applicable, former affiliate) will be subject to certain restrictions on resale imposed by the Securities Act, such that they may not resell such securities in the absence of registration under the U.S. Securities Act or an exemption from such registration, if available, such as the exemption contained in Rule 144.
The foregoing discussion is only a general overview of certain provisions of United States securities law matters applicable to the issuance of Replacement Options and New Hut common stock to holders of Hut 8 Options and Hut 8 common shares pursuant to the Plan of Arrangement. All recipients of such securities are urged to consult with counsel to ensure that any subsequent transfer of such securities or securities underlying such securities complies with applicable securities legislation.
Merger
Immediately following the time the Arrangement Filings are filed with the Registrar on the Effective Date, after the completion of each of the steps of the Arrangement, USBTC and Merger Subco shall file the Articles of Merger with the Nevada Secretary of State. The Merger shall become effective at the time the Articles of Merger have been duly filed with the Nevada Secretary State (or at such later time permitted under the NRS as USBTC and Hut shall agree and specify in the Articles of Merger) (the “Merger Effective Time”).
At the Merger Effective Time, Merger Subco shall merge with and into USBTC. As a result of the Merger, the separate corporate existence of Merger Subco shall cease and USBTC shall continue as the Surviving Corporation. All property, rights, privileges, and other similar authorities shall vest in the Surviving Corporation, and all debts, liabilities, and other obligations shall be debts, liabilities and other obligations of the Surviving Corporation.
The articles of incorporation and bylaws of USBTC shall be amended and restated to be in substantially the form of articles of incorporation and bylaws of Merger Subco as in effect immediately prior to the Merger Effective Time and shall be the articles of incorporation and bylaws of the Surviving Corporation until thereafter amended. The directors and officers of Merger Subco immediately prior to the Merger Effective Time shall be the directors and officer of the Surviving Corporation until their respective successors are duly appointed or elected.
USBTC will, promptly following the date of effectiveness of the Registration Statement under U.S. Securities Laws, seek to obtain the USBTC Stockholder Approval in accordance with USBTC’s Organizational Documents pursuant to the USBTC Consent. USBTC will prepare and complete, in consultation with Hut 8, the USBTC Information Statement together with any other documents required by Law in connection with the USBTC Consent and the Merger. The USBTC Information Statement shall include (i) an advance notice statement to USBTC stockholders; (ii) a statement that the USBTC Board has unanimously, after consultation with its legal and financial advisors, determined that the Merger is in the best interest of USBTC and USBTC stockholders, and a recommendation that the USBTC stockholders vote in favor of the USBTC Resolution; (iii) and a statement that each of the directors and officers of USBTC or Persons who are a party to the USBTC Support Agreements intend to vote all of their USBTC Shares in favor of the USBTC Resolution. Hut 8 will provide to USBTC in writing all information concerning Hut 8 reasonably requested by USBTC to be included in the USBTC Information Statement or other related documents.
Treatment of Hut Securities; Plan of Arrangement
Hut Shares
Under the Plan of Arrangement, each Hut Share (other than a Dissent Share) outstanding immediately prior to the Arrangement Effective Time shall be, and shall be deemed to be, transferred by the holder thereof to New Hut, and in exchange thereof such holder shall be entitled to receive from New Hut for each such transferred Hut Share that number of fully-paid and non-assessable shares of New Hut common stock equal
99
TABLE OF CONTENTS
 
to the Hut 8 Exchange Ratio, being 0.2000 of a share of New Hut common share for each Hut Share, all in accordance with the Plan of Arrangement. Upon such transfer and exchange becoming effective, a former holder of Hut Shares will cease to be the holder thereof and shall only have the right to receive the Hut Consideration Shares that such holder is entitled to receive pursuant to the Arrangement. The former holders of such exchanged Hut Shares shall be removed from Hut 8’s central securities register and New Hut will be the legal and beneficial owner of such transferred Hut Share.
Hut 8 Options
Under the Plan of Arrangement, each Hut 8 Option that is outstanding immediately prior to the Arrangement Effective Time, shall be disposed of by the holder and cancelled, and as the sole consideration therefore New Hut shall grant such holder a Hut 8 Replacement Option entitling the holder to purchase that number of New Hut Shares equal to the product obtained when the number of Hut Shares subject to the replaced Hut 8 Option immediately prior to the Arrangement Effective Time is multiplied by the Hut 8 Exchange Ratio, at an exercise per New Hut Share equal to quotient obtained when the exercise price per Hut Share under the replaced Hut 8 Option is divided by the Hut 8 Exchange Ratio (the “Replacement Option Exercise Price”). The Replacement Options shall be governed by the New Hut Omnibus Incentive Plan, and, other than the exercise price and number and kind of shares that may be purchased, shall otherwise have the same terms and conditions (including vesting, exercisability terms and expiry date) as were applicable to the replaced Hut 8 Options immediately prior to the Arrangement Effective Time.
If necessary to satisfy the requirements of the Income Tax Act (Canada), the United States International Revenue Code of 1986, or for any Replaced Option that is a nonqualified option held by a U.S. taxpayer, the Replacement Option Exercise Price shall automatically be adjusted so that the In-The-Money Amount (as defined in the Plan of Arrangement) of the Replacement Option immediately after such exchange does not exceed the In-The-Money Amount of the replaced Hut 8 Option immediately before such exchange.
Hut 8 RSUs and DSUs
Under the Plan of Arrangement and concurrently with the exchange of Hut 8 Options, the Hut Omnibus Incentive Plan shall be amended and the terms of each Hut 8 RSU and Hut 8 DSU outstanding immediately prior to the Arrangement Effective Time shall be adjusted so that upon settlement of such Hut 8 RSU or Hut 8 DSUs, the holder shall be entitled to receive, instead of the cash equivalent of one Hut Share or a Hut Share, either (i) a cash payment equal to the product obtained when Market Value (as defined in the Plan of Arrangement) of one New Hut Share is multiplied by the Hut 8 Exchange Ratio, being 0.2, or (ii) that number of New Hut Shares equal to the Hut 8 Exchange Ratio, or (iii) a combination of cash and New Hut Shares, in each case as determined by Hut 8 or New Hut in its sole discretion. Apart from the foregoing amendments, the Hut 8 RSUs and Hut 8 DSUs outstanding immediately prior to the Arrangement Effective Time will continue to be governed by the Hut Omnibus Incentive Plan on the same terms and conditions as were applicable to such Hut 8 RSUs and Hut 8 DSUs immediately prior to the Arrangement Effective Time.
Hut 8 June 2021 Warrants and Hut 8 Compensation Warrants
Each holder of a Hut 8 June 2021 Warrant or a Hut 8 Compensation Warrant shall be entitled to receive upon the exercise of such Hut 8 June 2021 Warrant or Hut 8 Compensation Warrant, in lieu of Hut Shares, that number of New Hut Shares equal to the product obtained when the number of Hut Shares subject to such Hut 8 June 2021 Warrants or Hut 8 Compensation Warrant (as applicable) immediately prior to the Arrangement Effective Time is multiplied by the Hut 8 Exchange Ratio, at an exercise per New Hut Share equal to the quotient obtained when the exercise price per Hut Share under such Hut 8 June 2021 Warrant or a Hut 8 Compensation Warrant (as applicable) is divided by the Hut 8 Exchange Ratio (with the aggregate exercise price rounded up to the nearest whole cent). No fractional shares of New Hut common stock will be issued upon exercise of a Hut 8 June 2021 Warrant or a Hut 8 Compensation Warrant, and the aggregate number of shares of New Hut common stock will be rounded down. Apart from the foregoing amendments, each Hut 8 June 2021 Warrant and Hut 8 Compensation Warrant shall continue to be governed by the terms of the Company Warrant Indenture (as defined in the Plan of Arrangement).
100
TABLE OF CONTENTS​​
 
Hut Employee Share Purchase Plan
Subject to the terms and conditions of the Hut 8 employee share purchase plan, Hut has, promptly following the execution of the Business Combination Agreement, suspended all future participation under the plan and provided participants with notice of intention of Hut 8 to terminate the plan effective immediately prior to the time the Merger becomes effective. Hut 8 shall comply with all of its existing obligations incurred or accrued in connection with the plan prior to the time of termination.
Other Rights
Any other rights of any Person in respect of Hut Shares or Hut 8 Options will be extinguished.
Treatment of USBTC Securities
By virtue of the Merger, all USBTC common stock, USBTC Preferred Stock and USBTC Options issued and outstanding immediately prior to the Merger Effective Time shall be cancelled or otherwise exchanged for securities of New Hut.
On the Effective Date at the time of filing the Articles of Merger, each USBTC Share (other than Dissenting USBTC Shares and treasury USBTC Shares) issued and outstanding prior to the Merger shall be exchanged for 0.6716 of a New Hut Share. Each USBTC Option outstanding immediately prior to the Merger effective time shall automatically be exchanged for an option entitling the holder to purchase that number of New Hut Shares equal to the number of shares of USBTC common stock subject to such USBTC Option multiplied by 0.6716 (rounded down to the nearest whole share). Such replacement option shall have an exercise price equal to the exercise price per share of USBTC common stock immediately prior to the Merger Effective Time divided by 0.6716 (rounded up to the nearest whole cent). The replacement options shall have the same terms and conditions (including vesting, exercisability terms and expiry date) as were applicable to such USBTC Options immediately prior to the Merger, other than the exercise price and number and kind of changes that may be purchased and conforming changes to take into account the Merger. Subject to TSX approval, the replacement options shall be governed by a plan adopted by New Hut which is identical to the USBTC Equity Incentive Plan other than conforming changes to take into account the Merger.
All USBTC Shares held in the treasury of USBTC immediately prior to the Merger Effective Time shall be automatically cancelled without any conversion thereof and cease to exist and no payment of distribution shall be made with respect thereof.
Dissenting Shares
Dissenting USBTC Shares
Each Dissenting USBTC Share shall cease to be outstanding, shall be cancelled and shall cease to exist. Such Dissenting USBTC Stockholders shall only have such rights, if any, available under the Nevada Dissenter’s Rights Statues. Each Dissenting USBTC Stockholder shall only be entitled to receive the payment of fair value of the Dissenting USBTC Shares formerly owned by such securityholder as determined by the applicable Nevada Dissenter’s Rights Statues. Dissenting USBTC Stockholders shall not be entitled to receive the New Hut Shares payable pursuant to the Merger. USBTC shall give Hut 8 and New Hut prompt notice and copies of any written demands for dissenter’s rights under the Nevada Dissenter’s Rights Statues and the opportunity to participate in any negotiations or other proceedings with respect to such demands. USBTC shall not make any payments, settle such demands or approve any withdrawal of such demands without the prior written consent of the other Parties. If any Dissenting USBTC Stockholder withdraws its assertion or demand for dissenter’s rights, such USBTC Shares shall be deemed to have converted as of the Merger Effective Time into the right to receive the applicable New Hut Shares in accordance with the terms of the Business Combination Agreement.
Dissenting Hut Shares
Pursuant to the Plan of Arrangement, each Hut Share held by a Dissenting Shareholder outstanding immediately prior to the Arrangement Effective Time shall be deemed to be transferred by the holder thereof to New Hut for cancellation and shall be cancelled, and upon such transfer: (a) such Dissenting Shareholder
101
TABLE OF CONTENTS​
 
will cease to be the holder of such Dissent Shares or have any rights as a holder in respect thereof, other than the right to be paid the fair value of such Dissent Shares determined in accordance with the terms of the Plan of Arrangement, and (b) the former holders of such Dissent Shares shall be removed from Hut 8’s central securities register and New Hut will be the legal and beneficial owner of such transferred Hut Shares.
Registered holders of Hut Shares may exercise rights of dissent in connection with the Arrangement under Section 238 of the BCBCA, as modified by the Interim Order, the Final Order and the Plan of Arrangement (“Dissent Rights”), provided that the written objection to the Arrangement Resolution must be provided not later than 4:00 p.m. Toronto time two Business Days immediately preceding the date of the Hut 8 Meeting.
Dissenting Shareholders entitled to be paid by Hut 8 the fair value of their Hut Shares will be deemed to have irrevocably transferred their Hut Shares to Hut 8 pursuant to the Plan of Arrangement in consideration of such fair value and will not be entitled to any other payment or consideration. Dissenting Shareholders not entitled to be paid by Hut for Hut Shares in respect of which they have exercised Dissent Rights will be deemed to have participated in the Arrangement on the same basis as Hut 8 shareholders who do not exercise Dissent Rights.
Neither Hut 8 nor New Hut nor any other Person will be required to recognize a Person exercising Dissent Rights after the Arrangement Effective Time. Each Dissenting Shareholder will cease to be entitled to the rights of a Hut 8 shareholder in respect of Hut Shares in relation to which such Dissenting Shareholder has exercised its Dissent Rights.
None of the following are entitled to exercise Dissent Rights: (i) holders of Hut 8 Options, (ii) holders of Hut 8 RSUs, (iii) holders of Hut 8 DSUs, (iv) holders of Hut Warrants, (v) holders of Hut Shares who vote, or have instructed a proxyholder to vote, in favor of the Arrangement Resolution, and (vi) Persons who have not strictly complied with the procedures for exercising Dissent Rights or Persons who have withdrawn their exercise of Dissent Rights prior to the Arrangement Effective Time.
New Hut Shares Exchange Procedure; Withholding
Prior to the Effective Date, New Hut shall deliver to the Depositary, in escrow pending the Arrangement Effective Time and Merger Effective Time, sufficient New Hut Shares to satisfy the aggregate number of such shares to be delivered to Hut 8 shareholders and USBTC stockholders pursuant to the Arrangement and the Merger, as applicable.
As soon as practicable after the Effective Time and no later than the third Business Day following the Effective Date, New Hut shall cause the Depositary to mail to each holder of Hut Shares or USBTC Shares whose shares were converted into the right to receive New Hut Shares: (i) a letter of transmittal, and (ii) instructions in effecting the surrender of record of such Hut Shares or USBTC Share for the applicable New Hut Shares. Upon surrender of the shareholder’s or stockholder’s record of Hut Shares or USBTC Shares (i.e. Hut Certificate, DRS Advice, Hut Book-Entry Share or USBTC Electronic Certificate), as applicable, and the executed letter of transmittal to the Depositary, the holder of such shares shall be entitled to receive in exchange thereof that number of New Hut Shares equal to the applicable consideration. After the Effective Time, until either the Hut Certificate, DRS Advice, Hut Book-Entry Share or USBTC Electronic Certificate is surrendered in accordance with the steps described above, such evidence of record of Hut Shares of USBTC Shares shall be deemed to represent only the right to receive upon surrender the applicable New Hut Shares.
Any portion of the shares made available to the Depositary by New Hut that remains undistributed for one year after the Effective Time shall be delivered to New Hut and any holders of Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates who have not complied with the exchange procedures shall only be entitled to look to New Hut for payment of claim for any New Hut Shares. Any amounts remaining unclaimed by such holders that would otherwise escheat to or become property of any Governmental Entity shall become, immediately prior to such time, the property of New Hut, free and clear of all claims of any Person previously entitled thereto.
Under the Plan of Arrangement, any Hut Certificate of Hut Book-Entry Share representing one or more Hut Shares acquired by New Hut and which are not deposited with the Depositary in accordance with the
102
TABLE OF CONTENTS​​
 
provisions of the Plan of Arrangement before 4:00 p.m. (Toronto time) on the second anniversary of the Effective Date, shall cease to represent a claim of any kind against any of the Parties, the Depositary or any other Person.
If any Hut Certificate is lost, stolen or destroyed, the Depositary shall deliver New Hut Shares in exchange for such certificate where the Person claiming such certificate provides an affidavit stating that fact and, if required by the Depositary, the posting of a bond in such reasonable amount to act as an indemnity against any claim that may be made against New Hut or the Depositary with respect to such certificate.
No fractional New Hut Shares shall be delivered to Hut 8 shareholders or USBTC stockholders. The aggregate number of shares a holder is entitled to receive will be rounded down to the nearest whole number of New Hut Shares.
Hut 8, USBTC, New Hut, Merger Sub or the Depositary shall be entitled to deduct or withhold, from any amounts payable or otherwise deliverable to any Person pursuant to the Arrangement, Merger or the Business Combination Agreement, such amounts as is required to be deducted or withheld under the Income Tax Act (Canada), the United States Internal Revenue Code of 1986 or any provision of any other applicable Law. Hut 8, USBTC, New Hut, Merger Sub or the Depositary is authorized to sell or otherwise dispose of, on behalf of such Person, any security deliverable to such Person as is necessary to provide sufficient funds to comply with deduction or withholding requirements. Such Person shall be notified of such remittance.
U.S. Tax Matters
The Hut 8 Share Exchange under the Plan or Arrangement and the Merger are intended to be treated as an exchange that qualifies under Section 351(a) of the Code. Each Party agrees to treat the Hut 8 Share Exchange and the Merger consistently with the intended treatment under the Code and not to take any position inconsistent with such treatment. New Hut will file the required IRS Form 8937.
At Closing, USBTC shall deliver to New Hut, a certificate signed by an officer of USBTC certifying that no interest in USBTC is, or has been during the relevant period specified in the Code, a “U.S. real property interest” within the meaning of Section 897(c) of the Code, and shall deliver a notice to the IRS. The sole remedy for the failure of USBTC to provide the foregoing at Closing shall be the application of withholding pursuant to Section 2.6 of the Business Combination Agreement (see section entitled “New Hut Shares Exchange Procedure; Withholding” directly above, beginning on page 102.)
For a more complete discussion of the United States federal income tax consequences of the Merger, see the section entitled “U.S. Federal Income Tax Consequences” beginning on page 122.
Representations and Warranties
The Business Combination Agreement contains representations and warranties made by Hut 8, USBTC and New Hut. These representations and warranties have been made by each Party solely for the benefit of the other Party and:
•
were not intended as statements of fact, but rather as a way of allocating the risk to one of the Parties if those statements prove to be inaccurate;
​
•
have been qualified by certain confidential disclosures that were made to the other Parties in connection with the negotiation of the Business Combination Agreement, which disclosures are not reflected in the Business Combination Agreement; and
​
•
may apply standards of materiality (including, in the case of Hut 8, a Hut Material Adverse Effect and in the case of USBTC, a USBTC Material Adverse Effect) that may be different from that considered material to Hut 8 shareholders or USBTC stockholders, or that may have been used for the purpose of allocating risk between the Parties rather than for the purpose of establishing facts.
​
Moreover, information concerning the subject matter of the representations and warranties in the Business Combination Agreement were made as of specific dates specified therein and may have changed since the date of the Business Combination Agreement. For the foregoing reasons, you should not rely on the representations
103
TABLE OF CONTENTS
 
and warranties contained in the Business Combination Agreement as statements of factual information at the time they were made or otherwise.
The Business Combination Agreement contains generally reciprocal representations and warranties, expect as otherwise indicated below. Each of Hut and USBTC has made representation and warranties regarding, among other things:
•
corporate organization and standing;
​
•
capital structure;
​
•
corporate power and authority with respect to the execution, delivery and performance of the Business Combination Agreement and the transactions contemplated thereunder;
​
•
ownership of subsidiaries;
​
•
requisite consents and approvals;
​
•
absence of conflicts with, or violations of, organization documents, contracts and applicable laws;
​
•
required regulatory filings and consents and approvals of governmental entities;
​
•
compliance with applicable securities laws;
​
•
financial statements;
​
•
conduct of business in ordinary course;
​
•
restrictions on business activities;
​
•
absence of certain changes;
​
•
absence of undisclosed liabilities;
​
•
absence of certain legal proceedings, investigations and governmental orders;
​
•
employment and labor matters;
​
•
employee benefit plans;
​
•
compliance with applicable law;
​
•
certain contracts;
​
•
real property;
​
•
environmental matters;
​
•
tax matters;
​
•
insurance matters;
​
•
intellectual property, information technology and data protection and privacy;
​
•
related party transactions;
​
•
brokers and transaction-related fees and expenses;
​
•
receipt of an opinion from financial advisors;
​
•
compliance with anti-corruption and anti-money-laundering laws and absence of economic sanctions;
​
•
accuracy and completeness of the information supplied; and
​
•
reliance on additional representations.
​
The Business Combination Agreement contains additional representations and warranties of Hut 8 relating to documents filed with securities authorities and other matters related to public company filings. The Business Combination Agreement also contains representations and warranties by New Hut relating to organization and standing; capitalization; corporate authority and approvals; absence of conflicts with organizational documents, contracts or laws; and ownership of assets and matters related to business activities.
104
TABLE OF CONTENTS
 
The representations and warranties of Hut 8 and USBTC contained in the Business Combination Agreement shall not survive the completion of the Business Combination and shall expire and be terminated on the earlier of the Effective Time and the commencement date on which the Business Combination Agreement is terminated in accordance with its terms.
Certain of the representations and warranties made by the Parties are qualified by a “materiality” or “material adverse effect” standard (“Material Adverse Effect”). For the purposes of the Business Combination Agreement, Material Adverse Effect means, in relation to a Party, any change, effect, event, occurrence, state of facts or circumstance, that, individually or in the aggregate with other such changes, effects, events, occurrences, state of facts or circumstances, is, or would reasonably be expected to be, material and adverse to the business, operations, results of operations, assets, properties, capitalization, condition (financial or otherwise) or liabilities (contingent or otherwise) of that Party and its Subsidiaries, taken as a whole, except for and excluding any change, effect, event, occurrence, state of facts or circumstance resulting from or arising in connection with:
•
any change, effect, event, occurrence, state of fact or circumstance generally affecting the industries (taking into account relevant geographies) in which such Party or any of its Subsidiaries operate;
​
•
any change in global, national or regional political conditions or in general economic, business, regulatory, currency exchange, interest rate, inflationary conditions or financial, capital, energy or other commodity market conditions, in each case whether national or global;
​
•
any act of terrorism or any outbreak of hostilities or declared or undeclared war, cyberterrorism, civil unrest, civil disobedience, sabotage, cybercrime, national or international calamity, military action, declaration of a state of emergency or any other similar event (including the current conflict between the Russian Federation and Ukraine), or any change, escalation or worsening thereof;
​
•
any epidemics, pandemics or disease outbreak or other public health condition (including COVID-19 and the implementation of any COVID-19 Measures), earthquakes, volcanoes, tsunamis, hurricanes, tornados or other natural or man-made disasters or acts of God;
​
•
any adoption, proposal, implementation or other change in Law, or interpretation of Law by any Governmental Entity, or proposed change in Law or interpretation of Law, in each case including any Laws in respect to Taxes, IFRS or regulatory accounting requirements, data centers, digital assets or other blockchain technology, in each case after the date hereof;
​
•
any generally applicable change in applicable accounting principles, including IFRS and U.S. GAAP after the date hereof;
​
•
the failure in and of itself of the Party to meet any internal or published projections, forecasts or guidance or estimates of revenues, earnings or cash flows of such Party or of any securities analysts (it being understood that the causes underlying such failure may, if not otherwise excluded from this definition of Material Adverse Effect, be deemed either alone or in combination to constitute, or be taken into account in determining whether a Material Adverse Effect has occurred);
​
•
the announcement of the Business Combination Agreement or the pendency of the Business Combination, including the impact thereof on relationships with employees, customers, suppliers and distributors to the extent resulting from such announcement or existence;
​
•
in respect of Hut only, any decrease in and of itself in the market price or any decline in and of itself in the trading volume of the equity securities of Hut (it being understood that the causes underlying such change in trading price or trading volume may, if not otherwise excluded from this definition of Material Adverse Effect, be deemed either alone or in combination to constitute, or be taken into account in determining whether a Material Adverse Effect in respect of Hut has occurred); or
​
•
any actions taken (or omitted to be taken) (1) at the written request, or with the prior written consent, of the other Party hereto; (2) as required by Law; or (3) in accordance the terms of the Business Combination Agreement,
​
but provided that (A) in the case of clauses (a) through (f), such change, effect, event, occurrence, state of facts or circumstance may be taken into account to the extent it has a materially adverse disproportionate impact or effect on the Party and its Subsidiaries taken as a whole, as compared to companies in comparable industries
105
TABLE OF CONTENTS​
 
of comparable economic size, during the same period of time (in which case the extent (and only the extent) of the disproportionate impact or effect may be taken into account in determining whether there has been a Material Adverse Effect); and (B) references in certain sections of the Business Combination Agreement to dollar amounts are not intended to be, and shall not be deemed to be, illustrative or interpretative for purposes of determining whether a Material Adverse Effect has occurred.
Covenants Regarding the Conduct of the Business
Each of Hut 8 and USBTC has agreed to certain covenants in the Business Combination Agreement restricting the conduct of its business between the date of the Business Combination Agreement until the earlier of the Effective Time or the date the Business Combination Agreement is terminated in accordance with its terms (the “Pre-Closing Period”).
In general, except as contemplated by the Business Combination Agreement, the Plan of Arrangement, the Articles of Merger, the Party’s disclosure letter or with the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed), each of Hut 8 and USBTC will, and will cause the Hut Subsidiaries or USBTC Subsidiaries, as applicable, to, (i) conduct its business and operations in all material respects in the Ordinary Course and in accordance with applicable Laws, including Economic Sanctions/Trade Laws; and (ii) use commercially reasonable efforts to maintain all permits necessary to conduct its business as now conducted and maintain and preserve its business organization, properties, employees, goodwill and business relationships with customers, suppliers, partners and other Persons with which either Party or any of its Subsidiaries has material business relations.
Each of Hut 8 and USBTC has also agreed that, except as provided for in the Party’s respective disclosure letter or as otherwise permitted under the Business Combination Agreement, during the Pre-Closing Period, Hut 8 or USBTC shall not and shall cause its Subsidiaries not to, directly or indirectly:
•
amend or propose to amend its or their respective Organizational Documents;
​
•
declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any securities or any equity or voting interests of any Hut 8’s or USBTC’s Subsidiaries, except for any such action solely between or among Hut 8 or USBTC and its wholly-owned Subsidiaries, or among Hut 8 wholly-owned Subsidiaries or USBTC wholly-owned Subsidiaries, as applicable;
​
•
issue or otherwise dispose of any securities or voting interests or any rights to acquire such interest other than pursuant to the exercise of options that are outstanding as of the date of the Business Combination Agreement in accordance with its term or any such action between Hut or USBTC and its wholly-owned Subsidiaries (other than New Hut), or among Hut 8 wholly-owned Subsidiaries or USBTC wholly-owned Subsidiaries, as applicable;
​
•
sub-divide, split, combine or reclassify any outstanding Hut Shares or USBTC Shares or the securities of any of the Hut Subsidiaries or USBTC Subsidiaries;
​
•
redeem, purchase or otherwise acquire or offer to purchase or otherwise acquire Hut Shares or USBTC Shares or other securities of either Party or its Subsidiaries other than purchases of Hut Shares or USBTC Shares in satisfaction of the payment of the exercise price or tax withholdings upon the exercise or vesting of Hut 8 Options or USBTC Options that are outstanding as of the date of the Business Combination Agreement in accordance with their terms;
​
•
amend the terms of any securities of Hut 8, USBTC, Hut Subsidiaries or USBTC Subsidiaries;
​
•
adopt or propose a plan of liquidation or resolutions providing for the liquidation or dissolution of Hut 8, USBTC, Hut Subsidiaries or USBTC Subsidiaries;
​
•
reorganize, amalgamate or merge Hut 8, USBTC, Hut Subsidiaries or USBTC Subsidiaries with any other Person;
​
•
incur any capital expenditures or enter into any agreement obligating Hut 8, USBTC, Hut Subsidiaries or USBTC Subsidiaries to provide for future capital expenditures exceeding US$5,000,000 in the aggregate;
​
106
TABLE OF CONTENTS
 
•
(A) incur any indebtedness for borrowed money, or guarantee any such indebtedness of another Person, or in the case of Hut 8, guarantee any debt securities of another Person; or (B) make any loans or advances (other than any advances to employees in the Ordinary Course and subject to applicable Law) to any other Person;
​
•
make any changes in financial accounting methods, principles, policies or practices, except as required or permitted, in each case, by U.S. GAAP, IFRS or by applicable Law;
​
•
reduce the stated capital of the Hut Shares or USBTC Shares or any securities of the Hut Subsidiaries or USBTC Subsidiaries;
​
•
acquire or agree to acquire any Person, or make any investment or agree to make any investment, either by purchase of shares or securities, contributions of capital (other than to wholly-owned Hut Subsidiaries or USBTC Subsidiaries of the applicable Party (other than New Hut)), property transfer or purchase of any property or assets of any other Person (including any real property), other than:
​
•
for consideration less than US$1,000,000 individually or US$2,000,000 in the aggregate; or
​
•
transactions between two or more wholly-owned Hut Subsidiaries or USBTC Subsidiaries of the applicable Party (other than New Hut) or between USBTC or Hut 8 and one or more wholly-owned Hut Subsidiaries or USBTC Subsidiaries (other than New Hut), as applicable;
​
•
sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer or agree to sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer any assets of Hut 8 or USBTC or any of Hut Subsidiaries or USBTC Subsidiaries, as applicable, or any interest in any assets of Hut 8 or USBTC or any of Hut Subsidiaries or USBTC Subsidiaries, as applicable, other than (A) Permitted Liens, (B) sales of assets that do not exceed, individually or in the aggregate, a fair market value of US$5,000,000, (C) any such action solely between or among Hut 8 or USBTC and wholly-owned Hut Subsidiaries or USBTC Subsidiaries (other than New Hut), as applicable, or between or among one or more wholly-owned Hut Subsidiaries or USBTC Subsidiaries of the Party (other than New Hut), (D) sales of Bitcoin mined by USBTC or Hut or any wholly-owned Hut Subsidiaries or USBTC Subsidiaries, or (E) investments permitted by the preceding paragraph;
​
•
pay, discharge, settle, satisfy, compromise, waive, assign or release any claims, rights, liabilities or obligations (including any litigation, proceeding or investigation by any Governmental Entity) other than the payment, discharge or satisfaction of current liabilities in the Ordinary Course and liabilities reflected or reserved against in the USBTC Financial Statements or Hut Financial Statements, as applicable;
​
•
enter into any agreement that, if entered into prior to the date hereof, would have been a USBTC Material Contract, or a Hut Material Contract, or modify, amend in any material respect, transfer or terminate any USBTC Material Contract or Hut Material Contract, or waive, release, or assign any material rights or claims thereto or thereunder;
​
•
enter into or terminate any interest rate, currency, equity or commodity swaps, hedges, derivatives, forward sales contracts or other financial instruments or like transaction, other than in the Ordinary Course consistent with USBTC’s or Hut’s financial risk management policy, as applicable;
​
•
materially change the business carried on by either Party and its Subsidiaries, taken as a whole;
​
•
except as required by the terms of the Hut Benefit Plan or USBTC Benefit Plan in effect on the date of the Business Combination Agreement or as disclosed in either Party’s disclosure letter: (A) grant, accelerate, or increase any severance, change of control or termination pay to (or amend any existing arrangement relating to the foregoing with) any USBTC Employees or Hut Employees or director of either Party or its Subsidiaries; (B) grant, accelerate, or increase any bonus or equity incentive award payable to, or for the benefit of, any USBTC Employees or Hut Employees or director of either Party or its Subsidiaries or adjust any incentive performance goals or payment eligibility levels in respect of the foregoing; (C) materially increase the coverage (or expand participation eligibility), contributions, funding requirements or benefits available under any USBTC Benefit Plan or Hut Benefit Plan or create any new plan which would be considered to be a material USBTC Benefit Plan or Hut Benefit Plan once created; (D) increase compensation (in any form), bonus levels or other benefits payable to
​
107
TABLE OF CONTENTS
 
any director, officer, employee or individual independent contractor of either Party or its Subsidiaries, or grant any general increase in the rate of wages, salaries, bonuses or other remuneration, except for base salary increases in the Ordinary Course of up to 10% of an employee’s base salary and corresponding increase in target bonus amounts; (E) establish, adopt, enter into, amend or terminate any collective bargaining agreement, other labor-related agreement or recognize or certify any labor union, labor organization or group of employees as the bargaining representative for any USBTC Employee or Hut Employee; (F) hire or terminate the employment or engagement of any USBTC Employee or Hut Employee or individual independent contractor of either Party or its Subsidiaries with an annual base salary or fees greater than or equal to US$150,000 or at the level of Vice President or above, other than terminations for cause, (G) recall any laid off or furloughed USBTC Employees or Hut Employees to the workplace, or return any USBTC Employees or Hut Employees to the workplace, other than in compliance with applicable Laws or; (H) promote any USBTC Employee or Hut Employee into a newly created position at the level of Vice President or above;
•
take any action or fail to take any action which action or failure to act would reasonably be expected to cause any Governmental Entities to institute proceedings for the suspension of, or the revocation or limitation of rights under, any USBTC Permits or Hut Permits necessary to conduct its businesses as now conducted;
​
•
waive, release, amend or fail to enforce the restrictive covenant obligations of any member of the senior executive team of USBTC or Hut 8;
​
•
fail to maintain any material Intellectual Property owned by either Party or its Subsidiaries, or maintain rights in material Intellectual Property, provided that the foregoing shall not require either Party or its Subsidiaries to take any action to alter the terms of any license or other Contract with respect to material Intellectual Property;
​
•
other than the settlement of any Actions reflected or reserved against on the USBTC Balance Sheet or the Hut Balance Sheet (or in the notes thereto) for an amount not in excess of such reserve, settle or offer or propose to settle, any Action, except for (A) any Action involving solely the payment of monetary damages by either Party or its Subsidiaries not in excess of US$500,000 individually or US$1,000,000 in the aggregate, provided, however, that neither Party nor its Subsidiaries shall settle or compromise any Action if such settlement or compromise (1) involves a material conduct remedy or material injunctive or similar relief, (2) involves an admission of criminal wrongdoing by either Party or its Subsidiaries or (3) has a materially restrictive impact on the business of either Party or its Subsidiaries; or (B) any shareholder litigation against either Party or its Subsidiary or their respective directors or officers relating to the Business Combination;
​
•
(A) enter into any lease for real property or (B) terminate, amend, assign, transfer, modify, supplement, deliver a notice of termination under, fail to renew or waive or accelerate any rights or defer any liabilities under any material USBTC Lease or Hut Lease;
​
•
(A) make (other than in the Ordinary Course), change or rescind any material election relating to Taxes (including any such election for any joint venture, partnership, limited liability company or other investment where USBTC or Hut 8 has the authority to make such binding election), (B) amend any Tax Return that is reasonably likely to result in a material increase to a Tax liability, (C) settle or compromise any Tax claim or assessment by any Taxing Authority, or surrender any right to claim a refund, offset or other reduction in Tax liability, except where the amount of any such settlements or compromises or foregone refunds does not exceed US$1,000,000 in the aggregate, (D) change any material method of Tax accounting or any Tax accounting period from those employed in the preparation of its Tax Returns that have been filed for prior taxable years, or (E) fail to timely pay any material Tax or file any material Tax Return when due (taking into account any valid extension of time within which to pay or file);
​
•
fail to maintain in full force and effect in all material respects, or fail to replace or renew, the insurance policies of either Party or its Subsidiaries;
​
•
enter into any new line of business outside of the businesses being conducted by either Party or its Subsidiaries as of the date of the Business Combination Agreement; or
​
•
agree to take any action that is prohibited as described in the preceding paragraphs.
​
108
TABLE OF CONTENTS​
 
Except to the extent reasonably necessary to comply with applicable Law, as expressly contemplated in the Business Combination Agreement, Plan of Arrangement or Articles of Merger, or with the prior written consent of Hut 8 and USBTC, during the Pre-Closing Period, New Hut shall not:
•
amend or propose to amend its Organizational Documents;
​
•
issue, sell, grant, award, pledge, dispose of or otherwise encumber or agree to issue, sell, grant, award, pledge, dispose of or otherwise encumber (i) any New Hut Shares or other equity or voting interests or other securities of New Hut; or (ii) any options, stock appreciation rights, warrants, calls, conversion or exchange privileges or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise) any New Hut Shares or other equity or voting interests or other securities of New Hut;
​
•
sub-divide, split, combine or reclassify any outstanding New Hut Shares;
​
•
amend the terms of any securities of New Hut;
​
•
adopt or propose a plan of liquidation or resolutions providing for the liquidation or dissolution of New Hut;
​
•
reorganize, amalgamate or merge New Hut;
​
•
acquire (whether by merger, consolidation, acquisition of securities or assets or otherwise) or lease any property (whether real or intangible) or assets, including any investment in any other Person;
​
•
enter into any Contract, whether written, oral or otherwise, relating to the employment of any Person or the provision of services by any Person;
​
•
carry on any business or otherwise engage in any activities, other than any activities reasonably necessary to implement the Business Combination;
​
•
incur any liabilities, except to the extent reasonably necessary to implement the Business Combination; or
​
•
agree to take any action that is prohibited as described in the preceding paragraphs.
​
Other Covenants and Agreements Related to the Business Combination
Covenants of the Parties to Consummate the Business Combination
Each of the Parties covenants and agrees that from the date of the Business Combination Agreement until the end of the Pre-Closing Period, each of the Parties shall do all such reasonable acts as may be necessary in order to consummate the transactions contemplated by the Business Combination Agreement, and, without limiting the generality of the foregoing, the Parties shall and, where applicable, shall cause each of its Subsidiaries to:
•
use commercially reasonable efforts to satisfy (or cause the satisfaction of) the condition precedents in the Business Combination Agreement to the extent the same is within its control and to take, or cause to be taken, all other actions and to do, or cause to be done, all other things necessary, proper or advisable under all Laws to complete the Arrangement, including using commercially reasonable efforts to promptly (i) obtain all necessary waivers, consents and approvals required from, and provide all required notices to, Persons party to USBTC Material Contracts or Hut Material Contracts, as the case may be; and (ii) obtain or maintain in force, as applicable, all necessary Permits (or consents thereunder) as are required to be obtained by it under all Laws; and (iii) cooperate with the other Parties in connection with the performance by them and their Subsidiaries of their obligations thereunder;
​
•
use all commercially reasonable efforts to carry out the terms of the Interim Order and Final Order applicable to it and comply promptly with all requirements imposed by Law on it or its Subsidiaries with respect to the Business Combination Agreement, the Arrangement and the Merger;
​
•
use commercially reasonable efforts to oppose any Order seeking to restrain or otherwise prohibit or adversely affect the consummation of the Arrangement, the Merger or the transactions contemplated by the Business Combination Agreement and defend any proceedings to which it is a party or brought
​
109
TABLE OF CONTENTS
 
against it or its directors or officers challenging the Arrangement, the Merger or the Business Combination Agreement; and
•
not take any action or permit any action to be taken or not taken, which would reasonably be expected to prevent or otherwise impede the consummation of the Arrangement, the Merger or the transactions contemplated by the Business Combination Agreement.
​
USBTC and New Hut covenants and agrees that from the date of the Business Combination Agreement until the end of the Pre-Closing Period, they shall take such commercial reasonable actions as are necessary to:
•
cause the Amended New Hut Organizational Documents in a form satisfactory to Hut and USBTC (each acting reasonably) to become effective prior to the Effective Time; and
​
•
cause Merger Subco to be incorporated and duly organized as a direct, wholly-owned Subsidiary of New Hut prior to the Effective Date.
​
During the Pre-Closing Period, the Parties shall take all such steps reasonably necessary for the New Hut Omnibus Incentive Plan, in a form acceptable to Hut 8 and USBTC, each acting reasonably, to become effective prior to the Effective Date.
As soon as reasonably practical after the date of the Business Combination Agreement, Hut 8 and USBTC will use commercially reasonable efforts to enter into the Bridge Loan Agreement.
Except as provided for in the Hut Disclosure Letter and USBTC Disclosure Letter, neither Hut 8 nor USBTC has, nor shall accelerate, the vesting or time to exercise any outstanding stock options, restricted share unit, deferred share unit, or any other employee or director awards of any Party in connection with the Business Combination Agreement or the Plan of Arrangement.
Hut 8 and New Hut covenants and agrees that from the date of the Business Combination Agreement until the end of the Pre-Closing Period, Hut 8 and New Hut shall use commercially reasonable efforts to obtain and maintain in force the Stock Exchange Approvals (as applicable).
USBTC covenants and agrees that it will use commercially reasonable efforts to, prior to the Effective Date, complete and provide to Hut the items and other deliverables as set forth in the USBTC Disclosure Letter.
USBTC shall perform an analysis of the potential effects of the transactions contemplated by the Business Combination Agreement under Sections 280G and 4999 of the United States Internal Revenue Code of 1986, as amended. In the event USBTC determiners that any payments or benefits would result in “parachute payments” in connection with the transactions contemplated by the Business Combination Agreement, prior to the Merger Effective Time, USBTC shall: (i) seek a waiver from the recipient of such “parachute payments” pursuant to which such recipient would agree to forego any payments or benefits to the extent necessary, and (ii) to the extent such waivers are obtained, seek shareholder approval of the waived amounts from USBTC stockholders in a manner intended to comply with Treasury Regulation Section 1.280G-1, Q&A-7.
Upon consummation of the Arrangement and the Merger, New Hut shall take all steps reasonably necessary to cause the Hut 8 Replacement Options that remain outstanding (and, to the extent applicable, Adjusted Hut RSUs and Adjusted Hut DSUs) and USBTC Replacement Options to be issued in accordance with the Business Combination Agreement (and, where applicable, in accordance with the Plan of Arrangement).
New Hut shall take all steps in advance of the Effective Date reasonably required by Hut to facilitate the registration under the U.S. Securities Act of the issuance of the New Hut Shares underlying the Replacement Securities.
Covenants to Provide Notice
Hut and USBTC covenants and agrees that from the date of the Business Combination Agreement until the end of the Pre-Closing Period, Hut and USBTC shall promptly notify the other Party in writing of:
•
any events that would cause any of the representations or warranties of Hut 8 or USBTC to be inaccurate or its failure to comply with any covenants, conditions or other obligations under the Business Combination Agreement;
​
110
TABLE OF CONTENTS​​
 
•
any Material Adverse Effect in respect of Hut 8, USBTC or New Hut, as applicable;
​
•
any notice or other communication from any Person alleging that the consent (or waiver, permit, exemption, order, approval, agreement, amendment or confirmation) of such Person is required in connection with the Business Combination Agreement or the Business Combination;
​
•
any notice or other communication from any Person that has a material business relationship with such Party and its Subsidiaries (taken as a whole) to the effect that such Person is terminating or otherwise materially adversely modifying its relationship with Hut or USBTC or any of its Subsidiaries as a result of the Business Combination Agreement or the Business Combination;
​
•
any notice or other communication from any Governmental Entity in connection with the Business Combination Agreement or the Arrangement (and Hut 8 or UBSTC, as applicable, shall promptly following the receipt thereof provide a copy of any such written notice or communication to the other Party); or
​
•
any material filing, Actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting Hut 8 or USBTC, or any of the Hut Subsidiaries or USBTC Subsidiaries.
​
Each Party shall give the other Parties prompt written notice of any securityholder litigation against such Party or its directors, officers or other representatives relating to the Business Combination Agreement or the Business Combination, shall keep the other Parties reasonably informed regarding any such litigation, and shall give the other Parties the opportunity to participate (at such other’s Party’s expense) in the defense or settlement of any such litigation. Each Party has the right to review and comment on any filings or responses in connection with such litigation. No Party shall offer to or agree to settle any such litigation without the other Parties’ prior written consent. Each of the Parties shall comply in all respects with the applicable provisions of the Nevada Dissenter’s Rights Statutes.
Regulatory Approvals
Each Party shall make all notifications, filings, applications and submission with Governmental Entities as required in connection with the Regulatory Approvals, including the Stock Exchange Approvals (conditional approval of Nasdaq and the TSX to list the New Hut Shares), HSR Approval and the Competition Act Approvals. The Parties shall cooperate with one another in connection with obtaining the Regulatory Approvals, including providing or submitting on a timely basis, and as promptly as practicable, all documentation and information that is required. The Parties shall cooperate to keep one another fully informed of the status and process related to obtaining the Regulatory Approvals and notify each other of any correspondence form any Governmental Entity in respect of the Arrangement or the Business Combination Agreement. The Parties shall not make any submissions or filings to any Governmental Entity unless it consults with the other Parties in advance.
Solicitation
USBTC Non-Solicitation
From the date of the Business Combination Agreement until the earlier of the Effective Time or the date the Business Combination Agreement is terminated in accordance with its terms, USBTC shall, and shall cause its Subsidiaries and Representations to: (a) cease all existing discussions and negotiations with any Person with respect to any offer or proposal or indication of interest in any purchase of an equity interest in USBTC, New Hut or any of their respective Subsidiaries or a merger, consolidation, share exchange or other business combination involving USBTC, New Hut or any of their respective Subsidiaries or any equity interest therein, or any purchase of a substantial portion of the assets of USBTC, New Hut and their respective Subsidiaries, taken as a whole (collectively, an “Alternative Transaction”), and (b) termination access by any Person to any physical or electronic data room in connection with any Alternative Transaction.
USBTC and New Hut shall not, and shall cause their respective Representatives not to, directly or indirectly, (i) solicit or otherwise knowingly facilitate any proposal or offer from any third party with respect to an Alternative Transaction, (ii) enter into any letter of intent or similar agreement with respect to an Alternative
111
TABLE OF CONTENTS
 
Transaction, or (iii) participate or knowingly assist in any negotiations or discussions with any Person relating to any Alternative Transactions, in each case other than with Hut or its Affiliates.
As soon as reasonably practical after the date of the Business Combination Agreement, USBTC will instruct all Persons in possession of confidential information in connection with any actual or potential proposal to acquire USBTC to promptly return or destroy all such information.
USBTC shall notify Hut 8 in writing of requests for information in relation to a proposed Alternative Transaction. Such notice shall include a description of the material terms of the proposed Alternative Transaction and the identity of all Persons making the proposed Alternative Transaction. USBTC shall keep Hut informed of the status of such proposed Alternative Transaction.
USBTC represents and warrants that, since January 1, 2022, neither USBTC, its Subsidiaries nor any of their Representatives, has waived any confidentiality, standstill or other similar agreement to which USBTC or its Subsidiaries is a party. USBTC covenants and agrees that it will take all necessary action to enforce any confidentiality, standstill or other similar agreement and will not release any Person or waive, amend or otherwise modify any Person’s obligations respecting USBTC or its Subsidiaries under any confidentiality, standstill or other similar agreement.
Hut 8 Non-Solicitation
Hut 8 and its Subsidiaries shall not, directly or indirectly, do or authorize or permit any of its Subsidiaries or Representatives to do, any of the following:
•
solicit or otherwise knowingly facilitate any Acquisition Proposal or any inquiries, proposals or offers relating to any Acquisition Proposal or that may reasonably be expected to constitute or lead to an Acquisition Proposal;
​
•
enter into or otherwise participate in any discussions or negotiations with any Person (other than USBTC) regarding any Acquisition Proposal or any inquiries, proposals or offers relating to any Acquisition Proposal or that may reasonably be expected to constitute or lead to an Acquisition Proposal;
​
•
withdraw, amend, modify or qualify, or publicly propose or state an intention to withdraw, amend, modify of qualify, the Board Recommendation;
​
•
accept, approve, endorse or recommend, execute or enter into, or publicly propose to do any of the foregoing, any letter of intent, agreement in principle, agreement, arrangement, offer or understanding in respect of an Acquisition Proposal (other than an Acceptable Confidentiality Agreement contemplated under the Business Combination Agreement); and
​
•
accept, approve, endorse or recommend, or publicly propose to do any of the foregoing, or take no position or remain neutral with respect to, any Acquisition Proposal (it being understood that taking no position or a neutral position to a publicly disclosed Acquisition Proposal is not a violation of the solicitation provisions provided that the Hut 8 Board rejects such Acquisition Proposal and affirms the Board Recommendation before the end of the fifth Business Day of such publicly announced Acquisition Proposal).
​
Hut 8 shall, and shall cause its Representatives to, immediately cease and terminate any solicitation, encouragement, discussion, negotiation or other activities with any Person (other than USBTC) with respect to any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to, an Acquisition Proposal, and without limiting the generality of the foregoing, Hut 8 will:
•
immediately discontinue access to and disclosure of any of its confidential information, including any data room and any confidential information, properties, facilities, books and records of Hut or of any of its Subsidiaries; and
​
•
within two Business Days of the date of the Business Combination Agreement, request and exercise all rights it has to require: (i) the return or destruction of all copies of any confidential information regarding Hut or any of its Subsidiaries provided to any Person (other than USBTC) in connection
​
112
TABLE OF CONTENTS
 
with any Acquisition Proposal or inquiries thereof, and (ii) the destruction of all material including or incorporating or otherwise reflecting such confidential information regarding Hut 8 or its Subsidiaries.
Hut 8 represents and warrants that, since January 1, 2022, neither Hut, its Subsidiaries nor any of their Representatives, has waived any confidentiality, standstill or other similar agreement to which Hut 8 or its Subsidiaries is a party. Hut 8 covenants and agrees that it will take all necessary action to enforce any confidential standstill or other similar agreement and will not release any Person or waive, amend or otherwise modify any Person’s obligations respecting Hut 8 or its Subsidiaries under any confidentiality, standstill or other similar agreement.
Hut 8 shall notify USBTC of any Acquisition Proposal or any inquiry that could lead to an Acquisition Proposal at first orally, and then within twenty-four hours in writing. Hut 8 shall provide USBTC with copies of all documents received in respect of such Acquisition Proposal. Such notice shall include a description of the material terms of the proposed Acquisition Proposal and the identity of all Persons making the Acquisition Proposal. Hut 8 may contact the Person making such Acquisition Proposal to determine whether such proposal or inquiry would reasonably be expected to lead to a Superior Proposal. Hut 8 shall keep USBTC reasonably informed of the status of such Acquisition Proposal.
If Hut receives, an Acquisition Proposal that constitutes a Superior Proposal that was not solicited in breach of the Business Combination Agreement and was made prior to the approval of the Hut Resolutions, Hut may, subject to the terms of the Business Combination Agreement, enter into a definitive agreement with respect to such Superior Proposal, if an only if:
•
the Person making the Superior Proposal was not subject to any standstill, non-disclosure or other agreement that would restrict it from making such Superior Proposal;
​
•
Hut 8 has not breached any of the terms of the solicitation covenants in the Business Combination Agreement;
​
•
Hut 8 has delivered a Superior Proposal Notice to USBTC indicating its intention to enter into the definitive agreement and the financial terms of such Superior Proposal;
​
•
Hut 8 has delivered a copy of the definitive agreement and all other agreements related thereto, including financing documents, to USBTC;
​
•
at least five Business Days (the “Matching Period”) have elapsed from the date that is the later of the date USBTC received the Superior Proposal Notice and the date USBTC receive all materials as required by the Business Combination Agreement;
​
•
during any Matching Period, USBTC has had the opportunity to offer to amend the Business Combination Agreement and the Business Combination in order for such Acquisition Proposal to cease to be a Superior Proposal, including by adjusting the Hut 8 Exchange Ratio or the USBTC Exchange Ratio;
​
•
after the Matching Period, the Hut 8 Board has determined in good faith, after consultation with legal counsel and financial advisors, that such Acquisition Proposal continues to constitute a Superior Proposal and the failure of the Hut 8 Board to take such action would be inconsistent with its fiduciary duties; and
​
•
prior to or concurrently with entering into such definitive agreement, Hut 8 terminates the Business Combination Agreement in accordance with its terms and pays the Termination Amount.
​
Hut shall consider and negotiate in good faith with USBTC any offer made to amend the Business Combination Agreement as a result of a Superior Proposal. Hut shall reaffirm the Board Recommendation by press release after any Acquisition Proposal is publicly announced and determined not to be a Superior Proposal. If a Superior Proposal Notice is provided to USBTC less than ten Business Days before the Hut 8 Meeting, USBTC will be entitled to require Hut to postpone such Hut 8 Meeting to a date specified by USBTC that is not more than ten Business Days after the schedule Hut 8 Meeting or a date mutually agreed by the Parties.
113
TABLE OF CONTENTS​
 
Conditions to Completion of the Business Combination
The respective obligations of the Parties to complete the Business Combination are subject to the fulfillment or waiver (to the extent permissible under applicable Law), on or before the Effective Date, of each of the following conditions precedent, each of which may only be waived with the mutual consent of the Parties:
•
the Interim Order and Final Order are obtained on terms consistent with the Business Combination Agreement;
​
•
no Law or Order is in effect that makes the completion of the Business Combination illegal or otherwise prohibits or enjoins the Parties from completing the Business Combination;
​
•
the Arrangement Resolution shall have been passed by the Hut 8 shareholders at the Hut 8 Meeting in accordance with the Interim Order and applicable Law;
​
•
the Other Hut Resolutions, if any, shall have been passed by the Hut 8 shareholders at the Hut 8 Meeting in accordance with applicable Law;
​
•
the USBTC Stockholder Approval shall have been obtained by way of the USBTC Consent in accordance with applicable Law;
​
•
each of the Required Regulatory Approvals shall have been made, given or obtained, on terms satisfactory to the Parties, each acting reasonably, and each such Required Regulatory Approval shall be in full force and effect;
​
•
the Hut Consideration Shares and Hut 8 Replacement Options to be issued under the Arrangement shall be exempt from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(10) thereof;
​
•
the Stock Exchange Approvals shall have been made, given or obtained, on terms satisfactory to the Parties, subject only to the customary listing conditions of Nasdaq and the TSX, as applicable;
​
•
the Registration Statement shall have become effective, and no stop order and no proceedings for that purpose shall have been initiated or threatened by the SEC and not withdrawn;
​
•
Dissent Rights have not been exercised with respect to more than 5.0% of the issued and outstanding Hut Shares;
​
•
not more than 5.0% of the USBTC Shares shall be Dissenting USBTC Shares;
​
•
the New Hut Omnibus Incentive Plan shall have been approved by the TSX and Nasdaq, as applicable;
​
•
the Amended New Hut Organizational Documents, providing for an increase in the authorized share capital of New Hut, among other things, shall have been filed and become effective, in form and substance satisfactory to Hut 8 and USBTC;
​
•
the actions required to be taken by the Parties pursuant to governance provisions under the Business Combination Agreement, with effect as of and from the Effective Time, shall have been taken; and
​
•
New Hut shall have complied with its obligations under the Business Combination to deposit the New Hut Shares issuable pursuant to the Arrangement and the Merger, and the Depositary shall have confirmed receipt of the Hut Consideration Shares and USBTC Consideration Shares contemplated thereby.
​
The obligations of USBTC to complete the Business Combination shall also be subject to the fulfillment or waiver (to the extent permissible under applicable Law) of each of the following conditions precedent on or before the Effective Date (each of which is for the exclusive benefit of USBTC and may only be waived by USBTC in whole or in part at any time in its sole discretion):
•
all covenants of Hut 8 which have not been waived have been duly performed and USBTC has received a certificate on behalf of Hut 8 by a senior executive officer confirming the same;
​
•
the representation and warranties in Schedule “C” of the Business Combination Agreement for the following sections are true and correct as of the date of the Business Combination Agreement and the Effective Date, except as otherwise stated: (i) Section (1) [Organization and Qualification],
​
114
TABLE OF CONTENTS
 
Section (2) [Capitalization], and Section (3) [Corporate Authority; Approval], are true and correct except for such failures that are de minimis, (ii) Section (4) [Subsidiaries] are true and correct in all material respects, and (iii) all other representations and warranties are true and correct in all respects except where any failure of any such representation or warranty would not reasonably be expected to have a Material Adverse Effect in respect of Hut 8, and USBTC has received a certificate on behalf of Hut by a senior executive officer of Hut confirming the same;
•
executive employment agreements for the senior leadership of New Hut shall have been executed and delivered, in form and substance satisfactory to USBTC; and
​
•
since the date of the Business Combination Agreement, there shall not have occurred any Material Adverse Effect in respect of Hut that is continuing.
​
The obligations of Hut to complete the Business Combination shall also be subject to the fulfillment or waiver (to the extent permissible under applicable Law) of each of the following conditions precedent on or before the Effective Date (each of which is for the exclusive benefit of Hut 8 and may only be waived by Hut in whole or in part at any time in its sole discretion):
•
all covenants of USBTC which have not been waived have been duly performed and Hut 8 has received a certificate on behalf of USBTC by a senior executive officer confirming the same;
​
•
all covenants of New Hut which have not been waived have been duly performed and Hut 8 has received a certificate on behalf of New Hut by a director of New Hut confirming the same;
​
•
the representation and warranties in Schedule “D” of the Business Combination Agreement for the following sections are true and correct as of the date of the Business Combination Agreement and the Effective Date, except as otherwise stated: (i) Section (1) [Organization and Qualification], Section (2) [Capitalization], and Section (3) [Corporate Authority; Approval], are true and correct except for such failures that are de minimis, (ii) Section (4) [Subsidiaries] are true and correct in all material respects, and (iii) all other representations and warranties are true and correct in all respects except where any failure of any such representation or warranty would not reasonably be expected to have a Material Adverse Effect in respect of USBTC, and Hut has received a certificate on behalf of USBTC by a senior executive officer of USBTC confirming the same;
​
•
the representations and warranties of New Hut set forth in Schedule “E” of the Business Combination Agreement for the following sections are true and correct as of the date of the Business Combination Agreement and the Effective Date, except as otherwise stated: (i) Section (1) [Organization and Qualification], Section (2) [Capitalization], and Section (3) [Corporate Authority; Approval], are true and correct except for such failures that are de minimis; and (ii) all other representations and warranties are true and correct in all respects except where any failure of any such representation or warranty would not reasonably be expected to have a Material Adverse Effect in respect of New Hut, and Hut has received a certificate on behalf of New Hut by a director of New Hut confirming the same;
​
•
employment agreements for the senior leadership of New Hut shall have been executed and delivered, in form and substance satisfactory to Hut; and
​
•
since the date of the Business Combination Agreement, there shall not have occurred any Material Adverse Effect in respect of USBTC that is continuing.
​
The conditions precedent set out above shall be conclusively deemed to have been satisfied, waived or released at the Effective Time.
Each Party will give prompt notice to the other Parties where any event or failure of such event would reasonably be likely to, (i) cause any of the representation or warranties to be untrue, or (ii) result in the failure by such Party to comply with or satisfy any covenant, condition or agreement under the Business Combination Agreement by such Party prior to the Effective Time.
Each Party shall take all necessary action to ensure that, at the Effective Time: (i) the New Hut Board shall be comprised of ten directors, (ii) the members of the New Hut Board, the Chief Executive Officer, the President and the Chief Strategy Officer of New Hut shall be set out in the disclosure letters of USBTC and Hut 8, and (iii) the individuals listed in Section 8.6 of the USBTC Disclosure Letter shall have executed and delivered
115
TABLE OF CONTENTS​
 
customary lock-up and voting agreements, with effect from the Effective Time, on the terms set at Section 8.6 of the USBTC Disclosure Letter. The Parties agree to work cooperatively to implement the foregoing, including by providing any information as required by Law for inclusion in the Registration Statement, USBTC Information Statement and Hut Circular. The Parties shall obtain all resignations and pass any resolutions of the New Hut Board and take all other action as may be required to ensure that the New Hut Board is comprised of ten directors, as contemplated above, at the Effective Time.
Termination
The Business Combination Agreement may be terminated at any time prior to the Effective Time by mutual agreement of the Parties or by either Hut 8 or USBTC if (i) the Effective Time shall not have occurred on or before the Outside Date, being September 30, 2023 or such later date as may be agreed upon, as long as the Party terminating the agreement is not responsible for the failure of the Effective Time to occur due to its breach of any representations or warranties or other obligations, (ii) any Law or Order makes the consummation of the Business Combination illegal and such Law or Order is final, (iii) the Hut Resolutions shall not have been passed by the Hut 8 shareholders at the Hut 8 Meeting in accordance with the Interim Order and applicable Law, or (iv) the USBTC Stockholder Approval shall not have been obtained by way of the USBTC Consent in accordance with applicable Law.
USBTC may terminate the Business Combination Agreement if:
•
the Hut 8 Board (i) fails to unanimously recommend or withdraws in a manner adverse to USBTC the Board Recommendation, (ii) accepts or states an intention to accept an Acquisition Proposal or takes no position or remains neutral with respect to a publicly announced Acquisition Proposal for more than five Business Days, (iii) accepts or states an intention to accept or enter into any agreement, letter of intent, agreement in principle or other understanding with respect to an Acquisition Proposal, or (iv) fails to publicly reaffirm by press release the Board Recommendation within five Business Days after having been requested by USBTC to do so;
​
•
a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Hut under the Business Combination Agreement that would cause any of Hut’s conditions not to be satisfied and such breach or failure is not cured, provided that USBTC is not itself in breach under the Business Combination Agreement;
​
•
Hut 8 breaches any of the non-solicitation provisions under the Business Combination Agreement in any material respects; or
​
•
since the date of the Business Combination Agreement there has occurred and is continuing a Material Adverse Effect in respect of Hut.
​
Hut 8 may terminate the Business Combination Agreement if:
•
prior to the approval by the Hut 8 shareholders of the Hut Resolutions, the Hut 8 Board authorizes Hut to enter into a written agreement with respect to a Superior Proposal, provided Hut is in compliance with the terms of the Business Combination Agreement and has paid the Termination Amount;
​
•
a breach of any representation or warranty or failure to perform any covenant or agreement on the part of USBTC under the Business Combination Agreement that would cause any of USBTC’s conditions not to be satisfied and such breach or failure is not cured, provided that Hut is not itself in breach under the Business Combination Agreement;
​
•
a breach of any representation or warranty or failure to perform any covenant or agreement on the part of New Hut under the Business Combination Agreement that would cause any of New Hut’s conditions not to be satisfied and such breach or failure is not cured, provided that Hut is not itself in breach under the Business Combination Agreement; or
​
•
since the date of the Business Combination Agreement there has occurred and is continuing a Material Adverse Effect in respect of USBTC.
​
Hut 8 and USBTC may not exercise their right to terminate the Business Combination Agreement for the other Party’s breach of any representation or warranty unless the Party intending to rely thereon has delivered
116
TABLE OF CONTENTS​
 
a written notice to the other Party setting out the breaches of covenants, representations and warranties, or other matters the Party is relying on as the basis for termination. Provided the Breaching Party is proceeding diligently to cure such matter and such matter is capable of being cured prior to the Outside Date, the other Party may not terminate the Business Combination Agreement pursuant to these terms until the earlier of (a) the Outside Date, and (b) the date that is twenty Business Days from the date a written notice was delivered.
The Party desiring to terminate the Business Combination Agreement pursuant to the terms described above shall give written notice of such termination to the other Parties, specifying in reasonable detail the basis for such Party’s exercise of its termination right. If the Business Combination Agreement is terminated subject to the terms therein, the Business Combination Agreement shall become void and of no effect without liability of any Party to any other Party hereto, except that the provisions regarding insurance and indemnification under Section 6.7 shall survive for a period of six years in the event of termination under Section 9.1(2) as a result of Effective Time occurring. In addition, the provisions of the Confidentiality Agreement, Section 9.1(4), Section 9.2, Section 9.3 and Article 10 shall survive in the event the Business Combination Agreement is terminated under Section 9.1. Notwithstanding anything to the contrary in the Business Combination Agreement, no Party shall be relived of any liability for fraud.
Termination Fee Payable by Hut 8
USBTC shall be entitled to the Termination Amount, being US$10,000,000 (free and clear of, and without reduction for any applicable withholding Taxes), upon the occurrence of any of the following events, which shall be paid by Hut to USBTC within the time specified below in each case:
•
the Business Combination Agreement is terminated by USBTC because (a) Hut 8 fails to unanimously recommend or withdraws, in a manner adverse to USBTC, the Board Recommendation (Section 9.1(2)(c)(i) [Change in Recommendation]); or (b) Hut 8 breaches any of its non-solicitation covenants under the Business Combination Agreement (Section 9.1(2)(c)(iii) [Material Breach of Article 7]), in which case the Termination Amount shall be paid within two Business Days following such termination;
​
•
the Business Combination Agreement is terminated by Hut 8 because the Hut 8 Board authorizes Hut 8 to enter into a written agreement with respect to a Superior Proposal (Section 9.1(2)(d)(i) [Superior Proposal]), in which case the Termination Amount shall be paid prior to or concurrently with such termination;
​
•
the Business Combination Agreement is terminated by USBTC because (a) Hut 8 breaches any representation or warranty or fails to perform any covenant and such breach is not cured (Section 9.1(2)(c)(ii) [Hut Breach of Reps or Covenants]), or (b) by either USBTC or Hut if the Effective Time shall not have occurred before the Outside Date (Section 9.1(2)(b)(i) [Outside Date]) or the Hut Resolutions have not been passed by the Hut 8 shareholders at the Hut 8 Meeting (Section 9,1(2)(b)(iii)[Not Hut Shareholder Approval]), but only if:
​
•
prior to such termination, an Acquisition Proposal or intention to make an Acquisition Proposal is made or publicly announced by any Person; and
​
•
within twelve months following the date of termination, (1) an Acquisition Proposal (whether or not it is the same Acquisition Proposal referred to above) is consummated or (2) Hut or its Subsidiaries enters into a Contract in respect of an Acquisition Proposal (whether or not it is the same Acquisition Proposal referred to above) and such Acquisition Proposal is later consummated (whether or not within twelve months after the termination),
​
in which case the Termination Amount shall be payable on or prior to the consummation of the Acquisition Proposal referred to therein. The definition of Acquisition Proposal in the preceding paragraph, and for the purposes of this termination option, shall have the meaning ascribed thereto in Section 1.1 of the Business Combination Agreement, except that references to 20% therein shall be deemed to be references to 50%.
The Termination Amount shall be paid by Hut 8 by wire transfer in immediately available funds to an account specified by USBTC. Hut 8 shall not be required to pay the Termination Amount on more than one occasion. The Termination Amount represents liquidated damages, including opportunity costs, which USBTC will
117
TABLE OF CONTENTS​​
 
suffer or incur as a result of the event giving rise to such termination under the Business Combination Agreement. In the event the Termination Amount is paid to USBTC, USBTC shall be precluded from any other remedy against Hut at law or in equity, except as provided for under Section 9.2(4) as it relates to liability for fraud, among other things.
Fees and Expenses
Except as described below, New Hut shall pay all fees, costs and expenses incurred by Hut 8 and USBTC in connection with the Business Combination Agreement and the Business Combination. If the Business Combination Agreement is terminated prior to the Effective Time, each Party shall pay all fees, costs and expenses incurred by such Party, provided that each of Hut 8 and USBTC shall pay 50% of any filing fees and applicable Taxes payable in respect of any regulatory process for the transaction contemplated by thereunder, including any fees, costs and expenses in connection with the preparation, filing and approval by SEC of the Registration Statement.
If the Business Combination Agreement is terminated by USBTC because (a) the Hut Resolutions shall not have been passed by the Hut 8 shareholders at the Hut 8 Meeting in accordance with the Interim Order and applicable Law (Section 9.1(2)(b)(iii) [No Hut Shareholder Approval]), or (b) Hut breaches any representation or warranty or fails to perform any covenant and such breach is not cured (Section 9.1(2)(c)(ii) [Hut Breach of Reps or Covenants]), then Hut 8 shall pay to USBTC an expense reimbursement payment for reasonable, documented expenses incurred in connection with the Business Combination Agreement and the Arrangement of, in the case of a termination pursuant to (a) described above, in an amount not to exceed C$500,000 (less any applicable withholding Tax), and in the case of a termination pursuant to (b) described above, in an amount not to exceed C$2,000,000 (less any applicable withholding Tax), no later than two Business Days after the date of such termination, provided that Hut 8 shall not be required to pay in aggregate, an mount in excess of the Termination Amount.
If the Business Combination Agreement is terminated by Hut 8 because (a) the USBTC Stockholder Approval shall not have been obtained by way of the USBTC Consent in accordance with applicable Law (Section 9.1(2)(b)(iv) [No USBTC Stockholder Approval]), (b) USBTC breaches any representation or warranty or fails to perform any covenant and such breach is not cured (Section 9.1(2)(d)(ii) [Hut Breach of Reps or Covenants]), or (c) New Hut breaches any representation or warranty or fails to perform any covenant and such breach is not cured (Section 9.1(2)(d)(iii) [New Hut Breach of Reps or Covenants]) then USBTC shall pay to Hut 8 an expense reimbursement payment for reasonable, documented expenses incurred in connection with the Business Combination Agreement and the Arrangement of, in the case of a termination pursuant to (a) described above, in an amount not to exceed C$500,000 (less any applicable withholding Tax), and in the case of a termination pursuant to (b) or (c) described above, in an amount not to exceed C$2,000,000 (less any applicable withholding Tax), no later than two Business Days after the date of such termination.
Neither USBTC nor Hut 8 shall pay a broker, finder, or investment banker fee in connection with the transactions contemplated by the Business Combination Agreement, except as otherwise provided for in the USBTC Disclosure Letter and Hut Disclosure Letter, respectively.
Employee Matters
During the one-year period commencing on the Effective Date, New Hut shall pay each USBTC Employee or Hut Employee who was employed by USBTC or USBTC Subsidiaries or Hut 8 or Hut Subsidiaries immediately prior to the Merger Effective Time and who remain employed with New Hut or any of its Subsidiaries (the “Company Employees”), a base compensation with annual cash bonus opportunities that, with respect to each such Company Employee, are no less favorable than the base salary and annual cash bonus opportunities of such Company Employee immediately prior to the Merger Effective Time. In addition, New Hut shall provide employee benefits that, with respect to each such Company Employee, are at least substantially comparable in the aggregate to the employee benefits provided to such Company Employee immediately prior to the Closing.
Each Company Employee shall be given full credit for such Company Employee’s service with either USBTC, Hut 8 or its respective Subsidiaries for the purposes of eligibility, vesting and determination of the level of benefits (but not for purposes of benefit accruals other than vacation pay, statutory severance, termination
118
TABLE OF CONTENTS​​​​
 
notice or pay in lieu or any other entitlement required by law) under any benefit plans made generally available to employees by New Hut or its Subsidiaries in which a Company Employee participates following the Closing (any such plan a “New Plan”) to the same extent recognized by USBTC, Hut 8 or their respective Subsidiaries immediately prior to the Closing; provided, however, that such service shall not be recognized to the extent it would result in a duplication of benefits.
New Hut shall use commercially reasonable efforts to (i) waive any pre-existing condition or limitations under any New Plan, other than any limitations that were in effect with respect to such employees as of the Closing, (ii) honor any deductible, co-payment and out-of-pocket maximums incurred by the Company Employees and their eligible dependents under the health plans in which they participated immediately prior to the Closing, and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to a Company Employee and his or her eligible dependents on or after the Closing, in each case to the extent such Company Employee or eligible dependent had satisfied any similar limitation or requirement prior to the Closing.
The Business Combination Agreement shall not (i) create any right in any Company Employee to continued employment or preclude the ability of New Hut or any Subsidiary to terminate the employment of any employee for any reason, (ii) require New Hut or any Subsidiary to continue any benefit plan or prevent the amendment, modification or termination thereof after the Closing, (iii) confer upon any Company Employee any rights or remedies under or by reason of the Business Combination Agreement or (iv) be treated as an amendment to any particular employee benefit plan of USBTC, Hut or any respective Subsidiary.
Specific Performance
Neither Party shall be precluded from seeking injunction relief to enforce the other Party’s obligation to consummate the transaction contemplated by the Business Combination Agreement, to restrain any breach of the covenants or otherwise obtain specific performance of any such covenants. Any requirement for proof of damage or the securing or posting of any bond in connection with obtaining such injunction or specific performance is being waived. No Party shall be permitted to receive both a grant of specific performance and any monetary damages (including all or any portion of the Termination Amount).
Third Party Beneficiaries
The Business Combination Agreement will not benefit or create any right or cause of action in favor of any person, other than the Parties or as described under section entitled “The Business Combination — Indemnification” beginning on page 94, and no person shall be entitled to rely on the provisions of the Business Combination Agreement in any action, suit, proceeding, hearing or other forum.
Governing Law
The Business Combination Agreement shall be governed by the laws of the Province of British Columbia and the federal laws of Canada applicable therein. Except as provided below, the Parties irrevocably attorn to the exclusive jurisdiction of the Court of the Province of British Columbia situated in the City of Vancouver in respect of all matters arising under and in relation to the Business Combination Agreement.
Notwithstanding the foregoing, the provisions in the Business Combination Agreement with respect to the Merger (the “Merger Provisions”) shall be governed by the laws of the State of Nevada without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of laws of another jurisdiction. Any proceeding or action based upon, arising out of or related to the Merger Provisions or the transactions contemplated thereby must be brought in the Eighth Judicial District Court of the State of Nevada sitting in Clark County, Nevada, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Nevada. Each Party waives any right such Party may have to a trial by jury in respect of any action, suit or proceeding arising out of or relating to the Merger Provisions or any of the transaction contemplated thereby.
The Support Agreements
Hut 8 Support Agreement
The following section summarizes material provisions of the Hut 8 Support Agreement, the form of which is included as an exhibit to the Registration Statement of which this prospectus forms a part, which form is
119
TABLE OF CONTENTS
 
incorporated by reference herein in its entirety, and qualifies the following summary in its entirety. The rights and obligations of USBTC and the Hut 8 Supporting Shareholders are governed by the Hut 8 Support Agreement and not by this summary or any other information contained in or incorporated by reference into this prospectus. You are urged to read the form of the Hut 8 Support Agreement carefully and in its entirety, as well as this prospectus and the information incorporated by reference into this prospectus.
Concurrent with the entry into the Business Combination Agreement, USBTC entered into the Hut 8 Support Agreement with each of the Hut 8 Supporting Shareholders with respect to the Hut 8 common shares and Hut 8 common shares issuable under Hut 8 Options, Hut 8 DSUs, and Hut 8 RSUs (together with the Hut 8 common shares, collectively, the “Hut 8 Subject Securities”) that each such Hut 8 Supporting Shareholder owned as of the date thereof, or thereafter.
In addition, the Hut 8 Supporting Shareholders have agreed, among other things, and subject to the terms and conditions of the Hut 8 Support Agreements, until the termination of the Hut 8 Support Agreements:
a)
not to, without having first obtained the prior written consent of USBTC, directly or indirectly, sell, transfer, grant a security interest in or otherwise dispose of any right or interest in (or any similar transaction) any of the Hut 8 Subject Securities, or enter into any agreement, arrangement or understanding in connection therewith;
​
b)
not to, without having first obtained the prior written consent of USBTC, requisition or join in the requisition of any meeting of any of the Hut 8 shareholders;
​
c)
not to, without having first obtained the prior written consent of USBTC, directly or indirectly, grant or agree to grant any proxy or other right to vote any Hut 8 Common Shares, or enter into any voting trust, vote pooling or other agreement with respect to the right to vote;
​
d)
to vote in favor of the approval, consent, ratification and adoption of the Arrangement and the transaction contemplated by the Business Combination Agreement;
​
e)
to vote or not vote the Hut 8 Subject Securities in a manner which could reasonably be expected to (i) prevent, hinder or delay the successful completion of the Arrangement or the transactions contemplated by the Business Combination Agreement, or (ii) support an Acquisition Proposal;
​
f)
to cease and cause to be terminated any existing solicitation, discussion or negotiation with respect to any potential Acquisition Proposal; and
​
g)
to irrevocably waive to the fullest extent permitted by law any and all rights of the Hut 8 Supporting Shareholders to dissent with respect to the Arrangement, and not exercise any such rights with respect to the Arrangement or the transactions contemplated by the Business Combination Agreement.
​
The Hut 8 Support Agreements may be terminated:
a)
by written instrument executed by each of the parties;
​
b)
in the event that the Business Combination Agreement is terminated in accordance with its terms;
​
c)
by written notice by the Hut 8 Supporting Shareholder to USBTC if, without the prior written consent of the Hut 8 Supporting Shareholder, there is any decrease in the aggregate amount of the Hut 8 Consideration to be received by non-dissenting Hut 8 Shareholders under the terms of the Arrangement; or
​
d)
at the Effective Time.
​
USBTC Stockholder Support Agreement
The following section summarizes material provisions of the USBTC Stockholder Support Agreement, the form of which is included as an exhibit to the Registration Statement of which this prospectus forms a part, which form is incorporated by reference herein in its entirety, and qualifies the following summary in its entirety. The rights and obligations of Hut 8, USBTC and the USBTC Supporting Stockholders are governed
120
TABLE OF CONTENTS
 
by the USBTC Stockholder Support Agreement and not by this summary or any other information contained in or incorporated by reference into this prospectus. You are urged to read the form of the USBTC Stockholder Support Agreement carefully and in its entirety, as well as this prospectus and the information incorporated by reference into this prospectus.
Concurrent with the entry into the Business Combination Agreement, Hut 8 and USBTC entered into the USBTC Stockholder Support Agreement with the USBTC Supporting Stockholders with respect to the shares of USBTC common stock, shares of USBTC preferred stock, and common stock issuable under USBTC options that each such USBTC Supporting Stockholder owned as of the date thereof, or thereafter.
Pursuant to the USBTC Stockholder Support Agreement, the USBTC Supporting Stockholders agreed to (i) vote all of their shares of USBTC capital stock in favor of the approval and adoption of the Business Combination and (ii) the termination of certain agreements between USBTC and certain of the USBTC Stockholders, subject to the occurrence of the Closing. Additionally, the USBTC Supporting Stockholders have agreed not to (i) transfer any of their shares of USBTC capital stock (or enter into any arrangement with respect thereto) or (ii) solicit, or agree to, alternative proposals.
The shares of USBTC capital stock subject to the USBTC Stockholder Support Agreement constituted approximately 42.5% of the outstanding shares of USBTC capital stock as of February 12, 2023. The USBTC Stockholder Support Agreement was entered into by the executive officers and directors of USBTC and certain other USBTC stockholders.
The USBTC Stockholder Support Agreement terminates at the earliest to occur of (i) the Closing, (ii) the termination of the Business Combination Agreement or (iii) the mutual written consent of the parties to the USBTC Stockholder Support Agreement. However, termination of the USBTC Stockholder Support Agreement will not relieve any party to such Support Agreements from liability for breach of the USBTC Stockholder Support Agreement itself.
121
TABLE OF CONTENTS​
 
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the anticipated U.S. federal income tax consequences of the Merger to U.S. Holders (as defined below) of USBTC common stock. This summary is based on the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations promulgated under the Code and judicial and administrative interpretations of those laws, in each case as in effect and available as of the date of this prospectus and all of which are subject to change or differing interpretations, possibly with retroactive effect. Any such change or differing interpretations could affect the tax consequences described below. There can be no assurance that the Internal Revenue Service (“IRS”) or courts will not adopt a position that is contrary to the description included in the following summary.
This discussion is limited to U.S. Holders who hold their USBTC common stock as a “capital asset” ​(generally, property held for investment) purposes. This summary does not address all tax considerations that may be relevant to a particular type of person in light of their particular circumstances. In particular, this summary does not address the U.S. federal income tax consequences of the Merger to persons subject to special treatment under the U.S. federal income tax laws, such as:
•
dealers or traders in securities or currencies;
​
•
banks, financial institutions or insurance companies;
​
•
real estate investment trusts or regulated investment companies;
​
•
grantor trusts;
​
•
persons who own, or are deemed to own, 5% or more, by voting power or value, of stock of USBTC, including the USBTC common stock;
​
•
persons that USBTC common stock who exercise their dissenters rights;
​
•
persons that hold Series A Preferred, Series B Preferred or Series B-1 Preferred;
​
•
persons who will own, or will be deemed to own, 5% or more, by voting power or value, of the stock of New Hut, including the New Hut common stock following the Merger;
​
•
persons that hold their USBTC common stock as part of a position in a straddle or as part of a hedging, conversion or other risk reduction transaction for U.S. federal income tax purposes;
​
•
U.S. expatriates and certain former citizens or long-term residents of the United States;
​
•
tax-exempt entities;
​
•
persons who hold their USBTC common stock through individual retirement accounts or other tax-deferred accounts;
​
•
persons who acquired their USBTC common stock pursuant to the exercise of warrants or conversion rights under convertible instruments;
​
•
persons who acquired their USBTC common stock pursuant to the exercise of employee stock options or otherwise as compensation; and
​
•
persons who own their USBTC common stock through partnerships or other pass-through entities.
​
In addition, the following summary does not address (i) any U.S. federal non-income tax consequences of the Merger, including estate, gift or other tax consequences; (ii) any state, local or non-U.S. tax consequences of the Merger; or (iii) the tax on net investment income or the alternative minimum tax.
If an entity (or an arrangement) treated as a partnership for U.S. federal income tax purposes holds USBTC common stock, the tax treatment of a partner in the partnership generally will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Partnerships and partners in such a partnership should consult their own tax advisors about the tax consequences of the Merger to them.
For purposes of this summary, a “U.S. Holder” is a beneficial owner of USBTC common stock that is, for U.S. federal income tax purposes:
122
TABLE OF CONTENTS
 
•
an individual who is a citizen or a resident of the United States;
​
•
a corporation, or other entity taxable as a corporation for U.S. federal income tax purposes, created or organized under the laws of the United States or any state thereof or the District of Columbia;
​
•
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
​
•
a trust, if it (1) is subject to the primary supervision of a U.S. court and one or more United States persons have the authority to control all substantial decisions of the trust, or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a United States person for U.S. federal income tax purposes.
​
YOU SHOULD CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE U.S. FEDERAL, STATE AND LOCAL AND NON-U.S. TAX CONSEQUENCES OF THE MERGER TO YOU BASED ON YOUR OWN PARTICULAR CIRCUMSTANCES.
U.S. Federal Income Tax Consequences of the Merger Generally
New Hut, Hut 8 and USBTC each intend that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, be treated as an exchange by Hut 8 Shareholders and USBTC stockholders, respectively, that qualifies under Section 351(a) of the Code (the “Intended Tax Treatment”). The Arrangement and the Merger are not conditioned on the receipt of an opinion of counsel that the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify for the Intended Tax Treatment, and there can be no assurance that such an opinion of counsel can or will be obtained. In addition, neither Hut 8 nor USBTC has requested, and neither intends to request, any ruling from the IRS as to the U.S. federal income tax consequences of the Arrangement and the Merger. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of those set forth below. Accordingly, each U.S. Holder USBTC common stock should consult its own tax advisor with respect to the particular tax consequences of the Merger to such holder, including the consequences if the IRS successfully challenged the qualification of the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, as a transaction described in Section 351 of the Code.
U.S. Federal Income Tax Consequences of the Merger to U.S. Holders of USBTC Common Stock
Tax Consequences if the Intended Tax Treatment Applies.   Subject to the paragraph below, assuming the Hut 8 Share Exchange occurring pursuant to the Arrangement and the Merger, together, will qualify for the Intended Tax Treatment, the following tax consequences would result for U.S. Holders of USBTC common stock:
•
gain or loss generally will not be recognized upon the exchange of USBTC common stock for New Hut common stock in the Merger;
​
•
the aggregate basis of the New Hut common stock received in the Merger by such U.S. Holder generally will be the same as the aggregate basis of the USBTC common stock exchanged therefor; and
​
•
the holding period of the New Hut common stock received in the Merger by such U.S. Holder generally will include the holding period of the USBTC common stock exchanged therefor.
​
If a U.S. Holder acquired different blocks of USBTC common stock (that is, USBTC common stock acquired at different times for different prices), such U.S. Holder’s tax basis in the New Hut common stock received in the Merger would generally be determined by reference to the aggregate basis of the separate blocks of shares transferred to New Hut. Such U.S. Holder would also generally have a split holding period in each of its shares of New Hut common stock received for purposes of determining long-term or short-term capital gain or loss. Such U.S. Holder’s holding period for a portion of each share of New Hut common stock will include the holding period such U.S. Holder had in each separate block of shares transferred in the Merger. U.S. Holders are urged to consult their own tax advisors if they have acquired different blocks of USBTC common stock that are being transferred in connection with the Merger.
Tax Consequences if the Intended Tax Treatment Does Not Apply.   If the Intended Tax Treatment does not apply, then the tax consequences to a U.S. Holder of USBTC common stock will depend on whether the
123
TABLE OF CONTENTS
 
Merger qualifies as a “reorganization” within the meaning of section 368 of the Code. U.S. Holders are urged to consult their own tax advisors as to whether the Merger may qualify as a reorganization for U.S. federal income tax purposes in the case that the Intended Tax Treatment were not to apply.
If the Merger qualifies as a reorganization, then the U.S. federal income tax consequences for a U.S. Holder of USBTC common stock will generally be the same as the consequences of the Intended Tax Treatment, except that a U.S. Holder’s basis and holding period in New Hut common stock received pursuant to the Merger would generally be determined separately for each block of USBTC common stock exchanged therefor.
If the Merger does not qualify as a reorganization and the Intended Tax Treatment does not apply, then a U.S. Holder that exchanges USBTC common stock in the Merger would generally recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference, if any, between (i) the fair market value (determined as of the Merger Effective Time) of the New Hut common stock received and (ii) the U.S. Holder’s adjusted tax basis in the USBTC common stock exchanged therefor. Any capital gain or loss recognized will be long-term capital gain or loss if the U.S. Holder’s holding period for such USBTC common stock exceeds one year. The deductibility of capital losses is subject to limitations. Gain or loss generally will be determined separately for each block of USBTC common stock (that is, USBTC common stock acquired at the same cost in a single transaction) exchanged pursuant to the Merger.
124
TABLE OF CONTENTS​
 
INFORMATION ABOUT HUT 8
Hut 8 Mining Corp.
Hut 8 Mining Corp.
24 Duncan Street, Suite 500
Toronto, ON M5V 2B8
(647) 256-1992
Hut 8 is a large innovation-focused digital asset miner, led by a team of business-building technologists, bullish on Bitcoin, blockchain, Web 3.0, and bridging the nascent and traditional high performance computing worlds. With two digital asset mining sites located in Southern Alberta and a third site in North Bay, Ontario, all located in Canada, Hut 8 has a high capacity rate and large inventory of unencumbered, self-mined Bitcoin. With 36,000 square feet of geo-diverse data centre space and cloud capacity connected to electrical grids powered by significant renewables and emission-free resources, Hut 8 is revolutionizing conventional assets to create the first hybrid data centre model that serves both the traditional high performance compute (Web 2.0) and nascent digital asset computing sectors, blockchain gaming, and Web 3.0. Hut 8 was the first Canadian digital asset miner to list on the Nasdaq Global Select Market.
Hut 8’s common stock is listed on Nasdaq and the TSX under the symbol “HUT.”
As previously disclosed by Hut 8, on January 26, 2023, Hut 8 filed a Statement of Claim in the Superior Court of Justice of Ontario against Validus Power Corp. and its subsidiary, Bay Power Corp. (collectively, “Validus”), in respect of Validus’ failure to meet its contractual obligations under the power purchase agreement it entered into with Hut 8 at the Company’s mining facility in North Bay, Ontario. On February 9, 2023, Hut 8 received a notice of termination from Validus purporting to terminate Hut 8’s lease at its North Bay facility (the “Validus Notice”). While Hut 8 believes that the Validus Notice is meritless and intends to vigorously prosecute the aforementioned matters, these matters are in the early stages of litigation and no assessment can be made as to the likely outcome of the matters or whether they will be material to Hut 8.
Additional information about Hut 8 is included in documents incorporated by reference into this prospectus, including its Annual Information Form for the year ended December 31, 2021, included as Exhibit 99.1 to Hut 8’s Annual Report on Form 40-F for the year ended December 31, 2021 and its Management’s Discussion and Analysis for the three and nine months ended September 30, 2022 and 2021, included as Exhibit 99.3 on Form 6-K dated November 10, 2022. See the section of this prospectus titled “Where You Can Find More Information” beginning on page 211.
125
TABLE OF CONTENTS​​
 
CERTAIN RELATIONSHIPS, RELATED PARTY AND OTHER TRANSACTIONS OF HUT 8
As of the date of this prospectus, there are no material arrangements, agreements and transactions within the three most recently completed financial years or during the current financial year in which Hut 8 was or is to be a participant and in which any person who will serve as an executive officer or director of New Hut following the Business Combination had or will have a direct or indirect material interest (other than as described under “Interests of Hut 8’s Directors and Executive Officers in the Business Combination”).
Indemnification Agreements with Officers and Directors and Directors’ and Officers’ Liability Insurance
Hut 8 has previously entered into indemnification agreements with each of its executive officers and directors. Hut 8 also maintains a general liability insurance policy which covers certain liabilities of directors and officers of Hut 8 arising out of claims based on acts or omissions in their capacities as directors or officers. For more information, see “Indemnification of Directors and Officers” beginning on page II-1 of this prospectus.
126
TABLE OF CONTENTS​​
 
INTERESTS OF HUT 8’S DIRECTORS AND EXECUTIVE OFFICERS IN THE BUSINESS COMBINATION
Certain of Hut 8’s directors and executive officers may have interests in the Business Combination that may be different from or in addition to the interests of Hut 8 securityholders generally. The Hut 8 Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and in overseeing the negotiation of, the Business Combination and in approving the Business Combination Agreement and Plan of Arrangement. These interests may include, among other things, the interests described below:
Equity Awards
Directors
As part of Hut 8’s director compensation program, non-employee directors receive awards of Hut 8 DSUs, which are rights to receive shares of Hut 8 common shares, a cash payment based on the value of Hut 8 common shares or a combination of the foregoing upon the payment date described in the underlying agreement. Certain of the Hut 8 DSUs awarded to directors are subject to a vesting schedule, contingent upon the director’s continued service on the Board. Pursuant to the terms of the Business Combination Agreement and Plan of Arrangement, the Hut 8 DSUs will be adjusted so as to be payable in common stock of New Hut (or a cash equivalent or combination) with an aggregate intrinsic value equal to the aggregate intrinsic value of the Hut 8 DSUs immediately prior to the consummation of the Business Combination (“New Hut DSUs”). One member of the Hut 8 Board, Joseph Flinn, also holds 115,000 vested Hut 8 Options with a per-share exercise price of C$5.00; such Hut 8 Options will be automatically exchanged for Hut 8 Replacement Options with an aggregate intrinsic value equal to the aggregate intrinsic value of the corresponding Hut 8 Options immediately prior to the Business Combination; those Hut 8 Replacement Options will continue to be vested.
The following chart sets forth a summary of the Hut 8 DSUs and Hut 8 Options held by the non-employee members of the Hut 8 Board as of February 10, 2023.
Director
​ ​
Hut 8
DSUs
​
Rick Rickertsen
​ ​ ​ ​ 20,298 ​ ​
Bill Tai
​ ​ ​ ​ 96,594 ​ ​
Alexia Hefti
​ ​ ​ ​ 42,829 ​ ​
Joseph Flinn
​ ​ ​ ​ 96,594 ​ ​
Executive Officers
Hut 8’s executive officers hold Hut 8 RSUs. In connection with the Business Combination, such awards will be adjusted into New Hut Options and restricted stock units with respect to New Hut common stock (“New Hut RSUs”), in each case with an aggregate intrinsic value equal to the intrinsic value of the corresponding Hut 8 award immediately prior to the Business Combination (which adjusted awards will generally be subject to their existing terms and conditions). The vesting conditions applicable to the Hut 8 RSUs held by Hut 8’s executive officers will continue to be applicable to the corresponding New Hut RSUs following the adjustment described above; there will not be any accelerated vesting of these awards in connection with the Business Combination.
The following chart sets forth a summary of the Hut 8 RSUs held by the Hut 8 executive officers (including their vesting status) as of February 10, 2023. There are no Hut 8 DSUs or Hut 8 Options held by Hut 8 executive officers.
127
TABLE OF CONTENTS​​
 
Executive
​ ​
Hut 8 RSUs
(all unvested)
​
Jaime Leverton
​ ​ ​ ​ 4,061,653 ​ ​
Shenif Visram
​ ​ ​ ​ 500,000 ​ ​
Erin Dermer
​ ​ ​ ​ 697,241 ​ ​
James Beer
​ ​ ​ ​ 742,241 ​ ​
Suzanne Ennis
​ ​ ​ ​ 692,241 ​ ​
Joshua Rayner
​ ​ ​ ​ 419,828 ​ ​
Aniss Amdiss
​ ​ ​ ​ 757,241 ​ ​
Executive Employment Agreements
Certain executive officers of Hut are parties to employment agreements with Hut 8 which provide for severance benefits upon a qualifying termination of employment (by Hut 8 without cause or by the executive for good reason), including in connection with a change in control (although the severance benefits payable to such executives do not vary based upon whether or not the qualifying termination of employment is in connection with a change in control and the Business Combination may or may not result in a change in control of Hut 8). Upon such a qualifying termination, the executive will generally be entitled (in addition to accrued compensation and expense reimbursement) to the following in connection with termination: (i) any bonus awarded in the year preceding the year of termination, if not yet paid, (ii) a pro-rata bonus, to the extent earned, for the year of termination (except in the cases of Mr. Visram, for whom the bonus payment is 100% of his target annual bonus, and Mr. Amdiss, for whom the bonus payment is 75% of his target annual bonus), (iii) payment of base salary with respect to a period of either 9 (for Mr. Amdiss) or twelve months (for the other executives) following the date of termination and (iv) certain benefit continuation entitlements. The following chart sets forth a summary of the estimated severance payments and benefits to which the Hut 8 executive officers in the event of a qualifying termination, whether or not in connection with the Business Combination:
​ ​ ​
Payment in
Respect of Bonus(1)
​ ​
Severance
​ ​
Total
​
Jaime Leverton
​ ​ ​ $ 125,000 ​ ​ ​ ​ $ 500,000 ​ ​ ​ ​ $ 625,000 ​ ​
James Beer
​ ​ ​ $ 66,249 ​ ​ ​ ​ $ 265,000 ​ ​ ​ ​ $ 331,249 ​ ​
Shenif Visram
​ ​ ​ $ 275,000 ​ ​ ​ ​ $ 275,000 ​ ​ ​ ​ $ 550,000 ​ ​
Aniss Amdiss
​ ​ ​ $ 198,750 ​ ​ ​ ​ $ 198,750 ​ ​ ​ ​ $ 397,500 ​ ​
Erin Dermer
​ ​ ​ $ 56,250 ​ ​ ​ ​ $ 225,000 ​ ​ ​ ​ $ 281,250 ​ ​
Suzanne Ennis
​ ​ ​ ​ — ​ ​ ​ ​ $ 7,692 ​ ​ ​ ​ $ 7,692 ​ ​
Joshua Rayner
​ ​ ​ $ 50,000 ​ ​ ​ ​ $ 200,000 ​ ​ ​ ​ $ 250,000 ​ ​
​
(1)
Assumes a qualifying termination as of March 31, 2023 for executives other than Mr. Visram and Mr. Amdiss.
​
New Agreements
Certain executive officers of Hut 8 may enter into new agreements or compensation arrangements in connection with the Business Combination, either before or following the consummation of the Business Combination, including, without limitation, with respect to cash compensation, short and long term incentives, severance or other employment terms and conditions. No such agreements or arrangements have been entered into as of the date hereof and the terms of any such new agreement or arrangement cannot be determined at this time.
128
TABLE OF CONTENTS​
 
INFORMATION ABOUT USBTC
U.S. Data Mining Group, Inc.
U.S. Data Mining Group, Inc. dba US BITCOIN CORP
1221 Brickell Avenue, Suite 900
Miami, Florida 33131
Phone: (305) 224-6427
Unless the context otherwise requires, all references in this section to “USBTC” refer to U.S. Data Mining Group, Inc. dba US Bitcoin Corp. and its subsidiaries. References to digital asset mining and crypto asset mining are interchangeable and are meant to have the same meaning.
Business Overview
USBTC is an industrial-scale operator of Bitcoin mining sites. The company’s strategy is to design, build, and operate sites where there is access to low-cost and sustainable sources of electricity. The company operates four sites across the United States with access to approximately 730 MW of electricity and fully built out rack space.
USBTC has several revenue streams: self-mining, hosting, managed infrastructure operations, and equipment sales. Self-mining refers to all USBTC-owned machines that contribute computing power to mining pools in exchange for Bitcoin. Hosting refers to USBTC operating third party-owned machines at its sites in exchange for a hosting fee. Managed infrastructure operations refers to USBTC operating third-party-owned Bitcoin mining sites in exchange for a property management fee. Equipment sales refers to USBTC selling mining or infrastructure equipment to third-parties.
USBTC owns and operates Alpha Site in Niagara Falls, New York with access to approximately 50 MW of electricity. USBTC also owns a 50% interest in the King Mountain JV with a leading North American energy company. The King Mountain JV owns Echo Site in Upton County, Texas with access to approximately 280 MW of electricity. The Echo Site is co-located at a behind-the-meter wind farm.
USBTC is the site operator for three Bitcoin mining sites through its USMIO subsidiaries. USMIO leads all aspects of site operations, including accounting, curtailment, and customer relations if the site owner is also a hosting provider. The first site is Charlie Site, located in Kearney, Nebraska that has access to approximately 100 MW of electricity. The second site is Delta Site, located in Granbury, Texas that currently has access to approximately 300 MW of electricity. The third site is the Echo Site owned by the King Mountain JV, which has access to approximately 280 MW of electricity. USBTC views its managed infrastructure operations business as a strategic partnership with its clients; the company structures its property management agreements to incentivize the long-term growth and sustainability of its clients’ sites.
Technology
USBTC aims to differentiate itself through a data-driven operating model powered by purpose-built technology. USBTC has made significant investments in building an advanced software platform to automate Bitcoin mining operations. This software platform underpins every site operated by USBTC and drives responsive decision making focused on maximizing the profitability of USBTC’s mining operations. USBTC continues to invest in its technology with a focus on enhancing its algorithmic decision-making across all aspects of site operations.
Operator: Asset Management
Operator is a purpose-built asset management platform that is designed to track miners at the fleet, site, container, and unit levels. Operator monitors and reports miner temperature, fan speed, hashrate performance, and errors in real time. The platform is designed to enable USBTC to drive hashrate efficiency through precise diagnosis of environmental and infrastructural issues that affect miner efficiency. Operator configures mining pool destinations, alerts management in the event of irregularities, and automatically issues repair work orders.
Operator is designed to drive improvements in miner uptime and efficiency by reducing human inefficiencies in site management. The platform is programmed to automatically issue work orders for dysfunctional miners.
129
TABLE OF CONTENTS
 
Work orders contain directions to the unit’s location within the site and a diagnosis of the unit’s underlying problem. The system seeks to enable a flexible staffing model in which sites can be operated by a lean team of onsite technicians without specialized technical knowledge or skills.
USBTC’s management believes Operator is easily scalable, as it is designed to operate in multiple different types of facilities and to support a wide range of models from leading miner manufacturers, including, for example, Bitmain, MicroBT, and Canaan. As the platform is continued to be used across USBTC’s growing site portfolio, it continues to aggregate large data sets that enable the development of scaled automations such as algorithmic energy curtailment.
Reactor: Energy Curtailment
Reactor is an advanced, algorithmic energy curtailment platform that USBTC believes will drive significant Bitcoin mining profitability for USBTC. Reactor is designed to actively manage the energy portfolio of each site operated by USBTC, capitalizing on volatility in energy markets and enabling USBTC to capture profit by selling energy back to the grid. Reactor is designed to drive minimal baseload power consumption during predicted grid peaks to reduce transmission costs, bid into ancillary service programs, and underclock machines to improve efficiency in times of high power pricing.
USBTC management believes traditional curtailment solutions are suboptimal as they address Bitcoin mining uniformly rather than addressing the power consumption of specific miners individually based on their respective profitability profiles. Reactor is designed to solve this issue through an algorithm with miner-level granularity. The platform is integrated with USBTC’s asset-management platform, Operator, and is designed to automatically adjust the power consumption of each miner in real-time based on longitudinal data on the miner’s unique, observed profitability. The algorithm developed by USBTC can follow desired ramp curves provided by each grid, with the capability of full power ramp-down in seconds and full power ramp-up in seconds.
Operating Highlights
USBTC aspires to achieve industry-leading profitability at each stage of the Bitcoin mining value chain.
Energy Sourcing.   Securing access to low-cost, sustainable energy is foundational to USBTC’s ability to operate and scale cost-effectively. USBTC engages with load-serving entities on fixed forward energy supply agreements and actively researches depressed and curtailed interconnection nodes associated with existing renewable or thermal generation resources for site colocation opportunities with advantageous pricing. USBTC’s focus on colocation and tandem forward hedging seeks to drive predictability in operating costs and fast access to grid connections.
Co-locating with intermittent generation sources materially improves site economics and enables USBTC to build long-term development pipeline partnerships. USBTC participates in deregulated markets with sophisticated trading and arbitrage strategies that enable it to settle physical and financial products from the Bitcoin, power, and ancillary markets.
USBTC focuses on opportunities of scale at generation facilities with 100+ MW of available capacity. The company prioritizes joint venture and infrastructure financing opportunities with energy partners, with the goal of strengthening its partners’ return on invested capital and enabling USBTC to leverage capital to scale rapidly. USBTC currently operates two behind-the-meter Bitcoin mining sites, Delta and Echo, which are co-located with an energy source and share a meter into the grid.
Energy Management.   USBTC operates data centers under a threefold mission: maximize profitability, capture upside, and protect against downside. In addition to leveraging its purpose-built Operator asset management platform and Reactor curtailment platform, USBTC aims to fulfill this mandate through its broader approach to energy management. USBTC maintains deep relationships with energy trading partners to identify locations and timeframes when forward hedging of power exposure is advantageous and participates in demand response programs to monetize its flexible load structure.
USBTC uses “electron arbitrage” strategies to manage its energy portfolio and optimize site returns. To do so, the company developed purpose-built custom firmware with a set of rapid consumption adjustment and chip
130
TABLE OF CONTENTS
 
frequency modulating commands for commonly used miner models to enable this approach. These commands are integrated into the Reactor energy curtailment platform, which gives USBTC the ability to participate in a wide range of ancillary service programs offered by Independent System Operators, including primary frequency response, which is an immediate proportional increase or decrease in real power output in response to grid frequency deviations. The speed of these power modulating commands supports USBTC’s goal of maximizing profitability by examining power markets granularly to ensure that each decision made by Reactor aligns with USBTC’s broader energy strategy, while the chip frequency-modulating commands enable Reactor to adjust the efficiency of USBTC’s data centers in real-time to protect against downside.
USBTC understands the value and necessity of power to industrial-scale Bitcoin mining. To mitigate the risks inherent in its reliance on power, USBTC may enter into long-term financial energy swaps and physical power purchase agreements. Due to the flexibility of the Reactor curtailment platform, these financial products can be integrated into USBTC’s physical power consumption strategy to capture upside in a predictable and reliable fashion, while simultaneously reducing the risk profile of ancillary service program participation.
Site Design and Buildout.   USBTC sets a rigorous standard for building Bitcoin mining sites quickly, safely, and cost-effectively. The company’s development team manages each project on-site from start to finish, including design and construction. USBTC may also engage local vendors and contractors when appropriate, driving faster buildout and strong community relationships. Overall, USBTC’s management team believes that this approach to site design and buildout leads to greater return on invested capital.
A data center in Pecos, Texas, was the first ground-up data center design and buildout completed by USBTC. Upon closing the purchase of 2.6 million square feet of land in West Texas in the first quarter of 2022, USBTC successfully connected the data center to its power source in 43 days. USBTC applied its extensive experience operating data centers in extreme physical environments to develop and implement custom modifications to stock mining containers with the goal of driving miner performance and efficiency.
Research and Development.   USBTC aims to develop novel, market-leading solutions to design and operational challenges. Every aspect of site design, buildout, and operations gets tested under a formal three-stage process that charges each USBTC department with proactive problem definition, analysis, solution generation, solution implementation, KPI definition, and impact tracking. This approach underlies the innovation that USBTC has driven across multiple stages of the Bitcoin mining value chain.
Growth Strategy
Business Diversification
USBTC’s management believes that a diversified business model can enable the company to both capture upside during market upcycles and weather market downcycles. The company aims to grow within the infrastructure, Bitcoin mining, site management and equipment sales sectors, each of which has a unique return profile and level of exposure to the underlying Bitcoin market.
As an infrastructure company, USBTC builds electrical infrastructure and high-performance data centers that can be deployed for both self-mining and hosting. As a mining company, USBTC is driving market-leading leveraged returns on Bitcoin prices through its operating rigor and proven ability to maximize data center profitability. As a site management company, USBTC is leveraging its operating experience and proprietary technology platforms to build a services business for third-party data center owners. Finally, as a participant in each of these sectors, USBTC may, from time to time, sell mining or infrastructure equipment to third-parties to capture additional economic upside.
To enable its strategy of diversification across infrastructure, mining, and property management, USBTC actively explores and pursues opportunities to develop joint ventures and partnerships with peers across the Bitcoin mining and energy sectors. These partnerships and joint ventures present an opportunity for USBTC to design innovative models to scale and accelerate the growth of the business by tapping into new pools of resources and capabilities.
As the Bitcoin mining industry continues to mature, USBTC believes it can leverage its operating strength and technology to position itself as a leading partner to institutional investors, energy companies, real estate owners, and other stakeholders across the Bitcoin mining value chain. In such partnerships, USBTC can bring
131
TABLE OF CONTENTS
 
its specialized operating experience and expertise while benefiting from its counterparty’s complementary expertise in other areas, such as capital raising and energy asset development. In such cases, USBTC focuses on identifying differentiated opportunities that provide equity positions in new companies, new revenue models (e.g., profit share), and management fees as additional economic upside.
Commitment to ESG
USBTC pursues site portfolio growth with the goal that the agile load infrastructure it builds is a grid-stabilizing asset that drives the advancement of non-baseload renewable assets such as wind and solar. USBTC aims to address transmission constraints and support the development of clean energy sources. It does this by building sites in energy supply congested areas and balancing oversupply with an increase in demand, which in turn helps to increase the price of electricity at the resource node and create an environment that is more favorable for clean energy generation.
With respect to front-of-the-meter energy and storage systems (“loads”), which are directly connected to the grid and pull energy exclusively from the market, USBTC’s sites stabilize fluctuations in the grid in areas where growth in renewable loads such as wind and solar is driving natural unpredictability and volatile supply dynamics by curtailing when energy prices are high and demand outpaces supply. USBTC focuses on differentiated opportunities in both regulated and deregulated markets, partnering with cities, states, and utilities and leveraging economic development incentives to build grid-stabilizing assets and monetize grid scale inefficiencies. Some examples of this are large transmission nodes with extra capacity where flexible loads are valuable, rural areas with built up infrastructure that is underutilized or where industry has departed, and joint ventures with large power partners to arbitrage structural gaps in power trading markets.
With respect to behind-the-meter-loads, which are co-located with an energy source and share a meter into the grid, USBTC sites act as a consumer of last resort. Wind and solar projects face the critical challenge of undesired curtailment due to node congestion caused by limited transmission systems. The growing supply of renewable generation facilities has created an imbalance where existing transmission infrastructure cannot support the volume of load generation in periods of high production. USBTC focuses on building sites in such areas, typically with low population density and an abundance of renewable development, such as West Texas. By doing so, it enables generation and consumption of power that would otherwise have been curtailed.
Renewable energy sources powering USBTC’s owned and operated sites include renewable energy and zero carbon emission energy from wind, hydro, and nuclear sources. As of January 31, 2023:
•
Alpha Site at Niagara Falls is fueled by a minimum of approximately 94% zero carbon emission energy sources;
​
•
Charlie Site in Nebraska is powered by 62% zero carbon emission sources, including 46.9% nuclear, 7.9% wind and 7.6% hydro; and
​
•
The Echo facility at King Mountain is co-located behind the meter at a wind farm, and at peak wind generation periods can draw up to 100% of the energy the wind project produces to power mining and hosting; the rest of the time, the energy is sourced from ERCOT which includes more than 40% zero carbon emission sources.
​
Custody Policy
USBTC uses third-party custody solutions from Coinbase, Inc. (“Coinbase”), NYDIG Trust Company LLC, and Fidelity to safeguard its Bitcoin. USBTC’s custody policy and procedures are detailed below and have not been changed in light of the current digital asset market disruption. USBTC does not currently hold any bitcoin for third parties.
Each third-party custody solution used by USBTC to safeguard its Bitcoin offers both online storage, or “hot storage,” and offline storage, or “cold storage.”
The majority of USBTC’s Bitcoin balance is held by Coinbase and accessed via the Coinbase Prime platform. Coinbase Prime offers online “hot storage” via its trading account system and offline “cold storage” via its vault account system. As of the data of this prospectus, USBTC stores substantially all of its Bitcoin in a Coinbase Prime trading account.
132
TABLE OF CONTENTS
 
Coinbase Prime carries crime insurance that protects a portion of digital currencies held across its storage systems against losses from theft, including cybersecurity breaches. The policy does not cover any losses resulting from unauthorized account access due to a breach or loss of credentials.
Five USBTC employees are authorized users of the company’s Coinbase Prime portfolio, which means that they can view the company’s portfolio balances and activity history on the platform. Of the five authorized users, three users are portfolio administrators and can propose transactions and account changes, review transactions and account changes, execute digital asset trades on the market, manage portfolio users, and manage policies. Of the five authorized users, one user is an authorized signatory and can propose transactions and account changes, review transactions and account changes, and manage policies. Of the five authorized users, one user is an auditor and can view the company’s portfolio balances and activity history on the platform but has no other rights on the platform.
For security reasons, authorized users of the company’s Coinbase Prime portfolio must complete two-factor authentication with YubiKey hardware authentication devices to access the company’s portfolio. To withdraw Bitcoin from the company’s vault account, two of the three company portfolio administrators must approve the withdrawal. To withdraw Bitcoin from the company’s trading account, two of the three company portfolio administrators must approve the withdrawal. Withdrawals approved by the company’s portfolio administrators are audited and approved by Coinbase. If approved by Coinbase, Bitcoin is released to the designated, previously whitelisted Bitcoin address.
Recent Developments
King Mountain JV
On December 6, 2022, one of USBTC’s subsidiaries acquired a 50% membership interest in a joint venture and assumed a senior note in the amount of $96.8 million pursuant to the acquisition (the “King Mountain JV Senior Note”). USBTC acquired the 50% membership interest through a competitive auction process in connection with the Chapter 11 bankruptcy filing of Compute North. Given the timing of the acquisition, USBTC’s interest in the King Mountain JV is not reflected in USBTC’s financials for the three months ended September 30, 2022.
Self-mining revenue and hosting services revenue for the King Mountain JV was $2.5 million and $4.4 million, respectively, for the month ended December 31, 2022, which represented 100% of the King Mountain JV’s revenue during the month. USBTC has provisionally concluded that the King Mountain JV will be accounted for with the equity method of accounting. USBTC’s 50% portion of monthly distributions from the King Mountain JV will be swept to pay down the King Mountain JV Senior Note.
Managed Infrastructure Operations
Two USBTC subsidiaries entered into PMAs in November 2022 with an institutional investor focused on renewable energy assets. USBTC entered into these agreements following a formal request for proposal (RFP)-driven process in connection with the Chapter 11 bankruptcy filing of Compute North, through which the institutional investor became the owner of two digital asset mining sites.
Each of these PMAs has five-year terms whereby each subsidiary charges a monthly fixed fee and also has the ability to pass-thru certain additional costs for the management, support, and administrative functions of operating a Bitcoin mining site for a third-party customer. The sites that USMIO manages under these PMAs are the Charlie Site and Delta Site.
On December 6, 2022, one of the USMIO subsidiaries assumed a PMA for a Bitcoin mining site owned by the King Mountain JV, which is the Echo Site. This PMA has a five-year term, including a charge of a monthly fixed fee in addition to certain pass-thru costs for the operations, management, support, and administrative functions of operating a Bitcoin mining site for the King Mountain JV.
Given the timing of USBTC’s commencement of its USMIO operations, the USMIO business is not reflected in USBTC’s financials for the three months ended September 30, 2022.
For the month ended December 31, 2022, USMIO’s total PMA fees for the Charlie, Delta, and Echo Sites were $0.8 million, not including reimbursements for pass-thru costs.
133
TABLE OF CONTENTS
 
Debt
In December 2022, USBTC entered into a $10.0 million term-loan with a third party. The maturity date is December 5, 2027 and the interest rate is 6% per annum. Interest is payable in kind as an addition to, and capitalization on, the outstanding principal. The term-loan is secured by certain assets of USBTC and does not have financial covenants.
Restructuring and Financing
NYDIG
On July 27, 2021, USBTC entered into that certain Master Equipment Finance Agreement with Arctos Credit, LLC, a Delaware limited liability company (“Arctos,” and such agreement the “MEFA”). Pursuant to the MEFA, Arctos advanced approximately $9.1 million (the “Principal”) to finance USBTC’s purchase of certain equipment, in exchange for repayment of the Principal, in addition to interest (the “Initial MEFA Debt”), by July 25, 2023. Additionally, USBTC granted Arctos a security interest in certain of its assets, as further described in the MEFA, and pursuant to that certain Security Agreement dated as of July 27, 2021 by and between USBTC and Arctos (the “Security Agreement”).
On December 27, 2021, USBTC executed that certain First Amendment to Master Equipment Finance Agreement (the “MEFA Amendment,” and together with the MEFA, the “Credit Agreement”) with NYDIG pursuant to which (i) NYDIG replaced Arctos as the “Lender” under the MEFA, being granted full rights of such party under the Credit Agreement, (ii) NYDIG replaced Arctos as “Secured Party” under the Security Agreement, being granted the full rights of such party under the Security Agreement, (iii) NYDIG made additional advances to USBTC (the “Additional MEFA Debt,” and together with the Initial MEFA Debt, the “MEFA Debt”), and (iv) USBTC granted NYDIG additional security interests in certain of its assets, as further described in the MEFA Amendment.
In connection with a restructuring of its debt obligations with NYDIG, USBTC (and certain of its subsidiaries) entered into that certain Asset Purchase Agreement dated as of February 3, 2023 with NYDIG (and certain of its subsidiaries or other affiliates) pursuant to which USBTC transferred certain of its assets, including certain of its equipment, real estate, and contracts (“USBTC Assets”) to NYDIG in full satisfaction of the MEFA Debt owed under the Credit Agreement and release of the security interests granted pursuant to the Security Agreement (the “APA”). Additionally, USBTC and NYDIG entered into certain other agreements to effectuate the purposes of, and the transactions contemplated by, the APA including (i) a Real Estate Purchase and Sale Agreement dated as of February 3, 2023 pursuant to which USBTC transferred certain real property to NYDIG and (ii) an Assignment and Assumption Agreement dated as of February 3, 2023 pursuant to which NYDIG transferred its rights as “Lender” under the Credit Agreement to USBTC in exchange for the Assets transferred to NYDIG under the APA.
As of February 3, 2023, USBTC owes no amount of the MEFA Debt to NYDIG and NYDIG holds no remaining security interests in the assets of USBTC such that NYDIG is no longer considered a debt finance partner or secured party of USBTC. The extinguishment of these debts is reflected in the pro forma financial statements included in this prospectus.
Anchorage
On March 31, 2022 and April 26, 2022, respectively, USBTC entered into those certain Equipment Loan and Security Agreements with Anchorage (the “Original Loan Agreements”). Pursuant to the Original Loan Agreements, Anchorage advanced $50.0 million (the “Original Principal”) to USBTC to finance USBTC’s acquisition of certain business equipment. Pursuant to the Original Loan Agreements, USBTC agreed to repay the Original Principal plus interest. Additionally, USBTC granted Anchorage a security interest in certain of its assets, as further described in the Original Loan Agreements.
In connection with a restructuring of its debt obligations with Anchorage, USBTC (and certain of its subsidiaries) entered into that certain Loan, Guaranty and Security Agreement dated as of February 3, 2023 with Anchorage with a term of 5 years, pursuant to which (i) USBTC transferred certain of its assets to its wholly-owned subsidiary, US Data Guardian LLC (“USDG”), a Nevada limited liability company, (ii) USDG became the “Borrower” under the Original Loan Agreement, (iii) Anchorage obtained a security interest in
134
TABLE OF CONTENTS
 
certain assets, including certain USBTC miners, of USBTC, USDG, and U.S. Data Technologies Group Ltd., a wholly-owned subsidiary of USBTC (“USDTG,” and together with USBTC and USDG, the “Loan Parties”), and (iv) the Loan Parties agree to repay the Outstanding Loan Amount (as defined below) to Anchorage (such agreement, the “Refinanced Loan Agreement”). Additionally, USBTC, USDG, and USDTG, as applicable, entered into certain other agreements with Anchorage to effectuate the purposes of, and the transactions contemplated by, the Refinanced Loan Agreement including (i) that certain Subscription Agreement by and between USBTC and Anchorage, dated as of February 3, 2023, pursuant to which Anchorage acquired 2,960,000 shares of USBTC common stock, and (ii) that certain Asset Purchase Agreement by and between USBTC and USDG dated as of February 3, 2023 pursuant to which USBTC transferred certain of its assets to USDG pursuant to the Refinanced Loan Agreement. As of February 3, 2023, USBTC (and the Loan Parties) owe, and have agreed to repay, approximately $49.0 million to Anchorage, in addition to interest (the “Outstanding Loan Amount”). Pursuant to the Refinanced Loan Agreement, the Outstanding Loan Amount is repaid through profits generated from those certain USBTC miners underlying the security interest, as further specified in the Refinanced Loan Agreement. In addition, USBTC is not required to make a minimum monthly payment.
Current Management and Directors
Management
Michael Ho has served as USBTC’s Chief Executive Officer and as Chairman of its Board since its inception. Mr. Ho has experience as a serial entrepreneur having founded numerous businesses in the digital and traditional trade sectors. He served as the CEO of Vancouver Motorcars Ltd. (formerly Advant Automotive Inc) from January 2012 to April 2015. Mr. Ho then served as the CEO of MKH International Ltd, from July 2015 to December 2018. During this 6-year period, Mr. Ho specialized in currencies, international trade, structured financings and equity structuring. Mr. Ho also has extensive experience in the industry, having begun mining digital assets in 2014 and in 2017, Mr. Ho began setting up businesses procuring, managing, and selling turnkey digital asset mining facilities.
Asher Genoot has served as USBTC’s President and as a Director since its inception. He has been a serial entrepreneur who started his first business, the Ivy Crest Institute of International Education, at the age of 19 in Shanghai, China and sold it shortly after. Following that experience, Mr. Genoot served as the founder and Chief Executive Officer at Curio, a Shanghai-based education company that expanded across the country from April 2016 to May 2019. He currently serves as a Board Member at Curio. He also has experience as the Managing Director at Flagship Endeavors, a brand incubator. Mr. Genoot graduated from the University of Southern California with a Bachelor’s in Business Administration. Mr. Genoot is a member of the Young Presidents Organization (YPO) Miami Chapter.
Joel Block has served as USBTC’s Chief Financial Officer since December 2021, while previously serving as its Chief Business Officer since September 2021. Mr. Block is a seasoned executive, having over 15 years of experience across finance, accounting, operations, and sales. Prior to joining USBTC, Mr. Block was the Chief Executive Officer of Collegewise from September 2017 to August 2021. Collegewise is one of America’s largest college admissions companies. From February 2015 to August 2017, Mr. Block was the Chief Financial Officer of Collegewise. In 2017 he led the sale of a stake in the business to A-Star Education, a private equity backed global education group. Mr. Block also served in numerous roles at Credit Suisse from 2005 to 2013, including as a Vice President on the Institutional Fixed Income Sales team. He specialized in interest rate derivatives and hedging transactions while at Credit Suisse. Mr. Block received his BBA with concentrations in Finance and Accounting from the University of Michigan Ross School of Business as well as a minor in Statistics. Mr. Block is on the board of the Young Presidents Organization (YPO) Orange County Chapter.
Matthew Prusak has served as USBTC’s Chief Commercial Officer since June 2021. Prior to joining USBTC, Mr. Prusak served as the Chief Business Officer of Curative, a COVID-19 diagnostics company, from 2020 to 2021. Mr. Prusak also has experience as a consultant at Bain & Company from 2015 to 2017. Mr. Prusak holds a Master’s in Business Administration from the Stanford Graduate School of Business, a Master’s in Global Affairs from Tsinghua University as a Schwarzman Scholar, and a Bachelor’s in International Relations from the University of Southern California.
135
TABLE OF CONTENTS
 
Non-Employee Directors
Stanley O’Neal has served as a director of USBTC since April 2021. Mr. O’Neal is the former Chairman and Chief Executive Officer of Merrill Lynch. He became Merrill’s chief executive in 2002 and was elected Chairman of Merrill Lynch in 2003, serving in both positions until October 2007. He also served as director of American Beacon Advisors, Inc. from 2009 to September 2012. Mr. O’Neal worked for Merrill Lynch for 21 years. He was named President and Chief Operating Officer in 2001 and before that was President of the brokerage firm’s U.S. Private Client group. He served as Executive Vice President and Chief Financial Officer of Merrill Lynch from 1998 until 2000 and also held the position of Executive Vice President and Co-Head of the Corporate and Institutional Client Group for one year starting in 1997. Before joining Merrill Lynch, Mr. O’Neal was employed at General Motors Corporation where he held a number of financial positions of increasing responsibility, including General Assistant Treasurer. Mr. O’Neal received a Master’s of Business Administration with distinction in Finance from Harvard University and is a graduate of Kettering University (formerly General Motors Institute). He served on General Motor’s Board of Directors from 2001-2006 and also currently serves on the boards of Clearway Energy, Element Solutions, and Arconic Corporation.
Mayo A. Shattuck III has served as a director of USBTC since December 2021. He previously served as the Chairman of Exelon, a position he held from February 2012 until April 2022 and previously served as the Executive Chairman of the Board of Exelon from March 2012 through February 2013. Prior to its merger with Exelon, Mr. Shattuck was the Chairman, President and Chief Executive Officer of Constellation Energy, a position he held from October 2001 to February 2012. Constellation Energy owned energy-related businesses, including a wholesale and retail power marketing and merchant generation business. Mr. Shattuck was previously at Deutsche Bank, where he served as Chairman of the Board and CEO of Deutsche Banc Alex. Brown and as Global Head of Investment Banking and Global Head of Private Banking. While Chairman and CEO of Constellation Energy and Executive Chairman of Exelon, Mr. Shattuck served as Chairman of the Board of the Institute of Nuclear Power Operations (“INPO”) and is a member of the Executive Committee of the Board of Edison Electric Institute (“EEI”) and the Nuclear Energy Institute (“NEI”). He was also Co-Chairman of the Center for Strategic & International Studies (“CSIS”) Commission on Nuclear Policy in the United States and Executive Committee member of the Council on Competitiveness. Mr. Shattuck also currently serves on the Boards of Directors for Gap Inc. (since 2002) and Capital One Financial Corporation (since 2003). Mr. Shattuck has a Bachelor of Arts from Williams College and a Masters in Business Administration from The Stanford Graduate School of Business.
Amy Wilkinson has served as a director of USBTC since August 2022. She currently serves as the Chief Executive Officer of Ingenuity, an innovation consulting firm, a role she has held since founding the firm in January 2017. Ms. Wilkinson also serves as a Lecturer in Management at the Stanford Graduate School of Business, a role she has held since May 2015. Before joining the Stanford Graduate School of Business, Ms. Wilkinson was a Kauffman Foundation Grantee for Research on High Growth Entrepreneurs from 2013 to 2015 and a Senior Fellow at the Harvard Kennedy School of Government from 2009 to 2015. Ms. Wilkinson served in The White House as a White House Fellow and Special Assistant to the United States Trade Representative from 2004 to 2007. She also has experience as a strategy consultant at McKinsey & Company and as a mergers and acquisitions banker at JP Morgan. In addition to serving as a director of USBTC, Ms. Wilkinson currently serves on the Board of Directors for INNOVATE Corp. (since 2022). Ms. Wilkinson holds a Bachelor of Arts and Master of Arts from Stanford University and a Masters in Business Administration from the Stanford Graduate School of Business.
Jonathan Koch has served as a director of USBTC since December 2021. Mr. Koch currently serves as the President of Novis Renewables and Falck Renewables North America, a role he has held since March 2017. He previously co-founded US Renewables Group (“USRG”), a private equity firm focused exclusively on investing in renewable power, biofuels and clean technology infrastructure. Through USRG, Mr. Koch served as Board Director of nine portfolio companies including Renewable Energy Group (NASDAQ: REGI); US Biodiesel Group; Seneca Biodiesel; Fulcrum BioEnergy; Pipestem; General Compression, OPX Biochemicals; Westerly Wind; and Niagara Generation. He also has experience serving on multiple Board committees including Compensation, Audit, Governance and Risk Management. Mr. Koch also served as Vice President and then Chief Operating Officer of Visible Path from November, 2003 to November, 2004, a Kleiner Perkins funded startup that deployed social networking software for corporations and was sold to Hoovers in 2008. He also co-founded Sundial, a startup backed by Harris & Harris Group and acquired by Essential.com in
136
TABLE OF CONTENTS
 
2000 (spun out to Simplexity). Mr. Koch holds an undergraduate degree from Tufts University as well as an MBA from the University of Michigan Ross School of Business and Masters of Science from the University of Michigan School of Natural Resources and Environment.
Government Regulation
Government regulation of blockchain and digital assets is being actively considered by the United States federal government via a number of agencies and regulatory bodies, as well as similar entities in other countries. For example, the U.S. Congress and a number of U.S. federal agencies, state financial regulatory authorities and self-regulatory organizations (including FinCEN, the SEC, the Commodity Futures Trading Commission (the “CFTC”), the Financial Industry Regulatory Authority, Inc., the Consumer Financial Protection Bureau, the Department of Justice, the Department of Homeland Security, the Federal Bureau of Investigation, and the Internal Revenue Service) have been examining the operations of digital asset networks, digital asset users and the digital asset exchange markets, which operations apply to USBTC’s activities and other activities in which it participates or may participate in the future. Other regulatory bodies which are governmental or semi-governmental have shown an interest in regulating or investigating companies engaged in the blockchain or digital asset business.
Businesses that are engaged in the transmission and custody of Bitcoin and other digital assets, including brokers and custodians, can be subject to FinCEN regulations as money services businesses as well as state money transmitter licensing requirements. The potential application of these policies to Bitcoin mining continues to evolve. Bitcoin and other digital assets are subject to anti-fraud regulations under federal and state commodity laws, and digital asset derivative instruments are substantively regulated by the CFTC. Certain jurisdictions, including, among others, New York and a number of countries other than the United States, have developed regulatory requirements specifically for digital assets and companies that transact in them.
Regulations may substantially change in the future and it is presently not possible to know how regulations will apply to USBTC’s business, or when they will be effective. As the regulatory and legal environment evolves, USBTC may become subject to new laws, further regulation by the SEC and other agencies, which may affect mining and other activities. For instance, various bills have also been proposed in Congress related to USBTC’s business, which may be adopted and have an impact. In November 2021, President Biden signed into law an infrastructure bill that contains provisions affecting the tax reporting of digital assets and digital asset trades. Additionally, the March 2022 executive order from President Biden formalizes potential digital asset regulation policy change by the end of 2023. For additional discussion regarding about the potential risks existing and future regulations pose to USBTC’s business, see the Section entitled “Risk Factors” herein.
In addition, since transactions in Bitcoin provide a reasonable degree of pseudo-anonymity, they are susceptible to misuse for criminal activities, such as money laundering. This misuse, or the perception of such misuse (even if untrue), could lead to greater regulatory oversight of Bitcoin platforms, and there is the possibility that law enforcement agencies could close digital asset or other Bitcoin-related infrastructure with little or no notice and prevent users from accessing or retrieving Bitcoin held via such platforms. For example, in her January 2021 nomination hearing before the Senate Finance Committee, Treasury Secretary Janet Yellen noted that digital assets have the potential to improve the efficiency of the financial system but that they can be used to finance terrorism, facilitate money laundering, and support malign activities that threaten U.S. national security interests and the integrity of the U.S. and international financial systems. Accordingly, Secretary Yellen expressed her view that federal regulators needed to look closely at how to encourage the use of digital assets for legitimate activities while curtailing their use for malign and illegal activities. Furthermore, in December 2020, FinCEN, a unit of the Treasury Department focused on anti-money laundering, proposed a new set of rules for digital asset- based exchanges aimed at reducing the use of digital assets for money laundering. These proposed rules would require filing reports with FinCEN regarding digital asset transactions in excess of $10,000 and also impose record-keeping requirements for digital asset transactions in excess of $3,000 involving users that manage their own private keys. In January 2021, the Biden Administration issued a memorandum freezing federal rulemaking, including these proposed FinCEN rules, to provide additional time for the Biden Administration to review the rulemaking that had been proposed by the Trump Administration. As a result, it remains unclear whether these proposed rules will take effect.
137
TABLE OF CONTENTS
 
In November 2021, the President’s Working Group on Financial Markets (“PWG”), along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency released a report calling for urgent congressional action with respect to stablecoins, which are digital assets designed to minimize price volatility by tracking the price of an underlying asset such as fiat money or an exchange-traded commodity. Although the focus of the report was on stablecoins, the PWG commented extensively on decentralized finance arrangements and the digital asset industry in general, and cited a number of perceived risks of particular concern to the SEC and CFTC. As of today, it remains unclear which, if any, of the recommendations contained in the report of the PWG will be implemented as law, regulation or policy. Consequently, it also remains uncertain to what extent any legislative or regulatory action might impact USBTC’s business model.
In November 2022, FTX, a leading digital asset exchange filed for bankruptcy in the Bahamas and the United States which was followed by a criminal indictment against senior management, including the founder. These proceedings had a significant adverse impact on USBTC’s industry. In January 2023, the SEC sought action against two digital asset companies, Genesis Global Capital, LLC and Gemini Trust Company, LLC, for selling unregistered securities. The SEC’s complaint alleged that digital asset companies’ activities constituted an offer and sale of securities under applicable law and should have been registered with the SEC. While USBTC believes its holdings are not a security, USBTC cannot assure you that future legislation or regulation will not have an adverse effect upon USBTC. Further, in December 2022, the SEC release guidance with respect to its increased on focus on the public filings with respect to companies in USBTC’s industries as well as required disclosure that it expects from such companies. While focus on USBTC’s industry by regulators has increased, it is currently uncertain whether there will be additional legislation or regulation of digital assets in the near future.
Environmental, Health and Safety Matters
USBTC’s operations and properties may be subject to extensive laws and regulations governing health and safety, the discharge of pollutants into the environment or otherwise relating to health, safety and environmental protection requirements in countries and localities in which USBTC operates. These laws and regulations may impose numerous obligations that are applicable to the company, including but not limited to acquisition of a permit or other approval before conducting construction or regulated activities; restrictions on the types, quantities and concentration of materials that can be released into the environment; limitation or prohibition of construction and operating activities in environmentally sensitive areas, such as wetlands or areas with endangered plants or species; imposition of specific health and safety standards addressing worker protection; noise or other neighborhood controls; and imposition of significant liabilities for pollution, including investigation, remedial and clean-up costs. Failure to comply with these requirements may expose USBTC to fines, penalties and/or interruptions in USBTC’s operations, among other sanctions, that could have a material adverse effect on its financial position, results of operations and cash flows.
Certain environmental laws may impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released into the environment, even under circumstances where the hazardous substances were released by prior owners or operators or the activities conducted and from which a release emanated complied with applicable law. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by noise or the release of hazardous substances into the environment.
In addition, concerns have been raised about the amount of electricity required to secure and maintain. Further, in addition to the direct power costs of performing these calculations, there are indirect costs that impact a digital asset networks’ total power consumption, including the costs of cooling the machines that perform these calculations and ancillary energy consumption. Due to these concerns around power consumption, particularly as such concerns related to public utilities companies, various jurisdictions (including certain cities) have implemented, or are considering implementing, moratoriums on digital asset mining in their jurisdictions. Environmental, health and safety laws and regulations are subject to change. The trend in environmental regulation has been to place more restrictions and limitations on activities that may be perceived to impact the environment, and thus there can be no assurance as to the amount or timing of future expenditures for environmental regulation compliance or remediation. New or revised laws and regulations that result in increased compliance costs or additional operating restrictions, or the incurrence of environmental liabilities, could have a material adverse effect on USBTC’s financial position, results of operations and cash flows.
138
TABLE OF CONTENTS
 
Impact of Market Disruption
The Chapter 11 bankruptcy of Compute North has had a material impact on the business and financial condition of USBTC. In connection with the liquidation of Compute North’s former digital asset mining sites in Kearney, Nebraska and Granbury, Texas, USBTC was selected by the owner of both sites as the sites’ strategic operator. USBTC thereafter formed its managed infrastructure operations business, USMIO. In connection with the liquidation of Compute North’s former digital asset mining site in King Mountain, Texas, USBTC bid for and acquired a 50% membership interest in the joint venture that owns the site.
USBTC has no direct exposure to any other participants in the digital asset markets that have recently filed for Chapter 11 bankruptcy, including FTX (including its affiliated hedge fund, Alameda Research LLC), Three Arrows, Celsius, Voyager, BlockFi, Core Scientific, and Genesis.
USBTC has indirect exposure to Genesis, which filed for Chapter 11 bankruptcy in January 2023. Genesis is owned by DCG, which also owns Foundry Digital LLC, a USBTC hosting customer. At this time, USBTC does not believe there is a material risk to the business arising from the company’s indirect exposure to Genesis.
Additionally, USBTC does not have direct or indirect exposure to other counterparties, customers, custodians, or other participants in the digital asset markets known to: (i) have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for the benefit of creditors, or have had a receiver appointed for them, (ii) have experienced excessive redemptions or suspended redemptions or withdrawals of digital assets, (iii) have the digital assets of their customers unaccounted for, or (iv) or have experienced material corporate compliance failures.
Intellectual Property
USBTC actively uses specialized hardware and software for its digital asset mining operation. In some instances, source code and other software assets may be subject to an open-source license, as much technology development in this sector is open source. USBTC intends to adhere to the terms of any license agreements that may be in place for these works, but in some circumstances, it may not be aware of license obligations which may be applicable.
USBTC does not currently own any patents in connection with its existing and planned blockchain and digital asset-related operations. USBTC has applied for one provisional patent related to its Reactor technology. USBTC expects to rely upon trade secret, trademark, service mark, trade name, copyright, and other intellectual property protection and plans to license the use of intellectual property rights owned and controlled by others. In addition, USBTC has developed and may further develop specific proprietary software applications for its digital asset mining operation and may choose to seek patents in the future. USBTC use the US BITCOIN CORP word mark and the logo consisting of a stylized letter “B” surrounded by two semi-circular lines and two dots in connection with its business and services, both of which are unregistered service marks of USBTC. USBTC has filed a U.S. service mark registration application for the US BITCOIN CORP word mark with the United States Patent and Trademark Office, but the application has received an initial refusal to register the mark on the Principal Register based on the examiner’s position that the mark is merely descriptive of the services. While USBTC intends to respond to such refusal to register in an effort to obtain registration of the US BITCOIN CORP mark, it is uncertain whether the mark will be granted registration.
Competition
The digital asset mining space is filled with a range of competitors, each supplying hash power to the Bitcoin network. This range includes everything from individual hobbyists to large-scale, professionally-run mining operations, including USBTC. USBTC considers large-scale mining operators to be its primary source of competition due to the immense hash power they add to the network.
This category is composed of both public and private entities. At present, the information concerning the activities of these enterprises is not readily available as the vast majority of the participants in this sector do not publish information publicly or the information may be unreliable. Published sources of information include “bitcoin.org” and “blockchain.info”; however, the reliability of that information and its continued availability cannot be assured.
139
TABLE OF CONTENTS
 
USBTC’s main competitors include, but are not limited to, the following companies:
•
Argo Blockchain PLC
​
•
Bitfarms Ltd
​
•
Cipher Mining Inc.
​
•
Greenidge Generation Holdings Inc.
​
•
Iris Energy Limited
​
•
Marathon Digital Holdings Inc.
​
•
Riot Platforms, Inc.
​
•
Stronghold Digital Mining Inc.
​
•
TeraWulf Inc.
​
The digital asset industry is a highly competitive and evolving industry and new competitors and/or emerging technologies could enter the market and affect USBTC’s competitiveness in the future.
Human Capital
As of January 31, 2023, USBTC had 108 full-time employees. USBTC also hires part-time or temporary employees as necessary at certain of its facilities. USBTC is not a party to any collective bargaining agreements and considers its relations with its employees to be good.
Facilities
USBTC’s headquarters are located in Miami, Florida. USBTC maintains various leases with respect to its Bitcoin mining sites.
USBTC leases a large indoor facility for its Alpha Site that serves as a data center, in addition to outside land and a nearby substation in Niagara Falls, New York. The lease with respect to Alpha expires in July 2026. The Alpha lease has a renewal clause to continue for consecutive five year terms or two five year terms following the end of the second term, as long as USBTC is in good standing with the respective landlords and provide written notice on or before the 90th day prior to the initial expiration.
USBTC maintains four leases with respect to the Echo Site via its 50% membership interest in the King Mountain JV that owns the Echo Site. USBTC’s Joint Venture partner is the owner of a subsidiary that serves as the sublandlord of the primary leases and leases to the subtenant, a wholly-owned subsidiary of the King Mountain JV. Each of the four leases is a 10-year lease with two 10-year renewal options. Each of the four leases became effective as of February 2022 and expires in February 2032.
USBTC believes that its facilities are adequate to meet its needs in the near term and that additional space can be obtained on commercially reasonable terms as needed.
Legal Proceedings
Due to the nature of USBTC’s business, it may, from time to time, become involved in litigation or other legal proceedings.
USBTC, and its wholly-owned subsidiary, U.S. Data Technologies Ltd. are defendants in a lawsuit filed by the City of Niagara Falls and the Director of the Department of Code Enforcement of the City of Niagara Falls on November 17, 2022 (City of Niagara Falls, et al. v. U.S. Data Technologies Group Ltd., et al., index no. E178623/2022, Niagara County Supreme Court), pursuant to which the plaintiffs are seeking to enjoin USBTC’s digital asset mining operations in Niagara Falls on the basis of alleged non-compliance with, and absence of required permits under, Niagara Falls’ recently amended zoning ordinance. On December 1, 2022, the Niagara County Supreme Court issued a temporary restraining order directing USBTC to restrain from violating the law, continuing to mine digital assets, and engaging in business on the property. On January 25, 2023, the Niagara County Supreme Court issued its initial determination in which it found that USBTC was
140
TABLE OF CONTENTS
 
in violation of the amended zoning ordinance and the temporary restraining order. The court granted the City of Niagara Fall’s motion for contempt for the USBTC’s violations of the temporary restraining order and imposed a fine of $540,000 due February 1, 2023 if USBTC’s operations were not shut down by January 31, 2023. The court also ruled that if the operation is not shut down by January 31, 2023, and the temporary restraining order continues to be violated, then the fine will increase to $25,000 a day beginning February 1, 2023. The court also denied USBTC’s motion to dismiss and denied USBTC’s motion to vacate the temporary restraining order. On January 31, 2023, USBTC filed motions for leave to: (1) reargue the City of Niagara Falls’ motion for contempt, and (2) reargue USBTC’s motion to vacate the temporary restraining order. A three-day hearing on the City of Niagara Fall’s motion for a preliminary injunction is currently scheduled for March 9, 2023. USBTC believes that the enactment of the recent amendment to the zoning ordinance was procedurally invalid and constitutionally unsound and intends to use all appropriate legal and administrative means in their defense in the Niagara Falls Litigation, including a request for a rehearing as well as an appeal of the initial determination. An adverse outcome of the Niagara Falls Litigation may affect U.S. Data Technologies Group Ltd.’s operations with respect to its Niagara Falls data site. See “Risk Factors — Risks Relating to USBTC’s Business — USBTC is currently subject to Niagara Falls Litigation. USBTC cannot predict the outcome of the Niagara Falls Litigation or any other legal proceedings with respect to its current and past business activities.”
In connection with the Rescission Offer, USBTC communicated with various state “blue sky” regulators and entered into the Massachusetts Order, the Maryland Order and the Virginia Order. See “Risk Factors — Risks Relating to USBTC’s Business — USBTC’s failure to comply with federal and state securities law and regulations in connection with the Rescission Offer could subject the Company to enforcement actions and impair its ability to raise capital in the future” for additional details on the Rescission Offer, the Massachusetts Order, Maryland Order and Virginia Order which such disclosure is incorporated herein by reference.
Corporate Information
USBTC was incorporated under the laws of the State of Nevada on December 4, 2020 under the name U.S. Data Group, Inc. USBTC changed its name to U.S. Data Mining Group, Inc. on December 15, 2020, and does business as “US BITCOIN.” USBTC’s principal address is located at 1221 Brickell Avenue, Suite 900, Miami, Florida 33131. The company’s telephone number is (305) 224-6427, and its website address is www.usbitcoin.com. The information contained on, or that can be accessed through, USBTC’s website is not and shall not be deemed to be part of this prospectus.
141
TABLE OF CONTENTS​​​
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF USBTC
You should read the following discussion and analysis of USBTC’s financial condition and results of operations together with its consolidated financial statements and related notes appearing elsewhere in this prospectus. Some of the information contained in this discussion and analysis or set forth elsewhere in this prospectus, including information with respect to USBTC’s plans and strategy for its business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” sections of this prospectus, USBTC’s actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. References to digital asset mining and crypto asset mining are interchangeable and are meant to have the same meaning.
Overview of USBTC
USBTC is an industrial-scale operator of Bitcoin mining sites. The company’s strategy is to design, build, and operate sites where there is access to low-cost and sustainable sources of electricity. The company operates four sites across the United States with access to approximately 730 MW of electricity and fully built out rack space.
USBTC has several revenue streams: self-mining, hosting, managed infrastructure operations, and equipment sales. Self-mining refers to all USBTC-owned machines that contribute computing power to mining pools in exchange for Bitcoin. Hosting refers to USBTC operating third party-owned machines at its sites in exchange for a hosting fee. Managed infrastructure operations refers to USBTC operating third-party-owned Bitcoin mining sites in exchange for a property management fee. Equipment sales refers to USBTC selling mining or infrastructure equipment to third-parties.
USBTC owns and operates Alpha Site on leased property in Niagara Falls, New York with access to approximately 50 MW of electricity. USBTC also owns a 50% interest in the King Mountain JV with a leading North American energy company. The King Mountain JV owns the Echo Site, a Bitcoin mining site in Upton County, Texas with access to approximately 280 MW of electricity. The Echo Site is co-located at a behind-the-meter wind farm.
USBTC is the site operator for three Bitcoin mining sites through its USMIO subsidiaries. USMIO leads all aspects of site operations, including accounting, curtailment, and customer relations if the site owner is also a hosting provider. The Charlie Site is located in Kearney, Nebraska and has access to approximately 100 MW of electricity. The Delta Site is located in Granbury, Texas and currently has access to approximately 300 MW of electricity. The third site is the Echo Site owned by the King Mountain JV, which has access to approximately 280 MW of electricity. USBTC views its managed infrastructure operations business as a strategic partnership with its clients; the company structures its property management agreements to incentivize the long-term growth and sustainability of its clients’ sites.
Business Updates
Self-Mining
USBTC began self-mining Bitcoin in January 2021. As of September 30, 2022, USBTC operates approximately 24,300 machines for its self-mining business (approximately 2.25 EH/s). For the three months ended September 30, 2022, USBTC mined approximately 765 Bitcoin compared to 113 Bitcoin during the same period in the prior year. For the fiscal year ended June 30, 2022, USBTC mined approximately 1,636 Bitcoin compared to 95 Bitcoin for the period from December 4, 2020 (inception) through June 30, 2021.
Hosting services
USBTC began hosting in March 2022. As of September 30, 2022, USBTC hosts approximately 425 machines for customers (approximately 0.04 EH/s). Hosting services revenue was $13.6 million for the three months ended September 30, 2022 compared to $0 during the same period in the prior year. Hosting services revenue was $5.6 million for the fiscal year ended June 30, 2022 compared to $0 for the period from December 4, 2020 (inception) through June 30, 2021.
142
TABLE OF CONTENTS​
 
One of USBTC’s hosting clients defaulted on its contract during the three months ended September 30, 2022, which resulted in a termination of the contract without an obligation to refund, and USBTC recognized the remaining deferred revenue of $13.1 million with respect to such client.
Equipment sales
USBTC began equipment sales in March 2022. Equipment sales revenue was $3.6 million for the three months ended September 30, 2022 compared to $0 during the same period last year.
Recent Developments and Significant Transactions
King Mountain JV
On December 6, 2022, one of USBTC’s subsidiaries acquired a 50% membership interest in a joint venture and assumed the King Mountain JV Senior Note. USBTC acquired the 50% membership interest through a competitive auction process in connection with the Chapter 11 bankruptcy filing of Compute North. Given the timing of the acquisition, USBTC’s interest in the King Mountain JV is not reflected in USBTC’s financials for the three months ended September 30, 2022.
Self-mining revenue and hosting services revenue for the King Mountain JV was $2.5 million and $4.4 million, respectively, for the month ended December 31, 2022, which represented 100% of the King Mountain JV’s revenue during the month. USBTC has provisionally concluded that the King Mountain JV will be accounted for with the equity method of accounting. USBTC’s 50% portion of monthly distributions from the King Mountain JV will be swept to pay down the King Mountain JV Senior Note.
Managed Infrastructure Operations
Two USBTC subsidiaries entered into PMAs in November 2022 with an institutional investor focused on renewable energy assets. Two USBTC subsidiaries entered into PMAs in November 2022 with an institutional investor focused on renewable energy assets. USBTC entered into these agreements following a formal request for proposal (RFP)-driven process in connection with the Chapter 11 bankruptcy filing of Compute North, through which the institutional investor became the owner of two digital asset mining sites.
Each of these PMAs has five-year terms whereby each subsidiary charges a monthly fixed fee and also has the ability to pass-thru certain additional costs for the operations, management, support, and administrative functions of operating a Bitcoin mining site for a third-party customer. The sites that USMIO manages under these PMAs are the Charlie Site and Delta Site.
On December 6, 2022, one of the USMIO subsidiaries assumed a PMA for a Bitcoin mining site owned by the King Mountain JV, which is the Echo Site. This PMA has a five-year term, including a charge of a monthly fixed fee in addition to certain pass-thru costs for the operations, management, support, and administrative functions of operating a Bitcoin mining site for the King Mountain JV.
Given the timing of USBTC’s commencement of its USMIO operations, the USMIO business is not reflected in USBTC’s financials for the three months ended September 30, 2022.
For the month ended December 31, 2022, USMIO’s total PMA fees for the Charlie, Delta, and Echo Sites were $0.8 million, not including reimbursements for pass-thru costs.
Debt
In December 2022, USBTC entered into a $10.0 million term-loan with a third party. The maturity date is December 5, 2027 and the interest rate is 6% per annum. Interest is payable in kind as an addition to, and capitalization on, the outstanding principal. The term-loan is secured by certain assets of USBTC and does not have financial covenants.
Restructuring and Financing
NYDIG
On July 27, 2021, USBTC entered into that certain MEFA with Arctos . Pursuant to the MEFA, Arctos advanced the approximately $9.1 million Principal to finance USBTC’s purchase of certain equipment, in
143
TABLE OF CONTENTS​
 
exchange for repayment of Initial MEFA Debt, by July 25, 2023. Additionally, USBTC granted Arctos a security interest in certain of its assets, as further described in the MEFA, and pursuant to that certain Security Agreement dated as of July 27, 2021.
On December 27, 2021, USBTC executed that certain First Amendment to Master Equipment Finance Agreement with NYDIG pursuant to which (i) NYDIG replaced Arctos as the “Lender” under the MEFA, being granted full rights of such party under the Credit Agreement, (ii) NYDIG replaced Arctos as “Secured Party” under the Security Agreement, being granted the full rights of such party under the Security Agreement, (iii) NYDIG made additional advances to USBTC and (iv) USBTC granted NYDIG additional security interests in certain of its assets, as further described in the MEFA Amendment.
In connection with a restructuring of its debt obligations with NYDIG, USBTC (and certain of its subsidiaries) entered into the APA. Additionally, USBTC and NYDIG entered into certain other agreements to effectuate the purposes of, and the transactions contemplated by, the APA including (i) a Real Estate Purchase and Sale Agreement dated as of February 3, 2023 pursuant to which USBTC transferred certain real property to NYDIG and (ii) an Assignment and Assumption Agreement dated as of February 3, 2023 pursuant to which NYDIG transferred its rights as “Lender” under the Credit Agreement to USBTC in exchange for the Assets transferred to NYDIG under the APA.
As of February 3, 2023, USBTC owes no amount of the MEFA Debt to NYDIG and NYDIG holds no remaining security interests in the assets of USBTC such that NYDIG is no longer considered a debt finance partner or secured party of USBTC. The extinguishment of these debts is reflected in the pro forma financial statements included in this prospectus.
Anchorage
On March 31, 2022 and April 26, 2022, respectively, USBTC entered into those certain Original Loan Agreements with Anchorage.Pursuant to the Original Loan Agreements, Anchorage advanced the $50.0 million Original Principal to USBTC to finance USBTC’s acquisition of certain business equipment. Pursuant to the Original Loan Agreements, USBTC agreed to repay the Original Principal plus interest. Additionally, USBTC granted Anchorage a security interest in certain of its assets, including certain USBTC miners, as further described in the Original Loan Agreements.
In connection with a restructuring of its debt obligations with Anchorage, USBTC (and certain of its subsidiaries) entered into that certain Loan, Guaranty and Security Agreement dated as of February 3, 2023 with Anchorage pursuant to which (i) USBTC transferred certain of its assets USDG, (ii) USDG became the “Borrower” under the Original Loan Agreement, (iii) Anchorage obtained a security interest in certain assets, including certain USBTC miners, of USBTC, USDG, and USDTG and (iv) the Loan Parties agree to repay the Outstanding Loan Amount (as defined below) to Anchorage. Additionally, USBTC, USDG, and USDTG, as applicable, entered into certain other agreements with Anchorage to effectuate the purposes of, and the transactions contemplated by, the Refinanced Loan Agreement including (i) that certain Subscription Agreement by and between USBTC and Anchorage, dated as of February 3, 2023, pursuant to which Anchorage acquired 2,960,000 shares of USBTC common stock, and (ii) that certain Asset Purchase Agreement by and between USBTC and USDG dated as of February 3, 2023 pursuant to which USBTC transferred certain of its assets to USDG pursuant to the Refinanced Loan Agreement. As of February 3, 2023, USBTC (and the Loan Parties) owe, and have agreed to repay, the Outstanding Loan Amount to Anchorage. Pursuant to the Refinanced Loan Agreement, the Outstanding Loan Amount is repaid through profits generated from those certain USBTC miners underlying the security interest, as further specified in the Refinanced Loan Agreement. In addition, USBTC is not required to make a minimum monthly payment.
The Business Combination
USBTC entered into the Business Combination Agreement on February 6, 2023. Pursuant to the terms of the Business Combination Agreement, and assuming the satisfaction or waiver of various closing conditions, including approval by the USBTC stockholders and the shareholders of Hut 8, USBTC will become a wholly-owned subsidiary of New Hut. For further details, see “The Business Combination.”
The Business Combination will be accounted for under the acquisition method and USBTC will be treated as the acquiror for financial statement reporting purposes. For further details, see “The Business Combination — Accounting Treatment of the Business Combination.”
144
TABLE OF CONTENTS​
 
Trends and Key Factors Affecting USBTC’s Performance
Bitcoin Market Price
USBTC’s business is heavily dependent on the spot price of Bitcoin. The prices of digital assets, particularly Bitcoin, have historically experienced substantial volatility. Changes in the market price of Bitcoin may have little or no correlation to identifiable market forces, and may be subject to rapidly changing investor sentiment. Bitcoin may be valued based on various factors, including its acceptance as a means of exchange by consumers and producers, scarcity, market demand, and media reporting.
Halving
Changes to the quantity of Bitcoin rewarded per block could directly impact USBTC’s operating results. The Bitcoin network is subject to periodic scheduled changes in the quantity of Bitcoin rewarded per block, known as halving. It is anticipated that the current Bitcoin reward will decrease by half in early 2024, according to estimates of the rate of block solution calculated by Bitcoinclock.com. This halving process will repeat until the total amount of Bitcoin rewards issued reaches 21 million and the theoretical supply of new Bitcoin is exhausted, which is expected to occur around 2140. Potential future halving may decrease the amount of Bitcoin rewards that USBTC receives, and there is no guarantee the price of Bitcoin will adjust accordingly.
Network Difficulty
Additional mining machines deployed onto the Bitcoin network increase the network hashrate. Increased network hashrate reduces the time spent mining new blocks. To keep the time interval between new blocks fixed at approximately 10 minutes, the Bitcoin network adjusts its “network difficulty” such that more hashes are needed to mine a new block. Changes in network difficulty can adversely affect USBTC’s revenue and margins.
Ability to source additional mining machines
USBTC’s self-mining business is directly impacted by its ability to increase its hashrate and its resulting share of network rewards. USBTC’s ability to increase its hashrate depends on sourcing additional mining machines at cost-effective prices and lead times.
Ability to access power capacity
Increases in network hashrate drive greater demand for additional mining machines. Additional mining machines require additional power capacity that can be difficult to source at cost-effective prices or within locations that are favorable to Bitcoin mining. USBTC aims to leverage its existing relationships within the energy industry to secure low-cost power capacity.
USBTC’s data centers can also act as a consumer of last resort for wind and solar projects. The growing supply of wind and solar facilities in areas like West Texas has created an imbalance where existing transmission infrastructure cannot support the volume of load generation in periods of high production.
Ability to access capital markets
Bitcoin mining is highly capital intensive. USBTC’s ability to continue scaling infrastructure and expand its fleet of miners will depend on its ability to access the capital markets.
Cost of Electricity
Electricity is USBTC’s largest operating expense. USBTC manages its cost of electricity through participation in various demand response programs, power purchase agreements, and curtailment of miners when electricity prices make it unprofitable to mine Bitcoin. In the future, USBTC may consider other arrangements such as power hedges to manage its cost of electricity.
Electricity costs may be adversely affected by macroeconomic or geopolitical events. The invasion of Ukraine by Russia in February 2022 has exerted pressure on the global energy market, particularly Europe’s natural
145
TABLE OF CONTENTS​
 
gas supply. Higher LNG import needs in Europe have resulted in worldwide supply tensions and higher short-term prices, negatively impacting Europe’s electricity sector. The conflict has added further pressure to supply chain disruptions and has likely supported rising inflation through higher commodity prices. In the United States, we have seen elevated electricity pricing in recent months possibly due to this conflict, although we had no direct operations in Russia or Ukraine. See “Risk Factors — Power Generation-Related Risks — Global conflict, increasing tensions between the United States and Russia, and other effects of the ongoing conflict in Ukraine, could negatively impact USBTC’s business, results of operations, and financial condition.”
USBTC’s cost of electricity, net of demand response payments, for the three-month period ended September 30, 2022 was $14.6 million. USBTC’s cost of electricity for the three-month period ended September 30, 2021 was $1.3 million. The increase was primarily attributable to an increase in the number of self-mining and hosted miners operating in USBTC’s fleet and an increase in electricity rates.
USBTC’s cost of electricity, net of demand response payments, for the year ended June 30, 2022 was $23.6 million. USBTC’s cost of electricity for the period from December 1, 2020 (inception) through June 30, 2021 was $1.0 million. The increase was primarily attributable to an increase in the number of self-mining and hosted miners operating in USBTC’s fleet.
Key Operating and Financial Indicators
In addition to the financial results, USBTC uses the following key operating indicators to evaluate the business, identify trends and make strategic decisions.
The following table presents USBTC’s key operating indicators for the three-month periods ended September 30, 2022 and 2021, the fiscal year ended June 30, 2022, and the period from December 4, 2020 (inception) through June 30, 2021:
​ ​ ​
Three Months Ended September 30,
​ ​
Year Ended
June 30,
2022
​ ​
December 4, 2020
through June 30,
2021
​
​ ​ ​
2022
​ ​
2021
​
Total hash-rate (EoP)
​ ​
2.29 EH/s
​ ​
0.17 EH/s
​ ​
2.29 EH/s
​ ​
0.12 EH/s
​
Self-mining hash-rate (EoP)
​ ​
2.25 EH/s
​ ​
0.17 EH/s
​ ​
2.25 EH/s
​ ​
0.12 EH/s
​
Hosted hash-rate (EoP)
​ ​
0.04 EH/s
​ ​
—
​ ​
0.04 EH/s
​ ​
—
​
Quantity of bitcoin mined for company benefit
​ ​
765 bitcoin
​ ​
113 bitcoin
​ ​
1,636 bitcoin
​ ​
95 bitcoin
​
Adjusted EBITDA
​ ​
$12,362
​ ​
$897
​ ​
$7,240
​ ​
($94)
​
Hashrate
USBTC operates mining hardware or “miners” which provide computing power to mining pools, which aggregate this computing power with other miners to attempt to create new blocks in the Bitcoin blockchain. Computing power is measured in “hashrate” or “hashes per second.” A “hash” is a single computation run by a miner to attempt to create a new block in the Bitcoin blockchain.
Creating new blocks in the Bitcoin blockchain is analogous to a lottery system where every hash is equivalent to a dice roll, and successfully creating a new block is equivalent to winning the lottery. The more dice rolls, or hashes per second a miner provides, the greater the probability of success that a miner creates a new block. “Network hashrate” is the combined hashrate of the Bitcoin network; similarly, the greater the share of a pool’s hashrate compared to the rest of the network, the greater the probability of success that a pool creates a new block. Pools that create a new block earn the Bitcoin reward. The pool then distributes USBTC’s pro-rata share of Bitcoin earned to USBTC based on the computing power USBTC contributes.
USBTC’s goal is to increase the hashrate it operates and to deploy, host, and operate miners with profitable hashrate-to-power cost profiles.
Bitcoin mined
USBTC’s management sees total Bitcoin mined as a key metric for its business. Trends in total Bitcoin mined are impacted by USBTC’s ability to deploy additional miners for self-mining, and also by USBTC’s ability to
146
TABLE OF CONTENTS
 
maintain high miner uptime and efficiency. USBTC monitors this metric over monthly and quarterly periods. As of December 31, 2022, USBTC has self-mined approximately 3,005 Bitcoin. Since inception through December 31, 2022, self-mined Bitcoin earned for each month and quarter total is summarized in the table below:
​ ​ ​
BTC Earned
​
Month ​ ​ ​ ​ 2021 ​ ​ ​ ​ ​ 2022 ​ ​
January
​ ​ ​ ​ 9.88 ​ ​ ​ ​ ​ 163.13 ​ ​
February
​ ​ ​ ​ 13.68 ​ ​ ​ ​ ​ 140.60 ​ ​
March
​ ​ ​ ​ 14.81 ​ ​ ​ ​ ​ 153.23 ​ ​
Quarterly total
​ ​ ​ ​ 38.37 ​ ​ ​ ​ ​ 456.96 ​ ​
April
​ ​ ​ ​ 13.96 ​ ​ ​ ​ ​ 210.86 ​ ​
May
​ ​ ​ ​ 13.65 ​ ​ ​ ​ ​ 225.06 ​ ​
June
​ ​ ​ ​ 29.34 ​ ​ ​ ​ ​ 207.48 ​ ​
Quarterly total
​ ​ ​ ​ 56.95 ​ ​ ​ ​ ​ 643.40 ​ ​
July
​ ​ ​ ​ 46.25 ​ ​ ​ ​ ​ 255.18 ​ ​
August
​ ​ ​ ​ 37.43 ​ ​ ​ ​ ​ 269.65 ​ ​
September
​ ​ ​ ​ 29.70 ​ ​ ​ ​ ​ 240.79 ​ ​
Quarterly total
​ ​ ​ ​ 113.38 ​ ​ ​ ​ ​ 765.62 ​ ​
October
​ ​ ​ ​ 76.75 ​ ​ ​ ​ ​ 230.60 ​ ​
November
​ ​ ​ ​ 165.34 ​ ​ ​ ​ ​ 203.12 ​ ​
December
​ ​ ​ ​ 180.64 ​ ​ ​ ​ ​ 73.69 ​ ​
Quarterly total
​ ​ ​ ​ 422.73 ​ ​ ​ ​ ​ 507.41 ​ ​
Total per year
​ ​ ​ ​ 631.43 ​ ​ ​ ​ ​ 2,373.39 ​ ​
Inception to date total
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,004.82 ​ ​
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure. USBTC defines Adjusted EBITDA as net income (loss) before interest, taxes, depreciation and amortization, further adjusted by the removal of one-time transaction costs, and stock-based compensation expense in the period presented. USBTC relies on Adjusted EBITDA to evaluate its business, measure its performance, and make strategic decisions. USBTC’s board and management team use Adjusted EBITDA to assess USBTC’s financial performance because it allows them to compare USBTC’s operating performance on a consistent basis across periods by removing the effects of USBTC’s capital structure (such as varying levels of interest expense and income), asset base (such as depreciation and amortization) and other items (such as one-time costs mentioned above) that impact the comparability of financial results from period to period. USBTC presents Adjusted EBITDA because it believes it provides useful information regarding the factors and trends affecting its business in addition to measures calculated under GAAP. Adjusted EBITDA is not a financial measure presented in accordance with GAAP. USBTC believes that the presentation of this non-GAAP financial measure will provide useful information to investors and analysts in assessing its financial performance and results of operations across reporting periods by excluding items it does not believe are indicative of its core operating performance. Net income (loss) is the GAAP measure most directly comparable to Adjusted EBITDA. USBTC’s non-GAAP financial measure should not be considered as an alternative to the most directly comparable GAAP financial measure. You are encouraged to evaluate each of these adjustments and the reasons USBTC’s management considers them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future USBTC may incur expenses that are the same as or similar to some of the adjustments in such presentation. USBTC’s presentation of Adjusted EBITDA should not be construed as an inference that its future results will be unaffected by unusual or non-recurring items. There can be no assurance that USBTC will not modify the presentation of Adjusted EBITDA in the future, and any such modification may be material. Adjusted EBITDA has important limitations as an analytical tool and you should not consider Adjusted EBITDA in
147
TABLE OF CONTENTS​​
 
isolation or as a substitute for analysis of USBTC’s results as reported under GAAP. Because Adjusted EBITDA may be defined differently by other companies in USBTC’s industry, its definition of this non-GAAP financial measure may not be comparable to similarly titled measures of other companies, thereby diminishing its utility.
For a reconciliation to USBTC’s most directly comparable financial measure calculated and presented in accordance with GAAP, please see “Results of Operations.”
Critical Accounting Policies and Significant Estimates
USBTC’s management’s discussion and analysis of its financial condition and results of operations is based on its consolidated financial statements, which have been prepared in accordance with GAAP and requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, contingent assets and liabilities, each as of the date of the consolidated financial statements, and revenues and expenses during the periods presented. On an ongoing basis, USBTC’s management evaluates their estimates and assumptions, and the effects of any such revisions are reflected in the consolidated financial statements in the period in which they are determined to be necessary. Actual outcomes could differ materially from those estimates in a manner that could have a material effect on its consolidated financial statements. Set forth below are the policies and estimates that USBTC has identified as critical to its business operations and understanding its results of operations, based on the high degree of judgment utilized or complexity in their application.
While USBTC’s significant accounting policies are described in more detail in Note 3 to its consolidated financial statements appearing elsewhere in this prospectus, USBTC believes the following accounting policies and estimates to be the most critical to fully understand and evaluate this management discussion and analysis:
•
Use of estimates
​
•
Digital assets
​
•
Revenue from contracts with customers
​
•
Impairment of long-lived assets
​
•
Stock based compensation expense
​
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The most significant accounting estimates inherent in the preparation of USBTC’s financial statements include estimates associated with revenue recognition, determining the useful lives and recoverability of long-lived assets, impairment analysis of indefinite-lived intangibles, and current and deferred income tax assets (including the associated valuation allowance) and liabilities.
Digital assets
Digital assets (Bitcoin) are included in current assets in the accompanying USBTC consolidated balance sheets included elsewhere in this prospectus. USBTC expects to increase its Bitcoin holdings over time primarily through mining activities, though it may purchase or sell Bitcoin in future periods as needed for treasury management or general corporate purposes.
Digital assets received by USBTC through its mining activities are accounted for in connection with its revenue recognition policy disclosed below.
Digital assets held are accounted for as intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life is not amortized but assessed for impairment when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired and at a minimum
148
TABLE OF CONTENTS
 
annually. In testing for impairment, USBTC has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.
If USBTC concludes otherwise, it is required to perform a quantitative impairment test. USBTC also has the option to bypass the qualitative assessment and proceed to directly perform a quantitative impairment test. USBTC performs the quantitative impairment test daily, determining the fair value of its digital assets by using the quoted price as determined by USBTC’s principal market. USBTC recognizes impairment whenever the carrying amount exceeds its fair value. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
USBTC’s policy is to account for gains or losses on sale of digital assets, in accordance with the first in first out (“FIFO”) method of accounting.
Revenues from contracts with customers
USBTC recognizes revenue under ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
•
Step 1: Identify the contract with the customer
​
•
Step 2: Identify the performance obligations in the contract
​
•
Step 3: Determine the transaction price
​
•
Step 4: Allocate the transaction price to the performance obligations in the contract
​
•
Step 5: Recognize revenue when USBTC satisfies a performance obligation
​
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
•
Variable consideration
​
•
Constraining estimates of variable consideration
​
•
The existence of a significant financing component in the contract
​
•
Noncash consideration
​
•
Consideration payable to a customer
​
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance
149
TABLE OF CONTENTS
 
obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Management judgment is required when determining the following: when variable consideration is no longer probable of significant reversal (and hence can be included in revenue); whether certain revenue should be presented gross or net of certain related costs; when a promised service transfers to the customer; and the applicable method of measuring progress for services transferred to the customer over time.
Digital asset mining
The majority of USBTC’s revenue is derived from providing computing power to mining pools. USBTC has entered into arrangements, as amended from time to time, with mining pool operators to provide computing power (hashrate) to the mining pools. The contracts are terminable, without conditions or penalties, at any time by either party. USBTC has the right to decide the point in time and duration it will provide computing power. As a result, USBTC’s enforceable right to compensation only begins when it provides computing power to the mining pool operator, and exists in any period when it provides computing power (hourly or daily period depending on the mining pool operator). Revenue is earned, in exchange for providing computing power, and is paid in two forms: (1) USBTC earns Bitcoin for providing computing power based upon an agreed-upon calculation that measures the Bitcoin that could have been mined with USBTC’s contributed hashrate and (2) USBTC earns its pro-rata share of actual transaction fees earned by the pool operator for successfully adding a block to the blockchain. Proceeds received from both aforementioned forms of payment are received net of operating fees to the mining pool operator.
Providing computing power to mining pools is an output of USBTC’s ordinary activities and is USBTC’s single performance obligation in its contracts with the mining pool operators. As stated above, payments received for providing computing power to the mining pools happen in two forms. The first form of payment is based solely upon USBTC providing computing power to the pool operator, and is not dependent on the mining pool operator successfully adding a block to the blockchain. The calculation of the amount of Bitcoin earned is performed by the mining pool operator every period (either hourly or daily depending on the pool operator) based on the relative amount of computing power contributed by USBTC to the mining pool in that period. If USBTC chooses for any given period to provide computing power for only a portion of a contract term, USBTC still receives its revenue based on its proportionate contribution of computing power. At the end of each contract term, USBTC has a renewal right to continue the contract for another term. USBTC has determined that this renewal right is not a material right as the terms, conditions, and compensation amounts are at then market rates. The transaction consideration USBTC receives is noncash consideration. USBTC measures consideration received at fair value by using the quoted price of the related digital asset at contract inception, as determined by USBTC’s principal market. USBTC recognizes revenue over time as it satisfies its performance obligation.
The second form of payment, transaction fees, is derived from validating transactions on the blockchain. With one of USBTC’s pool operators, the amount of transaction fees earned is also included in the calculation of the amount of Bitcoin earned based solely upon USBTC providing computing power to the pool operator, and is also not dependent on the mining pool operator successfully adding a block to the blockchain. With another of the USBTC’s pool operators, the transaction fees are based solely upon actual blocks added to the blockchain by the pool operator. USBTC receives a pro-rata share of the transaction fees the pool operator receives, based on the proportion of computing power USBTC contributed to the pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The transaction consideration USBTC receives is noncash consideration, and the consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration relating to transaction fees is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and USBTC receives confirmation of the noncash consideration it will receive. USBTC measures consideration received at fair value when notified of the earnings using the quoted price of the related digital asset as determined by USBTC’s principal market. There is no significant financing component in these transactions. The transaction consideration received under both payment methods described above is received net of operating fees to the mining pool operator which are not material and are recorded as a reduction to revenue in the Consolidated Statements of Operations.
150
TABLE OF CONTENTS
 
Mining equipment sales
USBTC entered into its first mining equipment sales contract in the first quarter of fiscal year 2023. Mining equipment sales contracts are for a fixed price and do not include a significant financing component. All consideration received is cash consideration. USBTC recognizes mining equipment revenue at a point in time based on management’s evaluation of when the control of the products has been passed to customers and when collectability is reasonably assured. The transfer of control is considered complete when products have been picked up by or shipped to USBTC’s customers based on the terms of the contract. The determination of collectability is based on management’s evaluation of a customer’s creditworthiness. Some contracts can also include upfront deposits or require the customer to pay the full sale price up front. Any advance payments are recorded as deferred revenue and recognized as revenue when the transfer of control is considered complete.
Hosting services
USBTC began providing hosting services in the third quarter of fiscal year 2022. USBTC’s current hosting contracts are service contracts with a single performance obligation. The service USBTC provides includes the provision of mining equipment, energized space, and typically also include monitoring, active troubleshooting and various maintenance levels for the mining equipment.
Hosting revenue is recognized over time as the customer simultaneously receives and consumes the benefits of the USBTC’s performance. USBTC recognizes hosting revenue to the extent that a significant reversal of such revenue will not occur. All consideration to which USBTC is entitled under its hosting services agreements is cash consideration. Customer contracts can include advance payment terms in the form of monthly prepayments and/or upfront payments at contract inception. Advance payments are recorded as deferred revenue and recognized over time as the customer simultaneously receives and consumes the benefits of the USBTC’s performance.
Impairment of long-lived assets
USBTC’s management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If a change in circumstance occurs, USBTC will perform a test of recoverability comparing the carrying amount of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, USBTC will determine whether impairment has occurred for the group of assets for which it can identify the projected cash flow. If the carrying amounts are in excess of undiscounted expected future cash flows, USBTC will measure any impairment by comparing the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. There were no impairment losses recorded during the periods presented.
Stock-Based Compensation Expense
Stock-based compensation expense represents the cost of the grant date fair value of equity awards recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. USBTC estimates the fair value of equity awards using the Black-Scholes option pricing model and recognize forfeitures as they occur. Estimating the fair value of equity awards as of the grant date using valuation models, such as the Black-Scholes option pricing model, is affected by assumptions regarding a number of variables, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, the expected dividend yield and the fair value of the underlying common stock on the date of grant. Changes in the assumptions can materially affect the fair value and ultimately how much stock-based compensation expense is recognized. These inputs are subjective and generally require significant analysis and judgment to develop. See Note 3 to USBTC’s audited consolidated financial statements and unaudited interim consolidated financial statements included elsewhere in this prospectus for information concerning certain of the specific assumptions USBTC used in applying the Black-Scholes option pricing model to determine the estimated fair value of its stock options granted during the three months ended September 30, 2022 and 2021, the year ended June 30, 2022, and the period from December 4, 2020 (inception) through June 30, 2021.
As of September 30, 2022, there was $2.9 million of total unrecognized compensation expense related to the unvested stock options, which is expected to be recognized as expense over a weighted average period of approximately 1.9 years.
151
TABLE OF CONTENTS
 
The following section provides information on USBTC’s stock options and restricted stock grants.
Common Stock Valuations
USBTC is required to estimate the fair value of the common stock underlying its equity awards when performing fair value calculations. The fair value of the common stock underlying its equity awards was determined on each grant date by USBTC’s board, taking into account input from management and independent third-party valuation analyses. All options to purchase shares of USBTC’s common stock are intended to be granted with an exercise price per share no less than the fair value per share of its common stock underlying those options on the date of grant, based on the information known to USBTC on the date of grant. In the absence of a public trading market for its common stock, on each grant date USBTC develops an estimate of the fair value of its common stock in order to determine an exercise price for the option grants. USBTC’s determinations of the fair value of its common stock were made using methodologies, approaches and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide: Valuation of Privately Held Company Equity Securities Issued as Compensation, or the Practice Aid.
The board of directors exercises judgment and considers numerous objective and subjective factors to determine the best estimate of the fair value of its common stock including: (i) independent valuations performed at or near the time of grant; (ii) rights, preferences, and privileges of USBTC’s convertible preferred stock relative to those of its common stock; (iii) prices of convertible preferred stock sold by USBTC to third-party investors in arms-length transactions; (iv) USBTC’s actual operating and financial performance at the time of the option grant; (v) likelihood of and time frame associated with achieving a liquidity event, such as an initial public offering or a merger or acquisition of USBTC’s business; (vi) the value of comparable companies with respect to industry, business model, stage of growth, financial risk or other factors; (vii) USBTC’s stage of development and future financial projections; and (viii) the lack of marketability of USBTC’s common stock.
The Practice Aid prescribes several valuation approaches for setting the value of an enterprise, such as the cost, income and market approaches, and various methodologies for allocating the value of an enterprise to its common stock. The cost approach establishes the value of an enterprise based on the cost of reproducing or replacing the property less depreciation and functional or economic obsolescence, if present. The income approach establishes the value of an enterprise based on the present value of future cash flows that are reasonably reflective of USBTC’s future operations, discounting to the present value with an appropriate risk-adjusted discount rate or capitalization rate. The market approach is based on the assumption that the value of an asset is equal to the value of a substitute asset with the same characteristics. Each valuation methodology was considered in USBTC’s valuations.
The various methods for allocating the enterprise value across USBTC’s classes and series of capital stock to determine the fair value of its common stock in accordance with the Practice Aid include the following:
Option Pricing Method, or OPM. Under the OPM, shares are valued by creating a series of call options with exercise prices based on the liquidation preferences and conversion terms of each equity class. The values of the preferred and common stock are inferred by analyzing these options.
Probability-Weighted Expected Return Method, or PWERM.   The PWERM is a scenario-based analysis that estimates the value per share based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to us, as well as the economic and control rights of each equity class.
In determining the fair value of USBTC’s common stock underlying stock option grants for the three months ended September 30, 2022, the three months ended September 30, 2021, the year ended June 30, 2022 and the period from December 4, 2020 (inception) through June 30, 2021, USBTC estimated the enterprise value of its business using an OPM, the back-solve method, to allocate enterprise value. The back-solve method is a market approach that assigns an implied enterprise value based on the most recent round of funding or investment and allows for the incorporation of the implied future benefits and risks of the investment decision assigned by an outside investor. USBTC believe the OPM was the most appropriate method given the
152
TABLE OF CONTENTS​
 
expectation of various potential liquidity outcomes and the difficulty of selecting and supporting appropriate enterprise values given its early stage of development.
Following the completion of this offering, the fair value of USBTC’s common stock will be based on the closing price as reported on the date of grant on the primary stock exchange on which its common stock is traded.
Options Granted
The following table sets forth, by month of grant, the number of shares subject to options granted from USBTC’s inception through September 30, 2022, the per share exercise price of the options and the fair value of common stock per share on each grant date:
Grant Date
​ ​
Number of Shares Subject to
Options Granted
​ ​
Per Share Exercise
Price of Options
​ ​
Fair Value per Share
on Grant Date
​
July 2021(1) ​ ​ ​ ​ 1,072,000 ​ ​ ​ ​ $ 1.11 ​ ​ ​ ​ $ 1.11 ​ ​
August 2021(1) ​ ​ ​ ​ 338,750 ​ ​ ​ ​ $ 1.11 ​ ​ ​ ​ $ 1.11 ​ ​
November 2021
​ ​ ​ ​ 1,284,250 ​ ​ ​ ​ $ 2.27 ​ ​ ​ ​ $ 2.27 ​ ​
December 2021
​ ​ ​ ​ 179,500 ​ ​ ​ ​ $ 2.27 ​ ​ ​ ​ $ 2.27 ​ ​
March 2022
​ ​ ​ ​ 152,250 ​ ​ ​ ​ $ 4.34 ​ ​ ​ ​ $ 4.34 ​ ​
August 2022
​ ​ ​ ​ 724,000 ​ ​ ​ ​ $ 1.78 ​ ​ ​ ​ $ 0.01 ​ ​
​
(1)
The exercise prices for these grants were based upon the fair market value associated with a preliminary 409(A) valuation report provided to the USBTC Board. The subsequent final 409(A) valuation report as of the grant date, received after the grant date, included a slightly lower fair market valuation.
​
Restricted Stock Granted
The following table sets forth, by grant date, the number of shares of restricted common stock granted from USBTC’s inception through September 30, 2022 and the per share estimated fair value of the restricted stock:
Grant Date
​ ​
Number of Shares of
Restricted Common Stock
​ ​
Fair Value per Share
of Common Stock
on Grant Date
​
December 10, 2020
​ ​ ​ ​ 1,125,000 ​ ​ ​ ​ $ 1.07 ​ ​
January 31, 2021
​ ​ ​ ​ 5,187,500 ​ ​ ​ ​ $ 1.07 ​ ​
February 1, 2021
​ ​ ​ ​ 375,000 ​ ​ ​ ​ $ 1.07 ​ ​
March 17, 2021
​ ​ ​ ​ 8,369,250 ​ ​ ​ ​ $ 1.13 ​ ​
October 10, 2021
​ ​ ​ ​ 3,339,500 ​ ​ ​ ​ $ 2.27 ​ ​
September 2, 2022
​ ​ ​ ​ 7,250 ​ ​ ​ ​ $ 0.01 ​ ​
Results of Operations
Comparison of Three Months Ended September 30, 2022 and September 30, 2021
The following tables summarize USBTC’s results of operations and Adjusted EBITDA for the three months ended September 30, 2022 compared to September 30, 2021:
153
TABLE OF CONTENTS
 
​ ​ ​
Three Months Ended September 30,
​
​ ​ ​
2022
​ ​
2021
​
Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ $ 16,328 ​ ​ ​ ​ $ 4,658 ​ ​
Mining equipment sales
​ ​ ​ ​ 3,635 ​ ​ ​ ​ ​ — ​ ​
Hosting services
​ ​ ​ ​ 13,565 ​ ​ ​ ​ ​ — ​ ​
Total revenue
​ ​ ​ ​ 33,528 ​ ​ ​ ​ ​ 4,658 ​ ​
Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenues (exclusive of depreciation and amortization shown below)
​ ​ ​ ​ 18,402 ​ ​ ​ ​ ​ 1,671 ​ ​
Depreciation and amortization
​ ​ ​ ​ 5,754 ​ ​ ​ ​ ​ 501 ​ ​
General and administrative
​ ​ ​ ​ 5,864 ​ ​ ​ ​ ​ 2,327 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ 1,286 ​ ​ ​ ​ ​ 412 ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​ (1,549) ​ ​ ​ ​ ​ — ​ ​
Total costs and expenses
​ ​ ​ ​ 29,757 ​ ​ ​ ​ ​ 4,911 ​ ​
Operating income (loss)
​ ​ ​ ​ 3,771 ​ ​ ​ ​ ​ (253) ​ ​
Other expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest expense
​ ​ ​ ​ (4,016) ​ ​ ​ ​ ​ (511) ​ ​
Total other expense
​ ​ ​ ​ (4,016) ​ ​ ​ ​ ​ (511) ​ ​
Loss before income tax (provision) benefit
​ ​ ​ ​ (245) ​ ​ ​ ​ ​ (764) ​ ​
Income tax (provision) benefit
​ ​ ​ ​ (315) ​ ​ ​ ​ ​ 204 ​ ​
Net loss
​ ​ ​ $ (560) ​ ​ ​ ​ $ (560) ​ ​
Adjusted EBITDA schedule:
​ ​ ​
Three Months Ended September 30,
​
​ ​ ​
2022
​ ​
2021
​
Net loss
​ ​ ​ $ (560) ​ ​ ​ ​ $ (560) ​ ​
Interest
​ ​ ​ ​ 4,016 ​ ​ ​ ​ ​ 511 ​ ​
Income tax provision (benefit)
​ ​ ​ ​ 315 ​ ​ ​ ​ ​ (204) ​ ​
Depreciation and amortization
​ ​ ​ ​ 5,754 ​ ​ ​ ​ ​ 501 ​ ​
Stock-based compensation expense
​ ​ ​ ​ 2,837 ​ ​ ​ ​ ​ 649 ​ ​
Adjusted EBITDA
​ ​ ​ $ 12,362 ​ ​ ​ ​ $ 897 ​ ​
Revenue
Digital asset mining
Revenue during the three months ended September 30, 2022 increased by $11.7 million to $16.3 million from $4.7 million during the three months ended September 30, 2021. Bitcoin mined for the three-months ended September 30, 2022 increased by 652.2 Bitcoin to 765.6 Bitcoin from 113.4 Bitcoin for the three months ended September 30, 2021. Generally, digital asset mining revenue increased in the three months ended September 30, 2022 compared to the same period last year due to additional operations coming on-line during the current fiscal year.
Revenues from digital asset mining are impacted significantly by volatility in Bitcoin prices, as well as increases in the Bitcoin blockchain’s network hashrate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain, and the difficulty index associated with the secure hashing algorithm employed in solving the blocks. During the three months ended September 30, 2022, the price of Bitcoin ranged from $17,781 to $68,638. During the three months ended September 30, 2021, the price of Bitcoin ranged from $29,361 to $52,854.
154
TABLE OF CONTENTS
 
Mining equipment sales
Mining equipment sales were $3.6 million for the three months ended September 30, 2022 compared to $0 during the same period last year. USBTC launched its mining equipment sales business in March 2022.
Hosting services
Hosting services revenue was $13.6 million for the three months ended September 30, 2022 compared to $0 during the same period last year. USBTC launched its hosting services business in March 2022.
One of USBTC’s hosting clients defaulted on its contract during the three months ended September 30, 2022, which resulted in a termination of the contract without an obligation to refund, and USBTC recognized the remaining deferred revenue of $13.1 million with respect to such client.
Costs and expenses
Costs of revenues (exclusive of depreciation and amortization)
Included in cost of revenues are energy costs, hosting and network management, labor costs associated with the installation of mining equipment and facility costs. Costs of revenues for the three months ended September 30, 2022 increased $16.7 million to $18.4 million from $1.7 million during the three months ended September 30, 2021. The largest component of USBTC’s cost of revenues is energy, which represented 79.1% and 76.9% of its total cost of revenues for the three months ended September 30, 2022 and 2021, respectively. Generally, cost of revenues increased in the three months ended September 30, 2022 compared to the same period last year due to additional operations coming on-line during the current fiscal year.
Depreciation and amortization
Depreciation and amortization expense was $5.8 million and $0.5 million for the three months ended September 30, 2022 and September 30, 2021, respectively. The purchase of additional miners and other property and equipment during fiscal year 2022 resulted in an increase in the depreciable asset base for the three months ended September 30, 2022.
General and administrative expenses (exclusive of stock-based compensation)
General and administrative (“G&A”) expenses include, but are not limited to, payroll, legal fees, professional fees related to USBTC’s auditors and other contracted services, security services, repair and maintenance of mining equipment and facilities and insurance premiums. G&A expenses for the three months ended September 30, 2022 increased $1.4 million to $3.0 million from $1.7 million during the three months ended September 30, 2021, excluding stock-based compensation expense as discussed below. Legal fees represented 6.6% and 27.4%, other professional fees including security services represented 15.2% and 13.5%, and repair and maintenance costs represented 9.7% and 16.8% for the three months ended September 30, 2022 and 2021, respectively. As USBTC began to ramp up hiring, employee payroll costs also increased. Those costs were $1.1 million and $0.3 million, or 35.6% and 16.8%, for the three months ended September 30, 2022 and 2021, respectively. Generally, G&A expenses increased in the three months ended September 30, 2022 compared to the same period last year due to additional operations coming on-line during the current fiscal year.
Stock-based compensation
Stock-based compensation was $2.8 million and $0.6 million for the three months ended September 30, 2022 and 2021, respectively. The expense in both periods primarily related to restricted stock grants and stock grants to certain employees, advisors and consultants. During the three months ended September 30, 2022, certain stock grants had vesting accelerated.
Impairments of digital assets
Impairments of digital assets was $1.3 million and $0.4 million, or 4.3% and 8.4% of total costs and expenses, for the three months ended September 30, 2022 and 2021, respectively. Impairment results from declines in the market value of Bitcoin during the period it is held.
155
TABLE OF CONTENTS
 
Interest expense
Interest expense was $4.0 million and $0.5 million for the three months ended September 30, 2022 and 2021, respectively. The increase in interest expense is related to the addition of equipment financing loans from NYDIG in July 2021 and December 2021 and Anchorage in March and April 2022, as described in the “Liquidity and Capital Resources” section below.
The year ended June 30, 2022 compared to the period from December 4, 2020 (inception) through June 30, 2021.
The following tables summarize USBTC’s results of operations and Adjusted EBITDA for the year ended June 30, 2022 and the period December 4, 2020 (inception) to June 30, 2021:
​ ​ ​
Year Ended
June 30, 2022
​ ​
December 4,
2020 through
June 30, 2021
​
Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ $ 68,164 ​ ​ ​ ​ $ 4,272 ​ ​
Hosting services
​ ​ ​ ​ 5,566 ​ ​ ​ ​ ​ — ​ ​
Total revenue
​ ​ ​ ​ 73,730 ​ ​ ​ ​ ​ 4,272 ​ ​
Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenues (exclusive of depreciation and amortization shown below)
​ ​ ​ ​ 25,783 ​ ​ ​ ​ ​ 1,464 ​ ​
Depreciation and amortization
​ ​ ​ ​ 11,591 ​ ​ ​ ​ ​ 391 ​ ​
General and administrative
​ ​ ​ ​ 31,325 ​ ​ ​ ​ ​ 12,144 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ 30,301 ​ ​ ​ ​ ​ 1,254 ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​ (5,455) ​ ​ ​ ​ ​ — ​ ​
Total costs and expenses
​ ​ ​ ​ 93,545 ​ ​ ​ ​ ​ 15,253 ​ ​
Operating loss
​ ​ ​ ​ (19,815) ​ ​ ​ ​ ​ (10,981) ​ ​
Other expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest expense
​ ​ ​ ​ (6,919) ​ ​ ​ ​ ​ (200) ​ ​
Total other expense
​ ​ ​ ​ (6,919) ​ ​ ​ ​ ​ (200) ​ ​
Loss before income tax (provision) benefit
​ ​ ​ ​ (26,734) ​ ​ ​ ​ ​ (11,181) ​ ​
Income tax (provision) benefit
​ ​ ​ ​ (5,069) ​ ​ ​ ​ ​ 2,097 ​ ​
Net loss
​ ​ ​ $ (31,803) ​ ​ ​ ​ $ (9,084) ​ ​
Adjusted EBITDA schedule:
​ ​ ​
Year Ended
June 30, 2022
​ ​
December 4,
2020 through
June 30, 2021
​
Net loss
​ ​ ​ $ (31,803) ​ ​ ​ ​ $ (9,084) ​ ​
Interest
​ ​ ​ ​ 6,919 ​ ​ ​ ​ ​ 200 ​ ​
Income tax provision (benefit)
​ ​ ​ ​ 5,069 ​ ​ ​ ​ ​ (2,097) ​ ​
Depreciation and amortization
​ ​ ​ ​ 11,591 ​ ​ ​ ​ ​ 391 ​ ​
One time cost(1)
​ ​ ​ ​ 6,288 ​ ​ ​ ​ ​ — ​ ​
Stock-based compensation expense
​ ​ ​ ​ 9,176 ​ ​ ​ ​ ​ 10,496 ​ ​
Adjusted EBITDA
​ ​ ​ $ 7,240 ​ ​ ​ ​ $ (94) ​ ​
​
(1)
One-time costs represent cash payments of approximately $5.3 million for certain employees and advisors related to their personal income taxes on the issuance of stock grants and a $1.0 million payment made to a government agency associated with the Rescission Offer.
​
156
TABLE OF CONTENTS
 
Revenue
Digital asset mining
Revenue was $68.2 million for the year ended June 30, 2022 compared to $4.3 million during the period from December 4, 2020 (inception) through June 30, 2021 as USBTC began its mining operations in January 2021. Revenues from digital asset mining are impacted significantly by volatility in Bitcoin prices, as well as increases in the Bitcoin blockchain’s network hashrate resulting from the growth in the overall quantity and quality of miners working to solve blocks on the Bitcoin blockchain, and the difficulty index associated with the secure hashing algorithm employed in solving the blocks.
During the year ended June 30, 2022, the price of Bitcoin ranged from $17,781 to $68,638. During the period from December 4, 2020 (inception) through June 30, 2021, the price of Bitcoin ranged from $28,723 to $64,863.
Hosting services
Revenue was $5.6 million for the year ended June 30, 2022 compared to $0 during the period from December 4, 2020 (inception) through June 30, 2021. USBTC launched its hosting services business in March 2022.
Costs and expenses
Costs of revenues (exclusive of depreciation and amortization)
Included in cost of revenues are energy costs, hosting and network management, labor costs associated with the installation of mining equipment and facility costs. Costs of revenues totaled $25.8 million for the year ended June 30, 2022 compared to $1.5 million for the period from December 4, 2020 (inception) through June 30, 2021. The largest component of USBTC’s cost of revenues is energy, which represented 91.8% and 78.7% of its total cost of revenues for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively.
Depreciation and amortization
Depreciation and amortization expense was $11.6 million for the year ended June 30, 2022 and $0.4 million for the period from December 4, 2020 (inception) through June 30, 2021. The purchase of additional miners and other property and equipment resulted in an increase in the depreciable asset base during the year ended June 30, 2022.
General and administrative expenses (exclusive of stock-based compensation)
G&A expenses include, but are not limited to, payroll, legal fees, professional fees related to USBTC’s auditors and other contracted services, security services, repair and maintenance of mining equipment and facilities, one-time payments approved by USBTC’s Board and insurance premiums. During the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, these costs totaled $22.1 million and $1.6 million, respectively, excluding stock-based compensation expense as discussed below. Legal fees represented 6.3% and 53.9%, other professional fees including security services represented 7.9% and 9.8%, and repair and maintenance costs represented 32.8% and 8.9% for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively. As USBTC began to ramp up hiring, employee payroll costs also increased. Those costs were $2.7 million and $0.3 million, or 12.4% and 16.2%, for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively. One-time costs were $6.3 million and $0, or 28.4% and nil for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively. One-time costs included $5.3 million in payments to employees and advisors related to personal income taxes for the issuance of stock grants and a $1.0 million payment made to a government agency associated with the Rescission Offer. Generally, G&A expenses increased in the fiscal year ended June 30, 2022 compared to the period from December 4, 2020 (inception) through June 30, 2021 due to operations running for a full year compared to the approximately six months of operations during the period ending June 30, 2021.
Stock-based compensation
Stock-based compensation was $9.2 million and $10.5 million for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively. The expense in both periods primarily related to restricted stock grants and stock grants to certain employees, advisors and consultants.
157
TABLE OF CONTENTS​​​
 
Impairments of digital assets
Impairments of digital assets was $30.3 million and $1.3 million, or 32.4% and 8.2% of total costs and expenses, for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively. Impairment results from declines in the market value of Bitcoin during the period it is held.
Interest Expense
Interest expense was $6.9 million and $0.2 million for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively. The increase in interest expense is related to the addition of equipment financing loans from NYDIG in July 2021 and December 2021 and Anchorage in March and April 2022, as described in the “Liquidity and Capital Resources” section below.
Income Tax
For the three months ended September 30, 2022, USBTC recognized income tax expense of $0.3 million. USBTC’s effective income tax rate was (128.6%) for the three months ended September 30, 2022. The difference between the effective tax rate and the expected statutory rate was a result of stock compensation shortfalls and the related change to the valuation allowance.
USBTC’s effective tax rate for the fiscal year ended June 30, 2022 was (18.6%), which differs from the U.S. Federal income tax rate of 21% primarily due to a change in valuation allowance and adjustments to tax accounts.
Net Operating Loss Carryforwards
As of June 30, 2022, USBTC had federal and state net operating loss carryforwards of approximately $105.6 million and $31.0 million, respectively. The federal net operating losses can be carried forward indefinitely and the state net operating loss expires in tax year 2040.
Liquidity and Capital Resources
USBTC’s earnings, cash flows and ability to meet any debt obligations will depend on the cash flows resulting from its operations. USBTC’s cash needs historically were primarily for growth through acquisitions and working capital to support equipment financing and the purchase of additional miners. Cash needs for operations have historically been financed with cash generated from operations, sales of USBTC’s mined Bitcoin or financings. Although USBTC’s strategy is primarily to hold Bitcoin on its balance sheet, it will from time to time sell Bitcoin it mines through Coinbase or other exchanges for fiat currency based on its internal cash management policy. USBTC intends to hold enough fiat currency or hedge enough of its Bitcoin exposure to fund its projected near-term fiat currency expenses, including liabilities, operating expenses, and capital expenditures.
Cash Flows
USBTC has incurred net losses since its inception but does not anticipate it will continue to incur net losses for the foreseeable future. As of September 30, 2022 and 2021, USBTC had cash and cash equivalents of $21.4 million and $31.9 million, respectively. The following table summarizes USBTC’s cash flows for the periods indicated:
​ ​ ​
Three Months Ended September 30,
​
​ ​ ​
2022
​ ​
2021
​
Net cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash flows provided by (used in) operating activities
​ ​ ​ $ 8,364 ​ ​ ​ ​ $ (3,558) ​ ​
Cash flows used in activities
​ ​ ​ ​ (9,791) ​ ​ ​ ​ ​ (39,904) ​ ​
Cash flows provided by financing activities
​ ​ ​ ​ 1,761 ​ ​ ​ ​ ​ 68,669 ​ ​
Net change in cash
​ ​ ​ $ 334 ​ ​ ​ ​ $ 25,207 ​ ​
158
TABLE OF CONTENTS
 
Operating Activities
Net cash provided by (used in) operating activities was approximately $8.4 million and ($3.6) million for the three months ended September 30, 2022 and 2021, respectively.
Net cash provided by operating activities for the three months ended September 30, 2022 of $8.4 million resulted from a net loss and related adjustments of ($7.7) million and changes in working capital of $16.1 million. Net cash used in operating activities of ($3.6) million for three months ended September 30, 2021 resulted from a net loss and related adjustments of ($3.6) million.
Investing Activities
Net cash used in investing activities was approximately $9.8 million and $39.9 million for the three months ended September 30, 2022 and, 2021, respectively. Cash used was primarily due to deposits made for the purchases of mining equipment and property and equipment. Those deposits were $9.0 million and $31.4 million for the three months ended September 30, 2022 and 2021, respectively. In addition, USBTC spent approximately $1.0 million and $8.5 million in property and equipment for the three months ended September 30, 2022 and September 30, 2021, respectively. As the mining equipment is received and put into service, the amounts reflected as deposits are transferred to property and equipment and depreciation commences.
Financing Activities
Net cash provided by financing activities was approximately $1.8 million and $68.7 million for the three months ended September 30, 2022 and 2021, respectively. Cash increases were primarily due to net proceeds from notes payable and the sale of securities. Net proceeds from notes payable were $1.8 million and $14.3 million for the three months ended September 30, 2022 and 2021, respectively. Net proceeds from the sale of securities were $0 and $54.4 million for the three months ended September 30, 2022 and 2021, respectively.
The following table summarizes USBTC’s cash flows for the periods indicated:
​ ​ ​
Year Ended
June 30, 2022
​ ​
December 4, 2020
through
June 30, 2021
​
Net cash provided by (used in): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash flows provided by (used in) operating activities
​ ​ ​ $ 1,436 ​ ​ ​ ​ $ (5,293) ​ ​
Cash flows used in investing activities
​ ​ ​ ​ (178,716) ​ ​ ​ ​ ​ (27,395) ​ ​
Cash flows provided by financing activities
​ ​ ​ ​ 191,629 ​ ​ ​ ​ ​ 39,406 ​ ​
Net change in cash
​ ​ ​ $ 14,349 ​ ​ ​ ​ $ 6,718 ​ ​
Operating Activities
Net cash provided by (used in) operating activities was $1.4 million and ($5.3) million for the year ended June 30, 2022 and the period from December 4, 2020 (inception) through June 30, 2021, respectively.
Net cash provided by operating activities for the year ended June 30, 2022 resulted from a net loss and related adjustments of ($4.0) million offset by changes in working capital of $5.4 million. Net cash used in operating activities of ($5.3) million for the period from December 4, 2020 (inception) through June 30, 2021 resulted from a net loss and related adjustments of ($3.2) million combined with changes in working capital of ($2.1) million.
Investing Activities
Net cash used in investing activities was $178.7 million for the year ended June 30, 2022 and $27.4 million for the period from December 4, 2020 (inception) through June 30, 2021, respectively. Cash used was primarily due to deposits made for the purchases of mining equipment and property and equipment. Those deposits were $141.4 million for the year ended June 30, 2022 and $27.4 million for the period from December 4, 2020
159
TABLE OF CONTENTS
 
(inception) through June 30, 2021, respectively. In addition, USBTC spent approximately $37.3 million in property and equipment for the year ended June 30, 2022. As the mining equipment is received and put into service, the amounts reflected as deposits are transferred to property and equipment and depreciation commences.
Financing Activities
Net cash provided by financing activities was $191.6 million for the year ended June 30, 2022 and $39.4 million for the period from December 4, 2020 (inception) through June 30, 2021. Cash increases in both periods were primarily due to proceeds from the sale of securities and proceeds from notes payable. Net proceeds from the sale of securities were $73.8 million and $35.3 million for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, respectively. During the year ended June 30, 2022, the net increase in notes payable activity (including notes payable — related parties) was $121.4 million, reflecting proceeds from the USBTC’s debt agreements described below and other equipment financing loans, offset by the repayments of other notes payable, debt issuance costs paid and notes payable to related parties. For the period from December 4, 2020 (inception) through June 30, 2021, the net increase in notes payable activity (including notes payable — related parties) was $4.1 million, reflecting proceeds from noteholders and related party noteholders, offset by repayments to note holders.
NYDIG
On July 27, 2021, USBTC entered into the MEFA with Arctos. Pursuant to the MEFA, Arctos advanced approximately $9.1 million to finance USBTC’s purchase of certain equipment, in exchange for repayment of the Principal, in addition to interest by July 25, 2023. Additionally, USBTC granted Arctos a security interest in certain of its assets, as further described in the MEFA.
On December 27, 2021, USBTC executed the MEFA Amendment with NYDIG pursuant to which (i) NYDIG replaced Arctos as the “Lender” under the MEFA, being granted full rights of such party under the Credit Agreement, (ii) NYDIG replaced Arctos as “Secured Party” under the Security Agreement, being granted the full rights of such party under the Security Agreement, (iii) NYDIG made additional advances to USBTC and (iv) USBTC granted NYDIG additional security interests in certain of its assets, as further described in the MEFA Amendment.
In connection with a restructuring of its debt obligations with NYDIG, USBTC (and certain of its subsidiaries) entered into that certain Asset Purchase Agreement dated as of February 3, 2023 with NYDIG (and certain of its subsidiaries or other affiliates) pursuant to which USBTC transferred the USBTC Assets to NYDIG in full satisfaction of the MEFA Debt owed under the Credit Agreement and release of the security interests granted pursuant to the Security Agreement. Additionally, USBTC and NYDIG entered into certain other agreements to effectuate the purposes of, and the transactions contemplated by, the APA including (i) a Real Estate Purchase and Sale Agreement dated as of February 3, 2023 pursuant to which USBTC transferred certain real property to NYDIG and (ii) an Assignment and Assumption Agreement dated as of February 3, 2023 pursuant to which NYDIG transferred its rights as “Lender” under the Credit Agreement to USBTC in exchange for the Assets transferred to NYDIG under the APA.
As of February 3, 2023, USBTC owes no amount of the MEFA Debt to NYDIG and NYDIG holds no remaining security interests in the assets of USBTC such that NYDIG is no longer considered a debt finance partner or secured party of USBTC. The extinguishment of these debts is reflected in the pro forma financial statements included in this prospectus.
Anchorage
On March 31, 2022 and April 26, 2022, respectively, USBTC entered into those certain Equipment Loan and Security Agreements with Anchorage. Pursuant to the Original Loan Agreements, Anchorage advanced $50.0 million to USBTC to finance USBTC’s acquisition of certain business equipment. Pursuant to the Original Loan Agreements, USBTC agreed to repay the Original Principal plus interest. Additionally, USBTC granted Anchorage a security interest in certain of its assets, as further described in the Original Loan Agreements.
In connection with a restructuring of its debt obligations with Anchorage, USBTC (and certain of its subsidiaries) entered into the Refinanced Loan Agreement. Additionally, USBTC, USDG, and USDTG, as
160
TABLE OF CONTENTS​​​​
 
applicable, entered into certain other agreements with Anchorage to effectuate the purposes of, and the transactions contemplated by, the Refinanced Loan Agreement including (i) that certain Subscription Agreement by and between USBTC and Anchorage, dated as of February 3, 2023, pursuant to which Anchorage acquired 2,960,000 shares of USBTC common stock, and (ii) that certain Asset Purchase Agreement by and between USBTC and USDG dated as of February 3, 2023 pursuant to which USBTC transferred certain of its assets to USDG pursuant to the Refinanced Loan Agreement. As of February 3, 2023, USBTC (and the Loan Parties) owe, and have agreed to repay, approximately $49.0 million to Anchorage, in addition to interest, as further specified in the Refinanced Loan Agreement. Pursuant to the Refinanced Loan Agreement, the Outstanding Loan Amount is repaid through profits generated from those certain USBTC miners underlying the security interest, as further specified in the Refinanced Loan Agreement. In addition, USBTC is not required to make a minimum monthly payment.
Equipment Purchase Transactions
In November 2020, USBTC entered into agreements for the purchase of 1,000 M31S miners for a total cost of approximately $1.9 million, which amount was paid in full at the time of the order. The miners were received and put into service in January 2021 in its Alpha Facility.
In February 2021, USBTC entered into an agreement to purchase 1,500 A1246 miners for a total cost of approximately $5.4 million which was paid in full prior to March 31, 2021. The miners were received in April 2021 and May 2021 and put into service in May 2021 in its Alpha Facility.
In February 2021, USBTC entered into an agreement to purchase 2,500 1166 Pro miners for a total cost of approximately $7.2 million. These miners have been paid in full and delivery of the miners occurred in October and November 2021. These miners were placed in service in November and December 2021 in its Alpha Facility.
In February 2021, USBTC entered into an agreement to purchase 8,630 S19j miners for a total cost of approximately $19.6 million which was fully paid by December 31, 2021. The initial tranche of 4,927 miners were received in September 2021 and put into service in October 2021 in its Alpha Facility. The remaining miners were received and placed in service in November and December 2021 in its Alpha Facility.
In July 2021, USBTC entered into an agreement to purchase 10,000 M30S miners for a total cost of approximately $32.8 million which was fully paid by March 31, 2022. All miners were received prior to March 31, 2022 and placed in service in March and April 2022 in its prior Bravo Facility. As part of the restructuring with NYDIG described above, USBTC exchanged approximately 9,000 delivered miners related to this agreement.
In September 2021, USBTC entered into an agreement to purchase 18,000 M30S miners for a total cost of approximately $57.4 million. As of December 31, 2022, total deposits made under the agreement were approximately $42.4 million. USBTC has received approximately 8,000 miners through the date of this prospectus. As part of the restructuring with NYDIG described above, USBTC exchanged all delivered miners and the remaining deposits related to this agreement.
In March 2022, USBTC entered into an agreement to purchase 30,000 M30S, M30S+ and M30S++ miners for a total cost of approximately $126.0 million. As of December 31, 2022, total deposits were approximately $66.2 million. USBTC has received and put into service approximately 12,000 miners through the date of this prospectus. Delivery of these miners are expected to continue through March 2023.
Legal Proceedings
See “Information about USBTC — Legal Proceedings” for more information.
Recently Issued and Adopted Accounting Pronouncements
A description of recently issued and adopted accounting pronouncements that may potentially impact USBTC’s financial position and results of operations is disclosed in Note 3 to its consolidated financial statements included elsewhere in this prospectus and is incorporated herein by reference.
Off-Balance Sheet Arrangements
USBTC does not have any off-balance sheet arrangements.
161
TABLE OF CONTENTS​​
 
EXECUTIVE AND DIRECTOR COMPENSATION OF USBTC
The following table shows the total compensation paid or accrued during the period from December 4, 2020 (inception) through June 30, 2021 and the fiscal year ended June 30, 2022, to USBTC’s Chief Executive Officer and the two next most highly compensated USBTC executives (each a named executive officer, or “NEO”), each of whom earned more than $120,000 during the period presented, and was serving as an executive officer as of such date.
Name and Principal Position
​ ​
Year
Ended
June 30,
​ ​
Salary
($)
​ ​
Bonus
($)
​ ​
Stock Awards
($)
​ ​
Option
Awards
($)
​ ​
All Other
Compensation
($)
​ ​
Total
($)
​
Michael Ho, Chief
Executive Officer
​ ​ ​ ​ 2021 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,555,482 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 125,000 ​ ​ ​ ​ ​ 3,680,482 ​ ​
​ ​ ​ 2022 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,976,127 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,102,790 ​ ​ ​ ​ ​ 5,078,917 ​ ​
Asher Genoot, President
​ ​ ​ ​ 2021 ​ ​ ​ ​ ​ 125,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,555,482 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,680,482 ​ ​
​ ​ ​ 2022 ​ ​ ​ ​ ​ 250,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,273,853 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,940,218 ​ ​ ​ ​ ​ 5,464,071 ​ ​
Joel Block, Chief Financial
Officer(1)
​ ​ ​ ​ 2021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ 2022 ​ ​ ​ ​ ​ 200,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 587,400 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 787,400 ​ ​
​
(1)
Joel Block became the Chief Financial Officer of USBTC on December 1, 2021. Prior to his appointment, Mr. Block served as USBTC’s Chief Business Officer commencing on September 20, 2021. As a result, Mr. Block had no compensation for the period from December 4, 2020 (inception) through June 30, 2021.
​
Narrative Disclosure to Summary Compensation Table
Base Salary
Mr. Genoot received an annualized base salary of $250,000 for both periods. Mr. Block received an annualized base salary of $200,000 for the fiscal year ended June 30, 2022. Given USBTC was incorporated on December 4, 2020, the 2021 above amount for Mr. Genoot represents salary amount paid on a pro-rated basis for the period from December 4, 2020 (inception) to June 30, 2021.
Stock Awards
In connection with their services provided as executive officers of USBTC, Messrs. Ho and Genoot received certain grants of restricted stock during the period presented. The stock awards are described in further detail under “— Equity Granted in 2021 under the 2021 Plan.”
Option Awards
In connection with his employment as Chief Financial Officer, Mr. Block received a grant of 1,308 options to purchase USBTC common stock at an exercise price of $568.18 per share (327,000 options to purchase USBTC common stock at an exercise price of $2.27 following the Company’s 250-to-1 stock split (the “USBTC Stock Split”) effectuated in September 2022). Effective January 5, 2023, the USBTC Board adjusted the exercise price of Mr. Block’s options to $0.26 to correspond to the fair market value of the USBTC common stock at such time. The options and corresponding vesting are further described under “— Equity Granted in 2021 under the 2021 Plan” and “Employment and Consulting Agreements.”
Other Compensation Elements
The amount under Other Compensation with respect to Mr. Ho includes the annual cash consideration of $250,000 due to Mr. Ho in exchange for his services as Chief Executive Officer pursuant to his consulting agreement for both periods. In addition, Mr. Ho received a cash payment of $1,852,790 for personal income taxes associated with the issuance of stock awards during the fiscal year ended June 30, 2022.
The amount under Other Compensation with respect to Mr. Genoot during the fiscal year ended June 30, 2022 includes a cash payment of $1,940,218 for personal income taxes associated with the issuing of stock awards.
162
TABLE OF CONTENTS​​
 
Outstanding Equity Awards at June 30, 2022
The following table shows grants of stock options outstanding on the last day of the fiscal year ended June 30, 2022, to each of the executive officers named in the Summary Compensation Table.
​ ​ ​
Option Awards
​ ​
Stock Awards
​
Name
​ ​
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
​ ​
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
​ ​
Option
Exercise
Price
($)
​ ​
Option
Expiration
Date
​ ​
Number of
Shares or
Units of
Stock That
Have Not
Vested
(#)
​ ​
Market
Value of
Shares or
Units of
Stock That
Have Not
Vested
($)
​
Michael Ho, Chief Executive Officer
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,096,500(1) ​ ​ ​ ​ ​ 39,635 ​ ​
Asher Genoot, Chief Operating Officer
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,162,000(1) ​ ​ ​ ​ ​ 40,474 ​ ​
Joel Block, Chief Financial Officer
​ ​ ​ ​ 327,000(1) ​ ​ ​ ​ ​ 0.26 ​ ​ ​ ​ ​ 11/15/2031 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​
​
(1)
See “Equity Granted Under the 2021 Plan” for more details regarding these awards and the vesting of certain awards subsequent to June 30, 2022.
​
Employment Agreements
Michael Ho
Mr. Ho provides his services as USBTC’s Chief Executive Officer pursuant to a consulting agreement entered into with USBTC on January 15, 2021 (the “Ho Consulting Agreement”). Pursuant to the Ho Consulting Agreement, Mr. Ho received 6,250 shares of USBTC common stock (1,562,500 shares post Stock Split). On January 17, 2022, the Ho Consulting Agreement was amended (the “Ho Amendment”) to memorialize an additional component of Mr. Ho’s compensation package, which included an annual cash payment of $250,000 in exchange for his continued service as USBTC Chief Executive Officer. The Ho Amendment provided for an accrual of the cash payment for the period from December 4, 2020 (inception) through June 30, 2021 retroactive to January 1, 2021.
Asher Genoot
USBTC has one formal employment agreement with a NEO, Mr. Genoot (the “Genoot Employment Agreement”). USBTC entered into the Genoot Employment Agreement on July 30, 2021. However, the Genoot Employment Agreement accrued compensation for the period from December 4, 2020 (inception) through June 30, 2021 retroactive to January 1, 2021. The Genoot Employment Agreement provides for a base salary of $250,000, an annual bonus in the sole discretion of the Board of Directors and his eligibility to receive awards under the USBTC equity incentive plan and to participate in USBTC benefit plans.
Prior to the Genoot Employment Agreement, Mr. Genoot was providing services to USBTC pursuant a consulting agreement entered into with USBTC on January 15, 2021. The compensation under the consulting agreement was comprised of 6,250 shares of USBTC common stock (1,562,500 post Stock Split), which has been granted to Mr. Genoot. The consulting agreement was terminated on September 29, 2021. Under the terms of the consulting agreement Mr. Genoot retains ownership of the shares which he received as his compensation.
Joel Block
On September 27, 2021 USBTC entered into an offer letter with one of its NEO’s, the Chief Financial Officer, Mr. Block (the “Block Offer Letter”). The Block Offer Letter provided for at will employment and sets forth an annual base salary of $200,000 and Mr. Block’s eligibility to participate in USBTC benefit plans. Subsequent to signing the Block Offer Letter, Mr. Block also entered into a non competition, non solicitation
163
TABLE OF CONTENTS​
 
and confidentiality agreement. The Block Offer Letter also provided for an option grant of 654 options (163,500 post Stock Split) to Mr. Block to purchase USBTC common stock, subject to certain vesting criteria more fully described under “Equity Granted Under the 2021 Plan.” The amount of options issued to Mr. Block was later amended to 1,308 options (327,000 options post Stock Split). Effective August 1, 2022, USBTC raised Mr. Block’s annual base salary to $300,000.
On February 5, 2023, Mr. Block entered into a letter agreement with USBTC which provides for severance benefits upon a qualifying termination of employment (by USBTC without cause or by the executive for good reason), including in connection with a change in control (which will occur upon the consummation of the Business Combination, although the severance benefits payable to the executive do not vary based upon whether or not the qualifying termination of employment is in connection with a change in control). Upon such a qualifying termination, the executive will generally be entitled (in addition to accrued compensation and expense reimbursement) to the following in connection with termination: (i) any bonus awarded in the year preceding the year of termination, if not yet paid, (ii) a pro-rata bonus, to the extent earned, for the year of termination, (iii) payment of base salary for a period of twelve months following the date of termination, equating to $300,000 (iv) certain benefit continuation entitlements and (v) the acceleration of any outstanding unvested USBTC equity awards held by Mr. Block.
Equity Compensation Plans and Other Benefit Plans
Long-Term Equity Incentives
In addition to base salary and annual incentive compensation, each named USBTC executive officer is provided long-term equity incentive compensation. The use of long-term equity incentives creates a link between executive compensation and the long-term performance of USBTC, thereby creating alignment between executive and stockholder interests.
2021 Plan
USBTC has adopted the U.S. Data Mining Group, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan is designed to provide the USBTC Board and the compensation committee with flexibility in terms of the types of awards that can be granted and the underlying terms and conditions of such awards. The material terms of the 2021 Plan are summarized below.
Share Reserve.   The maximum aggregate number of shares of common stock that may be subject to awards, and that may be granted with respect to incentive stock options, under the 2021 Plan is 17,387,687 shares. If any shares subject to an award under the 2021 Plan are forfeited, if an award granted under the 2021 Plan expires or otherwise terminates without issuance of shares in whole or in part, or an award granted under the 2021 Plan is settled for cash or otherwise does not result in the issuance of all or a portion of the shares subject to the award, such shares shall, to the extent of such forfeiture, expiration, termination, cash settlement or non-issuance, again become available for grant under the 2021 Plan. Shares that are used to satisfy the exercise price of an option or the tax withholding obligation of an award and any shares covered by a stock-settled stock appreciation right or other award that were not issued upon the settlement of the award shall not again become available for issuance under the 2021 Plan.
Administration.   The USBTC Board currently administers the 2021 Plan. The 2021 Plan provides that the USBTC Board may delegate its authority to administer the plan, including the authority to grant awards, to a committee of one or more members of the USBTC Board, and that any such committee shall have the power to delegate to a subcommittee any of the administrative powers under the plan. The administrator may delegate its authority under the 2021 Plan to one or more officers of USBTC, other than with respect to awards made to individuals who are subject to Section 16 of the Exchange Act. Subject to the terms and conditions of the 2021 Plan, the administrator has the authority to select the persons to whom awards are to be made, to determine the number of shares to be subject to awards and the terms and conditions of awards, to accelerate the vesting and exercisability of awards, and to make all other determinations and to take all other actions necessary or advisable for the administration of the 2021 Plan. The administrator is also authorized to adopt, amend or revoke rules relating to administration of the 2021 Plan. The USBTC Board may at any time remove any committee or subcommittee as the administrator and revest in itself the authority to administer the 2021 Plan.
164
TABLE OF CONTENTS
 
Eligible Participants.   Awards under the 2021 Plan may be granted to individuals who are then, or who are expected to become, USBTC officers, employees or consultants or the officers, employees or consultants of certain of USBTC subsidiaries. Such awards also may be granted to USBTC directors or individuals who are then expected to become USBTC directors. Only employees of USBTC or certain of USBTC subsidiaries may be granted incentive stock options (“ISOs”).
Awards.   The 2021 Plan provides that the administrator may grant or issue ISOs, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (with or without dividend equivalents), deferred stock units (with or without dividend equivalents) and performance shares. Each award will be set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award.
Change in Control.   In the event of a change in control, unless otherwise provided in an award agreement for awards granted prior to July 30, 2021 or to the extent provided in an award agreement for awards granted on or after July 30, 2021, options and stock appreciation rights shall become fully exercisable and restricted stock and restricted stock units shall become fully vested and performance shares shall vest based on performance to date as of the change in control or based on target performance. In the event of a change in control, the administrator may cancel outstanding awards and cause USBTC to pay to participants the value of such awards based upon the per share consideration to be paid in the change in control and may cause the forfeiture of options and stock appreciation rights with an exercise price that is greater than such per share consideration.
Adjustments of Awards.   In the event of any change in the outstanding common stock or capital structure of USBTC by reason of any stock dividend, extraordinary cash dividend, stock split, reverse stock split or extraordinary transaction such as a recapitalization, reorganization, merger, consolidation, combination, exchange or other relevant change in capitalization, the number of shares available for issuance under the 2021 Plan and individual awards then outstanding and terms thereof, including the exercise price of options and stock appreciation rights, will be equitably adjusted or substituted as to the number, price or kind of common stock or other consideration subject to such awards to the extent necessary to preserve the economic intent of such awards.
Amendment and Termination.   The USBTC Board may terminate, amend or modify the 2021 Plan at any time and from time to time. However, USBTC must generally obtain stockholder approval to the extent required by applicable law, rule or regulation (including any applicable stock exchange rule). The administrator may amend the terms of any one or more awards, however, generally no amendment shall impair an award then outstanding unless the participant holding such award consents in writing to such amendment. No awards will be granted pursuant to the 2021 Plan after March 16, 2031.
Equity Granted under the 2021 Plan
To further align the interest of USBTC NEOs with USBTC stockholders and to further focus USBTC NEOs on the long-term performance of USBTC, USBTC granted the following equity awards to executive officers under the 2021 Plan. For the avoidance of confusion, the amount of the below grants have been adjusted to account for USBTC’s Stock Split.
Grants During the Period from December 4, 2020 (inception) through June 30, 2021
Restricted Stock
USBTC granted 4,492,750 shares each of restricted stock to Messrs. Ho and Genoot during the period from December 4, 2020 (inception) through June 30, 2021. The shares were granted in January and March, 2021 and were subject to vesting based on time and performance as follows:
•
1,562,500 on January 31, 2021;
​
•
488,500 upon the earlier of an initial public offering of USBTC securities or March 17, 2022;
​
•
488,500 shares vesting in equal monthly installments over 12 months starting March 17, 2023;
​
•
488,500 shares vesting in equal monthly installments over 12 months starting March 17, 2024;
​
•
244,250 shares vesting in equal monthly installments over 12 months starting March 17, 2025;
​
165
TABLE OF CONTENTS​​
 
•
610,250 shares vesting upon USBTC achieving a valuation over $1,000,000,000;
​
•
610,250 shares vesting upon USBTC achieving a valuation over $2,000,000,000.
​
In December 2021, USBTC granted Mr. Ho and Mr. Genoot a cash payment for the purposes of enabling them to satisfy their personal income tax obligations in connection with the grants of common stock. Mr. Ho and Mr. Genoot each received approximately $1.9 million. Pursuant to the restricted stock agreements governing these grants, the vesting of any unvested restricted stock would accelerate upon an Acceleration Event (as defined in each restricted stock award). An Acceleration Event included Asher Genoot, Michael Ho and their respective immediate family members and any entity beneficially owned or controlled by any of them, directly or indirectly, ceasing to collectively have the power to elect either a majority of the members of the USBTC Board. In August 2022, upon the appointment of Ms. Wilkinson to the USBTC Board, Messrs. Ho and Genoot ceased to collectively have the power to elect a majority of the members of the USBTC Board, constituting an Acceleration Event under each restricted stock award. As a result, all such shares subject to these restricted stock grants have fully vested.
Grants During the Fiscal Year Ended June 30, 2022
Restricted Stock
USBTC granted 1,309,500 shares of restricted stock to Mr. Ho and 1,440,500 to Mr. Genoot on October 10, 2021. The shares are subject to vesting based on time and performance as follows:
•
Mr. Ho will receive 654,750 shares upon USBTC achieving 10,000 or more machines plugged in and securing purchase orders totaling 3 exahash of compute. This milestone was met, and these shares became vested.
​
•
Mr. Ho will receive 654,750 shares upon USBTC achieving 20,000 or more machines plugged in and securing purchase orders totaling 6 exahash of compute on or before December 31, 2022. This milestone was not met, but these shares vested in connection with the Acceleration Event mentioned above.
​
•
Mr. Genoot will receive 720,250 shares upon USBTC achieving 10,000 or more machines plugged in and securing purchase orders totaling 3 exahash of compute. This milestone was met, and these shares became vested.
​
•
Mr. Genoot will receive 720,250 shares upon USBTC achieving 20,000 or more machines plugged in and securing purchase orders totaling 6 exahash of compute on or before December 31, 2022. This milestone was not met, but these shares vested in connection with the Acceleration Event mentioned above.
​
Options
In the fiscal year ended June 30, 2022, USBTC granted 327,000 options to purchase USBTC common stock to Mr. Joel Block, USBTC’s Chief Financial Officer, at an exercise price of $2.27 per share. 40,750 of these options vested on September 20, 2022. The remaining 286,250 of these options vest in 36 monthly equal installments starting October 20, 2022. Effective January 5, 2023, the USBTC Board adjusted the exercise price of Mr. Block’s options to $0.26 to correspond to the fair market value of the USBTC common stock at such time. Mr. Block’s outstanding unvested options are expected to become fully vested upon consummation of the Business Combination.
Director Compensation
Michael Ho and Asher Genoot did not receive any additional compensation in connection with their role as USBTC directors.
Non-Employee Director Compensation
USBTC has not paid any non-employee directors in connection with their service as USBTC directors. However, below is summary of options to purchase USBTC common stock awarded to USBTC’s non-employee directors during the fiscal year ended June 30, 2022.
166
TABLE OF CONTENTS
 
On July 30, 2021, Stanley O’Neal was granted 122,000 options to purchase USBTC common stock. The options vest over a four year period. 30,500 of the options vested on March 17, 2022, with the remainder vesting ratably on a monthly basis over the remaining 36 months.
On November 15, 2021, Jonathan Koch was granted 122,000 options to purchase USBTC common stock. The options vest over a four year period. 30,500 of the options vested on November 15, 2022, with the remainder vesting ratably on a monthly basis over the remaining 36 months.
On December 3, 2021, Mayo A. Shattuck III was granted 122,000 options to purchase USBTC common stock. The options vest over a four year period. 30,500 of the options vested on December 10, 2022, with the remainder vesting ratably on a monthly basis over the remaining 36 months.
Effective January 5, 2023, the USBTC Board adjusted the exercise price of the foregoing options to USBTC directors to $0.26 to correspond to the fair market value of the USBTC common stock at such time.
167
TABLE OF CONTENTS​​​
 
CERTAIN RELATIONSHIPS, RELATED PARTY AND OTHER TRANSACTIONS OF USBTC
The following is a description of transactions since the inception of USBTC in December 2020, to which USBTC has been a party, in which the amount involved exceeds $120,000, and in which any of USBTC’s directors, executive officers or holders of more than 5% of the voting securities outstanding of USBTC, or an affiliate or immediate family member thereof, had or will have a direct or indirect material interest. USBTC refers to such transactions as “related party transactions” and such persons as “related parties.” With the approval of the USBTC Board, USBTC has engaged in the related party transactions described below. USBTC believes the terms obtained or consideration that USBTC paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, from unaffiliated third parties.
Secured Promissory Notes
For the period December 4, 2020 (inception) through January 5, 2021, USBTC entered into secured promissory notes with various existing investors of USBTC, including USBTC’s Chief Executive Officer and director, Michael Ho, a family member of Mr. Ho and a family member of USBTC’s President and director, Asher Genoot. Additionally, USBTC entered into secured promissory notes with Jonathan Honig, a former beneficial owner of more than 5% of the voting securities of USBTC at the time of the transaction, and an entity controlled by Jonathan Honig (collectively referred to as “Honig”), Erica Groussman, a former beneficial owner of more than 5% of the voting securities of USBTC at the time of the transaction (“Mrs. Groussman”) and an entity controlled by an immediate family member of Tara Stetson (the entity, together with Mrs. Stetson, collectively referred to as the “Stetsons”), a former beneficial owner of more than 5% of the voting securities of USBTC at the time of the transaction. The principal balances of the notes totaled approximately $5.9 million. Of the $5.9 million in notes, approximately an aggregate of $1.12 million of the notes were held by Mr. Ho and his family member, $0.1 million was held by Mr. Genoot’s family member, approximately $2.4 million was held by Honig, $0.25 million was held by Mrs. Groussman and $0.25 million was held by the Stetson Entity. As of the date of this prospectus, the Groussmans (as defined below) and the Stetsons no longer own any voting securities of USBTC and Honig no longer beneficially owns more than 5% of USBTC’s voting securities. The notes accrue interest at a rate of 7% per annum and mature one year from the issuance date. Prior to USBTC’s entry into the agreements described in the following paragraph, repayment of the notes’ principal and accrued interest was originally scheduled to commence five months from the issuance date and was to be payable in arrears until the maturity date, at which time, all outstanding principal and accrued interest was to be due. USBTC used the proceeds from the secured promissory notes to pay the deposits for certain miners. The notes contain a security agreement which creates a lien and grants the noteholders a first priority security interest in the miners.
In March 2021, USBTC entered into agreements with several of its noteholders, including all the related parties disclosed above, which extended the maturity date of the secured promissory notes to June 30, 2022. The agreements also extended the commencement of the monthly repayment of the notes’ principal and accrued interest to January 23, 2022, payable in six consecutive monthly installments. The notes were classified on the consolidated balance sheet as of June 30, 2021 in accordance with the revised maturity dates following the execution of the March 2021 agreements. All of the promissory notes, including those issued to the related parties disclosed above, were paid off in full prior to December 31, 2021.
Equity Financings
The amount of shares disclosed below do not take into account a 250 to 1 stock split effectuated by USBTC subsequent to the below offerings.
Founder’s Round of Common Stock
In December 2020, USBTC sold an aggregate of 62,431 shares of USBTC common stock at a price of $5.00 per share for proceeds of approximately $0.3 million. 6,000 shares were sold to Anaya Capital Corp. (“Anaya”), which is controlled by Anna Kudrjasova, a beneficial owner of more than 5% of the voting securities of USBTC, in exchange for $30,000. 10,275 shares were sold to Michael Ho, Chief Executive Officer and a member of the USBTC Board, for $51,375. 1,575 shares were sold to Asher Genoot, President and a member of the USBTC Board, for $7,875. In addition, an additional 1,500 shares were sold to Mr. Genoot’s family
168
TABLE OF CONTENTS​
 
members for an aggregate of $7,500. 9,375 shares were sold to Mrs. Groussman and an entity controlled by a family member of Mrs. Groussman (the entity, together with Mrs. Groussman, collectively referred to as the “Groussmans”) in exchange for $46,875. 9,375 shares were sold to the Stetsons in exchange for $46,875. 16,380 shares were sold to Honig in exchange for $81,900.
Seed Round of Common Stock
In December 2020, USBTC sold an aggregate of 37,510 shares of USBTC common stock at a price of $266.67 per share for proceeds of approximately $10 million. 3,942 shares were sold to Anaya in exchange for approximately $1.1 million. 375 shares were sold to Asher Genoot, President and a member of the USBTC Board, for approximately $0.1 million. 837 shares were sold to Avara Management Ltd. (“Avara”) in a secondary sale, which is ultimately controlled by Germano Giuliani, a beneficial owner of more than 5% of the voting securities of USBTC, in exchange for approximately $0.2 million. 2,813 shares were sold to Honig in exchange for approximately $0.8 million.
Sale of Series A Preferred Stock
In March 2021, USBTC sold an aggregate of 31,422 shares of USBTC Series A Preferred Stock at a price of approximately $795.59 per share for proceeds of approximately $25 million. 20,111 shares were sold to JHS, an entity controlled by Jordan Levy, a beneficial owner of more than 5% of USBTC’s voting securities, in exchange for approximately $16 million. JHS has had a Board nominee right for the Board since the date of its investment but that will terminate upon the consummation of the Business Combination. Of the 20,111 shares sold to JHS, 628 shares are controlled by Avara, which is ultimately controlled by Germano Giuliani, an additional beneficial owner of more than 5% of USBTC voting securities. 32 shares were sold to Matthew Prusak, USBTC’s Chief Commercial Development Officer, in exchange for approximately $25,470. 126 shares were sold to Bubs, LLC, which is ultimately controlled by Joel Block, USBTC’s Chief Financial Officer, for approximately $0.1 million.
Sales of Series B Preferred Stock
From August 2021 through October 2021, USBTC issued an aggregate of 40,000 shares of USBTC Series B Preferred Stock to 70 investors at a purchase price of $1,530.06 per share, for aggregate consideration of approximately $61.2 million. 16,339 shares were sold to NOGRA, which is controlled by Germano Giuliani, a beneficial owner of more than 5% of the voting securities of USBTC, in exchange for approximately $25 million. 73 shares were sold to Mayo A. Shattuck, a director of USBTC, in exchange for approximately $0.1 million.
Agreements with Stockholders
Levy Consulting Agreement
In March 2021, USBTC entered into a strategic advisor consulting agreement (the “Levy Consulting Agreement”) with Jordan Levy, board observer and a beneficial owner of more than 5% of the voting securities of USBTC. Pursuant to the Levy Consulting Agreement, Mr. Levy serves as a strategic advisor to USBTC (the “Services”). In exchange for Mr. Levy’s Services, Mr. Levy received initial compensation of 4,809 shares of USBTC’s common stock valued at $273.81 per share, for an aggregate of approximately $1.3 million at the time of the issuance. The Levy Consulting Agreement has an initial term of one year and may be extended by written agreement between USBTC and Mr. Levy. In October 2021, in recognition of continued Services provided by Mr. Levy, USBTC granted 1,703 shares of common stock valued at $568.18 per share, for an aggregate of approximately $1.0 million at the time of the issuance (the “Levy Restricted Stock”) to Mr. Levy. 25% of the Levy Restricted Stock vested on the first anniversary of the grant date and the remainder of the Levy Restricted Stock vests in equal monthly installments thereafter. Vesting of the Levy Restricted Stock is subject to Mr. Levy’s continued service as consultant pursuant to the Levy Consulting Agreement. In addition, USBTC paid Mr. Levy a cash payment of approximately $0.8 million for purposes of enabling Mr. Levy to satisfy his tax obligations in connection with the grants of common stock.
Groussman Consulting Agreement
In March 2021, USBTC entered into a consulting agreement (the “Groussman Consulting Agreement”) with Mrs. Groussman. Pursuant to the Groussman Consulting Agreement, Mrs. Groussman was expected to serve
169
TABLE OF CONTENTS
 
as a strategic consultant to USBTC and introduce potential business opportunities to USBTC. In exchange for services to be provided under the Groussman Consulting Agreement, Mrs. Groussman received initial compensation of 1,000 shares of USBTC’s common stock valued at $273.81 per share, for an aggregate of approximately $0.3 million at the time of the issuance. In July 2021, USBTC and Mrs. Groussman terminated the Groussman Consulting Agreement given the services under the Groussman Consulting Agreement had not been performed and Mrs. Groussman forfeited the equity compensation received under the Groussman Consulting Agreement.
Anaya Consulting Agreement
In December 2020, USBTC entered into a consulting agreement (the “Anaya Consulting Agreement”) with Anaya. Pursuant to the Anaya Consulting Agreement, Anaya was expected to serve as a strategic consultant to USBTC and introduce potential business opportunities to USBTC. In exchange for services to be provided under the Anaya Consulting Agreement, Anaya was entitled to initial compensation of 4,500 shares of USBTC’s common stock and an additional 8,250 shares of USBTC’s restricted common stock, which vested in January 2021. The shares were valued at $5.00 per share, for an aggregate of $63,750 at the time the Anaya Consulting Agreement was executed. In October 2021, USBTC and Anaya terminated the Anaya Consulting Agreement given the services under the Anaya Consulting Agreement had not been performed and Anaya forfeited its right to the equity compensation it was entitled to under the Anaya Consulting Agreement.
Amended and Restated Investors’ Rights Agreement
USBTC and certain investors (the “Series A Investors”) entered into an Investors’ Rights Agreement (the “Original IRA”) in March 2021 in connection with such investors initial investment in USBTC. In connection with and as partial consideration for certain additional investors (the “Series B Investors”) entering into subscription agreements with USBTC to purchase shares of Series B Preferred Stock, the Series B Investors along with the Series A Investors, desired to amend and restate the Original IRA and enter into an Amended and Restated Investors’ Rights Agreement in August 2021 (the “A&R IRA”). Series B-1 investors who previously were not existing stockholders joined the A&R IRA in connection with their investment in USBTC. The A&R IRA provides for, among other things, certain rights relating to the registration of such holders’ common stock, including shares issuable upon conversion of preferred stock, the right to receive certain information from USBTC, and a right of first offer with respect to any proposed offer or sale by USBTC of any new securities. The A&R IRA, including the registration rights granted thereunder, shall terminate immediately prior to the consummation of the Business Combination.
Stockholders Agreement
In August 2021, USBTC entered into a Stockholders’ Agreement (the “Stockholders’ Agreement”) by and among USBTC and certain of its stockholders, with other stockholders joining the Stockholders’ Agreement thereafter from time to time upon their investment in USBTC. The Stockholders’ Agreement contains restrictions on stockholders’ ability to transfer shares of USBTC. In addition, the Stockholders’ Agreement contains a customary drag-along right provision should USBTC or certain stockholders approve the sale of USBTC. Further, pursuant to the Stockholders’ Agreement, each stockholder agrees to vote, or cause to be voted, all shares owned by such stockholder, or over which such stockholder has voting control, in whatever manner necessary to ensure that at each annual or special meeting of stockholders at which an election of directors is held or pursuant to any written consent of the stockholders, the following persons shall be elected to the USBTC Board: (a) as the Common Directors (as defined therein), three individuals designated by Michael Ho, Chief Executive Officer, subject to the approval of the JHS Designee (as defined below), who as the date of this prospectus, are Michael Ho, Asher Genoot and Jonathan Koch, (b) as the Series A Preferred Director (as defined therein), one individual designated from time to time by JHS Bitcoin Mining LLC (the “JHS Designee”) for so long as JHS Bitcoin Mining LLC continues to beneficially own shares of preferred stock, which individual was initially determined to be and as of the date of this prospectus still is, Stanley O’Neal; and (c) as the Mutual Director (as defined therein), one individual not otherwise an affiliate of USBTC or of any stockholder who is unanimously approved by the other members of the USBTC Board. Pursuant to a subsequent letter agreement among USBTC, Michael Ho and NOGRA described below, one of Michael Ho’s three Common Director designees shall be designated by NOGRA. The Stockholders’
170
TABLE OF CONTENTS
 
Agreement, including the provisions regarding USBTC Board composition, shall terminate immediately prior to the consummation of this Business Combination.
Letter Agreement
Contemporaneous with NOGRA’s investment in USBTC’s Series B Preferred Stock, NOGRA, USBTC and Michael Ho, in his role as Chief Executive Officer, entered into a letter agreement (the “Letter Agreement”) granting certain rights to NOGRA. Pursuant to the Letter Agreement, USBTC and Michael Ho agreed that one of the three Common Directors (as defined in the Stockholders’ Agreement) designations shall be a designee selected by NOGRA (the “NOGRA Common Director”) and will be elected as one of the directors of USBTC. The Letter Agreement shall terminate upon consummation of this Business Combination, at which time the obligation to nominate and elect the NOGRA Common Director will terminate.
Management Rights Letter Agreement
Contemporaneous with JHS’s investment in the USBTC’s Series A Preferred Stock, JHS and USBTC entered into a management rights letter agreement (the “Management Rights Letter Agreement”) granting certain rights to JHS. Pursuant to the Management Rights Letter Agreement, JHS is entitled to examine the books and records of USBTC, inspect its facilities and may request financial information regarding the general status of USBTC’s financial conditions and operations. In addition, to the extent JHS is not represented on USBTC’s Board, JHS shall be entitled to (i) consult with, advise, and meet regularly with management of USBTC on significant business issues, such as proposed annual operating plans, and (ii) additional access to information to remain informed on USBTC’s general progression. JHS is currently represented on the Board by virtue of the JHS Designee (as defined above). The Management Rights Letter Agreement will terminate upon consummation of the Business Combination.
Right of First Refusal Agreement
Contemporaneous with JHS’s investment in the USBTC’s Series A Preferred Stock, JHS, USBTC, Michael Ho and Asher Genoot entered into a right of first refusal agreement (the “ROFR Agreement”) granting certain rights to USBTC and JHS. Pursuant to the ROFR Agreement, the USBTC maintains a right of first refusal with respect to any proposed transfer of USBTC securities by Mr. Ho and/or Mr. Genoot. To the extent USBTC does not exercise its right of first refusal or only exercises it in part, JHS maintains a secondary right of first refusal with respect to any such securities. As described below, in connection with the Merger Consent Approval Transfer, neither USBTC nor JHS exercised its right of first refusal under the ROFR Agreement. The ROFR Agreement will terminate upon consummation of the Business Combination.
The Merger Consent Approval Transfer
Pursuant to the USBTC Articles, USBTC must obtain the USBTC Stockholder Approval in connection with the Merger. As disclosed above, the USBTC Board determined that the Merger and the other transactions contemplated by the Merger are advisable and are fair and in the best interests of USBTC and the USBTC stockholders.
In connection with USBTC’s potential execution of the Business Combination Agreement, it was necessary to have Jordan Levy and Germano, along with all other shareholders that they beneficially control, which includes JHS and MGG Strategic SICAF SIF and collectively represents 42.5% of USBTC’s outstanding voting power as of February 12, 2023, enter into the USBTC Stockholder Support Agreement.
The USBTC Board discussed various alternatives that were proposed by JHS and Germano that would secure their entry into the USBTC Stockholder Support Agreement (which agreements are necessary for the Merger to proceed), and ultimately, in consideration for Germano’s and JHS’s agreement to enter into the USBTC Stockholder Support Agreement, Asher Genoot and Michael Ho, in their capacity as USBTC stockholders, agreed to transfer (the “Merger Consent Approval Transfer”) an aggregate of the lesser of (i) 2,289,305 shares of USBTC common stock and (ii) the number of shares of USBTC that is a product of a formula based on the volume-weighted average price of Hut 8 common shares for a period of twenty trading days following the announcement of the entry into the Business Combination Agreement (the “Merger Consent Approval
171
TABLE OF CONTENTS​
 
Transfer Shares”) to Germano. If the aforementioned formula results in a negative amount, then no shares of USBTC common stock will be transferred.
Pursuant to the ROFR Agreement, USBTC has the right (the “Primary ROFR”) to purchase all or any portion of the Merger Consent Approval Transfer Shares and JHS has a right (the “Secondary ROFR”) to purchase all or any of the Merger Consent Approval Transfer Shares not purchased by USBTC pursuant to the Primary ROFR. In addition, pursuant to the Stockholders’ Agreement, subject to certain exceptions set forth therein, Mr. Ho and Mr. Genoot are restricted from transferring USBTC securities except with approval by the USBTC Board. In accordance with the ROFR Agreement, Mr. Ho and Mr. Genoot provided notice of, and the terms of, the Merger Consent Approval Transfer to USBTC and JHS.
The USBTC Board determined that the Merger Consent Approval Transfer was necessary in connection with obtaining the USBTC Stockholder Support Agreement from JHS and Germano, which are necessary for the Merger to proceed, and as a result, in the best interests of the USBTC stockholders to (i) waive the Primary ROFR with respect to the Merger Consent Approval Transfer and (ii) approve the Merger Consent Approval Transfer in accordance with the Stockholders’ Agreement. As a result, USBTC waived its Primary ROFR with respect to the Merger Consent Approval Transfer and consented to the Merger Consent Approval Transfer. JHS also waived the Secondary ROFR with respect to the Merger Consent Approval Transfer.
Any share of USBTC common stock to be transferred pursuant to the Merger Consent Approval Transfer is expected to occur on the closing date of the Business Combination prior to the consummation of the Business Combination.
Cancellation of Restricted Stock
In February 2023, in connection with the Business Combination, USBTC entered into a letter agreement with certain USBTC stockholders, including Mr. Ho and Mr. Levy, pursuant to which such USBTC stockholders forfeited to USBTC an aggregate of 1,441,912 shares of unvested USBTC restricted common stock, including 1,048,912 shares of unvested USBTC restricted common stock held by Mr. Ho.
Indemnification Agreements with Officers and Directors and Directors’ and Officers’ Liability Insurance
USBTC has previously entered into indemnification agreements with each of its executive officers and directors. USBTC also maintains a general liability insurance policy which covers certain liabilities of directors and officers of USBTC arising out of claims based on acts or omissions in their capacities as directors or officers.
Policies and Procedures for Related Party Transactions
USBTC does not have a formal related party transaction policy in effect. Instead, all related party transactions have been approved by the USBTC Board. In connection with this Business Combination, New Hut plans to adopt a written policy, effective upon consummation of the Business Combination, that requires all future transactions between New Hut and any director, executive officer, holder of 5% or more of any class of the capital stock of New Hut or any member of the immediate family of, or entities affiliated with, any of them, or any other related persons, as defined in Item 404 of Regulation S-K, or their affiliates, in which the amount involved is equal to or greater than $120,000, be approved in advance by New Hut’s audit committee. Any request for such a transaction must first be presented to the audit committee for review, consideration and approval. In approving or rejecting any such proposal, the audit committee will consider the relevant facts and circumstances available and deemed relevant to the audit committee, including, but not limited to, the extent of the related party’s interest in the transaction, and whether the transaction is on terms no less favorable to us than terms we could have generally obtained from an unaffiliated third party under the same or similar circumstances.
172
TABLE OF CONTENTS​​​​
 
INTERESTS OF USBTC’S DIRECTORS AND EXECUTIVE OFFICERS IN THE BUSINESS COMBINATION​
Certain of USBTC’s directors and executive officers may have interests in the Business Combination that may be different from, or in addition, to the interests of USBTC stockholders generally. The USBTC Board was aware of and carefully considered these interests, among other matters, in evaluating the terms and structure, and in overseeing the negotiation of, the Business Combination and in approving the Business Combination Agreement. These interests may include, among other things, the interests described below:
Equity Awards
Directors and Executive Officers’ USBTC Options
Certain of USBC’s directors and executive officers hold USBTC Options. Pursuant to the terms of the Business Combination Agreement, the USBTC Options will be adjusted into New Hut Options with an aggregate intrinsic value equal to the aggregate intrinsic value of the corresponding USBTC Options immediately prior to the Business Combination (which adjusted awards will generally be subject to their existing terms and conditions, except for the acceleration described below).
In connection with the consummation of the Business Combination, unvested USBTC Options held by Joel Block, USBTC’s Chief Financial Officer, and Matthew Prusak, USBTC’s Chief Commercial Officer, shall accelerate and fully vest and, as a result, the New Hut Options received by such persons shall be fully vested. The following chart sets forth a summary of the USBTC Options held by certain directors and executive officers of USBTC as of February 12, 2023.
In addition, pursuant to the applicable terms of the option agreements governing USBTC Options held by USBTC directors, the vesting of such USBTC Options shall fully vest upon the consummation of a change in control. However, Asher Genoot and USBTC’s non-employee directors have indicated to USBTC that they are willing to waive the accelerated vesting of their equity awards that may otherwise occur as a result of the consummation of the Business Combination. USBTC intends to obtain such waivers prior to Closing.
Director or Executive Officer
​ ​
USBTC Options
​ ​
Current Exercise Price
​
Asher Genoot
​ ​ ​ ​ 1,048,912 ​ ​ ​ ​ $ 0.26 ​ ​
Joel Block
​ ​ ​ ​ 475,000 ​ ​ ​ ​ $ 0.26 ​ ​
Matthew Prusak
​ ​ ​ ​ 475,000 ​ ​ ​ ​ $ 0.26 ​ ​
Stanley O’Neal
​ ​ ​ ​ 366,000 ​ ​ ​ ​ $ 0.26 ​ ​
Jonathan Koch
​ ​ ​ ​ 366,000 ​ ​ ​ ​ $ 0.26 ​ ​
Amy Wilkinson
​ ​ ​ ​ 366,000 ​ ​ ​ ​ $ 0.26 ​ ​
Mayo A. Shattuck III
​ ​ ​ ​ 366,000 ​ ​ ​ ​ $ 0.26 ​ ​
New Hut Board
It is expected that Michael Ho, Asher Genoot, Stanley O’Neal, Mayo Shattuck III and Amy Wilkinson, all existing directors of USBTC, will be directors on the New Hut Board following consummation of the Business Combination.
Executive Employment Agreement and other Letter Agreements
Mr. Genoot’s, USBTC’s President, employment agreement with USBTC provides for severance benefits upon a qualifying termination of employment (by USBTC without cause or by the executive for good reason), including in connection with a change in control (which may occur upon the consummation of the Business Combination, although the severance benefits payable to the executive do not vary based upon whether or not the qualifying termination of employment is in connection with a change in control). Upon such a qualifying termination, the executive will generally be entitled (in addition to accrued compensation and expense reimbursement) to the following in connection with termination: (i) any bonus awarded in the year preceding the year of termination, if not yet paid, (ii) a pro-rata bonus, to the extent earned, for the year of termination, (iii) payment of base salary for a period of twenty-four months following the date of termination, equating to $500,000, (iv) certain benefit continuation entitlements and (v) the acceleration of vesting under any unvested
173
TABLE OF CONTENTS​
 
outstanding USBTC equity awards. Mr. Genoot’s employment agreement is expected to be superseded by an employment agreement to be entered into with New Hut in connection with Closing as described below.
Joel Block, USBTC’s Chief Financial Officer, is a party to a letter agreement with USBTC which provides for severance benefits upon a qualifying termination of employment (by USBTC without cause or by the executive for good reason), including in connection with the consummation of the Business Combination, although the severance benefits payable to the executive do not vary based upon whether or not the qualifying termination of employment is in connection with a change in control). Upon such a qualifying termination, Mr. Block will generally be entitled (in addition to accrued compensation and expense reimbursement) to the following in connection with termination: (i) any bonus awarded in the year preceding the year of termination, if not yet paid, (ii) a pro-rata bonus, to the extent earned, for the year of termination, (iii) payment of base salary for a period of twelve months following the date of termination, equating $300,000, (iv) certain benefit continuation entitlements and (v) the acceleration of vesting under any unvested outstanding USBTC equity awards.
Matthew Prusak, USBTC’s Chief Commercial Officer, is a party to a letter agreement with USBTC which provides for severance benefits upon a qualifying termination of employment (by USBTC without cause or by the executive for good reason), including in connection with the consummation of the Business Combination, although the severance benefits payable to the executive do not vary based upon whether or not the qualifying termination of employment is in connection with a change in control. Upon such a qualifying termination, the executive will generally be entitled (in addition to accrued compensation and expense reimbursement) to the following in connection with termination: (i) payment of base salary for a period of twelve months following the date of termination, equating $150,000, and (ii) the acceleration of vesting under any unvested outstanding USBTC equity awards.
New Hut Employment Agreements
It is expected that Michael Ho, the current Chief Executive Officer of USBTC, shall serve as the Chief Strategy Officer of New Hut following consummation of the Business Combination. Asher Genoot, the current President of USBTC, is expected to serve as the President of New Hut following consummation of the Business Combination. Mr. Ho and Mr. Genoot may enter into new agreements or compensation arrangements in connection with the Business Combination, either before or following the consummation of the Business Combination, including, without limitation, with respect to cash compensation, short and long term incentives, severance or other employment terms and conditions. No such agreements or arrangements have been entered into as of the date hereof and the terms of any such new agreement or arrangement cannot be determined at this time.
174
TABLE OF CONTENTS​
 
INFORMATION ABOUT NEW HUT UPON COMPLETION OF THE BUSINESS COMBINATION
Directors and Executive Officers of New Hut upon the Completion of the Business Combination
The following table provides information regarding the expected executive officers and non-executive officer directors of New Hut as of February 7, 2023. There are no family relationships among any of our executive officers and non-executive officer directors.
Name
​ ​
Age
​ ​
Position
​
Executive Officers ​ ​ ​ ​ ​ ​ ​
Jaime Leverton ​ ​
45
​ ​ Chief Executive Officer and Director ​
Asher Genoot ​ ​
28
​ ​ President and Director ​
Michael Ho ​ ​
29
​ ​ Chief Strategy Officer and Director ​
Shenif Visram ​ ​
50
​ ​ Chief Financial Officer ​
Non-Executive Officer Directors ​ ​ ​ ​ ​ ​ ​
Bill Tai ​ ​
58
​ ​ Chair ​
Stanley O’Neal ​ ​
71
​ ​ Independent Director ​
Mayo Shattuck III ​ ​
68
​ ​ Independent Director ​
Amy Wilkinson ​ ​
50
​ ​ Independent Director ​
Rick Rickertsen ​ ​
62
​ ​ Independent Director ​
Alexia Hefti ​ ​
34
​ ​ Independent Director ​
Joseph Flinn ​ ​
57
​ ​ Independent Director ​
Executive Officers
Jaime Leverton
Ms. Leverton is currently Chief Executive Officer of Hut 8. Ms. Leverton is a highly accomplished technology executive and industry thought leader with a long history of driving high growth mandates. With more than 20 years of leadership in the Canadian technology industry, she joined Hut 8 from her role as the Chief Commercial Officer at eStruxture Data Centers. Her career also includes tenure as the General Manager of Canada and APAC with data center and cloud provider Cogeco Peer 1 (now Aptum) and leadership roles with National Bank, BlackBerry, Bell Canada and IBM Canada. She proudly sits on the boards of the Stratford Festival and Technation.
Michael Ho
Mr. Ho has served as USBTC’s Chief Executive Officer and as Chairman of the USBTC Board since its inception and will serve as Chief Strategy Officer and a director of New Hut. Mr. Ho has experience as a serial entrepreneur having founded numerous businesses in the digital and traditional trade sectors. He served as the CEO of Vancouver Motorcars Ltd. (formerly Advant Automotive Inc) from January 2012 to April 2015. Mr. Ho then served as the CEO of MKH International Ltd, from July 2015 to December 2018. During this 6-year period, Mr. Ho specialized in currencies, international trade, structured financings and equity structuring. Mr. Ho also has extensive experience in the industry, having begun mining digital assets in 2014 and in 2017, Mr. Ho began setting up businesses procuring, managing, and selling turnkey digital asset mining facilities.
Asher Genoot
Mr. Genoot has served as USBTC’s President and as a Director since its inception and will serve as President and a director of New Hut. He has been a serial entrepreneur who started his first business, the Ivy Crest Institute of International Education, at the age of 19 in Shanghai, China and sold it shortly after. Following that experience,Mr. Genoot served as the founder and Chief Executive Officer at Curio, a Shanghai-based education company that expanded across the country from April 2016 to May 2019. He currently serves as a
175
TABLE OF CONTENTS
 
Board Member at Curio. He also has experience as the Managing Director at Flagship Endeavors, a brand incubator. Mr. Genoot graduated from the University of Southern California with a Bachelor’s in Business Administration.
Shenif Visram
Shenif Visram is currently the Chief Financial Officer of Hut 8. With over 20 years of experience leading world-class finance organizations, Shenif brings a breath of corporate and operational finance experience to Hut 8. He began his finance career at IBM Canada, where he progressed to the CFO roles in the largest IBM Canada Business units. He then moved to Cogeco Peer 1 as Vice President, Finance, where he jointly led the sale of the company to a private equity firm. He remained with the company post-sale and assumed the role of CFO, where he led the privatization of the company and played a key role in rebranding to Aptum Technologies. Shenif is a Charter Professional Accountant (CPA, CMA).
Non-Executive Officers Directors
Bill Tai
Mr. Tai has served as a director of Hut 8 since March 2018. He is a venture capitalist and was an early investor behind high profile start-ups including Canva, Color Genomics, Dapper Labs, Safety Culture, Tweetdeck, and Zoom Video. Previously, Mr. Tai co-founded several successful technology companies as Chairman including IPInfusion and Treasure Data Inc, and has served as a Director of seven publicly listed companies. He holds a Bachelor of Science in Electrical Engineering with Honors from the University of Illinois and an MBA from Harvard University.
Stanley O’Neal
Mr. O’Neal has served as a director of USBTC since April 2021 and will serve as a director of New Hut. Mr. O’Neal is the former Chairman and Chief Executive Officer of Merrill Lynch. He became Merrill’s chief executive in 2002 and was elected Chairman of Merrill Lynch in 2003, serving in both positions until October 2007. He also served as director of American Beacon Advisors, Inc. from 2009 to September 2012. Mr. O’Neal worked for Merrill Lynch for 21 years. He was named President and Chief Operating Officer in 2001 and before that was President of the brokerage firm’s U.S. Private Client group. He served as Executive Vice President and Chief Financial Officer of Merrill Lynch from 1998 until 2000 and also held the position of Executive Vice President and Co-Head of the Corporate and Institutional Client Group for one year starting in 1997. Before joining Merrill Lynch, Mr. O’Neal was employed at General Motors Corporation where he held a number of financial positions of increasing responsibility, including General Assistant Treasurer. Mr. O’Neal received a Master’s of Business Administration with distinction in Finance from Harvard University and is a graduate of Kettering University (formerly General Motors Institute). He served on General Motor’s Board of Directors from 2001-2006 and also currently serves on the boards of Clearway Energy, Element Solutions, and Arconic Corporation.
Mayo A. Shattuck III
Mr. Shattuck has served as a director of USBTC since December 2021 and will serve as a director of New Hut. He previously served as the Chairman of Exelon, a position he held from February 2012 to April 2022, and previously served as the Executive Chairman of the Board of Exelon from March 2012 through February 2013. Prior to its merger with Exelon, Mr. Shattuck was the Chairman, President and Chief Executive Officer of Constellation Energy, a position he held from October 2001 to February 2012. Constellation Energy owned energy-related businesses, including a wholesale and retail power marketing and merchant generation business. Mr. Shattuck was previously at Deutsche Bank, where he served as Chairman of the Board and CEO of Deutsche Banc Alex. Brown and as Global Head of Investment Banking and Global Head of Private Banking. While Chairman and CEO of Constellation Energy and Executive Chairman of Exelon, Mr. Shattuck served as Chairman of the Board of the Institute of Nuclear Power Operations and is a member of the Executive Committee of the Board of Edison Electric Institute and the Nuclear Energy Institute. He was also Co-Chairman of the Center for Strategic & International Studies Commission on Nuclear Policy in the United States and Executive Committee member of the Council on Competitiveness. Mr. Shattuck also currently serves on the Boards of Directors for Gap Inc. (since 2002) and Capital One
176
TABLE OF CONTENTS
 
Financial Corporation (since 2003). Mr. Shattuck has a Bachelor of Arts from Williams College and a Masters in Business Administration from The Stanford Graduate School of Business.
Amy Wilkinson
Ms. Wilkinson has served as a director of USBTC since August 2022 and will serve as a director of New Hut. She currently serves as the Chief Executive Officer of Ingenuity, an innovation consulting firm, a role she has held since founding the firm in January 2017. Ms. Wilkinson also serves as a Lecturer in Management at the Stanford Graduate School of Business, a role she has held since May 2015. Before joining the Stanford Graduate School of Business, Ms. Wilkinson was a Kauffman Foundation Grantee for Research on High Growth Entrepreneurs from 2013 to 2015 and a Senior Fellow at the Harvard Kennedy School of Government from 2009 to 2015. Ms. Wilkinson served in The White House as a White House Fellow and Special Assistant to the United States Trade Representative from 2004 to 2007. She also has experience as a strategy consultant at McKinsey & Company and as a mergers and acquisitions banker at JP Morgan. In addition to serving as a director of USBTC, Ms. Wilkinson currently serves on the Board of Directors for INNOVATE Corp. (since 2022). Ms. Wilkinson holds a Bachelor of Arts and Master of Arts from Stanford University and a Masters in Business Administration from the Stanford Graduate School of Business.
Rick Rickertsen
Mr. Rickertsen has served as a director of Hut 8 since December 2021. He is currently managing partner of Pine Creek Partners LLC a private equity investment firm, a position he has held since January 2004. From September 1994 to January 2004, Mr. Rickertsen was a managing partner at Thayer Capital Partners where he founded three private equity funds totaling over $1.4 billion. He has served as a member of the boards of directors and audit committees of Apollo Senior Floating Rate Fund  Inc. and Apollo Tactical Income Fund  Inc., each of which is a closed-end management investment company, since 2011 and 2013, respectively. Mr. Rickertsen has also served as a member of the board of directors and audit and compensation committees of Berry Global Inc., a global manufacturer and marketer of value-added plastic consumer packaging and engineered materials, since January 2013. From April 2012 to October 2016, Mr. Rickertsen was a member of the board of directors and compensation committee of Noranda Aluminum Holding Corporation, an integrated producer of value-added primary aluminum products and rolled aluminum coils. From April 2003 to January 2010, Mr. Rickertsen was a member of the board of directors and audit committee of Convera Corporation, a publicly-traded search-engine software company. From March 2004 to September 2008, Mr. Rickertsen was a member of the board of directors and compensation committee of UAP Holding Corp., a distributor of farm and agricultural products. Mr. Rickertsen received a B.S. from Stanford University and an M.B.A. from Harvard Business School. He is also a published author.
Alexia Hefti
Ms. Hefti has served as a director of Hut 8 since May 2021. She is Executive Chairman and Partner of the Abed Group, a venture studio and private equity fund for blockchain regulatory technology companies. She was previously the CEO of eGovern.com, assisting governments in designing blockchain-enabled government services aimed at increasing citizenry engagement and governance. Ms. Hefti worked at Deloitte Middle East and Deloitte Canada, where she co-founded the blockchain and digital asset tax advisory practice. Ms. Hefti sits on the Bermuda Global FinTech Advisory Board to assist the government in developing its fintech ecosystem. Ms. Hefti is a New York-qualified lawyer, and a graduate from McGill University (B.C.L/ LL.B) and the University of British Columbia (BA).
Joseph Flinn
Mr. Flinn has served as a director of Hut 8 since August 2018. He is the Chief Financial Officer of Seaboard Transportation Group, a major international bulk transportation group of companies. Prior thereto, Mr. Flinn held senior leadership positions at Sysco Corporation from 2008 to 2015, where he played an integral role as both Chief Financial Officer of Sysco Canada, and President of Sysco Canada’s Eastern Division, and two years as President of Clarke Freight Transportation Group, a major national freight carrier. Mr. Flinn holds a business degree from Saint Mary’s University and is a chartered professional accountant.
177
TABLE OF CONTENTS​
 
DESCRIPTION OF NEW HUT CAPITAL STOCK
The following description of the material terms of the common stock of New Hut is not complete and is qualified in its entirety by reference to the New Hut certificate of incorporation and the New Hut bylaws, in each case that will be in effect as of the effective time. This description is subject to the detailed provisions of, and is qualified by reference to, the New Hut certificate of incorporation and the New Hut bylaws, the forms of which are attached as exhibits to the Registration Statement of which this prospectus forms a part and are incorporated herein by reference.
Authorized Capital Stock
The total number of shares of capital stock which New Hut shall have authority to issue is        shares. This authorized capital stock consists of        shares of common stock having a par value of US$0.01 per share. As a condition to Closing, the amended organizational documents of New Hut in form and in substance satisfactory to Hut 8 and USBTC, providing for, among other things, an increase in the authorized share capital, shall have been filed and become effective.
Following completion of the Business Combinations, we expect that there will be approximately      million shares of New Hut common stock outstanding based on the number of shares of Hut 8 shares and USBTC common stock and preferred stock, as applicable, outstanding as of February 12, 2023.
Common Stock
The shares of New Hut common stock to be issued pursuant to the Hut 8 Share Exchange and the Merger will be duly authorized, validly issued, fully paid and non-assessable. Each holder of a share of New Hut common stock will be entitled to one vote for each share upon all questions presented to the stockholders, and the common stock will have the exclusive right to vote for the election of directors and for all other purposes. The New Hut stockholders will have no preemptive rights and no rights to convert their common stock into any other securities. There will also be no redemption or sinking fund provisions applicable to the New Hut common stock.
New Hut stockholders will be entitled to receive dividends as may be declared from time to time by the New Hut board out of funds legally available therefor. New Hut stockholders are entitled to share pro rata, upon any liquidation or dissolution of New Hut, in all remaining assets available for distribution to stockholders after payment or providing for New Hut’s liabilities. The rights, preferences and privileges of the New Hut stockholders are subject to and may be adversely affected by the rights of holders of any series of New Hut preferred stock that New Hut may designate and issue in the future.
Prior to the consummation of the Business Combination, application will be made to list the New Hut common stock on Nasdaq and the TSX under the symbol “HUT.”
Charter and Bylaw Provisions; Takeover Statutes
A number of provisions in the New Hut certificate of incorporation, the New Hut bylaws and the DGCL may make it more difficult to acquire control of New Hut or remove its management. For additional detail on these provisions, please see “Comparison of Rights of Stockholders” beginning on page 180.
Structure of Board
The New Hut board will be elected annually. The New Hut bylaws will provide that each director of New Hut will hold office for a term expiring at the next succeeding annual meeting of stockholders and until such director’s successor is duly elected and qualified. The New Hut board, in accordance with the Business Combination Agreement and the New Hut bylaws, will initially consist of ten (10) directors. Furthermore, subject to the rights of holders of any class or series of preferred stock to elect directors, any vacancies on the New Hut board caused by death, removal or resignation of any director or any other cause, and any newly created directorships resulting from an increase in the authorized number of directors, will be permitted to be filled only by a majority vote of the directors then in office, even if less than a quorum, or by a sole remaining director, or by the stockholders at the next annual or special meeting. This provision could prevent a
178
TABLE OF CONTENTS
 
stockholder from obtaining majority representation on the New Hut board by allowing the New Hut board to enlarge the New Hut board and fill the new directorships with the New Hut board’s own nominees.
Under the terms of the Business Combination, the New Hut board will consist of ten (10) directors. Five (5) of the ten directors will be persons designated by Hut 8. Five (5) of the ten directors will be persons designated by USBTC.
Advisory Committees of the Board
Under the terms of the Business Combination Agreement and the New Hut bylaws, the New Hut board of directors is empowered to designate one or more committees, each committee to consist of one or more directors. Each committee shall keep regular minutes of its proceedings and report the same to the board when so requested by the board.
Removal of Directors
In accordance with the DGCL, the entire New Hut board or any individual director may be removed at any time, with or without cause, only by the affirmative vote of the recordholders of a majority of the voting power of all of the shares of capital stock of New Hut then entitled to vote generally in the election of directors, or by written consent of the recordholders of such shares.
Advance Notice of Proposals and Nominations
The New Hut bylaws provide that stockholders must give timely written notice to bring business before an annual meeting of stockholders or to nominate candidates for election as directors at an annual meeting of stockholders. Generally, to be timely, a stockholder’s notice will be required to be given personally or by first-class mail to each recordholder of shares entitled to vote of New Hut not later than the 10th day nor earlier than the 60th day prior to the date of such a meeting. The New Hut bylaws also specify the form and content of a stockholder’s notice.
These provisions may prevent stockholders from bringing matters before an annual meeting of stockholders or from nominating candidates for election as directors at an annual meeting of stockholders.
Limits on Special Meetings
The New Hut bylaws provide that special meetings of stockholders may be called at any time by the board of directors, the chairman of the board of the corporation, the president of the corporation, the secretary of the corporation, or by the recordholders of at least a majority of the shares of common stock of the Corporation issued and outstanding and entitled to vote.
Amendment of the New Hut Bylaws
Any bylaw may be altered, amended, or repealed by the vote of the recordholders of the majority of the shares then entitled to vote at an election of directors, by written consent of stockholders, by vote of the board of directors or by a written consent of directors.
Takeover Statutes
Section 203 of the DGCL generally prohibits “business combinations,” including mergers, sales and leases of assets, issuances of securities and similar transactions by a corporation or a subsidiary with an interested stockholder who beneficially owns 15% or more of a corporation’s voting stock, within three (3) years after the person or entity becomes an interested stockholder, unless: (i) the board of directors of the target corporation has approved, before the acquisition time, either the business combination or the transaction that resulted in the person becoming an interested stockholder, (ii) upon consummation of the transaction that resulted in the person becoming an interested stockholder, the person owns at least 85% of the corporation’s voting stock (excluding shares owned by directors who are officers and shares owned by employee stock plans in which participants do not have the right to determine confidentially whether shares will be tendered in a tender or exchange offer) or (iii) after the person or entity becomes an interested stockholder, the business
179
TABLE OF CONTENTS​
 
combination is approved by the board of directors and authorized at a meeting of stockholders by the affirmative vote of at least 662∕3% of the outstanding voting stock not owned by the interested stockholder.
A Delaware corporation may elect in its certificate of incorporation or bylaws not to be governed by this particular Delaware law. In connection with the consummation of the Business Combination, New Hut expects to opt out of Section 203 of the DGCL and will therefore not be subject to Section 203.
COMPARISON OF RIGHTS OF STOCKHOLDERS
New Hut is organized under the laws of the State of Delaware and USBTC is organized under the laws of the State of Nevada. Accordingly, differences in rights of holders of New Hut common stock and USBTC capital stock arise from differences between the laws of Delaware and Nevada and their respective constituent documents. This section summarizes the respective rights of USBTC stockholders and New Hut stockholders.
The USBTC stockholders will own shares of New Hut common stock after the close of the Business Combination and the rights of USBTC stockholders who will become New Hut stockholders with respect to the New Hut common stock will be governed by the Delaware General Corporations Law and the New Hut constituent documents.
The following summary is not a complete statement of the rights of the stockholders of either of the companies or a complete description of the specific provisions referenced below. This summary is qualified in its entirety by reference to the laws of Delaware and Nevada and New Hut’s and USBTC’s constituent documents, which you are urged to read carefully. New Hut has filed with the SEC its constituent documents and will send copies of these documents to you, without charge, upon your request. For additional information, please see the section titled “Where You Can Find More Information” beginning on page 211 of this prospectus.
​
New Hut
​ ​
USBTC
​
​
Organizational Documents
​
​
The rights of New Hut stockholders are governed by the New Hut certificate of incorporation, the New Hut bylaws and Delaware law, including the Delaware General Corporations Law.
​ ​
The rights of USBTC stockholders are currently governed by the USBTC Articles, USBTC Bylaws and the Nevada Revised Statutes.
​
​
Authorized Capital Stock
​
​
The total number of shares of capital stock which New Hut shall have authority to issue is       shares. This authorized capital stock consists of       shares of common stock having a par value of $0.01 per share.
Following completion of the Business Combinations, we expect that there will be approximately      million shares of New Hut common stock outstanding.
​ ​
The authorized capital stock of USBTC consists of (i) 125,000,000 shares of USBTC common stock, and (ii) 40,000,000 shares of preferred stock, $0.00001 par value per share (“USBTC preferred stock”) of which 7,855,500 shares are designated as Series A Preferred, 10,000,000 shares are designated as Series B Preferred, 3,750,000 are designated as Series B-1 Preferred, and 16,557,000 shares of the USBTC Preferred stock are designated as “Series C Preferred.” The number of authorized shares of USBTC common stock may be increased or decreased (but not below the number of shares thereof then outstanding) by (in addition to any vote of the holders of one or more series of USBTC preferred stock that may be required by the terms of the USBTC Articles) the affirmative vote of the holders of shares of capital stock of USBTC representing a majority of the votes represented by all outstanding shares of capital stock of USBTC entitled to vote, irrespective of the provisions of Section 78.390(2) of the Nevada Revised Statutes.
​
180
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​
Preferred Stock
​
​
The New Hut board is authorized to from time to time issue one or more series of preferred stock in series and to establish the terms of such series.
​ ​
Under USBTC’s Articles, at any time when at least 1,963,750 shares of Series A Preferred stock are outstanding, holders of a majority of the outstanding shares of Series A Preferred stock (voting together as a single and separate class on an as-converted basis) including the affirmative vote of JHS Bitcoin Mining LLC, must approve the following: (i) liquidation, dissolution or winding-up of the business and affairs of USBTC or a merger or consolidation or any deemed liquidation event/merger (other than primarily for capital-raising purposes), (ii) amendment to the USBTC Articles or USBTC Bylaws in a manner that materially and adversely modifies or adversely effects the rights of Series A Preferred stock, (iii) the creation of any additional class or series of capital stock or other securities unless the same ranks junior to the Series A Preferred stock, or increase or decrease the authorized number of shares of any class or series of capital stock, (iv) reclassification, alteration or amendment of any existing security of USBTC, (v) unless approved by the USBTC Board, including the approval of the Series A preferred director, cause or permit any of its subsidiaries to sell, issue, sponsor, create or distribute any digital tokens, digital assets or other blockchain-based assets, (vi) purchase or redeem, or pay any dividends or make any distribution on, any capital stock, other than (a) dividends or distributions on the Series A Preferred stock, (b) dividends or other distributions payable on the USBTC common stock solely in the form of additional shares of USBTC common stock, (c) repurchases of stock from former employees, officers, directors, consultants or other persons who performed services for USBTC and (d) in connection with the cashless exercise, tax surrender or similar net exercise of options, warrants or other rights to purchase USBTC common stock, (vii) unless approved by the USBTC Board (including the approval of the Series A preferred director), create or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest or incurred other indebtedness for borrowed money, (viii) increase or decrease to the authorized number of directors, (ix) unless approved by the USBTC Board, make any material change to USBTC’s line of business as presently conducted or contemplated, (x) unless approved by the USBTC Board (including the approval of the Series A preferred director), enter into any transaction or enter into or modify any agreement with any executive officer, director or founder providing for compensation, other than ordinary course salaries, reimbursement of expenses and benefits or (xi) unless approved by the USBTC Board (including the
​
181
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​ ​ ​ ​
Series A preferred director), adopt, amend or terminate any new or other equity plan, employee equity ownership plan or similar plan.
​
​
Voting Rights
​
​
Each holder of a share of New Hut common stock will be entitled to one vote for each share upon all questions presented to the stockholders, and the common stock will have the exclusive right to vote for the election of directors and for all other purposes.
​ ​
The holders of the USBTC common stock are entitled to one vote for each share of USBTC common stock held at all meetings of stockholders (and written actions in lieu of meetings); provided, however, that, except as otherwise required by law, holders of USBTC common stock, as such, shall not be entitled to vote on any amendment to the USBTC Articles that relates solely to the terms of one or more outstanding series of USBTC preferred stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other series, to vote thereon pursuant to the USBTC Articles or pursuant to the Nevada Revised Statutes. There shall be no cumulative voting.
Except as otherwise required by law, on any matter presented to the stockholders of USBTC for their action or consideration at any meeting of stockholders of USBTC (or by written consent of stockholders in lieu of meeting), each holder of outstanding shares of USBTC preferred stock shall be entitled to cast the number of votes equal to the number of whole shares of USBTC common stock into which the shares of USBTC preferred stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter. Except as provided by law or by the other provisions of the USBTC Articles, holders of USBTC preferred stock shall vote together with the holders of USBTC common stock as a single class and on an as-converted to USBTC common stock basis.
USBTC’s Articles provides that there shall be no cumulative voting.
​
​
Number and Qualification of Directors
​
​
The New Hut board, in accordance with the Business Combination Agreement and the New Hut bylaws, will consist of ten (10) directors.
The New Hut board will consist of ten (10) directors. Five (5) of the ten directors will be persons designated by Hut. Five (5) of the ten directors will be persons designated by USBTC.
​ ​
USBTC’s Articles provide that the size of the USBTC Board shall be seven.
There are currently six directors serving on the USBTC Board.
​
​
Structure of Board of Directors; Term of Directors; Election of Directors
​
​
The New Hut board will be elected annually. The New Hut bylaws will provide that each director of New Hut will hold office for a term expiring at the next succeeding annual meeting of stockholders and until such director’s successor is duly elected and qualified.
​ ​
USBTC’s Bylaws provide that the USBTC Board shall be elected at each annual meeting of stockholders by the holders of the outstanding capital stock as provided in the USBTC Articles, or if there is no provision, by the holders of USBTC common stock. USBTC’s Articles provide that the holders of record of the shares of Series A Preferred stock,
​
182
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​ ​ ​ ​
voting together as a single class and on an as-converted to USBTC common stock basis, shall be entitled to elect one (1) director of USBTC (the “Series A Preferred Director”). The holders of record of the shares of USBTC common stock, exclusively and as a separate class, shall be entitled to elect five (5) directors of USBTC. The holders of record of the shares of USBTC common stock and of any other class or series of voting stock (including the USBTC preferred stock), exclusively and voting together as a single class, shall be entitled to elect the balance of the total number of directors of USBTC.
USBTC’s Bylaws provide that each director shall hold office until his or her successor is elected and qualified or until his or her death, earlier resignation, removal or disqualification.
​
​
Removal of Directors
​
​
In accordance with the DGCL, the entire New Hut board or any individual director may be removed at any time, with or without cause, only by the affirmative vote of the recordholders of a majority of the voting power of all of the shares of capital stock of New Hut then entitled to vote generally in the election of directors, or by written consent of the recordholders of shares.
​ ​
USBTC’s Bylaws provide that any director or the entire USBTC Board may be removed, with or without cause, by holders of not less than two-thirds of the voting power of the outstanding shares of the outstanding capital stock. Any vacancy on the USBTC Board caused by any such removal may be filled by a majority of the remaining directors at any time before the end of the unexpired term.
USBTC’s Articles provide that any of the five (5) directors elected by the holders of record of the shares of USBTC common stock, exclusively and as a separate class, may be removed without cause by, and only by, the affirmative vote of the holders of the shares of the class or series of capital stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders.
​
​
Vacancies on the Board of Directors
​
​
Any vacancies on the New Hut board caused by death, removal or resignation of any director or any other cause, and any newly created directorships resulting from an increase in the authorized number of directors, will be permitted to be filled only by a majority vote of the directors then in office, even if less than a quorum, or by a sole remaining director, or by the stockholders at the next annual or special meeting.
​ ​
If the holders of shares of Series A Preferred stock or USBTC common stock, as the case may be, fail to elect a sufficient number of directors to fill all directorships for which they are entitled to elect directors, voting exclusively and as a separate class, pursuant to the USBTC Articles, then any directorship not so filled shall remain vacant until such time as the holders of the Series A Preferred stock or USBTC common stock, as the case may be, elect a person to fill such directorship by vote or written consent in lieu of a meeting; and no such directorship may be filled by stockholders of USBTC other than by the stockholders of USBTC that are entitled to elect a person to fill such directorship, voting exclusively and as a separate class.
​
183
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​
Stockholder Action by Written Consent
​
​
New Hut bylaws provide that any action which may be taken or is required by the DGCL to be taken at any annual or special meeting of stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action taken, is signed by the recordholders of shares representing no less than the minimum number of votes necessary to authorize or take such action at a meeting at which the recordholders of all shares entitled to vote were present and voted.
​ ​
Pursuant to Section 78.320 of the Nevada Revised Statutes, unless otherwise provided in the articles of incorporation or the bylaws of a company, any action required or permitted to be taken at a meeting of the stockholders may be taken without a meeting if, before or after the action, a written consent thereto is signed by stockholders holding at least a majority of the voting power, except that if a different proportion of voting power is required for such an action at a meeting, then that proportion of written consents is required. In no instance where action is authorize by written consent need a meeting of stockholders be called or notice given.
USBTC’s Bylaws provide that unless otherwise restricted by the USBTC Articles, any action required or permitted to be taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
​
​
Quorum
​
​
New Hut’s bylaws provide that, except where otherwise provided by law or by the New Hut certificate of incorporation, the recordholders of a majority of the shares entitled to vote (whether in person or by proxy) constitute a quorum at all meetings of stockholders, whether annual or special.
If quorum is not present at any meeting of the stockholders, the stockholders entitled to vote may adjourn the meeting in accordance with the New Hut bylaws until quorum is present.
​ ​
USBTC’s Bylaws provide that at each meeting of stockholders, except where otherwise provided by law or the USBTC Articles or USBTC Bylaws, the holders of a majority in voting power of the outstanding shares of stock entitled to vote on a matter at the meeting, present in person or represented by proxy, shall constitute a quorum. Shares entitled to vote as a separate class or series may take action on a matter at a meeting only if a quorum of those shares is present. Where a separate vote by class or classes or a series or multiple series is required for any matter, the holders of a majority in voting power of the outstanding shares of such class or classes or a series or multiple series, present in person or represented by proxy, shall constitute a quorum to take action with respect to that vote on that matter. In the absence of a quorum of the holders of any class or series of stock entitled to vote on a matter, the holders of such class or series so present or represented may, by majority vote, adjourn the meeting of such class or series with respect to that matter from time to time in the manner provided for in the USBTC Bylaws until a quorum of such class or series shall be so present or represented.
USBTC’s Articles provide that at any meeting held for the purpose of electing a director, the presence in person or by proxy of the holders of a majority of the outstanding shares of the class or series entitled to
​
184
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​ ​ ​ ​
elect such director shall constitute a quorum for the purpose of electing such director.
USBTC’s Bylaws provide that at all meetings of the USBTC Board a majority of the directors then in office shall constitute a quorum for the transaction of business at such meeting. In case at any meeting of the USBTC Board a quorum is not present, a majority of the directors present may, without notice other than announcement at the meeting, adjourn the meeting from time to time until a quorum can be obtained.
​
​
Special Meeting of Stockholders
​
​
The New Hut bylaws provide that special meetings of stockholders may be called at any time by the board of directors, the chairman of the board of the corporation, the president of the corporation, the secretary of the corporation, or by the recordholders of at least a majority of the shares of common stock of New Hut issued and outstanding and entitled to vote.
Notice of a special meeting of stockholders may be given by the persons calling the meeting, or upon request of those persons, shall be given by the Secretary of New Hut. Copies of a notice of a special meeting of stockholders shall be delivered to the Secretary. Each request to the Secretary for giving of notice of a special meeting shall state the purposes of such a meeting.
​ ​
Under USBTC’s Bylaws, special meetings of stockholders entitled to vote at such meeting may be called at any time by the chairman of the USBTC Board, the president (if he is also a member of the USBTC Board) or the USBTC Board, to be held at such date, time and place, if any, either within or outside the State of Nevada as may be determined by such person or persons calling the meeting and stated in the notice of the meeting. A special meeting shall be called by the president or the secretary upon one or more written demands (which shall state the purpose or purposes therefore) signed and dated by the holders of shares representing not less than 10% of all votes entitled to be cast on any issue(s) that may be properly proposed to be considered at the special meeting. If no place is designed in the notice, the place of the meeting shall be the principal office of USBTC. Business transacted at any special meeting of stockholders shall be limited to the purpose or purposes stated in the notice of such meeting.
​
​
Notice of Stockholder Meetings
​
​
The New Hut bylaws provide that, except as otherwise required by law, written notice of each annual or special meeting shall be given personally or by first-class mail or by airmail to each recordholder of shares entitled to vote no less than ten (10) and no more than sixty (60) days before the date of the meeting. The notice shall state the place, date and time of the meeting. If the meeting is a special meeting, the notice must state the purposes for which the meeting is to be held.
Notice will be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at the stockholder’s address as it appears on the records of New Hut. If, prior to the mailing of notice, the Secretary of New Hut receives a written request from a stockholder requesting that notices are to be mailed to a different address than the one which appears on the records of New Hut, then notices shall be mailed to the address designated in the request.
​ ​
Under USBTC’s Bylaws, whenever stockholders are required or permitted to take any action at a meeting, a notice of the meeting stating the place, if any, date and hour of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting. Unless otherwise provided by law, the USBTC Articles or the USBTC Bylaws, the notice of any meeting shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of USBTC. Notice may be given by Internet in accordance with the rules of the Securities and Exchange Commission even if the provisions of such
​
185
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​ ​ ​ ​ rules do not apply to USBTC. ​
​
Notice Requirements for Stockholder Nominations and Other Proposals
​
​  —  ​ ​
Pursuant to USBTC’s Bylaws, nomination of persons to stand for election to the USBTC Board at any annual or special stockholders meeting may be made by the holders of USBTC common stock only if written notice of such stockholder’s intent to make such nomination has been given to the Secretary of USBTC not later than 30 days prior to the meeting. At any meeting of stockholders, a resolution or motion shall be considered for vote only if the proposal is brought properly before the meeting, which shall be determine by the chairman of the meeting in accordance with the provisions set forth in the USBTC Bylaws. Such proposals may be made by holders of shares of USBTC common stock, although such authority shall not be construed to require USBTC to include any stockholder proposal in its proxy statements sent to stockholders, except as may be required by the proxy rules promulgated by the Securities and Exchange Commission. Any proposal made by the holders of shares of USBTC common stock may be made at any time prior to or at the meeting if only the holders of USBTC common stock are entitled to vote thereon. Holders of USBTC common stock may only make a proposal with respect to which such holders are entitled to vote. Any proposal on which holders of USBTC common stock are entitled to vote and concerning which proxies may be solicited by the proponent or by management must be delivered to, or mailed and received by, the Secretary of USBTC not less than 90 days prior to the meeting; provided, however, that in the event that less than 100 days’ notice of prior public disclosure of the date of the meeting is given or made to stockholders, to be timely, notice by the stockholder must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made.
​
​
Amendment of Certificate of Incorporation
​
​
New Hut’s certificate of incorporation provides that New Hut reserves the right to amend, alter, change or repeal any provision in the certificate of incorporation, subject to the provisions of the certificate of incorporation and the DGCL.
The DGCL provides that an amendment to a corporation’s certificate of incorporation requires that (i) the board of directors adopt a resolution setting forth the proposed amendment and either call a special meeting of the stockholders entitled to vote in respect thereof for consideration of such amendment or direct that the amendment be considered at the next annual meeting of the
​ ​
Pursuant to Section 78.390 of the Nevada Revised Statutes, every amendment to a company’s articles of incorporation after issuance of stock must be made in the following manner: (1) the board of directors must adopt a resolution setting forth the amendment proposed and either call a special meeting of the stockholders entitled to vote on the amendment or direct that the proposed amendment be considered at the next annual meeting of the stockholders entitled to vote on the amendment and (2) at the stockholder meeting, of which notice must be given to each stockholder entitled to vote pursuant to the provisions of the Nevada Revised Statutes, a vote of
​
186
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​
stockholders (provided a meeting or vote is required pursuant to Section 242 of the DGCL) and (ii) the stockholders approve the amendment by a majority of outstanding shares entitled to vote (and a majority of the outstanding shares of each class entitled to vote, if any).
​ ​
the stockholders entitled to vote in person or by proxy must be taken for and against the proposed amendment and such amendment will be approved if at least a majority of the stockholders approve such amendment (or such greater proportion of the voting power as may be required in the case of a vote by classes or series, as provided in the Nevada Revised Statutes, or as may be required by the provisions of the articles of incorporation). Except as otherwise provided in Section 78.390 of the Nevada Revised Statutes, if any proposed amendment would adversely alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series adversely affected by the amendment regardless of limitations or restrictions on the voting power thereof. The amendment does not have to be approved by the vote of the holders of shares representing a majority of the voting power of each class or series whose preference or rights are adversely affected by the amendment if the articles of incorporation specifically deny the right to vote on such an amendment. Provision may be made in the articles of incorporation requiring, in the case of any specified amendments, a larger proportion of the voting power of stockholders than that required by the Nevada Revised Statutes.
USBTC’s Articles provide the following: (i) except as otherwise required by law, the holders of USBTC common stock shall not be entitled to vote on any amendment to the USBTC Articles that relates solely to the terms of one or more outstanding series of USBTC preferred stock if the holders of such affected series are entitled, either separately or together with the holders of one or more other series, to vote therein pursuant to the USBTC Articles or Nevada Revised Statutes and (ii) at any time when at least 1,963,750 shares of Series A Preferred stock are outstanding, USBTC shall not amend, alter or repeal any provision of the USBTC Articles or USBTC Bylaws in a manner that materially and adversely modifies or adversely effects the powers, preferences or rights of the Series A Preferred stock, without the written consent or affirmative vote of a majority of the outstanding shares of Series A Preferred stock (voting together as a single and separate class on an as-converted basis) including the affirmative vote of JHS Bitcoin Mining LLC, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class.
​
187
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​
Amendment of Bylaws
​
​
The New Hut bylaws provide that any bylaw may be altered, amended or repealed by a vote of the recordholders of a majority of the shares then entitled to vote at an election of directors, by written consent of stockholders, or by a vote of the board of by written consent of the directors as provided by the New Hut bylaws and certificate of incorporation.
​ ​
USBTC’s Bylaws provide that the USBTC Board is authorized to adopt, amend or repeal the USBTC Bylaws. The holders of shares of capital stock entitled to vote also may adopt additional bylaws and may amend or repeal any bylaw, whether or not adopted by them. The power of the USBTC Board to adopt, amend or repeal bylaws may be limited by an amendment to the USBTC Articles or an amendment to the USBTC Bylaws adopted by the holders of capital stock that provides that a particular bylaw or bylaws may only be adopted, amended or repealed by the holders of capital stock.
​
​
Limitation on Director and Officer Liability
​
​
New Hut’s certificate of incorporation provides that to the fully extended permitted by the DGCL, no director of New Hut shall be personally liable to New Hut or its stockholders for monetary damages for breach of fiduciary duty as director.
The DGCL requires that such liability for breach of fiduciary duty as a director does not arise from (1) any breach of the director’s duty of loyalty to New Hut or its stockholders; (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) unlawful payments of dividends, certain stock repurchases or redemptions; or (4) any transaction from which the director derived an improper personal benefit.
​ ​
USBTC’s Articles provide that to the fullest extent permitted by law, a director of USBTC shall not be personally liable to USBTC or its stockholders for monetary damages for breach of fiduciary duty as a director.
Under Nevada law, unless otherwise provided in the articles of incorporation or pursuant to certain statutory exceptions, a director or officer is not liable for damages as a result of an act or failure to act in his or her capacity as a director or officer unless a statutory presumption that such person acted in good faith, on an informed basis and with a view to the interests of the corporation has been rebutted and, in addition, it has been proven both that the act or failure to act constituted a breach of a fiduciary duty as a director or officer and that such breach involved intentional misconduct, fraud or a knowing violation of law.
​
​
Indemnification
​
​
The New Hut certificate of incorporation contains provisions that provide for indemnification of officers and directors to the fullest extent permitted by, the DGCL.
Section 145 of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding,
​ ​
Under USBTC’s Articles, to the fullest extent permitted by applicable law, USBTC is authorized to provide indemnification of (and advancement of expenses to) directors, officers and agents of USBTC (and any other persons to which Nevada Revised Statutes permits USBTC to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 78.7502 of the Nevada Revised Statutes. USBTC’s Bylaws provide that USBTC shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of USBTC or, while a
​
188
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​
provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. A Delaware corporation may indemnify directors, officers, employees and other agents of such corporation in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the person to be indemnified has been adjudged to be liable to the corporation. Where a present or former director or officer of the corporation is successful on the merits or otherwise in the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the expenses (including attorneys’ fees) which he or she actually and reasonably incurred in connection therewith.
​ ​
director or officer of USBTC, is or was serving at the request of USBTC as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such person. USBTC shall be required to indemnify such person in connection with a proceeding mentioned above (or part thereof) commenced by such person only if the commencement of such proceeding (or part thereof) by such person was authorized in the specific case by the USBTC Board. Such indemnity shall not include any expenses incurred by such person relating to or arising from any proceeding in which USBTC asserts a direct claim against such person, or such person asserts a direct claim against USBTC, whether such claim is termed a complaint, counterclaim, crossclaim, third-party complaint or otherwise.
Pursuant to USBTC’s Bylaws, USBTC may purchase and maintain insurance on behalf of any person that USBTC is permitted to indemnify in accordance with the USBTC Bylaws against any liability asserted against any such person and incurred by such person whether or not USBTC would have the power to indemnify such person against such liability under the Nevada Revised Statutes.
​
​
Preemptive Rights
​
​
New Hut’s stockholders do not have preemptive rights. Thus, if additional shares of New Hut common stock are issued, the current New Hut stockholders will own a proportionately smaller interest in a larger number of outstanding shares of common stock to the extent that they do not participate in the additional issuance.
​ ​
Under USBTC’s A&R IRA, subject to certain exceptions, if USBTC proposes to offer or sell any new securities, USBTC shall first offer such new securities to each Series A investor. A Series A investor shall be entitled to apportion the right of first offer hereby granted to it in such proportions as it deems appropriate, among (i) itself and (ii) its affiliates; provided that each such affiliate (x) is not a competitor, unless such party’s purchase of new securities is otherwise consented to by the USBTC Board, and (y) agrees to enter into the A&R IRA and USBTC’s Stockholders Agreement. USBTC shall give notice to each Series A investor, stating (i) its bona fide intention to offer such new securities, (ii) the number of such new securities to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such new securities. By notification to USBTC within five (5) days after the office notice is given, each Series A investor may elect to purchase or otherwise acquire, at the price and on the terms specified in the offer notice, up to that portion of such new securities which equals the proportion that the USBTC common stock then held by such Series A investor bears to the total USBTC common stock then outstanding.
​
189
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​
Distributions to Stockholders
​
​
The DGCL provides that, subject to any restrictions in a corporation’s certificate of incorporation, dividends may be declared from the corporation’s surplus, or if there is no surplus, from its net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. Dividends may not be declared out of net profits, however, if the corporation’s capital has been diminished to an amount less than the aggregate amount of all capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets until the deficiency in the amount of capital represented by the issued and outstanding stock of all classes having a preference upon the distribution of assets is repaired.
​ ​
Under Nevada law/, distributions may not be made if, after giving them effect, either i) the corporation would be unable to pay its debts as they become du in the usual course of business or ii) except as otherwise specifically allowed by the articles of incorporation, the corporation’s total assets would be less than: (x) the sum of its total liabilities; and (y) the amount needed, if the corporation were dissolved immediately after the distribution, to satisfy the preferential rights on dissolution of shares of any class or series of the corporation’s capital stock having preferential rights superior to those receiving the distribution.
USBTC’s Bylaws provide that subject to the provisions of the Nevada Revised Statutes, dividends and other distributions may be declared by the USBTC Board in such form, frequency and amounts as the condition of the affairs of USBTC shall render advisable.
USBTC’s Articles provide that if USBTC declares, pays or sets aside any dividends on shares of any other class or series of capital stock of USBTC other than the USBTC preferred stock that are payable in shares of USBTC common stock then, in addition to the obtaining of any consents required elsewhere in the USBTC Articles, the holders of the USBTC preferred stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of USBTC preferred stock in an amount at least equal to (i) in the case of a dividend on USBTC common stock or any class or series that is convertible into USBTC common stock, that dividend per share of USBTC preferred stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into USBTC common stock and (B) the number of shares of USBTC common stock issuable upon conversion of a share of USBTC preferred stock, in each case calculated on the record date for determination of holders entitled to receive such dividend or (ii) in the case of a dividend on any class or series that is not convertible into USBTC common stock, at a rate per share of USBTC preferred stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series) and (B) multiplying such fraction by an amount equal to the original issue Price; provided that, if USBTC declares, pays or sets aside, on the same date, a
​
190
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​ ​ ​ ​
dividend on shares of more than one class or series of capital stock of USBTC, the dividend payable to the holders of USBTC preferred stock shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest applicable USBTC preferred stock dividend.
​
​
Subdivisions or Combinations
​
​ N/A ​ ​
USBTC’s Articles provide that if USBTC shall at any time or from time to time after the date on which the first share of Series C Preferred stock was issued effect a subdivision of the outstanding USBTC common stock, the applicable conversion price in effect immediately before that subdivision shall be proportionately decreased so that the number of shares of USBTC common stock issuable on conversion of each share of the applicable series of USBTC preferred stock shall be increased in proportion to such increase in the aggregate number of shares of USBTC common stock outstanding. If USBTC shall at any time or from time to time after the Series C original issue date combine the outstanding shares of USBTC common stock, the applicable conversion price in effect immediately before the combination shall be proportionately increased so that the number of shares of USBTC common stock issuable on conversion of each share of the applicable series of USBTC preferred stock shall be decreased in proportion to such decrease in the aggregate number of shares of USBTC common stock outstanding. Any such adjustment shall become effective at the close of business on the date the subdivision or combination becomes effective.
​
​
Appraisal Rights
​
​
Under the DGCL, a stockholder may dissent from, and receive payments in cash for, the fair value of his or her shares as appraised by the Court of Chancery of the State of Delaware in the event of certain mergers and consolidations. However, stockholders do not have appraisal rights if the shares of stock they hold, at the record date for determination of stockholders entitled to vote at the meeting of stockholders to act upon the merger or consolidation, or on the record date with respect to action by written consent, are either (i) listed on a national securities exchange or (ii) held of record by more than 2,000 holders. Further, no appraisal rights are available to stockholders of the surviving corporation if the merger did not require the vote of the stockholders of the surviving corporation. Notwithstanding the foregoing, appraisal rights are available if stockholders are required by the terms of the merger agreement to accept for their shares anything other than (i) shares of stock of the surviving corporation, (ii) shares of stock of another corporation that will
​ ​
Under Sections 92A.300 to 92A.500, inclusive, of the Nevada Revised Statutes, stockholders of a Nevada corporation may, subject to certain conditions, be entitled to dissent from a transaction and demand payment of the fair value of such stockholder’s shares in the event of certain corporate actions, including certain mergers.
​
191
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​
either be listed on a national securities exchange or held of record by more than 2,000 holders, (iii) cash instead of fractional shares or (iv) any combination of clauses (i)  – (iii). Appraisal rights are also available under the DGCL in certain other circumstances, including in certain parent-subsidiary corporation mergers and in certain circumstances where the certificate of incorporation so provides.
Neither the New Hut certificate of incorporation nor bylaws provides for appraisal rights in any additional circumstance other than as required by applicable law.
​ ​ ​ ​
​
Inspection of Books and Records
​
​ N/A ​ ​
USBTC’s Articles provide that the books of USBTC may be kept outside the State of Nevada at such place or places as may be designated from time to time by the USBTC Board or in USBTC’s Bylaws.
USBTC’s Bylaws provide that any records maintained by USBTC in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time.
Section 78.257 of the Nevada Revised Statutes provides that any person who has been a stockholder of record of any corporation and owns not less than 15 percent of all of the issued and outstanding shares of the stock of such corporation or has been authorized in writing by the holders of at least 15 percent of all its issued and outstanding shares, upon at least 5 days’ written demand, is entitled to inspect in person or by agent or attorney, during normal business hours, the books of account and all financial records of the corporation, to make copies of records, and to conduct an audit of such records. Holders of voting trust certificates representing 15 percent of the issued and outstanding shares of the corporation are regarded as stockholders. The right of stockholders to inspect the corporate records may not be limited in the articles or bylaws of any corporation.
The aforementioned rights may be denied to any stockholder upon the stockholder’s refusal to furnish the corporation an affidavit that such inspection, copies or audit is not desired for any purpose not related to his or her interest in the corporation as a stockholder.
Except as otherwise provided in Section 78.257 of the Nevada Revised Statutes, the provisions of this section do not apply to any corporation that furnishes to its stockholders a detailed, annual financial
​
192
TABLE OF CONTENTS
 
​
New Hut
​ ​
USBTC
​
​ ​ ​ ​
statement or any corporation that has filed during the preceding 12 months all reports required to be filed pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934.
​
​
Exclusive Forum
​
​
The New Hut certificate of incorporation and bylaws do not provide for an exclusive forum with respect to any actions against New Hut or its directors and officers.
​ ​
The USBTC Articles do not provide for an exclusive forum with respect to any actions against USBTC or its directors and officers.
​
​
Repurchases or Redemptions of Shares
​
​
New Hut’s certificate of incorporation and bylaws do not restrict New Hut from reacquiring its shares.
The DGCL generally provides that a corporation may redeem or repurchase its shares only if the redemption or repurchase would not impair the capital of the corporation.
​ ​
USBTC’s Articles provide that any shares of USBTC preferred stock that are redeemed, converted or otherwise acquired by USBTC or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither USBTC nor any of its subsidiaries may exercise any voting or other rights granted to the holders of USBTC preferred stock following redemption, conversion or acquisition.
​
​
Stock Transfer Restrictions Applicable to Stockholders
​
​
New Hut’s bylaws provide that registration of transfers of shares shall be made only in the stock ledger of the Corporation upon request of the registered holder of such shares or their attorney authorized by a power of attorney duly executed and filed with the Secretary of New Hut.
If the shares were certificated, New Hut’s bylaws require surrender of the certificates evidencing such shares properly endorsed or accompanied by a stock power duly executed, together with proof of the authenticity of signatures as New Hut may reasonably require.
​ ​
Pursuant to USBTC’s Stockholders Agreement, subject to certain exceptions set forth therein, USBTC stockholders are restricted from transferring USBTC securities except with approval by the USBTC Board.
​
193
TABLE OF CONTENTS​
 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF FINANCIAL CONDITION
The following unaudited pro forma combined financial statements are provided to aid you in your analysis of the financial aspects of the Business Combination.
The unaudited pro forma combined financial statements have been prepared based on the USBTC, Hut 8 and New Hut historical financial statements as adjusted to give effect to the Business Combination. The unaudited combined pro forma statement of financial position gives pro forma effect to the Business Combination as if it had been consummated on September 30, 2022. The unaudited pro forma combined statements of comprehensive income for the three months ended September 30, 2022, and for the year ended June 30, 2022, give effect to the Business Combination as though it had occurred on July 1, 2021.
The unaudited pro forma combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what New Hut’s financial condition or results of operations would have been had the Business Combination occurred on the dates indicated. Further, the pro forma combined financial information may not be useful in predicting the future financial condition and results of operations of New Hut. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors.
The unaudited pro forma combined financial statements have been derived from and should be read in conjunction with:
•
the accompanying notes to the unaudited pro forma combined financial statements;
​
•
the historical unaudited financial statements of USBTC for the three months ended September 30, 2022, and the audited financial statements of USBTC for the year ended June 30, 2022, and the related notes included elsewhere in this prospectus; and
​
•
the historical unaudited financial statements of Hut 8 for the three months ended September 30, 2022, the unaudited financial statements of Hut 8 for the six months ended June 30, 2021 and 2022, the audited financial statements of Hut 8 for the year ended December 31, 2022, and the related notes incorporated by reference in this prospectus.
​
194
TABLE OF CONTENTS
 
Unaudited Pro Forma Combined Statement of Financial Position
As at September 30, 2022
(in thousands of US dollars)
​ ​ ​
Historical – 
As at September 30, 2022
​ ​
Debt
Extinguishment
(Note 3)
​ ​
Acquisition
Transaction
Adjustments
(Note 2)
​ ​ ​ ​ ​
New
Hut Pro
Forma
​
​ ​ ​
New Hut
​ ​
USBTC
​ ​
Hut 8
(Note 4)
​
ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Current assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash
​ ​ ​ $ — ​ ​ ​ ​ $ 21,401 ​ ​ ​ ​ $ 24,091 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (11,000) ​ ​ ​
(c)
​ ​ ​ $ 34,492 ​ ​
Accounts receivable
​ ​ ​ ​ — ​ ​ ​ ​ ​ 622 ​ ​ ​ ​ ​ 1,352 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,974 ​ ​
Cryptocurrency, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,693 ​ ​ ​ ​ ​ 125,390 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 37,607 ​ ​ ​
(a)
​ ​ ​ ​ 164,690 ​ ​
Prepaid expenses and other current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 13,880 ​ ​ ​ ​ ​ 5,566 ​ ​ ​ ​ ​ (7,364) ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ 12,082 ​ ​
Total current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 37,596 ​ ​ ​ ​ ​ 156,399 ​ ​ ​ ​ ​ (7,364) ​ ​ ​ ​ ​ 26,607 ​ ​ ​ ​ ​ ​ ​ ​ 213,238 ​ ​
Non-current assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Property and equipment, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ 137,303 ​ ​ ​ ​ ​ 146,588 ​ ​ ​ ​ ​ (81,975) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 201,916 ​ ​
Right- of- use assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,231 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,231 ​ ​
Deposits on miners
​ ​ ​ ​ — ​ ​ ​ ​ ​ 68,130 ​ ​ ​ ​ ​ 33,560 ​ ​ ​ ​ ​ (18,910) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 82,780 ​ ​
Other deposits
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,295 ​ ​ ​ ​ ​ 21,445 ​ ​ ​ ​ ​ (2,500) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 25,240 ​ ​
Intangible assets and goodwill
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,655 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (2,298) ​ ​ ​
(a)
​ ​ ​ ​ 7,357 ​ ​
Total non-current assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 213,959 ​ ​ ​ ​ ​ 211,248 ​ ​ ​ ​ ​ (103,385) ​ ​ ​ ​ ​ (2,298) ​ ​ ​ ​ ​ ​ ​ ​ 319,524 ​ ​
Total assets
​ ​ ​ $  — ​ ​ ​ ​ $ 251,555 ​ ​ ​ ​ $ 367,647 ​ ​ ​ ​ $ (110,749) ​ ​ ​ ​ $ 24,309 ​ ​ ​ ​ ​ ​ ​ $ 532,762 ​ ​
LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Current liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accounts payable
​ ​ ​ $ — ​ ​ ​ ​ $ 3,662 ​ ​ ​ ​ $ 4,622 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 8,284 ​ ​
Accrued expenses
​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,974 ​ ​ ​ ​ ​ 4,383 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,357 ​ ​
Other current liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 570 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 570 ​ ​
Deferred revenue
​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,659 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,659 ​ ​
Loans payable
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 8,413 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8,413 ​ ​
Lease liability, current portion
​ ​ ​ ​ — ​ ​ ​ ​ ​ 507 ​ ​ ​ ​ ​ 2,860 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,367 ​ ​
Notes payable, current portion
​ ​ ​ ​ — ​ ​ ​ ​ ​ 105,989 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (74,045) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 31,944 ​ ​
Subscription received in advance
​ ​ ​ ​ — ​ ​ ​ ​ ​ 10,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 10,000 ​ ​
Total current liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 126,361 ​ ​ ​ ​ ​ 20,278 ​ ​ ​ ​ ​ (74,045) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ 72,594 ​ ​
Non-current liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Notes payable, less current portion
​ ​ ​ ​ — ​ ​ ​ ​ ​ 30,521 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (12,465) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 18,056 ​ ​
Lease liability, less current portion
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,776 ​ ​ ​ ​ ​ 12,620 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 14,396 ​ ​
Deposit liability
​ ​ ​ ​ — ​ ​ ​ ​ ​ 125 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 125 ​ ​
Deferred tax liability
​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,892 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,892 ​ ​
Long- term debt
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 12,788 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 12,788 ​ ​
Total non-current liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 35,314 ​ ​ ​ ​ ​ 25,408 ​ ​ ​ ​ ​ (12,465) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ 48,257 ​ ​
Total Liabilities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 161,675 ​ ​ ​ ​ ​ 45,686 ​ ​ ​ ​ ​ (86,510) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ 120,851 ​ ​
EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Series A preferred stock, par value $0.00001; 7,855,500 shares authorized; 7,824,000 shares issued and outstanding as of September 30, 2022
​ ​ ​ ​ — ​ ​ ​ ​ ​ 24,899 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (24,899) ​ ​ ​
(b)
​ ​ ​ ​ — ​ ​
Series B preferred stock, par value $0.00001; 10,000,000 shares authorized; 10,000,000 shares issued and outstanding as of September 30, 2022
​ ​ ​ ​ — ​ ​ ​ ​ ​ 61,067 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (61,067) ​ ​ ​
(b)
​ ​ ​ ​ — ​ ​
Series B-1 preferred stock, par value $0.00001; 10,000,000 shares authorized; 793,250 shares issued and outstanding as of September 30, 2022
​ ​ ​ ​ — ​ ​ ​ ​ ​ 12,537 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (12,537) ​ ​ ​
(b)
​ ​ ​ ​ — ​ ​
Common stock, par value $0.00001; 125,000,000
shares authorized; 43,129,750 shares issued and
outstanding as of September 30, 2022 for USBTC
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​
Common stock, par value $0.001; 80,707,587 issued
and outstanding as of September 30, 2022
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 81 ​ ​ ​
(a)(b)
​ ​ ​ ​ 81 ​ ​
Share capital
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 492,909 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (492,909) ​ ​ ​
(a)
​ ​ ​ ​ — ​ ​
Warrants
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 26,994 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 26,994 ​ ​
Additional paid- in capital
​ ​ ​ ​ — ​ ​ ​ ​ ​ 32,824 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (32,824) ​ ​ ​
(b)
​ ​ ​ ​ — ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 436,670 ​ ​ ​
(a)
​ ​ ​ ​ 436,670 ​ ​
Contributed surplus
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 8,326 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (8,326) ​ ​ ​
(a)
​ ​ ​ ​ — ​ ​
Accumulated deficit
​ ​ ​ ​ — ​ ​ ​ ​ ​ (41,447) ​ ​ ​ ​ ​ (206,268) ​ ​ ​ ​ ​ (24,239) ​ ​ ​ ​ ​ (11,000) ​ ​ ​
(c)
​ ​ ​ ​ (51,834) ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 206,268 ​ ​ ​
(a)
​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 24,852 ​ ​ ​
(a)
​ ​ ​ ​ ​ ​ ​
Total equity
​ ​ ​ ​ — ​ ​ ​ ​ ​ 89,880 ​ ​ ​ ​ ​ 321,961 ​ ​ ​ ​ ​ (24,239) ​ ​ ​ ​ ​ 24,309 ​ ​ ​ ​ ​ ​ ​ ​ 411,911 ​ ​
Total liabilities and equity
​ ​ ​ $ — ​ ​ ​ ​ $ 251,555 ​ ​ ​ ​ $ 367,647 ​ ​ ​ ​ $ (110,749) ​ ​ ​ ​ $ 24,309 ​ ​ ​ ​ ​ ​ ​ $ 532,762 ​ ​
The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
195
TABLE OF CONTENTS
 
Unaudited Pro Forma Combined Statement of Operations
For the three months ended September 30, 2022
(in thousands of US dollars)
​ ​ ​
Historical – For the 3 months
ended September 30, 2022
​ ​
Debt
Extinguishment
(Note 3)
​ ​
Acquisition
Transaction
Adjustments
(Note 2)
​ ​ ​ ​ ​ ​ ​ ​
New Hut
Pro Forma
​
​ ​ ​
New Hut
​ ​
USBTC
​ ​
Hut 8 (Note 4)
​
Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ $ — ​ ​ ​ ​ $ 16,328 ​ ​ ​ ​ $ 20,700 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 37,028 ​ ​
Mining equipment sales
​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,635 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,635 ​ ​
High performance computing
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,342 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,342 ​ ​
Hosting services
​ ​ ​ ​ — ​ ​ ​ ​ ​ 13,565 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13,565 ​ ​
Total revenue
​ ​ ​ ​ — ​ ​ ​ ​ ​ 33,528 ​ ​ ​ ​ ​ 24,042 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 57,570 ​ ​
Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenues (exclusive of depreciation and amortization)
​ ​ ​ ​ — ​ ​ ​ ​ ​ 18,402 ​ ​ ​ ​ ​ 15,389 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 33,791 ​ ​
Depreciation and amortization
​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,754 ​ ​ ​ ​ ​ 20,195 ​ ​ ​ ​ ​ (4,080) ​ ​ ​ ​ ​ (12,635) ​ ​ ​ ​
​
(e)
 ​ ​ ​ ​ ​ 9,234 ​ ​
General and administrative
​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,864 ​ ​ ​ ​ ​ 8,514 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 14,378 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,286 ​ ​ ​ ​ ​ 1,797 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,083 ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​  — ​ ​ ​ ​ ​ (1,549) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1,549) ​ ​
Total costs and expenses
​ ​ ​ ​ — ​ ​ ​ ​ ​ 29,757 ​ ​ ​ ​ ​ 45,895 ​ ​ ​ ​ ​ (4,080) ​ ​ ​ ​ ​ (12,635) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 58,937 ​ ​
Operating income (loss)
​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,771 ​ ​ ​ ​ ​ (21,853) ​ ​ ​ ​ ​ 4,080 ​ ​ ​ ​ ​ 12,635 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (1,367) ​ ​
Other expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Foreign exchange loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 610 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 610 ​ ​
Interest expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,016 ​ ​ ​ ​ ​ 1,416 ​ ​ ​ ​ ​ (3,069) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,363 ​ ​
Total other expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,016 ​ ​ ​ ​ ​ 2,026 ​ ​ ​ ​ ​ (3,069) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,973 ​ ​
(Loss) income before income tax expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ (245) ​ ​ ​ ​ ​ (23,879) ​ ​ ​ ​ ​ 7,149 ​ ​ ​ ​ ​ 12,635 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (4,340) ​ ​
Income tax expense (benefit)
​ ​ ​ ​ — ​ ​ ​ ​ ​ 315 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,501 ​ ​ ​ ​ ​ 2,653 ​ ​ ​ ​
​
(f)
 ​ ​ ​ ​ ​ 4,470 ​ ​
Net (loss) income
​ ​ ​ $ — ​ ​ ​ ​ $ (560) ​ ​ ​ ​ $ (23,879) ​ ​ ​ ​ $ 5,648 ​ ​ ​ ​ $ 9,982 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (8,810) ​ ​
Loss per common share (note 6): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Basic and diluted
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (0.13) ​ ​
Weighted average common shares outstanding:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Basic and diluted
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 65,477,062 ​ ​
The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
196
TABLE OF CONTENTS
 
Unaudited Pro Forma Combined Statement of Operations
For the year ended June 30, 2022
(in thousands of US dollars)
​ ​ ​
Historical – For the
year ended June 30, 2022
​ ​
Debt
Extinguishment
(Note 3)
​ ​
Acquisition
Transaction
Adjustments
(Note 2)
​ ​ ​ ​ ​ ​ ​ ​
New Hut
Pro Forma
​
​ ​ ​
New Hut
​ ​
USBTC
​ ​
Hut 8 (Note 4)
​
Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ $ — ​ ​ ​ ​ $ 68,164 ​ ​ ​ ​ $ 153,577 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 221,741 ​ ​
High performance computing
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,403 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,403 ​ ​
Hosting services
​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,566 ​ ​ ​ ​ ​ 4,409 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 9,975 ​ ​
Total revenue
​ ​ ​ ​ — ​ ​ ​ ​ ​ 73,730 ​ ​ ​ ​ ​ 164,389 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 238,119 ​ ​
Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenues (exclusive of depreciation and amortization)
​ ​ ​ ​  — ​ ​ ​ ​ ​ 25,783 ​ ​ ​ ​ ​ 63,504 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 89,287 ​ ​
Depreciation and amortization
​ ​ ​ ​ — ​ ​ ​ ​ ​ 11,591 ​ ​ ​ ​ ​ 44,475 ​ ​ ​ ​ ​ (6,319) ​ ​ ​ ​ ​ (24,847) ​ ​ ​ ​
​
(e)
 ​ ​ ​ ​ ​ 24,900 ​ ​
General and administrative
​ ​ ​ ​ — ​ ​ ​ ​ ​ 31,325 ​ ​ ​ ​ ​ 39,005 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 11,000 ​ ​ ​ ​
​
(d)
 ​ ​ ​ ​ ​ 81,330 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ — ​ ​ ​ ​ ​ 30,301 ​ ​ ​ ​ ​ 95,400 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 125,701 ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​ — ​ ​ ​ ​ ​ (5,455) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (5,455) ​ ​
Total costs and expenses
​ ​ ​ ​ — ​ ​ ​ ​ ​ 93,545 ​ ​ ​ ​ ​ 242,384 ​ ​ ​ ​ ​ (6,319) ​ ​ ​ ​ ​ (13,847) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 315,763 ​ ​
Operating income (loss)
​ ​ ​ ​ — ​ ​ ​ ​ ​ (19,815) ​ ​ ​ ​ ​ (77,995) ​ ​ ​ ​ ​ 6,319 ​ ​ ​ ​ ​ 13,847 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (77,644) ​ ​
Other expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Foreign exchange loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,548 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,548 ​ ​
Interest expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,919 ​ ​ ​ ​ ​ 1,859 ​ ​ ​ ​ ​ (6,077) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,701 ​ ​
Loss on extinguishment of debt
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 24,239 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 24,239 ​ ​
Bargain purchase gain
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (24,852) ​ ​ ​ ​
​
(g)
 ​ ​ ​ ​ ​ (24,852) ​ ​
Total other expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,919 ​ ​ ​ ​ ​ 4,407 ​ ​ ​ ​ ​ 18,162 ​ ​ ​ ​ ​ (24,852) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4,636 ​ ​
(Loss) income before income tax expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ (26,734) ​ ​ ​ ​ ​ (82,402) ​ ​ ​ ​ ​ (11,843) ​ ​ ​ ​ ​ 38,699 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (82,280) ​ ​
Income tax expense (benefit)
​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,069 ​ ​ ​ ​ ​ 12,175 ​ ​ ​ ​ ​ (2,487) ​ ​ ​ ​ ​ 8,127 ​ ​ ​ ​
​
(f)
 ​ ​ ​ ​ ​ 22,884 ​ ​
Net (loss) income
​ ​ ​ $ — ​ ​ ​ ​ $ (31,803) ​ ​ ​ ​ $ (94,577) ​ ​ ​ ​ $ (9,356) ​ ​ ​ ​ $ 30,572 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (105,164) ​ ​
Loss per common share (note 6): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Basic and diluted
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (1.86) ​ ​
Weighted average common shares outstanding:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Basic and diluted
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 56,459,418 ​ ​
The accompanying notes are an integral part of these unaudited pro forma combined financial statements.
197
TABLE OF CONTENTS​
 
Notes to Unaudited Pro Forma Combined Financial Statements
1.
Basis of Presentation
​
The unaudited pro forma combined financial statements were prepared in accordance with Article 11 of SEC Regulation S-X, as amended by the final rule, Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses. Release No. 33-10786 replaces the historical pro forma adjustments criteria with simplified requirements to depict the accounting for the transaction (“Transaction Accounting Adjustments”) adjustments to reflect the operations of the combined business as an autonomous entity (“Autonomous Entity Adjustments”) and present the reasonably estimable synergies and other transaction effects that have occurred or are reasonably expected to occur (“Management’s Adjustments”). New Hut has elected not to present Autonomous Entity Adjustments and Management’s Adjustments and will only present Transaction Accounting Adjustments in the unaudited pro forma combined financial information. The adjustments presented in the unaudited pro forma combined financial statements have been identified and presented to provide relevant information necessary for an understanding of the combined company upon consummation of the Business Combination.
The historical financial statements of Hut 8 have been prepared in accordance with IFRS as issued by the IASB and in its presentation currency of the Canadian dollar. For purposes of the pro forma financial information, Hut 8’s historical financial statements have been translated to US dollars, reclassified to align to the financial statement presentation of USBTC and adjusted for differences between IFRS and US GAAP as discussed in Note 4. The historical financial statements of USBTC have been prepared in accordance with U.S. GAAP in its presentation currency of the U.S. dollar. The unaudited pro forma combined financial information has been prepared in accordance with U.S. GAAP.
Management has made significant estimates and assumptions in its determination of the pro forma adjustments. As the unaudited pro forma combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented. Specifically the preliminary assessment of the accounting acquirer is subject to evaluation and may be impacted by matters such as board rights related to tie-break votes, the relative fair values of USBTC and Hut 8 at closing and other considerations set out in ASC 805. A change in the determination of the accounting acquirer would significantly impact the pro forma financial information included in this prospectus as well as the actual accounting for the Business Combination at closing.
The unaudited pro forma combined financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings, or cost savings that may be associated with the Business Combination. USBTC and Hut 8 have not had any historical relationship prior to the proposed transaction and thus pro forma adjustments were not required to eliminate activities between the companies.
Description of the Transaction
Pursuant to the Business Combination Agreement, (i) Hut 8 and its direct wholly-owned subsidiary, Hut 8 Holdings Inc., a corporation existing under the laws of British Columbia, will, as part of a court-sanctioned plan of arrangement under the BCBCA, be amalgamated to continue as one British Columbia corporation, with the capital of Hut Amalco being the same as the capital of Hut 8, (ii) following the Amalgamation, and pursuant to the Arrangement, each common share of Hut Amalco (other than any shares held by dissenting shareholders) will be exchanged for 0.2000 of a share of New Hut common stock , which will effectively result in a consolidation of the common shares of Hut 8 on a five to one (5 to 1) basis and (iii) following the completion of the Arrangement, a newly-formed direct wholly-owned Nevada subsidiary of New Hut shall merge with and into USBTC, with each share of Series A preferred stock of USBTC, $0.00001 par value per share, Series B preferred stock of USBTC, $0.00001 par value per share, Series B-1 preferred stock of USBTC, $0.00001 par value per share and common stock of USBTC, $0.00001 par value per share, being exchanged for 0.6716 of a share of New Hut common stock in a merger executed in accordance with the relevant provisions of the NRS, as amended. As a result of the Business Combination, both Hut Amalco and USBTC will become wholly-owned subsidiaries of New Hut. New Hut intends to list its shares on Nasdaq and the TSX under the trading symbol “HUT” following the completion of the Business Combination, subject to the approval of Nasdaq and the TSX.
198
TABLE OF CONTENTS
 
Because USBTC is treated as the acquiring company for accounting purposes, USBTC’s assets and liabilities are recorded at their carrying amounts prior to the consummation of the Business Combination and the historical operations that are reflected in the unaudited pro forma combined financial information are those of USBTC. Hut 8’s assets and liabilities are measured and recognized at their fair values as of the closing date of the Business Combination and combined with the assets, liabilities and results of operations of USBTC following consummation of the Business Combination.
In addition to the business combination transaction, USBTC completed a significant debt extinguishment in January 2023. Transaction Adjustments reflecting the impact of this extinguishment have been reflected in a separate column in the pro forma financial statements and these adjustments are described at Note 3.
2.
Business Combination Transaction Adjustments
​
The unaudited pro forma combined statement of financial position and combined statements of operations have been prepared to reflect the Business Combination together with the following assumptions and adjustments.
Pro forma combined statement of financial position
a)
Acquisition of Hut 8:   Because USBTC is treated as the acquiring company for accounting purposes, USBTC’s assets and liabilities are recorded at their carrying amounts prior to the consummation of the Business Combination and the historical operations that are reflected in the unaudited pro forma combined financial information are those of USBTC. Hut 8’s assets and liabilities are measured and recognized at their fair values as of the closing date of the Business Combination and combined with the assets, liabilities and results of operations of USBTC following consummation of the Business Combination. The purchase price has been determined using the share price of the accounting acquiree of $1.68 on February 10, 2023 and the number of shares the accounting acquiree would have had to issue to the shareholders of the legal acquirer to achieve the same ownership ratio of the combined entity, as it is the most readily observable fair value of the shares exchanged. If the transaction had occurred on September 30, 2022, the estimated preliminary fair values of the identifiable assets and liabilities (and related tax impacts) of Hut 8 and the purchase consideration would be as follows:
​
(in thousands of US dollars)
​ ​ ​ ​ ​ ​ ​
Assets ​ ​ ​ ​ ​ ​ ​
Cash
​ ​ ​ $ 24,091 ​ ​
Accounts receivable
​ ​ ​ ​ 1,352 ​ ​
Cryptocurrency, net
​ ​ ​ ​ 162,997 ​ ​
Prepaid expenses and other current assets
​ ​ ​ ​ 5,566 ​ ​
Property and equipment, net
​ ​ ​ ​ 146,588 ​ ​
Deposits and prepaid expenses
​ ​ ​ ​ 21,445 ​ ​
Deposits on miners
​ ​ ​ ​ 33,560 ​ ​
Intangible assets
​ ​ ​ ​ 7,357 ​ ​
​ ​ ​ ​ ​ 402,956 ​ ​
Liabilities ​ ​ ​ ​ ​ ​ ​
Accrued expenses
​ ​ ​ ​ 4,383 ​ ​
Accounts payable
​ ​ ​ ​ 4,622 ​ ​
Loans payable
​ ​ ​ ​ 8,413 ​ ​
Lease liability, current portion
​ ​ ​ ​ 2,860 ​ ​
Lease liability, less current portion
​ ​ ​ ​ 12,620 ​ ​
Long- term debt
​ ​ ​ ​ 12,788 ​ ​
​ ​ ​ ​ ​ 45,686 ​ ​
Net Assets Acquired
​ ​ ​ $ 357,270 ​ ​
Estimated purchase consideration ​ ​ ​ ​ ​ ​ ​
Hut 8 Common Shares Outstanding at September 30, 2022
​ ​ ​ ​ 196,215,856 ​ ​
Hut 8 USD Share Price at February 6, 2022
​ ​ ​ $ 1.68 ​ ​
Share consideration ($000’s)
​ ​ ​ $ 329,643 ​ ​
199
TABLE OF CONTENTS
 
(in thousands of US dollars)
​ ​ ​ ​ ​ ​ ​
Estimated replacement cost of Stock options, RSUs and DSUs
​ ​ ​ ​ 2,775 ​ ​
Purchase price ($000’s)
​ ​ ​ $ 332,418 ​ ​
Bargain purchase gain (net of previously recognized goodwill of $2,298)
​ ​ ​
$
(24,852)
 ​ ​
​
The preliminary purchase consideration allocation is based on management’s best estimate of the fair value based on currently available information. The actual amount allocated to certain identifiable net assets will vary as the purchase price allocation is finalized, specifically the value of property & equipment and intangible assets.
The purchase price will depend on the market price of Hut 8 common stock on the date of closing. The following table illustrates the effects of change in Hut 8’s share price and the resulting impact on the purchase price.
​ ​ ​
Hut 8 share
price ($)
​ ​
Purchase Price
($000’s)
​
As presented
​ ​ ​ ​ 1.68 ​ ​ ​ ​ ​ 332,418 ​ ​
20% increase
​ ​ ​ ​ 2.02 ​ ​ ​ ​ ​ 398,902 ​ ​
20% decrease
​ ​ ​ ​ 1.34 ​ ​ ​ ​ ​ 265,934 ​ ​
40% increase
​ ​ ​ ​ 2.35 ​ ​ ​ ​ ​ 465,385 ​ ​
40% decrease
​ ​ ​ ​ 1.01 ​ ​ ​ ​ ​ 199,451 ​ ​
The estimated shares at consummation of the business combination would be as follow:
New Hut Shares to be issued
​ ​
Sept 30 Shares
outstanding
​ ​
Exchange
Ratio
​ ​
New Hut
Sept 30 shares
​ ​
Par Value
​ ​
APIC
​ ​
Total
​
Hut 8 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Common Shares outstanding September 30, 2022
​ ​ ​ ​ 196,215,856 ​ ​ ​ ​ ​ 0.2 ​ ​ ​ ​ ​ 39,243,171 ​ ​ ​ ​ $ 39 ​ ​ ​ ​ $ 442,916 ​ ​ ​ ​ $ 442,955 ​ ​
USBTC ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Series A preferred stock
​ ​ ​ ​ 7,824,000 ​ ​ ​ ​ ​ 0.6716 ​ ​ ​ ​ ​ 5,254,598 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Series B preferred stock
​ ​ ​ ​ 10,000,000 ​ ​ ​ ​ ​ 0.6716 ​ ​ ​ ​ ​ 6,716,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Series B-1 preferred stock
​ ​ ​ ​ 793,250 ​ ​ ​ ​ ​ 0.6716 ​ ​ ​ ​ ​ 532,747 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Common stock
​ ​ ​ ​ 43,122,500 ​ ​ ​ ​ ​ 0.6716 ​ ​ ​ ​ ​ 28,961,071 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 41,464,416 ​ ​ ​ ​ ​ 42 ​ ​ ​ ​ ​ 131,285 ​ ​ ​ ​ ​ 131,327 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total – New Hut shares issued using September 30 share figures
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 80,707,587 ​ ​ ​ ​ $ 81 ​ ​ ​ ​ $ 574,201 ​ ​ ​ ​ $ 574,282 ​ ​
​
b)
Exchange of USBTC equity for New Hut equity:   Adjustment to reflect the exchange of USBTC Series A preferred stock, Series B preferred stock, Series B-1 preferred stock and common stock for common stock of New Hut.
​
c)
Transaction Costs:   Adjustment to decrease cash by $11.0 million for estimated transaction costs in connection with the Business Combination. These costs are comprised of banking, legal and accounting fees. These costs, to the extent not accounted for as a reduction in share capital will be recognized in New Hut’s consolidated statement of operations when the transaction occurs.
​
Pro forma combined income statement
d)
Transaction Costs:   Reflects estimated transaction costs associated with the Business Combination of $11.0.
​
200
TABLE OF CONTENTS
 
e)
Depreciation and Amortization Expense:   Reflects the changes in depreciation expense on mining equipment to align with USBTC’s accounting policy for the pro-forma periods. This adjustment does not reflect any impact of fair value increments for property & equipment or intangible assets, the valuation of which is ongoing.
​
f)
Tax:   Adjustment to reflect the estimated tax impact of the pro forma adjustments using the statutory tax rate of USBTC of 21%.
​
g)
Bargain purchase gain:   Reflects the bargain purchase gain on the Business Combination.
​
3.
Adjustment for USBTC debt extinguishment
​
In February 2023, USBTC extinguished its MEFA and Debt with a financing company. The outstanding balance at the time of extinguishment was $89.1 million. USBTC exchanged all assets which the finance company financed, in addition to existing assets at one of its Texas locations and a portion of deposits on miners. The pro forma impact of the extinguishment was as to reduce the carrying values of certain assets and liabilities as follows, with the difference being loss on extinguishment recognized in accumulated deficit based upon the carrying value of the assets and liabilities as at September 30, 2022 which differs from their balances at extinguishment:
(in thousands of US dollars)
​ ​
DR / (CR)
​
Prepaid expenses and other current assets
​ ​ ​ ​ (7,364) ​ ​
Property and equipment, net
​ ​ ​ ​ (81,975) ​ ​
Deposits on miners
​ ​ ​ ​ (18,910) ​ ​
Other deposits
​ ​ ​ ​ (2,500) ​ ​
Notes payable, current portion
​ ​ ​ ​ 74,045 ​ ​
Notes payable, less current portion
​ ​ ​ ​ 12,465 ​ ​
Accumulated deficit
​ ​ ​ ​ 24,239 ​ ​
The pro-forma impacts of the extinguishment for the year ended June 30, 2022 was the recognition of the extinguishment loss of $24,239, the reduction of depreciation expense of $6,319 for the disposed assets and reduction of interest expense for the extinguished liability of $6,077, net of tax impact of $2,487. For the three-months ended September 30, 2022 the pro-forma impacts were the reduction of depreciation expense of $4,080 for the disposed assets and reduction of interest expense for the extinguished liability of $3,069, net of tax impact of $1,501.
4.
Adjustments for the effect of reclassifications, foreign exchange and IFRS / U.S. GAAP differences for Hut 8
​
The following tables show the effects on Hut 8’s historical financial statements of reclassification to align with USBTC’s financial statement presentation, adjustments to convert from IFRS to US GAAP as a basis of reporting and the translation of Hut 8’s financial statements from Canadian dollars to U.S. dollars.
201
TABLE OF CONTENTS
 
(in thousands of US dollars)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
GAAP
Adjustments
​ ​
Note
​ ​
Hut 8
(US GAAP)
​ ​
Hut 8
(USD &
US GAAP)
​
Statement of Financial Position as at September 30,
2022 		​ ​
Hut 8
​ ​
Reclassification
​
Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash
​ ​ ​ $ 33,021 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 33,021 ​ ​ ​ ​ $ 24,091 ​ ​
Accounts receivable and other
​ ​ ​ ​ 1,853 ​ ​ ​ ​ ​ (1,853) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Accounts receivable
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,853 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,853 ​ ​ ​ ​ ​ 1,352 ​ ​
Digital assets
​ ​ ​ ​ 223,420 ​ ​ ​ ​ ​ (223,420) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Cryptocurrency, net
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 223,420 ​ ​ ​ ​ ​ (51,548) ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ 171,872 ​ ​ ​ ​ ​ 125,390 ​ ​
Deposits and prepaid expenses
​ ​ ​ ​ 7,629 ​ ​ ​ ​ ​ (7,629) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Prepaid expenses and other current assets
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,629 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,629 ​ ​ ​ ​ ​ 5,566 ​ ​
Total current assets
​ ​ ​ ​ 265,923 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (51,548) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 214,375 ​ ​ ​ ​ ​ 156,399 ​ ​
Plant and equipment
​ ​ ​ ​ 207,365 ​ ​ ​ ​ ​ (207,365) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Property and equipment, net
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 207,365 ​ ​ ​ ​ ​ (6,435) ​ ​ ​ ​
​
(b)
 ​ ​ ​ ​ ​ 200,930 ​ ​ ​ ​ ​ 146,588 ​ ​
Deposits and prepaid expenses
​ ​ ​ ​ 75,396 ​ ​ ​ ​ ​ (75,396) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Deposits on miners
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 46,001 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 46,001 ​ ​ ​ ​ ​ 33,560 ​ ​
Other deposits
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 29,395 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 29,395 ​ ​ ​ ​ ​ 21,445 ​ ​
Intangible assets and goodwill
​ ​ ​ ​ 13,234 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 13,234 ​ ​ ​ ​ ​ 9,655 ​ ​
Total assets
​ ​ ​ $ 561,918 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ (57,983) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 503,935 ​ ​ ​ ​ $ 367,647 ​ ​
Liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accounts payable and accrued liabilities
​ ​ ​ $ 12,344 ​ ​ ​ ​ $ (12,344) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
Accrued expenses
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,008 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,008 ​ ​ ​ ​ ​ 4,383 ​ ​
Accounts payable
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,336 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 6,336 ​ ​ ​ ​ ​ 4,622 ​ ​
Loans payable
​ ​ ​ ​ 11,532 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 11,532 ​ ​ ​ ​ ​ 8,413 ​ ​
Lease liabilities
​ ​ ​ ​ 3,920 ​ ​ ​ ​ ​ (3,920) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Lease liability, current portion
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,920 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,920 ​ ​ ​ ​ ​ 2,860 ​ ​
Total current liabilities
​ ​ ​ ​ 27,796 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 27,796 ​ ​ ​ ​ ​ 20,278 ​ ​
Lease liabilities
​ ​ ​ ​ 17,298 ​ ​ ​ ​ ​ (17,298) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Lease liability, less current portion
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17,298 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17,298 ​ ​ ​ ​ ​ 12,620 ​ ​
Loans payable
​ ​ ​ ​ 17,529 ​ ​ ​ ​ ​ (17,529) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Long- term debt
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17,529 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 17,529 ​ ​ ​ ​ ​ 12,788 ​ ​
Warrants liability
​ ​ ​ ​ 4,518 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (4,518) ​ ​ ​ ​
​
(c)
 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Total liabilities
​ ​ ​ ​ 67,141 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (4,518) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 62,623 ​ ​ ​ ​ ​ 45,686 ​ ​
Share capital
​ ​ ​ ​ 725,648 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (50,018) ​ ​ ​ ​
​
(c)
 ​ ​ ​ ​ ​ 675,630 ​ ​ ​ ​ ​ 492,909 ​ ​
Warrants
​ ​ ​ ​ 2,122 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 34,878 ​ ​ ​ ​
​
(c)
 ​ ​ ​ ​ ​ 37,000 ​ ​ ​ ​ ​ 26,994 ​ ​
Contributed surplus
​ ​ ​ ​ 11,412 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 11,412 ​ ​ ​ ​ ​ 8,326 ​ ​
Accumulated deficit
​ ​ ​ ​ (244,405) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (51,548) ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ (282,730) ​ ​ ​ ​ ​ (206,268) ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (6,435) ​ ​ ​ ​
​
(b)
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 19,658 ​ ​ ​ ​
​
(c)
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total stockholders’ equity
​ ​ ​ ​ 494,777 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (53,465) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 441,312 ​ ​ ​ ​ ​ 321,961 ​ ​
Total liabilities and stockholders’ equity
​ ​ ​ $ 561,918 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ (57,983) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 503,935 ​ ​ ​ ​ $ 367,647 ​ ​
202
TABLE OF CONTENTS
 
(in thousands of US dollars)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
GAAP
Adjustments
​ ​
Note
​ ​
Hut 8
(US GAAP)
​ ​
Hut 8
(USD &
US GAAP)
​
Statement of Operations for the
three months ended September 30, 2022 		​ ​
Hut 8
​ ​
Reclassification
​
Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue
​ ​ ​ $ 31,671 ​ ​ ​ ​ $ (31,671) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ ​ — ​ ​ ​ ​ ​ 27,268 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 27,268 ​ ​ ​ ​ ​ 20,700 ​ ​
High performance computing
​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,403 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 4,403 ​ ​ ​ ​ ​ 3,342 ​ ​
Total Revenue
​ ​ ​ ​ 31,671 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 31,671 ​ ​ ​ ​ ​ 24,042 ​ ​
Costs and expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenue
​ ​ ​ ​ 45,611 ​ ​ ​ ​ ​ (45,611) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Cost of revenues (exclusive of depreciation and amortization shown below)
​ ​ ​ ​ — ​ ​ ​ ​ ​ 20,272 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 20,272 ​ ​ ​ ​ ​ 15,389 ​ ​
Depreciation and amortization
​ ​ ​ ​ — ​ ​ ​ ​ ​ 25,683 ​ ​ ​ ​ ​ 920 ​ ​ ​ ​
​
(b)
 ​ ​ ​ ​ ​ 26,603 ​ ​ ​ ​ ​ 20,195 ​ ​
General and administrative
​ ​ ​ ​ 11,216 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 11,216 ​ ​ ​ ​ ​ 8,514 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,367 ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ 2,367 ​ ​ ​ ​ ​ 1,797 ​ ​
Total costs and expenses
​ ​ ​ ​ 56,827 ​ ​ ​ ​ ​ 344 ​ ​ ​ ​ ​ 3,287 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 60,458 ​ ​ ​ ​ ​ 45,895 ​ ​
Operating loss
​ ​ ​ ​ (25,156) ​ ​ ​ ​ ​ (344) ​ ​ ​ ​ ​ (3,287) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (28,787) ​ ​ ​ ​ ​ (21,853) ​ ​
Other expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Foreign exchange loss
​ ​ ​ ​ 804 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 804 ​ ​ ​ ​ ​ 610 ​ ​
Finance expense
​ ​ ​ ​ 1,913 ​ ​ ​ ​ ​ (1,913) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Finance income
​ ​ ​ ​ (48) ​ ​ ​ ​ ​ 48 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Amortization
​ ​ ​ ​ 344 ​ ​ ​ ​ ​ (344) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Loss (gain) on revaluation of digital assets
​ ​ ​ ​ (7,340) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 7,340 ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Loss (gain) on revaluation of warrant
liability
​ ​ ​ ​ 2,917 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (2,917) ​ ​ ​ ​
​
(c)
 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Interest expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,865 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,865 ​ ​ ​ ​ ​ 1,416 ​ ​
Total other expense
​ ​ ​ ​ (1,410) ​ ​ ​ ​ ​ (344) ​ ​ ​ ​ ​ 4,423 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,669 ​ ​ ​ ​ ​ 2,026 ​ ​
Loss before income tax benefit
​ ​ ​ ​ (23,746) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (7,710) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (31,456) ​ ​ ​ ​ ​ (23,879) ​ ​
Income tax expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Net loss
​ ​ ​ ​ (23,746) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (7,710) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (31,456) ​ ​ ​ ​ ​ (23,879) ​ ​
Other comprehensive (loss) income Items that will not be reclassified to net income
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total comprehensive (loss) income
​ ​ ​ $ (23,746) ​ ​ ​ ​ $ — ​ ​ ​ ​ $ (7,710) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (31,456) ​ ​ ​ ​ $ (23,879) ​ ​
203
TABLE OF CONTENTS
 
(in thousands of US dollars)
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
GAAP
Adjustments
​ ​
Note
​ ​
Hut 8
(US GAAP)
​ ​
Hut 8
(USD &
US GAAP)
​
Statement of Operations for the year ended June 30,
2022 		​ ​
Hut 8
​ ​
Reclassification
​
Revenue ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue
​ ​ ​ $ 205,420 ​ ​ ​ ​ $ (205,420) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ ​ — ​ ​ ​ ​ ​ 191,910 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 191,910 ​ ​ ​ ​ ​ 153,577 ​ ​
High performance computing
​ ​ ​ ​ — ​ ​ ​ ​ ​ 8,001 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 8,001 ​ ​ ​ ​ ​ 6,403 ​ ​
Hosting services
​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,509 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5,509 ​ ​ ​ ​ ​ 4,409 ​ ​
Total Revenue
​ ​ ​ ​ 205,420 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 205,420 ​ ​ ​ ​ ​ 164,389 ​ ​
Costs and expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenue
​ ​ ​ ​ 133,132 ​ ​ ​ ​ ​ (133,132) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Cost of revenues (exclusive of depreciation and amortization shown below)
​ ​ ​ ​ — ​ ​ ​ ​ ​ 79,355 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 79,355 ​ ​ ​ ​ ​ 63,504 ​ ​
Depreciation and amortization
​ ​ ​ ​ — ​ ​ ​ ​ ​ 54,349 ​ ​ ​ ​ ​ 1,227 ​ ​ ​ ​
​
(b)
 ​ ​ ​ ​ ​ 55,576 ​ ​ ​ ​ ​ 44,475 ​ ​
General and administrative
​ ​ ​ ​ 48,741 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 48,741 ​ ​ ​ ​ ​ 39,005 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ — ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 119,212 ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ 119,212 ​ ​ ​ ​ ​ 95,400 ​ ​
Total costs and expenses
​ ​ ​ ​ 181,873 ​ ​ ​ ​ ​ 572 ​ ​ ​ ​ ​ 120,439 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 302,884 ​ ​ ​ ​ ​ 242,384 ​ ​
Operating loss
​ ​ ​ ​ 23,547 ​ ​ ​ ​ ​ (572) ​ ​ ​ ​ ​ (120,439) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (97,464) ​ ​ ​ ​ ​ (77,995) ​ ​
Other expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Foreign exchange loss
​ ​ ​ ​ 3,184 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,184 ​ ​ ​ ​ ​ 2,548 ​ ​
Finance expense
​ ​ ​ ​ 4,692 ​ ​ ​ ​ ​ (4,692) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Finance income
​ ​ ​ ​ (2,369) ​ ​ ​ ​ ​ 2,369 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Amortization
​ ​ ​ ​ 572 ​ ​ ​ ​ ​ (572) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Loss (gain) on revaluation of digital assets
​ ​ ​ ​ 104,898 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (104,898) ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Loss (gain) on revaluation of warrant
liability
​ ​ ​ ​ 16,740 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (16,740) ​ ​ ​ ​
​
(c)
 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Interest expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,323 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 2,323 ​ ​ ​ ​ ​ 1,859 ​ ​
Total other expense
​ ​ ​ ​ 127,717 ​ ​ ​ ​ ​ (572) ​ ​ ​ ​ ​ (121,638) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 5,507 ​ ​ ​ ​ ​ 4,407 ​ ​
Loss before income tax benefit
​ ​ ​ ​ (104,170) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,199 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (102,971) ​ ​ ​ ​ ​ (82,402) ​ ​
Deferred income tax expense (recovery)
​ ​ ​ ​ 15,993 ​ ​ ​ ​ ​ (15,993) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Income tax expense
​ ​ ​ ​ — ​ ​ ​ ​ ​ 15,993 ​ ​ ​ ​ ​ (780) ​ ​ ​ ​
​
(a)
 ​ ​ ​ ​ ​ 15,213 ​ ​ ​ ​ ​ 12,175 ​ ​
Net loss
​ ​ ​ ​ (120,163) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,979 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (118,184) ​ ​ ​ ​ ​ (94,577) ​ ​
Other comprehensive (loss) income Items that
will not be reclassified to net income
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revaluation (loss) gain on digital assets net of tax
​ ​ ​ ​ (48,215) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 48,215 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Total comprehensive (loss) income
​ ​ ​ $ (168,378) ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ 50,194 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ (118,184) ​ ​ ​ ​ $ (94,577) ​ ​
​
a)
Accounting for Cryptocurrency:   Adjustment to reverse the impact of applying the revaluation model for cryptocurrency under IFRS as the revaluation model is prohibited under U.S. GAAP and any impairment losses recognized cannot be subsequently reversed. The result is a decrease in the cost base of the cryptocurrency as at September 30, 2022 and the related impacts on impairment of cryptocurrency and revaluation of cryptocurrency in the statement of operations.
​
b)
Revaluation and impairment of Property and Equipment:   Adjustment to reflect the difference between IFRS and U.S. GAAP whereby reversal of impairment losses are prohibited under U.S. GAAP. Impairment loss reversals previously recognized under IFRS are reversed for US GAAP. This difference
​
204
TABLE OF CONTENTS
 
impacts the carrying amount of Property and Equipment, with a corresponding impact to in depreciation expense in the statement of operations.
c)
Classifications of certain warrants:   Adjustment to reflect a difference between IFRS and U.S. GAAP whereby certain warrants would be classified as equity instruments under US GAAP rather than as financial liabilities under IFRS. This results in a reclassification from financial liabilities to equity of the warrants, and the reversal of amounts recorded for changes in fair value of the financial liabilities in prior periods recorded in the statement of operations.
​
5.
Hut 8’s results of operations for the 12 months ended June 30, 2022
​
The following table sets out the results of operations of Hut 8 for the 12 months ended June 30, 2022, derived from the historical financial statements of Hut 8 for the six months ended June 30, 2022 and 2021 and the twelve months ended December 31, 2021 in order to align with the June 30 year end of USBTC, the accounting acquirer. The results of operations set out in the table below are presented in accordance with IFRS and in thousands of Canadian dollars.
IFRS Statement of Operations for Hut 8 Mining Corp. (in
thousands of Canadian dollars) 		​ ​
For the
six months
ended June 30,
2022
(a)
​ ​
For the
year ended
December 31,
2021
(b)
​ ​
For the
six months
ended June 30,
2021
(c)
​ ​
For the
12 months
ended June 30,
2022
(a) + (b)  – (c)
​
Revenue
​ ​ ​ $ 97,178 ​ ​ ​ ​ $ 173,774 ​ ​ ​ ​ $ 65,532 ​ ​ ​ ​ $ 205,420 ​ ​
Cost of revenues
​ ​ ​ ​ 84,564 ​ ​ ​ ​ ​ 84,976 ​ ​ ​ ​ ​ 36,408 ​ ​ ​ ​ ​ 133,132 ​ ​
Gross profit
​ ​ ​ ​ 12,614 ​ ​ ​ ​ ​ 88,798 ​ ​ ​ ​ ​ 29,124 ​ ​ ​ ​ ​ 72,288 ​ ​
Cost of operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
General and administrative
​ ​ ​ ​ 23,812 ​ ​ ​ ​ ​ 40,265 ​ ​ ​ ​ ​ 15,336 ​ ​ ​ ​ ​ 48,741 ​ ​
Gain on disposition of digital assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ (182) ​ ​ ​ ​ ​ (182) ​ ​ ​ ​ ​ — ​ ​
Operating income (loss)
​ ​ ​ ​ (11,198) ​ ​ ​ ​ ​ 48,715 ​ ​ ​ ​ ​ 13,970 ​ ​ ​ ​ ​ 23,547 ​ ​
Foreign exchange loss
​ ​ ​ ​ 684 ​ ​ ​ ​ ​ 3,143 ​ ​ ​ ​ ​ 643 ​ ​ ​ ​ ​ 3,184 ​ ​
Finance expense
​ ​ ​ ​ 3,707 ​ ​ ​ ​ ​ 1,355 ​ ​ ​ ​ ​ 370 ​ ​ ​ ​ ​ 4,692 ​ ​
Finance income
​ ​ ​ ​ (872) ​ ​ ​ ​ ​ (2,854) ​ ​ ​ ​ ​ (1,357) ​ ​ ​ ​ ​ (2,369) ​ ​
Amortization
​ ​ ​ ​ 572 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 572 ​ ​
Loss (gain) on revaluation of digital assets
​ ​ ​ ​ 104,898 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 104,898 ​ ​
Loss (gain) on revaluation of warrant liability
​ ​ ​ ​ (97,421) ​ ​ ​ ​ ​ 114,161 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 16,740 ​ ​
Loss before income tax
​ ​ ​ ​ (22,766) ​ ​ ​ ​ ​ (67,090) ​ ​ ​ ​ ​ 14,314 ​ ​ ​ ​ ​ (104,170) ​ ​
Deferred income tax expense (recovery)
​ ​ ​ ​ 9,593 ​ ​ ​ ​ ​ 5,620 ​ ​ ​ ​ ​ (780) ​ ​ ​ ​ ​ 15,993 ​ ​
Net loss
​ ​ ​ ​ (32,359) ​ ​ ​ ​ ​ (72,710) ​ ​ ​ ​ ​ 15,094 ​ ​ ​ ​ ​ (120,163) ​ ​
Other comprehensive income ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revaluation gain (loss) on digital assets, net of taxes
​ ​ ​ ​ (103,540) ​ ​ ​ ​ ​ 57,859 ​ ​ ​ ​ ​ 2,534 ​ ​ ​ ​ ​ (48,215) ​ ​
Total comprehensive income ( loss)
​ ​ ​ $ (135,899) ​ ​ ​ ​ $ (14,851) ​ ​ ​ ​ $ 17,628 ​ ​ ​ ​ $ (168,378) ​ ​
​
6.
Profit (Loss) per share
​
The pro forma net income (loss) per share is calculated using the pro forma weighted average number of shares outstanding, and the issuance of additional shares in connection with the Business Combination for the three months ended September 30, 2022, and for the year ended June 30, 2022. The weighted average shares are determined based on the combining companies’ historical weighted average shares outstanding for the periods and applying the appropriate New Hut exchange ratios.
Basic and diluted net income (loss) per share is calculated by dividing the net income (loss) for the period by the pro forma weighted average number of common shares and dilutive shares that would have been
205
TABLE OF CONTENTS
 
outstanding during the period using the treasury stock method. The denominator for basic and diluted earnings per share is the same, as the impacts of dilutive shares that would have been outstanding are anti-dilutive.
(in thousands of US dollars except share data)
​ ​
For the year ended
June 30, 2022
​ ​
For the three months
ended September 30, 2022
​
Numerator ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net loss
​ ​ ​ $ (105,164) ​ ​ ​ ​ $ (8,810) ​ ​
Denominator ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Weighted average common shares outstanding – basic and diluted
​ ​ ​ ​ 56,459,418 ​ ​ ​ ​ ​ 65,477,062 ​ ​
Earnings per common share – basic and diluted
​ ​ ​ $ (1.86) ​ ​ ​ ​ $ (0.13) ​ ​
206
TABLE OF CONTENTS​
 
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT/DIRECTORS OF HUT 8​
The following table sets forth certain information with respect to the beneficial ownership of Hut 8 common shares as of February 10, 2023 for:
•
each of Hut 8’s directors;
​
•
each of Hut 8’s named executive officers;
​
•
all of Hut 8’s current directors and executive officers as a group; and
​
•
each person or group known by Hut 8 to be the beneficial owner of more than 5% of Hut 8’s common shares.
​
Hut 8 has determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to its securities. Unless otherwise indicated below, to Hut 8’s knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all of the shares that they beneficially owned, subject to community property laws where applicable.
Hut 8 has based its calculation of the percentage of beneficial ownership on 220,901,254 common shares of Hut 8 outstanding as of February 10, 2023. Hut 8 has deemed its common shares subject to stock options that are currently exercisable or exercisable within sixty (60) days of February 10, 2023 or issuable pursuant to Hut 8 RSUs or Hut 8 DSUs which are subject to vesting and settlement conditions expected to occur within sixty (60) days of February 10, 2023, to be outstanding and to be beneficially owned by the person holding the stock option or Hut 8 RSU or Hut 8 DSU for the purpose of computing the percentage ownership of that person. Hut 8 did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. For purposes of the table below, any right to acquire beneficial ownership that would only vest or otherwise become effective within 60 days due to the consummation of the Business Combination (among other possible triggers) and not due to the mere passage of time has been excluded.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is Hut 8 Mining Corp., Suite 500, 24 Duncan Street, Toronto, Ontario, Canada, M5V 2B8. The information provided in the table is based on Hut 8’s records, information filed with the SEC and information provided to Hut 8, except where otherwise noted.
​ ​ ​
Amount and Nature of
Beneficial Ownership
​
Directors and Executive Officers:
​ ​
Number of
Shares
Beneficially
Owned
​ ​
Approximate
Percentage
of Shares
Beneficially
Owned
​
Rick Rickertsen(1)
​ ​ ​ ​ 20,298 ​ ​ ​ ​ ​ * ​ ​
Bill Tai(2)
​ ​ ​ ​ 709,584 ​ ​ ​ ​ ​ * ​ ​
Alexia Hefti(3)
​ ​ ​ ​ 42,829 ​ ​ ​ ​ ​ * ​ ​
Joseph Flinn(4)
​ ​ ​ ​ 219,402 ​ ​ ​ ​ ​ * ​ ​
Jaime Leverton(5)
​ ​ ​ ​ 809,920 ​ ​ ​ ​ ​ * ​ ​
Shenif Visram
​ ​ ​ ​ — ​ ​ ​ ​ ​ * ​ ​
Erin Dermer(6)
​ ​ ​ ​ 30,501 ​ ​ ​ ​ ​ * ​ ​
James Beer(7)
​ ​ ​ ​ 75,000 ​ ​ ​ ​ ​ * ​ ​
Suzanne Ennis(8)
​ ​ ​ ​ 120,643 ​ ​ ​ ​ ​ * ​ ​
Joshua Rayner(9)
​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ * ​ ​
Aniss Amdiss
​ ​ ​ ​ — ​ ​ ​ ​ ​ * ​ ​
5% of Greater Shareholders (other than directors and executive officers): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
N/A
​ ​ ​ ​ N/A ​ ​ ​ ​ ​ N/A ​ ​
​
*
Represents beneficial ownership or voting power of less than one percent (1%).
​
(1)
Includes 20,298 Hut 8 DSUs that are redeemable within 60 days of February 10, 2023.
​
(2)
Includes 96,594 Hut 8 DSUs that are redeemable within 60 days of February 10, 2023.
​
207
TABLE OF CONTENTS
 
(3)
Includes 42,829 Hut 8 DSUs that are redeemable within 60 days of February 10, 2023.
​
(4)
Includes (i) 96,594 Hut 8 DSUs that are redeemable within 60 days of February 10, 2023 and (ii) 115,000 Hut 8 common shares underlying options to acquire Hut 8 common shares exercisable within 60 days of February 10, 2023.
​
(5)
Includes 212,121 Hut 8 RSUs that vest within 60 days of February 10, 2023.
​
(6)
Includes 30,000 Hut 8 RSUs that vest within 60 days of February 10, 2023.
​
(7)
Includes 75,000 Hut 8 RSUs that vest within 60 days of February 10, 2023.
​
(8)
Includes 25,000 Hut 8 RSUs that vest within 60 days of February 10, 2023.
​
(9)
Includes 25,000 Hut 8 RSUs that vest within 60 days of February 10, 2023.
​
208
TABLE OF CONTENTS​
 
SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT/DIRECTORS OF USBTC​
The following table sets forth certain information with respect to the beneficial ownership of USBTC voting securities as of February 12, 2023 for:
•
each of USBTC’s directors;
​
•
each of USBTC’s executive officers;
​
•
all of USBTC’s current directors and executive officers as a group; and
​
•
each person or group known by USBTC to be the beneficial owner of more than 5% of USBTC’s common stock or preferred stock.
​
USBTC has determined beneficial ownership in accordance with the rules of the SEC, and thus it represents sole or shared voting or investment power with respect to its securities. Unless otherwise indicated below, to USBTC’s knowledge, the persons and entities named in the table have sole voting and sole investment power with respect to all of the shares that they beneficially owned, subject to community property laws where applicable.
The percentage of ownership of each individual or entity below is based on 64,314,000 USBTC shares issued and outstanding as of February 12, 2023, which is comprised of 45,696,750 issued and outstanding shares of USBTC common stock and 18,617,250 issued and outstanding shares of USBTC preferred stock (assuming that every outstanding share of preferred stock has been converted to common stock at a one-to-one ratio). USBTC has deemed shares of its common stock subject to stock options that are currently exercisable or exercisable within sixty (60) days of February 12, 2023 to be outstanding and to be beneficially owned by the person holding the stock option for the purpose of computing the percentage ownership of that person. USBTC did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. For purposes of the table below, any right to acquire beneficial ownership that would only vest or otherwise become effective within 60 days due to the consummation of the Business Combination (among other possible triggers) and not due to the mere passage of time has been excluded.
Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o U.S. Data Mining Group, Inc., 1221 Brickell Ave, Ste 900, Miami, Florida 33131. The information provided in the table is based on USBTC’s records and information provided to USBTC, except where otherwise noted. Unless otherwise noted, such shares held are shares of USBTC common stock.
​ ​ ​
Amount and Nature of
Beneficial Ownership
​
Directors and Executive Officers:
​ ​
Number of
Shares
Beneficially
Owned
​ ​
Approximate
Percentage
of Total Voting Power
​
Michael Ho(1)
​ ​ ​ ​ 8,371,000 ​ ​ ​ ​ ​ 13.0% ​ ​
Asher Genoot(2)
​ ​ ​ ​ 6,420,750 ​ ​ ​ ​ ​ 10.0% ​ ​
Joel Block(3)
​ ​ ​ ​ 120,000 ​ ​ ​ ​ ​ ​* ​ ​
Matthew Prusak(4)
​ ​ ​ ​ 146,676 ​ ​ ​ ​ ​ ​* ​ ​
Stanley O’Neal(5)
​ ​ ​ ​ 61,000 ​ ​ ​ ​ ​ ​* ​ ​
Mayo A. Shattuck III(6)
​ ​ ​ ​ 119,875 ​ ​ ​ ​ ​ ​* ​ ​
Jonathan Koch(7)
​ ​ ​ ​ 46,666 ​ ​ ​ ​ ​ ​* ​ ​
Amy Wilkinson
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
All Directors and Executive Officers as a Group (8 persons)
​ ​ ​ ​ 16,328,879 ​ ​ ​ ​ ​ 23.6% ​ ​
5% of Greater Shareholders (other than directors and executive officers): ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Mario Germano Giuliani(8)
​ ​ ​ ​ 5,845,250 ​ ​ ​ ​ ​ 9.1% ​ ​
Anna Kudrjasova(9)
​ ​ ​ ​ 5,498,250 ​ ​ ​ ​ ​ 8.5% ​ ​
Jordan Levy(10)
​ ​ ​ ​ 6,355,750 ​ ​ ​ ​ ​ 9.4% ​ ​
​
*
Represents beneficial ownership or voting power of less than one percent (1%).
​
(1)
Represents 8,371,000 shares of common stock.
​
(2)
Represents (i) 6,027,000 shares of USBTC common stock held directly by Mr. Genoot and (ii) 393,750 shares of USBTC common stock held in a qualified retirement account for the benefit of Mr. Genoot.
​
209
TABLE OF CONTENTS
 
(3)
Consists of (i) 31,500 shares of USBTC series A preferred stock held by Bubs, LLC and (ii) 88,500 shares of USBTC common stock underlying options to acquire USBTC common stock exercisable within 60 days of February 12, 2023. Mr. Block maintains voting and dispositive power over the shares owned by Bubs, LLC and thus may be deemed to beneficially own such shares. Mr. Block disclaims beneficial ownership of such securities, except to the extent of his pecuniary interest therein.
​
(4)
Consists of (i) 8,000 shares of USBTC series A preferred stock held by Mr. Prusak and (ii) 138,676 shares of USBTC common stock underlying options to acquire USBTC common stock exercisable within 60 days of February 12, 2023.
​
(5)
Consists of 61,000 shares of USBTC common stock underlying options to acquire USBTC common stock exercisable within 60 days of February 12, 2023.
​
(6)
Consists of (i) 63,000 shares of USBTC common stock (ii) 18,250 shares of USBTC series B preferred stock and 38,125 shares of USBTC common stock underlying options to acquire USBTC common stock exercisable within 60 days of February 12, 2023.
​
(7)
Consists of 40,666 shares of USBTC common stock underlying options to acquire USBTC common stock exercisable within 60 days of February 12, 2023.
​
(8)
Represents (i) 4,084,750 shares of USBTC Series B preferred stock held by MGG Strategic SICAF SIF (“NOGRA”), (ii) 1,508,750 shares of USBTC common stock held by NOGRA, (iii) 209,250 shares of USBTC common stock held by Avara Management Ltd and (iv) 42,500 shares of USBTC common stock underlying options to acquire USBTC common stock held by Mr. Giuliani exercisable within 60 days of February 12, 2023. Mr. Giuliani maintains voting and dispositive power over the shares owned by NOGRA and Avara Management Ltd. and thus may be deemed to beneficially own such shares. Mr. Giuliani disclaims beneficial ownership of such securities, except to the extent of his pecuniary interest therein. Mr. Giuliani’s address is 18 Avenue de la Porte-Neuve, L-2227 Luxembourg.
​
(9)
Represents (i) 5,498,250 shares of USBTC common stock held by Anaya Capital Corp. Ms. Kudrjasova maintains sole voting and dispositive power over the shares owned by Anaya Capital Corp. and thus may be deemed to beneficially own such shares. Ms. Kudrjasova disclaims beneficial ownership of such securities, except to the extent of her pecuniary interest therein. Ms. Kudrjasova’s address is 1202, Al Barsha Heights, Teacom, Dubai Marina, Dubai, United Arab Emirates.
​
(10)
Represents (i) 902,250 shares of USBTC common stock held by Mr. Levy directly, (ii) 5,027,750 shares of USBTC series A preferred stock held by JHS Bitcoin Mining LLC and (iii) 150,786 shares of USBTC common stock underlying options to acquire USBTC common stock held by Mr. Giuliani exercisable within 60 days of February 12, 2023. Mr. Levy maintains sole voting and dispositive power over the shares owned by JHS Bitcoin Mining LLC and thus may be deemed to beneficially own such shares. Mr. Levy disclaims beneficial ownership of the securities held by JHS Bitcoin Mining LLC, except to the extent of his pecuniary interest therein. Mr. Levy’s address is 1 Seneca Tower, Suite 2400, Buffalo, New York, 14203.
​
210
TABLE OF CONTENTS​​​​
 
APPRAISAL AND DISSENTER’S RIGHTS
Any USBTC stockholder who does not vote in favor of or consent to the Merger will have the right to dissent from the Merger and, in lieu of receiving the merger consideration for such shares provided under the Business Combination Agreement, obtain payment of the fair value (as defined in NRS 92A.320) of the stockholder’s shares, but only if the stockholder (1) delivers to USBTC a statement of intent (as defined in NRS 92A.095) by the date specified in the advance notice statement (as defined in NRS 92A.006) provided in connection with the approval by the USBTC stockholders of the Merger by written consent, (2) demands payment, pursuant to NRA 92A.440, in accordance with a dissenter’s notice sent by USBTC, and (3) otherwise complies with all applicable requirements of under NRS 92A.300 through NRS 92A.500 inclusive. If USBTC and a former stockholder that remains entitled to and properly asserts dissenter’s rights cannot agree on as to the fair value, USBTC must then commence a proceeding in Nevada state district court to determine the fair value, which may be more than, equal to, or less than the value of the merger consideration for such shares provided under the Business Combination Agreement. There is no right of dissent with respect to any share of USBTC stock that was not issued and outstanding on the date of the first announcement to the news media or to the USBTC stockholders of the terms of the Merger.
ANY USBTC STOCKHOLDER WHO WISHES TO EXERCISE DISSENTER’S RIGHTS, OR WHO WISHES TO PRESERVE SUCH HOLDER’S RIGHT TO DO SO, SHOULD CAREFULLY REVIEW THE NEVADA DISSENTER’S RIGHTS STATUTES, AND ALL DOCUMENTATION AND MATERIALS PROVIDED BY USBTC IN CONNECTION WITH OBTAINING USBTC STOCKHOLDER APPROVAL OF THE BUSINESS COMBINATION BY WRITTEN CONSENT, BECAUSE FAILURE TO TIMELY AND PROPERLY COMPLY WITH THE PROCEDURES SPECIFIED THEREIN WILL RESULT IN THE LOSS OF DISSENTER’S RIGHTS. MOREOVER, BECAUSE OF THE COMPLEXITY OF THE PROCEDURES FOR EXERCISING THE RIGHT TO SEEK APPRAISAL OF SHARES, IF A STOCKHOLDER CONSIDERS EXERCISING DISSENTER’S RIGHTS, SUCH STOCKHOLDER IS ENCOURAGED TO SEEK THE ADVICE OF SUCH STOCKHOLDER’S LEGAL COUNSEL.
EXPERTS
The consolidated financial statements of Hut 8 and subsidiaries as of December 31, 2021 and 2020, and for each of the years in the two-year period ended December 31, 2021, have been incorporated by reference herein in reliance upon the report of Raymond Chabot Grant Thornton LLP, independent registered public accounting firm, incorporated by reference herein, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of U.S. Data Mining Group, Inc. and subsidiaries as of June 30, 2022 and 2021 and for the year ended June 30, 2022 and the period from December 4, 2020 (inception) to June 30, 2021 have been audited by RSM US LLP, an independent registered public accounting firm, as stated in their report thereon and included in this Prospectus and Registration Statement in reliance upon such report and upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
Certain legal matters will be passed upon for Hut 8 by Bennett Jones LLP with respect to Canadian legal matters and Skadden, Arps, Slate, Meagher & Flom LLP with respect to U.S. legal matters, and on behalf of USBTC by Stikeman Elliott LLP with respect to Canadian legal matters and by Greenberg Traurig, LLP with respect to U.S. legal matters and the legality of the New Hut common stock offered by this prospectus.
WHERE YOU CAN FIND MORE INFORMATION
New Hut has filed with the SEC a registration statement on Form S-4 under the Securities Act of which this prospectus forms a part, which registers the New Hut common shares to be issued to USBTC stockholders in connection with the Merger. The registration statement, including the attached exhibits, contains additional relevant information about New Hut and its common shares. The rules and regulations of the SEC allow certain information included in the registration statement to be omitted from this prospectus.
211
TABLE OF CONTENTS​
 
Hut 8 is a “foreign private issuer” and, under the rules adopted under the Exchange Act, is exempt from certain of the requirements of the Exchange Act, including the proxy and information provisions of Section 14 of the Exchange Act and the reporting and liability provisions applicable to officers, directors and significant stockholders under Section 16 of the Exchange Act. You may read and copy the information filed with, or furnished to, the SEC by Hut 8 at the SEC’s public reference room of the SEC at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s public reference room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website that contains reports and other information about issuers, including those filed by Hut 8, atwww.sec.gov.
Hut 8 also files reports, statements and other information with the Canadian provincial and territorial securities regulatory authorities. Hut 8’s filings are electronically available to the public from the Canadian System for Electronic Document Analysis and Retrieval at www.sedar.com.
USBTC does not have a class of securities registered under Section 12 of the Exchange Act, is not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act, and accordingly does not file documents and reports with the SEC.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
This prospectus is part of a registration statement on Form S-4 that New Hut has filed with the SEC. You should rely only on the information contained in or incorporated by reference into this prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction in which, or to any person to whom, it is not lawful to make any such offer or solicitation.
The SEC allows Hut 8 to incorporate by reference the information it files with the SEC into the registration statement of which this prospectus forms a part, which means that we can disclose important information to you by referring you to those documents. The information that is incorporated by reference is considered to be part of this prospectus.
We incorporate by reference into this prospectus the following documents (other than any portions of such documents that are not deemed “filed” under the Exchange Act in accordance with the Exchange Act and applicable SEC rules):
•
Hut 8’s annual report on Form 40-F for the fiscal year ended December 31, 2021, filed by Hut 8 with the SEC on March 18, 2022;
​
•
The audit report of Raymond Chabot Grant Thornton LLP, dated February 10, 2023, on the Consolidated Financial Statements of Hut 8 as of December 31, 2021 and 2020, included in Hut 8’s Report of Foreign Private Issuer on Form 6-K, filed with the SEC on February 13, 2023;
​
•
Hut 8’s Management’s Discussion and Analysis and Unaudited Consolidated Financial Statements included in Hut 8’s Report of Foreign Private Issuer on Form 6-K for the three and six months ended June 30, 2022 and 2021, filed with the SEC on August 11, 2022;
​
•
Hut 8’s Management’s Discussion and Analysis and Unaudited Consolidated Financial Statements included in Hut 8’s Report of Foreign Private Issuer on Form 6-K for the three and nine months ended September 30, 2022 and 2021, filed with the SEC on November 10, 2022; and
​
•
Hut 8’s Management Information Circular included in Hut 8’s Report of Foreign Private Issuer on Form 6-K, filed with the SEC on June 6, 2022.
​
Reports and other information that Hut 8 files with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this prospectus until the termination of the offering hereunder will also be deemed incorporated by reference hereunder, including any reports or amended reports on Forms 40-F, 20-F, 10-K and 10-Q. In addition, any current reports on Form 6-K furnished by Hut 8 to the SEC from the date of this prospectus until the termination of the offering hereunder will be deemed incorporated by reference hereunder only to the extent indicated on the cover page thereof.
212
TABLE OF CONTENTS
 
Any statements in any such future filings will automatically be deemed to modify and supersede any information included in, or incorporated by reference into, this prospectus to the extent that statements in the later-filed document modify or replace such earlier statements.
If you make a request, orally or in writing, for any information that has been incorporated by reference into this prospectus but not delivered with this prospectus, Hut 8 will provide you, without charge, a copy of any or all of that information. Requests for this information should be submitted in writing to the Corporate Secretary of Hut 8 at Suite 500, 24 Duncan Street, Toronto, Ontario, Canada, M5V 2B8, or by telephone at 647-256-1992.
213
TABLE OF CONTENTS​​
 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF USBTC
​ ​ ​
Page
​
Unaudited Condensed Consolidated Financial Statements ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ F-2 ​ ​
​ ​ ​ ​ F-3 ​ ​
​ ​ ​ ​ F-4 ​ ​
​ ​ ​ ​ F-5 ​ ​
​ ​ ​ ​ F-6 ​ ​
Audited Consolidated Financial Statements ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ F-22 ​ ​
​ ​ ​ ​ F-23 ​ ​
​ ​ ​ ​ F-24 ​ ​
​ ​ ​ ​ F-25 ​ ​
​ ​ ​ ​ F-26 ​ ​
​ ​ ​ ​ F-27 ​ ​
F-1
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets — Unaudited
(in thousands, except share and per share data)
​ ​ ​
September 30, 2022
​ ​
June 30, 2022
​
​ ​ ​
Unaudited
​ ​
Audited
​
ASSETS ​ ​ ​
Current assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash
​ ​ ​ $ 21,401 ​ ​ ​ ​ $ 21,067 ​ ​
Accounts receivable
​ ​ ​ ​ 622 ​ ​ ​ ​ ​ 1,168 ​ ​
Prepaid expenses and other current assets
​ ​ ​ ​ 13,880 ​ ​ ​ ​ ​ 13,998 ​ ​
Cryptocurrency, net
​ ​ ​ ​ 1,693 ​ ​ ​ ​ ​ 847 ​ ​
Total current assets
​ ​ ​ ​ 37,596 ​ ​ ​ ​ ​ 37,080 ​ ​
Long-term assets
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Deposits on miners
​ ​ ​ ​ 68,130 ​ ​ ​ ​ ​ 82,042 ​ ​
Property and equipment, net
​ ​ ​ ​ 137,303 ​ ​ ​ ​ ​ 117,258 ​ ​
Right-of-use assets
​ ​ ​ ​ 2,231 ​ ​ ​ ​ ​ 2,350 ​ ​
Other deposits
​ ​ ​ ​ 6,295 ​ ​ ​ ​ ​ 6,295 ​ ​
Total long-term assets
​ ​ ​ ​ 213,959 ​ ​ ​ ​ ​ 207,945 ​ ​
Total assets
​ ​ ​ $ 251,555 ​ ​ ​ ​ $ 245,025 ​ ​
LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Current liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accounts payable
​ ​ ​ $ 3,662 ​ ​ ​ ​ $ 6,274 ​ ​
Accrued expenses
​ ​ ​ ​ 2,974 ​ ​ ​ ​ ​ 858 ​ ​
Other current liabilities
​ ​ ​ ​ 570 ​ ​ ​ ​ ​ 478 ​ ​
Deferred revenue
​ ​ ​ ​ 2,659 ​ ​ ​ ​ ​ 14,839 ​ ​
Subscription received in advance
​ ​ ​ ​ 10,000 ​ ​ ​ ​ ​ — ​ ​
Notes payable, current portion
​ ​ ​ ​ 105,989 ​ ​ ​ ​ ​ 77,215 ​ ​
Lease liability, current portion
​ ​ ​ ​ 507 ​ ​ ​ ​ ​ 496 ​ ​
Total current liabilities
​ ​ ​ ​ 126,361 ​ ​ ​ ​ ​ 100,160 ​ ​
Long-term liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Notes payable, less current portion
​ ​ ​ ​ 30,521 ​ ​ ​ ​ ​ 51,061 ​ ​
Lease liability, less current portion
​ ​ ​ ​ 1,776 ​ ​ ​ ​ ​ 1,907 ​ ​
Deposit liability
​ ​ ​ ​ 125 ​ ​ ​ ​ ​ 1,322 ​ ​
Deferred tax liability
​ ​ ​ ​ 2,892 ​ ​ ​ ​ ​ 2,972 ​ ​
Total long-term liabilities
​ ​ ​ ​ 35,314 ​ ​ ​ ​ ​ 57,262 ​ ​
Total liabilities
​ ​ ​ ​ 161,675 ​ ​ ​ ​ ​ 157,422 ​ ​
Commitments and contingencies (Note 14) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Stockholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Series A preferred stock, par value $0.00001; 7,855,500 shares authorized; 7,824,000 shares issued and outstanding as of September 30, 2022 and June 30, 2022, respectively
​ ​ ​ ​ 24,899 ​ ​ ​ ​ ​ 24,899 ​ ​
Series B preferred stock, par value $0.00001; 10,000,000 shares authorized; 10,000,000 shares issued and outstanding as of September 30, 2022 and June 30, 2022, respectively
​ ​ ​ ​ 61,067 ​ ​ ​ ​ ​ 61,067 ​ ​
Series B-1 preferred stock, par value $0.00001; 3,750,000 shares authorized;
793,250 shares issued and outstanding as of September 30, 2022 and June 30,
2022, respectively
​ ​ ​ ​ 12,537 ​ ​ ​ ​ ​ 12,537 ​ ​
Common stock, $0.00001 par value; 125,000,000 shares authorized; 43,129,750
and 43,122,500 shares issued and outstanding as of September 30, 2022 and
June 30, 2022, respectively
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Additional paid-in capital
​ ​ ​ ​ 32,824 ​ ​ ​ ​ ​ 29,987 ​ ​
Accumulated deficit
​ ​ ​ ​ (41,447) ​ ​ ​ ​ ​ (40,887) ​ ​
Total stockholders’ equity
​ ​ ​ ​ 89,880 ​ ​ ​ ​ ​ 87,603 ​ ​
Total liabilities and stockholders’ equity
​ ​ ​ $ 251,555 ​ ​ ​ ​ $ 245,025 ​ ​
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-2
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations — Unaudited
(in thousands, except share and per share data)
​ ​ ​
For the Three Months Ended
September 30,
​
​ ​ ​
2022
​ ​
2021
​
Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ $ 16,328 ​ ​ ​ ​ $ 4,658 ​ ​
Mining equipment sales
​ ​ ​ ​ 3,635 ​ ​ ​ ​ ​ — ​ ​
Hosting services
​ ​ ​ ​ 13,565 ​ ​ ​ ​ ​ — ​ ​
Total revenue
​ ​ ​ ​ 33,528 ​ ​ ​ ​ ​ 4,658 ​ ​
Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenues (exclusive of depreciation and amortization shown
below)
​ ​ ​ ​ 18,402 ​ ​ ​ ​ ​ 1,671 ​ ​
Depreciation and amortization
​ ​ ​ ​ 5,754 ​ ​ ​ ​ ​ 501 ​ ​
General and administrative
​ ​ ​ ​ 5,863 ​ ​ ​ ​ ​ 2,327 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ 1,286 ​ ​ ​ ​ ​ 412 ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​ (1,549) ​ ​ ​ ​ ​ — ​ ​
Total costs and expenses
​ ​ ​ ​ 29,757 ​ ​ ​ ​ ​ 4,911 ​ ​
Operating profit (loss)
​ ​ ​ ​ 3,771 ​ ​ ​ ​ ​ (253) ​ ​
Other expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest expense
​ ​ ​ ​ (4,016) ​ ​ ​ ​ ​ (511) ​ ​
Total other expense
​ ​ ​ ​ (4,016) ​ ​ ​ ​ ​ (511) ​ ​
Loss before income tax (provision) benefit
​ ​ ​ ​ (245) ​ ​ ​ ​ ​ (764) ​ ​
Income tax (provision) benefit
​ ​ ​ ​ (315) ​ ​ ​ ​ ​ 204 ​ ​
Net loss
​ ​ ​ $ (560) ​ ​ ​ ​ $ (560) ​ ​
Basic and diluted net loss per share
​ ​ ​ $ (0.01) ​ ​ ​ ​ $ (0.02) ​ ​
Basic and diluted weighted average number of shares outstanding
​ ​ ​ ​ 39,563,792 ​ ​ ​ ​ ​ 33,315,164 ​ ​
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
(Reflects the retrospective application of the 250-for-1 stock split effective September 1, 2022)
F-3
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity — Unaudited
(in thousands, except share data)
​ ​ ​
Three Months Ended September 30, 2022
​
​ ​ ​
Series A
Preferred Stock
​ ​
Series B
Preferred Stock
​ ​
Series B-1
Preferred Stock
​ ​
Common Stock
​ ​
Additional
Paid-in
Capital
​ ​
Accumulated
Deficit
​ ​
Total
Stockholders’
Equity
​
​ ​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​
Balance as of June 30, 2022
​ ​ ​ ​ 7,824,000 ​ ​ ​ ​ $ 24,899 ​ ​ ​ ​ ​ 10,000,000 ​ ​ ​ ​ $ 61,067 ​ ​ ​ ​ ​ 793,250 ​ ​ ​ ​ $ 12,537 ​ ​ ​ ​ ​ 43,122,500 ​ ​ ​ ​ $  — ​ ​ ​ ​ $ 29,987 ​ ​ ​ ​ $ (40,887) ​ ​ ​ ​ $ 87,603 ​ ​
Stock-based compensation
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,250 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,837 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,837 ​ ​
Net loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (560) ​ ​ ​ ​ ​ (560) ​ ​
Balance as of September 30, 2022
​ ​ ​ ​ 7,824,000 ​ ​ ​ ​ $ 24,899 ​ ​ ​ ​ ​ 10,000,000 ​ ​ ​ ​ $ 61,067 ​ ​ ​ ​ ​ 793,250 ​ ​ ​ ​ $ 12,537 ​ ​ ​ ​ ​ 43,129,750 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 32,824 ​ ​ ​ ​ $ (41,447) ​ ​ ​ ​ $ 89,880 ​ ​
​ ​ ​
Three Months Ended September 30, 2021
​
​ ​ ​
Series A
Preferred Stock
​ ​
Series B
Preferred Stock
​ ​
Series B-1
Preferred Stock
​ ​
Common Stock
​ ​
Additional
Paid-in
Capital
​ ​
Accumulated
Deficit
​ ​
Total
Stockholders’
Equity
​
​ ​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​
Balance as of June 30, 2021
​ ​ ​ ​ 7,745,250 ​ ​ ​ ​ $ 24,648 ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​  — ​ ​ ​ ​ $  — ​ ​ ​ ​ ​ 39,376,750 ​ ​ ​ ​ $  — ​ ​ ​ ​ $ 20,307 ​ ​ ​ ​ $ (9,084) ​ ​ ​ ​ $ 35,871 ​ ​
Rescission of preferred stock
​ ​ ​ ​ (31,500) ​ ​ ​ ​ ​ (100) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (100) ​ ​
Issuance of preferred stock, net of offering costs
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 8,898,750 ​ ​ ​ ​ ​ 54,462 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 54,462 ​ ​
Cancellation of restricted
stock award
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (250,000) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Stock-based compensation
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 649 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 649 ​ ​
Net loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (560) ​ ​ ​ ​ ​ (560) ​ ​
Balance as of September 30, 2021
​ ​ ​ ​ 7,713,750 ​ ​ ​ ​ $ 24,548 ​ ​ ​ ​ ​ 8,898,750 ​ ​ ​ ​ $ 54,462 ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ 39,126,750 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 20,956 ​ ​ ​ ​ $ (9,644) ​ ​ ​ ​ $ 90,322 ​ ​
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
(Reflects the retrospective application of the 250-for-1 stock split effective September 1, 2022)
F-4
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows — Unaudited
(in thousands)
​ ​ ​
For the Three Months Ended
September 30,
​
​ ​ ​
2022
​ ​
2021
​
Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net loss
​ ​ ​ $ (560) ​ ​ ​ ​ $ (560) ​ ​
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Depreciation and amortization
​ ​ ​ ​ 5,754 ​ ​ ​ ​ ​ 501 ​ ​
Amortization of right-of-use assets
​ ​ ​ ​ 119 ​ ​ ​ ​ ​ 71 ​ ​
Stock-based compensation
​ ​ ​ ​ 2,837 ​ ​ ​ ​ ​ 649 ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ ​ (16,328) ​ ​ ​ ​ ​ (4,658) ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ 1,286 ​ ​ ​ ​ ​ 412 ​ ​
Realized gain on sale of cryptocurrencies
​ ​ ​ ​ (1,549) ​ ​ ​ ​ ​ — ​ ​
Proceeds from sale of cryptocurrency
​ ​ ​ ​ 15,722 ​ ​ ​ ​ ​ — ​ ​
Deferred tax liability
​ ​ ​ ​ (80) ​ ​ ​ ​ ​ — ​ ​
Amortization of debt discount
​ ​ ​ ​ 353 ​ ​ ​ ​ ​ 50 ​ ​
Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accounts receivable, net
​ ​ ​ ​ 546 ​ ​ ​ ​ ​ — ​ ​
Prepaid expenses and other current assets
​ ​ ​ ​ 6,261 ​ ​ ​ ​ ​ (278) ​ ​
Other deposits
​ ​ ​ ​ — ​ ​ ​ ​ ​ (30) ​ ​
Accounts payable
​ ​ ​ ​ (2,810) ​ ​ ​ ​ ​ 249 ​ ​
Accrued expenses
​ ​ ​ ​ 218 ​ ​ ​ ​ ​ — ​ ​
Other liabilities
​ ​ ​ ​ 8,895 ​ ​ ​ ​ ​ 107 ​ ​
Deferred revenue
​ ​ ​ ​ (12,180) ​ ​ ​ ​ ​ — ​ ​
Lease liability
​ ​ ​ ​ (120) ​ ​ ​ ​ ​ (71) ​ ​
Net cash provided by (used in) operating activities
​ ​ ​ ​ 8,364 ​ ​ ​ ​ ​ (3,558) ​ ​
Cash flows from investing activities
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Deposits on miners
​ ​ ​ ​ (8,992) ​ ​ ​ ​ ​ (31,387) ​ ​
Purchases of property and equipment
​ ​ ​ ​ (978) ​ ​ ​ ​ ​ (8,517) ​ ​
Proceeds from sale of property and equipment
​ ​ ​ ​ 178 ​ ​ ​ ​ ​ — ​ ​
Net cash used in investing activities
​ ​ ​ ​ (9,792) ​ ​ ​ ​ ​ (39,904) ​ ​
Cash flows from financing activities
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Proceeds from notes payable
​ ​ ​ ​ 4,240 ​ ​ ​ ​ ​ 17,724 ​ ​
Repayments of notes payable
​ ​ ​ ​ (2,479) ​ ​ ​ ​ ​ (1,913) ​ ​
Repayments of notes payable – related parties
​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,150) ​ ​
Debt issuance costs paid
​ ​ ​ ​ — ​ ​ ​ ​ ​ (354) ​ ​
Proceeds from the issuance of preferred stock
​ ​ ​ ​ — ​ ​ ​ ​ ​ 54,462 ​ ​
Payment for preferred stock rescission
​ ​ ​ ​ — ​ ​ ​ ​ ​ (100) ​ ​
Net cash provided by financing activities
​ ​ ​ ​ 1,761 ​ ​ ​ ​ ​ 68,669 ​ ​
Net increase in cash
​ ​ ​ ​ 334 ​ ​ ​ ​ ​ 25,207 ​ ​
Cash at beginning of period
​ ​ ​ ​ 21,067 ​ ​ ​ ​ ​ 6,718 ​ ​
Cash and restricted cash at end of period
​ ​ ​ $ 21,401 ​ ​ ​ ​ $ 31,925 ​ ​
SUPPLEMENTAL CASH FLOW INFORMATION:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash paid for interest
​ ​ ​ $ 4,079 ​ ​ ​ ​ $ 542 ​ ​
Cash paid for income taxes
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Reclassification of deposits on miners to property and equipment
​ ​ ​ $ 22,904 ​ ​ ​ ​ $ 3,902 ​ ​
Debt proceeds not yet received included in other current assets
​ ​ ​ $ 6,120 ​ ​ ​ ​ $ — ​ ​
Right-of-use assets obtained in exchange for operating lease liabilities
​ ​ ​ $ — ​ ​ ​ ​ $ 1,513 ​ ​
Mining revenue in prepaids and other current assets
​ ​ ​ $ 148 ​ ​ ​ ​ $ — ​ ​
Property and equipment in accrued expenses
​ ​ ​ $ 1,898 ​ ​ ​ ​ $ — ​ ​
Property and equipment in accounts payable
​ ​ ​ $ 198 ​ ​ ​ ​ $ — ​ ​
See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.
F-5
TABLE OF CONTENTS​
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Note 1.   Organization
Nature of operations and corporate information:
U.S. Data Mining Group, Inc. (d/b/a “US BITCOIN”) and Subsidiaries (collectively, the “Company”) operates cryptocurrency mining operations, which utilize specialized computers (also known as “miners”) using application-specific integrated circuit (“ASIC”) chips to solve complex cryptographic algorithms in order to support the Bitcoin blockchain (in a process known as “solving a block”), in exchange for cryptocurrency rewards. As of September 30, 2022, the Company operated approximately 24,725 miners. As of September 30, 2022, approximately 12,750 miners were deployed in the Company’s mining operation facility in Niagara Falls, New York (“Niagara Falls Facility”), approximately 11,050 were deployed in the Company’s mining operation facility in Pecos, Texas (“Pecos Facility”), approximately 500 were deployed at a third-party hosting company’s facility, and approximately 425 miners are being operated by the Company which is provided hosting services to external customers. The miners use ASIC chips designed around the 256-bit secure hashing algorithm (“SHA-256”) used by the Bitcoin blockchain and, therefore the primary cryptocurrency the Company seeks to mine is Bitcoin. The Company generates a significant portion of its revenue through its cryptocurrency mining operation. The Company sells bitcoin from time to time for funding other business initiatives, funding operations, or for other corporate uses.
In March 2022, the Company launched new business lines for Mining Equipment Sales and for providing Hosting Services to its mining customers.
The Company incorporated in the state of Nevada on December 4, 2020. The Company’s wholly owned subsidiaries include U.S. Data Technologies Group Ltd., which was incorporated in the state of Delaware on December 4, 2020, U.S. Data Lone Star, Inc. (f/k/a U.S. Data PP, Inc.), U.S. Data Falls, Inc. (f/k/a U.S. Data Machines 1, Inc.) and U.S. Data Machines 2, Inc., all of which were incorporated in the state of Nevada on December 4, 2020, and Pecos Data Technologies, LLC, which was organized in the state of Nevada on January 18, 2022.
Mining equipment
As noted above, the Company operated approximately 24,725 miners as of September 30, 2022. On September 15, 2021, the Company entered into an agreement to purchase 18,000 model M30S miners with Super Acme Technology Limited (“Acme”). The total purchase commitment is for approximately $54.8 million and delivery of the miners began to occur in January 2022 and still continues. As of September 30, 2022, the Company paid a total of approximately $42.4 million in deposits.
On March 10, 2022, the Company entered into an agreement with Acme to purchase 30,000 miners from their model M30 fleet of products. The initial total purchase commitment is for approximately $126.1 million and delivery of the miners are expected to occur monthly from August 2022 through February 2023. As of September 30, 2022, the Company paid a total of approximately $66.2 million in deposits.
Stock Split
On September 1, 2022, the Company’s Board of Directors authorized a stock split of its common stock, par value $0.00001 per share and its preferred stock, par value $0.00001, at a ratio of 250-for-1 (the “2022 Stock Split”). As a result of the 2022 Stock Split, (i) every 1 share of the issued and outstanding common stock and preferred stock were automatically converted into 250 newly issued and outstanding shares of common stock and preferred stock, respectively, without any change in the par value per share, and (ii) the number of authorized shares of common stock and preferred stock outstanding was proportionally increased. Shares of common stock underlying outstanding stock options and other equity instruments convertible into common stock were proportionately increased and the respective exercise prices, if applicable, were proportionately decreased in accordance with the terms of the agreements governing such securities. Fractional shares, if any, resulting from the 2022 Stock Split were rounded up to the nearest whole share, and all shares of common stock and preferred stock (including fractions thereof) issuable upon the 2022 Stock Split to a given stockholder were aggregated for the purpose of determining whether the Stock Split would result in the
F-6
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
issuance of a fractional share. Conversion terms on the Company’s preferred stock were not changed. Preferred stock continues to convert on a one to one basis for common stock.
All of the Company’s historical share and per share information related to issued and outstanding common stock, issued and outstanding preferred stock and outstanding options exercisable for common stock in these unaudited condensed consolidated financial statements have been adjusted, on a retroactive basis, to reflect the 2022 Stock Split. See Note 12.
Note 2.   Liquidity and Financial Condition
The Company has experienced losses since inception. As of September 30, 2022, the Company had cash of $11.4 million, positive operating cash flows of $8.4 million, working capital of ($88.8) million, total stockholders’ equity of $89.9 million and an accumulated deficit of $41.4 million. Working capital of ($88.8) million is the result of the Company’s current portion of notes payable, see Note 15 which addresses the extinguishment of $89.1 million of notes payable. To date, the Company has, in large part, relied on equity and debt financings to fund its operations. The Company believes its current cash on hand and subsequent equity and debt financings will be sufficient to meet its operating and capital requirements for at least the next twelve months from the date these unaudited condensed consolidated financial statements are issued.
During the fiscal year ended June 30, 2022, the Company received net proceeds of approximately $61.1 million from sales of 10,000,000 shares of its Series B preferred stock, $0.00001 par value.
During the fiscal year ended June 30, 2022, the Company received net proceeds of approximately $12.5 million from sales of 793,250 shares of its Series B-1 preferred stock, $0.00001 par value.
On December 27, 2021, the Company amended the Master Equipment Financing Agreement (“Amended MEFA”) it entered into on July 17, 2021 which now includes approximately $84.3 million of additional funding to be used to purchase additional miners. As of June 30, 2022, approximately $66.8 million of the Amended MEFA was received by the Company, net of approximately $1.7 million in closing costs. The $66.8 million included multiple tranches, which mature on June 25, 2023 or December 25, 2023. The Amended MEFA bears interest at 12% per annum with twelve monthly interest-only payments due beginning in January 2022. The financing is secured by a first priority security interest in substantially all of the Company’s assets and includes financial reporting covenants on a quarterly and annual basis. Once the miners are delivered and installed, the first priority security interest in substantially all of the Company assets will be terminated, and the first priority security interest reverts to the miners only. For the fiscal year ended June 30, 2022, approximately $86.1 million of gross proceeds were received from the MEFA and Amended MEFA. See Note 10 and Note 15.
On March 31, 2022, the Company entered into an equipment loan and security agreement (“ELSA”) with a financing company in the amount of approximately $25.0 million which the Company used to fund the acquisition of additional miners. The ELSA bears interest at 12% per annum with six monthly interest-only payments due beginning in April 2022. The financing is secured by a first priority security interest in approximately 5,900 miners which will be purchased from Acme. See Note 10 and Note 15.
On April 26, 2022, the Company entered into an equipment loan and security agreement (“ELSA”) with a financing company in the amount of approximately $25.0 million which the Company used to fund the acquisition of additional miners. The ELSA bears interest at 12% per annum with six monthly interest-only payments due beginning in April 2022. See Note 10 and Note 15. The financing is secured by a first priority security interest in approximately 5,800 miners which will be purchased from Acme as part of the purchase commitments mentioned below.
During the quarter ended September 30, 2022, the Company paid approximately $2.5 million against its notes payable.
During the fiscal year ended June 30, 2022, the Company paid approximately $1.3 million against its related party notes payable and approximately $9.3 million against its notes payable.
F-7
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Note 3.   Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of preparation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results. Amounts are in thousands except for share, per share and miner amounts.
The results in the unaudited condensed consolidated statements of operations are not necessarily indicative of results to be expected for the fiscal year ending June 30, 2023 or for any future interim period. The unaudited condensed consolidated financial statements do not include all the information and notes required by U.S. GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the fiscal year ended June 30, 2022, and notes thereto.
Principles of consolidation
These unaudited condensed consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. Consolidated subsidiaries’ results are included from the date the subsidiary was formed or acquired. Intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the Company’s consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its most significant accounting estimates, including those related to impairment of cryptocurrency and property and equipment, income taxes and stock-based compensation. In addition, management uses assumptions when utilizing the Black-Scholes and other option valuation models to calculate the fair value of granted stock-based awards. Management bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that it believes to be reasonable under the granted stock-based awards. Management bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Making estimates requires management to exercise significant judgment.
It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results may differ significantly from those estimates.
Significant Accounting Policies
For a detailed discussion about the Company’s significant accounting policies, see the Company’s June 30, 2022, consolidated financial statements.
Revenue Recognition
The Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the
F-8
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
•
Step 1: Identify the contract with the customer
​
•
Step 2: Identify the performance obligations in the contract
​
•
Step 3: Determine the transaction price
​
•
Step 4: Allocate the transaction price to the performance obligations in the contract
​
•
Step 5: Recognize revenue when the Company satisfies a performance obligation
​
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
•
Variable consideration
​
•
Constraining estimates of variable consideration
​
•
The existence of a significant financing component in the contract
​
•
Noncash consideration
​
•
Consideration payable to a customer
​
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Cryptocurrency mining:
The majority of the Company’s revenue is derived from providing computing power to mining pools. The Company has entered into arrangements, as amended from time to time, with mining pool operators to provide computing power (hashrate) to the mining pools. The contracts are terminable, without conditions or penalties, at any time by either party. The Company has the right to decide the point in time and duration it will provide computing power. As a result, the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator, and exists in any period the Company provides computing power (hourly or daily period depending on the mining pool operator). Revenue is earned, in exchange for providing computing power, and is paid in two forms: (1) the Company earns bitcoin for providing computing power based upon an agreed-upon calculation that measures the bitcoin that could have been mined with the Company’s contributed hashrate and (2) the Company earns its pro-rata share of actual
F-9
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
transaction fees earned by the pool operator for successfully adding a block to the blockchain. Proceeds received from both aforementioned forms of payment are received net of operating fees to the mining pool operator.
Providing computing power to mining pools is an output of the Company’s ordinary activities and is the Company’s single performance obligation in its contracts with the mining pool operators. As stated above, payments received for providing computing power to the mining pools happen in two forms. The first form of payment is based solely upon the Company providing computing power to the pool operator, and is not dependent on the mining pool operator successfully adding a block to the blockchain. The calculation of the amount of bitcoin earned is performed by the mining pool operator every period (either hourly or daily depending on the pool operator) based on the relative amount of computing power contributed by the Company to the mining pool in that period. If the Company chooses for any given period to provide computing power for only a portion of a contract term, the Company still receives revenue based on its proportionate contribution of computing power. At the end of each contract term, the Company has a renewal right to continue the contract for another term. The Company has determined that this renewal right is not a material right as the terms, conditions, and compensation amounts are at then market rates. The transaction consideration the Company receives is noncash consideration. The Company measures consideration received at fair value by using the quoted price of the related cryptocurrency at contract inception, as determined by the Company’s principal market. The Company recognizes revenue over time as it satisfies its performance obligation.
The second form of payment, transaction fees, is derived from validating transactions on the blockchain. With one of the Company’s pool operators, the amount of transaction fees earned is also included in the calculation of the amount of bitcoin earned based solely upon the Company providing computing power to the pool operator, and is also not dependent on the mining pool operator successfully adding a block to the blockchain. With another of the Company’s pool operators, the transaction fees are based solely upon actual blocks added to the blockchain by the pool operator. The Company receives a pro-rata share of the transaction fees the pool operator receives, based on the proportion of computing power the Company contributed to the pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The transaction consideration the Company receives is noncash consideration, and the consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration relating to transaction fees is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the noncash consideration it will receive. The Company measures consideration received at fair value when notified of the earnings using the quoted price of the related cryptocurrency as determined by the Company’s principal market. There is no significant financing component in these transactions.
The transaction consideration received under both payment methods described above is received net of operating fees to the mining pool operator which are not material and are recorded as a reduction to revenue in the Consolidated Statements of Operations.
Hosting services:
The Company began providing hosting services in the third quarter of fiscal year 2022. The Company’s current hosting contracts are service contracts with a single performance obligation. The service the Company provides includes the provision of mining equipment, energized space, and typically also include monitoring, active troubleshooting and various maintenance levels for the mining equipment.
Hosting revenue is recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance. The Company recognizes hosting revenue to the extent that a significant reversal of such revenue will not occur. All consideration to which the Company is entitled under its hosting services agreements is cash consideration. Customer contracts can include advance payment terms in the form of monthly prepayments and/or upfront payments at contract inception. Advance payments are recorded as deferred revenue and recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance.
F-10
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Mining equipment sales
The Company entered into its first mining equipment sales contract in the first quarter of fiscal year 2023. Mining equipment sales contracts are for a fixed price and does not include a significant financing component. All consideration received is cash consideration. The Company recognizes mining equipment revenue at a point in time based on management’s evaluation of when the control of the products has been passed to customers and when collectability is reasonably assured. The transfer of control is considered complete when products have been picked up by or shipped to the Company’s customers based on the terms of the contract. The determination of collectability is based on management’s evaluation of a customer’s creditworthiness. Some contracts can also include upfront deposits or require the customer to pay the full sale price up front. Any advance payments are recorded as deferred revenue and recognized as revenue when the transfer of control is considered complete.
Net loss per share
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considered the convertible preferred stock to be a participating security as the holders are entitled to receive aggregated accrued and not paid dividends if/when declared by the Board of Directors at a dividend rate payable in preference and priority to the holders of common stock. Additionally, the Company’s restricted stock grants are considered participating securities as the holders are entitled to receive dividends if/when declared by the Board of Directors commensurate with other common stockholders.
Under the two-class method, basic net loss per share attributable to common stockholders was calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. The net loss attributable to common stockholders was not allocated to the convertible preferred stock or unvested restricted stock grants as the holders of these securities do not have a contractual obligation to share in losses, which is consistent with the if converted method of calculation. Diluted net loss per share attributable to common stockholders was computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, convertible preferred stock, stock options and restricted stock grants were considered common shares equivalents but had been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect was anti-dilutive. In periods in which the Company reports a net loss attributable to all classes of common stockholders, diluted net loss per share attributable to all classes of common stockholders is the same as basic net loss per share attributable to all classes of common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Since the Company has only incurred losses, basic and diluted net loss per share is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at September 30, 2022 and September 30, 2021 because their inclusion would be anti-dilutive are as follows:
​ ​ ​
September 30, 2022
​ ​
September 30, 2021
​
Series A preferred stock
​ ​ ​ ​ 7,824,000 ​ ​ ​ ​ ​ 7,713,750 ​ ​
Series B preferred stock
​ ​ ​ ​ 10,000,000 ​ ​ ​ ​ ​ 8,898,750 ​ ​
Series B-1 preferred stock
​ ​ ​ ​ 793,250 ​ ​ ​ ​ ​ — ​ ​
Unvested restricted stock awards
​ ​ ​ ​ 429,844 ​ ​ ​ ​ ​ 5,860,500 ​ ​
Stock options
​ ​ ​ ​ 3,246,750 ​ ​ ​ ​ ​ 1,378,250 ​ ​
Total
​ ​ ​ ​ 22,293,844 ​ ​ ​ ​ ​ 23,851,250 ​ ​
Segment reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly reviewed by the chief operating decision maker (“CODM”), which may be an
F-11
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
individual or decision-making group. The CODM reviews financial information for the purpose of making operating decisions, allocating resources and in evaluating financial performance of the business of the reportable operating segments, based on discrete financial information. The Company’s chief executive officer is currently designated as the CODM. Although the Company has three lines of business, two of those lines of businesses were recently launched by the Company. These new lines of business are in the same industry as the Company currently operates and do not require special consideration. As of September 30, 2022, the CODM does not receive or evaluate the business lines separately and therefore the Company currently operates as one segment.
Recent accounting pronouncements
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s financial statements.
Note 4.   Concentrations
The Company has only mined Bitcoin as of September 30, 2022. Therefore, 100% of the Company’s mining revenue is related to one cryptocurrency. The Company has one hosting and one mining equipment customer as of September 30, 2022. The Company has three mining pool operators as of September 30, 2022.
Note 5.   Cryptocurrency
The following table presents the cryptocurrency activity for the three month periods ended September 30, 2022 and June 30, 2022 (in thousands):
​ ​ ​
September 30, 2022
​ ​
June 30, 2022
​
Beginning balance
​ ​ ​ $ 847 ​ ​ ​ ​ $ 38,146 ​ ​
Revenue recognized from cryptocurrency mined, net
​ ​ ​ ​ 16,328 ​ ​ ​ ​ ​ 21,017 ​ ​
Proceeds from sale of cryptocurrency
​ ​ ​ ​ (15,722) ​ ​ ​ ​ ​ (44,351) ​ ​
Mining revenue earned in prior period received in current period
​ ​ ​ ​ 125 ​ ​ ​ ​ ​ — ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​ 1,549 ​ ​ ​ ​ ​ 5,455 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ (1,286) ​ ​ ​ ​ ​ (18,282) ​ ​
Mining revenue not received
​ ​ ​ ​ (148) ​ ​ ​ ​ ​ (125) ​ ​
Proceeds from sale of cryptocurrency in accounts receivable
​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,013) ​ ​
Ending balance
​ ​ ​ $ 1,693 ​ ​ ​ ​ $ 847 ​ ​
Note 6.   Property and Equipment, net
Property and equipment consists of the following as of September 30, 2022 and June 30, 2022 (in thousands):
​ ​ ​
September 30, 2022
​ ​
June 30, 2022
​
Miners and mining equipment
​ ​ ​ $ 95,084 ​ ​ ​ ​ $ 95,024 ​ ​
Machinery and facility equipment
​ ​ ​ ​ 38 ​ ​ ​ ​ ​ 38 ​ ​
Vehicles
​ ​ ​ ​ 182 ​ ​ ​ ​ ​ 171 ​ ​
Leasehold improvements
​ ​ ​ ​ 59 ​ ​ ​ ​ ​ 59 ​ ​
Land and land improvements
​ ​ ​ ​ 1,839 ​ ​ ​ ​ ​ 1,739 ​ ​
Construction in progress
​ ​ ​ ​ 57,803 ​ ​ ​ ​ ​ 32,175 ​ ​
Total cost of property and equipment
​ ​ ​ ​ 155,005 ​ ​ ​ ​ ​ 129,206 ​ ​
Less accumulated depreciation and amortization
​ ​ ​ ​ (17,702) ​ ​ ​ ​ ​ (11,948) ​ ​
Property and equipment, net
​ ​ ​ $ 137,303 ​ ​ ​ ​ $ 117,258 ​ ​
F-12
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Depreciation and amortization expense for the three-month periods ending September 30, 2022 and 2021 was approximately $5.8 million and $0.5 million, respectively. Depreciation is computed on the straight-line basis over their estimated useful life for the periods the assets are in service. Amortization of leasehold improvements is calculated on the straight-line basis over the remaining life of the respective lease term.
Note 7.   Deposits on Miners
Deposits on miners represent the amount the Company has paid to its suppliers for the purchase of miners which have not yet been received. The following table presents the deposits on miners activity for the three month periods ended September 30, 2022 and June 30, 2022 (in thousands):
​ ​ ​
September 30, 2022
​ ​
June 30, 2022
​
Balance, beginning of period
​ ​ ​ $ 82,042 ​ ​ ​ ​ $ 56,534 ​ ​
Deposits made to suppliers for miners, net of refunds
​ ​ ​ ​ 8,992 ​ ​ ​ ​ ​ 56,885 ​ ​
Miners received from suppliers
​ ​ ​ ​ (22,904) ​ ​ ​ ​ ​ (31,377) ​ ​
Balance, end of period
​ ​ ​ $ 68,130 ​ ​ ​ ​ $ 82,042 ​ ​
Note 8.   Deferred Revenue
Deferred revenue represents customer cash advances associated with the Company’s hosting services, which have not yet been earned by the Company. The following table presents the deferred revenue activity for the three month periods ended of September 30, 2022 and June 30, 2022 (in thousands):
​ ​ ​
September 30, 2022
​ ​
June 30, 2022
​
Beginning balance
​ ​ ​ $ 14,839 ​ ​ ​ ​ $ 14,034 ​ ​
Advances received from customers
​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,718 ​ ​
Hosting revenue earned
​ ​ ​ ​ (12,180) ​ ​ ​ ​ ​ (3,913) ​ ​
Ending balance
​ ​ ​ $ 2,659 ​ ​ ​ ​ $ 14,839 ​ ​
During the three-month period ended September 30, 2022, one of the Company’s hosting customers defaulted on its contract and the remaining deferred revenue was recorded as hosting revenue. In addition, approximately $1.2 million of the security deposit was also recognized as hosting revenue. The Company has no liability to return the deposits received that were recognized as revenue.
Note 9.   Subscription received in advance
Subscription received in advance represents the amount of cash the Company received in relation to the terms of a subscription agreement with a third-party company related to the Company’s Series C equity round. The subscription agreement contained agreed-upon conditions that needed to be met. As of September 30, 2022 the conditions had not been met and the Company had not closed its Series C round. As a result, these funds were held as a liability. In December 2022, these funds were returned to the investor and re-issued to the Company as a note payable. See Note 15.
Note 10.   Notes Payable
The following is a summary of the Company’s secured promissory notes as of September 30, 2022 and June 30, 2022 (in thousands):
F-13
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Notes Payable — September 30, 2022:
Issuance Date
​ ​
Maturity Date
​ ​
Principal*
​ ​
Current Portion
​ ​
Accrued Interest
​
July 17, 2021
​ ​ July 25, 2023 ​ ​ ​ $ 5,248 ​ ​ ​ ​ $ 5,248 ​ ​ ​ ​ $ 10 ​ ​
July 17, 2021
​ ​ January 25, 2024 ​ ​ ​ ​ 5,958 ​ ​ ​ ​ ​ 4,353 ​ ​ ​ ​ ​ 12 ​ ​
December 27, 2021
​ ​ June 25, 2023 ​ ​ ​ ​ 34,126 ​ ​ ​ ​ ​ 34,126 ​ ​ ​ ​ ​ 58 ​ ​
December 27, 2021
​ ​
December 25, 2023
​ ​ ​ ​ 41,178 ​ ​ ​ ​ ​ 30,317 ​ ​ ​ ​ ​ 69 ​ ​
March 31, 2022
​ ​ April 1, 2024 ​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ 16,667 ​ ​ ​ ​ ​ — ​ ​
April 26, 2022
​ ​ May 1, 2024 ​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ 15,278 ​ ​ ​ ​ ​ — ​ ​
​ ​ ​ Totals ​ ​ ​ $ 136,510 ​ ​ ​ ​ $ 105,989 ​ ​ ​ ​ $ 149 ​ ​
​
* = Net of debt issuance costs which totaled approximately $1.1 million.
Subsequent to September 30, 2022 the Company restructured all of its notes payable. See Note 2 and Note 15.
Notes Payable — June 30, 2022:
Issuance Date
​ ​
Maturity Date
​ ​
Principal*
​ ​
Current Portion
​ ​
Accrued Interest
​
July 17, 2021
​ ​ July 25, 2023 ​ ​ ​ $ 6,694 ​ ​ ​ ​ $ 6,138 ​ ​ ​ ​ $ 13 ​ ​
July 17, 2021
​ ​ January 25, 2024 ​ ​ ​ ​ 6,946 ​ ​ ​ ​ ​ 4,190 ​ ​ ​ ​ ​ 14 ​ ​
December 27, 2021
​ ​ June 25, 2023 ​ ​ ​ ​ 23,602 ​ ​ ​ ​ ​ 23,602 ​ ​ ​ ​ ​ 41 ​ ​
December 27, 2021
​ ​
December 25, 2023
​ ​ ​ ​ 41,034 ​ ​ ​ ​ ​ 19,674 ​ ​ ​ ​ ​ 69 ​ ​
March 31, 2022
​ ​ April 1, 2024 ​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ 12,500 ​ ​ ​ ​ ​ — ​ ​
April 26, 2022
​ ​ May 1, 2024 ​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ 11,111 ​ ​ ​ ​ ​ — ​ ​
​ ​ ​ Totals ​ ​ ​ $ 128,276 ​ ​ ​ ​ $ 77,215 ​ ​ ​ ​ $ 137 ​ ​
​
* = Net of debt issuance costs which totaled approximately $1.5 million.
Note 11.   Leases
As of September 30, 2022, the Company had operating lease liabilities of approximately $2.3 million and right-of-use assets of approximately $2.2 million. As of June 30, 2022, the Company had operating lease liabilities of approximately $2.4 million and right-of-use assets of approximately $2.4 million., which are included in the condensed consolidated balance sheets.
The following summarizes quantitative information about the Company’s operating leases (in thousands):
​ ​ ​
Three Months Ended
September 30, 2022
​ ​
Three Months Ended
September 30, 2021
​
Operating leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating lease cost
​ ​ ​ $ 144 ​ ​ ​ ​ $ 97 ​ ​
Variable lease cost
​ ​ ​ ​ 32 ​ ​ ​ ​ ​ — ​ ​
Operating lease expense
​ ​ ​ ​ 176 ​ ​ ​ ​ ​ 97 ​ ​
Short-term lease expense
​ ​ ​ ​ 79 ​ ​ ​ ​ ​ 6 ​ ​
Total lease expense
​ ​ ​ $ 255 ​ ​ ​ ​ $ 103 ​ ​
F-14
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Quantitative information related to leases is summarize below (dollars in thousands):
​ ​ ​
Three Months Ended
September 30, 2022
​ ​
Three Months Ended
September 30, 2021
​
Operating cash flows – operating leases
​ ​ ​ $ 162 ​ ​ ​ ​ $ 96 ​ ​
Right-of-use assets obtained in exchange for operating lease liabilities
​ ​ ​ $ — ​ ​ ​ ​ $ 1,513 ​ ​
Weighted-average remaining lease term – operating leases
​ ​ ​ ​ 4.0 ​ ​ ​ ​ ​ 4.8 ​ ​
Weighted-average discount rate* – operating leases
​ ​ ​ ​ 7.0% ​ ​ ​ ​ ​ 7.0% ​ ​
​
*
Our leases do not provide an implicit rate, therefore we use our incremental borrowing rate at the lease commencement date in determining the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis for similar assets over the term of the lease.
​
Maturities of the Company’s operating lease liabilities as of September 30, 2022, are as follows (in thousands):
​ ​ ​
Operating
Leases
​
Year ended June 30, 2023 (9 months remaining)
​ ​ ​ $ 487 ​ ​
Year ended June 30, 2024
​ ​ ​ ​ 656 ​ ​
Year ended June 30, 2025
​ ​ ​ ​ 664 ​ ​
Year ended June 30, 2026
​ ​ ​ ​ 671 ​ ​
Year ended June 30, 2027
​ ​ ​ ​ 146 ​ ​
Total
​ ​ ​ ​ 2,624 ​ ​
Less present value discount
​ ​ ​ ​ (341) ​ ​
Operating lease liabilities
​ ​ ​ $ 2,283 ​ ​
Subsequent to September 30, 2022, the Company terminated its lease, entered into on December 1, 2021, of approximately 10 acres of land with buildings in Niagara Falls, New York (“Second Niagara Lease”). See Note 15.
Note 12.   Stockholders’ Equity
Authorized Shares
In September 2022, the Company’s Board of Directors authorized a 250-for-1 stock split and also increased the number of shares of authorized common stock to 125,000,000, increased the number of authorized shares of Series A preferred stock to 7,855,500, increased the number of authorized shares of Series B preferred stock to 10,000,000, and increased the number of authorized shares of Series B-1 preferred stock to 3,750,000. In September 2022, the Company’s Board of Directors also authorized 16,557,000 shares of Series C Preferred Stock and increased the numbers of shares authorized for issuance in the 2021 Equity Incentive Plan to 17,387,697.
As a result of the stock split, all share amounts in these consolidated financial statements have been retrospectively adjusted.
Common stock
The Company’s articles of incorporation, as amended, authorized 125,000,000 shares of common stock, par value $0.00001 per share.
Preferred stock
The Company’s articles of incorporation, as amended, authorized 7,855,500 shares of Series A preferred stock, 10,000,000 shares of Series B preferred stock and 3,750,000 shares of Series B-1 preferred stock. Each
F-15
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
holder of Series A, Series B and Series B-1 preferred stock may convert any or all of their preferred shares into one share of the Company’s common stock. Additionally, all outstanding shares of Series A, Series B and Series B-1 preferred stock shall automatically be converted into shares of common stock upon either (a) the closing of a transaction which results in the Company being a publicly traded vehicle (whether directly or as a subsidiary) based on a valuation for the Company on its own of $200.0 million or more, or (b) the date, or upon the occurrence of an event, specified by vote or written consent of the requisite holders, as defined in the Company’s articles of incorporation. The Company will reserve a sufficient number of shares to provide for conversion of all preferred stock outstanding. Each holder of preferred stock is entitled to vote on all matters submitted to the shareholders of the Company. Upon liquidation, dissolution or winding up of the business of the Corporation, each holder of preferred stock is entitled to receive for each share, a pro rata distribution with the Company’s common stock, with the most senior preferred stock paid out at 100% first.
Stock-based compensation
On March 16, 2021, the Company established the 2021 Equity Incentive Plan (the “Plan”). The Plan allows the Company to award options, stock appreciation rights, restricted awards and performance awards to employees, consultants and directors of the Company and its affiliates. Canceled and forfeited awards are returned to the Plan for future awards. As of September 30, 2022, 17,387,697 shares were authorized for issuance under the Plan and there were 4,933,697 shares remaining available for future grants.
The Company’s stock-based compensation expense recognized during the three-months ended September 30, 2022 and 2021, was entirely attributable to general and administrative expenses, which are included in the accompanying unaudited condensed consolidated statement of operations. Stock-based compensation expense for the period consisted of the following (in thousands):
​ ​ ​
Three Months
Ended
September 30, 2022
​ ​
Three Months
Ended
September 30, 2021
​
Restricted stock awards
​ ​ ​ $ 2,329 ​ ​ ​ ​ $ 527 ​ ​
Stock options
​ ​ ​ ​ 508 ​ ​ ​ ​ ​ 122 ​ ​
Total stock-based compensation
​ ​ ​ $ 2,837 ​ ​ ​ ​ $ 649 ​ ​
Time-based restricted stock awards
On August 9, 2022, the Company awarded 7,250 time-based restricted stock awards, with an estimated fair value of $0.01 per share. The Company estimated the fair value of $0.01 utilizing a market approach and the Guideline Public Company Method to derive an estimated equity value from publicly traded companies that are deemed to be comparable to the Company. Once the equity value was determined, the Company used the Option Pricing Method to allocate fair value to the Company’s individual securities. The Company did not issue any time-based restricted stock awards during the three months ended September 30, 2021.
The assumptions used in the Option Pricing Method were as follows:
​
Expected price volatility
​ ​ ​ ​ 120% ​ ​
​
Risk-free interest rate
​ ​ ​ ​ 2.86% ​ ​
​
Expected term
​ ​
1.5 years
​
The time-based restricted stock awards held by the Company’s chief executive officer and chief operating officer contain certain acceleration clauses if triggering events occur. On August 15, 2022, due to a loss of control over the Board of Directors, the vesting was accelerated for these awards, and the remainder of the unrecognized compensation expense associated with these awards was recognized during the three months ended September 30, 2022. A summary of the Company’s unvested time-based restricted stock awards for the three months ended September 30, 2022 is as follows:
F-16
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
​ ​ ​
Number of Shares
​ ​
Weighted Average
Grant-Date
Fair Value
​
Unvested as of June 30, 2022
​ ​ ​ ​ 3,032,000 ​ ​ ​ ​ $ 1.32 ​ ​
Granted
​ ​ ​ ​ 7,250 ​ ​ ​ ​ ​ 0.01 ​ ​
Vested
​ ​ ​ ​ (2,609,406) ​ ​ ​ ​ ​ 1.16 ​ ​
Unvested as of September 30, 2022
​ ​ ​ ​ 429,844 ​ ​ ​ ​ $ 2.27 ​ ​
As of September 30, 2022, there was approximately $0.5 million of total unrecognized compensation cost related to time-based restricted stock awards, which is expected to be recognized over a remaining weighted average vesting period of approximately 1.4 years.
Performance-based restricted stock awards
As of June 30, 2022, the Company had a total of 2,441,000 unvested performance-based restricted stock awards that had been issued to the Company’s chief executive officer and chief operating officer on March 17, 2021 that were supposed to vest upon the achievement of specific market conditions. The restricted stock awards contain certain acceleration clauses if triggering events occur. Half of these awards were supposed to vest if the Company achieved a total Company valuation equal to or greater than $1 billion and the other half of these awards were supposed to vest if the Company achieved a total Company valuation equal to or greater than $2 billion.
Additionally, as of June 30, 2022, the Company also had a total of 1,375,000 unvested performance-based restricted stock awards that had been issued to its chief executive officer and chief operating officer on October 10, 2021 that were supposed to vest if the Company achieved 20,000 miners or more plugged in and secured purchase orders totaling 6 exahash of computing power before December 31, 2022. The restricted stock awards contain certain acceleration clauses if triggering events occur.
On August 15, 2022, due to a loss of control over the Board of Directors, the vesting for all of the unvested performance-based restricted stock awards held by the Company’s chief executive officer and chief operating officer was accelerated and the remainder of the unrecognized compensation expense was recognized during the three months ended September 30, 2022.
A summary of the Company’s unvested performance-based restricted stock awards for the three months ended September 30, 2022 is as follows:
​ ​ ​
Number of Shares
​ ​
Weighted Average
Grant-Date
Fair Value
​
Unvested as of June 30, 2022
​ ​ ​ ​ 3,816,000 ​ ​ ​ ​ $ 0.83 ​ ​
Vested
​ ​ ​ ​ (3,816,000) ​ ​ ​ ​ $ 0.83 ​ ​
Unvested as of September 30, 2022
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
There was no unrecognized stock-based compensation expense associated with the Company’s restricted stock awards with performance or market-based conditions as of September 30, 2022.
Stock options
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. Due to the lack of historical exercise history, the expected term of the Company’s stock options has been determined using the “simplified”
F-17
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
method for awards. The risk-free interest rate is determined by referencing the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The majority of the Company’s options awarded vest based upon service provided to the Company over time; however, the Company has a total of 187,000 options outstanding that are subject to performance-based vesting conditions. For these options, 146,250 will vest upon the completion of an initial public offering (the “IPO options”) and 40,750 will vest upon achievement of other internal non-financial metrics. The Company is recognizing stock compensation cost for the non-financial operating metrics over the period that management expects it will take to achieve this condition. Stock compensation costs for equity awards that are conditional upon a liquidity event, such as an initial public offering should not be recognized prior to the achievement of the liquidity event. As such, the Company will not recognize any stock compensation cost for the IPO options until occurrence of an initial public offering.
The following assumptions were used in determining the fair value of stock options granted during the three months ended September 30, 2022, and 2021:
​ ​ ​
September 30, 2022
​ ​
 September 30, 2021
​
Dividend yield
​ ​
0%
​ ​
0%
​
Expected price volatility
​ ​
100%
​ ​
100%
​
Risk free interest rate
​ ​
2.86% – 3.27%
​ ​
0.65% – 1.00%
​
Expected term (in years)
​ ​
5.0 – 8.0 years
​ ​
5.0 – 8.0 years
​
A summary of our stock option activity is below (dollars in thousands except per share data):
​ ​ ​
Number of
Shares
​ ​
Weighted Average
Exercise Price
(per share)
​ ​
Total Intrinsic
Value
​ ​
Weighted Average
Remaining
Contractual Life
(in years)
​
Outstanding as of June 30, 2022
​ ​ ​ ​ 2,555,500 ​ ​ ​ ​ $ 1.97 ​ ​ ​ ​ $    — ​ ​ ​ ​ ​ 9.3 ​ ​
Granted
​ ​ ​ ​ 724,000 ​ ​ ​ ​ $ 1.78 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Forfeited or canceled
​ ​ ​ ​ (32,750) ​ ​ ​ ​ $ 2.27 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Outstanding as of September 30, 2022
​ ​ ​ ​ 3,246,750 ​ ​ ​ ​ $ 1.92 ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ 9.2 ​ ​
Vested and exercisable as of September 30, 2022
​ ​ ​ ​ 301,246 ​ ​ ​ ​ $ 1.50 ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ 8.8 ​ ​
Excluding $0.9 million of unrecognized compensation expense for the IPO options, the Company had approximately $2.0 million of total unrecognized compensation expense related to options granted under the Plan, which is expected to be recognized over a weighted-average remaining vesting period of approximately 1.9 years.
Note 13.   Income Taxes
For the three months ended September 30, 2022 and 2021 we recognized income tax expense of $0.3 million, and income tax benefit of $0.2 million, respectively. The Company’s effective income tax rate was (128.6%) for the three months ended September 30, 2022. The difference between the effective tax rate and the expected statutory rate was a result of stock compensation shortfalls and the related change to the valuation allowance.
Note 14.   Commitments and Contingencies
Commitments
Purchase agreements
See Note 1 for discussions regarding the purchase agreements for miners.
F-18
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
Deposit on mining operation
In February 2022, the Company entered into an agreement with a third-party service provider to buildout a mining operation in Texas. The Company paid a deposit of approximately $3.5 million to be used for the purchase of energy related substation facility type equipment. As of September 30, 2022, the Company and third-party service provider agreed to delay the project until a future period.
Contingencies
The Company, and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of business. The Company cannot predict the final outcome of such proceedings. Where appropriate, the Company vigorously defends such claims, lawsuits and proceedings. Some of these claims, lawsuits and proceedings seek damages, including, consequential, exemplary or punitive damages, in amounts that could, if awarded, be significant. Certain of the claims, lawsuits and proceedings arising in ordinary course of business are covered by the Company’s insurance program. The Company maintains property and various types of liability insurance in an effort to protect the Company from such claims. In terms of any matters where there is no insurance coverage available to the Company, or where coverage is available and the Company maintains a retention or deductible associated with such insurance, the Company may establish an accrual for such loss, retention or deductible based on current available information. In accordance with accounting guidance, if it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements, and the amount of loss is reasonably estimable, then an accrual for the cost to resolve or settle these claims is recorded by the Company in the accompanying unaudited condensed consolidated balance sheets. If it is reasonably possible that an asset may be impaired as of the date of the financial statement, then the Company discloses the range of possible loss. Expenses related to the defense of such claims are recorded by the Company as incurred and included in the accompanying unaudited condensed consolidated statement of operations. Management, with the assistance of outside counsel, may from time to time adjust such accruals according to new developments in the matter, court rulings, or changes in the strategy affecting the Company’s defense of such matters. On the basis of current information, the Company does not believe there is a reasonable possibility that, any material loss, if any, will result from any claims, lawsuits and proceedings to which the Company is subject to either individually, or in the aggregate.
City of Niagara Falls, New York Lawsuit
On November 18, 2022, the City of Niagara Falls, New York (“the City”), filed a lawsuit claiming the Company violated one of its newly enacted laws. The City also applied for a preliminary injunction to shut down the Company’s operation and also applied for and received a temporary restraining order which ordered the shutdown of the Company’s Niagara Falls operation, pending a hearing on its application. On January 25, 2023 the Company was additionally assessed a fine by the City. Management believes the City’s law is unenforceable and has taken the necessary legal steps to counter the lawsuit.
Note 15.   Subsequent Events
The Company has completed an evaluation of all subsequent events after the balance sheet date up to February 13, 2023, the date that the unaudited condensed consolidated financial statements were available to be issued. Except below, the Company has concluded no other subsequent events have occurred that require disclosure.
Acquisition
On December 6, 2022, one of the Company’s subsidiaries acquired a 50% membership interest in a joint venture (“JV”). In addition, the Company’s subsidiary also assumed the property management agreement (“PMA”), a senior note and other agreements related to the JV.
Strategic Operator Agreements
In addition to the PMA related to the acquisition noted above, two of the Company’s subsidiaries entered into Strategic Operator Agreements (“SOA”) in November 2022. Each of these SOA’s have five year terms whereby
F-19
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Unaudited Condensed Consolidated Financial Statements
each subsidiary charges a monthly fixed fee, and also has the ability to pass-thru certain additional costs, for the management, support and administrative functions of operating a bitcoin mining datacenter for a third-party customer.
Debt
In December 2022, the Company entered into a $10.0 million term-loan with a third-party. The maturity date is December 5, 2027 and the interest rate is 6% per annum. Interest is payable in kind as an addition to, and capitalization on, the outstanding principal. The term-loan is secured certain assets of the Company and does not have financial covenants.
Finance Agreements
In February 2023, the Company extinguished its MEFA and Amended MEFA with the financing company. The outstanding balance at the time of extinguishment was $89.1 million. The Company exchanged all assets which the finance company financed, in addition to existing assets at one of our Texas locations and a portion of deposits on miners. On a provisional basis based upon un-impaired carrying values as of the date these financial statements are available to be issued, the Company expects a loss on extinguishment of approximately $19.2 million.
In February 2023, the Company restructured both of its ELSA’s with the financing company. The terms of the ELSA’s have been extended five years and will be repaid via a monthly cash flow sweep from Company miners being hosted at a third-party facility.
Leases
In November 2022, the Company terminated its Second Niagara Lease. In accordance with the lease terms, no early payment penalties applied.
Business Combination Agreement
On February 6, 2023, the Company and Hut 8 Mining Corp. (“Hut 8”) entered into a Business Combination Agreement under which under which the companies will combine in an all-stock merger of equals (the “Transaction”). The combined company will be named “Hut 8 Corp.” ​(“New Hut” or the “Combined Company”) and will be a U.S.- domiciled entity. Pursuant to the Business Combination Agreement, stockholders of USBTC will receive, for each share of USBTC capital stock, 0.6716 of a share of New Hut common stock. Upon consummation of the Transaction, existing Hut 8 shareholders and USBTC stockholders will each collectively own, on a fully-diluted in the money basis, approximately 50% each of the stock of the Combined Company. Following completion of the Transaction, Hut 8 and USBTC will each become wholly-owned subsidiaries of New Hut. The Transaction is expected to close in the second quarter of 2023, subject to satisfaction of the closing conditions under the Business Combination Agreement.
F-20
TABLE OF CONTENTS
 
US Data Mining Group, Inc. and Subsidiaries
Consolidated Financial Report
June 30, 2022
TABLE OF CONTENTS​
 
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors of U.S. Data Mining Group, Inc. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of U.S. Data Mining Group, Inc. and its subsidiaries (the Company) as of June 30, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for the year ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for the year ended June 30, 2022, and for the period from December 4, 2020 (inception) through June 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America (GAAS). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company’s auditor since 2021.
Boston, Massachusetts
February 4, 2023
F-22
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share and per share data)
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Current assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash
​ ​ ​ $ 21,067 ​ ​ ​ ​ $ 6,718 ​ ​
Accounts receivable, net
​ ​ ​ ​ 1,168 ​ ​ ​ ​ ​ — ​ ​
Prepaid expenses and other current assets
​ ​ ​ ​ 13,998 ​ ​ ​ ​ ​ 47 ​ ​
Cryptocurrency, net
​ ​ ​ ​ 847 ​ ​ ​ ​ ​ 3,018 ​ ​
Total current assets
​ ​ ​ ​ 37,080 ​ ​ ​ ​ ​ 9,783 ​ ​
Long-term assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Deposits on miners
​ ​ ​ ​ 82,042 ​ ​ ​ ​ ​ 20,088 ​ ​
Property and equipment, net
​ ​ ​ ​ 117,258 ​ ​ ​ ​ ​ 6,926 ​ ​
Right-of-use assets
​ ​ ​ ​ 2,350 ​ ​ ​ ​ ​ 490 ​ ​
Other deposits
​ ​ ​ ​ 6,295 ​ ​ ​ ​ ​ 3,780 ​ ​
Deferred tax assets
​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,097 ​ ​
Total long-term assets
​ ​ ​ ​ 207,945 ​ ​ ​ ​ ​ 33,381 ​ ​
Total assets
​ ​ ​ $ 245,025 ​ ​ ​ ​ $ 43,164 ​ ​
LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Current liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accounts payable
​ ​ ​ $ 6,274 ​ ​ ​ ​ $ 1,462 ​ ​
Accrued expenses
​ ​ ​ ​ 858 ​ ​ ​ ​ ​ 378 ​ ​
Other current liabilities
​ ​ ​ ​ 478 ​ ​ ​ ​ ​ — ​ ​
Deferred revenue
​ ​ ​ ​ 14,839 ​ ​ ​ ​ ​ — ​ ​
Notes payable, current portion
​ ​ ​ ​ 77,215 ​ ​ ​ ​ ​ 2,842 ​ ​
Notes payable, related parties
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,250 ​ ​
Lease liability, current portion
​ ​ ​ ​ 496 ​ ​ ​ ​ ​ 199 ​ ​
Total current liabilities
​ ​ ​ ​ 100,160 ​ ​ ​ ​ ​ 6,131 ​ ​
Long-term liabilities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Notes payable, less current portion
​ ​ ​ ​ 51,061 ​ ​ ​ ​ ​ — ​ ​
Lease liability, less current portion
​ ​ ​ ​ 1,907 ​ ​ ​ ​ ​ 307 ​ ​
Deposit liability
​ ​ ​ ​ 1,322 ​ ​ ​ ​ ​ — ​ ​
Deferred tax liability
​ ​ ​ ​ 2,972 ​ ​ ​ ​ ​ — ​ ​
Total long-term liabilities
​ ​ ​ ​ 57,262 ​ ​ ​ ​ ​ 307 ​ ​
Total liabilities
​ ​ ​ ​ 157,422 ​ ​ ​ ​ ​ 6,438 ​ ​
Commitments and contingencies (Note 15) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Shares subject to registration
​ ​ ​ ​ — ​ ​ ​ ​ ​ 855 ​ ​
Stockholders’ equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Series A preferred stock, par value $0.00001; 7,855,500 shares authorized; 7,824,000 and
7,745,250 shares issued and outstanding as of June 30, 2022 and June 30, 2021,
respectively; liquidation preference over common stock, equal to carrying value
​ ​ ​ ​ 24,899 ​ ​ ​ ​ ​ 24,648 ​ ​
Series B preferred stock, par value $0.00001; 10,000,000 shares authorized; 10,000,000 and no shares issued and outstanding as of June 30, 2022 and June 30, 2021, respectively; liquidation preference over common stock, equal to carrying value
​ ​ ​ ​ 61,067 ​ ​ ​ ​ ​ — ​ ​
Series B-1 preferred stock, par value $0.00001; 10,000,000 shares authorized; 793,250 and
no shares issued and outstanding as of June 30, 2022 and June 30, 2021, respectively;
liquidation preference over common stock, equal to carrying value
​ ​ ​ ​ 12,537 ​ ​ ​ ​ ​ — ​ ​
Common stock, $0.00001 par value; 125,000,000 shares authorized; 43,122,500 and 39,376,750 shares issued and outstanding as of June 30, 2022 and June 30, 2021, respectively
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Additional paid-in capital
​ ​ ​ ​ 29,987 ​ ​ ​ ​ ​ 20,307 ​ ​
Accumulated deficit
​ ​ ​ ​ (40,887) ​ ​ ​ ​ ​ (9,084) ​ ​
Total stockholders’ equity
​ ​ ​ ​ 87,603 ​ ​ ​ ​ ​ 35,871 ​ ​
Total liabilities and stockholders’ equity
​ ​ ​ $ 245,025 ​ ​ ​ ​ $ 43,164 ​ ​
See Accompanying Notes to Consolidated Financial Statements.
(Reflects the retrospective application of the 250-for-1 stock split effective September 1, 2022)
F-23
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(in thousands, except share and per share data)
​ ​ ​
Fiscal Year Ended
June 30, 2022
​ ​
Period from
December 4, 2020
(inception) through
June 30, 2021
​
Revenue: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ $ 68,164 ​ ​ ​ ​ $ 4,272 ​ ​
Hosting services
​ ​ ​ ​ 5,566 ​ ​ ​ ​ ​ — ​ ​
Total revenue
​ ​ ​ ​ 73,730 ​ ​ ​ ​ ​ 4,272 ​ ​
Costs and expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of revenues (exclusive of depreciation and amortization shown below)
​ ​ ​ ​ 25,783 ​ ​ ​ ​ ​ 1,464 ​ ​
Depreciation and amortization
​ ​ ​ ​ 11,591 ​ ​ ​ ​ ​ 391 ​ ​
General and administrative
​ ​ ​ ​ 31,325 ​ ​ ​ ​ ​ 12,144 ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ 30,301 ​ ​ ​ ​ ​ 1,254 ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​ (5,455) ​ ​ ​ ​ ​ — ​ ​
Total costs and expenses
​ ​ ​ ​ 93,545 ​ ​ ​ ​ ​ 15,253 ​ ​
Operating loss
​ ​ ​ ​ (19,815) ​ ​ ​ ​ ​ (10,981) ​ ​
Other expense: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest expense
​ ​ ​ ​ (6,919) ​ ​ ​ ​ ​ (200) ​ ​
Total other expense
​ ​ ​ ​ (6,919) ​ ​ ​ ​ ​ (200) ​ ​
Loss before income tax (provision) benefit
​ ​ ​ ​ (26,734) ​ ​ ​ ​ ​ (11,181) ​ ​
Income tax (provision) benefit
​ ​ ​ ​ (5,069) ​ ​ ​ ​ ​ 2,097 ​ ​
Net loss
​ ​ ​ $ (31,803) ​ ​ ​ ​ $ (9,084) ​ ​
Basic and diluted net loss per share
​ ​ ​ $ (0.91) ​ ​ ​ ​ $ (0.32) ​ ​
Basic and diluted weighted average number of shares outstanding
​ ​ ​ ​ 34,863,338 ​ ​ ​ ​ ​ 27,959,039 ​ ​
See Accompanying Notes to Consolidated Financial Statements.
(Reflects the retrospective application of the 250-for-1 stock split effective September 1, 2022)
F-24
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(in thousands, except share data)
​ ​ ​
Period from December 4, 2020 (inception) through June 30, 2021
​
​ ​ ​
Series A
Preferred Stock
​ ​
Series B
Preferred Stock
​ ​
Series B-1
Preferred Stock
​ ​
Common Stock
​ ​
Additional
Paid-in
Capital
​ ​
Accumulated
Deficit
​ ​
Total
Stockholders’
Equity
​
​ ​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​
Balance as of December 4, 2020
(Inception)
​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
Issuance of common stock for
cash, net of common stock
exchanged for Series A
preferred stock
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 24,329,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,811 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,811 ​ ​
Issuance of preferred stock
​ ​ ​ ​ 6,174,000 ​ ​ ​ ​ ​ 19,648 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 19,648 ​ ​
Issuance of common stock subsequently converted to Series A preferred stock
​ ​ ​ ​ 1,571,250 ​ ​ ​ ​ ​ 5,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,000 ​ ​
Stock-based compensation
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 15,047,750 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 10,496 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 10,496 ​ ​
Net loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (9,084) ​ ​ ​ ​ ​ (9,084) ​ ​
Balance as of June 30, 2021
​ ​ ​ ​ 7,745,250 ​ ​ ​ ​ $ 24,648 ​ ​ ​ ​ ​ — ​ ​ ​ ​ $  — ​ ​ ​ ​ ​ — ​ ​ ​ ​ $  — ​ ​ ​ ​ ​ 39,376,750 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 20,307 ​ ​ ​ ​ $ (9,084) ​ ​ ​ ​ $ 35,871 ​ ​
​ ​ ​
Fiscal Year Ended June 30, 2022
​
​ ​ ​
Series A
Preferred Stock
​ ​
Series B
Preferred Stock
​ ​
Series B-1
Preferred Stock
​ ​
Common Stock
​ ​
Additional
Paid-in
Capital
​ ​
Accumulated
Deficit
​ ​
Total
Stockholders’
Equity
​
​ ​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​ ​
Shares
​ ​
Amount
​
Balance as of July 1, 2021
​ ​ ​ ​ 7,745,250 ​ ​ ​ ​ $ 24,648 ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ 39,376,750 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 20,307 ​ ​ ​ ​ $ (9,084) ​ ​ ​ ​ $ 35,871 ​ ​
Rescission of preferred
stock
​ ​ ​ ​ (31,500) ​ ​ ​ ​ ​ (100) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (100) ​ ​
Issuance of preferred stock, net of offering costs
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 10,000,000 ​ ​ ​ ​ ​ 61,067 ​ ​ ​ ​ ​ 793,250 ​ ​ ​ ​ ​ 12,537 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 73,604 ​ ​
Transfer of shares subject to registration to permanent equity
​ ​ ​ ​ 110,250 ​ ​ ​ ​ ​ 351 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 656,250 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 504 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 855 ​ ​
Cancellation of restricted stock award
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (250,000) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Stock-based compensation
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,339,500 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,176 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,176 ​ ​
Net loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (31,803) ​ ​ ​ ​ ​ (31,803) ​ ​
Balance as of June 30,
2022
​ ​ ​ ​ 7,824,000 ​ ​ ​ ​ $ 24,899 ​ ​ ​ ​ ​ 10,000,000 ​ ​ ​ ​ $ 61,067 ​ ​ ​ ​ ​ 793,250 ​ ​ ​ ​ $ 12,537 ​ ​ ​ ​ ​ 43,122,500 ​ ​ ​ ​ $  — ​ ​ ​ ​ $ 29,987 ​ ​ ​ ​ $ (40,887) ​ ​ ​ ​ $ 87,603 ​ ​
See Accompanying Notes to Consolidated Financial Statements.
(Reflects the retrospective application of the 250-for-1 stock split effective September 1, 2022)
F-25
TABLE OF CONTENTS​
 
US Data Mining Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(in thousands)
​ ​ ​
Fiscal Year
Ended June 30,
2022
​ ​
Period from
December 4, 2020
(inception) through
June 30, 2021
​
Cash flows from operating activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net loss
​ ​ ​ $ (31,803) ​ ​ ​ ​ $ (9,084) ​ ​
Adjustments to reconcile net loss to net cash provided by (used in) operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Depreciation and amortization
​ ​ ​ ​ 11,591 ​ ​ ​ ​ ​ 391 ​ ​
Amortization of right-of-use assets
​ ​ ​ ​ 402 ​ ​ ​ ​ ​ 106 ​ ​
Stock-based compensation
​ ​ ​ ​ 9,176 ​ ​ ​ ​ ​ 10,496 ​ ​
Revenue, net – cryptocurrency mining
​ ​ ​ ​ (68,164) ​ ​ ​ ​ ​ (4,272) ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ 30,301 ​ ​ ​ ​ ​ 1,254 ​ ​
Realized gain on sale of cryptocurrencies
​ ​ ​ ​ (5,455) ​ ​ ​ ​ ​ — ​ ​
Proceeds from sale of cryptocurrency
​ ​ ​ ​ 44,351 ​ ​ ​ ​ ​ — ​ ​
Deferred tax assets
​ ​ ​ ​ 5,069 ​ ​ ​ ​ ​ (2,097) ​ ​
Amortization of debt discount
​ ​ ​ ​ 574 ​ ​ ​ ​ ​ — ​ ​
Changes in assets and liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accounts receivable, net
​ ​ ​ ​ (155) ​ ​ ​ ​ ​ — ​ ​
Prepaid expenses and other current assets
​ ​ ​ ​ (8,152) ​ ​ ​ ​ ​ (47) ​ ​
Other deposits
​ ​ ​ ​ (2,515) ​ ​ ​ ​ ​ (3,780) ​ ​
Accounts payable
​ ​ ​ ​ (538) ​ ​ ​ ​ ​ 1,452 ​ ​
Accrued expenses
​ ​ ​ ​ 480 ​ ​ ​ ​ ​ 378 ​ ​
Other liabilities
​ ​ ​ ​ 1,800 ​ ​ ​ ​ ​ — ​ ​
Deferred revenue
​ ​ ​ ​ 14,839 ​ ​ ​ ​ ​ — ​ ​
Lease liability
​ ​ ​ ​ (365) ​ ​ ​ ​ ​ (90) ​ ​
Net cash provided by (used in) operating activities
​ ​ ​ ​ 1,436 ​ ​ ​ ​ ​ (5,293) ​ ​
Cash flows from investing activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Deposits on miners
​ ​ ​ ​ (141,445) ​ ​ ​ ​ ​ (27,361) ​ ​
Purchases of property and equipment
​ ​ ​ ​ (37,271) ​ ​ ​ ​ ​ (34) ​ ​
Net cash used in investing activities
​ ​ ​ ​ (178,716) ​ ​ ​ ​ ​ (27,395) ​ ​
Cash flows from financing activities
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Proceeds from notes payable
​ ​ ​ ​ 130,708 ​ ​ ​ ​ ​ 4,620 ​ ​
Repayments of notes payable
​ ​ ​ ​ (9,275) ​ ​ ​ ​ ​ (1,778) ​ ​
Proceeds from notes payable – related parties
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,250 ​ ​
Repayments of notes payable – related parties
​ ​ ​ ​ (1,250) ​ ​ ​ ​ ​ — ​ ​
Debt issuance costs paid
​ ​ ​ ​ (2,058) ​ ​ ​ ​ ​ — ​ ​
Proceeds from the issuance of preferred stock
​ ​ ​ ​ 73,787 ​ ​ ​ ​ ​ 24,648 ​ ​
Proceeds from the issuance of common stock
​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,811 ​ ​
Proceeds from the issuance of shares subject to registration
​ ​ ​ ​ — ​ ​ ​ ​ ​ 855 ​ ​
Preferred stock offering costs paid
​ ​ ​ ​ (183) ​ ​ ​ ​ ​ — ​ ​
Payment for preferred stock rescission
​ ​ ​ ​ (100) ​ ​ ​ ​ ​ — ​ ​
Net cash provided by financing activities
​ ​ ​ ​ 191,629 ​ ​ ​ ​ ​ 39,406 ​ ​
Net increase in cash
​ ​ ​ ​ 14,349 ​ ​ ​ ​ ​ 6,718 ​ ​
Cash at beginning of period
​ ​ ​ ​ 6,718 ​ ​ ​ ​ ​ — ​ ​
Cash at end of period
​ ​ ​ $ 21,067 ​ ​ ​ ​ $ 6,718 ​ ​
SUPPLEMENTAL CASH FLOW INFORMATION:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash paid for interest
​ ​ ​ $ 6,837 ​ ​ ​ ​ $ 113 ​ ​
Cash paid for income taxes
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Reclassification of deposits on miners to property and equipment
​ ​ ​ $ 79,491 ​ ​ ​ ​ $ 7,283 ​ ​
Reclassification of property and equipment to other current assets
​ ​ ​ $ 189 ​ ​ ​ ​ $ — ​ ​
Debt proceeds not yet received included in other current assets
​ ​ ​ $ 5,485 ​ ​ ​ ​ $ — ​ ​
Right-of-use assets obtained in exchange for operating lease liabilities
​ ​ ​ $ 2,262 ​ ​ ​ ​ $ 596 ​ ​
Proceeds from sale of cryptocurrency in accounts receivable
​ ​ ​ $ 1,013 ​ ​ ​ ​ $ — ​ ​
Mining revenue in prepaids and other current assets
​ ​ ​ $ 125 ​ ​ ​ ​ $ — ​ ​
Property and equipment in accounts payable
​ ​ ​ $ 5,350 ​ ​ ​ ​ $ 11 ​ ​
Deposits on miners in accounts payable
​ ​ ​ $ — ​ ​ ​ ​ $ 10 ​ ​
Non-cash transfer of shares from temporary equity
​ ​ ​ $ 855 ​ ​ ​ ​ $ — ​ ​
Non-cash transfer of shares to temporary equity
​ ​ ​ $ — ​ ​ ​ ​ $ 855 ​ ​
See Accompanying Notes to Consolidated Financial Statements.
F-26
TABLE OF CONTENTS​
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1.   Organization
Nature of operations and corporate information:
U.S. Data Mining Group, Inc. (d/b/a “US BITCOIN”) and Subsidiaries (collectively, the “Company”) operates cryptocurrency mining operations, which utilize specialized computers (also known as “miners”) using application-specific integrated circuit (“ASIC”) chips to solve complex cryptographic algorithms in order to support the Bitcoin blockchain (in a process known as “solving a block”), in exchange for cryptocurrency rewards. As of June 30, 2022, the Company operated approximately 24,725 miners. As of June 30, 2022, approximately 8,750 miners were deployed in the Company’s First Niagara Lease (as defined in Note 12) mining operation facility in Niagara Falls, New York (“Niagara Falls Facility”), approximately 11,050 were deployed in the Company’s mining operation facility in Pecos, Texas (“Pecos Facility”), approximately 500 were deployed at a third-party hosting company facility, and approximately 4,425 miners are being operated by the Company which is providing hosting services to external customers. The miners use ASIC chips designed around the 256-bit secure hashing algorithm (“SHA-256”) used by the Bitcoin blockchain and, therefore the primary cryptocurrency the Company seeks to mine is Bitcoin. The Company generates a significant portion of its revenue through its cryptocurrency mining operation. The Company sells bitcoin from time to time for funding other business initiatives, funding operations, or for other corporate uses.
In March 2022, the Company launched new business lines for Mining Equipment Sales and for providing Hosting Services to its mining customers.
The Company incorporated in the state of Nevada on December 4, 2020. The Company’s wholly owned subsidiaries include U.S. Data Technologies Group Ltd., which was incorporated in the state of Delaware on December 4, 2020, U.S. Data Lone Star, Inc. (f/k/a U.S. Data PP, Inc.), U.S. Data Falls, Inc. (f/k/a U.S. Data Machines 1, Inc.) and U.S. Data Machines 2, Inc., all of which were incorporated in the state of Nevada on December 4, 2020, and Pecos Data Technologies, LLC, which was organized in the state of Nevada on January 18, 2022.
Mining equipment
As noted above, the Company operated approximately 24,725 miners as of June 30, 2022.
On September 15, 2021, the Company entered into an agreement to purchase 18,000 model M30S miners with Super Acme Technology Limited (“Acme”). The total purchase commitment is for approximately $54.8 million and delivery of the miners began to occur in January 2022 and still continues. As of June 30, 2022, the Company paid approximately $15.9 million in deposits.
On March 10, 2022, the Company entered into an agreement with Acme to purchase 30,000 miners from their model M30 fleet of products. The initial total purchase commitment is for approximately $126.1 million and delivery of the miners are expected to occur monthly from August 2022 through February 2023. As of June 30, 2022, the Company paid approximately $66.1 million in deposits.
Rescission Offer
During June 2021, the Company’s management became aware that court orders against family members of two of the Company’s now former stockholders (the “Actors”), which among other things, restrain the Actors from violating certain federal securities laws, may have precluded the Company from relying on certain federal and state securities exemptions for the offerings since the Actors may have been deemed “promoters” based on certain of their activities in one or more of the Company’s securities offerings. Upon analysis of each state in which shares were sold, the Company believed that the securities sold would have qualified for the exemption from registration in all but one state had the appropriate notice and/or exemption filings been made in the applicable states. In Virginia, no exemption was available and registration would have been required. See Note 13.
F-27
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
As a result of the identification of the above issues, on June 23, 2021, the Company’s Board of Directors approved a voluntary rescission offer to be sent to each investor in each of the Company’s two common stock offerings (referred to as the “Founder’s Round” and “Seed Round”), Series A preferred stock offering (“Series A Round”) and promissory note offering to ensure stockholders and noteholders, as applicable, were made aware of the issues identified and had the opportunity to request redemption of their securities. Between June 28, 2021, and the middle of July 2021, the Company notified all stockholders and promissory noteholders of the rescission offer.
The Company accounted for these transactions in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). In accordance with ASC 480-10-S99-3A, the Company considered the rights of the holder as it relates to the individual instrument itself, meaning the common and preferred shares do not contain a put right for the holder. As such, based upon the analysis of the terms of the underlying/individual instrument, it was concluded the shares were not redeemable and not within the scope.
The Company then viewed the rescission offer as a call/put option and analyzed the shares to determine if there was any value to this option. The Company’s analyses concluded that the classes of instruments had current fair values that exceeded the rescission offer amount, and as such, the option had de minimis value.
Additionally, the Company notified certain state regulators in the states in which stockholders and noteholders resided and in which the Company believed there may have been compliance issues with the offer and sale of its securities.
One stockholder accepted the rescission offer and the Company repurchased 31,500 shares of Series A preferred stock for $0.1 million in July 2021 pursuant thereto. All other stockholders rejected the offer to repurchase their shares and the period for a stockholder to exercise the repurchase right has since expired. In addition, all of the noteholders rejected the Company’s offer to repurchase the outstanding promissory notes.
In connection with the rescission offer, the Commonwealth of Massachusetts, Office of the Secretary of the Commonwealth, Securities Division (the “Massachusetts Division”) issued a Consent Order, Docket No. E-2022-0011, on March 22, 2022 (the “Massachusetts Order”) in lieu of a hearing. The Massachusetts Order recited that the Massachusetts Division had conducted an investigation of the Company pursuant to the Massachusetts Uniform Act, Mass. Gen. Laws c. 110A the (“Massachusetts Securities Act”) and the regulations promulgated thereunder (the “Massachusetts Regulations”), and reviewed self-reported allegations of alleged sales of unregistered securities of the Company in the State of Massachusetts in potential violation of the Massachusetts Securities Act and Massachusetts Regulations which securities had not been determined to be exempt from registration requirements. As had been agreed and consented to by the Company, the Massachusetts Order, among other things, required the Company to pay an administrative fine in the amount of $1.0 million. In April 2022, the Company paid the $1.0 million administrative fine.
Stock Split
On September 1, 2022, the Company’s Board of Directors authorized a stock split of its common stock, par value $0.00001 per share and its preferred stock, par value $0.00001, at a ratio of 250-for-1 (the “2022 Stock Split”). As a result of the 2022 Stock Split, (i) every 1 share of the issued and outstanding common stock and preferred stock were automatically converted into 250 newly issued and outstanding shares of common stock and preferred stock, respectively, without any change in the par value per share, and (ii) the number of authorized shares of common stock and preferred stock outstanding was proportionally increased. Shares of common stock underlying outstanding stock options and other equity instruments convertible into common stock were proportionately increased and the respective exercise prices, if applicable, were proportionately decreased in accordance with the terms of the agreements governing such securities. Fractional shares, if any, resulting from the 2022 Stock Split were rounded up to the nearest whole share, and all shares of common stock and preferred stock (including fractions thereof) issuable upon the 2022 Stock Split to a given stockholder were aggregated for the purpose of determining whether the Stock Split would result in the
F-28
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
issuance of a fractional share. Conversion terms on the Company’s preferred stock were not changed. Preferred stock continues to convert on a one to one basis for common stock.
All of the Company’s historical share and per share information related to issued and outstanding common stock, issued and outstanding preferred stock and outstanding options exercisable for common stock in these consolidated financial statements have been adjusted, on a retroactive basis, to reflect the 2022 Stock Split. See Notes 12 and 15.
Note 2.   Liquidity and Financial Condition
The Company has experienced losses since inception. As of June 30, 2022, the Company had cash of $21.1 million, positive operating cash flows of $1.4 million, working capital of ($63.1) million, total stockholders’ equity of $87.6 million and an accumulated deficit of $40.9 million. Working capital of ($63.1) million is the result of the Company’s current portion of notes payable, see Note 16 which addresses the extinguishment of $89.1 million of notes payable. To date, the Company has, in large part, relied on equity and debt financings to fund its operations. The Company believes its current cash on hand and subsequent equity and debt financings will be sufficient to meet its operating and capital requirements for at least the next twelve months from the date these consolidated financial statements are issued.
During the fiscal year ended June 30, 2022, the Company received net proceeds of approximately $61.1 million from sales of 10,000,000 shares of its Series B preferred stock, $0.00001 par value.
During the fiscal year ended June 30, 2022, the Company received net proceeds of approximately $12.5 million from sales of 793,250 shares of its Series B-1 preferred stock, $0.00001 par value.
On December 27, 2021, the Company amended the Master Equipment Financing Agreement (“Amended MEFA”) it entered into on July 17, 2021 which now includes approximately $84.3 million of additional funding to be used to purchase additional miners. As of June 30, 2022, approximately $66.8 million of the Amended MEFA was received by the Company, net of approximately $1.7 million in closing costs. The $66.8 million included multiple tranches, which mature on June 25, 2023 or December 25, 2023. The Amended MEFA bears interest at 12% per annum with twelve monthly interest-only payments due beginning in January 2022. The financing is secured by a first priority security interest in substantially all of the Company’s assets and includes financial reporting covenants on a quarterly and annual basis. Once the miners are delivered and installed, the first priority security interest in substantially all of the Company assets will be terminated, and the first priority security interest reverts to the miners only. For the fiscal year ended June 30, 2022, approximately $86.1 million of gross proceeds were received from the MEFA and Amended MEFA. See Note 11 and Note 16.
On March 31, 2022, the Company entered into an equipment loan and security agreement (“ELSA”) with a financing company in the amount of approximately $25.0 million which the Company used to fund the acquisition of additional miners. The ELSA bears interest at 12% per annum with six monthly interest-only payments due beginning in April 2022. The financing is secured by a first priority security interest in approximately 5,900 miners which will be purchased from Acme. See Note 11 and Note 16.
On April 26, 2022, the Company entered into an equipment loan and security agreement (“ELSA”) with a financing company in the amount of approximately $25.0 million which the Company used to fund the acquisition of additional miners. The ELSA bears interest at 12% per annum with six monthly interest-only payments due beginning in April 2022. See Note 11 and Note 16. The financing is secured by a first priority security interest in approximately 5,800 miners which will be purchased from Acme as part of the purchase commitments mentioned below.
During the fiscal year ended June 30, 2022, the Company paid approximately $1.3 million against its related party notes payable and approximately $9.3 million against its notes payable.
F-29
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 3.   Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of preparation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).
Significant accounting policies followed by the Company in the preparation of the accompanying consolidated financial statements are summarized below.
Principles of consolidation
These consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries. Consolidated subsidiaries’ results are included from the date the subsidiary was formed or acquired. Intercompany balances and transactions have been eliminated in consolidation.
Use of estimates
The preparation of the Company’s consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its most significant accounting estimates, including those related to impairment of cryptocurrency and property and equipment, income taxes and stock-based compensation.
In addition, management uses assumptions when utilizing the Black-Scholes and other option valuation models to calculate the fair value of granted stock-based awards. Management bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that it believes to be reasonable under the granted stock-based awards. Management bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that it believes to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Making estimates requires management to exercise significant judgment.
It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, actual results may differ significantly from those estimates.
Cash
Cash includes cash on hand and demand deposits placed with banks or other financial institutions, which are unrestricted as to withdrawal or use. The Company considers all highly liquid investments with an original maturity of three months or less at the date of acquisition to be cash equivalents. As of June 30, 2022 and 2021, the Company had no cash equivalents. Periodically, the Company may maintain deposits in financial institutions in excess of government insured limits. Management believes that the Company is not exposed to significant credit risk as the Company’s deposits are held at financial institutions that management believes to be of high credit quality. The Company has not experienced any losses on these deposits.
Fair value of financial instruments
The Company’s financial assets and liabilities are accounted for in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair
F-30
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
value hierarchy requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:
Level 1 — Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — Observable, market-based inputs, other than quoted prices included in Level 1, for the assets or liabilities either directly or indirectly.
Level 3 — Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
Observable inputs are based on market data obtained from independent sources, while unobservable inputs are based on the Company’s market assumptions. Unobservable inputs require significant management judgment or estimation. In some cases, the inputs used to measure an asset or liability may fall into different levels of the fair value hierarchy. In those instances, the fair value measurement is required to be classified using the lowest level of input that is significant to the fair value measurement. Such determination requires significant management judgment. As of June 30, 2022 and 2021, there were no financial assets or liabilities measured at fair value. The carrying amounts of the Company’s financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate fair value due to the short-term nature of these instruments. The carrying value of notes payable and other long-term liabilities approximate fair value as the related interest rates approximate rates currently available to the Company.
Cryptocurrency, net
Cryptocurrency (bitcoin) is included in current assets in the accompanying Consolidated Balance Sheets. We expect to increase our bitcoin holdings over time primarily through mining activities, though we may purchase or sell bitcoin in future periods as needed for treasury management or general corporate purposes.
Cryptocurrency received by the Company through its mining activities are accounted for in connection with the Company’s revenue recognition policy disclosed below.
Cryptocurrency held is accounted for as intangible assets with an indefinite useful life. An intangible asset with an indefinite useful life is not amortized but assessed for impairment when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived asset is impaired and at a minimum annually. In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative impairment test is not necessary.
If the Company concludes otherwise, it is required to perform a quantitative impairment test. The Company also has the option to bypass the qualitative assessment and proceed to directly perform a quantitative impairment test. The Company performs the quantitative impairment test daily, determining the fair value of its cryptocurrency by using the quoted price as determined by the Company’s principal market. The Company recognizes impairment whenever the carrying amount exceeds its fair value. To the extent an impairment loss is recognized, the loss establishes the new cost basis of the asset. Subsequent reversal of impairment losses is not permitted.
The Company’s policy is to account for gains or losses on sale of cryptocurrency, in accordance with the first in first out (“FIFO”) method of accounting.
Property and equipment
Property and equipment is stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally four to five years for miners and mining equipment, three years for vehicles and two years for machinery and facility equipment. Estimated useful lives for leasehold improvements are the lesser of the estimated useful life of the asset or the life of the term of the lease. Land improvements are depreciated using the straight-line method over a fifteen-year life. Construction in progress is not depreciated
F-31
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
until the work is completed and the assets are placed in service. Upon the sale or retirement of property and equipment, the cost and accumulated depreciation and amortization are removed from the Company’s Consolidated Balance Sheets with the resulting gain or loss, if any, reflected in the Company’s Consolidated Statements of Operations.
Impairment of property and equipment
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If a change in circumstance occurs, the Company will perform a test of recoverability comparing the carrying amount of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which we can identify the projected cash flow. If the carrying amounts are in excess of undiscounted expected future cash flows, the Company will measure any impairment by comparing the amount by which the carrying amount of the asset or asset group exceeds the fair value of the asset or asset group. There were no impairment losses recorded during the periods presented.
Leases
The Company accounts for its leases under ASC Topic 842, “Leases” (“ASC 842”). Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases and are recorded on the Consolidated Balance Sheets as both a right-of-use asset and lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate. Lease liabilities are increased by interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset result in straight-line rent expense over the lease term.
Upon adoption of ASC 842, for purposes of calculating the right-of-use asset and lease liability, the Company elected to combine lease and related non-lease components as permitted under ASC 842. The Company also elected the short-term lease exception for leases having an initial term of 12 months or less. Consequently, such leases are not recorded in the consolidated balance sheets. The Company recognizes rent expense from its operating leases on a straight-line basis over the lease term.
Revenue recognition
The Company recognizes revenue under ASC Topic 606, “Revenue from Contracts with Customers” (“ASC 606”). The core principle of this standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The following five steps are applied to achieve that core principle:
•
Step 1: Identify the contract with the customer
​
•
Step 2: Identify the performance obligations in the contract
​
•
Step 3: Determine the transaction price
​
•
Step 4: Allocate the transaction price to the performance obligations in the contract
​
•
Step 5: Recognize revenue when the Company satisfies a performance obligation
​
In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct. A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met: The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct), and the entity’s promise to transfer the good or service to the customer is separately
F-32
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).
If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.
The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer. The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both. When determining the transaction price, an entity must consider the effects of all of the following:
•
Variable consideration
​
•
Constraining estimates of variable consideration
​
•
The existence of a significant financing component in the contract
​
•
Noncash consideration
​
•
Consideration payable to a customer
​
Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The transaction price is allocated to each performance obligation on a relative standalone selling price basis. The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.
Cryptocurrency mining:
The majority of the Company’s revenue is derived from providing computing power to mining pools. The Company has entered into arrangements, as amended from time to time, with mining pool operators to provide computing power (hashrate) to the mining pools. The contracts are terminable, without conditions or penalties, at any time by either party. The Company has the right to decide the point in time and duration it will provide computing power. As a result, the Company’s enforceable right to compensation only begins when the Company provides computing power to the mining pool operator, and exists in any period the Company provides computing power (hourly or daily period depending on the mining pool operator). Revenue is earned, in exchange for providing computing power, and is paid in two forms: (1) the Company earns bitcoin for providing computing power based upon an agreed-upon calculation that measures the bitcoin that could have been mined with the Company’s contributed hashrate and (2) the Company earns its pro-rata share of actual transaction fees earned by the pool operator for successfully adding a block to the blockchain. Proceeds received from both aforementioned forms of payment are received net of operating fees to the mining pool operator.
Providing computing power to mining pools is an output of the Company’s ordinary activities and is the Company’s single performance obligation in its contracts with the mining pool operators. As stated above, payments received for providing computing power to the mining pools happen in two forms. The first form of payment is based solely upon the Company providing computing power to the pool operator, and is not dependent on the mining pool operator successfully adding a block to the blockchain. The calculation of the amount of bitcoin earned is performed by the mining pool operator every period (either hourly or daily depending on the pool operator) based on the relative amount of computing power contributed by the Company to the mining pool in that period. If the Company chooses for any given period to provide computing power for only a portion of a contract term, the Company still receives revenue based on its proportionate contribution of computing power. At the end of each contract term, the Company has a renewal right to continue the contract for another term. The Company has determined that this renewal right is not a material right as the terms, conditions, and compensation amounts are at then market rates. The transaction consideration the Company receives is noncash consideration. The Company measures consideration received
F-33
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
at fair value by using the quoted price of the related cryptocurrency at contract inception, as determined by the Company’s principal market. The Company recognizes revenue over time as it satisfies its performance obligation.
The second form of payment, transaction fees, is derived from validating transactions on the blockchain. With one of the Company’s pool operators, the amount of transaction fees earned is also included in the calculation of the amount of bitcoin earned based solely upon the Company providing computing power to the pool operator, and is also not dependent on the mining pool operator successfully adding a block to the blockchain. With another of the Company’s pool operators, the transaction fees are based solely upon actual blocks added to the blockchain by the pool operator. The Company receives a pro-rata share of the transaction fees the pool operator receives, based on the proportion of computing power the Company contributed to the pool operator to the total computing power contributed by all mining pool participants in solving the current algorithm. The transaction consideration the Company receives is noncash consideration, and the consideration is all variable. Because it is not probable that a significant reversal of cumulative revenue will not occur, the consideration relating to transaction fees is constrained until the mining pool operator successfully places a block (by being the first to solve an algorithm) and the Company receives confirmation of the noncash consideration it will receive. The Company measures consideration received at fair value when notified of the earnings using the quoted price of the related cryptocurrency as determined by the Company’s principal market. There is no significant financing component in these transactions.
The transaction consideration received under both payment methods described above is received net of operating fees to the mining pool operator which are not material and are recorded as a reduction to revenue in the Consolidated Statements of Operations.
Hosting services:
The Company began providing hosting services in the third quarter of fiscal year 2022. The Company’s current hosting contracts are service contracts with a single performance obligation. The service the Company provides includes the provision of mining equipment, energized space, and typically also include monitoring, active troubleshooting and various maintenance levels for the mining equipment.
Hosting revenue is recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance. The Company recognizes hosting revenue to the extent that a significant reversal of such revenue will not occur. All consideration to which the Company is entitled under its hosting services agreements is cash consideration. Customer contracts can include advance payment terms in the form of monthly prepayments and/or upfront payments at contract inception. Advance payments are recorded as deferred revenue and recognized over time as the customer simultaneously receives and consumes the benefits of the Company’s performance.
Cost of revenues (exclusive of depreciation and amortization)
The Company’s cost of revenue consists primarily of direct costs of earning bitcoin related to mining operations, including electric power costs, hosting and network management, occupancy, materials and supplies costs and labor.
Stock-based compensation
The Company recognizes compensation expense for all share-based payment awards made to employees, directors and consultants, including incentive stock options, non-qualified stock options and share awards based upon the estimated grant date fair value of the awards.
The fair value of share-based payment awards is amortized over the requisite service period, which is defined as the period during which an employee is required to provide service in exchange for an award. The Company generally uses a graded attribution method for all grants. Awards with both performance and service conditions are expensed over the service period for each separately vesting tranche. Forfeitures are recorded as incurred.
F-34
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For more complex performance awards, including awards with market-based performance conditions, the Company employs a Monte Carlo simulation valuation method to calculate the fair value of the awards based on the most likely outcome. Under the Monte Carlo simulation, a number of variables and assumptions are used including, but not limited to the expected stock price volatility over the term of the award, the risk-free rate, and dividend yield.
Stock options issued under the Company’s 2021 equity incentive plan are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and expire up to ten years from the date of grant. These options generally vest over a two year, four-year or six-year period. Certain option awards may vest only upon achievement of specific performance conditions.
Income taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes” (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.
Additionally, ASC 740 provides guidance on the recognition of interest and penalties related to income taxes. There were no interest or penalties related to income taxes that have been accrued or recognized as of June 30, 2022 and from the period from December 4, 2020 (inception) through June 30, 2021. The Company would classify interest and penalties related to uncertain tax positions as income tax expense, if applicable.
Net loss per share
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considered the convertible preferred stock to be a participating security as the holders are entitled to receive aggregated accrued and not paid dividends if/when declared by the Board of Directors at a dividend rate payable in preference and priority to the holders of common stock. Additionally, the Company’s restricted stock grants are considered participating securities as the holders are entitled to receive dividends if/when declared by the Board of Directors commensurate with other common stock holders.
Under the two-class method, basic net loss per share attributable to common stockholders was calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period. The net loss attributable to common stockholders was not allocated to the convertible preferred stock or unvested restricted stock grants as the holders of these securities do not have a contractual obligation to share in losses, which is consistent with the if converted method of calculation. Diluted net loss per share attributable to common stockholders was computed by giving effect to all potentially dilutive common stock equivalents outstanding for the period. For purposes of this calculation, convertible preferred stock, stock options and restricted stock grants were considered common shares equivalents but had been excluded from the calculation of diluted net loss per share attributable to common stockholders as their effect was anti-dilutive. In periods in which the Company reports a net loss attributable to all classes of common stockholders, diluted net loss per share attributable to all classes of common stockholders is the same as basic net loss per share attributable to all classes of common stockholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
Since the Company has only incurred losses, basic and diluted net loss per share is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation of diluted loss per share at June 30, 2022 and June 30, 2021 because their inclusion would be anti-dilutive are as follows:
F-35
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Series A preferred stock
​ ​ ​ ​ 7,824,000 ​ ​ ​ ​ ​ 7,855,500 ​ ​
Series B preferred stock
​ ​ ​ ​ 10,000,000 ​ ​ ​ ​ ​ — ​ ​
Series B-1 preferred stock
​ ​ ​ ​ 793,250 ​ ​ ​ ​ ​ — ​ ​
Unvested restricted stock awards
​ ​ ​ ​ 6,848,000 ​ ​ ​ ​ ​ 5,860,500 ​ ​
Stock options
​ ​ ​ ​ 2,555,500 ​ ​ ​ ​ ​ 122,000 ​ ​
Total
​ ​ ​ ​ 28,020,750 ​ ​ ​ ​ ​ 13,838,000 ​ ​
Segment reporting
Operating segments are defined as components of an enterprise about which separate financial information is available that is regularly reviewed by the chief operating decision maker (“CODM”), which may be an individual or decision-making group. The CODM reviews financial information for the purpose of making operating decisions, allocating resources and in evaluating financial performance of the business of the reportable operating segments, based on discrete financial information. The Company’s chief executive officer is currently designated as the CODM. Although the Company has three lines of business, two of those lines of businesses were recently launched by the Company. These new lines of business are in the same industry as the Company currently operates and do not require special consideration. As of June 30, 2022, the CODM does not receive or evaluate the business lines separately and therefore the Company currently operates as one segment.
Recent accounting pronouncements
The Company continually assesses any new accounting pronouncements to determine their applicability. When it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequences of the change to its consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s consolidated financial statements properly reflect the change.
Note 4.   Concentrations
The Company has only mined Bitcoin as of June 30, 2022. Therefore, 100% of the Company’s mining revenue is related to one cryptocurrency. The Company has one hosting customer as of June 30, 2022. The Company has three mining pool operators as of June 30, 2022.
Note 5.   Cryptocurrency
The following table presents the carrying amount of cryptocurrencies as of June 30, 2022 and June 30, 2021 (in thousands):
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Beginning balance
​ ​ ​ $ 3,018 ​ ​ ​ ​ $ — ​ ​
Revenue recognized from cryptocurrency mined, net
​ ​ ​ ​ 68,164 ​ ​ ​ ​ ​ 4,272 ​ ​
Proceeds from sale of cryptocurrency
​ ​ ​ ​ (44,351) ​ ​ ​ ​ ​ — ​ ​
Realized gain on sale of cryptocurrency
​ ​ ​ ​ 5,455 ​ ​ ​ ​ ​ — ​ ​
Impairment of cryptocurrency
​ ​ ​ ​ (30,301) ​ ​ ​ ​ ​ (1,254) ​ ​
Mining revenue not received
​ ​ ​ ​ (125) ​ ​ ​ ​ ​ — ​ ​
Proceeds from sale of cryptocurrency in accounts receivable
​ ​ ​ ​ (1,013) ​ ​ ​ ​ ​ — ​ ​
Ending balance
​ ​ ​ $ 847 ​ ​ ​ ​ $ 3,018 ​ ​
F-36
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6.   Property and Equipment, net
Property and equipment consists of the following as of June 30, 2022 and June 30, 2021 (in thousands):
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Miners and mining equipment
​ ​ ​ $ 95,024 ​ ​ ​ ​ $ 7,283 ​ ​
Machinery and facility equipment
​ ​ ​ ​ 38 ​ ​ ​ ​ ​ 34 ​ ​
Vehicles
​ ​ ​ ​ 171 ​ ​ ​ ​ ​ — ​ ​
Leasehold improvements
​ ​ ​ ​ 59 ​ ​ ​ ​ ​ — ​ ​
Land and land improvements
​ ​ ​ ​ 1,739 ​ ​ ​ ​ ​ — ​ ​
Construction in progress
​ ​ ​ ​ 32,175 ​ ​ ​ ​ ​ — ​ ​
Total cost of property and equipment
​ ​ ​ ​ 129,206 ​ ​ ​ ​ ​ 7,317 ​ ​
Less accumulated depreciation and amortization
​ ​ ​ ​ (11,948) ​ ​ ​ ​ ​ (391) ​ ​
Property and equipment, net
​ ​ ​ $ 117,258 ​ ​ ​ ​ $ 6,926 ​ ​
Depreciation and amortization expense for the fiscal year ended June 30, 2022 and the period from December 4, 2020 (inception) through June 30, 2021 were approximately $11.6 million and $0.4 million, respectively. Depreciation is computed on the straight-line basis for the periods the assets are in service. Amortization is calculated on the straight-line basis over the remaining life of the respective lease term.
Note 7.   Deposits on Miners
Deposits on miners represent the amount the Company has paid to its suppliers for the purchase of miners which have not yet been received. The following table presents the carrying amount of deposits on miners as of June 30, 2022 and June 30, 2021 (in thousands):
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Beginning balance
​ ​ ​ $ 20,088 ​ ​ ​ ​ $ — ​ ​
Deposits made to suppliers for miners
​ ​ ​ ​ 141,445 ​ ​ ​ ​ ​ 27,361 ​ ​
Deposits on miners in accounts payable
​ ​ ​ ​ — ​ ​ ​ ​ ​ 10 ​ ​
Miners received from suppliers
​ ​ ​ ​ (79,491) ​ ​ ​ ​ ​ (7,283) ​ ​
Ending balance
​ ​ ​ $ 82,042 ​ ​ ​ ​ $ 20,088 ​ ​
Note 8.   Prepaid Expenses and Other Current Assets
At June 30, 2022, prepaid expenses and other current assets primarily include approximately $6.9 million in prepayments to our energy suppliers, $5.5 million in debt proceeds not yet received and approximately $0.8 million in prepaid insurance. At June 30, 2021, prepaid expenses and other current assets consisted of deposits and retainers for services yet to be performed of $0.05 million.
Note 9.   Other Deposits
At June 30, 2022, other deposits primarily include approximately $3.5 million of payments for a mining buildout project scheduled for the Company’s Pecos Facility which has been delayed and payments of approximately $2.5 million as a collateral deposit to one of the Company’s lenders. At June 30, 2021, other deposits included a payment for approximately $3.8 million which the Company had made as a down payment for the purchase of capital equipment. This amount was subsequently written-off during fiscal year 2022. See Note 15.
F-37
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 10.   Deferred Revenue
Deferred revenue represents customer cash advances associated with the Company’s hosting services, which have not yet been earned by the Company. The following table presents the carrying amount of deferred revenue as of June 30, 2022 and June 30, 2021 (in thousands):
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Beginning balance
​ ​ ​ $ — ​ ​ ​ ​ $  — ​ ​
Advances received from customers
​ ​ ​ ​ 20,405 ​ ​ ​ ​ ​ — ​ ​
Hosting revenue earned
​ ​ ​ ​ (5,566) ​ ​ ​ ​ ​ — ​ ​
Ending balance
​ ​ ​ $ 14,839 ​ ​ ​ ​ $ — ​ ​
Subsequent to June 30, 2022, one of the Company’s hosting customers defaulted on its contract and the remaining deferred revenue was recorded as revenue.
Note 11.   Notes Payable
The following is a summary of the Company’s secured promissory notes as of June 30, 2022 and June 30, 2021:
Notes Payable — June 30, 2022:
(in thousands)
Issuance Date
​ ​
Maturity Date
​ ​
Principal*
​ ​
Current
Portion
​ ​
Accrued
Interest
​
7/17/2021
​ ​ July 25, 2023 ​ ​ ​ $ 6,694 ​ ​ ​ ​ $ 6,138 ​ ​ ​ ​ $ 13 ​ ​
7/17/2021
​ ​ January 25, 2024 ​ ​ ​ ​ 6,946 ​ ​ ​ ​ ​ 4,190 ​ ​ ​ ​ ​ 14 ​ ​
12/27/2021
​ ​ June 25, 2023 ​ ​ ​ ​ 23,602 ​ ​ ​ ​ ​ 23,602 ​ ​ ​ ​ ​ 41 ​ ​
12/27/2021
​ ​
December 25, 2023
​ ​ ​ ​ 41,034 ​ ​ ​ ​ ​ 19,674 ​ ​ ​ ​ ​ 69 ​ ​
3/31/2022
​ ​ April 1, 2024 ​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ 12,500 ​ ​ ​ ​ ​ — ​ ​
4/26/2022
​ ​ May 1, 2024 ​ ​ ​ ​ 25,000 ​ ​ ​ ​ ​ 11,111 ​ ​ ​ ​ ​ — ​ ​
​ ​ ​ Totals ​ ​ ​ $ 128,276 ​ ​ ​ ​ $ 77,215 ​ ​ ​ ​ $ 137 ​ ​
​
* = Net of debt issuance costs which totaled approximately $1.5 million.
On July 17, 2021, the Company entered into a master equipment finance agreement with a financing company in the amount of approximately $17.7 million which the Company used to fund the acquisition of additional miners. The funding occurred in two tranches, approximately $9.1 million and $8.6 million which mature on July 25, 2023 and January 25, 2024, respectively. The finance agreement bears interest at 14% per annum with six monthly interest-only payments due beginning in August 2021. The financing is secured by a first priority security interest in the miners purchased and includes financial reporting covenants on a quarterly and annual basis. The Company paid approximately $0.4 million in debt issuance costs which are recorded as a reduction of the note payable balance on the Company’s Consolidated Balance Sheets.
On December 27, 2021, the Company amended the Master Equipment Financing Agreement (“Amended MEFA”) it entered into on July 17, 2021 which now includes approximately $84.3 million of additional funding to be used to purchase additional miners. As of June 30, 2022, approximately $66.8 million of the Amended MEFA was received by the Company, net of approximately $1.7 million in closing costs. Debt issuance costs are recorded as a reduction of the note payable balance on the Company’s Consolidated Balance Sheets. The Amended MEFA bears interest at 12% per annum with twelve monthly interest-only payments due beginning in January 2022. The financing is secured by a first priority security interest in substantially all of the
F-38
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Company’s assets and includes financial reporting covenants on a quarterly and annual basis. Once the miners are delivered and installed, the first priority security interest in substantially all of the Company assets will be terminated, and the first priority security interest reverts to the miners only.
Subsequent to June 30, 2022, the Company received approximately an additional $7.9 million on the Amended MEFA.
On March 31, 2022, the Company entered into an equipment loan and security agreement (“ELSA”) with a financing company in the amount of approximately $25.0 million which the Company used to fund the acquisition of additional miners. The ELSA bears interest at 12% per annum with six monthly interest-only payments due beginning in April 2022. The financing is secured by a first priority security interest in approximately 5,900 miners which will be purchased from Acme as part of the purchase commitments. See Note 15.
On April 26, 2022, the Company entered into an equipment loan and security agreement (“ELSA”) with a financing company in the amount of approximately $25.0 million which the Company used to fund the acquisition of additional miners. The ELSA bears interest at 12% per annum with six monthly interest-only payments due beginning in April 2022. The financing is secured by a first priority security interest in approximately 5,800 miners which will be purchased from Acme as part of the purchase commitments. See Note 15.
Estimated debt payments for the next five years are as follows (in thousands):
Fiscal year 2023 – $77,215, Fiscal year 2024 – $51,061, Fiscal year 2025 through Fiscal year 2027 — nil
Subsequent to June 30, 2022 the Company restructured all of its notes payable. See Note 16.
Notes Payable — June 2021:
(in thousands)
Notes payable — related parties
The following is a summary of the Company’s secured promissory notes as of June 30, 2021 (in thousands):
Issuance Date
​ ​
Maturity Date
​ ​
Principal
​ ​
Accrued
Interest
​
December 4, 2020
​ ​
June 30, 2022
​ ​ ​ $ 250 ​ ​ ​ ​ $ 10 ​ ​
December 28, 2020
​ ​
June 23, 2022
​ ​ ​ ​ 900 ​ ​ ​ ​ ​ 32 ​ ​
December 20, 2020
​ ​
June 30, 2022
​ ​ ​ ​ 100 ​ ​ ​ ​ ​ 4 ​ ​
​ ​ ​ ​ ​ ​ ​ $ 1,250 ​ ​ ​ ​ $ 46 ​ ​
For the period from December 4, 2020 (inception) through January 5, 2021, the Company entered into secured promissory notes with various related parties, including the Company’s chief executive officer, a family member of the Company’s chief executive officer and a family member of the Chief operating officer. The notes accrue interest at a rate of 7% per annum and mature one year from the issuance date. The Company used the proceeds from the secured promissory notes to pay for additional deposits on miners. The notes contain a security agreement which creates a lien and grants the noteholders a first priority security interest in the miners.
During March 2021, the Company entered into agreements with its related party noteholders, which extended the maturity date of the secured promissory notes to June 30, 2022. The agreements also extended the commencement of the monthly repayment of the notes’ principal and accrued interest to January 23, 2022, payable in six consecutive monthly installments. The notes are classified on the Consolidated Balance Sheets as of June 30, 2021 in accordance with the revised maturity dates (shown in the table above) following the execution of the March 2021 agreements.
F-39
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
All related party noteholders were paid in full, including interest, on or prior to October 1, 2021.
Notes payable
The following is a summary of the Company’s secured promissory notes as of June 30, 2021 (in thousands):
Issuance Date
​ ​
Maturity Date
​ ​
Principal
​ ​
Accrued
Interest
​
December 4, 2020
​ ​
December 4, 2021
​ ​ ​ $ 570 ​ ​ ​ ​ $ 4 ​ ​
December 4, 2020
​ ​ June 30, 2022 ​ ​ ​ ​ 500 ​ ​ ​ ​ ​ 18 ​ ​
December 23, 2020
​ ​
December 23, 2021
​ ​ ​ ​ 1,272 ​ ​ ​ ​ ​ 1 ​ ​
January 4, 2021
​ ​ June 23, 2022 ​ ​ ​ ​ 500 ​ ​ ​ ​ ​ 18 ​ ​
​ ​ ​ ​ ​ ​ ​ $ 2,842 ​ ​ ​ ​ $ 41 ​ ​
For the period from December 4, 2020 (inception) through January 5, 2021, the Company entered into secured promissory notes with various parties, including investors in the Company’s equity fundraising initiatives. The notes accrue interest at a rate of 7% per annum and mature one year from the issuance date. Repayment of the notes’ principal and accrued interest commenced five months from the issuance date and was payable in arrears until the maturity date, at which time, all outstanding principal and accrued interest was due. The initial total principal amount borrowed from the noteholders was approximately $4.6 million. The Company used the proceeds from the secured promissory notes to pay for additional deposits on miners. The notes contain a security agreement which creates a lien and grants the noteholders a first priority security interest in the miners.
During March 2021, the Company entered into agreements with certain noteholders, which extended the maturity date of the secured promissory notes to June 30, 2022. The agreements also extended the commencement of the monthly repayment of the notes’ principal and accrued interest to January 23, 2022, payable in six consecutive monthly installments. The notes are classified on the Consolidated Balance Sheets as of June 30, 2021 in accordance with the revised maturity dates (shown in the table above) following the execution of the March 2021 agreements.
All noteholders were paid in full prior to December 31, 2021.
Note 12.   Leases
On August 1, 2021, the Company, in agreement with its landlord, terminated its current lease and entered into a new operating lease agreement with the same landlord that provides for the use of a facility in Niagara Falls, New York (the “First Niagara Lease”), which the Company uses to house and operate its cryptocurrency miners. Upon commencement of the lease term, the Company paid a security deposit totaling $0.06 million, which is included in other deposits on the Company’s Consolidated Balance Sheets. The initial term of the First Niagara Lease is five years beginning on August 1, 2021 and ending on July 31, 2026, and contains a secondary term with an option to renew the lease for five additional years, which was not included in the calculation of the right-of-use asset and lease liability due to the uncertainty of renewal. Under the terms of the First Niagara Lease, the Company will pay base rent and common area maintenance charges as follows:
•
Years 1 – 5 — annual base rent of approximately $0.4 million and common area maintenance charges of approximately $0.1 million
​
At any time before the expiration of the initial term, the Company has the option to purchase approximately 240,000 square feet of the facility for a purchase price of approximately $3.3 million.
At any time before the expiration of the secondary term, the Company has the option to renew the First Niagara Lease for two additional five-year terms.
F-40
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
On August 1, 2021, in connection with the execution of the First Niagara Lease, the Company entered into an additional lease agreement (the “Substation Lease”) with the same landlord, which provides for the use of two portions of a 115,000 kva outdoor substation located on or around the First Niagara Lease site. The Substation Lease term runs parallel to the terms of the other lease agreement and the monthly lease payment totals $2,000.
On December 1, 2021, the Company entered into another lease agreement for approximately 10 acres of land with buildings and use of a substation at another location in Niagara Falls, New York (the “Second Niagara Lease”), which the Company intends to develop and use to house and operate cryptocurrency miners. The initial term of the Second Niagara Lease is just over five years beginning on December 1, 2021 and ending on January 31, 2027, and contains two options to renew the Second Niagara Lease each for an additional five years. Under the terms of the Second Niagara Lease, the Company will pay base rent as follows:
•
Initial monthly base rent of $15,000 beginning February 1, 2022, until the Energizing Date (defined in the Second Niagara Lease to be the date that the Company receives all of its approvals);
​
•
Monthly base rent as of the Energizing Date and thereafter of $15,000 plus an additional $1,000 per megawatt (“MW”) of electrical power over 15 MW, with a 2% per annum increase; and
​
•
Monthly incentive rent of an additional $500 per MW beyond 50 MW used by the Company, calculated one month in arrears
​
As of June 30, 2022, the Company had operating lease liabilities of approximately $2.4 million and right-of-use assets of approximately $2.4 million. As of June 30, 2021 the Company had operating lease liabilities of approximately $0.5 million and right-of-use assets of approximately $0.5 million, which are included in the Consolidated Balance Sheets.
The following summarizes quantitative information about the Company’s operating leases (in thousands):
​ ​ ​
Fiscal Year Ended
June 30, 2022
​ ​
Period from
December 4,
2020 (inception)
through June 30,
2021
​
Operating leases ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating lease cost
​ ​ ​ $ 554 ​ ​ ​ ​ $ 129 ​ ​
Variable lease cost
​ ​ ​ ​ 107 ​ ​ ​ ​ ​ — ​ ​
Operating lease expense
​ ​ ​ ​ 661 ​ ​ ​ ​ ​ 129 ​ ​
Short-term lease expense
​ ​ ​ ​ 169 ​ ​ ​ ​ ​ — ​ ​
Total lease expense
​ ​ ​ $ 830 ​ ​ ​ ​ $ 129 ​ ​
Quantitative information related to leases is summarize below (dollars in thousands):
​ ​ ​
Fiscal Year Ended
June 30, 2022
​ ​
Period from
December 4,
2020 (inception)
through June 30,
2021
​
Operating cash flows – operating leases
​ ​ ​ $ 519 ​ ​ ​ ​ $ 114 ​ ​
Right-of-use assets obtained in exchange for operating lease liabilities
​ ​ ​ $ 2,262 ​ ​ ​ ​ $ 596 ​ ​
Weighted-average remaining lease term – operating leases
​ ​ ​ ​ 4.2 ​ ​ ​ ​ ​ 2.4 ​ ​
Weighted-average discount rate* – operating leases
​ ​ ​ ​ 7.0% ​ ​ ​ ​ ​ 7.0% ​ ​
​
*
Our leases do not provide an implicit rate, therefore we use our incremental borrowing rate at the lease commencement date in
​
F-41
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
determining the present value of lease payments. The incremental borrowing rate represents an estimate of the interest rate we would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis for similar assets over the term of the lease.​
Maturities of the Company’s operating lease liabilities as of June 30, 2022, are as follows (in thousands):
​ ​ ​
Operating
Leases
​
Year ended June 30, 2023
​ ​ ​ $ 649 ​ ​
Year ended June 30, 2024
​ ​ ​ ​ 656 ​ ​
Year ended June 30, 2025
​ ​ ​ ​ 664 ​ ​
Year ended June 30, 2026
​ ​ ​ ​ 671 ​ ​
Year ended June 30, 2027
​ ​ ​ ​ 146 ​ ​
Total
​ ​ ​ ​ 2,786 ​ ​
Less present value discount
​ ​ ​ ​ (383) ​ ​
Operating lease liabilities
​ ​ ​ $ 2,403 ​ ​
Subsequent to June 30, 2022, the Company terminated its Second Niagara Lease. See Note 16.
Note 13.   Stockholders’ Equity
Authorized Shares
In September 2022, the Company’s Board of Directors authorized a 250-for-1 stock split and also increased the number of shares of authorized common stock to 125,000,000, increased the number of authorized shares of Series A preferred stock to 7,855,500 and increased the number of authorized shares of Series B preferred stock and Series B-1 preferred stock to 10,000,000 each. In addition, the Company’s Board of Directors increased the numbers of shares authorized for issuance in the 2021 Equity Incentive Plan to 17,387,697.
As a result of the stock split, all share amounts in these consolidated financial statements have been retrospectively adjusted.
Common stock
The Company’s articles of incorporation, as amended, authorized 125,000,000 shares of common stock, par value $0.00001 per share. During December 2020 and January 2021, the Company raised approximately $9.8 million through the issuance of 24,329,000 shares of its common stock.
Preferred stock
In March 2021, the Company sold 6,174,000 shares of Series A preferred stock, $0.00001 par value for gross proceeds of $19.6 million. In March 2021, the Company exchanged 1,571,250 common stock certificates (Series A preferred stock documentation was not available at the time the proceeds were received) for Series A preferred stock, for gross proceeds of $5.0 million. The early investors who received the Common stock certificates paid the same price as later investors who initially received the Series A preferred stock subscription agreement and other related documents. Beginning in September 2021 and continuing through October 22, 2021, the Company sold 10,000,000 shares of Series B preferred stock, $0.00001 par value, for gross proceeds of $61.2 million. Beginning on December 24, 2021 and continuing through April 2022, the Company sold 793,250 shares of Series B-1 preferred stock, $0.00001 par value, for gross proceeds of approximately $12.5 million. Total offering costs associated with the preferred stock offerings was approximately $0.2 million. Each holder of Series A, Series B and Series B-1 preferred stock may convert any or all of their preferred shares into one share of the Company’s common stock. Additionally, all outstanding shares of Series A, Series B and Series B-1 preferred stock shall automatically be converted into shares of common stock upon
F-42
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
either (a) the closing of a transaction which results in the Company being a publicly traded vehicle (whether directly or as a subsidiary) based on a valuation for the Company on its own of $200.0 million or more, or (b) the date, or upon the occurrence of an event, specified by vote or written consent of the requisite holders, as defined in the Company’s articles of incorporation. The Company will reserve a sufficient number of shares to provide for conversion of all preferred stock outstanding. Each holder of preferred stock is entitled to vote on all matters submitted to the shareholders of the Company. Upon liquidation, dissolution or winding up of the business of the Corporation, each holder of preferred stock is entitled to receive for each share, a pro rata distribution with the Company’s common stock, with the most senior preferred stock paid out at 100% first.
Rescission of Series A preferred stock
In July 2021, one shareholder of Series A preferred stock elected to return their shares as part of a rescission agreement approved by the Company’s Board of Directors (See Note 1). The Company paid the original investment of $0.1 million for the return of 31,500 Series A preferred stock.
Shares subject to registration
On October 26, 2021, the Company entered into a settlement order with Virginia, conditioned on rescission offers being delivered to four investors resident in that state. The Company has completed all requirements set forth in the order. Therefore, on October 26, 2021, the shares have been transferred and reclassified to permanent equity. See Note 1.
Stock-based compensation
On March 16, 2021, the Company established the 2021 Equity Incentive Plan (the “Plan”) and authorized 9,038,750 shares for issuance under the Plan. In September 2021, the Company’s Board of Directors increased the number of shares for issuance in the Plan to 13,663,750. In September 2022, the Company’s Board of Directors increased the numbers of shares for issuance in the Plan to 17,387,697. The Plan allows the Company to award options, stock appreciation rights, restricted awards and performance awards to employees, consultants and directors of the Company and its affiliates. Canceled and forfeited awards are returned to the Plan for future awards. As of June 30, 2022, the Company had issued 11,755,500 awards under the Plan, net of 593,250 canceled and forfeited awards, and there were 1,908,250 shares remaining available for future grants.
During the period December 4, 2020 (inception) through June 30, 2021, the Company issued 9,187,250 shares of fully vested restricted common stock awards pursuant to consulting agreements with various parties, some of whom were related parties, including the Company’s chief executive officer and chief operating officer, as well as several investors. These awards were not issued pursuant to the Plan. In July 2021, the Company canceled 250,000 restricted common stock awards for one consultant.
The Company’s stock-based compensation expense recognized during the fiscal ended June 30, 2022 and period from December 4, 2020 (inception) through June 30, 2021, was entirely attributable to general and administrative expenses, which are included in the accompanying Consolidated Statements of Operations. Stock-based compensation expense for the period consisted of the following (in thousands):
​ ​ ​
Year Ended
June 30, 2022
​ ​
Period from
December 4,
2020 (inception)
through June 30,
2021
​
Restricted stock awards
​ ​ ​ $ 7,910 ​ ​ ​ ​ $ 10,478 ​ ​
Stock options
​ ​ ​ ​ 1,266 ​ ​ ​ ​ ​ 18 ​ ​
Total stock-based compensation
​ ​ ​ $ 9,176 ​ ​ ​ ​ $ 10,496 ​ ​
Time-based restricted stock awards
From December 2020 through February 1, 2021, the Company granted 6,687,500 restricted stock awards with an estimated fair value of $1.07 per share, which was supported by transactions with independent third parties,
F-43
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
in the same months in which the Company sold shares of its common stock for $1.07 per share. On March 17, 2021, the Company, with assistance from a third-party valuation firm, estimated a fair value of $1.10 per share for 5,919,250 restricted stock awards granted on this date. On October 10, 2021, the Company awarded 589,500 time-based restricted stock awards, with an estimated fair value of $2.27 per share. The Company estimated the fair values of $1.10 and $2.27 on March 17, 2021 and September 30, 2021, respectively, utilizing a market approach and fair value techniques such as the backsolve method, which derives the equity value for the Company from a transaction involving the Company’s own securities, in this case, the Company’s Series A preferred stock offering on March 17, 2021 and the Company’s Series B preferred stock offering on September 30, 2021.
The assumptions used in the backsolve method as of March 17, 2021 and September 30, 2021 were as follows:
​ ​ ​
March 17, 2021
​ ​
September 30, 2021
​
Dividend yield
​ ​
0%
​ ​
0%
​
Expected price volatility
​ ​
100%
​ ​
100%
​
Risk-free interest rate
​ ​
0.29%
​ ​
0.28%
​
Expected term
​ ​
3.0 years
​ ​
2.0 years
​
A summary of the Company’s unvested time-based restricted stock awards for the fiscal year periods ending June 30, 2022 and June 30, 2021 is as follows:
​ ​ ​
Number of Shares
​ ​
Weighted Average
Grant-Date
Fair Value
​
December 4, 2020 (inception)
​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​
Granted
​ ​ ​ ​ 12,606,750 ​ ​ ​ ​ ​ 1.08 ​ ​
Vested
​ ​ ​ ​ (9,187,250) ​ ​ ​ ​ ​ 1.07 ​ ​
Unvested as of June 30, 2021
​ ​ ​ ​ 3,419,500 ​ ​ ​ ​ ​ 1.10 ​ ​
Granted
​ ​ ​ ​ 589,500 ​ ​ ​ ​ ​ 2.27 ​ ​
Vested
​ ​ ​ ​ (977,000) ​ ​ ​ ​ ​ 1.10 ​ ​
Unvested as of June 30, 2022
​ ​ ​ ​ 3,032,000 ​ ​ ​ ​ $ 1.32 ​ ​
As of June 30, 2022, there was approximately $2.0 million of total unrecognized compensation cost related to time-based restricted stock awards, which is expected to be recognized over a remaining weighted average vesting period of approximately 1.5 years.
Performance-based restricted stock awards
On March 17, 2021, the Company awarded 2,441,000 performance-based restricted stock awards to the Company’s chief executive officer and chief operating officer that will vest upon the achievement of specific market conditions. Half of these awards will vest if the Company achieves a total Company valuation equal to or greater than $1 billion and the other half of these awards will vest if the Company achieves a total Company valuation equal to or greater than $2 billion. The Company estimated a grant date fair value of $0.01 per share utilizing a Monte Carlo valuation method with the assistance of a third-party valuation firm. The assumptions used in the backsolve method as of March 17, 2021 were as follows:
​
Dividend yield
​ ​
0%
​
​
Expected price volatility
​ ​
100%
​
​
Risk-free interest rate
​ ​
1.63%
​
​
Contractual term at grant date
​ ​
10.0 years
​
F-44
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
On October 10, 2021, the Company awarded 2,750,000 performance-based restricted stock awards to its chief executive officer and chief operating officer that vested upon the achievement of two milestones as follows: i) Milestone 1 — half of the shares vested when the Company achieved 10,000 or more miners plugged in and secured purchase orders totaling 3 exahash of computing power before December 31, 2021 and ii) Milestone 2 — the other half of the shares vested when the Company achieved 20,000 miners or more plugged in and secured purchase orders totaling 6 exahash of computing power before December 31, 2022. Milestone 1 was achieved prior to December 31, 2021 and Milestone 2 had not been achieved as of June 30, 2022. The Company estimated a grant date fair value of $2.27 per share for these performance-based awards utilizing the assistance of a third-party valuation firm as discussed above under ‘Time-based restricted stock awards’.
A summary of the Company’s unvested performance-based restricted stock awards for the periods ended June 30, 2022 and June 30, 2021 is as follows:
​ ​ ​
Number of Shares
​ ​
Weighted Average
Grant-Date
Fair Value
​
December 4, 2020 (inception)
​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​
Granted
​ ​ ​ ​ 2,441,000 ​ ​ ​ ​ ​ 0.01 ​ ​
Vested
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Unvested as of June 30, 2021
​ ​ ​ ​ 2,441,000 ​ ​ ​ ​ ​ 0.01 ​ ​
Granted
​ ​ ​ ​ 2,750,000 ​ ​ ​ ​ ​ 2.27 ​ ​
Vested
​ ​ ​ ​ (1,375,000) ​ ​ ​ ​ ​ 2.27 ​ ​
Unvested as of June 30, 2022
​ ​ ​ ​ 3,816,000 ​ ​ ​ ​ $ 0.83 ​ ​
There was approximately $0.8 million of total unrecognized stock-based compensation expense associated with the Company’s restricted stock awards with performance or market-based conditions as of June 30, 2022.
Stock options
The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. Due to the lack of historical exercise history, the expected term of the Company’s stock options has been determined using the “simplified” method for awards. The risk-free interest rate is determined by referencing the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The majority of the Company’s options awarded vest based upon service provided to the Company over time; however, the Company awarded a total of 68,250 options with performance-based vesting conditions to an employee during the fiscal year ending June 30, 2022. For these options, 27,500 will vest upon the completion of an initial public offering (the “IPO options”) and 40,750 will vest upon achievement of other internal non-financial metrics. The Company is recognizing stock compensation cost for the non-financial operating metrics over the period that management expects it will take to achieve this condition. Stock compensation costs for equity awards that are conditional upon a liquidity event, such as an initial public offering should not be recognized prior to the achievement of the liquidity event. As such, the Company will not recognize any stock compensation cost for the IPO options until occurrence of an initial public offering.
Additionally, on January 3, 2022, the Company modified the former chief financial offer’s option award to allow for the conditional vesting of the first tranche of 118,750 options upon the occurrence of an initial
F-45
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
public offering (“IPO”) and the former chief financial officer’s continued service as an advisor to the Company through such IPO. These options would have vested in July 2022 had the former chief financial officer’s employment continued until such time. At the time of the modification, the Company reversed approximately $0.1 million of stock-based compensation expense recognized on the original unvested option award and estimated a grant date fair value for the modified award of approximately $0.9 million, which will not be recognized as stock-based compensation expense by the Company until the occurrence of an initial public offering.
The following assumptions were used in determining the fair value of stock options granted, including those with performance-based conditions, during the years ended June 30, 2022 and June 30, 2021:
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Dividend yield
​ ​
0%
​ ​
0%
​
Expected price volatility
​ ​
96.5% – 100%
​ ​
100%
​
Risk free interest rate
​ ​
0.65% – 2.44%
​ ​
0.80% – 1.27%
​
Expected term (in years)
​ ​
5.0 – 8.2 years
​ ​
5.5 – 7.0 years
​
A summary of our stock option activity is below (dollars in thousands except per share data):
​ ​ ​
Number of
Shares
​ ​
Weighted Average
Exercise Price
(per share)
​ ​
Total
Intrinsic
Value
​ ​
Weighted Average
Remaining
Contractual Life
(in years)
​
December 4, 2020 (inception)
​ ​ ​ ​ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ ​ — ​ ​
Granted
​ ​ ​ ​ 122,000 ​ ​ ​ ​ ​ 1.13 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9.7 ​ ​
Forfeited or canceled
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Outstanding as of June 30, 2021
​ ​ ​ ​ 122,000 ​ ​ ​ ​ ​ 1.13 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9.7 ​ ​
Granted
​ ​ ​ ​ 3,026,750 ​ ​ ​ ​ ​ 1.83 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Forfeited or canceled
​ ​ ​ ​ (593,250) ​ ​ ​ ​ ​ 1.11 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Outstanding as of June 30, 2022
​ ​ ​ ​ 2,555,500 ​ ​ ​ ​ $ 1.97 ​ ​ ​ ​ $ 539 ​ ​ ​ ​ ​ 9.3 ​ ​
Vested and exercisable as of June 30, 2022
​ ​ ​ ​ 93,250 ​ ​ ​ ​ $ 1.32 ​ ​ ​ ​ $ 47 ​ ​ ​ ​ ​ 9.0 ​ ​
Excluding $0.9 million of unrecognized compensation expense for the IPO options and the former chief financial officer’s modified award, at June 30, 2022 the Company had approximately $2.6 million of total unrecognized compensation expense related to options granted under the Plan, which is expected to be recognized over a weighted-average remaining vesting period of approximately 1.8 years.
F-46
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 14.   Income Taxes
The components of the (provision) benefit for income taxes are as follows (in thousands):
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Current ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Federal
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
State
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Total current
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Deferred ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Federal
​ ​ ​ ​ (4,619) ​ ​ ​ ​ ​ 1,647 ​ ​
State
​ ​ ​ ​ (450) ​ ​ ​ ​ ​ 450 ​ ​
Total deferred
​ ​ ​ ​ (5,069) ​ ​ ​ ​ ​ 2,097 ​ ​
Total income tax (provision) benefit
​ ​ ​ $ (5,069) ​ ​ ​ ​ $ 2,097 ​ ​
A reconciliation of the statutory U.S. federal rate to the Company’s effective tax rate is as follows:
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Statutory federal income tax rate
​ ​ ​ ​ 21.0% ​ ​ ​ ​ ​ 21.0% ​ ​
State taxes, net of federal tax benefit
​ ​ ​ ​ (1.0)% ​ ​ ​ ​ ​ 5.7% ​ ​
Permanent differences
​ ​ ​ ​ (0.7)% ​ ​ ​ ​ ​ — ​ ​
Stock based compensation
​ ​ ​ ​ 0.4% ​ ​ ​ ​ ​ (8.0)% ​ ​
Return to provision adjustments
​ ​ ​ ​ (0.6)% ​ ​ ​ ​ ​ — ​ ​
Change in valuation allowance
​ ​ ​ ​ (37.7)% ​ ​ ​ ​ ​ — ​ ​
Effective tax rate
​ ​ ​ ​ (18.6)% ​ ​ ​ ​ ​ 18.7% ​ ​
The components of the net deferred tax (liabilities) assets as of June 30, 2022 are the following (in thousands):
​ ​ ​
June 30, 2022
​ ​
June 30, 2021
​
Deferred tax assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Impairment loss
​ ​ ​ $ 94 ​ ​ ​ ​ $ 335 ​ ​
Stock-based compensation
​ ​ ​ ​ 1,136 ​ ​ ​ ​ ​ 167 ​ ​
ROU lease liability
​ ​ ​ ​ 590 ​ ​ ​ ​ ​ — ​ ​
Interest
​ ​ ​ ​ 1,835 ​ ​ ​ ​ ​ — ​ ​
Net operating loss
​ ​ ​ ​ 23,283 ​ ​ ​ ​ ​ 3,069 ​ ​
Total deferred tax assets
​ ​ ​ ​ 26,938 ​ ​ ​ ​ ​ 3,571 ​ ​
Deferred tax liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Fixed assets and intangibles
​ ​ ​ ​ (17,800) ​ ​ ​ ​ ​ (1,474) ​ ​
ROU asset
​ ​ ​ ​ (577) ​ ​ ​ ​ ​ — ​ ​
Total deferred tax liabilities
​ ​ ​ ​ (18,377) ​ ​ ​ ​ ​ (1,474) ​ ​
Valuation allowance
​ ​ ​ ​ (11,533) ​ ​ ​ ​ ​ — ​ ​
Deferred tax (liabilities) assets, net
​ ​ ​ $ (2,972) ​ ​ ​ ​ $ 2,097 ​ ​
As of June 30, 2022, the Company had federal and state net operating loss carryforwards of approximately $105.6 million and $31.0 million, respectively. The federal net operating losses can be carried forward indefinitely and the state net operating loss begins to expire in tax year 2040. Utilization of the net operating
F-47
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
losses may be subject to an annual limitation due to the ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended. Based on a history of taxable losses, the Company has recorded a valuation allowance against deferred tax assets to the extent they are utilizable against reversing deferred tax liabilities.
There are no significant matters determined to be unrecognized tax benefits taken or expected to be taken in a tax return, in accordance with ASC 740, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements, that have been recorded on the Company’s financial statements for the years ended June 30, 2022 and for the period from December 4, 2020 (inception) through June 30, 2021. The Company does not anticipate a material change to unrecognized tax benefits in the next twelve months.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates on a calendar year basis. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. There are currently no pending tax examinations. The Company’s tax years are still open under statute from inception. The resolution of tax matters is not expected to have a material effect on the Company’s consolidated financial statements.
Note 15.   Commitments and Contingencies
Commitments
Purchase agreements
See Note 1 for discussions regarding the purchase agreements for miners.
Deposit on mining operation
In February 2022, the Company entered into an agreement with a third-party service provider to buildout a mining operation in Texas. The Company paid a deposit of approximately $3.5 million to be used for the purchase of energy related substation facility type equipment. As of June 30, 2022, the Company and third-party service provider agreed to delay the project until a future period. See Note 9.
Contingencies
The Company, and its subsidiaries, are subject at times to various claims, lawsuits and governmental proceedings relating to the Company’s business and transactions arising in the ordinary course of business. The Company cannot predict the final outcome of such proceedings. Where appropriate, the Company vigorously defends such claims, lawsuits and proceedings. Some of these claims, lawsuits and proceedings seek damages, including, consequential, exemplary or punitive damages, in amounts that could, if awarded, be significant. Certain of the claims, lawsuits and proceedings arising in ordinary course of business are covered by the Company’s insurance program. The Company maintains property and various types of liability insurance in an effort to protect the Company from such claims. In terms of any matters where there is no insurance coverage available to the Company, or where coverage is available and the Company maintains a retention or deductible associated with such insurance, the Company may establish an accrual for such loss, retention or deductible based on current available information. In accordance with accounting guidance, if it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements, and the amount of loss is reasonably estimable, then an accrual for the cost to resolve or settle these claims is recorded by the Company in the accompanying Consolidated Balance Sheets. If it is reasonably possible that an asset may be impaired as of the date of the financial statement, then the Company discloses the range of possible loss. Expenses related to the defense of such claims are recorded by the Company as incurred and included in the accompanying Consolidated Statements of Operations. Management, with the assistance of outside counsel, may from time to time adjust such accruals according to new developments in the matter, court rulings, or changes in the strategy affecting the Company’s defense of such matters. On the basis of current information, the Company does not believe there is a reasonable possibility that, any material
F-48
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
loss, if any, will result from any claims, lawsuits and proceedings to which the Company is subject to either individually, or in the aggregate.
City of Niagara Falls, New York Lawsuit
On November 18, 2022, the City of Niagara Falls, New York (“the City”), filed a lawsuit claiming the Company violated one of its newly enacted laws. The City also applied for a preliminary injunction to shut down the Company’s operation and also applied for and received a temporary restraining order which ordered the shutdown of the Company’s Niagara Falls operation, pending a hearing on its application. On January 25, 2023 the Company was additionally assessed a fine by the City. Management believes the City’s law is unenforceable and has taken the necessary legal steps to counter the lawsuit.
Note 16.   Subsequent Events
The Company has completed an evaluation of all subsequent events after the balance sheet date up to January 29, 2023, the date that the consolidated financial statements were available to be issued. Except as described above and below, the Company has concluded no other subsequent events have occurred that requires disclosure.
Equity
In September 2022, the Company’s Board of Directors authorized 16,557,000 shares of Series C Preferred Stock. As further discussed in Note 1 and Note 13, the Company’s Board of Directors authorized a stock split and increases to certain share classes.
Acquisition
On December 6, 2022, one of the Company’s subsidiaries acquired a 50% membership interest in a joint venture (“JV”). In addition, the Company’s subsidiary also assumed a property management agreement (“PMA”), a senior note and other agreements related to the JV.
Strategic Operator Agreements
In addition to the PMA related to the acquisition noted above, two of the Company’s subsidiaries entered into Strategic Operator Agreements (“SOA”) in November 2022. Each of these SOA’s have five year terms whereby each subsidiary charges a monthly fixed fee, and also has the ability to pass-thru certain additional costs, for the management, support and administrative functions of operating a bitcoin mining datacenter for a third party customer.
Debt
In December 2022, the Company entered into a $10.0 million term-loan with a third party. The maturity date is December 5, 2027 and the interest rate is 6% per annum. Interest is payable in kind as an addition to, and capitalization on, the outstanding principal. The term-loan is secured by certain assets of the Company and does not have financial covenants.
Finance Agreements
In February 2023, the Company extinguished its MEFA and Amended MEFA with the financing company. The outstanding balance at the time of extinguishment was approximately $89.1 million. The Company exchanged all assets which the finance company financed, in addition to existing assets at one of our Texas locations and a portion of deposits on miners. On a provisional basis based upon un-impaired carrying values as of the date of these financial statements, the Company anticipates a loss on extinguishment of approximately $19.2 million.
F-49
TABLE OF CONTENTS
 
U.S. Data Mining Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In February 2023, the Company restructured both of its ELSA’s with the financing company. The terms of the ELSA’s have been extended five years and will be repaid via a monthly cash flow sweep from Company miners being hosted at a third party facility.
Leases
In November 2022, the Company terminated its Second Niagara Lease. In accordance with the lease terms, no early payment penalties applied.
F-50
TABLE OF CONTENTS​
 
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20.   Indemnification of Directors and Officers
Section 145 of the DGCL empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. A Delaware corporation may indemnify directors, officers, employees and other agents of such corporation in an action by or in the right of the corporation under the same conditions, except that no indemnification is permitted without judicial approval if the person to be indemnified has been adjudged to be liable to the corporation. Where a present or former director or officer of the corporation is successful on the merits or otherwise in the defense of any action, suit or proceeding referred to above or in defense of any claim, issue or matter therein, the corporation must indemnify such person against the expenses (including attorneys’ fees) which he or she actually and reasonably incurred in connection therewith.
The New Hut certificate of incorporation contains provisions that provide for indemnification of officers and directors to the fullest extent permitted by, and in the manner permissible under, applicable state and federal law, including the DGCL.
As permitted by Section 102(b)(7) of the DGCL, New Hut’s certificate of incorporation contains a provision eliminating the personal liability of a director to New Hut or its stockholders for monetary damages for breach of fiduciary duty as a director, subject to certain exceptions.
The Business Combination provides that prior to the Effective Date, Hut 8 and USBTC shall purchase customary non-cancellable and fully pre-paid “tail” policies of directors’ and officers’ liability, employment practices liability and fiduciary liability insurance providing protection no less favorable in the aggregate to the protection provided by the policies maintained by Hut 8 or USBTC and any of their respective subsidiaries, which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date; provided that the cost of such policies will not exceed 300% of the annual premiums currently in effect for such directors’ and officers’ liability, employment practices liability and fiduciary liability coverage and that if such insurance coverage is unavailable, then as promptly as practicable following the consummation of the transaction, New Hut will, or if the cost of such a tail policy will exceed such amount, will cause Hut 8 and USBTC and any of their respective subsidiaries, to purchase such tail policies with the best available insurance coverage whose cost will not exceed 300% of the annual premiums currently in effect for such directors’ and officers’ liability, employment practices liability and fiduciary liability coverage. New Hut will, or will cause Hut 8 and USBTC and any of their respective subsidiaries, to, continuously maintain such tail policies in full force and effect without any reduction in scope or coverage for six (6) years from the Effective Date and to abide by their obligations thereunder.
The Business Combination Agreement provides that, from and after the effective time, New Hut agrees that it shall cause Hut 8 and USBTC to honor all rights to indemnification or exculpation presently existing in favor of present and former officers and directors of Hut 8 and USBTC and any of their respective subsidiaries, each referred to as an indemnified party, as of the Effective Date to the extent such indemnified parties have been provided under applicable law, the organizational documents of Hut 8 and USBTC and any of their respective subsidiaries, or under any indemnification agreements in existence and made available as of 12:00 p.m. (Toronto time) February 5, 2023. New Hut acknowledges that such rights shall survive the consummation of the transaction and shall continue in full force and effect and shall not be amended in any manner adverse to such indemnified parties for at least six (6) years following the Effective Date.
II-1
TABLE OF CONTENTS
 
Item 21.   Exhibits and Financial Statement Schedules
​
Exhibit No.
​ ​
Description
​
​ 2.1 ​ ​ ​
​ 3.1 ​ ​ ​
​ 3.2 ​ ​ ​
​ 5.1 ​ ​
Opinion of Greenberg Traurig, P.A. as to the validity of shares of common stock to be issued by New Hut.*
​
​ 10.1 ​ ​ Form of Indemnification Agreement of New Hut.* ​
​ 10.2 ​ ​ New Hut Omnibus Incentive Plan.* ​
​ 10.3 ​ ​ ​
​ 10.4 ​ ​ ​
​ 10.5 ​ ​ ​
​ 10.6 ​ ​ ​
​ 10.7 ​ ​ ​
​ 10.8 ​ ​ ​
​ 10.9 ​ ​ ​
​ 10.10 ​ ​ ​
​ 10.11 ​ ​ ​
​ 10.12 ​ ​ ​
​ 10.13 ​ ​ ​
​ 10.14 ​ ​ ​
​ 10.15 ​ ​ ​
​ 10.16 ​ ​ ​
​ 10.17 ​ ​ Trinity Loan Agreement.* ​
​ 21.1 ​ ​ Subsidiaries of New Hut.* ​
​ 23.1 ​ ​ Consent of Greenberg Traurig, P.A.* (included as part of Exhibit 5.1 hereto). ​
​ 23.2 ​ ​ ​
​ 23.3 ​ ​ Consent of RSM US LLP in respect of USBTC’s financial statements. ​
​ 24.1 ​ ​ ​
​ 99.1 ​ ​ ​
​ 99.2 ​ ​ ​
​ 99.3 ​ ​ ​
II-2
TABLE OF CONTENTS
 
​
Exhibit No.
​ ​
Description
​
​ 99.4 ​ ​ ​
​ 99.5 ​ ​ ​
​ 99.6 ​ ​ ​
​ 99.7 ​ ​ ​
​ 99.8 ​ ​ ​
​ 99.9 ​ ​ ​
​ 99.10 ​ ​ ​
​ 99.11 ​ ​ ​
​ 99.12 ​ ​ ​
​ 99.13 ​ ​ ​
​ 107 ​ ​ ​
​
†
Pursuant to Item 601(a)(5) of Regulation S-K, certain schedules and similar attachments have been omitted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the U.S. Securities and Exchange Commission upon request.
​
#
Pursuant to Item 601(b)(2) or Item 601(b)(10), as applicable, of Regulation S-K, certain portions of this exhibit were redacted. The registrant hereby agrees to furnish a copy of any omitted schedule or similar attachment to the U.S. Securities and Exchange Commission upon request.
​
*
To be filed by amendment.
​
Item 22.   Undertakings
The undersigned registrant hereby undertakes:
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
​
•
to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
​
•
to reflect in the prospectus any facts or events arising after the Effective Date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
​
•
to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
​
2.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
​
3.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
​
4.
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness; provided, however, that no statement made in a registration
​
II-3
TABLE OF CONTENTS
 
statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
​
•
any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
​
•
any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
​
•
the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
​
•
any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
​
6.
The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant’s annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
​
7.
The undersigned registrant hereby undertakes as follows: that prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form.
​
8.
The registrant undertakes that every prospectus (i) that is filed pursuant to the paragraph immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
​
9.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the
​
II-4
TABLE OF CONTENTS
 
opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
10.
The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the Effective Date of the registration statement through the date of responding to the request.
​
11.
The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
​
II-5
TABLE OF CONTENTS
 
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-4 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on the 13th day of February, 2023.
Hut 8 Corp.
By:
/s/ Asher Genoot
​
​
Name:
Asher Genoot
​
Title:
President
​
II-6
TABLE OF CONTENTS​
 
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Asher Genoot and Michael Ho and each of them, as attorneys-in-fact, each with the power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or her or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons on behalf of the registrant and in the capacities indicated below on February 13, 2023:
​
Signature
​ ​
Title
​
​
/s/ Asher Genoot
​
Asher Genoot
​ ​ President and Sole Director (Principal Executive Officer) ​
​
/s/ Michael Ho
​
Michael Ho
​ ​ Vice President, Secretary and Treasurer (Principal Financial and Accounting Officers) ​
II-7

 

Exhibit 2.1

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED]. 

 

BUSINESS COMBINATION AGREEMENT

 

BY AND AMONG

 

HUT 8 MINING CORP.

 

AND

 

U.S. Data Mining Group, INC.

 

AND

 

HUT 8 CORP.

 

February 6, 2023

 

 

 

 

TABLE OF CONTENTS

 

Article 1 INTERPRETATION 2

 

1.1Defined Terms 2
1.2Certain Rules of Interpretation 20
1.3Knowledge 21
1.4Accounting Terms 22
1.5Subsidiaries 22
1.6Consent 22
1.7Schedules 22

 

Article 2 CLOSING OF THE TRANSACTION 22

 

2.1Effective Date and Closing 22
2.2Exchange of Hut Securities 23
2.3Exchange of USBTC Securities 23
2.4Deposit of New Hut Shares Issuable Pursuant to the Arrangement and Merger; Exchange Procedures 24
2.5No Fractional New Hut Shares 25
2.6Withholding Taxes 25
2.7Dissenter’s Rights for USBTC Stockholders 26
2.8Announcement and Shareholder Communications 26
2.9Hut ESPP 27
2.10Reservation of New Hut Shares and Registration Statement 27

 

Article 3 THE ARRANGEMENT 27

 

3.1Implementation of the Arrangement 27
3.2Interim Order 27
3.3The Hut Meeting 28
3.4The Hut Circular 30
3.5Final Order 31
3.6Court Proceedings 31
3.7Arrangement Filings and Effective Date 32
3.8U.S. Securities Law Matters 32
3.9U.S. Tax Matters 33

 

Article 4 THE MERGER 34

 

4.1Implementation of the Merger 34
4.2Charter Documents of the Surviving Corporation 35
4.3Directors and Officers of Surviving Corporation 35
4.4USBTC Consent; USBTC Information Statement 35
4.5Registration Statement 36

 

Article 5 REPRESENTATIONS AND WARRANTIES 37

 

5.1Representations and Warranties of Hut 37
5.2Representations and Warranties of USBTC 37
5.3Representations and Warranties of New Hut 38

 

Article 6 COVENANTS 38

 

6.1Covenants of USBTC Regarding the Conduct of Business 38
6.2Covenants of Hut Regarding the Conduct of Business 42
6.3Covenants of New Hut 46

 

 

 

 

6.4Covenants Relating to the Transaction 47
6.5Regulatory Approvals 49
6.6Access to Information; Confidentiality 51
6.7Insurance and Indemnification 51
6.8Covenants Regarding Convertible Securities 52
6.9Employee Benefit Matters 52
6.10Securityholder Litigation and Dissenter’s Rights 53
6.11USBTC Non-Solicitation 53
6.12Section 280G 54

 

Article 7 ADDITIONAL COVENANTS of Hut REGARDING NON-SOLICITATION 55

 

7.1Hut Non-Solicitation 55
7.2Notification of Acquisition Proposals 56
7.3Responding to Acquisition Proposals 57
7.4Right to Match 58
7.5Breach by Subsidiaries and Representatives 59

 

Article 8 CONDITIONS 59

 

8.1Mutual Conditions Precedent 59
8.2Additional Conditions Precedent to the Obligations of USBTC 61
8.3Additional Conditions Precedent to the Obligations of Hut 61
8.4Satisfaction of Conditions 63
8.5Notice and Cure Provisions 63
8.6Governance 63

 

Article 9 TERM, TERMINATION, AMENDMENT AND WAIVER 64

 

9.1Term, Termination 64
9.2Termination Amount 66
9.3Fees and Expenses 68
9.4Amendment 69

 

Article 10 GENERAL PROVISIONS 69

 

10.1Privacy 69
10.2Notices 70
10.3Third Party Beneficiaries 71
10.4Further Assurances 71
10.5Governing Law 71
10.6Injunctive Relief 72
10.7Time of Essence 72
10.8Entire Agreement, Binding Effect and Assignment 72
10.9Severability 73
10.10No Liability 73
10.11Rules of Construction 73
10.12Counterparts, Execution 73

 

Schedule "A" PLAN OF ARRANGEMENT A-1
   
Schedule "B" ARRANGEMENT RESOLUTION B-1

 

 

 

 

Schedule "C" REPRESENTATIONS AND WARRANTIES OF HUT C-1
   
Schedule "D" REPRESENTATIONS AND WARRANTIES OF USBTC D-1
   
Schedule "E" REPRESENTATIONS AND WARRANTIES OF NEW HUT E-1

 

 

 

 

BUSINESS COMBINATION AGREEMENT

 

THIS AGREEMENT is made as of February 6, 2023,

 

BY AND AMONG:

 

HUT 8 MINING CORP., a corporation existing under the laws of the Province of British Columbia,

 

(“Hut”)

 

- and -

 

U.S. data mining Group, Inc., a corporation existing under the laws of the State of Nevada,

 

(“USBTC”)

 

- and -

 

Hut 8 Corp., a corporation existing under the laws of the State of Delaware,

 

(“New Hut”)

 

WHEREAS:

 

(a)The Hut Board has unanimously determined, after consultation with its legal and financial advisors and after reviewing the Hut Fairness Opinions, that the Transaction, involving a business combination of Hut and USBTC by way of the Arrangement and Merger, pursuant to which Hut and USBTC will each become wholly-owned subsidiaries of New Hut, is in the best interests of Hut and Hut Shareholders. The Hut Board has approved this Agreement and the transactions contemplated by this Agreement and has unanimously determined to recommend approval of the Arrangement Resolution to the Hut Shareholders.

 

(b)The USBTC Board has unanimously determined, after consultation with its legal and financial advisors, that the Transaction, involving a business combination of Hut and USBTC by way of the Arrangement and Merger, pursuant to which Hut and USBTC will each become wholly-owned subsidiaries of New Hut, is in the best interests of USBTC and to USBTC Stockholders. The USBTC Board has adopted this Agreement and approved the transactions contemplated hereby and has unanimously determined to recommend approval of the same and the USBTC Resolution to the USBTC Stockholders.

 

(c)In furtherance of the Transaction, the Hut Board has agreed to submit the Arrangement Resolution to the Hut Shareholders and the Court for approval and the USBTC Board has agreed to submit the USBTC Resolution to the USBTC Stockholders for approval, in each case in accordance with the terms and subject to the conditions of this Agreement.

 

 

- 2 -

 

NOW THEREFORE in consideration of the premises and the covenants and agreements herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto covenant and agree as follows:

 

Article 1
INTERPRETATION

 

1.1Defined Terms

 

As used in this Agreement, the following terms have the following meanings:

 

“Acceptable Confidentiality Agreement” means a customary confidentiality and standstill agreement containing terms (a) that are no less favourable in any material respect to Hut than those contained in the Confidentiality Agreement; (b) that does not permit the counterparty to acquire any securities of Hut or any of its Subsidiaries; (c) that contains customary standstill provisions that only permit the counterparty to make an Acquisition Proposal or related communications confidentially to the Hut Board; (d) the use of confidential information thereunder shall be restricted to consideration of a negotiated transaction; and (e) is entered into in accordance with Section 7.3 hereof.

 

“Acquisition Proposal” means, other than the transactions contemplated by this Agreement, any written or oral offer, proposal, expression of interest or inquiry from any Person or group (as such term is used in Section 13(d)(3) of the U.S. Exchange Act) of Persons (other than USBTC or any of its Affiliates) made after the date of this Agreement relating to:

 

(a)any direct or indirect acquisition or sale (or any lease, long-term license, long-term supply agreement, joint venture or other arrangement having the same economic effect as a sale), whether in a single transaction or a series of related transactions, of: (i) assets of Hut and/or one or more of its Subsidiaries that, individually or in the aggregate, constitute 20% or more of the consolidated assets of Hut and its Subsidiaries, taken as a whole, or that contribute 20% or more of the consolidated revenue or net income of Hut and its Subsidiaries, taken as a whole; or (ii) 20% or more of any class of voting, equity or other securities (or rights thereto) (and including securities convertible into or exercisable or exchangeable for voting, equity or other securities) of Hut or any one or more of its Subsidiaries that, individually or in the aggregate, constitute 20% of the consolidated assets of Hut and its Subsidiaries, taken as a whole, or that contribute 20% or more of the consolidated revenue or net income of Hut and its Subsidiaries, taken as a whole (in each case of (i) and (ii), determined based upon the most recently publicly available consolidated financial statements of Hut);

 

(b)any direct or indirect take-over bid, issuer bid, tender offer, exchange offer, treasury issuance or other transaction that, if consummated, would result in a Person or group (as such term is used in Section 13(d)(3) of the U.S. Exchange Act) of Persons acquiring beneficial ownership of 20% or more of any class of voting, equity or other securities of Hut (and including securities convertible into or exercisable or exchangeable for voting, equity or other securities) or any of its Subsidiaries;

 

(c)any plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, joint venture, partnership, liquidation, dissolution or other similar transaction involving Hut or any one or more of its Subsidiaries;

 

(d)any other similar transaction or series of transactions involving Hut or any of its Subsidiaries;

 

(e)public announcement of or of an intention to do any of the foregoing; or

 

(f)modification or proposed modification of any such proposal, inquiry or offer, in each case whether by plan of arrangement, amalgamation, merger, consolidation, reorganization, recapitalization, winding up, liquidation, dissolution or other business combination, sale of assets, sale of securities, treasury issuance of securities, joint venture, take-over bid, tender offer, share exchange, exchange offer or otherwise, including any single or multi-step transaction or series of transactions, directly or indirectly involving Hut or any of its Subsidiaries;

 

 

- 3 -

 

and in each case excluding the Transaction and the other transactions contemplated by this Agreement.

 

“Action” means any action, cause of action, claim, demand, litigation, suit, investigation, grievance, citation, summons, subpoena, inquiry, audit, hearing, arbitration or other similar civil, criminal or regulatory proceeding, in law or in equity brought by or before a Governmental Entity.

 

“Adjusted Hut DSU” means a Hut DSU, as adjusted pursuant to the Arrangement.

 

“Adjusted Hut RSU” means a Hut RSU, as adjusted pursuant to the Arrangement.

 

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such Person; as used in this clause, where “control” (including the terms “controlling,” “controlled by” and “under common control with”) means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

“Agreement” means this Business Combination Agreement, including the Schedules attached hereto, the Hut Disclosure Letter and the USBTC Disclosure Letter, as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms hereof.

 

“Amalgamation” means the amalgamation of Hut and Hut Holdings contemplated by the Plan of Arrangement.

 

“Amended New Hut Organizational Documents” means the revised Organizational Documents of New Hut, providing for an increase in the authorized share capital of New Hut and such other matters as may be agreed among the Parties, acting reasonably.

 

“Anchorage” means Anchorage Lending CA, LLC.

 

“Anchorage Loan Agreement” means that certain Loan, Guaranty and Security Agreement, to be entered into by and among Anchorage, as lender, USBTC, as a guarantor, and, from and after the Qualifying IPO (as defined in the Anchorage Loan Agreement), New Hut, as a guarantor, US Data Guardian LLC, as borrower, and certain other guarantors party thereto.

 

“Anti-Corruption Laws” means all applicable Laws relating to corruption and bribery, including, without limitation, the Foreign Corrupt Practices Act (United States) (and the regulations promulgated thereunder), the Corruption of Foreign Public Officials Act (Canada) (and the regulations promulgated thereunder) and any applicable Law of similar effect.

 

“Anti-Money Laundering Laws” means all applicable Laws relating to money laundering and proceeds of crime including, without limitation, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada) and related regulations and guidelines published by FINTRAC (Financial Transactions Reports Analysis Centre of Canada), the Currency and Foreign Transactions Reporting Act of 1970 (United States) (otherwise known as the Bank Secrecy Act), the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (United States) and any applicable Law of similar effect.

 

 

- 4 -

 

“Antitrust Laws” mean any antitrust, competition or trade regulation Laws that are designed or intended to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or preventing or lessening competition through merger or acquisition, including, but not limited to, the HSR Act and the Competition Act.

 

“ARC” means an advance ruling certificate issued by the Commissioner under Section 102(1) of the Competition Act to the effect that the Commissioner is satisfied that he would not have sufficient grounds upon which to apply to the Competition Tribunal for an order under Section 92 of the Competition Act with respect to the transactions contemplated by this Agreement.

 

“Arrangement” means an arrangement pursuant to the provisions of Division 5 of Part 9 of the BCBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations to the Plan of Arrangement made in accordance with the terms of this Agreement or the Plan of Arrangement, or made at the direction of the Court in the Final Order with the prior written consent of Hut and USBTC, each acting reasonably.

 

“Arrangement Effective Time” means the time on the Effective Date that the Arrangement Filings are filed with the Registrar, or such other time on the Effective Date as the Parties agree in writing on or before the Effective Date, provided that the Arrangement Effective Time shall in all circumstances occur prior to the Merger Effective Time.

 

“Arrangement Filings” means the records and information required to be provided to the Registrar under Section 292(a) of the BCBCA in respect of the Arrangement, together with a copy of the Final Order.

 

“Arrangement Resolution” means the special resolution approving the Arrangement to be considered, approved and adopted by the Hut Shareholders at the Hut Meeting, substantially in the form set out in Schedule “B” hereto.

 

“Articles of Merger” means the articles of merger to be filed with the Nevada Secretary of State with respect to the Merger, which shall be in such form as is required by, and executed in accordance with, the relevant provisions of the NRS and mutually agreed by the Parties (each acting reasonably).

 

“BCBCA” means the Business Corporations Act (British Columbia).

 

“Board Recommendation” has the meaning ascribed thereto in Section 3.4(2).

 

“Breaching Party” has the meaning ascribed to it in Section 8.5(3).

 

“Bridge Loan Agreement” means a bridge loan agreement to be entered into between Hut and USBTC, on terms and conditions satisfactory to Hut and USBTC, as may be amended, supplemented or otherwise modified from time to time in accordance with its terms.

 

“Business Day” means any day of the year, other than a Saturday, Sunday or any day on which major commercial banking institutions in Vancouver, British Columbia, Toronto, Ontario or New York, New York are required by Law to be closed for business.

 

“Clearance Date” has the meaning ascribed thereto in Section 4.4(1).

 

“Closing” has the meaning ascribed thereto in Section 2.1(1).

 

“Code” means the United States Internal Revenue Code of 1986, as amended.

 

 

- 5 -

 

“Commissioner” means the Commissioner of Competition appointed under the Competition Act and any Person authorized under the Competition Act to exercise the powers and perform the duties of the Commissioner of Competition.

 

“Competition Act” means the Competition Act (Canada).

 

“Competition Act Approval” means one of the following shall have occurred with respect to the transactions contemplated by this Agreement:

 

(a)an ARC shall have been issued by the Commissioner; or

 

(b)the Commissioner shall have issued a No Action Letter and the applicable waiting period under section 123 of the Competition Act has expired or been waived or the obligation to provide a pre-merger notification in accordance with Part IX of the Competition Act shall have been waived in accordance with paragraph 113(c) of the Competition Act.

 

“Confidentiality Agreement” means the mutual non-disclosure agreement dated November 10, 2022 between Hut and USBTC, as it may be amended.

 

“Consideration Shares” means, collectively, the Hut Consideration Shares and the USBTC Consideration Shares.

 

“Contract” means any contract, agreement, license, franchise, lease, mortgage, bond, instrument, hedge, undertaking, arrangement or other right or obligation to which such Party or any of its Subsidiaries is a party or is bound or to which any of their respective properties or assets are subject.

 

“Court” means the Supreme Court of British Columbia or any other court with jurisdiction to consider and issue the Interim Order and the Final Order.

 

“COVID-19” means the coronavirus disease 2019 (dubbed as COVID-19), caused by the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and/or any evolutions, mutations or variations thereof or any other virus or disease developing from or arising as a result of SARS-CoV-2 and/or COVID-19.

 

“COVID-19 Measures” means in relation to a Party, any quarantine, “shelter in place”, “stay at home”, workforce reduction, social or physical distancing, shut down, closure, sequester or any other applicable Law or guidelines or recommendations issued by a Governmental Entity in connection with COVID-19.

 

“COVID-19 Response” means in relation to a Party, any commercially reasonable action, adopted or taken in accordance with a written policy or protocol of such Party existing as of the date of this Agreement and disclosed to the other Parties with the objective of (i) mitigating the adverse effects of COVID-19 or applicable COVID-19 Measures, (ii) ensuring compliance with applicable COVID-19 Measures and/or (iii) in respect of COVID-19, protecting the health and safety of employees or other Persons with whom the personnel of such Party come into contact with during the course of business operations.

 

“Data Room Cut-off Time” means 12:00 p.m. (Toronto time) on February 5, 2023.

 

“Depositary” means Computershare Investor Services Inc. or such other trust company, bank or financial institution agreed to in writing between Hut and USBTC.

 

“Dissent Rights” means the rights of dissent of registered Hut Shareholders in respect of the Arrangement described in the Plan of Arrangement.

 

 

- 6 -

 

“Dissent Share” means a Hut Share held by a Dissenting Shareholder who is ultimately determined to be entitled to be paid the fair value of his, her or its Hut Shares in respect of which such Dissenting Shareholder has exercised Dissent Rights.

 

“Dissenting Shareholder” means a registered holder of Hut Shares as of the record date for the Hut Meeting who has duly and validly exercised the Dissent Rights in respect of the Arrangement in strict compliance with the Dissent Rights and who has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights and who is ultimately determined to be entitled to be paid fair value of his, her or its Hut Shares in respect of which such Dissenting Shareholder has exercised Dissent Rights.

 

“Dissenting USBTC Share” means each USBTC Share outstanding immediately prior to the Effective Time held by a Dissenting USBTC Stockholder.

 

“Dissenting USBTC Stockholder” means, as of any particular time, a Person who or which is then entitled to, has theretofore properly asserted or exercised (to the extent such assertion or exercise has theretofore been required by the NRS) and has not theretofore withdrawn or otherwise waived, failed to exercise or otherwise lost, dissenter’s rights pursuant to the Nevada Dissenter’s Rights Statutes.

 

“DRS Advice” means a Direct Registration System advice.

 

“Economic Sanctions/Trade Laws” means all applicable Laws relating to anti-terrorism, the importation of goods, the exportation and re-exportation of goods, customs compliance, import/export controls, anti-boycott legislation, controlled goods and Sanctions Targets, including prohibited or restricted international trade and financial transactions and lists maintained by any Governmental Entity, agency, authority or Person targeting certain countries, territories, or Persons, including, without limiting the generality of the foregoing, the United States Export Administration Act and implementing Export Administration Regulations, the Canadian Export and Import Permits Act and the Export Control List , the Canadian Defence Production Act and the Controlled Goods Regulations, the Arms Export Control Act and implementing International Traffic in Arms Regulations, the Canadian Special Economic Measures Act, the Canadian United Nations Act, Part II.1 of the Canadian Criminal Code, the Canadian Justice for Victims of Corrupt Foreign Officials Act (Sergei Magnitsky Law), the Canadian Freezing Assets of Corrupt Foreign Officials Act, and the various economic sanctions laws administered by OFAC and GAC.

 

“EDGAR” means the Electronic Data Gathering, Analysis and Retrieval system of the SEC.

 

“Effective Date” means the date on which the Arrangement Filings are filed with the Registrar.

 

“Effective Time” means the Merger Effective Time.

 

“Environmental Law” means any Law relating to: (i) the protection, investigation or restoration of the environment or public health and safety matters; or (ii) the handling, use, presence, disposal, release or threatened release of any Hazardous Substance.

 

“Environmental Claim” means any claim, action, cause of action, order, proceeding, investigation or notice by any Person alleging liability (including potential liability for investigatory costs, cleanup costs, governmental response costs, natural resources damages, property damages, personal injuries, or penalties) arising out of, based on or resulting from (a) the presence, Release or threatened Release of any Hazardous Substances at any location, whether or not owned or operated by USBTC or Hut, or (b) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law.

 

“ERISA” means the Employee Retirement Income Security Act of 1974.

 

 

- 7 -

 

“ERISA Affiliate” means, with respect to any Person, each entity or trade in business that is or at any relevant time was treated as a single employer or part of a controlled group with such Person for purposes of Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the Code.

 

“Final Order” means the final order of the Court approving the Arrangement under Section 291 of the BCBCA, in a form acceptable to Hut and USBTC, each acting reasonably, after a hearing upon the procedural and substantive fairness of the terms and conditions of the Arrangement, as such order may be amended by the Court (with the consent of both Hut and USBTC, each acting reasonably) at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both Hut and USBTC, each acting reasonably) on appeal.

 

“GAC” means Global Affairs Canada.

 

“Governmental Entity” means: (i) any international, multinational, national, federal, provincial, territorial, state, regional, municipal, local or other government, governmental or public body, authority or department, central bank, court, tribunal, arbitral body, commission, board, bureau, commissioner, ministry, minister, governor in council, agency or instrumentality, domestic or foreign; (ii) any subdivision or authority of any of the above; (iii) any quasi-governmental, administrative or private body, including any tribunal, commission, committee, regulatory agency or self-regulatory organization, exercising any regulatory, expropriation or Taxing Authority under or for the account of any of the foregoing; or (iv) any national stock exchange, including Nasdaq and the TSX.

 

“Hazardous Substance” means any element, waste or other substance, whether natural or artificial, and whether consisting of gas, liquid, solid or vapor, that is prohibited, listed, defined, judicially interpreted, designated or classified as dangerous, hazardous, radioactive, explosive, toxic, a pollutant or a contaminant under or pursuant to any Environmental Laws.

 

“HSR Act” means the United States Hart-Scott-Rodino Antitrust Improvements Act of 1976.

 

“HSR Approval” means (a) all applicable filings pursuant to the HSR Act shall have been made and all applicable waiting periods (and any extension thereof) shall have expired or been terminated; and (b) there shall not be in effect any voluntary agreement between the Parties and the Antitrust Division of the United States Department of Justice nor the United States Federal Trade Commission pursuant to which the Parties have agreed not to consummate the transactions contemplated by this Agreement.

 

“Hut” has the meaning ascribed thereto in the preamble to this Agreement and includes Hut Amalco following the Amalgamation.

 

“Hut Amalco” means Hut as the continuing corporation following the Amalgamation.

 

“Hut Assets” means all of the assets, properties (real or personal), permits, rights, licenses or other privileges (whether contractual or otherwise) of Hut and its Subsidiaries.

 

“Hut Balance Sheet” has the meaning ascribed thereto in Section (8)(c) of Schedule “C”.

 

“Hut Balance Sheet Date” has the meaning ascribed thereto in Section (8)(c) of Schedule “C”.

 

 

- 8 -

 

“Hut Benefit Plan” means any benefit or compensation plan, program, policy, practice, agreement, Contract, arrangement or other obligation, whether or not funded or registered, which is sponsored or maintained by, or required to be contributed to, or with respect to which any potential liability is borne, by Hut or any of its Subsidiaries with respect to any of the Hut Employees or former Hut Employees or any current or former directors or individual independent contractors of Hut or any of its Subsidiaries (or any spouses, dependents, survivors or beneficiaries of any such Persons) and includes: (i) retirement, severance, termination, retention or change in control plans, programs or agreements; and (ii) deferred compensation, equity-based, incentive, bonus, retirement or supplemental retirement, profit sharing, pension, insurance, medical, welfare, fringe or other material benefits or remuneration of any kind, including for greater certainty the Hut Omnibus Incentive Plan and the Hut ESPP, but excluding Statutory Plans and individual employment Contracts.

 

“Hut Board” means the board of directors of Hut, as constituted from time to time.

 

“Hut Circular” means the notice of the Hut Meeting and accompanying management information circular (including all schedules, appendices and exhibits thereto) to be sent to Hut Shareholders in connection with the Hut Meeting, including any amendments or supplements thereto in accordance with the terms of this Agreement.

 

“Hut Compensation Warrants” means (i) the 144,000 warrants to acquire Hut Shares issued by Hut on June 15, 2021 and expiring on June 15, 2023; and (ii) the 70,200 warrants to acquire Hut Shares issued by Hut on September 17, 2021 and expiring on September 17, 2026.

 

“Hut Consideration Shares” means the New Hut Shares to be received by holders of Hut Shares (other than Dissenting Shareholders) pursuant to the Arrangement, in accordance with this Agreement.

 

“Hut Data” means all data contained in the Hut Systems and all other information and data compilations used by Hut or any of the Hut Subsidiaries, whether or not in electronic form.

 

“Hut Data Room Information” means the information contained in the files, reports, data, documents and other materials relating to Hut and its Subsidiaries as provided in the electronic data room established by Hut and hosted by Donnelley Financial Solutions Venue in connection with the transactions contemplated hereby as of the Data Room Cut-off Time.

 

“Hut Disclosure Letter” has the meaning ascribed thereto in Section 5.1(1).

 

“Hut DSUs” means the deferred share units of Hut issued pursuant to the Hut Omnibus Incentive Plan.

 

“Hut ESPP” means the employee share purchase plan of Hut approved at the annual and special meeting of Hut Shareholders held on June 23, 2021.

 

“Hut Employees” means the officers and employees of Hut and its Subsidiaries.

 

“Hut Exchange Ratio” means 0.2.

 

“Hut Fairness Opinions” means the opinions of Stifel GMP and Kroll, LLC to the effect that, as of the date hereof, the USBTC Exchange Ratio is fair, from a financial point of view, to Hut.

 

“Hut Financial Statements” means (i) the audited consolidated financial statements of Hut as at and for the financial years ended December 31, 2021 and 2020, and (ii) the Hut Interim Financial Statements, in each case prepared in accordance with IFRS as consistently applied by Hut.

 

 

- 9 -

 

“Hut Holdings” means Hut 8 Holdings Inc., a corporation existing under the BCBCA and a direct, wholly-owned subsidiary of Hut.

 

“Hut Interim Financial Statements” means the unaudited interim condensed consolidated financial statements of Hut for the three- and nine-month periods ended September 30, 2022 and 2021, in each case prepared in accordance with IFRS as consistently applied by Hut.

 

“Hut June 2021 Warrants” means the 11,500,000 warrants to acquire Hut Shares issued by Hut on June 15, 2021 and expiring on June 15, 2023.

 

“Hut Lease” has the meaning ascribed thereto in Section (16)(a) of Schedule “C”.

 

“Hut Leased Real Property” has the meaning ascribed thereto in Section (16)(a) of Schedule “C”.

 

“Hut Material Contract” has the meaning ascribed thereto in Section (15)(c) of Schedule “C”.

 

“Hut Material Subsidiaries” means Hut Holdings and Hut 8 High Performance Computing Inc.

 

“Hut Meeting” means the special meeting of the Hut Shareholders, including any adjournment or postponement thereof in each case in accordance with and subject to the express terms of this Agreement, the Interim Order and applicable Law, to be called and held in accordance with the Interim Order and applicable Law for the purpose of considering and, if thought advisable, approving the Arrangement Resolution and the Other Hut Resolutions, if any, and for any other purpose as may be set out in the Hut Circular and agreed to in writing by the Parties.

 

“Hut Omnibus Incentive Plan” means the omnibus long-term incentive plan of Hut approved at the annual and special meeting of Hut Shareholders held on June 23, 2021.

 

“Hut Options” means the outstanding stock options to purchase Hut Shares issued pursuant to the Hut Omnibus Incentive Plan.

 

“Hut Permits” has the meaning ascribed thereto in Section (14)(b) of Schedule “C”.

 

“Hut Public Disclosure Record” means all documents and instruments filed by it under Securities Laws on SEDAR or EDGAR prior to the Data Room Cut-off Time.

 

“Hut Resolutions” means, collectively: (i) the Arrangement Resolution; and (ii) the Other Hut Resolutions, if any.

 

“Hut RSUs” means the restricted share units of Hut issued pursuant to the Hut Omnibus Incentive Plan.

 

“Hut Replacement Option” means a Hut Option, as replaced pursuant to the Arrangement.

 

“Hut Share Exchange” means the transfer of each Hut Share (other than any Dissent Share) to New Hut pursuant to the Arrangement in exchange for which each holder shall be entitled to receive, for each Hut Share, a fraction of a New Hut Share equal to the Hut Exchange Ratio.

 

 

- 10 -

 

“Hut Shareholders” means the registered and/or beneficial holders of the Hut Shares, as the context requires.

 

“Hut Shares” means the common shares in the capital of Hut and, for the avoidance of doubt, includes the common shares in the capital of Hut Amalco following the Amalgamation.

 

“Hut Subsidiaries” means the Subsidiaries of Hut.

 

“Hut Support Agreements” means the voting support agreements dated the date hereof and made between USBTC and the Hut Supporting Shareholders.

 

“Hut Supporting Shareholders” means the directors and officers of Hut who are party to the Hut Support Agreements.

 

“Hut Systems” means all information technology and computer systems (including Software, information technology and telecommunication hardware and other equipment) relating to the generation, transmission, storage, maintenance or processing of data and information, whether or not in electronic form, used in the conduct of the business of Hut or any of the Hut Subsidiaries.

 

“Hut Warrants” means collectively, the Hut June 2021 Warrants and the Hut Compensation Warrants.

 

“IFRS” means International Financial Reporting Standards as issued by the International Accounting Standards Board and as applicable at the relevant time.

 

“Intellectual Property” means all intellectual property rights recognized throughout the world, including all Canadian, U.S. and foreign (i) patents, design patents, industrial designs, and applications for patents, design patents and industrial designs, patent applications, patent disclosures, and all related continuations, continuations-in-part, divisionals, reissues, re-examinations, substitutions, and extensions thereof, (ii) trademarks, service marks, names, business names, corporate names, trade names, domain names, social media accounts, logos, slogans, trade dress, distinguishing guises and other similar designations of source or origin, together with the goodwill symbolized by or associated with any of the foregoing, (iii) copyrights and copyrightable subject matter and works of authorship, (iv) integrated circuit topographies, mask works, mask work registrations and applications for mask work registrations; (v) proprietary rights in computer programs (whether in source code, object code, or other form), databases, algorithms, compilations and other collections of data, and in all documentation, including user manuals and training materials, related to any of the foregoing (collectively, “Software”), (vi) Trade Secrets, confidential information, ideas, know-how, inventions, proprietary processes, designs, technology, formulae, formulations, specifications, models and methodologies, and any documentation relating to any of the foregoing, and (vii) all applications and registrations for the foregoing.

 

“Intended Tax Treatment” has the meaning ascribed thereto in Section 3.8.

 

“Interim Order” means the interim order of the Court pursuant to section 291 of the BCBCA, in a form acceptable to Hut and USBTC, each acting reasonably, providing for, among other things, the calling and holding of the Hut Meeting, as such order may be amended, modified, supplemented or varied by the Court with the consent of Hut and USBTC, each acting reasonably, at any time prior to the Final Order or, if appealed, then unless such appeal is withdrawn or denied, as affirmed or as amended on appeal.

 

“Law” or “Laws” means, with respect to any Person, any and all applicable laws (statutory, common or otherwise), statute, constitution, treaty, convention, ordinance, code, rule, regulation, by-laws, order, injunction, judgment, decree, ruling or other similar requirement, whether domestic or foreign (i) enacted, adopted, promulgated or applicable by a Governmental Entity, (ii) that is binding upon or applicable to such Person or its business, undertaking, property, assets or securities, the terms and conditions of any Permit, and (iii) to the extent they have the force of law, policies, guidelines, notices and protocols of any Governmental Entity, as amended.

 

 

- 11 -

 

“Lien” means any mortgage, deed of trust, charge, pledge, hypothec, security interest, easement, right of way, zoning restriction, lien (statutory or otherwise), limitation or restriction on use, voting, exercise, possession or transfer (including any preferential offer or refusal right or similar entitlement), or other third party encumbrance, in each case, whether contingent or absolute and any agreement, option, right or privilege (whether by Law, Contract or otherwise) capable of becoming any of the foregoing.

 

“Matching Period” has the meaning ascribed to it in Section 7.4(1)(e).

 

“Material Adverse Effect” means, in relation to a Party, any change, effect, event, occurrence, state of facts or circumstance, that, individually or in the aggregate with other such changes, effects, events, occurrences, state of facts or circumstances, is, or would reasonably be expected to be, material and adverse to the business, operations, results of operations, assets, properties, capitalization, condition (financial or otherwise) or liabilities (contingent or otherwise) of that Party and its Subsidiaries, taken as a whole, except for and excluding any change, effect, event, occurrence, state of facts or circumstance resulting from or arising in connection with:

 

(a)any change, effect, event, occurrence, state of fact or circumstance generally affecting the industries (taking into account relevant geographies) in which such Party or any of its Subsidiaries operate;

 

(b)any change in global, national or regional political conditions or in general economic, business, regulatory, currency exchange, interest rate, inflationary conditions or financial, capital, energy or other commodity market conditions, in each case whether national or global;

 

(c)any act of terrorism or any outbreak of hostilities or declared or undeclared war, cyberterrorism, civil unrest, civil disobedience, sabotage, cybercrime, national or international calamity, military action, declaration of a state of emergency or any other similar event (including the current conflict between the Russian Federation and Ukraine), or any change, escalation or worsening thereof;

 

(d)any epidemics, pandemics or disease outbreak or other public health condition (including COVID-19 and the implementation of any COVID-19 Measures), earthquakes, volcanoes, tsunamis, hurricanes, tornados or other natural or man-made disasters or acts of God;

 

(e)any adoption, proposal, implementation or other change in Law, or interpretation of Law by any Governmental Entity, or proposed change in Law or interpretation of Law, in each case including any Laws in respect to Taxes, IFRS or regulatory accounting requirements, data centers, cryptocurrencies or other blockchain technology, in each case after the date hereof;

 

(f)any generally applicable change in applicable accounting principles, including IFRS and U.S. GAAP after the date hereof;

 

(g)the failure in and of itself of the Party to meet any internal or published projections, forecasts or guidance or estimates of revenues, earnings or cash flows of such Party or of any securities analysts (it being understood that the causes underlying such failure may, if not otherwise excluded from this definition of Material Adverse Effect, be deemed either alone or in combination to constitute, or be taken into account in determining whether a Material Adverse Effect has occurred);

 

 

- 12 -

 

(h)the announcement of this Agreement or the pendency of the Transaction, including the impact thereof on relationships with employees, customers, suppliers and distributors to the extent resulting from such announcement or existence;

 

(i)in respect of Hut only, any decrease in and of itself in the market price or any decline in and of itself in the trading volume of the equity securities of Hut (it being understood that the causes underlying such change in trading price or trading volume may, if not otherwise excluded from this definition of Material Adverse Effect, be deemed either alone or in combination to constitute, or be taken into account in determining whether a Material Adverse Effect in respect of Hut has occurred); or

 

(j)any actions taken (or omitted to be taken) (1) at the written request, or with the prior written consent, of the other Party hereto; (2) as required by Law; or (3) in accordance the terms of this Agreement,

 

but provided that (A) in the case of clauses (a) through (f), such change, effect, event, occurrence, state of facts or circumstance may be taken into account to the extent it has a materially adverse disproportionate impact or effect on the Party and its Subsidiaries taken as a whole, as compared to companies in comparable industries of comparable economic size, during the same period of time (in which case the extent (and only the extent) of the disproportionate impact or effect may be taken into account in determining whether there has been a Material Adverse Effect); and (B) references in certain sections of this Agreement to dollar amounts are not intended to be, and shall not be deemed to be, illustrative or interpretative for purposes of determining whether a Material Adverse Effect has occurred.

 

“Merger” means the merger of USBTC and Merger Subco pursuant to the NRS in accordance with this Agreement.

 

“Merger Effective Time” has the meaning ascribed to it in Section 4.1(1).

 

“Merger Subco” means a direct, wholly-owned Subsidiary of New Hut, to be incorporated under the NRS prior to the Effective Date solely for the purpose of effecting the Merger.

 

“Misrepresentation” means an untrue statement of a material fact or an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in light of the circumstances in which they are made.

 

“MI 61-101” means Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.

 

“Nasdaq” means The Nasdaq Stock Market LLC.

 

“Nevada Dissenter’s Rights Statutes” means NRS 92A.300 through 92A.500, inclusive, together with any relevant definitions pertaining thereto as set forth in NRS Chapter 92A.

 

“New Hut” has the meaning ascribed thereto in the preamble to this Agreement.

 

“New Hut Board” means the board of directors of New Hut, as constituted from time to time.

 

“New Hut Omnibus Incentive Plan” means the 10% “rolling” or evergreen” omnibus equity incentive plan of New Hut to be established by New Hut prior to the Effective Date, which shall be substantially in the form of the Hut Omnibus Incentive Plan, subject to such changes as Hut and USBTC, each acting reasonably, may agree to.

 

 

- 13 -

 

“New Hut Shares” means the shares of common stock, par value US$0.00001 each, in the capital of New Hut.

 

“No Action Letter” means written confirmation from the Commissioner indicating that the Commissioner does not, as of the date of such written confirmation, intend to make an application under section 92 of the Competition Act in respect of the transactions contemplated by this Agreement.

 

“NRS” means the Nevada Revised Statutes, as amended.

 

“OFAC” means the Office of Foreign Assets Control of the U.S. Treasury Department.

 

“Order” means any: (A) order, judgment, injunction, edict, decree, ruling, pronouncement, determination, decision, opinion, verdict, sentence, subpoena, writ or award issued, made, entered, rendered or otherwise put into effect by or under the authority of any court, administrative agency or other Governmental Entity or any arbitrator or arbitration panel; or (B) Contract with any Governmental Entity entered into in connection with any Action.

 

“Ordinary Course” means, with respect to an action taken by any Person, that such action is substantially consistent in nature and scope with the past practices of such Person and is taken in the ordinary operations of the business of such Person and, in any case, is not unreasonable in the circumstances when considered in the context of the provisions of this Agreement, and for greater certainty, all COVID-19 Response shall be deemed to have been taken in the Ordinary Course.

 

“Organizational Documents” means: (i) with respect to any Person that is a corporation, its articles, notice of articles, charter or certificate or articles of incorporation or memorandum and articles of association, as the case may be, and by-laws, and any shareholder agreement or similar agreement; (ii) with respect to any Person that is a partnership, its certificate of partnership and partnership agreement; (iii) with respect to any Person that is a limited liability company, its certificate of formation and limited liability company or operating agreement; (iv) with respect to any Person that is a trust or other entity, its declaration or agreement of trust or other constituent document; and (v) with respect to any Person similar to but not set out in (i) through (iv) of this definition, its comparable organizational documents (including a declaration of trust, partnership agreement, articles of continuance, arrangement or amalgamation).

 

“Other Hut Resolutions” means, collectively, any resolution that may be put before Hut Shareholders at the Hut Meeting at the written request of the TSX or Nasdaq in connection with the Transaction.

 

“Outside Date” means September 30, 2023 or such later date as may be agreed to in writing by the Parties, subject to the right of any Party to extend the Outside Date for up to an additional 60 days (in 30-day increments) if the Required Regulatory Approvals have not been obtained and have not been denied by a non-appealable decision of a Governmental Entity by giving written notice to the other Parties to such effect no later than 5:00 p.m. (Toronto time) on the date that is not less than two Business Days prior to the original Outside Date (and any subsequent Outside Date); provided that notwithstanding the foregoing, a Party shall not be permitted to extend the Outside Date if the failure to obtain any of the Required Regulatory Approvals is primarily the result of such Party’s failure to comply with its covenants herein; and provided further, that if the SEC has not declared the Registration Statement effective on or prior to September 30, 2023 the Outside Date shall be automatically extended to November 30, 2023.

 

“Parties” means, together, Hut, USBTC and New Hut, and “Party” means any one of them.

 

“Permit” means any lease, license, permit, certificate, consent, order, grant, approval, classification, registration or other authorization of or from any Governmental Entity.

 

 

- 14 -

 

“Permitted Liens” means, in respect of any Party or any of its Subsidiaries, any one or more of the following:

 

(a)easements, rights of way, servitudes and similar rights in land including rights of way and servitudes for highways and other roads, railways, sewers, drains, gas and oil pipelines, gas and water mains, electric light, power, telephone, telegraph or cable television conduits, poles, wires and cables that do not materially adversely affect the Hut Assets or the USBTC Assets, as the case may be;

 

(b)contractual or statutory mechanic’s, materialmen’s, warehouseman’s, journeyman’s, carrier’s and bank’s and securities intermediary’s Liens and other similar Liens arising in the Ordinary Course for amounts not yet delinquent and Liens for Taxes or assessments that are not yet delinquent or that are being contested in good faith and in each case for which adequate reserves have been established in accordance with U.S. GAAP (in the case of USBTC or the USBTC Subsidiaries) or IFRS (in the case of Hut or the Hut Subsidiaries) by the party responsible for payment thereof;

 

(c)such title defects as (A) Hut (in the case of title defects with respect to properties or assets of USBTC or any of the USBTC Subsidiaries) may have expressly waived in writing or (B) USBTC (in the case of title defects with respect to properties or assets of Hut or any of the Hut Subsidiaries) may have expressly waived in writing;

 

(d)customary rights of general application reserved to or vested in any Governmental Entity to control or regulate any of USBTC’s or Hut’s or their respective Subsidiaries’ properties or assets in any manner; provided however that such Liens, encumbrances, exceptions, agreements, restrictions, limitations, Contracts and rights (i) were not incurred in connection with any indebtedness and (ii) do not, individually or in the aggregate, have an adverse effect on the value or materially impair or add material cost to the use of the subject property;

 

(e)all Liens granted by USBTC, US Data Guardian LLC and the other Loan Parties (as defined in the Anchorage Loan Agreement) in favor of Anchorage pursuant to the Anchorage Loan Agreement; and

 

(f)all Liens granted by Hut or Hut Subsidiaries in favor of Galaxy Digital LLC, Trinity Capital Inc., Dell Financial Services Canada Limited, Bank of Montreal, Synnex Canada Limited and Independent System Operator.

 

“Person” includes any individual, partnership, limited partnership, association, body corporate, corporation, limited liability company, organization, joint venture, trust, estate, trustee, executor, administrator, legal representative, government (including a Governmental Entity), syndicate or other entity.

 

“Personal Information” means information that, alone or in combination with other information, allows the identification of an identifiable individual and includes any information that constitutes personal information within the meaning of all applicable Privacy Laws.

 

“Plan of Arrangement” means the plan of arrangement, substantially in the form set out in Schedule “A” hereto, subject to any amendments or variations to such plan made in accordance with this Agreement or made at the direction of the Court in the Final Order with the consent of Hut and USBTC, each acting reasonably.

 

“Pre-Closing Period” has the meaning ascribed to it in Section 6.1(1).

 

 

- 15 -

 

“Privacy Law” means all applicable Laws concerning the privacy, collection, storage, transfer, security, disclosure, processing or other use of Personal Information, and all regulations promulgated thereunder, including the Personal Information Protection and Electronic Documents Act (Canada) and any comparable applicable Law of any jurisdiction worldwide.

 

“Registrar” means the Registrar of Companies appointed under Section 400 of the BCBCA.

 

“Registration Statement” has the meaning ascribed thereto in 4.5(1).

 

“Regulatory Approval” means any consent, waiver, Permit, exemption, review, Order, decision or approval of, or any registration and filing with (including any notice required to be provided to), any Governmental Entity, or the expiry, waiver or termination of any waiting period imposed by Law or a Governmental Entity, and with respect to such consent, waiver, permit, exemption, review, order, decision or approval of, or any registration and filing with, any Governmental Entity, it shall not have been withdrawn, terminated, lapsed, expired or is otherwise no longer effective, in each case in connection with the Transaction and includes the Required Regulatory Approvals.

 

“Release” means any release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Substance in the outdoor environment, including the movement of Hazardous Substance through or in the air, soil, surface water, ground water or property.

 

“Replacement Securities” means: (i) in respect of Hut, collectively, Hut Replacement Options, Adjusted Hut RSUs and Adjusted Hut DSUs; and (ii) in respect of USBTC, the USBTC Replacement Options.

 

“Representatives”, with respect to any Party, means the officers, directors, employees, accountants, legal counsel, financial advisors, consultants, financing sources and other advisors and representatives of such Party and such Party’s Affiliates.

 

“Required Regulatory Approvals” means the Stock Exchange Approvals, the HSR Approval and the Competition Act Approval.

 

“Requisite Holders” has the meaning ascribed thereto in the USBTC articles of incorporation in effect as of the date of this Agreement.

 

“Sanctions Target” means (A) any country or territory that is the target of country-wide or territory-wide Economic Sanctions/Trade Laws; (B) a Person that is on the list of (i) Specially Designated Nationals and Blocked Persons or any of the other sanctions Persons lists published by OFAC, (ii) the Consolidated Canadian Autonomous Sanctions List administered by GAC, or (iii) any other equivalent list of sanctioned Persons issued by the U.S. Department of State, the United Nations, the European Union or Canada; (C) a Person that is located in or organized under the laws of a country or territory that is identified as the subject of country-wide or territory-wide Economic Sanctions/Trade Laws; or (D) an entity owned fifty percent (50%) or more or controlled by a country or territory identified in clause (A) or Person in clause (B) above.

 

“SEC” means the United States Securities and Exchange Commission.

 

“Securities Authority” means, as applicable, the Ontario Securities Commission, the SEC and any other applicable securities commission or securities regulatory authority of a province or territory of Canada or the United States, as applicable.

 

 

- 16 -

 

“Securities Laws” means, as applicable, the Securities Act (Ontario), U.S. Securities Laws and any other applicable Canadian provincial and territorial or United States securities Laws, rules, orders, notices, promulgations and regulations and published policies thereunder.

 

“SEDAR” means the System for Electronic Document Analysis Retrieval described in National Instrument 13-101 – System for Electronic Document Analysis and Retrieval of the Canadian Securities Administrators and available for public view at www.sedar.com.

 

“SOX” means the Sarbanes-Oxley Act of 2002.

 

“Statutory Plan” means any statutory benefit plans maintained by a Governmental Entity, including statutory employment/unemployment insurance, workers’ compensation, parental insurance, health insurance or pension plans.

 

“Stock Exchange Approvals” means: (A) the conditional approval of Nasdaq to list the New Hut Shares (including the Consideration Shares issuable in connection with the Transaction), and any New Hut Shares issuable upon the exercise or settlement of any Replacement Securities, in each case subject only to customary listing conditions, including customary post-closing deliveries; and (B) the conditional approval of the TSX to list the New Hut Shares (including the Consideration Shares issuable in connection with the Transaction), and any New Hut Shares issuable upon the exercise or settlement of any Replacement Securities, in each case subject only to customary listing conditions, including customary post-closing deliveries.

 

“Subsidiary” has the meaning ascribed thereto in National Instrument 45-106 – Prospectus Exemptions as in effect on the date of this Agreement.

 

“Superior Proposal” means an unsolicited bona fide written Acquisition Proposal from a Person who is an arm’s length third party, made after the date of this Agreement to acquire, directly or indirectly, (i) not less than all of the outstanding Hut Shares (other than Hut Shares beneficially owned by the Person or Persons making such Acquisition Proposal as of the date of such Acquisition Proposal), or (ii) all or substantially all of the assets of Hut on a consolidated basis that:

 

(a)complies with Securities Laws and did not result from or involve a breach of Article 7 of this Agreement or any agreement between the Person making such Acquisition Proposal and Hut or any of its Subsidiaries;

 

(b)is not subject to any financing condition and in respect of which it has been demonstrated to the satisfaction of the Hut Board, acting in good faith (in consultation with its financial advisors and its outside legal counsel) that the funds or other consideration necessary to complete the Acquisition Proposal are or will be available to fund completion of the Acquisition Proposal at the time and on the basis set out therein;

 

(c)is reasonably capable of being completed without undue delay, taking into account all legal, financial, regulatory and other aspects of such Acquisition Proposal and the Person or group of Persons making such Acquisition Proposal;

 

(d)is not subject to any due diligence condition; and

 

(e)the Hut Board determines, in good faith after consultation with its outside legal counsel and financial advisor(s) and after taking into account all the terms and conditions of the Acquisition Proposal, including all legal, financial, regulatory and other aspects of such Acquisition Proposal and the Person or group of Persons making such Acquisition Proposal, would, if consummated in accordance with its terms (but not assuming away any risk of non-completion), result in a transaction that is in the best interests of Hut and is more favourable to the Hut Shareholders, from a financial point of view, than the Transaction (including after considering any proposal to adjust the terms and conditions of the Transaction as contemplated by Section 7.4(2)).

 

 

- 17 -

 

“Superior Proposal Notice” has the meaning ascribed thereto in Section 7.4(1)(c).

 

“Surviving Corporation” means USBTC as the surviving corporation following consummation of the Merger.

 

“Tax” (including, with correlative meaning, the term “Taxes”) means: (i) any and all governmental taxes, duties, fees, excises, premiums, assessments, imposts, levies and other charges or assessments of any kind whatsoever, whether computed on a separate, consolidated, unitary, combined or other basis, including those levied on, or measured by, or described with respect to, income, gross receipts, profits, branch profits, franchise, gains, windfalls, capital, capital stock, production, recapture, transfer, land transfer, license, gift, occupation, wealth, consumption of resources, emissions, environment, net worth, indebtedness, surplus, sales, goods and services, harmonized sales, use, value-added, excise, special assessment, stamp, withholding, business, franchising, real or personal property, health, employee health, payroll, workers’ compensation, employment or unemployment, Statutory Plans, severance, social services, social security, education, utility, surtaxes, customs, import or export, and including all license and registration fees and all employment/unemployment insurance, health insurance and government pension plan premiums or contributions including any installments or prepayments in respect of any of the foregoing; (ii) all interest, penalties, fines, additions to tax imposed by any Governmental Entity on or in respect of amounts of the type described in clause (i) above or this clause (ii), whether disputed or not; (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period or as a result of being a transferee or successor in interest to any party; and (iv) any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of any express or implied obligation to indemnify any other Person or as a result of being a transferee or successor in interest to any party.

 

“Tax Act” means the Income Tax Act (Canada).

 

“Taxing Authority” means the United States Internal Revenue Service, the Canada Revenue Agency and any other domestic or foreign Governmental Entity responsible for the administration or collection of any Taxes.

 

“Tax Returns” means all returns and reports (including elections, designations, declarations, notices, disclosures, schedules, estimates and information returns) filed with or supplied to, or required to be filed with or supplied to, a Governmental Entity in connection with any Tax, including all amendments, attachments or supplements thereto and whether in tangible or electronic form.

 

“Terminating Party” has the meaning ascribed to it in Section 8.5(3).

 

“Termination Amount” means US$10,000,000.

 

“Termination Notice” has the meaning ascribed to it in Section 8.5(3).

 

“Trade Secret” means (i) confidential know how, methods, technical information, data, processes, or plans, and (ii) all trade secrets within the meaning of applicable Law.

 

 

- 18 -

 

“Transaction” means, collectively, the transactions contemplated by this Agreement to implement the business combination between Hut and USBTC, including the Arrangement and the Merger.

 

“TSX” means the Toronto Stock Exchange and any successor thereto.

 

“United States” means the United States of America, its territories and possessions, any State of the United States and the District of Columbia.

 

“U.S. Exchange Act” means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

 

“U.S. GAAP” means generally accepted accounting principles in the United States, as in effect from time to time.

 

“U.S. Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“U.S. Securities Laws” means the U.S. Securities Act and the U.S. Exchange Act.

 

“USBTC” has the meaning ascribed thereto in the preamble to this Agreement.

 

“USBTC Assets” means all of the assets, properties (real or personal), permits, rights, licenses or other privileges (whether contractual or otherwise) of USBTC and its Subsidiaries.

 

“USBTC Balance Sheet” has the meaning ascribed thereto in Section (8)(c) of Schedule “D”.

 

“USBTC Balance Sheet Date” has the meaning ascribed thereto in Section (8)(c) of Schedule “D”.

 

“USBTC Benefit Plan” means any benefit or compensation plan, program, policy, practice, agreement, Contract, arrangement or other obligation, whether or not funded or registered, which is sponsored or maintained by, or required to be contributed to, or with respect to which any potential liability is borne, by USBTC or any of its Subsidiaries with respect to any of the USBTC Employees or former USBTC Employees or any current or former directors or individual independent contractor of USBTC or any of its Subsidiaries (or any spouses, dependents, survivors or beneficiaries of any such Persons) and includes: (i) employment, individual consulting, retirement, severance, termination, retention or change in control plans, programs or agreements; and (ii) deferred compensation, equity-based, incentive, bonus, retirement, supplemental retirement, profit sharing, pension, insurance, medical, welfare, fringe or other material benefits or remuneration of any kind, including for greater certainty the USBTC Equity Incentive Plan, but excluding Statutory Plans.

 

“USBTC Board” means the board of directors of USBTC, as constituted from time to time.

 

“USBTC Common Stock” means the common stock of USBTC, US$0.00001 par value per share.

 

“USBTC Consent” means the written consent of the USBTC Stockholders to adopt and approve the USBTC Resolution and for any other purpose as may be set out therein and agreed to in writing by the Parties, such written consent executed by (i) the holders of at least a majority of the voting power of the outstanding shares of USBTC Common Stock and USBTC Preferred Stock consenting together as a single class on an as-converted-to-USBTC-Common-Stock basis; and (ii) the Requisite Holders consenting as a separate class.

 

 

- 19 -

 

“USBTC Consideration Shares” means the New Hut Shares to be received by USBTC Stockholders pursuant to the Merger, in accordance with this Agreement.

 

“USBTC Data” means all data contained in the USBTC Systems and all other information and data compilations used by USBTC or any of the USBTC Subsidiaries, whether or not in electronic form.

 

“USBTC Data Room Information” means the information contained in the files, reports, data, documents and other materials relating to USBTC and its Subsidiaries as provided in the electronic data room established by USBTC and hosted by Donnelley Financial Solutions Venue in connection with the transactions contemplated hereby as of the Data Room Cut-off Time.

 

“USBTC Disclosure Letter” has the meaning ascribed thereto in Section 5.1(1).

 

“USBTC Employees” means the officers and employees of USBTC and its Subsidiaries.

 

“USBTC Equity Incentive Plan” means the USBTC 2021 Equity Incentive Plan, as amended by the First Amendment thereto, dated July 30, 2021, the Second Amendment thereto, dated October 6, 2021, the Third Amendment thereto, dated September 1, 2022 and the Fourth Amendment thereto, dated January 5, 2023.

 

“USBTC Exchange Ratio” means 0.6716.

 

“USBTC Financial Statements” means (i) the audited consolidated financial statements of USBTC as at and for the financial years ended June 30, 2022 and June 30, 2021, and (ii) the USBTC Interim Financial Statements, in each case prepared in accordance with U.S. GAAP as consistently applied by USBTC.

 

“USBTC Information Statement” means the information statement to be sent to the USBTC Stockholders relating to a consent solicitation with respect to the USBTC Consent.

 

“USBTC Interim Financial Statements” means the unaudited interim condensed consolidated financial statements of USBTC for the three month period ended September 30, 2022 and September, 2021, in each case prepared in accordance with U.S. GAAP as consistently applied by USBTC.

 

“USBTC Lease” has the meaning ascribed thereto in Section (16)(a) of Schedule “D”.

 

“USBTC Leased Real Property” has the meaning ascribed thereto in Section (16)(a) of Schedule “D”.

 

“USBTC Material Contract” has the meaning ascribed thereto in Section (15)(b) of Schedule “D”.

 

“USBTC Material Subsidiaries” means U.S. Data Technologies Group Ltd., U.S. Data Group, Inc., US Mining Infrastructure Operations LLC, U.S. Data Energy Group, Inc., USMIO Charlie LLC, USMIO Delta LLC, USMIO Echo LLC, US Data Mining Energy Group Inc., U.S. Data Lone Star Inc., Pecos Data Technologies, LLC, US Data King Mountain LLC, US Data Guardian LLC and TZRC LLC.

 

“USBTC Option” means each option to purchase USBTC Common Stock that was granted under the USBTC Equity Incentive Plan.

 

 

- 20 -

 

“USBTC Permits” has the meaning ascribed thereto in Section (14)(b) of Schedule “D”.

 

“USBTC Preferred Stock” means the Series A preferred stock of USBTC, US$0.00001 par value per share, the Series B preferred stock of USBTC, US$0.00001 par value per share, the Series B-1 preferred stock of USBTC, US$0.00001 par value per share, and the Series C preferred stock, US$0.00001 par value per share.

 

“USBTC Replacement Option” has the meaning ascribed thereto in Section 2.3(3).

 

“USBTC Resolution” means the resolution(s) adopted by the USBTC Stockholders setting forth and granting the USBTC Stockholder Approval.

 

“USBTC Stockholder Approval” means the approval of this Agreement (generally and as the plan of merger for the Merger) and the Transaction, by the requisite USBTC Stockholders, including any consents, waivers, determinations or other approvals by any class or series of USBTC Shares required under the USBTC Organizational Documents or otherwise in connection with this Agreement or the transactions contemplated hereby.

 

“USBTC Stockholders” means the registered holders of USBTC Shares.

 

“USBTC Shares” means, collectively, the shares of USBTC Common Stock and USBTC Preferred Stock (or, in the event of a “Mandatory Conversion Time” as defined in the USBTC articles of incorporation in effect as of the date of this Agreement, the shares of USBTC Common Stock issued upon conversion of the outstanding shares of USBTC Preferred Stock), as applicable.

 

“USBTC Subsidiaries” means the Subsidiaries of USBTC and including for greater certainty the joint venture entities consisting of Copper Plains LLC and TZRC LLC.

 

“USBTC Support Agreements” means the voting support agreements dated the date hereof and made between Hut and the USBTC Supporting Stockholders.

 

“USBTC Supporting Stockholders” means the directors and officers of USBTC and other Persons who are USBTC Stockholders party to the USBTC Support Agreements.

 

“USBTC Systems” means all information technology and computer systems (including Software, information technology and telecommunication hardware and other equipment) relating to the generation, transmission, storage, maintenance or processing of data and information, whether or not in electronic form, used in the conduct of the business of USBTC or any of the USBTC Subsidiaries.

 

“WARN Act” means the Worker Adjustment and Retraining Notification Act of 1988, and similar state, local and foreign Laws related to plant closings, relocations, mass layoffs and employment losses.

 

1.2Certain Rules of Interpretation

 

In this Agreement, unless otherwise specified:

 

(1)Headings, etc. The provision of a Table of Contents, the division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and do not affect the construction or interpretation of this Agreement.

 

 

- 21 -

 

(2)Currency. All references to dollars or to “$” are references to Canadian dollars unless otherwise indicated. All references to U.S. dollars or to “US$” are references to United States dollars.

 

(3)Gender and Number. Any reference to gender includes all genders. Words importing the singular number also include the plural and vice versa.

 

(4)Certain Phrases, etc. The words: (i) “including”, “includes” and “include” mean “including (or includes or include) without limitation”; (ii) “day” means “calendar day”; (iii) “hereof”, “herein”, “hereunder” and words of similar import, will refer to this Agreement as a whole and not to any particular provision of this Agreement unless context requires otherwise; (iv) “the aggregate of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without duplication, of”; and (v) unless stated otherwise, “Article”, “Section”, “Subsection” and “Schedule” followed by a number or letter mean and refer to the specified Article or Section of or Schedule to this Agreement.

 

(5)Definition of “made available”. The term “made available” means: (i) complete and unredacted copies of the subject materials were included in the USBTC Data Room Information or the Hut Data Room Information, as applicable, in each case as of the Data Room Cut-off Time; or (ii) subject material was listed in the Hut Disclosure Letter or the USBTC Disclosure Letter, as applicable, and copies of such materials were provided to Hut or USBTC, as applicable.

 

(6)Statutes. Any reference to a statute refers to such statute, or successor thereto, and all rules, resolutions and regulations made under it, or its successor, respectively, as it or its successor, or they, may have been or may from time to time be amended or re-enacted, unless stated otherwise.

 

(7)Computation of Time. A period of time is to be computed as beginning on the day following the event that began the period and ending at 4:30 p.m. on the last day of the period, if the last day of the period is a Business Day, or at 4:30 p.m. on the next Business Day if the last day of the period is not a Business Day. If the date on which any action is required or permitted to be taken under this Agreement by a Person is not a Business Day, such action will be required or permitted to be taken on the next succeeding day which is a Business Day.

 

(8)Time References. References to time are to local time, New York City, New York unless expressly noted otherwise.

 

(9)Agreements. All references in this Agreement to any agreement, Contract, document or instrument means such agreement, Contract, document or instrument, as amended, restated or supplemented in accordance with the terms thereof, and includes all schedules, exhibits and other attachments, in each case as of the date hereof.

 

1.3Knowledge

 

Where any representation or warranty is expressly qualified by reference to the knowledge of Hut, it means the actual knowledge, after due and diligent inquiry regarding the relevant matter, of the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer or Senior Vice President of Operations of Hut. Where any representation or warranty is expressly qualified by reference to the knowledge of USBTC, it means the actual knowledge, after due and diligent inquiry regarding the relevant matter, of the Chief Executive Officer, President, Chief Financial Officer or Senior Vice President of Operations of USBTC.

 

 

- 22 -

 

1.4Accounting Terms

 

(1)All accounting terms used in respect of Hut are to be interpreted in accordance with IFRS and all determinations of an accounting nature in respect of Hut required to be made will be made in a manner consistent with IFRS, in each case as consistently applied by Hut.

 

(2)All accounting terms used in respect of USBTC are to be interpreted in accordance with U.S. GAAP and all determinations of an accounting nature in respect of USBTC required to be made will be made in a manner consistent with U.S. GAAP, in each case as consistently applied by USBTC.

 

1.5Subsidiaries

 

To the extent any covenants or agreements relate, directly or indirectly, to a Subsidiary of Hut or USBTC, each such provision will be construed as a covenant by Hut or USBTC, as applicable, to cause (to the fullest extent to which it is legally capable) such Subsidiary to perform the required action.

 

1.6Consent

 

If any provision requires approval or consent of a Party and such approval or consent is not delivered within the specified time limit, the Party whose consent or approval is required will be conclusively deemed to have withheld its approval or consent, unless otherwise mutually agreed by the Parties.

 

1.7Schedules

 

The schedules attached to this Agreement form an integral part of this Agreement.

 

Article 2
CLOSING OF THE TRANSACTION

 

2.1Effective Date and Closing

 

(1)Subject to obtaining the Final Order and to the satisfaction or, where not prohibited, the waiver (subject to applicable Laws) by the Party or Parties in whose favour the condition is, of each of the conditions set out in Article 8 (excluding conditions that by their terms cannot be satisfied until the Effective Date, but subject to the satisfaction or, where not prohibited, waiver by the Party or Parties in whose favour the condition is, of those conditions as of the Effective Date), the consummation of the Transaction (including the Arrangement and the Merger) (the “Closing”) shall occur on the Effective Date.

 

(2)The Closing, other than the filing of the Arrangement Filings and the Articles of Merger, shall take place remotely via electronic exchange of documents, or in such other manner or at such other location, as may be agreed upon between the Parties.

 

(3)At the Closing and on the Effective Date, the Parties shall cause the consummation of the Arrangement and Merger to occur in the following order, upon the terms and subject to the conditions of this Agreement:

 

(a)Hut shall cause the Arrangement Filings to be filed in accordance with Section 3.7, so that the Arrangement will become effective at the Arrangement Effective Time; and

 

 

- 23 -

 

(b)USBTC and Merger Subco shall cause the Articles of Merger to be filed with the Nevada Secretary of State in accordance with Article 4, so that the Merger will become effective at the Merger Effective Time.

 

The Parties hereby confirm that the Merger Effective Time shall not occur until after the completion of each of the steps of the Arrangement that commence upon the occurrence of the Arrangement Effective Time.

 

2.2Exchange of Hut Securities

 

On the Effective Date, upon the Arrangement becoming effective, the Hut Shares, the Hut Options, the Hut RSUs, the Hut DSUs and the Hut Warrants shall be dealt with in accordance with and subject to the provisions of the Plan of Arrangement.

 

2.3Exchange of USBTC Securities

 

On the Effective Date, at the Merger Effective Time and in accordance with the Articles of Merger, by virtue of the Merger and without any action on the part of any USBTC Stockholder (but in the case of paragraph 2.3(3) below, subject to any necessary action of the USBTC Board, which shall be taken prior to the Effective Date):

 

(1)Each USBTC Share (other than Dissenting USBTC Shares and treasury USBTC Shares) issued and outstanding immediately prior to the Merger Effective Time shall be exchanged for that number of New Hut Shares equal to the USBTC Exchange Ratio.

 

(2)Each Dissenting USBTC Share shall cease to be outstanding, shall be cancelled and shall cease to exist, and shall thereafter only constitute the rights, if any, available under the Nevada Dissenter’s Rights Statutes, in accordance with and subject to the provisions of Section 2.7.

 

(3)Each USBTC Option outstanding immediately prior to the Merger Effective Time shall automatically be exchanged for an option (each, a “USBTC Replacement Option”) entitling the holder to purchase that number of New Hut Shares equal to the product obtained when the number of shares of USBTC Common Stock subject to such USBTC Option immediately prior to the Merger Effective Time is multiplied by the USBTC Exchange Ratio (rounded down to the nearest whole share), which USBTC Replacement Option shall (i) have an exercise price for each New Hut Share that may be purchased under such USBTC Replacement Option equal to the quotient obtained when the exercise price per share of USBTC Common Stock, as of immediately prior to the Merger Effective Time, under such exchanged USBTC Option is divided by the USBTC Exchange Ratio (rounded up to the nearest whole cent) and (ii) other than such changes as set out in Section 2.3(3) of the USBTC Disclosure Letter, otherwise have the same terms and conditions (including vesting, exercisability terms and expiry date) as were applicable to such USBTC Option immediately prior to the Merger Effective Time, other than the exercise price and number and kind of shares that may be purchased and conforming changes to take into account the Merger. Subject to the approval of the TSX, the USBTC Replacement Options shall be governed by a plan adopted by New Hut which is identical to the USBTC Equity Incentive Plan other than conforming changes to take into account the Merger, including that the USBTC Replacement Options represent the rights to purchase New Hut Shares and that the plan is sponsored by New Hut. The adjustments made to the USBTC Options pursuant to this Section 2.3(3) shall be made in a manner consistent with the requirements of Treasury Regulation Section 1.409A-1(b)(5), to the extent applicable, and, with respect to USBTC Options that are intended to be “incentive stock options” within the meaning of Section 422 of the Code, Treasury Regulation Section 1.424-1.

 

 

- 24 -

 

(4)All USBTC Shares held in the treasury of USBTC immediately prior to the Merger Effective Time shall be automatically canceled without any conversion thereof and cease to exist and no payment or distribution shall be made with respect thereto.

 

(5)Each share of Merger Subco issued and outstanding immediately prior to the Effective Time shall be converted into and exchanged for one (1) validly issued, fully paid and non-assessable share of the Surviving Corporation.

 

2.4Deposit of New Hut Shares Issuable Pursuant to the Arrangement and Merger; Exchange Procedures

 

(1)Prior to the Effective Date, New Hut shall deliver, or cause to be delivered, to the Depositary in escrow pending the Arrangement Effective Time and Merger Effective Time, sufficient New Hut Shares (and any treasury directions addressed to New Hut’s transfer agent as may be necessary) to satisfy (i) the aggregate number of Hut Consideration Shares, and (ii) the aggregate number of USBTC Consideration Shares.

 

(2)As soon as practicable after the Effective Time and in any event not later than the third Business Day following the Effective Date, New Hut shall cause the Depositary to mail to each holder of record of a certificate (a “Hut Certificate”) or book-entry share (a “Hut Book-Entry Share”) that immediately prior to the Arrangement Effective Time represented outstanding Hut Shares, as applicable, and to each holder of record of an electronic certificate administrated by Carta, Inc. (a “USBTC Electronic Certificate”) that immediately prior to the Merger Effective Time represented such holder’s USBTC Shares, as applicable, whose shares were converted into the right to receive the applicable Consideration Shares, (i) a letter of transmittal (which shall specify that delivery shall be effected, and that risk of loss and title to the Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates shall pass, only upon delivery of the Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates to the Depositary, and which shall be in form and substance reasonably satisfactory to New Hut) and (ii) instructions for use in effecting the surrender of the Hut Certificates, Hut Book-Entry Shares and USBTC Electronic Certificates in exchange for the applicable Consideration Shares. Upon surrender of a Hut Certificate, Hut Book-Entry Share or USBTC Electronic Certificate, as applicable, for cancellation to the Depositary, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, and such other documents as may reasonably be required by the Depositary, the holder of such Hut Certificate, Hut Book-Entry Share or USBTC Electronic Certificate shall be entitled to receive in exchange therefor that number of Consideration Shares that such holder has the right to receive pursuant to this Article 2, and the Hut Certificate, Hut Book-Entry Share or USBTC Electronic Certificate so surrendered shall forthwith be cancelled. If any portion of the applicable Consideration Shares is to be registered in the name of a Person other than the Person in whose name the applicable surrendered Hut Certificate, Hut Book-Entry Share or USBTC Electronic Certificate is registered, it shall be a condition to the registration thereof that the surrendered Hut Certificate, Hut Book-Entry Share or USBTC Electronic Certificate shall be in proper form for transfer and that the Person requesting such delivery of the Consideration Shares shall pay to the Depositary any and all transfer and other similar Taxes required to be paid as a result of such registration in the name of a Person other than the registered holder of such Hut Certificate, Hut Book-Entry Share or USBTC Electronic Certificate or establish to the satisfaction of the Depositary that such Taxes have been paid or are not applicable. Until surrendered as contemplated by this Section 2.4, each Hut Certificate, Hut Book-Entry Share or USBTC Electronic Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the applicable Consideration Shares. No interest shall be paid or shall accrue for the benefit of holders of Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates on the applicable Consideration Shares payable upon the surrender of Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates.

 

 

- 25 -

 

(3)All Consideration Shares issued upon the surrender for exchange of Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates in accordance with the terms of this Article 2 shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the Hut Shares or the USBTC Shares, as applicable, theretofore represented by such Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates, and there shall be no further registration of transfers on the share transfer books of Hut of the Hut Shares that were outstanding immediately prior to the Arrangement Effective Time, or the Surviving Corporation of the USBTC Shares that were outstanding immediately prior to the Merger Effective Time. If, after the Effective Time, Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates are presented to New Hut or the Depositary for any reason, they shall be canceled and exchanged as provided in this Article 2, except as otherwise provided by Law.

 

(4)Any portion of the Consideration Shares made available to the Depositary pursuant to Section 2.4(1) that remains undistributed to the holders of the Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates for one year after the Effective Time shall be delivered to New Hut, and any holders of the Hut Certificates, Hut Book-Entry Shares or USBTC Electronic Certificates who have not theretofore complied with this Article 2 shall thereafter be entitled to look only to New Hut for payment of their claim for any New Hut Shares. Any amounts remaining unclaimed by such holders at such time at which such amounts would otherwise escheat to or become property of any Governmental Entity shall become, immediately prior to such time, to the extent permitted by applicable Law, the property of New Hut, free and clear of all claims or interest of any Person previously entitled thereto. None of New Hut, Hut, USBTC or the Depositary shall be liable to any Person in respect of any portion of the Consideration Shares delivered to a public official pursuant to any applicable abandoned property, escheat or similar Law.

 

(5)If any Hut Certificate shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Hut Certificate to be lost, stolen or destroyed and, if required by New Hut or the Depositary, the posting by such Person of a bond in such reasonable amount as New Hut or the Depositary, as applicable, may direct as indemnity against any claim that may be made against it with respect to such Hut Certificate, the Depositary shall deliver in exchange for such lost, stolen or destroyed Hut Certificate, the Consideration Shares with respect to the Hut Shares formerly represented thereby pursuant to this Agreement.

 

2.5No Fractional New Hut Shares

 

No fractional New Hut Shares will be delivered to Hut Shareholders entitled to receive Hut Consideration Shares pursuant to the Arrangement or to USBTC Stockholders entitled to receive USBTC Consideration Shares pursuant to the Merger. The aggregate number of New Hut Shares that a Hut Shareholder is otherwise entitled to receive pursuant to the Arrangement or that a USBTC Stockholder is otherwise entitled to receive pursuant to the Merger will, in each case, be rounded down to the nearest whole number of New Hut Shares.

 

2.6Withholding Taxes

 

Hut, USBTC, New Hut, Merger Subco or the Depositary, as applicable, shall be entitled to deduct or withhold, from any amounts payable or otherwise deliverable to any Person pursuant to the Arrangement, the Merger or this Agreement (including, without limitation, any payments to Dissenting Shareholders or Dissenting USBTC Stockholders) such amounts as Hut, USBTC, New Hut, Merger Subco or the Depositary, as applicable, determines, acting reasonably, are required to be deducted or withheld with respect to such payment or delivery under the Tax Act, the Code or any provision of any other applicable Laws. To the extent that such amounts are so deducted or withheld, such amounts shall be treated for all purposes under this Agreement as having been paid to the Person to whom such amounts would otherwise have been paid, provided that such deducted or withheld amounts are actually remitted to the appropriate Taxing Authority. Each of Hut, USBTC, New Hut, Merger Subco or the Depositary, as applicable, is hereby authorized to sell or otherwise dispose of, on behalf of such Person, such portion of any share or other security deliverable to such Person as is necessary to provide sufficient funds to Hut, USBTC, New Hut, Merger Subco or the Depositary, as the case may be, to enable it to comply with such deduction or withholding requirement and Hut, USBTC, New Hut, Merger Subco or the Depositary shall notify such Person thereof and remit the applicable portion of the net proceeds of such sale to the appropriate Taxing Authority and, if applicable, any portion of such net proceeds that is not required to be so remitted shall be paid to such Person.

 

 

- 26 -

 

2.7Dissenter’s Rights for USBTC Stockholders

 

No holder of shares of USBTC Shares will have or be entitled to assert dissenter’s rights or any other rights of appraisal, pursuant to the NRS or otherwise, as a result of or in connection with this Agreement and the transactions contemplated hereby (including the Merger), except as and only to the extent mandated by the Nevada Dissenter’s Rights Statutes. No Dissenting USBTC Stockholder shall be entitled to receive any portion of the USBTC Consideration Shares payable in the Merger with respect to the Dissenting USBTC Shares formerly owned by such Dissenting USBTC Stockholder. Each Dissenting USBTC Stockholder shall be entitled to receive only the payment of the fair value (as defined in NRS 92A.320) of the Dissenting USBTC Shares formerly owned by such Dissenting USBTC Stockholder, as determined in accordance with the Nevada Dissenter’s Rights Statutes, but only if and to the extent such Dissenting USBTC Stockholder has duly perfected and not withdrawn or otherwise lost, and is otherwise entitled to, dissenter’s rights in accordance with the Nevada Dissenter’s Rights Statutes. USBTC shall give Hut and New Hut (i) prompt notice and copies of any written demands for dissenter’s rights under the Nevada Dissenter’s Rights Statutes, attempted or purported withdrawals of such demands and any other instruments received by such Party relating to any Person’s assertion or exercise of, or demand for, dissenter’s rights under the Nevada Dissenter’s Rights Statutes and (ii) the opportunity to participate in all negotiations and legal proceedings with respect to any such assertion, demand or exercise. USBTC shall not, except with the prior written consent of the other Parties, or as required by the Nevada Dissenter’s Rights Statutes, make any payment with respect to any assertion or exercise of, or demand for dissenter’s rights under the Nevada Dissenter’s Rights Statutes, offer to settle or settle any such assertion, demand or exercise or approve any withdrawal of any such assertion, demand or exercise, or agree, authorize or commit to do any of the foregoing. If any Dissenting USBTC Stockholder withdraws its assertion or exercise of, or demand for dissenter’s rights under the Nevada Dissenter’s Rights Statutes or otherwise waives or loses such dissenter’s rights with respect to any USBTC Shares, such USBTC Shares shall be deemed to have been converted as of the Merger Effective Time into the right to receive, without any interest thereon, the applicable USBTC Consideration Shares as determined pursuant to Section 2.3.

 

2.8Announcement and Shareholder Communications

 

The Parties shall issue a joint press release with respect to this Agreement and the Transaction promptly following the execution of this Agreement, the text of such announcement to be in the form approved by USBTC and Hut in advance, acting reasonably and without delay. USBTC and Hut agree to co-operate in the preparation of presentations, if any, to the Hut Shareholders and USBTC Stockholders regarding the Transaction, and neither Hut nor USBTC shall issue any news release or otherwise make public announcements with respect to this Agreement or the Transaction without the consent of the other Parties (which consent shall not be unreasonably withheld, delayed or conditioned), provided however that the foregoing shall be subject to each Party’s overriding obligation to make any disclosure or filing, in the opinion of its legal counsel, required under applicable Laws or, in the case of Hut, stock exchange rules, and the Party making such disclosure shall use all commercially reasonable efforts to give prior oral or written notice to the other Parties and reasonable opportunity to review or comment on the disclosure or filing and give reasonable consideration to any such comment, and if such prior notice is not possible, to give such notice immediately following the making of such disclosure or filing.

 

 

- 27 -

 

2.9Hut ESPP

 

Subject to the terms and conditions of the Hut ESPP, Hut shall promptly following execution of this Agreement, suspend all future participation under the Hut ESPP and provide participants with notice of the intention of Hut to terminate the Hut ESPP effective as of immediately prior to the Effective Time, provided that, for greater certainty, Hut shall comply with all of its existing obligations incurred or accrued in connection with the Hut ESPP prior to the time at which termination thereof is effective.

 

2.10Reservation of New Hut Shares and Registration Statement

 

Prior to the Effective Time, the Parties shall cause New Hut to reserve for issuance such number of New Hut Shares as is necessary to effectuate the transactions contemplated by Sections 2.2 and 2.3 with respect to Hut Replacement Options, Adjusted Hut RSUs, Adjusted Hut DSUs and USBTC Replacement Options. New Hut shall prepare and, as soon as practicable following the effective date of the Registration Statement, file with the SEC a registration statement on Form S-8 or other appropriate form with respect to New Hut Shares subject to the Hut Replacement Options, Adjusted Hut RSUs, Adjusted Hut DSUs and USBTC Replacement Options.

 

Article 3
THE ARRANGEMENT

 

3.1Implementation of the Arrangement

 

The Arrangement will be implemented in accordance with and subject to the terms and conditions of this Agreement, the Plan of Arrangement, the Interim Order and the Final Order.

 

3.2Interim Order

 

(1)Hut covenants that it will, in a manner acceptable to USBTC, acting reasonably, in accordance with the provisions of the BCBCA, in cooperation with USBTC, prepare, file and diligently pursue an application for the Interim Order, which shall provide, among other things:

 

(a)for the class of Persons to whom notice is to be provided in respect of the Arrangement and the Hut Meeting and for the manner in which such notice is to be provided;

 

(b)confirmation of the record date for the purposes of determining the Hut Shareholders entitled to receive notice of and vote at the Hut Meeting;

 

(c)that the record date for Hut Shareholders entitled to notice of and to vote at the Hut Meeting need not change in respect of any adjournment(s) or postponement(s) of the Hut Meeting or any other change, unless required by Law;

 

(d)that the requisite approval for the Arrangement Resolution shall be at least: (i) 66 2/3% of the votes cast on the Arrangement Resolution by holders of Hut Shares, present in person or represented by proxy and entitled to vote at the Hut Meeting; and (ii) if applicable, a majority of the votes attached to Hut Shares held by Hut Shareholders present in person or represented by proxy and entitled to vote at the Hut Meeting excluding for this purpose votes attached to Hut Shares held by Persons described in items (a) through (d) of Section 8.1(2) of MI 61-101;

 

 

- 28 -

 

(e)for the grant of Dissent Rights to registered holders of the Hut Shares as contemplated in the Plan of Arrangement;

 

(f)for the notice requirements with respect to the presentation of the application to the Court for the Final Order;

 

(g)that the Hut Meeting may be adjourned or postponed from time to time by management of Hut, subject to the terms of this Agreement, without the need for additional approval of the Court and without the necessity of first convening the Hut Meeting or first obtaining any vote of the Hut Shareholders respecting the adjournment or postponement, and notice of any such adjournment or postponement shall be given by such method as the Hut Board may determine is appropriate in the circumstances;

 

(h)that the Hut Meeting may be held in-person or be a virtual meeting or hybrid meeting whereby Hut Shareholders may join virtually;

 

(i)that in all other respects, the terms, conditions and restrictions of Hut’s Organizational Documents, including quorum requirements and other matters, shall apply with respect to the Hut Meeting;

 

(j)that each Hut Shareholder and any other affected Person shall have the right to appear before the Court at the hearing of the Court to approve the application for the Final Order so long as they enter a response within a reasonable time; and

 

(k)for such other matters as the Parties may reasonably require, subject to obtaining the prior written consent of the other Parties, such consent not to be unreasonably withheld, conditioned or delayed.

 

(2)In seeking the Interim Order, Hut shall advise the Court that it is the intention of the Parties to rely upon the exemption from registration provided by Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of all Hut Consideration Shares and Hut Replacement Options to be issued pursuant to the Arrangement, based upon and conditioned on the Court’s approval of the Arrangement and its determination that the Arrangement is fair and reasonable to holders of Hut Shares and Hut Options, as applicable, to whom such securities will be issued by New Hut pursuant to the Arrangement, following a hearing and after consideration of the substantive and procedural terms and conditions thereof.

 

3.3The Hut Meeting

 

(1)Subject to the terms of this Agreement and receipt of the Interim Order, Hut covenants that it will:

 

(a)convene and conduct the Hut Meeting in accordance with the Interim Order, Hut’s Organizational Documents and applicable Law, and, in this regard, Hut may abridge any time periods that may be abridged under Securities Laws for the purpose of considering the Hut Resolutions and for any other proper purpose as may be set out in the Hut Circular and agreed to by USBTC, acting reasonably; set the record date for the Hut Shareholders entitled to vote at the Hut Meeting; and not adjourn, postpone or cancel (or propose the adjournment, postponement or cancellation of) the Hut Meeting without the prior written consent of USBTC except as required under Section 7.4(5), Section 8.5(3) or as required for quorum purposes (in which case the Hut Meeting will be adjourned and not cancelled) or reasonably required by Law or by a Governmental Entity;

 

 

- 29 -

 

(b)use its commercially reasonable efforts to solicit proxies in favour of the approval of the Hut Resolutions and against any resolution submitted by any Hut Shareholder that is inconsistent with the Hut Resolutions and the completion of any of the transactions contemplated herein, including, if otherwise determined necessary or advisable by Hut or if so requested by USBTC, acting reasonably, using investment dealers and proxy solicitation services firms selected by Hut (acceptable to USBTC, acting reasonably) to solicit proxies in favour of the approval of the Hut Resolutions and against any resolution submitted by any Hut Shareholder that is inconsistent with the Hut Resolutions;

 

(c)consult with USBTC in fixing the date of the Hut Meeting and the record date of the Hut Meeting;

 

(d)promptly provide USBTC with copies of or access to information regarding the Hut Meeting generated by any transfer agent, dealer or proxy solicitation services firm, as reasonably requested from time to time by USBTC;

 

(e)promptly advise USBTC, at such times as USBTC may reasonably request, and at least once daily for the ten (10) Business Days immediately preceding the Hut Meeting, as to the aggregate tally of the proxies received by Hut in respect of the Hut Resolutions;

 

(f)give notice to USBTC of the Hut Meeting and allow Representatives of USBTC to attend the Hut Meeting;

 

(g)subject to Section 6.10, promptly advise USBTC of any communication (written or oral) from any Person in opposition to the Arrangement, written notice of dissent or purported exercise or withdrawal of Dissent Rights by Hut Shareholders, and provide USBTC with an opportunity to review and comment upon any written communications sent by or on behalf of Hut to any such Person and to participate in any discussions, negotiations or proceedings involving such Person;

 

(h)not pay, settle or compromise or agree to any payment, settlement or compromise any claims regarding the Transaction or claims for Dissent Rights without the prior written consent of USBTC (such consent not to be unreasonably withheld, conditioned or delayed);

 

(i)not change the record date for the Hut Shareholders entitled to vote at the Hut Meeting in connection with any adjournment or postponement of the Hut Meeting unless required by applicable Law or the Court or with the prior written consent of USBTC (such consent not to be unreasonably withheld, conditioned or delayed);

 

(j)at the request of USBTC from time to time, provide USBTC with a list (in both written and electronic form) of (i) the Hut Shareholders, together with their addresses and respective holdings of Hut Shares, (ii) the names, addresses and holdings of all Persons having rights issued by Hut to acquire Hut Shares (including holders of convertible securities of Hut), and (iii) participants and book-based nominee registrants such as CDS & Co., CEDE & Co. and DTC, and non-objecting beneficial owners of Hut Shares, together with their addresses and respective holdings of Hut Shares, as applicable; and

 

 

- 30 -

 

(k)if the Hut Meeting is to be held during a Matching Period, at the request of USBTC, adjourn or postpone the Hut Meeting to a date specified by USBTC that is not later than ten (10) Business Days after the date on which the Hut Meeting was originally scheduled and in any event to a date that is not later than five (5) Business Days prior to the Outside Date.

 

3.4The Hut Circular

 

(1)Hut will: (i) subject to USBTC’s compliance with Section 3.4(4), prepare and complete, in consultation with USBTC, the Hut Circular, together with any other documents required by Law in connection with the Hut Meeting and the Arrangement; and (ii) cause the Hut Circular, and such other documents as may be required by Law or the rules of the TSX and Nasdaq, respectively, to be filed with or furnished to the Securities Authorities, the TSX and Nasdaq, as applicable, and disseminated to each Hut Shareholder and other Person as required by the Interim Order and Law.

 

(2)Hut will ensure that, as of the date of the Hut Circular, the Hut Circular complies in all material respects with the Interim Order and Law, does not contain any Misrepresentation (other than with respect to any information relating to and furnished in writing by USBTC for inclusion in the Hut Circular) and provides the Hut Shareholders with sufficient information to permit them to form a reasoned judgement concerning the matters to be placed before the Hut Meeting. Without limiting the generality of the foregoing, the Hut Circular must include: (i) a copy of the Hut Fairness Opinions; (ii) a statement that the Hut Board has received the Hut Fairness Opinions; (iii) a statement that the Hut Board has unanimously, after consultation with its legal and financial advisors, determined (A) that the Transaction is fair to Hut Shareholders; (b) that the Transaction is in the best interests of Hut; and (C) Hut Board unanimously recommends that Hut Shareholders vote in favour of the Hut Resolutions (collectively, the “Board Recommendation”); and (iv) a statement that each of the Hut Supporting Shareholders intends to vote all of such Person’s Hut Shares in favour of the Hut Resolutions subject to the terms of the Hut Support Agreements.

 

(3)Hut will allow USBTC, and its legal counsel a reasonable opportunity to review and comment on drafts of the Hut Circular and other related documents prior to filing the Hut Circular with applicable Securities Authorities or Governmental Entities and mailing the Hut Circular to Hut Shareholders, and will incorporate therein all reasonable comments made by USBTC and its legal counsel. Hut agrees that all information relating solely to USBTC that is furnished in writing by or on behalf of USBTC for inclusion in the Hut Circular or other related documents must be in a form and content satisfactory to USBTC, acting reasonably. Hut shall provide USBTC with a final copy of the Hut Circular prior to mailing to the Hut Shareholders. Hut shall notify USBTC promptly of any request from any Security Authority or any other Governmental Entity relating to the Hut Circular and shall promptly make available to USBTC copies of all documents, correspondence and summary of discussions between it or any of its Representatives, on the one hand, and any Securities Authority or other Governmental Entity, on the other hand, with respect to the Hut Circular.

 

(4)USBTC will provide to Hut in writing all information concerning USBTC reasonably requested by Hut and required by Law to be included by Hut in the Hut Circular or other related documents, and will ensure that such information does not contain any Misrepresentation. The Parties will also cooperate in the preparation of all other information that may concern both USBTC and Hut as reasonably requested by Hut and required by Law (including pro forma financial statements and any required reconciliations or adjustments, as applicable). Hut and USBTC shall use their commercially reasonable efforts to obtain any necessary consents from any of their respective auditors and any other advisors to the use of any financial, technical or other expert information required to be included in the Hut Circular and to the identification in the Hut Circular of each such advisor.

 

 

- 31 -

 

(5)Hut and USBTC will promptly notify each other if any of them becomes aware that the Hut Circular contains a Misrepresentation or otherwise requires an amendment or supplement. The Parties will cooperate in the preparation of any such amendment or supplement as required or appropriate and Hut will promptly mail, file or otherwise publicly disseminate any such amendment or supplement to those Persons to whom the Hut Circular was sent pursuant to Section 3.4(1) and, if required by the Court or by Law, file the same with the Securities Authorities or any other Governmental Entity as required.

 

3.5Final Order

 

If: (1) the Interim Order is obtained; and (2) the Hut Resolutions are passed at the Hut Meeting by the Hut Shareholders as provided for in the Interim Order and as required by applicable Law, subject to the terms of this Agreement, Hut shall as soon as reasonably practicable thereafter, and in any event within three Business Days thereafter, take all steps necessary or advisable to submit the Arrangement to the Court and diligently pursue an application for the Final Order pursuant to the BCBCA on terms satisfactory to the Parties, each acting reasonably.

 

3.6Court Proceedings

 

Subject to the terms of this Agreement, USBTC will cooperate with, assist and consent to Hut seeking the Interim Order and the Final Order, including by providing Hut on a timely basis any information required to be supplied by USBTC or New Hut in connection therewith. Hut will provide legal counsel to USBTC with a reasonable opportunity to review and comment upon drafts of all material to be filed with the Court in connection with the Arrangement, and will give reasonable consideration to all such comments, provided that all information relating to USBTC and New Hut included in such materials shall be in a form and substance satisfactory to USBTC, acting reasonably. Hut will also provide legal counsel to USBTC on a timely basis with copies of any notice of appearance or notice of intent to oppose and any evidence or other documents served on Hut or its legal counsel in respect of the application for the Interim Order or the Final Order or any appeal therefrom. Hut will ensure that all material filed with the Court in connection with the Arrangement is consistent in all material respects with this Agreement and the Plan of Arrangement. Subject to applicable Law, Hut will not file any material with the Court in connection with the Arrangement or serve any such material, and will not agree to modify or amend materials so filed or served, except as contemplated hereby or with USBTC’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed, provided that nothing herein shall require USBTC to agree or consent to any change in the Hut Consideration Shares or USBTC Consideration Shares, or to any modification or amendment to such filed or served materials that expands or increases USBTC’s obligations, or diminishes or limits USBTC’s rights, set forth in this Agreement. Hut will use commercially reasonable efforts to oppose any proposal from any Person that the Final Order contain any provision inconsistent with this Agreement, and if required by the terms of the Final Order or by Law to return to Court with respect to the Final Order, do so only after notice to, and in consultation and cooperation with, USBTC. Hut will not object to legal counsel to USBTC making such submissions on the hearing of the motion for the Interim Order and the application for the Final Order as such counsel considers appropriate, provided USBTC advises Hut of the nature of any such submissions prior to the hearing and such submissions are consistent with this Agreement and the Plan of Arrangement.

 

 

- 32 -

 

3.7Arrangement Filings and Effective Date

 

Subject to obtaining the Final Order and to the satisfaction or, where not prohibited, the waiver (subject to applicable Laws) by the Party or Parties in whose favour the condition is, of each of the conditions set out in Article 8 (excluding conditions that by their terms cannot be satisfied until the Effective Date, but subject to the satisfaction or, where not prohibited, waiver by the Party or Parties in whose favour the condition is, of those conditions as of the Effective Date), unless another time or date is agreed to in writing by the Parties, Hut shall cause any Arrangement Filings to be filed with the Registrar not later than three (3) Business Days after receipt of the Final Order, provided, however, that no Arrangement Filings shall be sent to the Registrar, for endorsement and filing by the Registrar, except as contemplated by this Agreement.

 

3.8U.S. Securities Law Matters

 

Hut and New Hut agree that the Arrangement will be carried out with the intention that, and will use their reasonable best efforts to ensure that, all Hut Consideration Shares and Hut Replacement Options will be issued in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereof and applicable U.S. state securities laws in reliance upon similar exemptions under applicable U.S. state securities laws. In order to ensure the availability of the exemption under Section 3(a)(10) of the U.S. Securities Act, Hut and New Hut agree that the Arrangement will be carried out on the following basis:

 

(1)The Arrangement will be subject to the approval of the Court;

 

(2)Prior to the issuance of the Interim Order, the Court will be advised as to the intention of Hut and New Hut to rely on the exemption provided by Section 3(a)(10) of the U.S. Securities Act with respect to the issuance of all Hut Consideration Shares and Hut Replacement Options pursuant to the Arrangement based on the Court’s approval of the Arrangement;

 

(3)The Court will be requested to satisfy itself as to the substantive and procedural fairness of the Arrangement to the Hut Shareholders;

 

(4)The Court will hold a hearing before approving the procedural and substantive fairness of the terms and conditions of the Arrangement;

 

(5)The Final Order will expressly state that the Arrangement is approved by the Court as being substantively and procedurally fair to the Hut Shareholders to whom Hut Consideration Shares will be issued;

 

(6)Hut and New Hut will ensure that each Hut Shareholder entitled to receive Hut Consideration Shares on completion of the Arrangement will be given adequate and appropriate notice advising them of their right to attend the hearing of the Court and providing them with sufficient information necessary for them to exercise that right;

 

(7)Hut and New Hut will ensure that each Hut Shareholder entitled to receive Hut Consideration Shares on completion of the Arrangement will be advised that such Hut Consideration Shares issued pursuant to the Arrangement have not been registered under the U.S. Securities Act and will be issued in reliance on the exemption provided by Section 3(a)(10) of the U.S. Securities Act and shall be without trading restrictions under the U.S. Securities Act (other than those that would apply under the U.S. Securities Act in certain circumstances to Persons who are, or have been within 90 days prior to the Arrangement Effective Time, affiliates (as defined by Rule 144 under the U.S. Securities Act) of New Hut;

 

 

- 33 -

 

(8)The Interim Order will specify that each Hut Shareholder entitled to receive Hut Consideration Shares on completion of the Arrangement will have the right to appear before the Court at the hearing of the Court on the Final Order so long as they enter an appearance within a reasonable time;

 

(9)Holders of Hut Options entitled to receive Hut Replacement Options pursuant to the Arrangement will be advised that the Hut Replacement Options issued pursuant to the Arrangement have not been registered under the U.S. Securities Act and will be issued and exchanged by New Hut in reliance on the exemption provided under Section 3(a)(10) of the U.S. Securities Act, but that such exemption does not exempt the issuance of securities upon the exercise of such Hut Replacement Options;

 

(10)Each holder of Hut Shares will be advised that with respect to Hut Consideration Shares issued to Persons who are, or have been within 90 days prior to the Arrangement Effective Time, affiliates (as defined by Rule 144 under the U.S. Securities Act) of New Hut, such securities will be subject to restrictions on resale under U.S. securities Laws, including Rule 144 under the U.S. Securities Act; and

 

(11)Hut shall request that the Final Order include a statement to substantially the following effect: “This Order will serve as a basis of a claim to an exemption, pursuant to Section 3(a)(10) of the United States Securities Act of 1933, as amended, from the registration requirements otherwise imposed by that Act, regarding the offer and sale of securities of New Hut pursuant to the Plan of Arrangement.”

 

3.9U.S. Tax Matters

 

(a)The Hut Share Exchange and the Merger, taken together, are intended to be treated as an exchange by Hut Shareholders and USBTC Stockholder, respectively, that qualifies under Section 351(a) of the Code (collectively, the “Intended Tax Treatment”). Each Party agrees to treat the Hut Share Exchange and the Merger consistently with the Intended Tax Treatment and to not take any position on any Tax return or otherwise take any Tax reporting position inconsistent with such treatment, unless otherwise required by a “determination” within the meaning of Section 1313 of the Code. Following the Effective Date, New Hut will prepare and file in accordance with Treasury Regulations (including by posting a copy on the investor relations section of its website) an IRS Form 8937 with respect to the Hut Share Exchange and the Merger on or before (i) the 45th day following the Effective Date or (ii), if earlier, January 15 of the year following the calendar year of the Effective Date. Each of Hut and USBTC shall use commercially reasonable efforts to deliver to Skadden, Arps, Slate, Meagher & Flom LLP, U.S. counsel to Hut (“Hut U.S. Counsel”), and to Greenberg Traurig, LLP, U.S. counsel to USBTC (“USBTC U.S. Counsel”), Tax representation letters dated as of the date the Registration Statement will have been declared effective by the SEC and signed by, in the case of Hut, an officer of Hut, or in the case of USBTC, an officer of each of USBTC and New Hut, in form and substance reasonably satisfactory to each of USBTC U.S. Counsel and Hut U.S. Counsel so as to enable the delivery by Hut U.S. Counsel and USBTC U.S. Counsel any Tax opinions that may be reasonably necessary with respect to the effectiveness of the Registration Statement. Each Party agrees to act in good faith, consistent with the intent of the Parties and the Intended Tax Treatment of the Hut Share Exchange and the Merger as set forth herein and to use commercially reasonable efforts to not take any action, or knowingly fail to take any action, except as expressly provided to the contrary in this Agreement or the Plan of Arrangement, if such action or failure to act would reasonably be expected to prevent the Hut Share Exchange or the Merger from qualifying for the Intended Tax Treatment.

 

 

- 34 -

 

(b)At the Closing, USBTC shall deliver to New Hut, a certificate signed by an officer of USBTC, prepared in a manner consistent and in accordance with the requirements of Treasury Regulations Sections 1.897-2(h) and 1.1445-2(c)(3), certifying that no interest in USBTC is, or has been during the relevant period specified in Section 897(c)(1)(A)(ii) of the Code, a “U.S. real property interest” within the meaning of Section 897(c) of the Code, and a notice to the Internal Revenue Service (“IRS”) prepared in accordance with the provisions of Treasury Regulations Section 1.897-2(h)(2), such notice to be sent to the IRS by USBTC within the time period specified in Treasury Regulations Section 1.897-2(h)(2); provided, however, that if USBTC fails to provide the foregoing at the Closing, the sole remedy of the Parties for such failure shall be the application of withholding pursuant to Section 2.6 to the extent required by the Code and applicable Laws.

 

Article 4
THE MERGER

 

4.1Implementation of the Merger

 

(1)Upon the terms and subject to the conditions set forth in this Agreement, on the Effective Date, immediately following the Arrangement Effective Time, USBTC and Merger Subco shall file with the Nevada Secretary of State the Articles of Merger, executed in accordance with the relevant provisions of the NRS. The Merger shall become effective at the time that the Articles of Merger have been duly filed with the Nevada Secretary of State, or at such later time permitted under the NRS as USBTC and Hut shall agree and specify in the Articles of Merger (the time the Merger becomes effective being the “Merger Effective Time”). This Agreement shall constitute the plan of merger contemplated by NRS 92A.100 and the other relevant provisions of NRS Chapter 92A.

 

(2)At the Merger Effective Time, the Merger will have the effects set forth in this Agreement, the Articles of Merger and in the applicable provisions of the NRS. Without limiting the generality of the foregoing, and subject thereto, at the Merger Effective Time:

 

(a)Merger Subco shall be merged with and into USBTC. As a result of the Merger, the separate corporate existence of Merger Subco shall cease and USBTC shall continue as the Surviving Corporation.

 

(b)All the property, rights, privileges, agreements, immunities, powers, franchises, licenses and authority of USBTC and Merger Subco shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of USBTC and Merger Subco shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation.

 

(c)By virtue of the Merger and as set forth in and in accordance with this Agreement and the Articles of Merger, the USBTC Common Stock, USBTC Preferred Stock and USBTC Options issued and outstanding immediately prior to the Merger Effective Time shall be cancelled, as applicable, and/or otherwise exchanged for securities of New Hut in accordance with Section 2.3, subject to Section 2.7.

 

 

- 35 -

 

4.2Charter Documents of the Surviving Corporation

 

At the Merger Effective Time, the articles of incorporation and bylaws of USBTC shall be amended and restated to be in substantially the form of the articles of incorporation and bylaws, respectively, of Merger Subco as in effect immediately prior to the Merger Effective Time and shall be the articles of incorporation and bylaws of the Surviving Corporation until thereafter amended in accordance with their respective terms and as provided by applicable Law.

 

4.3Directors and Officers of Surviving Corporation

 

The directors of Merger Subco immediately prior to the Merger Effective Time shall be the directors of the Surviving Corporation until their respective successors are duly appointed or elected and qualified, or until their earlier death, resignation or removal. The officers of Merger Subco immediately prior to the Merger Effective Time shall be the officers of the Surviving Corporation until their respective successors are duly elected or appointed and qualified, or until their earlier death, resignation or removal.

 

4.4USBTC Consent; USBTC Information Statement

 

(1)USBTC will, promptly following the date of effectiveness of the Registration Statement under the U.S. Securities Laws (the “Clearance Date”) seek, in accordance with USBTC’s Organizational Documents and applicable Law, to obtain the USBTC Stockholder Approval pursuant to the USBTC Consent. USBTC will, so as to permit the USBTC Consent to be obtained as soon as reasonably practicable following the Clearance Date, subject to Hut’s compliance with Section 4.4(4), promptly prepare and complete, in consultation with Hut, the USBTC Information Statement, together with any other documents or other information required by Law (including the Nevada Dissenter’s Rights Statutes) in connection with the USBTC Consent and the Merger.

 

(2)USBTC will ensure that, as of the date of the USBTC Information Statement, the USBTC Information Statement complies in all material respects with Law, does not contain any Misrepresentation (other than with respect to any information relating to and furnished in writing by Hut for inclusion in the USBTC Information Statement) and provides the USBTC Stockholders with sufficient information to permit them to form a reasoned judgement concerning the matters to be approved under the USBTC Consent. Unless otherwise agreed to in writing by Hut, the USBTC Information Statement shall include an advance notice statement (as defined in, and in compliance with the requirements of, NRS 92A.006) to USBTC Stockholders.

 

(3)Without limiting the generality of the foregoing Section 4.4(2) and subject to applicable law, the USBTC Information Statement shall include: (i) a statement that the USBTC Board has unanimously, after consultation with its legal and financial advisors, determined that the Merger is in the best interests of USBTC and the USBTC Stockholders, and a recommendation that the USBTC Stockholders vote in favour of the USBTC Resolution; and (ii) a statement that each of the USBTC Supporting Stockholders intends to vote all of such Person’s USBTC Shares in favour of the USBTC Resolution subject to the terms of the USBTC Support Agreements.

 

(4)USBTC will allow Hut and its legal counsel a reasonable opportunity to review and comment on drafts of the USBTC Information Statement and other related documents prior to seeking the USBTC Stockholders Approval from the USBTC Stockholders, and will incorporate therein all reasonable comments made by Hut and its legal counsel. USBTC agrees that all information relating solely to Hut that is furnished in writing by or on behalf of Hut for inclusion in the USBTC Information Statement or other related documents must be in a form and content satisfactory to Hut, acting reasonably. USBTC shall provide Hut with a final copy of the USBTC Information Statement prior to seeking its execution.

 

 

- 36 -

 

(5)Hut will provide to USBTC in writing all information concerning Hut reasonably requested by USBTC to be included by USBTC in the USBTC Information Statement or other related documents, and will ensure that such information does not contain any Misrepresentation.

 

4.5Registration Statement

 

(1)As promptly as practicable after the execution of this Agreement, (i) Hut and USBTC shall prepare a registration statement on Form S-4 or other appropriate form in connection with the issuance of New Hut Shares in the Arrangement and the Merger (including any amendments or supplements thereto) (the “Registration Statement”); and (ii) New Hut shall cause the Registration Statement and such other documents to be filed or furnished with the Securities Authorities and Nasdaq, as applicable and required by Law and the rules of the Nasdaq, respectively, and disseminated to each Hut Shareholder and USBTC Stockholder and other Person as required by Law; provided that New Hut shall not file the Registration Statement or any amendment or supplement thereto with the Securities Authorities or Nasdaq without the prior written consent of Hut and USBTC (such consent not to be unreasonably withheld, conditioned or delayed).

 

(2)Hut, New Hut and USBTC each shall use their reasonable best efforts to ensure that, as of the date of the Registration Statement, the Registration Statement complies in all material respects with Law and does not contain any Misrepresentation.

 

(3)Each of Hut and USBTC shall furnish all information concerning it as may reasonably be requested by the other Party in connection with such actions and the preparation of the Registration Statement.

 

(4)Hut, New Hut and USBTC shall use commercially reasonable efforts to have the Registration Statement declared effective under U.S. Securities Laws as promptly as practicable after such filing. New Hut shall promptly notify Hut and USBTC of (i) the receipt of all comments of the SEC with respect to the Registration Statement and of any request by the SEC for any amendment or supplement thereto or for additional information, (ii) the time when the Registration Statement has become effective, and (iii) the issuance of any stop order. Without limiting the generality of the undertakings pursuant to this Section 4.5, New Hut will (i) promptly provide to Hut and USBTC copies of all correspondence between New Hut and the SEC with respect to the Registration Statement, (ii) provide Hut and USBTC and its legal counsel a reasonable opportunity to review New Hut’s proposed response to such SEC comments and incorporate therein all reasonable comments made by Hut and USBTC and its legal counsel, and (iii) provide Hut and USBTC and its legal counsel a reasonable opportunity to participate in any discussions or meetings with the SEC (or portions of any such meetings that relate to the Registration Statement). Hut, New Hut and USBTC shall each use commercially reasonable efforts to promptly provide responses to the SEC with respect to all comments of the SEC received on the Registration Statement and file any amendment or supplement to the Registration Statement in response to the comments of the SEC, provided that any such response to the comments of the SEC and any such amendment or supplement filed in response to the comments of the SEC shall be mutually agreed upon by USBTC, New Hut and Hut (such agreement not to be unreasonably withheld, conditioned or delayed).

 

 

- 37 -

 

Article 5
REPRESENTATIONS AND WARRANTIES

 

5.1Representations and Warranties of Hut

 

(1)Except as disclosed in the corresponding sections or subsections of the disclosure letter delivered to USBTC by Hut concurrently with this Agreement (the “Hut Disclosure Letter”) (it being understood that disclosure of any item in the Hut Disclosure Letter shall constitute disclosure for the purposes of any of the representations and warranties of Hut contained in this Agreement where the relevance of that item is reasonably apparent on its face), Hut hereby represents and warrants to and in favour of USBTC as set forth in Schedule “C” hereto and acknowledges and agrees that USBTC is relying upon such representations and warranties in connection with the entering into of this Agreement.

 

(2)Except for the representations and warranties set forth in this Agreement, neither Hut nor any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of Hut or any of its Subsidiaries or other Affiliates or Representatives or any of their respective businesses, operations, properties, assets, liabilities or condition (financial or otherwise) or any information regarding any of the foregoing, and Hut hereby expressly disclaims any such other express or implied representations or warranties, and Hut shall have no liability to USBTC resulting from USBTC’s reliance thereon.

 

(3)The representations and warranties of Hut contained in this Agreement will not survive the completion of the Transaction and will expire and be terminated on the earlier of (i) the Effective Time, and (ii) the commencement of the date on which this Agreement is terminated in accordance with its terms.

 

5.2Representations and Warranties of USBTC

 

(1)Except as disclosed in the corresponding sections or subsections of the disclosure letter delivered to Hut by USBTC concurrently with this Agreement (the “USBTC Disclosure Letter”) (it being understood that disclosure of any item in the USBTC Disclosure Letter shall constitute disclosure for the purposes of any of the representations and warranties of USBTC contained in this Agreement where the relevance of that item is reasonably apparent on its face), USBTC hereby represents and warrants to and in favour of Hut as set forth in Schedule “D” hereto and acknowledges and agrees that Hut is relying upon such representations and warranties in connection with the entering into of this Agreement.

 

(2)Except for the representations and warranties set forth in this Agreement (including, with respect to New Hut, the representations and warranties of New Hut contained in Section 5.3), neither USBTC nor any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of USBTC or any of its Subsidiaries or other Affiliates or Representatives or any of their respective businesses, operations, properties, assets, liabilities or condition (financial or otherwise) or any information regarding any of the foregoing, and USBTC hereby expressly disclaims any such other express or implied representations or warranties, and USBTC shall have no liability to Hut resulting from Hut’s reliance thereon.

 

(3)The representations and warranties of USBTC contained in this Agreement will not survive the completion of the Transaction and will expire and be terminated on the earlier of (i) the Effective Time, and (ii) the date on which this Agreement is terminated in accordance with its terms.

 

 

- 38 -

 

5.3Representations and Warranties of New Hut

 

(1)New Hut hereby represents and warrants to and in favour of Hut as set forth in Schedule “E” hereto and acknowledges and agrees that Hut is relying upon such representations and warranties in connection with the entering into of this Agreement.

 

(2)Except for the representations and warranties set forth in this Agreement, neither New Hut nor any other Person has made or makes any other express or implied representation or warranty, either written or oral, on behalf of New Hut or any of its Representatives or any of Hut’s businesses, operations, properties, assets, liabilities or condition (financial or otherwise) or any information regarding any of the foregoing, and New Hut hereby expressly disclaims any such other express or implied representations or warranties, and New Hut shall have no liability to Hut resulting from Hut’s reliance thereon.

 

(3)The representations and warranties of New Hut contained in this Agreement will not survive the completion of the Transaction and will expire and be terminated on the earlier of (i) the Effective Time, and (ii) the commencement of the date on which this Agreement is terminated in accordance with its terms.

 

Article 6
COVENANTS

 

6.1Covenants of USBTC Regarding the Conduct of Business

 

(1)Except (i) as provided in Section 6.1(2) of the USBTC Disclosure Letter, (ii) to the extent reasonably necessary to comply with applicable Law, (iii) as expressly contemplated by this Agreement, the Plan of Arrangement or the Articles of Merger, or (iv) with the prior written consent of Hut (which consent shall not be unreasonably withheld, conditioned or delayed), from the date hereof until the earlier of the Effective Time or the date this Agreement is terminated in accordance with Article 9 (the “Pre-Closing Period”), USBTC shall, and shall cause each of the USBTC Subsidiaries, to (A) conduct the business and operations of USBTC and the USBTC Subsidiaries in all material respects in the Ordinary Course and in accordance with applicable Laws, for greater certainty including Economic Sanctions/Trade Laws (except for such reasonable actions after notice has been provided to Hut as may be taken in response to sanctions imposed in connection with the current dispute between the Russian Federation and Ukraine); and (B) use commercially reasonable efforts to (x) maintain in effect all USBTC Permits necessary to conduct its businesses as now conducted, and (y) maintain and preserve its and the USBTC Subsidiaries’ business organization, properties, employees, goodwill and business relationships with customers, suppliers, partners and other Persons with which USBTC or any of the USBTC Subsidiaries has material business relations.

 

(2)Without limiting the generality of Section 6.1(1), except (i) as provided in Section 6.1(2) of the USBTC Disclosure Letter, (ii) to the extent reasonably necessary to comply with applicable Law, (iii) as expressly contemplated by this Agreement, the Plan of Arrangement or the Articles of Merger or (iv) with the prior written consent of Hut (which consent shall not be unreasonably withheld, conditioned or delayed), during the Pre-Closing Period, USBTC shall not and shall cause the USBTC Subsidiaries not to, directly or indirectly:

 

(a)amend or propose to amend its or their respective Organizational Documents;

 

 

- 39 -

 

(b)declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any USBTC Shares or any equity or voting interests of any USBTC Subsidiary, except for any such action solely between or among USBTC and its wholly-owned USBTC Subsidiaries or between or among wholly-owned USBTC Subsidiaries;

 

(c)issue, sell, grant, award, pledge, dispose of or otherwise encumber or agree to issue, sell, grant, award, pledge, dispose of or otherwise encumber (x) any USBTC Shares or other equity or voting interests of USBTC or any options, stock appreciation rights, warrants, calls, conversion or exchange privileges or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise) any USBTC Shares or (y) any equity or voting interests or any options, stock appreciation rights, warrants, calls, conversion or exchange privileges or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise) any equity or voting interests of the USBTC Subsidiaries, other than (A) pursuant to the exercise of USBTC Options that are outstanding as of the date of this Agreement in accordance with their terms, or (B) any such action solely between or among USBTC or a wholly-owned USBTC Subsidiary (other than New Hut) or between or among one or more wholly-owned USBTC Subsidiaries (other than New Hut);

 

(d)sub-divide, split, combine or reclassify any outstanding USBTC Shares or the securities of any of the USBTC Subsidiaries;

 

(e)redeem, purchase or otherwise acquire or offer to purchase or otherwise acquire USBTC Shares or other securities of USBTC or any securities of the USBTC Subsidiaries other than purchases of USBTC Shares in satisfaction of the payment of the exercise price or tax withholdings upon the exercise or vesting of USBTC Options that are outstanding as of the date of this Agreement in accordance with their terms;

 

(f)amend the terms of any securities of USBTC or any of the USBTC Subsidiaries;

 

(g)adopt or propose a plan of liquidation or resolutions providing for the liquidation or dissolution of USBTC or any of the USBTC Subsidiaries;

 

(h)reorganize, amalgamate or merge USBTC or the USBTC Subsidiaries with any other Person;

 

(i)incur any capital expenditures or enter into any agreement obligating USBTC or the USBTC Subsidiaries to provide for future capital expenditures exceeding US$5,000,000 in the aggregate;

 

(j)(A) incur any indebtedness for borrowed money, or guarantee any such indebtedness of another Person; or (B) make any loans or advances (other than any advances to employees in the Ordinary Course and subject to applicable Law) to any other Person;

 

(k)make any changes in financial accounting methods, principles, policies or practices, except as required or permitted, in each case, by U.S. GAAP or by applicable Law;

 

(l)reduce the stated capital of the USBTC Shares or any securities of the USBTC Subsidiaries;

 

 

- 40 -

 

(m)acquire (by merger, consolidation, acquisition of securities or assets or otherwise) or agree to acquire, directly or indirectly, in one transaction or in a series of related transactions, any Person, or make any investment or agree to make any investment, directly or indirectly, in one transaction or in a series of related transactions, either by purchase of shares or securities, contributions of capital (other than to a wholly-owned USBTC Subsidiaries (other than New Hut)), property transfer or purchase of any property or assets of any other Person (including any real property), other than:

 

(i)for consideration less than US$1,000,000 individually or US$2,000,000 in the aggregate; or

 

(ii)transactions between two or more wholly-owned USBTC Subsidiaries (other than New Hut) or between USBTC and one or more wholly-owned USBTC Subsidiaries (other than New Hut);

 

(n)sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer or agree to sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer any assets of USBTC or any of the USBTC Subsidiaries or any interest in any assets of USBTC or any of the USBTC Subsidiaries other than (A) Permitted Liens, (B) sales of assets that do not exceed, individually or in the aggregate, a fair market value of US$5,000,000, (C) any such action solely between or among USBTC and a wholly-owned USBTC Subsidiary (other than New Hut) or between or among one or more wholly-owned USBTC Subsidiaries (other than New Hut), (D) sales of Bitcoin mined by USBTC or any wholly-owned USBTC Subsidiary, or (E) investments permitted by Section 6.1(2)(m) above;

 

(o)pay, discharge, settle, satisfy, compromise, waive, assign or release any claims, rights, liabilities or obligations (including any litigation, proceeding or investigation by any Governmental Entity) other than the payment, discharge or satisfaction of current liabilities in the Ordinary Course and liabilities reflected or reserved against in the USBTC Financial Statements;

 

(p)enter into any agreement that, if entered into prior to the date hereof, would have been a USBTC Material Contract, or modify, amend in any material respect, transfer or terminate any USBTC Material Contract, or waive, release, or assign any material rights or claims thereto or thereunder;

 

(q)enter into or terminate any interest rate, currency, equity or commodity swaps, hedges, derivatives, forward sales contracts or other financial instruments or like transaction, other than in the Ordinary Course consistent with USBTC financial risk management policy;

 

(r)materially change the business carried on by USBTC and the USBTC Subsidiaries, taken as a whole;

 

(s)except as required by the terms of the USBTC Benefit Plans in effect on the date of this Agreement or as disclosed in Section 6.1(2)(s) of the USBTC Disclosure Letter: (A) grant, accelerate, or increase any severance, change of control or termination pay to (or amend any existing arrangement relating to the foregoing with) any USBTC Employees or director of USBTC or any of the USBTC Subsidiaries; (B) grant, accelerate, or increase any bonus or equity incentive award payable to, or for the benefit of, any USBTC Employees or director of USBTC or any of the USBTC Subsidiaries or adjust any incentive performance goals or payment eligibility levels in respect of the foregoing; (C) materially increase the coverage (or expand participation eligibility), contributions, funding requirements or benefits available under any USBTC Benefit Plan or create any new plan which would be considered to be a material USBTC Benefit Plan once created; (D) increase compensation (in any form), bonus levels or other benefits payable to any director, officer, employee or individual independent contractor of USBTC or any of the USBTC Subsidiaries, or grant any general increase in the rate of wages, salaries, bonuses or other remuneration, except for base salary increases in the Ordinary Course of up to 10% of an employee’s base salary and corresponding increase in target bonus amounts; (E) establish, adopt, enter into, amend or terminate any collective bargaining agreement, other labor-related agreement or recognize or certify any labor union, labor organization or group of employees as the bargaining representative for any USBTC Employee; (F) hire or terminate the employment or engagement of any USBTC Employee or individual independent contractor of USBTC or the USBTC Subsidiaries with an annual base salary or fees greater than or equal to US$150,000 or at the level of Vice President or above, other than terminations for cause, (G) recall any laid off or furloughed USBTC Employees to the workplace, or return any USBTC Employees to the workplace, other than in compliance with applicable Laws or; (H) promote any USBTC Employee into a newly created position at the level of Vice President or above;

 

 

- 41 -

 

(t)take any action or fail to take any action which action or failure to act would reasonably be expected to cause any Governmental Entities to institute proceedings for the suspension of, or the revocation or limitation of rights under, any USBTC Permits necessary to conduct its businesses as now conducted;

 

(u)waive, release, amend or fail to enforce the restrictive covenant obligations of any member of the senior executive team of USBTC;

 

(v)fail to maintain any material Intellectual Property owned by USBTC or any of the USBTC Subsidiaries, or maintain rights in material Intellectual Property, provided that the foregoing shall not require USBTC or any of the wholly-owned USBTC Subsidiaries to take any action to alter the terms of any license or other Contract with respect to material Intellectual Property;

 

(w)other than the settlement of any Actions reflected or reserved against on the USBTC Balance Sheet (or in the notes thereto) for an amount not in excess of such reserve, settle or offer or propose to settle, any Action, except for (A) any Action involving solely the payment of monetary damages by USBTC or any of the wholly-owned USBTC Subsidiaries not in excess of US$500,000 individually or US$1,000,000 in the aggregate, provided, however, that neither USBTC nor any of the USBTC Subsidiaries shall settle or compromise any Action if such settlement or compromise (1) involves a material conduct remedy or material injunctive or similar relief, (2) involves an admission of criminal wrongdoing by USBTC or any of the USBTC Subsidiaries or (3) has a materially restrictive impact on the business of USBTC or any of the USBTC Subsidiaries; or (B) any shareholder litigation against USBTC or any wholly-owned USBTC Subsidiary or their respective directors or officers relating to the Transaction, which shall be governed by Section 6.10;

 

(x)(A) enter into any lease for real property or (B) terminate, amend, assign, transfer, modify, supplement, deliver a notice of termination under, fail to renew or waive or accelerate any rights or defer any liabilities under any material USBTC Lease;

 

(y)(A) make (other than in the Ordinary Course), change or rescind any material election relating to Taxes (including any such election for any joint venture, partnership, limited liability company or other investment where USBTC has the authority to make such binding election), (B) amend any Tax Return that is reasonably likely to result in a material increase to a Tax liability, (C) settle or compromise any Tax claim or assessment by any Taxing Authority, or surrender any right to claim a refund, offset or other reduction in Tax liability, except where the amount of any such settlements or compromises or foregone refunds does not exceed US$1,000,000 in the aggregate, (D) change any material method of Tax accounting or any Tax accounting period from those employed in the preparation of its Tax Returns that have been filed for prior taxable years, or (E) fail to timely pay any material Tax or file any material Tax Return when due (taking into account any valid extension of time within which to pay or file);

 

 

- 42 -

 

(z)fail to maintain in full force and effect in all material respects, or fail to replace or renew, the insurance policies of USBTC and the USBTC Subsidiaries;

 

(aa)enter into any new line of business outside of the businesses being conducted by USBTC or any USBTC Subsidiary on the date of this Agreement; or

 

(bb)agree to take any action that is prohibited by this Section 6.1(2).

 

6.2Covenants of Hut Regarding the Conduct of Business

 

(1)Except (i) as provided in Section 6.2(2) of the Hut Disclosure Letter, (ii) to the extent reasonably necessary to comply with applicable Law, (iii) as expressly contemplated by this Agreement, the Plan of Arrangement or the Articles of Merger, or (iv) with the prior written consent of USBTC (which consent shall not be unreasonably withheld, conditioned or delayed) from the date hereof until the end of the Pre-Closing Period, Hut shall, and shall cause each of the Hut Subsidiaries to: (A) conduct the business and operations of Hut and the Hut Subsidiaries in all material respects in the Ordinary Course and in accordance with applicable Laws, for greater certainty including Economic Sanctions/Trade Laws (except for such reasonable actions after notice has been provided to USBTC as may be taken in response to sanctions imposed in connection with the current dispute between the Russian Federation and Ukraine); and (B) use commercially reasonable efforts to (x) maintain in effect all Hut Permits necessary to conduct its businesses as now conducted, and (y) maintain and preserve its and the Hut Subsidiaries’ business organization, properties, employees, goodwill and business relationships with customers, suppliers, partners and other Persons with which Hut or any of the Hut Subsidiaries has material business relations.

 

(2)Without limiting the generality of Section 6.2(1), except (i) as provided in Section 6.2(2) of the Hut Disclosure Letter, (ii) to the extent reasonably necessary to comply with applicable Law, (iii) as expressly contemplated by this Agreement, the Plan of Arrangement or the Articles of Merger or (iv) with the prior written consent of USBTC (which consent shall not be unreasonably withheld, conditioned or delayed), during the Pre-Closing Period, Hut shall not and shall cause the Hut Subsidiaries not to, directly or indirectly:

 

(a)amend or propose to amend its or their respective Organizational Documents;

 

(b)declare, set aside or pay any dividend or other distribution (whether in cash, securities or property or any combination thereof) in respect of any Hut Shares or any equity or voting interests of any Hut Subsidiary, except for any such action solely between or among Hut and its wholly-owned Hut Subsidiaries or between or among wholly-owned Hut Subsidiaries;

 

 

- 43 -

 

(c)issue, sell, grant, award, pledge, dispose of or otherwise encumber or agree to issue, sell, grant, award, pledge, dispose of or otherwise encumber any Hut Shares or other equity or voting interests or any options, stock appreciation rights, warrants, calls, conversion or exchange privileges or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise) any Hut Shares or other equity or voting interests or other securities or any shares of the Hut Subsidiaries (including, for greater certainty, Hut Options, Hut RSUs, Hut DSUs or Hut Warrants), other than (A) pursuant to the exercise or settlement (as applicable) of Hut Options, Hut RSUs, Hut DSUs and Hut Warrants that are outstanding as of the date of this Agreement in accordance with their terms (as such terms are disclosed in the Hut Public Disclosure Record), (B) pursuant to the issuance of Hut DSUs in connection with quarterly grants thereof to directors of Hut as approved by the Hut Board from time to time, or (C) any such action solely between or among Hut and a wholly-owned Hut Subsidiary or between or among one or more wholly-owned Hut Subsidiaries;

 

(d)sub-divide, split, combine or reclassify any outstanding Hut Shares or the securities of any of the Hut Subsidiaries;

 

(e)redeem, purchase or otherwise acquire or offer to purchase or otherwise acquire Hut Shares or other securities of Hut or any securities of the Hut Subsidiaries, other than purchases of Hut Shares in satisfaction of the payment of the exercise price or tax withholdings upon the exercise or vesting of Hut Options, Hut RSUs, Hut DSUs and Hut Warrants that are outstanding as of the date of this Agreement in accordance with their terms;

 

(f)amend the terms of any securities of Hut or any of the Hut Subsidiaries;

 

(g)adopt or propose a plan of liquidation or resolutions providing for the liquidation or dissolution of Hut or any of the Hut Subsidiaries;

 

(h)reorganize, amalgamate or merge Hut or the Hut Subsidiaries with any other Person;

 

(i)incur any capital expenditures or enter into any agreement obligating Hut or the Hut Subsidiaries to provide for future capital expenditures exceeding US$5,000,000 in the aggregate;

 

(j)(A) incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, or guarantee any debt securities of another Person; or (B) make any loans or advances (other than any advances to employees in the Ordinary Course and subject to applicable Law) to any other Person;

 

(k)make any changes in financial accounting methods, principles, policies or practices, except as required or permitted, in each case, by IFRS or by applicable Law;

 

(l)reduce the stated capital of the Hut Shares or any securities of the Hut Subsidiaries;

 

 

- 44 -

 

(m)acquire (by merger, consolidation, acquisition of securities or assets or otherwise) or agree to acquire, directly or indirectly, in one transaction or in a series of related transactions, any Person, or make any investment or agree to make any investment, directly or indirectly, in one transaction or in a series of related transactions, either by purchase of shares or securities, contributions of capital (other than to wholly-owned Hut Subsidiaries), property transfer or purchase of any property or assets of any other Person (including any real property), other than:

 

(i)for consideration less than US$1,000,000 individually or US$2,000,000 in the aggregate; or

 

(ii)transactions between two or more wholly-owned Hut Subsidiaries or between Hut and one or more wholly-owned Hut Subsidiaries;

 

(n)sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer or agree to sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer any assets of Hut or any of the Hut Subsidiaries or any interest in any assets of Hut or any of its Subsidiaries, other than (A) Permitted Liens, (B) sales of assets that do not exceed, individually or in the aggregate, a fair market value of US$5,000,000, (C) any such action solely between or among Hut and a wholly-owned Hut Subsidiary or between or among one or more wholly-owned Hut Subsidiaries, (D) sales of Bitcoin mined by Hut or any wholly-owned Hut Subsidiary, or (E) investments permitted by Section 6.2(2)(m) above;

 

(o)pay, discharge, settle, satisfy, compromise, waive, assign or release any claims, rights, liabilities or obligations (including any litigation, proceeding or investigation by any Governmental Entity) other than the payment, discharge or satisfaction of current liabilities in the Ordinary Course and liabilities reflected or reserved against in the Hut Financial Statements;

 

(p)enter into any agreement that, if entered into prior to the date hereof, would have been a Hut Material Contract, or modify, amend in any material respect, transfer or terminate any Hut Material Contract, or waive, release, or assign any material rights or claims thereto or thereunder;

 

(q)enter into or terminate any interest rate, currency, equity or commodity swaps, hedges, derivatives, forward sales contracts or other financial instruments or like transaction, other than in the Ordinary Course consistent with Hut’s financial risk management policy;

 

(r)except as required by the terms of the Hut Benefit Plans in effect on the date of this Agreement or as disclosed in Section 6.2(2)(r) of the Hut Disclosure Letter: (A) grant, accelerate, or increase any severance, change of control or termination pay to (or amend any existing arrangement relating to the foregoing with) any Hut Employees or director of Hut or any of the Hut Subsidiaries; (B) grant, accelerate, or increase any bonus or equity incentive award payable to, or for the benefit of, any Hut Employees or director of Hut or any of the Hut Subsidiaries or adjust any incentive performance goals or payment eligibility levels in respect of the foregoing; (C) materially increase the coverage (or expand participation eligibility), contributions, funding requirements or benefits available under any Hut Benefit Plan or create any new plan which would be considered to be a material Hut Benefit Plan once created; (D) increase compensation (in any form), bonus levels or other benefits payable to any director, officer, employee or individual independent contractor of Hut or any of the Hut Subsidiaries, or grant any general increase in the rate of wages, salaries, bonuses or other remuneration, except for base salary increases in the Ordinary Course of up to 10% of an employee’s base salary and corresponding increase in target bonus amounts; (E) establish, adopt, enter into, amend or terminate any collective bargaining agreement, other labor-related agreement or recognize or certify any labor union, labor organization or group of employees as the bargaining representative for any Hut Employee; (F) hire or terminate the employment or engagement of any Hut Employee or individual independent contractor of Hut or the Hut Subsidiaries with an annual base salary or fees greater than or equal to US$150,000 or at the level of Vice President or above, other than terminations for cause; (G) recall any laid off or furloughed Hut Employees to the workplace, or return any Hut Employees to the workplace, other than in compliance with applicable Laws; or (H) promote any Hut Employee into a newly created position at the level of Vice President or above;

 

 

- 45 -

 

(s)take any action or fail to take any action which action or failure to act would reasonably be expected to cause any Governmental Entities to institute proceedings for the suspension of, or the revocation or limitation of rights under, any Hut Permits necessary to conduct its businesses as now conducted;

 

(t)waive, release, amend or fail to enforce the restrictive covenant obligations of any member of the senior executive team of Hut;

 

(u)fail to maintain any material Intellectual Property owned by Hut or any of the Hut Subsidiaries, or maintain rights in material Intellectual Property, provided that the foregoing shall not require Hut or any of the wholly-owned Hut Subsidiaries to take any action to alter the terms of any license or other Contract with respect to material Intellectual Property;

 

(v)other than the settlement of any Actions reflected or reserved against on the Hut Balance Sheet (or in the notes thereto) for an amount not in excess of such reserve, settle or offer or propose to settle, any Action, except for (A) any Action involving solely the payment of monetary damages by Hut or any of the wholly-owned Hut Subsidiaries not in excess of US$500,000 individually or US$1,000,000 in the aggregate, provided, however, that neither Hut nor any of the Hut Subsidiaries shall settle or compromise any Action if such settlement or compromise (1) involves a material conduct remedy or material injunctive or similar relief, (2) involves an admission of criminal wrongdoing by Hut or any of the Hut Subsidiaries or (3) has a materially restrictive impact on the business of Hut or any of the Hut Subsidiaries; or (B) any shareholder litigation against Hut or any wholly-owned Hut Subsidiary or their respective directors or officers relating to the Transaction, which shall be governed by Section 6.10;

 

(w)(A) enter into any lease for real property or (B) terminate, amend, assign, transfer, modify, supplement, deliver a notice of termination under, fail to renew or waive or accelerate any rights or defer any liabilities under any material Hut Lease;

 

(x)(A) make (other than in the Ordinary Course), change or rescind any material election relating to Taxes (including any such election for any joint venture, partnership, limited liability company or other investment where Hut has the authority to make such binding election), (B) amend any Tax Return that is reasonably likely to result in a material increase to a Tax liability, (C) settle or compromise any Tax claim or assessment by any Taxing Authority, or surrender any right to claim a refund, offset or other reduction in Tax liability, except where the amount of any such settlements or compromises or foregone refunds does not exceed US$1,000,000 in the aggregate, (D) change any material method of Tax accounting or any Tax accounting period from those employed in the preparation of its Tax Returns that have been filed for prior taxable years or (E) fail to timely pay any material Tax or file any material Tax Return when due (taking into account any valid extension of time within which to pay or file);

 

 

- 46 -

 

(y)fail to maintain in full force and effect in all material respects, or fail to replace or renew, the insurance policies of Hut and the Hut Subsidiaries;

 

(z)enter into any new line of business outside of the businesses being conducted by Hut or any Hut Subsidiary on the date of this Agreement;

 

(aa)materially change the business carried on by Hut and its Subsidiaries, taken as a whole; or

 

(bb)agree to take any action that is prohibited by this Section 6.2(2).

 

6.3Covenants of New Hut

 

(1)Except (i) to the extent reasonably necessary to comply with applicable Law, (ii) as expressly contemplated by this Agreement, the Plan of Arrangement or the Articles of Merger, or (iii) with the prior written consent of Hut and USBTC (which consent shall not be unreasonably withheld, conditioned or delayed) during the Pre-Closing Period, New Hut shall not, directly or indirectly:

 

(a)amend or propose to amend its Organizational Documents;

 

(b)issue, sell, grant, award, pledge, dispose of or otherwise encumber or agree to issue, sell, grant, award, pledge, dispose of or otherwise encumber (i) any New Hut Shares or other equity or voting interests or other securities of New Hut; or (ii) any options, stock appreciation rights, warrants, calls, conversion or exchange privileges or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise) any New Hut Shares or other equity or voting interests or other securities of New Hut;

 

(c)sub-divide, split, combine or reclassify any outstanding New Hut Shares;

 

(d)amend the terms of any securities of New Hut;

 

(e)adopt or propose a plan of liquidation or resolutions providing for the liquidation or dissolution of New Hut;

 

(f)reorganize, amalgamate or merge New Hut;

 

(g)acquire (whether by merger, consolidation, acquisition of securities or assets or otherwise) or lease any property (whether real or intangible) or assets, including any investment in any other Person;

 

(h)enter into any Contract, whether written, oral or otherwise, relating to the employment of any Person or the provision of services by any Person;

 

(i)carry on any business or otherwise engage in any activities, other than any activities reasonably necessary to implement the Transaction;

 

(j)incur any liabilities, except to the extent reasonably necessary to implement the Transaction; or

 

(k)agree to take any action that is prohibited by this Section 6.3(1).

 

 

- 47 -

 

6.4Covenants Relating to the Transaction

 

(1)Subject to Section 6.5, which shall govern in relation to Regulatory Approvals, each of the Parties covenants and agrees that from the date hereof until the end of the Pre-Closing Period, each of the Parties shall do all such reasonable acts and things as may be necessary or advisable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated by this Agreement and, without limiting the generality of the foregoing, the Parties shall and, where applicable, shall cause each of its Subsidiaries to:

 

(a)use commercially reasonable efforts to satisfy (or cause the satisfaction of) the conditions precedent to its obligations hereunder as set forth in Article 8 to the extent the same is within its control and to take, or cause to be taken, all other actions and to do, or cause to be done, all other things necessary, proper or advisable under all Laws to complete the Arrangement, including using commercially reasonable efforts to promptly (i) obtain all necessary waivers, consents and approvals required from, and provide all required notices to, Persons party to USBTC Material Contracts or Hut Material Contracts, as the case may be; and (ii) obtain or maintain in force, as applicable, all necessary Permits (or consents thereunder) as are required to be obtained by it under all Laws; and (iii) cooperate with the other Parties in connection with the performance by them and their Subsidiaries of their obligations hereunder;

 

(b)use all commercially reasonable efforts to carry out the terms of the Interim Order and Final Order applicable to it and comply promptly with all requirements imposed by Law on it or its Subsidiaries with respect to this Agreement, the Arrangement and the Merger;

 

(c)use commercially reasonable efforts to oppose, lift or rescind any Order seeking to restrain, enjoin or otherwise prohibit or delay or otherwise adversely affect the consummation of the Arrangement, the Merger or the transactions contemplated by this Agreement and defend, or cause to be defended, any proceedings to which it is a party or brought against it or its directors or officers challenging the Arrangement, the Merger or this Agreement; and

 

(d)not take any action, or refrain from taking any commercially reasonable action, or permit any action to be taken or not taken, which would reasonably be expected to prevent, materially delay or otherwise impede the consummation of the Arrangement, the Merger or the transactions contemplated by this Agreement.

 

(2)Hut covenants and agrees that from the date hereof until the end of the Pre-Closing Period, Hut shall use commercially reasonable efforts to obtain and maintain in force the Stock Exchange Approvals (as applicable). USBTC and New Hut shall use commercially reasonable efforts to cooperate with Hut in respect of the foregoing, including by providing information reasonably requested by Hut in connection therewith in a timely manner.

 

(3)New Hut covenants and agrees that from the date hereof until the end of the Pre-Closing Period, New Hut shall use commercially reasonable efforts to obtain and maintain in force the Stock Exchange Approvals (as applicable). USBTC and Hut shall use commercially reasonable efforts to cooperate with New Hut in respect of the foregoing, including by providing information reasonably requested by New Hut in connection therewith in a timely manner.

 

 

- 48 -

 

(4)USBTC and New Hut covenant and agree that from the date hereof until the end of the Pre-Closing Period, they shall take such commercially reasonable actions as are necessary to:

 

(a)cause the Amended New Hut Organizational Documents in a form satisfactory to Hut and USBTC (each acting reasonably) to become effective prior to the Effective Time; and

 

(b)cause Merger Subco to be incorporated and duly organized as a direct, wholly-owned Subsidiary of New Hut prior to the Effective Date.

 

(5)As soon as reasonably practicable following the date of this Agreement, USDMG and Hut covenant and agree that they will use commercially reasonable efforts to enter into the Bridge Loan Agreement.

 

(6)USBTC covenants and agrees that it will use commercially reasonable efforts to, prior to the Effective Date, complete and provide (or cause to be completed and provided) to Hut the items and other deliverables set forth in Section 6.4(6) of the USBTC Disclosure Letter.

 

(7)USBTC covenants and agrees that from the date hereof until the end of the Pre-Closing Period, USBTC shall promptly notify Hut in writing of:

 

(a)the matters set forth in Section 8.5(1);

 

(b)any Material Adverse Effect in respect of USBTC or New Hut;

 

(c)any notice or other communication from any Person alleging that the consent (or waiver, permit, exemption, order, approval, agreement, amendment or confirmation) of such Person is required in connection with this Agreement or the Transaction;

 

(d)any notice or other communication from any Person that has a material business relationship with such Party and its Subsidiaries (taken as a whole) to the effect that such Person is terminating or otherwise materially adversely modifying its relationship with USBTC or any of its Subsidiaries as a result of this Agreement or the Transaction;

 

(e)any notice or other communication from any Governmental Entity in connection with this Agreement or the Transaction (and USBTC shall promptly following the receipt thereof provide a copy of any such written notice or communication to Hut); or

 

(f)any material filing, Actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting USBTC or any of the USBTC Subsidiaries.

 

(8)Hut covenants and agrees that from the date hereof until the end of the Pre-Closing Period, Hut shall promptly notify USBTC in writing of:

 

(a)the matters set forth in Section 8.5(1);

 

(b)any Material Adverse Effect in respect of Hut;

 

(c)any notice or other communication from any Person alleging that the consent (or waiver, permit, exemption, order, approval, agreement, amendment or confirmation) of such Person is required in connection with this Agreement or the Transaction;

 

(d)any notice or other communication from any Person that has a material business relationship with such Party and its Subsidiaries (taken as a whole) to the effect that such Person is terminating or otherwise materially adversely modifying its relationship with Hut or any of its Subsidiaries as a result of this Agreement or the Transaction;

 

 

- 49 -

 

(e)any notice or other communication from any Governmental Entity in connection with this Agreement or the Arrangement (and Hut shall promptly following the receipt thereof provide a copy of any such written notice or communication to USBTC); or

 

(f)any material filing, Actions, suits, claims, investigations or proceedings commenced or, to its knowledge, threatened against, relating to or involving or otherwise affecting Hut or any of the Hut Subsidiaries.

 

6.5Regulatory Approvals

 

(1)As soon as reasonably practicable after the date hereof each Party, or where appropriate, the Parties jointly, shall make all notifications, filings, applications and submissions with Governmental Entities required or advisable in connection with the Regulatory Approvals, including the Required Regulatory Approvals, and shall use commercially reasonable efforts to obtain as soon as reasonably practicable and maintain the Regulatory Approvals, including the Required Regulatory Approvals, subject to the terms hereof.

 

(2)In the case of the HSR Act Approval, each Party shall make all required filings of Notification and Report Forms pursuant to the HSR Act within ten (10) Business Days of the date of this Agreement.

 

(3)In the case of the Competition Act Approval, within five (5) Business Days of the date of this Agreement, the Parties shall file a request for the issuance of an ARC under section 102 of the Competition Act or in the alternative a No Action Letter, and such submission shall explain why the transactions contemplated by this Agreement will not prevent or lessen, or be likely to prevent or lessen, competition substantially within the meaning of section 92 of the Competition Act, and, unless the Parties determine otherwise, within twelve (12) Business Days of the date of this Agreement, each Party shall file its notification under Part IX of the Competition Act.

 

(4)All filing fees (including any Taxes thereon) in respect of any filing made to any Governmental Entity in respect of any Regulatory Approvals shall be shared by the Parties equally.

 

(5)The Parties shall cooperate with one another in connection with obtaining the Regulatory Approvals, including providing or submitting on a timely basis, and as promptly as practicable, all documentation and information that is required, or in the discretion of a Party, acting reasonably, advisable, in connection with obtaining the Regulatory Approvals and use their commercially reasonable efforts to ensure that such information does not contain a Misrepresentation; provided, however, that nothing in this provision shall require a Party to provide information that is not in its possession or not otherwise reasonably available to it.

 

 

- 50 -

 

(6)The Parties shall (i) cooperate with and keep one another fully and promptly informed as to the status of and the processes and proceedings relating to obtaining the Regulatory Approvals and shall promptly notify each other of any communication from any Governmental Entity in respect of the Arrangement or this Agreement, (ii) respond, as soon as reasonably practicable, to any requests for information from a Governmental Entity in connection with obtaining a Regulatory Approval, and (iii) not make any submissions or filings to any Governmental Entity related to the transactions contemplated by this Agreement, or participate in any meetings or any material conversations with any Governmental Entity in respect of any filings, submissions, investigations or other inquiries or matters related to the transactions contemplated by this Agreement, unless it consults with the other Parties in advance and, to the extent not precluded by such Governmental Entity, gives the other Parties a reasonable opportunity to review drafts of any submissions or filings (and will give due consideration to any comments received from such other Parties) and to attend and participate in any communications. Despite the foregoing, submissions, filings or other written communications with any Governmental Entity may be redacted as necessary before sharing with the other Parties to address reasonable attorney-client or other privilege or confidentiality concerns, provided that a Party must provide external legal counsel to the other Parties non-redacted versions of drafts and final submissions, filings or other written communications with any Governmental Entity on the basis that the redacted information will not be shared with its clients.

 

(7)Each Party shall promptly notify the other Parties if it becomes aware that any (i) application, filing, document or other submission for a Regulatory Approval contains a Misrepresentation, or (ii) any Regulatory Approval contains, reflects or was obtained following the submission of any application, filing, document or other submission containing a Misrepresentation, such that an amendment or supplement may be necessary or advisable. In such case, the Parties shall co-operate in the preparation, filing and dissemination, as applicable, of any such amendment or supplement.

 

(8)The Parties shall request that the HSR Approval and, to the extent required, the Competition Act Approval, be processed by the applicable Governmental Entity on an expedited basis and, to the extent that a public hearing is held, the Parties shall request the earliest possible hearing date for the consideration of such Regulatory Approvals.

 

(9)If any objections are asserted with respect to the transactions contemplated by this Agreement under any Law, or if any proceeding is instituted or threatened by any Governmental Entity challenging or which could lead to a challenge of any of the transactions contemplated by this Agreement as not in compliance with Law or as not satisfying any applicable legal text under a Law necessary to obtain the Regulatory Approvals, the Parties shall use commercially reasonable efforts to resolve such objection or proceeding, as the case may be, so as to allow the Effective Time to occur on or prior to the Outside Date.

 

(10)Notwithstanding anything to the contrary in this Agreement, no Party is permitted or required to divest or to offer to divest any of their material assets or properties or to agree to any material behavioural remedy, undertaking, commitment, or restriction on the operations of USBTC or Hut in order to secure any Regulatory Approval, including either the Competition Act Approval or the HSR Approval, except with the express consent of both USBTC and Hut.

 

 

- 51 -

 

6.6Access to Information; Confidentiality

 

From the date hereof until the end of the Pre-Closing Period, subject to compliance with applicable Law and the terms of any existing Contracts, each of USBTC and Hut shall give the other Parties and their Representatives for the purposes of preparing for and effecting the consummation of the transactions contemplated by this Agreement and for the purposes of planning and preparing for post-Closing integration and operation (subject to applicable Law): (1) upon reasonable notice, reasonable access during normal business hours to its and its Subsidiaries’ (a) premises, (b) property and assets (including books and records), (c) Contracts and leases and (d) senior personnel and Representatives, so long as the access does not unduly interfere with the Ordinary Course conduct of the business of the Party in question or jeopardize the health of any Person in light of COVID-19; and (2) such financial and operating data or other information with respect to the assets or business of such Party and its Subsidiaries as the other Party reasonably requests, provided that such disclosure shall not be required to include any information that is subject to an attorney-client privilege or other legal privilege or subject to any obligation of confidentiality to any third party; provided, however, that the Party furnishing the information shall (x) use commercially reasonable efforts to permit the disclosure of such information protected under the foregoing proviso or to redact such protected information to the extent necessary to address privilege or confidentiality concerns, and (y) if such disclosure is not possible, provide to the extent possible a general description of the information so withheld. Each of USBTC and Hut shall continue to afford the other and its Representatives with access to the USBTC Data Room Information and the Hut Data Room Information, respectively, and such virtual data room shall continue to be maintained and remain populated in the manner provided as of the Data Room Cut-off Time with any additional documents being inserted as the other Parties may reasonably request. The Parties acknowledge and agree that (1) information furnished pursuant to this Section 6.6 shall be subject to the terms and conditions of the Confidentiality Agreement; and (2) no such information provided following the date of this Agreement (or, with respect to USBTC Data Room Information and the Hut Data Room Information, provided following the Data Room Cut-off Time) shall be deemed to amend or supplement this Agreement, the Hut Disclosure Letter or the USBTC Disclosure Letter, and shall not be taken into account in determining whether any of the conditions precedent set forth in Article 6 are satisfied. All requests for information or access made pursuant to this Section 6.6 shall be directed to the senior officers of the applicable Party or another Person designated by such Party in writing and no Party or its Representatives shall contact any employee of the other Parties not involved in the negotiation of this Agreement, or any other Person, in connection with the Transaction in each case without the other Party’s prior written consent (such consent not to be unreasonably withheld, conditioned or delayed).

 

6.7Insurance and Indemnification

 

(1)Prior to the Effective Date, Hut and USBTC shall purchase customary non-cancellable and fully pre-paid “tail” policies of directors’ and officers’ liability, employment practices liability and fiduciary liability insurance providing protection no less favourable in the aggregate to the protection provided by the policies maintained by Hut and the Hut Subsidiaries or USBTC and the USBTC Subsidiaries, as applicable, which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date; provided that the cost of such policies will not exceed 300% of the annual premiums currently in effect for such directors’ and officers’ liability, employment practices liability and fiduciary liability coverage and that if such insurance coverage is unavailable, then as promptly as practicable following the Closing, New Hut will, or if the cost of such a tail policy will exceed such amount, will cause Hut and the Hut Subsidiaries, and USBTC and the USBTC Subsidiaries, as applicable, to purchase such tail policies with the best available insurance coverage whose cost will not exceed 300% of the annual premiums currently in effect for such directors’ and officers’ liability, employment practices liability and fiduciary liability coverage. New Hut will, or will cause Hut and the Hut Subsidiaries, and USBTC and the USBTC Subsidiaries, as applicable, to, continuously maintain such tail policies in full force and effect without any reduction in scope or coverage for six (6) years from the Effective Date and to abide by their obligations thereunder.

 

(2)From and after the Effective Time, New Hut agrees that it shall cause Hut and USBTC to honour all rights to indemnification or exculpation now existing in favour of present and former officers and directors of Hut and the Hut Subsidiaries and USBTC and the USBTC Subsidiaries as of the Effective Date (the “D&O Indemnified Persons”) to the extent they have been provided under applicable Law, the Organizational Documents of such entities or under indemnification agreements made available as of the Data Room Cut-Off Time, and acknowledges that such rights shall survive the completion of the Transaction and shall continue in full force and effect and shall not be amended in any manner adverse to the D&O Indemnified Persons for at least six (6) years following the Effective Date.

 

 

- 52 -

 

(3)The provisions of this Section 6.7 are intended for the benefit of, and shall be enforceable by, each insured or D&O Indemnified Person, his or her heirs, estates and his or her legal representatives.

 

(4)If New Hut, USBTC, Hut or any of their respective Subsidiaries or any of their respective successors or assigns (i) consolidates with or merges into any other Person and is not a continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, proper provision shall be made so that any such successor or assign (including, as applicable, any acquirer of substantially all of the properties and assets of USBTC, Hut or any of their respective Subsidiaries) assumes all of the obligations set forth in this Section 6.7.

 

6.8Covenants Regarding Convertible Securities

 

(1)Except as set forth in Section 6.8(1) of the Hut Disclosure Letter and the USBTC Disclosure Letter, respectively, neither Hut nor USBTC has nor shall they accelerate the vesting or the time to exercise of any outstanding stock option, restricted share unit, deferred share unit, or any other employee or director awards of any Party in connection with the Transaction or the Plan of Arrangement.

 

(2)During the Pre-Closing Period, the Parties shall take all such steps reasonably necessary for the New Hut Omnibus Incentive Plan, in a form acceptable to Hut and USBTC, each acting reasonably, to become effective prior to the Effective Date.

 

(3)Upon consummation of the Arrangement and the Merger, New Hut shall take all steps reasonably necessary to cause the Hut Replacement Options that remain outstanding (and, to the extent applicable, Adjusted Hut RSUs and Adjusted Hut DSUs) and USBTC Replacement Options to be issued in accordance with this Agreement (and, where applicable, in accordance with the Plan of Arrangement).

 

(4)New Hut shall take all steps in advance of the Effective Date reasonably required by Hut to facilitate the registration under the U.S. Securities Act of the issuance of the New Hut Shares underlying the Replacement Securities.

 

6.9Employee Benefit Matters

 

During the one year period commencing on the Effective Date (or until a Company Employee’s earlier termination date), New Hut shall, or shall cause each USBTC Employee and Hut Employee who was employed by USBTC or any USBTC Subsidiaries or Hut or any Hut Subsidiaries, respectively, as of immediately prior to the Merger Effective Time and who remains employed with New Hut or any Subsidiary of New Hut following the Closing (each, a “Company Employee”), to be paid base compensation and provided with annual cash bonus opportunities that, with respect to each such Company Employee, are no less favorable than the base salary and annual cash bonus opportunities of such Company Employee as of immediately prior to the Merger Effective Time and employee benefits that, with respect to each such Company Employee, are at least substantially comparable in the aggregate to the employee benefits provided to such Company Employee immediately prior to the Closing (disregarding incentive equity for purposes of the comparison). New Hut shall cause each Company Employee to be given full credit for such Company Employee’s service with USBTC, Hut or their respective Subsidiaries for purposes of eligibility, vesting, and determination of the level of benefits (but not for purposes of benefit accruals other than vacation pay, statutory severance, termination notice or pay in lieu or any other entitlement required by law) under any benefit plans made generally available to employees by New Hut or its Subsidiaries in which a Company Employee participates following the Closing (any such plan a “New Plan”) to the same extent recognized by USBTC, Hut or their respective Subsidiaries immediately prior to the Closing; provided, however, that such service shall not be recognized to the extent that such recognition would result in a duplication of benefits with respect to the same period of service. New Hut shall use commercially reasonable efforts to (i) waive any preexisting condition or limitations otherwise applicable to Company Employees and their eligible dependents under any New Plan in which Company Employees participate following the Closing, other than any limitations that were in effect with respect to such employees as of the Closing, (ii) honor any deductible, co-payment and out-of-pocket maximums incurred by the Company Employees and their eligible dependents under the health plans in which they participated immediately prior to the Closing during the portion of the calendar year prior to the Effective Date in satisfying any deductibles, co-payments or out-of-pocket maximums under a New Plan in which they are eligible to participate after the Effective Date in the same plan year in which such deductibles, co-payments or out-of-pocket maximums were incurred and (iii) waive any waiting period limitation or evidence of insurability requirement that would otherwise be applicable to a Company Employee and his or her eligible dependents on or after the Closing, in each case to the extent such Company Employee or eligible dependent had satisfied any similar limitation or requirement prior to the Closing. This Section 6.9 shall not (i) create any right in any Company Employee to continued employment or preclude the ability of New Hut or any Subsidiary to terminate the employment of any employee for any reason, (ii) require New Hut or any Subsidiary to continue any benefit plan or prevent the amendment, modification or termination thereof after the Closing, (iii) confer upon any Company Employee any rights or remedies under or by reason of this Agreement or (iv) be treated as an amendment to any particular employee benefit plan of USBTC, Hut or any respective Subsidiary.

 

 

- 53 -

 

6.10Securityholder Litigation and Dissenter’s Rights

 

Each Party shall give the other Parties prompt written notice of any securityholder litigation against such Party or its directors, officers or other representatives relating to this Agreement or the Transaction, shall keep the other Parties reasonably informed regarding any such litigation, and shall give the other Parties the opportunity to participate (at such other’s Party’s expense) in the defense or settlement of any such litigation. Each Party shall give the other Parties the right to review and comment on all filings or responses to be made by such Party in connection with any such litigation, and will in good faith take such comments into account. No Party shall offer to or agree to settle any such litigation without the other Parties’ prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. Each of the Parties shall comply in all respects with the applicable provisions of the Nevada Dissenter’s Rights Statutes and cooperate reasonably in connection with any actions required or advisable to be undertaken relating thereto or as contemplated by Section 2.7.

 

6.11USBTC Non-Solicitation

 

(1)During the Pre-Closing Period, USBTC shall, and shall cause its Subsidiaries and Representatives to: (a) cease all existing discussions and negotiations with any Persons with respect to any offer or proposal or indication of interest in any purchase of an equity interest in USBTC, New Hut or any of their respective Subsidiaries or a merger, consolidation, share exchange or other business combination involving USBTC, New Hut or any of their respective Subsidiaries or any equity interest therein, or any purchase of a substantial portion of the assets of USBTC, New Hut and their respective Subsidiaries, taken as a whole (collectively, an “Alternative Transaction”), and (b) terminate access by any Person to any physical or electronic data room in connection with any Alternative Transaction. During the Pre-Closing Period, subject to this Section 6.11, USBTC and New Hut shall not, and shall cause their respective Representatives not to, directly or indirectly, (i) solicit, initiate, encourage or otherwise knowingly facilitate any proposal or offer from any third party (other than Hut or its Affiliates) with respect to an Alternative Transaction, (ii) enter into any letter of intent, memorandum of understanding, agreement or similar agreement or arrangement or Contract (in each case, other than with Hut and its Affiliates) with respect to any Alternative Transaction, or (iii) enter into or participate, engage or knowingly assist in any negotiations or discussions with any Person (other than Hut or its Affiliates) relating to any Alternative Transaction. As soon as reasonably practicable after the date hereof, USBTC shall instruct each Person (other than Hut and its Affiliates) in possession of confidential information about USBTC in connection with any actual or potential proposal by such Person to acquire USBTC (or any portion thereof) to promptly return or destroy all such information. If USBTC or any of its Representatives receives any inquiry, proposal or offer in connection with an Alternative Transaction after the date of this Agreement, or any request for copies of, access to, or disclosure of, confidential information relating to USBTC or any USBTC Subsidiary in connection with such proposed Alternative Transaction, inquiry, proposal, offer or request, USBTC shall as soon as practicable notify Hut (in writing) of such proposed Alternative Transaction, inquiry, proposal, offer or request. Such notice shall include: (i) a description of the material terms and conditions of such proposed Alternative Transaction, inquiry, proposal, offer or request and; (ii) the identity of all Persons making the proposed Alternative Transaction, inquiry, proposal, offer or request. USBTC shall keep Hut reasonably informed on a current basis of the status of material or substantive developments and the status of discussions and negotiations with respect to any such proposed Alternative Transaction, inquiry, proposal, offer or request or change thereof. With respect to any such proposed Alternative Transaction, USBTC shall be subject to the terms and conditions (including the restrictions) set forth in this Section 6.11. Without limiting the generality of the foregoing, USBTC shall advise its Subsidiaries and its and their respective Representatives of the prohibitions set out in this Section 6.11 and any violation of the restrictions set forth in this Section 6.11 by USBTC, its Subsidiaries or its or their respective Representatives is deemed to be a breach of this Section 6.11 by USBTC.

 

 

- 54 -

 

(2)USBTC represents and warrants that, since January 1, 2022, neither USBTC, its Subsidiaries nor any of their respective Representatives, has waived any confidentiality, standstill or similar agreement or restriction to which USBTC or any of its Subsidiaries is a party, and USBTC covenants and agrees that (i) it shall take all necessary action to enforce any confidentiality, standstill, use, business purpose or similar agreement or restriction to which USBTC or any of its Subsidiaries is a party and (ii) neither USBTC, any of its Subsidiaries nor any of their respective Representatives will, without the prior written consent of Hut (which may be withheld, conditioned or delayed in Hut's sole and absolute discretion), release any Person from, or waive, amend, suspend or otherwise modify any Person’s obligations respecting USBTC or any of its Subsidiaries, under any confidentiality, standstill, use, business purpose or similar agreement or restriction to which USBTC or any of its Subsidiaries is a party (it being acknowledged by Hut that the automatic termination or release of any standstill restrictions of any such agreements as a result of the entering into and the announcement of this Agreement shall not be a violation of this Section 6.11.

 

6.12Section 280G

 

USBTC shall perform or cause to be performed an analysis of the potential effects of the transactions contemplated by the Agreement under Sections 280G and 4999 of the Code. If and to the extent that USBTC determines that any payments or benefits would reasonably be expected to constitute “parachute payments” (within the meaning of Section 280G of the Code) in connection with the transactions contemplated by this Agreement, prior to the Merger Effective Time USBTC shall (i) seek a waiver from the recipient of any such “parachute payments” pursuant to which such recipient would agree to forego, unless stockholder approval in accordance with clause (ii) is obtained, any such payments or benefits to the extent necessary so that none of the remaining payments or benefits to such recipient would constitute “parachute payments”, and (ii) to the extent such waivers are obtained, seek stockholder approval of the waived amounts from the stockholders of USBTC in a manner intended to comply with Treasury Regulation Section 1.280G-1, Q&A-7. USBTC shall provide Hut with copies of the final related calculations and provide HUT with a reasonable opportunity to review and comment upon any waiver or stockholder approval documentation.

 

 

- 55 -

 

Article 7
ADDITIONAL COVENANTS of Hut REGARDING NON-SOLICITATION

 

7.1Hut Non-Solicitation

 

(1)Except as expressly provided in this Article 7, Hut and its Subsidiaries shall not, directly or indirectly, do or authorize or permit any of its Subsidiaries or Representatives to do, any of the following:

 

(a)solicit, initiate, encourage or otherwise knowingly facilitate (including by way of furnishing or providing copies of, access to, or disclosure of, any confidential information, properties, facilities, books or records of Hut or any Hut Subsidiary) any Acquisition Proposal or any inquiries, proposals or offers relating to any Acquisition Proposal or that may reasonably be expected to constitute or lead to an Acquisition Proposal;

 

(b)enter into, engage in, continue or otherwise participate in any discussions or negotiations with any Person (other than USBTC) regarding any Acquisition Proposal or any inquiries, proposals or offers relating to any Acquisition Proposal or that may reasonably be expected to constitute or lead to an Acquisition Proposal;

 

(c)withdraw, amend, modify or qualify, or publicly propose or state an intention to withdraw, amend, modify of qualify, the Board Recommendation;

 

(d)accept, approve, endorse or recommend, execute or enter into, or publicly propose to accept, approve, endorse or recommend, execute or enter into, any letter of intent, agreement in principle, agreement, arrangement, offer or understanding in respect of an Acquisition Proposal (other than an Acceptable Confidentiality Agreement contemplated under Section 7.3(1)(d); or

 

(e)accept, approve, endorse or recommend, or publicly propose to accept, approve, endorse or recommend, or take no position or remain neutral with respect to, any Acquisition Proposal (it being understood that publicly taking no position or a neutral position with respect to a publicly disclosed or publicly announced Acquisition Proposal for a period of no more than five (5) Business Days following the public announcement of such Acquisition Proposal will not be considered to be in violation of this Section 7.1 provided that Hut Board has rejected such Acquisition Proposal and affirmed the Board Recommendation before the end of such five Business Day period (or in the event that the Hut Meeting is scheduled to occur within such five Business Day period, prior to the third Business Day prior to the date of the Hut Meeting)).

 

 

- 56 -

 

(2)Except as expressly provided in this Article 7, Hut shall, and shall cause its Representatives to, immediately cease and terminate, and cause to be ceased and terminated, any solicitation, encouragement, discussion, negotiation, or other activities with any Person (other than USBTC) with respect to any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to, an Acquisition Proposal, and without limiting the generality of the foregoing, Hut will:

 

(a)immediately discontinue access to and disclosure of any of its confidential information, including any data room and any confidential information, properties, facilities, books and records of Hut or of any of its Subsidiaries;

 

(b)within two (2) Business Days of the date of this Agreement, request and exercise all rights it has to require: (i) the return or destruction of all copies of any confidential information regarding Hut or any of its Subsidiaries provided to any Person (other than USBTC) who has entered into a confidentiality agreement or similar agreement with Hut relating to an Acquisition Proposal or any inquiry, proposal or offer that may reasonably be expected to constitute or lead to an Acquisition Proposal and (ii) the destruction of all material including or incorporating or otherwise reflecting such confidential information regarding Hut or any of its Subsidiaries, in each case to the extent that such information has not previously been returned or destroyed, using its commercially reasonable efforts to ensure that such requests are fully complied with in accordance with the terms of such rights or entitlements.

 

(3)Hut represents and warrants that, since January 1, 2022, neither Hut, its Subsidiaries nor any of their respective Representatives, has waived any confidentiality, standstill or similar agreement or restriction to which Hut or any of its Subsidiaries is a party, and Hut covenants and agrees that (i) it shall take all necessary action to enforce any confidentiality, standstill, use, business purpose or similar agreement or restriction to which Hut or any of its Subsidiaries is a party and (ii) neither Hut, any of its Subsidiaries nor any of their respective Representatives will, without the prior written consent of USBTC (which may be withheld, conditioned or delayed in USBTC’s sole and absolute discretion), release any Person from, or waive, amend, suspend or otherwise modify any Person’s obligations respecting Hut or any of its Subsidiaries, under any confidentiality, standstill, use, business purpose or similar agreement or restriction to which Hut or any of its Subsidiaries is a party (it being acknowledged by USBTC that the automatic termination or release of any standstill restrictions of any such agreements as a result of the entering into and the announcement of this Agreement shall not be a violation of this Section 7.1(3).

 

7.2Notification of Acquisition Proposals

 

(1)If Hut or any Hut Subsidiary or any of their respective Representatives receives or otherwise becomes aware of an Acquisition Proposal or any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to an Acquisition Proposal, or any request for copies of, access to, or disclosure of, confidential information relating to Hut or any Hut Subsidiary, in connection with an Acquisition Proposal, Hut shall promptly notify USBTC, at first orally, and then within twenty-four (24) hours in writing, of such Acquisition Proposal, inquiry, proposal, offer or request, and shall provide USBTC with copies of all documents, material or correspondence or other material received in respect of, from or on behalf of any such persons and such other details of such Acquisition Proposal, inquiry, proposal, offer or request as USBTC may reasonably request. Such notice shall include: (i) a description of the material terms and conditions of such Acquisition Proposal, inquiry, proposal, offer or request; and (ii) the identity of all Persons making the Acquisition Proposal, inquiry, proposal, offer or request. Hut may contact the Person making such Acquisition Proposal, inquiry, proposal, offer or request and its Representatives solely for the purpose of clarifying the terms and conditions of such Acquisition Proposal, inquiry, proposal, offer or request so as to determine whether such Acquisition Proposal, inquiry, proposal, offer or request is, or would reasonably be expected to lead to, a Superior Proposal.

 

 

- 57 -

 

(2)Hut shall keep USBTC reasonably informed on a current basis of the status of material developments and the status of discussions and negotiations with respect to any such Acquisition Proposal, inquiry, proposal, offer or request including any changes, modifications or other amendments to any such Acquisition Proposal, inquiry, proposal, offer or request and shall provide to USBTC copies of all material or correspondence if in writing or electronic form, and if not in writing or electronic form, a description of the terms of such correspondence communicated to Hut by or on behalf of any Person making any such Acquisition Proposal, inquiry, proposal, offer or request.

 

7.3Responding to Acquisition Proposals

 

(1)Notwithstanding Section 7.1, if at any time following the date of this Agreement and prior to the approval of the Hut Resolutions by the Hut Shareholders, Hut receives an unsolicited bona fide written Acquisition Proposal, Hut and its Representatives may engage in or participate in discussions or negotiations regarding such Acquisition Proposal, and may provide copies of, access to or disclosure of information, properties, facilities, books or records of Hut or its Subsidiaries to the Person or Persons making such Acquisition Proposal, if and only if:

 

(a)the Hut Board first determines in good faith, after consultation with its financial advisors and its outside legal counsel, that: (i) such Acquisition Proposal constitutes or may reasonably be expected to constitute or lead to a Superior Proposal; and (ii) failure to take such action would be inconsistent with its fiduciary duties under applicable Law;

 

(b)such Person was not restricted from making such Acquisition Proposal pursuant to an existing confidentiality, standstill, non-disclosure, use, business purpose or similar restriction with Hut or any of its Subsidiaries;

 

(c)Hut has been, and continues to be, in compliance with its obligations under this Article 7;

 

(d)prior to providing any such copies, access, or disclosure, Hut enters into an Acceptable Confidentiality Agreement; and

 

(e)Hut promptly provides USBTC with (i) prior written notice stating Hut’s intention to participate in such discussions or negotiations and to provide such copies, access or disclosure; (ii) prior to providing such copies, access or disclosure, a true, complete and final executed copy of the Acceptable Confidentiality Agreement; and (iii) any non-public information concerning Hut and its Subsidiaries provided to such other Person which was not previously provided to USBTC.

 

(2)Nothing contained in this Agreement (but, for certainty, subject to Section 9.1) shall prevent Hut or the Hut Board from complying with a court order or Section 2.17 of National Instrument 62-104 – Takeover Bids and Issuer Bids and similar provisions under Securities Laws relating to the provision of a directors’ circular in respect of an Acquisition Proposal that is not a Superior Proposal, provided that Hut shall provide USBTC with a reasonable opportunity to review the form and content of such circular or other response before it is sent by Hut and shall make all reasonable amendments as requested by USBTC and its counsel.

 

 

- 58 -

 

7.4Right to Match

 

(1)If Hut receives an Acquisition Proposal that constitutes a Superior Proposal and that was not solicited in breach of Section 7.1 and that was made after the date of this Agreement and prior to the approval of the Hut Resolutions by the Hut Shareholders, Hut may, subject to compliance with Section 9.1 and Section 9.2, enter into a definitive agreement with respect to such Superior Proposal, if and only if:

 

(a)the Person making the Superior Proposal was not restricted from making such Superior Proposal pursuant to an existing confidentiality, standstill, non-disclosure, use, business purpose or similar restriction;

 

(b)Hut has been, and continues to be, in compliance with its obligations under this Article 7;

 

(c)Hut has delivered to USBTC a written notice of the determination of the Hut Board that such Acquisition Proposal constitutes a Superior Proposal and of the intention of the Hut Board to enter into such definitive agreement with respect to such Superior Proposal, which notice shall include the value and financial terms that the Hut Board, in consultation with its financial advisors, has determined should be ascribed to any non-cash consideration offered under such Superior Proposal (the “Superior Proposal Notice”);

 

(d)Hut has provided USBTC a copy of the proposed definitive agreement for the Superior Proposal and all other material agreements related thereto, including any financing documents supplied to Hut in connection therewith;

 

(e)at least five Business Days (the “Matching Period”) have elapsed from the date that is the later of the date on which USBTC received the Superior Proposal Notice and the date on which USBTC received all of the materials set forth in Section 7.4(1)(d);

 

(f)during any Matching Period, USBTC has had the opportunity, in accordance with Section 7.4(2), to offer to amend this Agreement and the Transaction in order for such Acquisition Proposal to cease to be a Superior Proposal, including by adjusting the Hut Exchange Ratio or the USBTC Exchange Ratio, as applicable;

 

(g)after the Matching Period, the Hut Board has determined in good faith, after consultation with its outside legal counsel and financial advisors, that such Acquisition Proposal continues to constitute a Superior Proposal (if applicable, compared to the terms of the Arrangement as proposed to be amended by USBTC under Section 7.4(2)) and that the failure by the Hut Board to take such action would be inconsistent with its fiduciary duties under applicable Law; and

 

(h)prior to or concurrently with entering into such definitive agreement, Hut terminates this Agreement pursuant to Section 9.1 and pays the Termination Amount pursuant to Section 9.2.

 

(2)During the Matching Period, or such longer period as Hut may (in its sole discretion) approve in writing for such purpose: (a) the Hut Board shall review any offer made by USBTC under Section 7.4(1)(f) to amend the terms of this Agreement and the Transaction in good faith in order to determine whether such proposal would, upon acceptance, result in the Acquisition Proposal previously constituting a Superior Proposal ceasing to be a Superior Proposal; and (b) Hut shall negotiate, and cause its Representatives to negotiate, in good faith with USBTC such amendments to the terms of this Agreement and the Transaction as would result in the Acquisition Proposal previously constituting a Superior Proposal ceasing to be a Superior Proposal and enable USBTC to proceed with the transactions contemplated by this Agreement on such amended terms. If the Hut Board determines that such Acquisition Proposal would cease to be a Superior Proposal based on any such mutually agreed amendments to this Agreement with USBTC, Hut shall promptly so advise USBTC, and the Parties shall thereupon amend this Agreement to reflect such offer made by USBTC, and shall take and cause to be taken all such actions as are necessary to give effect to the foregoing.

 

 

- 59 -

 

(3)Each successive amendment or modification to any Acquisition Proposal that results in an increase in, or modification of, the consideration (or value of such consideration), directly or indirectly, to be received by Hut or the Hut Shareholders or other material terms or conditions thereof shall constitute a new Acquisition Proposal for the purposes of this Section 7.4 and USBTC shall be afforded a new five (5) Business Day Matching Period from the later of the date on which USBTC received the Superior Proposal Notice and the date on which USBTC received all of the materials set forth in Section 7.4(1)(d) with respect to the new Superior Proposal from the Company

 

(4)The Hut Board shall promptly reaffirm the Board Recommendation by press release after (x) any Acquisition Proposal which is not determined to be a Superior Proposal is publicly announced or (y) if an Acquisition Proposal that is publicly announced or publicly known was determined to be a Superior Proposal, the Hut Board determines that a proposed amendment to the terms of this Agreement as contemplated by Section 7.4(2) would result in such Acquisition Proposal no longer being a Superior Proposal. Hut shall provide USBTC and its outside legal counsel with a reasonable opportunity to review the form and content of any such press release and shall make all reasonable amendments to such press release as requested by USBTC and its counsel.

 

(5)If Hut provides a Superior Proposal Notice to USBTC on a date that is less than ten (10) Business Days before the Hut Meeting, USBTC will be entitled to require Hut to adjourn or postpone such Hut Meeting in accordance with the terms of this Agreement to a date (x) specified by USBTC that is not more than ten (10) Business Days after the scheduled date of the Hut Meeting, provided that in no event shall such adjourned or postponed meeting be held on a date that is less than five Business Days prior to the Outside Date or (y) mutually agreed by the Parties.

 

7.5Breach by Subsidiaries and Representatives

 

Without limiting the generality of the foregoing, Hut shall advise its Subsidiaries and its and their respective Representatives of the prohibitions set out in this Article 7 and any violation of the restrictions set forth in this Article 7 by Hut, its Subsidiaries or its or their respective Representatives is deemed to be a breach of this Article 7 by Hut.

 

Article 8
CONDITIONS

 

8.1Mutual Conditions Precedent

 

The respective obligations of the Parties to complete the Transaction are subject to the fulfillment or waiver (to the extent permissible under applicable Law), on or before the Effective Date, of each of the following conditions precedent, each of which may only be waived with the mutual consent of the Parties:

 

(a)the Interim Order and the Final Order shall each have been obtained on terms consistent with this Agreement;

 

(b)no Law or Order is in effect that makes the completion of the Transaction illegal or otherwise prohibits or enjoins the Parties from completing the Transaction;

 

 

- 60 -

 

(c)the Arrangement Resolution shall have been passed by the Hut Shareholders at the Hut Meeting in accordance with the Interim Order and applicable Law;

 

(d)the Other Hut Resolutions, if any, shall have been passed by the Hut Shareholders at the Hut Meeting in accordance with applicable Law;

 

(e)the USBTC Stockholder Approval shall have been obtained by way of the USBTC Consent in accordance with applicable Law;

 

(f)each of the Required Regulatory Approvals shall have been made, given or obtained, on terms satisfactory to the Parties, each acting reasonably, and each such Required Regulatory Approval shall be in full force and effect;

 

(g)the Hut Consideration Shares and Hut Replacement Options to be issued under the Arrangement shall be exempt from the registration requirements of the U.S. Securities Act pursuant to Section 3(a)(10) thereof;

 

(h)the Stock Exchange Approvals shall have been made, given or obtained, on terms satisfactory to the Parties, subject only to the customary listing conditions of the Nasdaq and the TSX, as applicable;

 

(i)the Registration Statement shall have become effective, and no stop order and no proceedings for that purpose shall have been initiated or threatened by the SEC and not withdrawn;

 

(j)Dissent Rights have not been exercised with respect to more than 5.0% of the issued and outstanding Hut Shares;

 

(k)not more than 5.0% of the USBTC Shares shall be Dissenting USBTC Shares;

 

(l)the New Hut Omnibus Incentive Plan shall have been approved by the TSX and Nasdaq, as applicable;

 

(m)the Amended New Hut Organizational Documents shall have been filed and become effective, in form and substance satisfactory to Hut and USBTC;

 

(n)the actions required to be taken by the Parties pursuant to Section 8.6, with effect as of and from the Effective Time, shall have been taken; and

 

(o)New Hut shall have complied with its obligations under Section 2.4, and the Depositary shall have confirmed receipt of the Hut Consideration Shares and USBTC Consideration Shares contemplated thereby.

 

 

- 61 -

 

8.2Additional Conditions Precedent to the Obligations of USBTC

 

The obligations of USBTC to complete the Transaction shall also be subject to the fulfillment or waiver (to the extent permissible under applicable Law) of each of the following conditions precedent on or before the Effective Date (each of which is for the exclusive benefit of USBTC and may only be waived by USBTC in whole or in part at any time in its sole discretion):

 

(a)all covenants of Hut under this Agreement to be performed on or before the Effective Date which have not been waived by USBTC shall have been duly performed by Hut in all material respects, and USBTC shall have received a certificate of Hut addressed to USBTC and dated the Effective Date, signed on behalf of Hut by a senior executive officer of Hut, confirming the same as at the Effective Date;

 

(b)(i) the representations and warranties of Hut set forth in Section (1) of Schedule “C” [Organization and Qualification], Section (2) of Schedule “C” [Capitalization] and Section (3) of Schedule “C” [Corporate Authority; Approval] shall be true and correct in all respects as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, such accuracy of which shall be determined as of that specified date), except for such failures to be so true and correct that are de minimis; (ii) the representations and warranties of Hut set forth in Section (4) of Schedule “C” [Subsidiaries] shall be true and correct in all material respects (disregarding for such purposes any materiality or Material Adverse Effect qualification contained in any such representation or warranty) as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, such accuracy of which shall be determined as of that specified date); and (iii) all other representations and warranties made by Hut in this Agreement shall be true and correct in all respects (disregarding for such purpose any materiality or Material Adverse Effect qualification contained in any such representation or warranty) as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, the accuracy of which shall be determined as of that specified date), except in the case of this clause (iii) where any failure or failures of any such other representations and warranties to be so true and correct, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect in respect of Hut; and USBTC shall have received a certificate of Hut addressed to USBTC and dated the Effective Date, signed on behalf of Hut by a senior executive officer of Hut, confirming the same as of the Effective Date;

 

(c)executive employment agreements for the senior leadership of New Hut shall have been executed and delivered, in form and substance satisfactory to USBTC; and

 

(d)since the date of this Agreement, there shall not have occurred any Material Adverse Effect in respect of Hut that is continuing.

 

8.3Additional Conditions Precedent to the Obligations of Hut

 

The obligations of Hut to complete the Transaction shall also be subject to the fulfillment or waiver (to the extent permissible under applicable Law) of each of the following conditions precedent on or before the Effective Date (each of which is for the exclusive benefit of Hut and may only be waived by Hut in whole or in part at any time in its sole discretion):

 

(a)all covenants of USBTC under this Agreement to be performed on or before the Effective Date which have not been waived by Hut shall have been duly performed by USBTC in all material respects, and Hut shall have received a certificate of USBTC, addressed to Hut and dated the Effective Date, signed on behalf of USBTC by a senior executive officer of USBTC, confirming the same as of the Effective Date;

 

 

- 62 -

 

(b)all covenants of New Hut under this Agreement to be performed on or before the Effective Date which have not been waived by Hut shall have been duly performed by New Hut in all material respects, and Hut shall have received a certificate of New Hut, addressed to Hut and dated the Effective Date, signed on behalf of New Hut by a director of New Hut, confirming the same as of the Effective Date;

 

(c)(i) the representations and warranties of USBTC set forth in Section (1) of Schedule “D” [Organization and Qualification]; Section (2) of Schedule “D” [Capitalization] and Section (3) of Schedule “D” [Corporate Authority; Approval] shall be true and correct in all respects as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, such accuracy of which shall be determined as of that specified date), except for such failures to be so true and correct that are de minimis; (ii) the representations and warranties of USBTC set forth in Section (4) of Schedule “D” [Subsidiaries] shall be true and correct in all material respects (disregarding for such purposes any materiality or Material Adverse Effect qualification contained in any such representation or warranty) as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, such accuracy of which shall be determined as of that specified date); and (iii) all other representations and warranties made by USBTC in this Agreement shall be true and correct in all respects (disregarding for such purpose any materiality or Material Adverse Effect qualification contained in any such representation or warranty) as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, such accuracy of which shall be determined as of that specified date), except in the case of this clause (iii) where any failure or failures of any such other representations and warranties to be so true and correct, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect in respect of USBTC; and Hut shall have received a certificate of USBTC addressed to Hut and dated the Effective Date, signed on behalf of USBTC by a senior executive officer of USBTC, confirming the same as of the Effective Date;

 

(d)(i) the representations and warranties of New Hut set forth in Section (1) of Schedule “E” [Organization and Qualification]; Section (2) of Schedule “E” [Capitalization] and Section (3) of Schedule “E” [Corporate Authority; Approval] shall be true and correct in all respects as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, such accuracy of which shall be determined as of that specified date), except for such failures to be so true and correct that are de minimis; and (ii) all other representations and warranties made by New Hut in this Agreement shall be true and correct in all respects (disregarding for such purpose any materiality or Material Adverse Effect qualification contained in any such representation or warranty) as of the date of this Agreement and as of the Effective Date as if made on and as of the Effective Date (except for representations and warranties made as of a specified date, such accuracy of which shall be determined as of that specified date), except in the case of this clause (ii) where any failure or failures of any such other representations and warranties to be so true and correct, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect in respect of New Hut; and Hut shall have received a certificate of New Hut addressed to Hut and dated the Effective Date, signed on behalf of New Hut by a director of New Hut, confirming the same as of the Effective Date;

 

 

- 63 -

 

(e)executive employment agreements for the senior leadership of New Hut shall have been executed and delivered, in form and substance satisfactory to Hut; and

 

(f)since the date of this Agreement, there shall not have occurred any Material Adverse Effect in respect of USBTC that is continuing.

 

8.4Satisfaction of Conditions

 

The conditions precedent set out in Section 8.1, Section 8.2 and Section 8.3 shall be conclusively deemed to have been satisfied, waived or released at the Effective Time.

 

8.5Notice and Cure Provisions

 

(1)Each Party will give prompt notice to the other Parties the occurrence, or failure to occur, of any event or state of facts which occurrence or failure would, would be reasonably be likely to:

 

(a)cause any of the representations or warranties of such Party contained herein to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Effective Time; or

 

(b)result in the failure by such Party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by such Party prior to the Effective Time.

 

(2)Notification provided under this Section 8.5 will not affect the representations, warranties, covenants, agreements or obligations of the Parties (or remedies with respect thereto) or the conditions to the obligations of the Parties under this Agreement.

 

(3)USBTC may not exercise its rights to terminate this Agreement pursuant to Section 9.1(2)(c)(ii) and Hut may not exercise its right to terminate this Agreement pursuant to Section 9.1(2)(d)(ii) unless the Party intending to rely thereon (the “Terminating Party”) has delivered a written notice (the “Termination Notice”) to the other Party (the “Breaching Party”) specifying in reasonable detail all breaches of covenants, representations and warranties or other matters which the Terminating Party is asserting as the basis for the termination. If any such Termination Notice is delivered, provided that the Breaching Party is proceeding diligently to cure such matter and such matter is capable of being cured prior to the Outside Date, the Terminating Party may not terminate this Agreement pursuant to Section 9.1(2)(c)(ii) or Section 9.1(2)(d)(ii), as applicable, until the earlier of (a) the Outside Date and (b) the date that is 20 Business Days from such Termination Notice, and in each case only if such matter has not been cured by such date. If such Termination Notice has been delivered prior to the Hut Meeting, unless the Parties agree otherwise, such meeting shall be postponed or adjourned to the earlier of (A) 20 Business Days prior to the Outside Date and (B) the date that is 20 Business Days following receipt of such Termination Notice by the Breaching Party.

 

8.6Governance

 

New Hut, USBTC and Hut shall take all necessary actions to ensure that, at the Effective Time: (i) the New Hut Board shall be comprised of ten (10) directors; (ii) the members of the New Hut Board, the Chief Executive Officer, the President and the Chief Strategy Officer of New Hut shall be as set out in Sections 8.6 of each of the Hut Disclosure Letter and USBTC Disclosure Letter, respectively; and (iii) the individuals listed in Section 8.6 of the USBTC Disclosure Letter shall have executed and delivered customary lock-up and voting agreements, with effect from the Effective Time, on the terms set out at Section 8.6 of the USBTC Disclosure Letter. The Parties agree to work cooperatively to implement the foregoing including by providing any information required by Law with respect to the foregoing individuals for inclusion in the Registration Statement, USBTC Information Statement and the Hut Circular, to the extent required, no later than five (5) Business Days’ prior to the required filing of the Registration Statement, USBTC’s delivery of the USBTC Information Statement to the USBTC Stockholders and the required mailing of the Hut Circular, in each case as applicable, and USBTC, Hut and New Hut shall obtain such resignations and pass any such resolutions of the New Hut Board, and take all other actions, as may be required to ensure that, at the Effective Time, the New Hut Board is comprised of the ten directors contemplated in Sections 8.6 of each of the Hut Disclosure Letter and USBTC Disclosure Letter, respectively.

 

 

- 64 -

 

Article 9
TERM, TERMINATION, AMENDMENT AND WAIVER

 

9.1Term, Termination

 

(1)This Agreement shall be effective from the date of this Agreement until the earlier of the Effective Time and the termination of this Agreement in accordance with its terms.

 

(2)This Agreement may be terminated at any time prior to the Effective Time:

 

(a)by mutual written agreement of the Parties; or

 

(b)by either Hut or USBTC, if:

 

(i)the Effective Time shall not have occurred on or before the Outside Date, except that the right to terminate this Agreement under this Section 9.1(2)(b) shall not be available to any Party whose failure to fulfill any of its covenants or obligations or its breach of any of its representations and warranties under this Agreement (in the case of USBTC, the failure or breach of either USBTC or New Hut) has been the principal cause of, or directly resulted in, the failure of the Effective Time to occur by the Outside Date;

 

(ii)there shall exist any Law or Order that makes consummation of the Transaction illegal or otherwise restricts, prohibits or enjoins Hut or USBTC from consummating the Transaction and such Law or Order shall be final and non-appealable, provided that the Party seeking to terminate this Agreement under this Section 9.1(2)(b)(ii) shall then in all material respects be in compliance with Section 6.5 and shall not otherwise be in material breach of this Agreement;

 

(iii)the Hut Resolutions shall not have been passed by the Hut Shareholders at the Hut Meeting in accordance with the Interim Order and applicable Law; or

 

(iv)the USBTC Stockholder Approval shall not have been obtained by way of the USBTC Consent in accordance with applicable Law;

 

 

- 65 -

 

(c)by USBTC, if:

 

(i)the Hut Board or any committee of the Hut Board (A) fails to unanimously recommend or withdraws, amends, modifies or qualifies (or publicly proposes or states an intention to withdraw, amend, modify or qualify), in a manner adverse to USBTC, the Board Recommendation, (B) accepts, approves, endorses or recommends, or publicly proposes or states an intention to accept, approve, endorse or recommend an Acquisition Proposal or takes no position or remains neutral, in each case, with respect to a publicly announced or otherwise publicly disclosed Acquisition Proposal for more than five (5) Business Days (or beyond the third Business Day prior to the Hut Meeting, if sooner), (C) accepts, approves, executes or enters into, or causes Hut or any of the Hut Subsidiaries to accept, approve, execute or enter into, or publicly proposes to accept, approve, execute or enter into, or to cause Hut or any of the Hut Subsidiaries to accept, approve, execute or enter into, any agreement, letter of intent, agreement in principle, agreement, arrangement or understanding in respect of an Acquisition Proposal (other than an Acceptable Confidentiality Agreement contemplated under Section 7.3(1)(d)), (D) fails to publicly reaffirm by press release the Board Recommendation (without qualification) within five (5) Business Days after having been requested in writing by USBTC to do so (or in the event that the Hut Meeting is scheduled to occur within such five (5) Business Day period, prior to the third (3rd) Business Day prior to the date of the Hut Meeting (or, if the public announcement of an Acquisition Proposal were made less than three (3) Business Days prior to the Hut Meeting, prior to the second Business Day before the Hut Meeting));

 

(ii)a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Hut under this Agreement occurs that would cause any condition in Section 8.2(a) [Hut Covenants Condition] or Section 8.2(b) [Hut Reps and Warranties Condition] not to be satisfied, and such breach or failure is not cured in accordance with the terms of Section 8.5(3); provided that USBTC is not then in breach of this Agreement so as to cause any condition in Section 8.1 [Mutual Conditions], Section 8.3(a) [USBTC Covenants Condition] or Section 8.3(c) [USBTC Reps and Warranties Condition] not to be satisfied;

 

(iii)Hut breaches Article 7 in any material respect; or

 

(iv)since the date of this Agreement, there has occurred and is continuing a Material Adverse Effect in respect of Hut;

 

(d)by Hut, if:

 

(i)prior to the approval by the Hut Shareholders of the Hut Resolutions, the Hut Board authorizes Hut to enter into a written agreement (other than an Acceptable Confidentiality Agreement permitted by and in accordance with Section 7.3(1)(d)) with respect to a Superior Proposal in accordance with Section 7.4, provided Hut is then in compliance with Article 7 and that prior to or concurrent with such termination Hut pays the Termination Amount in accordance with Section 9.2;

 

(ii)a breach of any representation or warranty or failure to perform any covenant or agreement on the part of USBTC under this Agreement occurs that would cause any condition in Section 8.3(a) [USBTC Covenants Condition] or Section 8.3(c) [USBTC Reps and Warranties Condition] not to be satisfied, and such breach or failure is not cured in accordance with the terms of Section 8.5(3); provided that Hut is not then in breach of this Agreement so as to cause any condition in Section 8.1 [Mutual Conditions], Section 8.2(a) [Hut Covenants Condition], Section 8.2(b) [Hut Reps and Warranties Condition];

 

 

- 66 -

 

(iii)a breach of any representation or warranty or failure to perform any covenant or agreement on the part of New Hut under this Agreement occurs that would cause any condition in Section 8.3(b) [New Hut Covenants Condition] or Section 8.3(d) [New Hut Reps and Warranties Condition] not to be satisfied, and such breach or failure is not cured in accordance with the terms of Section 8.5(3); provided that Hut is not then in breach of this Agreement so as to cause any condition in Section 8.1 [Mutual Conditions], Section 8.2(a) [Hut Covenants Condition] or Section 8.2(b) [Hut Reps and Warranties Condition] not to be satisfied; or

 

(iv)since the date of this Agreement, there has occurred and is continuing a Material Adverse Effect in respect of USBTC.

 

(3)The Party desiring to terminate this Agreement pursuant to this Section 9.1 (other than pursuant to Section 9.1(2)(a)) shall give written notice of such termination to the other Parties, specifying in reasonable detail the basis for such Party’s exercise of its termination right.

 

(4)If this Agreement is terminated pursuant to Section 9.1 or Section 9.1(2), this Agreement shall become void and of no effect without liability of any Party (or any shareholder, director, officer, employee, agent, consultant or representative of such Party) to any other Party hereto except that: (A) in the event of termination under Section 9.1(2) as a result of Effective Time occurring, Section 6.7 shall survive for a period of six years following such termination; and (B) in the event of termination under Section 9.1, this Section 9.1(4), Section 9.2, Section 9.3 and Article 10 and the provisions of the Confidentiality Agreement shall survive, and provided further that, notwithstanding anything to the contrary contained in this Agreement, no Party shall be relieved of any liability for fraud.

 

9.2Termination Amount

 

(1)USBTC shall be entitled to the Termination Amount (free and clear of, and without reduction for, any applicable withholding Taxes) upon the occurrence of any of the following events (each a “Termination Amount Event”), which shall be paid by Hut to USBTC, in consideration for the disposition of USBTC’s rights under this Agreement, within the time specified below in respect of each such Termination Amount Event:

 

(a)this Agreement is terminated by USBTC (i) pursuant to Section 9.1(2)(c)(i) [Change in Recommendation]; or (ii) pursuant to Section 9.1(2)(c)(iii) [Material Breach of Article 7], in which case the Termination Amount shall be paid within two (2) Business Days following such termination;

 

(b)this Agreement is terminated by Hut pursuant to Section 9.1(2)(d)(i) [Superior Proposal], in which case the Termination Amount shall be paid prior to or concurrently with such termination;

 

(c)this Agreement is terminated pursuant to any Subsection of 9.1(2) if at such time USBTC is entitled to terminate this Agreement (i) pursuant to Section 9.1(2)(c)(i) [Change in Recommendation]; or (ii) pursuant to Section 9.1(2)(c)(iii) [Material Breach of Article 7], in which case the Termination Amount shall be paid within two (2) Business Days following such termination; or

 

 

- 67 -

 

(d)this Agreement is terminated by USBTC pursuant to Section 9.1(2)(c)(ii) [Hut Breach of Reps or Covenants], or by either USBTC or Hut pursuant to Section 9.1(2)(b)(i) [Outside Date] or Section 9.1(2)(b)(iii) [No Hut Shareholder Approval], but only if:

 

(i)prior to such termination, an Acquisition Proposal is made or publicly announced or otherwise publicly disclosed by any Person or Persons (other than USBTC and the USBTC Subsidiaries) or any Person or Persons (other than USBTC or any of the USBTC Subsidiaries) shall have publicly announced an intention to make an Acquisition Proposal; and

 

(ii)within 12 months following the date of such termination, (1) an Acquisition Proposal (whether or not such Acquisition Proposal is the same Acquisition Proposal referred to in clause (i) above) is consummated or (2) Hut or one or more of the Hut Subsidiaries, directly or indirectly, in one or more transactions, enters into a Contract in respect of an Acquisition Proposal (whether or not such Acquisition Proposal is the same Acquisition Proposal referred to in clause (i) above) and such Acquisition Proposal is later consummated (whether or not within 12 months after such termination),

 

in which case the Termination Amount shall be payable on or prior to the consummation of the Acquisition Proposal referred to therein. For purposes of this Section 9.2(1), the term “Acquisition Proposal” shall have the meaning ascribed thereto in Section 1.1, except that the references to “20%” therein shall be deemed to be references to “50%”.

 

(2)The Termination Amount shall be paid by Hut by wire transfer in immediately available funds to an account specified by USBTC.

 

(3)Each of the Parties acknowledges that the agreements contained in this Section 9.2 are an integral part of the transactions contemplated in this Agreement and that, without those agreements, the Parties would not enter into this Agreement and that the amounts set out in this Section 9.2 represent liquidated damages which are a genuine pre-estimate of the damages, including opportunity costs, which USBTC will suffer or incur as a result of the event giving rise to such damages and resultant termination of this Agreement, and is not a penalty. For the avoidance of doubt, in no event shall Hut be required to pay the Termination Amount on more than one occasion. Subject to Section 9.1(4), each of the Parties hereby acknowledges and agrees that, upon any termination of this Agreement as permitted under Section 9.1 under circumstances where USBTC is entitled to the Termination Amount and such Termination Amount is paid in full to USBTC in the manner provided herein, USBTC shall be precluded from any other remedy against Hut at law or in equity or otherwise in respect of the event giving rise to such payment and in any such case neither it nor any of its Subsidiaries shall seek to obtain any recovery, judgment, or damages of any kind, including consequential, indirect, or punitive damages, against Hut or any of Hut’s Subsidiaries or any of their respective directors, officers, employees, partners, managers, members, shareholders or Affiliates in connection with this Agreement or the transactions contemplated hereby.

 

(4)Nothing in this Section 9.2 shall preclude a Party from seeking injunctive relief to enforce the other Party’s obligation hereunder to consummate the transactions contemplated by this Agreement, to restrain any breach or threatened breach of the covenants or agreements set forth in this Agreement or otherwise to obtain specific performance of any such covenants or agreement, and any requirement for proof of damages or the securing or posting of any bond in connection with the obtaining of any such injunction or specific performance is hereby being waived. Notwithstanding anything to the contrary in this Agreement, under no circumstances shall a Party be permitted to be entitled to receive both a grant of specific performance of the obligation to consummate the transactions contemplated by this Agreement and any monetary damages (including all or any portion of the Termination Amount).

 

 

- 68 -

 

9.3Fees and Expenses

 

(1)Except as expressly provided in this Section 9.3, upon consummation of the Transaction, New Hut shall pay all fees, costs and expenses incurred by Hut and USBTC in connection with this Agreement and the Transaction. If this Agreement is terminated prior to the Effective Time pursuant to Section 9.1(2), each Party shall pay all fees, costs and expenses incurred by such Party in connection with this Agreement and the Transaction, provided that each of Hut and USBTC shall pay 50% of any filing fees and applicable Taxes payable for or in respect of any application, notification or other filing made in respect of any regulatory process in respect of the transactions contemplated by the Transaction, including any fees, costs and expenses in connection with the preparation, filing and approval by the SEC of the Registration Statement pursuant to Section 4.5.

 

(2)If this Agreement is terminated by USBTC pursuant to Section  9.1(2)(b)(iii) [No Hut Shareholder Approval] or Section 9.1(2)(c)(ii) [Hut Breach of Reps or Covenants], then Hut shall pay (or cause to be paid) to USBTC (or as USBTC may direct) an expense reimbursement payment for reasonable, documented expenses incurred in connection with this Agreement and the Arrangement (i) in the case of a termination pursuant to Section  9.1(2)(b)(iii) [No Hut Shareholder Approval], in an amount not to exceed $500,000 (less any applicable withholding Tax); and (ii) in the case of a termination pursuant to Section 9.1(2)(c)(ii) [Hut Breach of Reps or Covenants], in an amount not to exceed $2,000,000 (less any applicable withholding Tax); in each case by wire transfer in immediately available funds to an account designated by USBTC no later than two Business Days after the date of such termination; provided that in no event shall Hut be required to pay under Section 9.2, on the one hand, and this Section 9.3(2), on the other hand, in aggregate, an amount in excess of the Termination Amount.

 

(3)If this Agreement is terminated by Hut pursuant to Section 9.1(2)(b)(iv) [No USBTC Stockholder Approval], Section 9.1(2)(d)(ii) [USBTC Breach of Reps or Covenants] or Section 9.1(2)(d)(iii) [New Hut Breach of Reps or Covenants], then USBTC shall pay (or cause to be paid) to Hut (or as Hut may direct) an expense reimbursement payment for reasonable, documented expenses incurred in connection with this Agreement and the Arrangement (i) in the case of a termination pursuant to Section  9.1(2)(b)(iv) [No USBTC Stockholder Approval], in an amount not to exceed $500,000 (less any applicable withholding Tax); and (ii) in the case of a termination pursuant to Section 9.1(2)(d)(ii) [USBTC Breach of Reps or Covenants] or Section 9.1(2)(d)(iii) [New Hut Breach of Reps or Covenants], in an amount not to exceed $2,000,000 (less any applicable withholding Tax); in each case by wire transfer in immediately available funds to an account designated by Hut no later than two Business Days after the date of such termination.

 

(4)USBTC confirms that other than the fees disclosed in Section 9.3(4) of the USBTC Disclosure Letter, no broker, finder or investment banker is or will be entitled to any brokerage, finder’s or other fee or commission from USBTC or any of its Subsidiaries in connection with the transactions contemplated by this Agreement. Hut confirms that other than the fees disclosed in Section 9.3(4) of the Hut Disclosure Letter, no broker, finder or investment banker is or will be entitled to any brokerage, finder’s or other fee or commission from Hut or any of its Subsidiaries in connection with the transactions.

 

 

- 69 -

 

9.4Amendment

 

This Agreement, the Plan of Arrangement and the form of the Articles of Merger may, at any time and from time to time before or after the holding of the Hut Meeting and the date on which the USBTC Stockholder Approval is obtained by way of the USBTC Consent but not later than the Effective Time, be amended by mutual written agreement of Hut and USBTC (provided that after receipt of the USBTC Stockholder Approval or the approval by Hut Shareholders of the Hut Resolutions, if any such amendment shall in accordance with applicable Law or the requirements of the TSX or Nasdaq require further approval of USBTC Stockholders or Hut Shareholders, as applicable, the effectiveness of such amendment shall be subject to such approval of USBTC Stockholders or Hut Shareholders, as applicable) and any such amendment may, subject to the Interim Order and the Final Order and applicable Law, without limitation:

 

(1)change the time for performance of any of the obligations or acts of the Parties;

 

(2)waive any inaccuracies or modify any representation or warranty contained herein or in any document delivered pursuant hereto;

 

(3)waive compliance with or modify any of the covenants herein contained and waive or modify performance of any of the obligations of the Parties; and/or

 

(4)waive compliance with or modify any mutual conditions precedent herein contained.

 

Article 10
GENERAL PROVISIONS

 

10.1Privacy

 

(1)Each Party shall comply with applicable Privacy Laws in the course of collecting, using and disclosing Personal Information in connection with the Transaction (the “Transaction Personal Information”). No Party shall disclose any Transaction Personal Information to any Person other than to its advisors who are evaluating and advising on the Transaction. If the Transaction is consummated,

 

(a)neither Party shall, following the Effective Date, without the consent of the individuals to whom such Transaction Personal Information relates or as permitted or required by applicable Law, use or disclose Transaction Personal Information:

 

(i)for purposes other than those for which such Transaction Personal Information was collected prior to the Effective Date; and

 

(ii)which does not relate directly to the carrying on of the business of such Party or to the carrying out of the purposes for which the Transaction contemplated by this Agreement was implemented; and

 

(b)to the extent required by law, the Parties shall notify the individuals to whom the Transferred Personal Information relates, within a reasonable period of time after the Closing, that the transaction has been completed and that the Transferred Personal Information has been disclosed to the resulting entity.

 

(2)Each Party shall protect and safeguard the Transaction Personal Information against unauthorized collection, use or disclosure. Each Party shall cause its advisors to observe the terms of this Section 10.1 and to protect and safeguard Transaction Personal Information in their possession. If this Agreement shall be terminated pursuant to Section 9.1, each Party shall promptly deliver to other Party all Transaction Personal Information in its possession or in the possession of any of its advisors, including all copies, reproductions, summaries or extracts thereof.

 

 

- 70 -

 

10.2Notices

 

All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or sent if delivered personally or by e-mail transmission, or as of the following Business Day if sent by prepaid overnight, internationally-recognized courier, to the Parties at the following addresses (or at such other addresses as shall be specified by any Party by notice to the other given in accordance with these provisions):

 

(1)if to USBTC or New Hut:

 

U.S. Data Mining Group, Inc.

1221 Brickell Avenue, Suite 900

Miami, Florida 33131

 

Attention: Asher Genoot
Email: [REDACTED]

 

with a copy (which shall not constitute notice) to:

 

Stikeman Elliott LLP

5300 Commerce Court West

199 Bay Street

Toronto, ON M5L 1B9

 

Attention: Amanda Linett
Email: [REDACTED]

 

and to:

 

Greenberg Traurig, P.A.

333 S.E. 2nd Avenue, #4400

Miami, Florida 33131

 

Attention: Daniella G. Silberstein
Email: [REDACTED]

 

(2)if to Hut:

 

Hut 8 Mining Corp.

24 Duncan Street, Suite 500

Toronto, ON M5V 2B8

 

Attention: Chief Legal Officer
Email: [REDACTED]

 

 

- 71 -

 

with a copy (which shall not constitute notice) to:

 

Bennett Jones LLP

One First Canadian Place, Suite 3400

100 King Street West

Toronto, ON M5X 1A4

 

Attention: Curtis Cusinato / Matthew Hunt
Email: [REDACTED]

 

and to:

 

Skadden, Arps, Slate, Meagher & Flom LLP

222 Bay Street, Suite 1750
Toronto, ON M5K 1J5

 

Attention: Ryan Dzierniejko / June S. Dipchand
Email: [REDACTED]

 

10.3Third Party Beneficiaries

 

(1)Except as provided in Section 6.7, which, without limiting its terms, is intended as stipulations for the benefit of the third persons mentioned in such provisions (such third persons referred to in this Section 10.3 as the “Indemnified Persons”), each of the Parties intend that this Agreement will not benefit or create any right or cause of action in favour of any person, other than the Parties and that no person, other than the Parties, shall be entitled to rely on the provisions of this Agreement in any action, suit, proceeding, hearing or other forum.

 

(2)Despite the foregoing, each of the Parties acknowledges to each of the Indemnified Persons their direct rights against each of them under Section 6.7 which are intended for the benefit of, and shall be enforceable by, each Indemnified Person and his or her heirs and his or her legal representatives, and for such purpose, each Party confirms that it is acting as trustee and/or agent on their behalf, and agrees to enforce such provisions on their behalf. The Parties reserve their right to vary or rescind the rights at any time and in any way whatsoever, if any, granted by or under this Agreement to any Person who is not a Party, without notice to or consent of that Person, including any Indemnified Person.

 

10.4Further Assurances

 

Notwithstanding that certain of the transactions comprising the Transaction shall occur and be deemed to occur in the order set out in the Plan of Arrangement without any further act or formality, each of the Parties to this Agreement shall make, do and execute, or cause to be made, done and executed, all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by any of them in order to further document or evidence any of the transactions or events set out therein, subject in each case, to the express terms of this Agreement.

 

10.5Governing Law

 

(1)Except as set forth in Section 10.5(2), this Agreement shall be governed, including as to validity, interpretation and effect, by the laws of the Province of British Columbia and the federal laws of Canada applicable therein. Except as set forth in Section 10.5(2), each of the Parties hereby irrevocably attorns to the exclusive jurisdiction of the Courts of the Province of British Columbia situated in the City of Vancouver in respect of all matters arising under and in relation to this Agreement and waives objection to venue of any proceeding in such court or that such court provides an inconvenient forum.

 

 

- 72 -

 

(2)Notwithstanding anything in this Agreement to the contrary, the provisions in this Agreement in respect of the Merger (the “Merger Provisions”) shall be governed, including as to validity, interpretation and effect, by the laws of the State of Nevada without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of laws of another jurisdiction. Any proceeding or action based upon, arising out of or related to the Merger Provisions or the transactions contemplated thereby must be brought in the Eighth Judicial District Court of the State of Nevada sitting in Clark County, Nevada, or, if it has or can acquire jurisdiction, in the United States District Court for the District of Nevada, and each of the Parties irrevocably (i) submits to the exclusive jurisdiction of each such court in any such proceeding or action, (ii) waives any objection it may now or hereafter have to personal jurisdiction, venue or to convenience of forum, (iii) agrees that all claims in respect of the proceeding or action shall be heard and determined only in any such court, and (iv) agrees not to bring any proceeding or action arising out of or relating to the Merger Provisions or the transactions contemplated thereby in any other court. Nothing herein contained shall be deemed to affect the right of any Party to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other Party in any other jurisdiction, in each case, to enforce judgments obtained in any action, suit or proceeding brought pursuant to this Section 10.5(2). EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THE MERGER PROVISIONS AND THE TRANSACTIONS CONTEMPLATED THEREBY IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY, UNCONDITIONALLY AND VOLUNTARILY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT OR PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THE MERGER PROVISIONS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREBY.

 

10.6Injunctive Relief

 

The Parties agree that irreparable harm would occur for which money damages would not be an adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to seek an injunction or injunctions, specific performance and other equitable relief to prevent breaches or threatened breaches of this Agreement, and any requirement for proof of damages or the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief is hereby being waived, this being in addition to any other remedy to which the Parties may be entitled at law or equity.

 

10.7Time of Essence

 

Time shall be of the essence in this Agreement.

 

10.8Entire Agreement, Binding Effect and Assignment

 

This Agreement (including the exhibits and schedules hereto, Hut Disclosure Letter and the USBTC Disclosure Letter) and the Confidentiality Agreement constitute the entire agreement, and supersede all other prior agreements and understandings, both written and oral, between the Parties, or any of them, with respect to the subject matter hereof and thereof and, except as expressly provided herein, this Agreement is not intended to and shall not confer upon any person other than the Parties any rights or remedies hereunder. Except as expressly permitted by the terms hereof, neither this Agreement nor any of the rights, interests or obligations hereunder may be assigned by either of the Parties without the prior written consent of the other Party.

 

 

- 73 -

 

10.9Severability

 

If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

 

10.10No Liability

 

No director or officer of a Party or of any of its Affiliates shall have any personal liability whatsoever to the other Party under this Agreement or any other document delivered in connection with the transactions contemplated hereby on behalf of a Party.

 

10.11Rules of Construction

 

The Parties to this Agreement waive the application of any Law or rule of construction providing that ambiguities in any agreement or other document shall be construed against the Party drafting such agreement or other document.

 

10.12Counterparts, Execution

 

This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. The Parties shall be entitled to rely upon delivery of an executed facsimile or similar executed electronic copy of this Agreement, and such facsimile or similar executed electronic copy shall be legally effective to create a valid and binding agreement between the Parties.

 

[Remainder of page intentionally left blank.]

 

 

 

IN WITNESS WHEREOF the Parties have executed this Business Combination Agreement as of the date first written above.

 

  HUT 8 MINING CORP.
     
     
  By: /s/ Jamie Leverton
   

Name: Jamie Leverton

Title: Chief Executive Officer

     
     
  U.S. DATA MINING GROUP, INC.
     
     
  By: /s/ Asher Genoot
   

Name: Asher Genoot

Title: President

     
     
  HUT 8 Corp.
     
     
  By: /s/ Asher Genoot
   

Name: Asher Genoot

Title: President

 

 

 

Schedule "A"
PLAN OF ARRANGEMENT

 

See attached.

 

 

 

 

PLAN OF ARRANGEMENT UNDER DIVISION 5 OF PART 9 OF
THE BUSINESS CORPORATIONS ACT (BRITISH COLUMBIA‎)

 

Article 1
INTERPRETATION

 

Section 1.1Definitions

 

In this Plan of Arrangement, unless there is something in the subject matter or context clearly inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of those terms shall have corresponding meanings:

 

(1)"Amalgamation" means the amalgamation of the Company and Holdings pursuant to the Arrangement;

 

(2)"Arrangement" means the arrangement under Division 5 of Part 9 of the BCBCA on the terms and subject to the ‎conditions set out in this Plan of Arrangement, subject to any amendments or variations to the Arrangement made in accordance with the terms of the Business Combination Agreement or Section 6.1 of this Plan of Arrangement or made at the direction of the Court in the Final Order ‎with the prior written consent of the Company and USBTC (each acting reasonably‎);

 

(3)"Arrangement Effective Time" means the time on the Effective Date at which the Arrangement Filings are filed with the Registrar, or such other time on the Effective Date as the Company, USBTC and New Hut may agree to in writing before the Effective Date, provided that the Arrangement Effective Time shall in all circumstances occur prior to the Merger Effective Time‎;

 

(4)‎‎"Arrangement Filings" means the records and information required to be provided to the Registrar under subsection 292(a) of the BCBCA in respect of the Arrangement, together with a copy of the Final Order;

 

(5)"Arrangement Resolution" means the special resolution approving the Arrangement, substantially in the form attached as Schedule "B" to the Business Combination Agreement, passed by the Company Shareholders at the Meeting;

 

(6)‎"BCBCA" means the Business Corporations Act (British Columbia), as amended;

 

(7)"Business Combination Agreement" means the business combination agreement dated as of February 5, 2023 by and among the ‎Company, USBTC and New Hut, including the schedules and exhibits thereto, providing for, among other things, the ‎Arrangement, as the same may be amended, supplemented or restated;

 

(8)"Business Day" means any day of the year, other than a Saturday, Sunday or any day on which ‎major commercial banking institutions in Vancouver, British Columbia, Toronto, Ontario or New York, New York are required by Law to be closed for business;

 

(9)"Cash Equivalent" has the meaning ascribed to such term in the Company Omnibus Incentive Plan;

 

(10)"Circular" means the notice of the Meeting and accompanying management information circular (including all schedules, appendices and exhibits thereto) to be sent to Company Shareholders in connection with the Meeting, including any amendments or supplements thereto;

 

 

2

 

(11)"Code" means the United States Internal Revenue Code of 1986, as amended‎;

 

(12)‎‎"Company" means Hut 8 Mining Corp., ‎a corporation existing under the BCBCA, and for the avoidance of doubt includes Hut Amalco following the Amalgamation;

 

(13)"Company DSUs" means the deferred stock units granted under the Company Omnibus Incentive Plan;

 

(14)"Company ESPP" means the employee share purchase plan of the Company approved by the Company Shareholders on June 23, 2021, as constituted immediately prior to the Arrangement Effective Time;

 

(15)"Company Omnibus Incentive Plan" means the omnibus long-term incentive plan of the Company approved by the Company Shareholders on June 23, 2021, as constituted immediately prior to the Arrangement Effective Time‎;

 

(16)"Company Options" means the options to purchase Company ‎Shares granted under the Company Omnibus Incentive Plan;

 

(17)"Company RSUs" means the restricted stock units granted under the Company Omnibus Incentive Plan;

 

(18)"Company Securityholders" means, collectively, the Company Shareholders, holders of Company Options, holders of Company RSUs, holders of Company DSUs and holders of Company Warrants‎;

 

(19)‎"Company Shareholders" means the registered and/or beneficial holders of Company ‎Shares, as the context requires;

 

(20)"Company Shares" means the common shares in the capital of the Company and, for the avoidance of doubt, includes the common shares in the capital of Hut Amalco following the Amalgamation;

 

(21)"Company Warrant Indenture" means the warrant indenture dated June 15, 2021 between the Company and Computershare Trust Company of Canada, providing for the issuance of the Hut June 2021 Warrants;

 

(22)"Company Warrants" means, collectively, (i) the Hut June 2021 Warrants, and (ii) the Hut Compensation Warrants;

 

(23)‎"Court" means the Supreme Court of British Columbia‎;

 

(24)"Depositary" means Computershare Trust Company of Canada or such other trust company, bank or financial institution agreed to in writing between the Company and USBTC for the purpose of, among other things, exchanging certificates representing Company Shares for certificates representing the Per Share Consideration in connection with the Arrangement;

 

(25)‎"Dissent Rights" has the meaning ascribed to such term in Section 4.1(1);

 

 

3

 

(26)"Dissent Share" means a Company Share held by a Dissenting Shareholder who is ultimately determined to be entitled to be paid the fair value of his, her or its Company Shares in respect of which such Dissenting Shareholder has exercised Dissent Rights;

 

(27)"Dissenting Shareholder" means a registered holder of Company Shares as of the record date for the Meeting who has duly and validly exercised the Dissent Rights in respect of the Arrangement in strict compliance with the Dissent Rights and who has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights and who is ultimately determined to be entitled to be paid fair value of his, her or its Company Shares in respect of which such Dissenting Shareholder has exercised Dissent Rights;

 

(28)"DRS Advice" has the meaning ascribed to such term in Section 5.2(1);

 

(29)"Effective Date" means the date on which the Arrangement Filings are filed with the Registrar;

 

(30)"Final Order" means the final order of the Court approving the Arrangement under subsection 291(4) of the ‎‎BCBCA, in a form acceptable to the Company and USBTC, each acting reasonably, ‎after ‎a hearing upon the procedural and substantive fairness of the terms and conditions ‎of the ‎Arrangement, as such order may be amended by the Court (with the consent of ‎both the ‎Company and USDMG, each acting reasonably) at any time prior to the ‎Effective Date or, ‎if appealed, then, unless such appeal is withdrawn or denied, as ‎affirmed or as amended ‎‎(provided that any such amendment is acceptable to both the ‎Company and USBTC, each ‎acting reasonably) on appeal‎‎;

 

(31)"Governmental Entity" means: (i) any international, multinational, national, federal, provincial, territorial, state, ‎regional, municipal, local or other government, governmental or public body, authority or ‎department, central bank, court, tribunal, arbitral body, commission, board, bureau, ‎commissioner, ministry, governor in council, agency or instrumentality, domestic or foreign; ‎‎(ii) any subdivision or authority of any of the above; (iii) any quasi-governmental, ‎administrative or private body, including any tribunal, commission, committee, regulatory ‎agency or self-regulatory organization, exercising any regulatory, expropriation or taxing ‎authority under or for the account of any of the foregoing; or (iv) any stock exchange;‎

 

(32)"holder" means, when used with reference to any securities of a Party, the holder of such securities shown from time to time in the central securities register maintained by or on behalf of such Party in respect of such securities;

 

(33)"Holdings" means Hut 8 Holdings Inc., a corporation existing under the BCBCA and a direct, wholly-owned subsidiary of the Company;

 

(34)"Holdings Shares" means the common shares in the capital of Holdings;

 

(35)"Hut Amalco" means the continuing corporation upon the amalgamation of the Company and Holdings pursuant to the Amalgamation;

 

(36)"Hut Compensation Warrants" means (i) the 144,000 warrants to acquire Company Shares issued by Hut on June 15, 2021 and expiring on June 15, 2023; and (ii) the 70,200 warrants to acquire Hut Shares issued by Hut on September 17, 2021 and expiring on September 17, 2026;

 

(37)"Hut Exchange Ratio" means 0.2;

 

 

4

 

(38)"Hut June 2021 Warrants" means the 11,500,000 warrants to acquire Company Shares issued by Hut on June 15, 2021 and expiring on June 15, 2023;

 

(39)"Intercompany Liabilities" means, collectively, (i) any debts, liabilities or obligations owing by the Company to Holdings immediately prior to the Arrangement Effective Time, and (ii) any debts, liabilities or obligations owing by Holdings to the Company immediately prior to the Arrangement Effective Time;

 

(40)‎"Interim Order" means the interim order of the Court pursuant to subsection 291(2) of the BCBCA, in a form ‎acceptable to the Company and USBTC (each acting reasonably), providing for, among ‎other things, the calling and holding of the Meeting, as such order may be amended, modified, ‎supplemented or varied by the Court with the consent of the Company and USBTC (each ‎acting reasonably‎‎) at any time prior to the Final Order or, if appealed, then unless such appeal is withdrawn or denied, as affirmed or as amended on appeal;

 

(41)"In-The-Money Amount" means, in respect of an option at a particular time, the amount, if any, by which the aggregate fair market value at that time of the securities subject to such option exceeds the aggregate exercise price under such option;

 

(42)“Law” or “Laws” means, with respect to any Person, any and all applicable laws (statutory, common or otherwise), statute, constitution, treaty, convention, ordinance, code, rule, regulation, by-laws, order, injunction, judgment, decree, ruling or other similar requirement, whether domestic or foreign (i) enacted, adopted, promulgated or applicable by a Governmental Entity, (ii) that is binding upon or applicable to such Person or its business, undertaking, property, assets or securities, the terms and conditions of any Permit, and (iii) to the extent they have the force of law, policies, guidelines, notices and protocols of any Governmental Entity, as amended;

 

(43)"Letter of Transmittal" means the letter of transmittal to be delivered by the Company Shareholders to the Depositary, as described in the Circular;

 

(44)‎"Lien" means any mortgage, deed of trust, charge, pledge, hypothec, security interest, easement, right of way, zoning restriction, lien (statutory or otherwise), limitation or restriction on use, voting, exercise, possession or transfer (including any preferential offer or refusal right or similar entitlement), or other third party encumbrance, in each case, whether contingent or absolute and any agreement, option, right or privilege (whether by Law, Contract or otherwise) capable of becoming any of the foregoing;

 

(45)"Market Value" has the meaning ascribed to such term in the Company Omnibus Incentive Plan, except that each reference in such definition to "Shares of the Corporation" shall be replaced with a reference to "New Hut Shares";

 

(46)‎"Meeting" means the special meeting of the Company Shareholders, including any ‎adjournment or ‎postponement ‎thereof, to be called and held in accordance with the Interim Order ‎for the ‎purpose of ‎considering and, if thought advisable, approving the Arrangement‎ Resolution;

 

(47)"Merger Effective Time" has the meaning ascribed to such term in the Business Combination Agreement;

 

(48)"New Hut" means Hut 8 Corp., a corporation incorporated under the laws of the State of Delaware and a direct, wholly-owned subsidiary of USBTC;

 

 

5

 

(49)"New Hut Omnibus Incentive Plan" has the meaning ascribed to such term in the Business Combination Agreement;

 

(50)"New Hut Shares" means the shares of common stock of New Hut, US$0.00001 par value per share;

 

(51)"Parties" means, collectively, the Company, USBTC and New Hut, and "Party" means any one of them;

 

(52)"Per Share Consideration" means for each Company Share, a fraction of a New Hut Share equal to the Hut Exchange Ratio;

 

(53)"Plan of Arrangement" means this plan of arrangement, subject to any amendments or variations thereto made in accordance with Article 6 or with the Business Combination Agreement ‎or made at the direction of the Court in the Final Order with the consent of the Company and USBTC (each acting reasonably‎‎);

 

(54)"Proscription Deadline" has the meaning ascribed to such term in Section 5.6;

 

(55)"Registrar" means the person appointed as the Registrar of Companies pursuant to section 400 of the BCBCA;

 

(56)"Replaced Option" has the meaning ascribed to such term in Section 3.1(6);

 

(57)"Replacement Option" has the meaning ascribed to such term in Section 3.1(6);

 

(58)"Replacement Option Exercise Price" has the meaning ascribed to such term in Section 3.1(6);

 

(59)"Tax Act" means the Income Tax Act (Canada) and the regulations thereunder, as amended;

 

(60)"USBTC" means U.S. Data Mining Group, Inc., a corporation existing under the laws of the State of Nevada; and

 

(61)"U.S. Securities Act" means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

Any capitalized terms used but not defined herein shall have the meaning ascribed to such terms in the Business Combination Agreement. In addition, words and phrases used herein and defined in the BCBCA and not otherwise defined herein or in the Business Combination Agreement shall have the same meaning herein as in the BCBCA unless the context otherwise clearly requires.

 

  Section 1.2 Interpretation Not Affected by Headings

 

The division of this Plan of Arrangement into Articles, Sections, paragraphs and other portions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation hereof. Unless otherwise indicated, all references to an "Article", "Section" or "paragraph" followed by a number and/or a letter refer to the specified Article, Section or paragraph of this Plan of Arrangement.

 

  Section 1.3 Number, Gender and Persons

 

In this Plan of Arrangement, unless the context otherwise clearly requires, words used herein importing the singular include the plural and vice versa; words imparting any gender shall include all genders and the neuter gender; and words imparting persons shall include individuals, partnerships, limited liability companies, associations, corporations, funds, unincorporated organizations, governments, regulatory authorities and other entities.

 

 

6

 

 Section 1.4 Date of Any Action

 

If any date on which any action is required to be taken hereunder by any of the Parties is not a Business Day, then such action shall be required to be taken on the next succeeding day which is a Business Day.

 

 Section 1.5 Time

 

Time shall be of the essence in every matter or action contemplated hereunder. All times expressed herein or in the Letter of Transmittal refer to the time in Toronto, Ontario unless otherwise stipulated herein or therein.

 

 Section 1.6 Statutory References

 

Unless otherwise indicated, references in this Plan of Arrangement to any statute include all regulations made pursuant to such statute and the provisions of any statute or regulation which amends, supplements or supersedes any such statute or regulation.

 

 Section 1.7 Currency

 

In this Plan of Arrangement, all references to dollars or "$" are references to Canadian dollars unless otherwise indicated, and all references to U.S. dollars or "US$" are references to United States dollars.

 

Article 2
EFFECT OF THE ARRANGEMENT

 

 Section 2.1 Arrangement and Business Combination Agreement

 

This Plan of Arrangement is made pursuant to, and is subject to the provisions of and forms a part of, the Business Combination Agreement, except in respect of the order and sequence of the steps comprising the Arrangement, which shall occur in the order and sequence set forth in Section 3.1. This Plan of Arrangement constitutes an arrangement as referred to in section 288 of the BCBCA.

 

 Section 2.2 Binding Effect

 

As of and from the Arrangement Effective Time, this Plan of Arrangement will be binding on the Company, USBTC, New Hut, the Company Securityholders, the Depositary, the transfer agents in respect of the Company Shares and the New Hut Shares, and all other Persons, in each case without any further act or formality required on the part of any Person.

 

 Section 2.3 Transfers Free and Clear

 

Any transfer of securities pursuant to this Plan of Arrangement shall be free and clear of all Liens, claims and encumbrances. Each Company Securityholder shall, in respect of any step in Section 3.1 applicable to such Company Securityholder, be deemed, at the time such step occurs, to have executed and delivered all consents, releases, assignments and waivers, statutory or otherwise, required to transfer or exchange all Company Shares, Company Options, Company RSUs or Company DSUs , as applicable, held by such holder in accordance with such step.

 

 Section 2.4 Effective Time of Transactions

 

The transfers, exchanges, issuances and cancellations provided for in Section 3.1 shall occur, and shall be deemed to occur, at the time and in the order and sequence specified in Section 3.1, notwithstanding that certain of the procedures related thereto may not be completed until after such time.

 

 

7

 

Article 3
ARRANGEMENT

 

 Section 3.1 The Arrangement

 

Commencing at the Arrangement Effective Time, unless otherwise specifically provided in this Section 3.1, each of the transactions or events set out below shall occur, and shall be deemed to occur, in the following order and sequence at one-minute intervals following the immediately preceding transaction or event, in each case without any further authorization, act or formality on the part of any Person:

 

(1)At the Arrangement Effective Time, the notice of articles of Holdings shall be altered to (i) include the statement referred to in section 51.11 of the BCBCA, and (ii) change the name of Holdings to "Hut 8 Holdings ULC", and upon such alteration becoming effective:

 

(a)Holdings shall be an unlimited liability company pursuant to Part 2.1 of the BCBCA; and

 

(b)each share certificate issued by Holdings shall include the statement referred to in subsection 51.2(1) of the BCBCA.

 

(2)The capital of the Holdings Shares shall be reduced to $1.00 in the aggregate, without any payment thereon.

 

(3)The Company and Holdings shall be amalgamated to continue as one limited company ("Hut Amalco") with the same effect as if they had amalgamated under section 273 of the BCBCA, and upon the amalgamation becoming effective:

 

(a)the Company and Holdings will continue as one limited company under the name "Hut 8 Mining Corp.";

 

(b)the properties, rights and interests of each of the Company and Holdings will continue to be the properties, rights and interests of Hut Amalco;

 

(c)Hut Amalco will continue to be liable for the obligations of each of the Company and Holdings (other than the Intercompany Liabilities, which shall be settled and cancelled without any payment thereon);

 

(d)an existing cause of action, claim or liability to prosecution will be unaffected;

 

(e)a legal proceeding being prosecuted or pending by or against the Company or Holdings may be prosecuted, or its prosecution may be continued, as the case may be, by or against Hut Amalco;

 

(f)a conviction against, or a ruling, order or judgment in favour of or against, the Company or Holdings may be enforced by or against Hut Amalco;

 

(g)the notice of articles and articles of Hut Amalco will be the notice of articles and articles of the Company;

 

(h)the Company Shares issued and outstanding immediately prior to the Arrangement Effective Time will continue to be the issued and outstanding common shares in the capital of Hut Amalco, and no new shares or securities of Hut Amalco shall be issued to holders of Company Shares;

 

 

8

 

(i)the Holdings Shares issued and outstanding immediately prior to the Arrangement Effective Time will be cancelled without any repayment of capital in respect of those shares;

 

(j)the capital of Hut Amalco will be the same as the capital of the Company;

 

(k)the registered office of Hut Amalco will be the registered office of the Company; and

 

(l)the initial size of the board of directors of Hut Amalco will be five (5) directors, and the directors of the Company immediately prior to the Arrangement Effective Time will be the initial directors of Hut Amalco, to hold office until the next annual meeting of the shareholders of Hut Amalco or until their successors are elected or appointed.

 

(4)Each Dissent Share outstanding immediately prior to the Arrangement Effective Time shall be, and shall be deemed to be, transferred by the holder thereof to the Company for cancellation and shall be cancelled, and upon such transfer:

 

(a)such Dissenting Shareholder will cease to be the holder of such Dissent Share or to have any rights as a holder in respect of such Dissent Share, other than the right to be paid the fair value of such Dissent Share determined and payable in accordance with Article 4; and

 

(b)the former holders of such Dissent Shares shall be removed from the ‎Company's central securities register for the Company Shares in respect of such Dissent Shares.

 

(5)Each Company Share (other than any Dissent Share) outstanding immediately prior to the Arrangement Effective Time shall be, and shall be deemed to be, transferred by the holder thereof to New Hut, and in exchange therefor such holder shall be entitled to receive from New Hut the applicable fully-paid and non-assessable Per Share Consideration in accordance with Article 5, and upon such transfer and exchange becoming effective:

 

(a)the former holder of such exchanged Company Share will cease to be the holder thereof or to have any rights as a holder thereof, other than the right to receive, subject to Article 5, the Per Share Consideration issuable in respect of such Company Share pursuant to this Section 3.1(5);

 

(b)the former holders of such exchanged Company Shares shall be removed from the ‎Company's central securities register for the Company Shares; and

 

(c)New Hut will be, and will be deemed to be, the legal and beneficial owner of such transferred Company Shares and shall be entered in the central securities register of the Company as the sole holder thereof.

 

 

9

 

(6)In accordance with Article 7 of the Company Omnibus Incentive Plan, each Company Option that is outstanding immediately prior to the Arrangement Effective Time, whether vested or unvested, shall be, and shall be deemed to be, disposed of by the holder and cancelled (each such Company Option, a "Replaced Option"), and as the sole consideration therefor New Hut shall grant to such holder an option (each, a "Replacement Option") entitling the holder to purchase that number of New Hut Shares equal to the product obtained when the number of ‎Company Shares subject to such Replaced Option immediately ‎prior to the ‎Arrangement Effective Time is multiplied by the Hut Exchange Ratio, which Replacement Option shall (i) be governed by the New Hut Omnibus Incentive Plan, (ii) have an exercise price for each New Hut Share that may be purchased under such Replacement Option (the "Replacement Option Exercise Price") equal to the quotient obtained when the exercise price per Company Share under the Replaced Option is divided by the Hut Exchange Ratio (provided that (A) no fractional New Hut Shares will be issued upon any particular exercise or settlement of Replacement Options, and the aggregate number of New Hut Shares to be issued upon exercise by a holder of one or more Replacement Options shall be rounded down to the nearest whole number (with all exercises that are effectuated concurrently by a holder of Replacement Options being aggregated before any such reduction is effectuated), and (B) the aggregate exercise price payable on any particular exercise of Replacement Options shall be rounded up to the nearest whole cent (with all exercises that are effectuated concurrently by a holder of Replacement Options being aggregated before any such increase is effectuated)), and (iii) otherwise have the same terms and conditions (including vesting, exercisability terms and expiry date) as were applicable to such Replaced Option immediately prior to the Arrangement Effective Time. Notwithstanding the foregoing:

 

 (a)if necessary to satisfy the requirements of subsection 7(1.4) of the Tax Act in respect of the exchange of a Replaced Option for a Replacement Option pursuant to this Section 3.1(6), the Replacement Option Exercise Price shall automatically be adjusted, effective as of and from the effective time of such exchange, so that the In-The-Money Amount of the Replacement Option (as adjusted) immediately after such exchange does not exceed the In-The-Money Amount of the Replaced Option immediately before such exchange;

 

 (b)for any Replaced Option that is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Code, it is intended that such adjustment described in paragraph (a) above will comply with Treasury Regulation Section 1.424(1)(a); and

 

(c)for any Replaced Option that is a nonqualified option held by a U.S. taxpayer, it is intended that such adjustment described in paragraph (a) above will be implemented in a manner intended to comply with Section 409A of the Code.

 

(7)Concurrently with the exchange of Company Options pursuant to Section 3.1(6), in accordance with Article 7 of the Company Omnibus Incentive Plan, the Company Omnibus Incentive Plan shall be amended, and the terms of each Company RSU outstanding immediately prior to the Arrangement Effective Time, whether vested or unvested, shall be adjusted, so that upon settlement of such Company RSU the holder shall be entitled to receive, instead of the Cash Equivalent of one Company Share or one Company Share, or a combination thereof, as determined by the Company in its sole discretion, either (i) a cash payment equal to the product obtained when the Market Value of one New Hut Share is multiplied by the Hut Exchange Ratio, or (ii) that number of New Hut Shares equal to the Hut Exchange Ratio, or (iii) a combination of cash and New Hut Shares, in each case as determined by the Company or New Hut in its sole discretion (provided that if the aggregate number of New Hut Shares that a holder of Company RSUs would otherwise be entitled to receive upon the settlement of one or more Company RSUs includes a fractional New Hut Share, the aggregate number of New Hut Shares issuable to such holder shall be rounded down to the nearest whole number of New Hut Shares (with all settlements of Company RSUs by a holder that are effectuated concurrently being aggregated before any such reduction is effectuated)). For greater certainty, the Company RSUs shall not be exchanged or otherwise replaced by this Plan of Arrangement, and, subject to this Section 3.1(7), will continue to be governed by the Company Omnibus Incentive Plan on the same terms and ‎conditions as were applicable to such Company RSUs immediately prior to ‎the Arrangement Effective Time.

 

 

10

 

(8)Concurrently with the exchange of Company Options pursuant to Section 3.1(6), in accordance with Article 7 of the Company Omnibus Incentive Plan, the Company Omnibus Incentive Plan shall be amended, and the terms of each Company DSU outstanding immediately prior to the Arrangement Effective Time shall be adjusted, so that upon settlement of such Company DSU the holder shall be entitled to receive, instead of the Cash Equivalent of one Company Share or, at the discretion of the Company, one Company Share or any combination of cash and Company Shares as the Company in its sole discretion may determine, either (i) a cash payment equal to the product obtained when the Market Value of one New Hut Share is multiplied by the Hut Exchange Ratio, or (ii) that number of New Hut Shares equal to the Hut Exchange Ratio, or (iii) a combination of cash and New Hut Shares, in each case as determined by the Company or New Hut in its sole discretion (provided that if the aggregate number of New Hut Shares that a holder of Company DSUs would otherwise be entitled to receive upon the settlement of one or more Company DSUs includes a fractional New Hut Share, the aggregate number of New Hut Shares issuable to such holder shall be rounded down to the nearest whole number of New Hut Shares (with all settlements of Company DSUs by a holder that are effectuated concurrently being aggregated before any such reduction is effectuated)). For greater certainty, the Company DSUs shall not be exchanged or otherwise replaced by this Plan of Arrangement, and, subject to this Section 3.1(8), will continue to be governed by the Company Omnibus Incentive Plan on the same terms and ‎conditions as were applicable to such Company DSUs immediately prior to ‎the Arrangement Effective Time.

 

(9)In accordance with the terms of the Hut June 2021 Warrants, each holder of a Hut June 2021 Warrant shall be entitled to receive (and such holder shall accept) upon the exercise of such holder’s Hut June 2021 Warrant, in lieu of Common Shares to which such holder was theretofore entitled upon such exercise, that number of New Hut Shares equal to the product obtained when the number of ‎Company Shares subject to such Hut June 2021 Warrant immediately ‎prior to the ‎Arrangement Effective Time is multiplied by the Hut Exchange Ratio, at an exercise price for each New Hut Share equal to the quotient obtained when the exercise price per Company Share under the former Hut June 2021 Warrant is divided by the Hut Exchange Ratio (provided that (A) no fractional New Hut Shares will be issued upon any particular exercise of Hut June 2021 Warrants, and the aggregate number of New Hut Shares to be issued upon exercise by a holder of one or more Hut June 2021 Warrants shall be rounded down to the nearest whole number, and (B) the aggregate exercise price payable on any particular exercise of Hut June 2021 Warrants shall be rounded up to the nearest whole cent). Each Hut June 2021 Warrant shall continue to be governed by and be subject to the terms of the Company Warrant Indenture.

 

(10)In accordance with the terms of the Hut Compensations Warrants, each holder of a Hut Compensation Warrant shall be entitled to receive (and such holder shall accept) upon the exercise of such holder’s Hut Compensation Warrant, in lieu of Common Shares to which such holder was theretofore entitled upon such exercise, that number of New Hut Shares equal to the product obtained when the number of ‎Company Shares subject to such Hut Compensation Warrant immediately ‎prior to the ‎Arrangement Effective Time is multiplied by the Hut Exchange Ratio, at an exercise price for each New Hut Share equal to the quotient obtained when the exercise price per Company Share under the former Hut Compensation Warrant is divided by the Hut Exchange Ratio (provided that (A) no fractional New Hut Shares will be issued upon any particular exercise of Hut Compensation Warrants, and the aggregate number of New Hut Shares to be issued upon exercise by a holder of one or more Hut Compensation Warrants shall be rounded down to the nearest whole number, and (B) the aggregate exercise price payable on any particular exercise of Hut Compensation Warrants shall be rounded up to the nearest whole cent). Each Hut Compensation Warrant shall continue to be governed by and be subject to the terms of the certificates in respect of the Hut Compensation Warrants and New Hut shall assume in writing all of the obligations of Hut under the Hut Compensation Warrants.

 

 

11

 

(11)The Company ESPP shall be terminated.

 

(12)Except as otherwise set out above in this Section 3.1, any other rights of any Person in respect of the Company Shares or Company Options will be extinguished.

 

Article 4
DISSENT RIGHTS

 

 Section 4.1 Rights of Dissent

 

(1)Registered holders of the Company Shares may exercise rights of dissent in connection with the Arrangement under section 238 of the BCBCA, in the manner set forth in sections 237 to 247 of the BCBCA, as modified by the Interim Order, the Final Order and this Section 4.1 ("Dissent Rights"); provided that notwithstanding paragraph 242(1)(a) of the BCBCA, the written objection to the Arrangement Resolution referred to in paragraph 242(1)(a) of the BCBCA must be received by the Company not later than 4:00 p.m. Toronto time two (2) Business Days immediately preceding the date of the Meeting (as it may be adjourned or postponed from time to time).

 

(2)Dissenting Shareholders who are ultimately determined to be entitled to be paid by the Company the fair value for the Company Shares in respect of which they have exercised Dissent Rights will be deemed to have irrevocably transferred such Company Shares to the Company pursuant to Section 3.1(4) in consideration of such fair value and will not be entitled to any other payment or consideration, including any payment that would be payable under the Arrangement had such holders not exercised their Dissent Rights in respect of such Company Shares.

 

(3)Dissenting Shareholders who are ultimately not entitled, for any reason, to be paid by the Company the fair value for the Company Shares in respect of which they have exercised Dissent Rights will be deemed to have participated in the Arrangement on the same basis as a Company Shareholder who has not exercised Dissent Rights, as at and from the Arrangement Effective Time and be entitled to receive only the consideration set forth in Section 3.1 that such holder would have received if such holder had not exercised Dissent Rights.

 

(4)In no case will the Company or New Hut or any other Person be required to recognize a Person exercising Dissent Rights as a holder of Company Shares after the Arrangement Effective Time, and each Dissenting Shareholder will cease to be entitled to the rights of a Company Shareholder in respect of Company Shares in relation to which such Dissenting Shareholder has exercised Dissent Rights and the central securities register of the Company will be amended to reflect that such former holder is no longer the holder of such Company Shares in accordance with Section 3.1.

 

(5)For greater certainty, in accordance with the BCBCA, none of the following are entitled to exercise Dissent Rights:‎ (i) holders of Company Options; (ii) holders of Company RSUs; (iii) holders of Company DSUs; (iv) holders of Company Warrants; (v) holders of Company Shares who vote, or have instructed a proxyholder to vote, in favour of the Arrangement Resolution and (vi) Persons who have not strictly complied with the procedures for exercising Dissent rights or Persons who have withdrawn their exercise of Dissent Rights prior to the Arrangement Effective Time.

 

 

12

 

Article 5
DEPOSIT AND PAYMENT OF PER SHARE CONSIDERATION

 

 Section 5.1 Deposit of New Hut Shares

 

Prior to the Arrangement Effective Time, New Hut shall (i) provide for the reservation, issuance and listing of New Hut Shares as is necessary to effectuate the transactions contemplated by Section 3.1, and (ii) deliver or ‎arrange to be delivered to the Depositary the New Hut Shares ‎required to be issued to Company Shareholders in accordance with the provisions of Section 3.1(5), which New Hut Shares shall be held by the Depositary as agent and nominee for ‎such Company Shareholders for delivery to such Company Shareholders in accordance with ‎the provisions of this Article 5.‎

 

 Section 5.2 Delivery and Payment of Per Share Consideration

 

(1)Subject to the provisions of this Article 5, upon return to the Depositary of a properly completed Letter of Transmittal by a registered former Company Shareholder, together with certificate(s) or a direct registration statement advice (a "DRS Advice") representing one or more Company Shares that such Company Shareholder held immediately before the Arrangement Effective Time and such additional documents and instruments as the Depositary may reasonably require, the Company Shareholder (other than a Dissenting Shareholder) shall be entitled to receive the aggregate Per Share Consideration that they are entitled to receive pursuant to Section 3.1(5) in exchange therefor, and the Depositary shall deliver to such holder, following the Arrangement Effective Time, a certificate(s) or DRS Advice recorded on a book-entry basis representing the New Hut Shares that such holder is entitled to receive pursuant to Section 3.1(5).

 

(2)After the Arrangement Effective Time, and until surrendered for cancellation as contemplated by Section 5.2(1), each certificate or DRS Advice that immediately prior to the Arrangement Effective Time represented one or more Company Shares (other than any Dissent Shares) shall be deemed at all times to represent only the right to receive in exchange therefor the aggregate Per Share Consideration that the holder of such certificate or DRS Advice is entitled to receive pursuant to Section 3.1(5).

 

(3)For greater certainty, none of the Company Shareholders, holders of Company Options, holders of Company RSUs, holders of Company DSUs or holders of Company Warrants shall be entitled to receive any consideration with respect to such Company securities other than the consideration such holder is entitled to receive in accordance with Section 3.1, and, for greater certainty, no such former holder will be entitled to receive any interest, dividends, premium or other payment in connection therewith.

 

 Section 5.3 Dividends and Distributions

 

No dividends or other distributions declared or made after the Arrangement Effective Time with respect to ‎New Hut Shares with a record date after the Effective Date shall be paid to the holder of any ‎unsurrendered certificate which immediately prior to the Arrangement Effective Time represented ‎outstanding Company Shares that were exchanged pursuant to Section 3.1(5) unless and until the ‎holder of record of such certificate shall surrender such certificate (or affidavit in accordance with Section 5.5) in accordance with Section 5.2(1). Subject to applicable Law, at the time of such surrender of any such certificate (or in the case ‎of clause (B) below, at the appropriate payment date), there shall be paid to the holder of record ‎of the certificates formerly representing whole Company Shares, without interest, ‎(A)‎ the amount ‎of dividends or other distributions with a record date on or after the Effective Date theretofore paid ‎with respect to each whole New Hut Share issued to such holder, and ‎(B)‎ on the appropriate payment date, the ‎amount of dividends or other distributions with a record date on or after the Effective Date but prior ‎to surrender and a payment date subsequent to surrender payable with respect to such whole ‎New Hut Share.‎

 

 

13

 

 Section 5.4 Fractional Shares

 

In no event shall any holder of Company Shares be entitled to a fractional New Hut Share. Where the aggregate number of New Hut Shares to be issued to a holder of Company Shares as part of the Per Share Consideration under this Arrangement would result in a fraction of a New Hut Share being issuable, the aggregate number of New Hut Shares to be received by such holder shall be rounded down to the nearest whole New Hut Share, without any additional payment or compensation to the holder.

 

 Section 5.5 Loss of Certificates

 

In the event any certificate which immediately prior to the Arrangement Effective Time represented any outstanding Company Shares that were acquired by New Hut pursuant to Section 3.1(5) has been lost, stolen or destroyed, upon the making of an affidavit of that fact by the former holder of such Company Shares, the Depositary will, in exchange for such lost, stolen or destroyed certificate, deliver to such former holder of Company Shares, or make available for pick up at its offices, the New Hut Shares such former holder is entitled to receive in respect of such Company Shares pursuant to Section 3.1(5), together with any distributions or dividends which such holder is entitled to receive pursuant to Section 5.3, less, in each case, any amounts withheld pursuant to Section 5.7. When authorizing such delivery in relation to any lost, stolen or destroyed certificate, the former holder of such Company Shares shall, as a condition precedent to the delivery of New Hut Shares, give a bond satisfactory to New Hut and the Depositary (each acting reasonably) in such sum as New Hut may direct, or otherwise indemnify the Company, New Hut and the Depositary against any claim that may be made against any of them with respect to the certificate alleged to have been lost, stolen or destroyed.

 

 Section 5.6 Extinction of Rights

 

Any certificate or book-entry advice statements which immediately prior to the Arrangement Effective Time represented one or more outstanding Company Shares that were acquired by New Hut pursuant to Section 3.1 which is not deposited with the Depositary in accordance with the provisions of Section 5.2(1) before 4:00 p.m. (Toronto Time) on the second (2nd) anniversary of the Effective Date (the "Proscription Deadline") shall, as of and from the Proscription Deadline, cease to represent a claim or interest of any kind or nature whatsoever, whether as a securityholder or otherwise and whether against the Company, New Hut, USTBC, the Depositary or any other Person. At the Proscription Deadline, the consideration such former holder of Company Shares would otherwise have been entitled to receive pursuant to Section 3.1, together with any distributions or dividends such holder would otherwise have been entitled to receive pursuant to Section 5.3, shall be deemed to have been surrendered for no consideration to New Hut. Neither the Company nor New Hut will be liable to any Person in respect of any cash or securities (including any cash or securities previously held by the Depositary in trust for any such former holder) which is forfeited to New Hut or delivered to any public official pursuant to any applicable abandoned property, escheat or similar law.

 

 Section 5.7 Withholding Rights

 

The Company, New Hut or the Depositary, as applicable, shall be entitled to deduct or withhold, from any ‎amounts payable or otherwise deliverable to any Person pursuant to the Arrangement or the Business Combination ‎Agreement (including, without limitation, any payments to Dissenting Shareholders) such amounts as the Company, New Hut or the Depositary, as applicable, determines, ‎acting reasonably, are required to be deducted or withheld with respect to such payment or ‎delivery under the Tax Act, the Code or any provision of any other applicable Laws. ‎To the extent that such amounts are so deducted or withheld, such amounts shall be treated for ‎all purposes as having been paid to the Person to whom such amounts ‎would otherwise have been paid, provided that such deducted or withheld amounts are actually ‎remitted to the appropriate tax authority. Each of the Company, New Hut and the Depositary, as applicable, ‎is hereby authorized to sell or otherwise dispose of, on behalf of such Person, such portion of ‎any share or other security deliverable to such Person as is necessary to provide sufficient funds ‎to the Company, New Hut or the Depositary, as the case may be, to enable it to comply with such ‎deduction or withholding requirement and the Company, New Hut or the Depositary shall notify such ‎Person thereof and remit the applicable portion of the net proceeds of such sale to the ‎appropriate taxing authority and, if applicable, any portion of such net proceeds that is not ‎required to be so remitted shall be paid to such Person.‎

 

 

14

 

 Section 5.8 U.S. Securities Laws Exemption

 

Notwithstanding any provision herein to the contrary, the Parties each agree that the Plan of Arrangement will be carried out with the intention that all New Hut Shares and Replacement Options to be issued by New Hut to Company Shareholders and holders of Company Options, respectively, in exchange for their Company Shares and Company Options, as applicable, pursuant to the Plan of Arrangement will be issued and exchanged in reliance on the exemption from the registration requirements of the U.S. Securities Act as provided by Section 3(a)(10) thereof and applicable state securities laws, and pursuant to the terms, conditions and procedures set forth in the Business Combination Agreement. All holders of Company Options will be advised that the Replacement Options issued pursuant to the Arrangement have not been registered under the U.S. Securities Act and will be issued by New Hut in reliance on the exemption from registration under Section 3(a)(10) of the U.S. Securities Act, but that such exemption does not exempt the issuance of securities upon the exercises of such Replacement Options; therefore, the underlying New Hut Shares issuable upon the exercise of the Replacement Options, if any, cannot be issued in the United States or to a person in the United States in reliance upon the exemption from registration under Section 3(a)(10) of the U.S. Securities Act, and the Replacement Options may only be exercised pursuant to an effective registration statement or pursuant to a then available exemption from the registration requirements of the U.S. Securities Act and applicable state securities laws, if any.

 

Article 6
AMENDMENTS

 

 Section 6.1 Amendments to Plan of Arrangement

 

(1)The Company and USBTC reserve the right to amend, modify or supplement this Plan of Arrangement at any time and from time to time prior to the Arrangement Effective Time, provided that each such amendment, modification or supplement must be (i) set out in writing, (ii) approved by the Company and USBTC, each acting reasonably, (iii) filed with the Court and, if made following the Meeting, approved by the Court, and (iv) communicated to or approved by the Company Shareholders if and as required by the Court.

 

(2)Any amendment, modification or supplement to this Plan of Arrangement pursuant to Section 6.1(1) may be proposed by the Company at any time prior to the Meeting (provided USBTC shall have consented thereto, such consent not to be unreasonably withheld, conditioned or delayed‎) with or without any other prior notice or communication and, if so proposed and accepted by the Persons voting at the Meeting (other than as may be required under the Interim Order), will become part of this Plan of Arrangement for all purposes.

 

(3)Any amendment, modification or supplement to this Plan of Arrangement that is approved or directed by the Court following the Meeting will be effective only if such amendment, modification or supplement (i) is consented to by each of the Company and USBTC (provided each such consent shall not be unreasonably withheld, conditioned or delayed‎), and (ii) if required by the Court or applicable law, is consented to by Company Shareholders voting in the manner directed by the Court.

 

 

15

 

(4)Any amendment, modification or supplement to this Plan of Arrangement may be made following the Arrangement Effective Time but shall only be effective if it is consented to by each of the Company and USBTC (which consent shall not be unreasonably withheld, conditioned or delayed‎), provided that such amendment, modification or supplement concerns a matter which, in the reasonable opinion of each of the Company and USDMG, is of an administrative nature required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the financial or economic interests of the Company and USBTC or any former Company Securityholder.

 

Article 7
FURTHER ASSURANCES

 

 Section 7.1 Further Assurances

 

Each of the Parties shall make, do and execute, or cause to be made, done and executed, any such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by any of them in order to further document or evidence any of the transactions or events set out herein.

 

 Section 7.2 Paramountcy

 

From and after the Arrangement Effective Time:

 

(1)this Plan of Arrangement shall take precedence and priority over any and all rights related to the securities of the Company issued prior to the Arrangement Effective Time;

 

(2)the rights and obligations of the holders of the securities of the Company, and any trustee and transfer agent therefor, shall be solely as provided for in this Plan of Arrangement; and

 

(3)all actions, causes of actions, claims or proceedings (actual or contingent, and whether or not previously asserted) based on or in any way relating to securities of the Company shall be deemed to have been settled, compromised, released and determined without liability except as set forth herein.

 

 

 

 

Exhibit 3.1

 

CERTIFICATE OF INCORPORATION

OF

HUT 8 CORP.

 

ARTICLE I

NAME

 

The name of the corporation is Hut 8 Corp. (the “Corporation”).

 

ARTICLE II

PURPOSE

 

The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware (the “DGCL”). In addition to the powers and privileges conferred upon the Corporation by law and those incidental thereto, the Corporation shall possess and may exercise all the powers and privileges that are necessary or convenient to the conduct, promotion or attainment of the business or purposes of the Corporation.

 

ARTICLE III

REGISTERED AGENT

 

The address of the registered office of the Corporation in the State of Delaware is 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808, and the name of the Corporation’s registered agent at such address is Corporation Service Company.

 

ARTICLE IV

CAPITAL STOCK

 

The total number of shares of all classes of capital stock which the Corporation is authorized to issue is 1,000 shares, all of which shall be shares of common stock par value $0.01 per share of common stock (the “Common Stock”).

 

ARTICLE V

DIRECTORS

 

(1)            Election of directors of the Corporation need not be by written ballot, except and to the extent provided in the bylaws of the Corporation.

 

(2)            To the fullest extent permitted by the DGCL as currently in effect, and as it may hereafter be amended, no director of the Corporation shall be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director.

 

 

 

 

ARTICLE VI

BYLAWS

 

In furtherance and not in limitation of the powers conferred upon it by law, the directors of the Corporation shall have the power to adopt, amend, alter or repeal the bylaws.

 

ARTICLE VII

INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS

 

(1)            The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe the person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, by itself, create a presumption that the person did not act in good faith and in a manner which the person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that the person’s conduct was unlawful.

 

(2)            The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted in good faith and in a manner the person reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

(3)            To the extent that a present or former director or officer of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections (1) and (2) of this Article VII, or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

 

2 

 

 

(4)            Any indemnification under Sections (1) and (2) of this Article VII (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in such Sections (1) and (2). Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (a) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (b) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (c) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, or (d) by the stockholders of the Corporation.

 

(5)            Expenses (including attorneys’ fees) incurred by an officer or director in defending any civil, criminal, administrative or investigative action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation authorized in this Article VII. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Corporation deems appropriate.

 

(6)            The indemnification and advancement of expenses provided by, or granted pursuant to, the other sections of this Article VII shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office.

 

(7)            The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of Section 145 of the DGCL.

 

(8)            For purposes of this Article VII, references to “the Corporation” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article VII with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued.

 

3 

 

 

(9)            For purposes of this Article VII, references to “other enterprises” shall include employee benefit plans; references to “fines” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “serving at the request of the Corporation” shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves service by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Corporation” as referred to in this Article VII.

 

(10)          The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

ARTICLE VIII

AMENDMENT OF

CERTIFICATE OF INCORPORATION

 

The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by this Certificate of Incorporation and the DGCL, and all rights conferred on stockholders, directors and officers on this Certificate of Incorporation are subject to this reserved power.

 

ARTICLE IX

INCORPORATOR

 

The name and mailing address of the sole incorporator is as follows:

 

Name Mailing Address
Ricardo Crispim Leite Greenberg Traurig LLP
1 Vanderbilt Avenue
New York, NY 10017

 

I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the purpose of forming a corporation pursuant to the DGCL, do make this Certificate of Incorporation, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand the 27th day of January, 2023.

 

  /s/ Ricardo Crispim Leite
  Ricardo Crispim Leite, Sole Incorporator

 

4 

 

 

Exhibit 3.2

 

BYLAWS

 

OF

 

HUT 8 CORP.

 

Article I
OFFICES

 

SECTION 1.01. Registered Office. The registered office of Hut 8 Corp. (the “Corporation”) in the State of Delaware shall be at 251 Little Falls Drive, City of Wilmington, County of New Castle, Delaware 19808, and the name of the Corporation’s registered agent at such address is Corporation Service Company.

 

SECTION 1.02. Other Offices. The Corporation may also have an office or offices at any other place or places within or without the State of Delaware as the sole director of the Corporation or the Board of Directors of the Corporation (in each case, the “Board”) may from time to time determine or the business of the Corporation may from time to time require.

 

Article II
MEETINGS OF STOCKHOLDERS

 

SECTION 2.01. Annual Meetings. The annual meeting of stockholders of the Corporation for the election of directors of the Corporation, and for the transaction of such other business as may properly come before such meeting, shall be held at such place, date and time as shall be fixed by the Board and designated in the notice or waiver of notice of such annual meeting; provided, however, that no annual meeting of stockholders need be held if all actions, including the election of directors, required by the General Corporation Law of the State of Delaware (the “General Corporation Law”) to be taken at such annual meeting are taken by written consent in lieu of meeting pursuant to Section 2.09 hereof.

 

SECTION 2.02. Special Meetings. Special meetings of stockholders for any purpose or purposes may be called by the Board or the Chairman of the Board of the Corporation (the “Chairman”), the President of the Corporation (the “President”), the Secretary of the Corporation (the “Secretary”) or the recordholders of at least a majority of the shares of common stock of the Corporation issued and outstanding and entitled to vote thereat, to be held at such place, date and time as shall be designated in the notice or waiver of notice thereof.

 

SECTION 2.03. Notice of Meetings.

 

(a)            Except as otherwise provided by law, written notice of each annual or special meeting of stockholders stating the place, date and time of such meeting and, in the case of a special meeting, the purpose or purposes for which such meeting is to be held, shall be given personally or by first-class mail (airmail in the case of international communications) to each recordholder of shares entitled to vote thereat, not less than ten (10) nor more than sixty (60) days before the date of such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the Corporation. If, prior to the time of mailing, the Secretary shall have received from any stockholder a written request that notices intended for such stockholder are to be mailed to some address other than the address that appears on the records of the Corporation, notices intended for such stockholder shall be mailed to the address designated in such request.

 

 

 

 

(b)            Notice of a special meeting of stockholders may be given by the person or persons calling the meeting, or, upon the written request of such person or persons, such notice shall be given by the Secretary on behalf of such person or persons. If the person or persons calling a special meeting of stockholders give notice thereof, such person or persons shall deliver a copy of such notice to the Secretary. Each request to the Secretary for the giving of notice of a special meeting of stockholders shall state the purpose or purposes of such meeting.

 

SECTION 2.04. Waiver of Notice. Notice of any annual or special meeting of stockholders need not be given to any stockholder who files a written waiver of notice with the Secretary, signed by the person entitled to notice, whether before or after such meeting. Neither the business to be transacted at, nor the purpose of, any meeting of stockholders need be specified in any written waiver of notice thereof. Attendance of a stockholder at a meeting, in person or by proxy, shall constitute a waiver of notice of such meeting, except when such stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business on the grounds that the notice of such meeting was inadequate or improperly given.

 

SECTION 2.05. Adjournments. Whenever a meeting of stockholders, annual or special, is adjourned to another date, time or place, notice need not be given of the adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote thereat. At the adjourned meeting, any business may be transacted which might have been transacted at the original meeting.

 

SECTION 2.06. Quorum. Except as otherwise provided by law or the Certificate of Incorporation of the Corporation (the “Certificate of Incorporation”), the recordholders of a majority of the shares entitled to vote thereat, present in person or by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, whether annual or special. If, however, such quorum shall not be present in person or by proxy at any meeting of stockholders, the stockholders entitled to vote thereat may adjourn the meeting from time to time in accordance with Section 2.05 hereof until a quorum shall be present in person or by proxy.

 

SECTION 2.07. Voting. Each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by such stockholder which has voting power upon the matter in question. Except as otherwise provided by law or the Certificate of Incorporation, when a quorum is present at any meeting of stockholders, the vote of the recordholders of a majority of the shares constituting such quorum shall decide any question brought before such meeting.

 

2 

 

 

SECTION 2.08. Proxies. Each stockholder entitled to vote at a meeting of stockholders or to express, in writing, consent to or dissent from any action of stockholders without a meeting may authorize another person or persons to act for such stockholder by proxy. Such proxy shall be filed with the Secretary before such meeting of stockholders or such action of stockholders without a meeting, at such time as the Board may require. No proxy shall be voted or acted upon more than three years from its date, unless the proxy provides for a longer period.

 

SECTION 2.09. Stockholders’ Consent in Lieu of Meeting. Any action required by the General Corporation Law to be taken at any annual or special meeting of stockholders, and any action which may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the recordholders of shares having not less than the minimum number of votes necessary to authorize or take such action at a meeting at which the recordholders of all shares entitled to vote thereon were present and voted.

 

Article III 

BOARD OF DIRECTORS

 

SECTION 3.01. General Powers. The business and affairs of the Corporation shall be managed by the Board, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by law, the Certificate of Incorporation or these Bylaws directed or required to be exercised or done by stockholders.

 

SECTION 3.02. Number and Term of Office. The number of directors shall be one (1) or such other number as shall be fixed from time to time by the Board. Directors need not be stockholders. Directors shall be elected at the annual meeting of stockholders or, if, in accordance with Section 2.01 hereof, no such annual meeting is held, by written consent in lieu of meeting pursuant to Section 2.09 hereof, and each director shall hold office until his successor is elected and qualified, or until his earlier death or resignation or removal in the manner hereinafter provided.

 

SECTION 3.03. Resignation. Any director may resign at any time by delivering his written resignation to the Corporation. Such resignation shall take effect at the time specified in such notice or, if the time be not specified, upon receipt thereof by the Board, the Chairman or the Secretary, as the case may be. Unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.

 

SECTION 3.04. Removal. Any or all of the directors may be removed, with or without cause, at any time by vote of the recordholders of a majority of the shares then entitled to vote at an election of directors, or by written consent of the recordholders of shares pursuant to Section 2.09 hereof.

 

SECTION 3.05. Vacancies. Any vacancy in the Board, whether arising from death, resignation, removal (with or without cause), an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director or by the stockholders at the next annual meeting thereof or at a special meeting thereof. Each director so elected shall hold office until his successor shall have been elected and qualified.

 

3 

 

 

SECTION 3.06. Meetings.

 

(a)           Annual Meetings. As soon as practicable after each annual election of directors by the stockholders, the Board shall meet for the purpose of organization and the transaction of other business, unless it shall have transacted all such business by written consent pursuant to Section 3.08 hereof.

 

(b)           Other Meetings. Other meetings of the Board shall be held at such times as the Chairman, the President, the Secretary or a majority of the Board shall from time to time determine.

 

(c)            Notice of Meetings. The Secretary shall give written notice to each director of each meeting of the Board, which notice shall state the place, date, time and purpose of such meeting. Notice of each such meeting shall be given to each director, if by mail, addressed to him at his residence or usual place of business, at least three days before the day on which such meeting is to be held, or shall be sent to him at such place by telecopy, telegraph, cable, or other form of recorded communication, or be delivered personally or by telephone not later than the day before the day on which such meeting is to be held. A written waiver of notice, signed by the director entitled to notice, whether before or after the time of the meeting referred to in such waiver, shall be deemed equivalent to notice. Neither the business to be transacted at, nor the purpose of any meeting of the Board need be specified in any written waiver of notice thereof. Attendance of a director at a meeting of the Board shall constitute a waiver of notice of such meeting, except as provided by law.

 

(d)            Place of Meetings. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board or the Chairman may from time to time determine, or as shall be designated in the respective notices or waivers of notice of such meetings.

 

(e)            Quorum and Manner of Acting. One-third of the total number of directors then in office shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of those directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board, except as otherwise expressly required by law, the Certificate of Incorporation or these Bylaws. In the absence of a quorum for any such meeting, a majority of the directors present thereat may adjourn such meeting from time to time until a quorum shall be present.

 

(f)            Organization. At each meeting of the Board, one of the following shall act as chairman of the meeting and preside, in the following order of precedence:

 

1)the Chairman;

 

2)the President;

 

3)any director chosen by a majority of the directors present.

 

The Secretary or, in the case of his absence, any person whom the chairman of the meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof.

 

4 

 

 

SECTION 3.07. Committees of the Board. The Board may, by resolution passed by a majority of the whole Board, designate one (1) or more committees, each committee to consist of one (1) or more directors. The Board may designate one (1) or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of such committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Any committee of the Board, to the extent provided in the resolution of the Board designating such committee, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that no such committee shall have such power or authority in reference to amending the Certificate of Incorporation (except that such a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board as provided in Section 151(a) of the General Corporation Law, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes of stock of the Corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation under Section 251 or 252 of the General Corporation Law, recommending to the stockholders the sale, lease or exchange of all or substantially all the Corporation’s property and assets, recommending to the stockholders a dissolution of the Corporation or the revocation of a dissolution, or amending these Bylaws; provided further, however, that, unless expressly so provided in the resolution of the Board designating such committee, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law. Each committee of the Board shall keep regular minutes of its proceedings and report the same to the Board when so requested by the Board.

 

SECTION 3.08. Directors’ Consent in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting, without prior notice and without a vote, if a consent in writing or by electronic transmission, setting forth the action so taken, shall be signed by all the members of the Board or such committee and such consent or electronic transmission is filed with the minutes of the proceedings of the Board or such committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

SECTION 3.09. Action by Means of Telephone or Similar Communications Equipment. Any one (1) or more members of the Board, or of any committee thereof, may participate in a meeting of the Board or such committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.

 

5 

 

 

SECTION 3.10. Compensation. Unless otherwise restricted by the Certificate of Incorporation, the Board may determine the compensation of directors. In addition, as determined by the Board, directors may be reimbursed by the Corporation for their expenses, if any, in the performance of their duties as directors. No such compensation or reimbursement shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor.

 

Article IV

OFFICERS

 

SECTION 4.01. Officers. The officers of the Corporation shall be the Chairman, the President, the Secretary and the Treasurer of the Corporation (the “Treasurer”) and may include one or more Vice Presidents or such other officers as shall be determined by the Board with such power and authority as conferred by the Board. Any two or more offices may be held by the same person.

 

SECTION 4.02. Authority and Duties. All officers shall have such authority and perform such duties in the management of the Corporation as may be provided in these Bylaws or, to the extent not so provided, by resolution of the Board.

 

SECTION 4.03. Term of Office, Resignation and Removal.

 

(a)            Each officer shall be appointed by the Board and shall hold office for such term as may be determined by the Board. Each officer shall hold office until his successor has been appointed and qualified or his earlier death or resignation or removal in the manner hereinafter provided. The Board may require any officer to give security for the faithful performance of his duties.

 

(b)            Any officer may resign at any time by giving written notice to the Corporation. Such resignation shall take effect at the time specified in such notice or, if the time be not specified, upon receipt thereof by Corporation. Unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.

 

(c)            All officers and agents appointed by the Board shall be subject to removal, with or without cause, at any time by the Board or by the action of the recordholders of a majority of the shares entitled to vote thereon.

 

SECTION 4.04. Vacancies. Any vacancy occurring in any office of the Corporation, for any reason, shall be filled by action of the Board. Unless earlier removed pursuant to Section 4.03 hereof, any officer appointed by the Board to fill any such vacancy shall serve only until such time as the unexpired term of his predecessor expires unless reappointed by the Board.

 

SECTION 4.05. The Chairman. The Chairman shall have the power to call special meetings of stockholders, to call special meetings of the Board and, if present, to preside at all meetings of stockholders and all meetings of the Board. The Chairman shall perform all duties incident to the office of Chairman of the Board and all such other duties as may from time to time be assigned to him by the Board or these Bylaws.

 

6 

 

 

SECTION 4.06. The President. The President shall be the chief executive officer of the Corporation and shall have general and active management and control of the business and affairs of the Corporation, subject to the control of the Board, and shall see that all orders and resolutions of the Board are carried into effect. The President shall perform all duties incident to the office of President and all such other duties as may from time to time be assigned to him by the Board or these Bylaws.

 

SECTION 4.07. Vice Presidents. Vice Presidents, if any, in order of their seniority or in any other order determined by the Board, shall generally assist the President and perform such other duties as the Board or the President shall prescribe, and in the absence or disability of the President, shall perform the duties and exercise the powers of the President.

 

SECTION 4.08. The Secretary. The Secretary shall, to the extent practicable, attend all meetings of the Board and all meetings of stockholders and shall record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform the same duties for any committee of the Board when so requested by such committee. He shall give or cause to be given notice of all meetings of stockholders and of the Board, shall perform such other duties as may be prescribed by the Board, the Chairman or the President and shall act under the supervision of the Chairman. He shall keep in safe custody the seal of the Corporation and affix the same to any instrument that requires that the seal be affixed to it and which shall have been duly authorized for signature in the name of the Corporation and, when so affixed, the seal shall be attested by his signature or by the signature of the Treasurer. He shall keep in safe custody the certificate books and stockholder records and such other books and records of the Corporation as the Board, the Chairman or the President may direct and shall perform all other duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board, the Chairman or the President.

 

SECTION 4.10. The Treasurer. The Treasurer shall have the care and custody of all the funds of the Corporation and shall deposit such funds in such banks or other depositories as the Board, or any officer or officers, or any officer and agent jointly, duly authorized by the Board, shall, from time to time, direct or approve. He shall disburse the funds of the Corporation under the direction of the Board and the President. He shall keep a full and accurate account of all moneys received and paid on account of the Corporation and shall render a statement of his accounts whenever the Board, the Chairman or the President shall so request. He shall perform all other necessary actions and duties in connection with the administration of the financial affairs of the Corporation and shall generally perform all the duties usually appertaining to the office of treasurer of a corporation. When required by the Board, he shall give bonds for the faithful discharge of his duties in such sums and with such sureties as the Board shall approve.

 

Article V

CHECKS, DRAFTS, NOTES, AND PROXIES

 

SECTION 5.01. Checks, Drafts and Notes. All checks, drafts and other orders for the payment of money, notes and other evidence of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall be determined, from time to time, by resolution of the Board.

 

7 

 

 

SECTION 5.02. Execution of Proxies. The Chairman, the President or any Vice President may authorize, from time to time, the execution and issuance of proxies to vote shares of stock or other securities of other corporations held of record by the Corporation and the execution of consents to action taken or to be taken by any such corporation. All such proxies and consents, unless otherwise authorized by the Board, shall be signed in the name of the Corporation by the Chairman, the President or any Vice President.

 

Article VI

SHARES AND TRANSFERS OF SHARES

 

SECTION 6.01. Uncertificated Shares. The Corporation shall issue shares in uncertificated form. The Corporation shall not issue stock certificates unless specifically requested by a stockholder upon written request by such stockholder to the Secretary. The Corporation shall provide to the record holders of such shares a written statement of the information required by the General Corporation Law to be included on stock certificates. In the event that the Corporation issues shares of stock represented by certificates pursuant to a stockholders request, such certificates shall be in such form as prescribed by the Board or a duly authorized officer, shall contain the statements and information required by the General Corporation Law and shall be signed by the officers of the Corporation in the manner permitted by the General Corporation Law.

 

SECTION 6.02. Stock Ledger. A stock ledger in one or more counterparts shall be kept by the Secretary, in which shall be recorded the name and address of each person, firm or corporation owning the shares, the number of shares owned by each person, firm or corporation, the date of issuance thereof and, the certificate number, in the event of certificated shares, and in the case of cancellation of a certificate, the date of cancellation. Except as otherwise expressly required by law, the person in whose name shares stand on the stock ledger of the Corporation shall be deemed the owner and recordholder thereof for all purposes.

 

SECTION 6.03. Transfers of Shares. Registration of transfers of shares shall be made only in the stock ledger of the Corporation upon request of the registered holder of such shares, or of his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary, and, in the event of certificated shares, upon the surrender of the certificate or certificates evidencing such shares properly endorsed or accompanied by a stock power duly executed, together with such proof of the authenticity of signatures as the Corporation may reasonably require.

 

SECTION 6.04. Registered Stockholders. Prior to due presentment for transfer of any share or shares, the Corporation shall treat the registered owner thereof as the person exclusively entitled to vote, to receive notifications and to all other benefits of ownership with respect to such share or shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Delaware.

 

SECTION 6.05. Addresses of Stockholders. Each stockholder shall designate to the Secretary an address at which notices of meetings and all other corporate notices may be served or mailed to such stockholder, and, if any stockholder shall fail to so designate such an address, corporate notices may be served upon such stockholder by mail directed to the mailing address, if any, as the same appears in the stock ledger of the Corporation or at the last known mailing address of such stockholder.

 

8 

 

 

SECTION 6.06. Regulations. The Board may make such other rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificates evidencing shares.

 

SECTION 6.07. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to, or to dissent from, corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other such action. A determination of the stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.

 

Article VII

SEAL

 

SECTION 7.01. Seal. The Board may approve and adopt a corporate seal, which shall be in the form of a circle and shall bear the full name of the Corporation, the year of its incorporation and the words “Corporate Seal Delaware”.

 

Article VIII

FISCAL YEAR

 

SECTION 8.01. Fiscal Year. The fiscal year of the Corporation shall end on the thirty-first day of December of each year unless changed by resolution of the Board.

 

Article IX

AMENDMENTS

 

SECTION 9.01. Amendments. Any Bylaw (including these Bylaws) may be altered, amended or repealed by the vote of the recordholders of a majority of the shares then entitled to vote at an election of directors or by written consent of stockholders pursuant to Section 2.09 hereof, or by vote of the Board or by a written consent of directors pursuant to Section 3.08 hereof.

 

9 

 

 

Exhibit 10.3

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED]. 

 

LEASE

 

THIS LEASE (this “Lease”) is dated for reference this 15 day of March, 2018.

 

BETWEEN:

 

CITY OF MEDICINE HAT, a municipal corporation in the Province of Alberta with offices at City Hall, 580 First Street SE, Medicine Hat, Alberta T1A 8E6

  

(the “Landlord”)

 

AND

 

HUT 8 HOLDINGS INC., a British Columbia Corporation with a registered office at Suite 1700, Park Place, 666 Burrard Street, Vancouver BC, V6C 2X8

  

(the “Tenant”)

 

BACKGROUND

 

A.The Tenant is a wholly owned subsidiary of Hut 8 Mining Corp. (formerly Oriana Resources Corporation).

  

B.The Tenant wants to develop a data processing facility including modular equipment data processing units, pre-manufactured buildings and electrical distribution equipment, together with incidental or ancillary equipment and site improvements in Medicine Hat, Alberta (the “Data Centre”).

 

C.The Landlord is the registered and beneficial owner of an estate in fee simple, subject, however, to such encumbrances, liens and interests as are at the date hereof set forth in the existing certificate of title, of those lands in the province of Alberta legally described as follows:

 

FIRST 

MERIDIAN 4 RANGE 6 TOWNSHIP 13

SECTION 22 

QUARTER SOUTH WEST 

CONTAINING 64.7 HECTARES (160 ACRES) MORE OR LESS

EXCEPTING THEREOUT: 

PLAN NUMBER HECTARES ACRES (MORE OR LESS)
 PARCEL ‘A’ 2385GV 0.202 0.50  

EXCEPTING THEREOUT ALL MINES AND MINERALS

  

SECOND 

MERIDIAN 4 RANGE 6 TOWNSHIP 13 

SECTION 22 

QUARTER SOUTH EAST

 

 

CONTAINING 64.7 HECTARES (160 ACRES) MORE OR LESS

EXCEPTING THEREOUT: 

FIRST: 

THAT PORTION DESCRIBED AS FOLLOWS: 

THE NORTHERLY 500 FEET OF THE SOUTHERLY 566 FEET OF THE WESTERLY 500 FEET OF

THE EASTERLY 544 FEET OF THE SAID QUARTER SECTION CONTAINING 2.32 HECTARES

(5.74 ACRES) MORE OR LESS 

SECONDLY: 

PLAN NUMBER HECTARES ACRES (MORE OR LESS)
 ROAD WIDENING 7810372 1.08 2.67  
 SUBDIVISION 1512938 4.46 11.02  

EXCEPTING THEREOUT ALL MINES AND MINERALS

CERTIFICATE OF TITLE NO.:            151 277 991 +1

 

(the “Landlord’s Lands”)

 

D.The Tenant, as lessee, wants to lease from the Landlord, as lessor, a portion of the Landlord’s Lands represented diagrammatically as the area outlined in red on the drawing attached as Schedule “A” (the “Lands”), which area comprises approximately 10.94 acres, for the purpose of operating the Data Centre and uses ancillary or incidental thereto (the “Business”).

 

E.The Lands are not serviced and have no improvements presently on them.

 

F.The Parties intend to execute and deliver an electricity supply agreement wherein the Tenant will provide certain equipment and other compensation to the Landlord and the Landlord will provide electricity to the Business (such agreement as amended, supplemented or restated from time to time, the “Electricity Supply Agreement”).

 

G.The Landlord has agreed to lease the Lands to the Tenant for the Term in order that the Tenant may make, install and construct the Development and the Interconnection Facilities and operate the Business, upon and subject to the terms and conditions contained in this Lease.

 

H.The Parties entered into a partial surrender of lease, work license, and access license agreement made effective March 6, 2018, among the Landlord, the Tenant, Medicine Hat Auto Racing Association (“MHARA”) and Medicine Hat Drag Racing (2012) Association (“MHDRA”) (the “Access Agreement”) to permit the Tenant to enter upon the Lands prior to the Effective Date to begin installing and constructing the Development, upon and subject to the terms and conditions contained in the Access Agreement. As of the date of this Lease, MHARA and MHDRA have not executed and delivered the Access Agreement.

 

I.The Tenant may want to engage the Landlord to assist the Tenant, at the Tenant’s expense, with making, installing and constructing the Development and the Interconnection Facilities.

 

NOW THIS LEASE WITNESSES that in consideration of the Rent, covenants, and agreements to be paid, observed, and performed by the Tenant, the Landlord hereby demises the Lands to the Tenant and the Tenant hereby accepts such demise from the Landlord upon the terms and conditions and subject to the provisos contained in this Lease.

2

 

This Lease is made upon and subject to the following covenants and conditions which each of the Landlord and the Tenant respectively covenants and agrees to keep, observe, and perform to the extent that the same are binding or expressed to be binding upon it.

 

1.DEFINITIONS

 

1.1.The terms defined in this clause 1.1, for all purposes of this Lease, have the following meanings:

 

(a)“Additional Rent” means any and all sums of money or charges required to be paid by the Tenant under this Lease (except Basic Rent) whether or not designated as “Additional Rent” and whether or not payable to the Landlord or to any other Person, and includes but is not limited to the amounts, if any, payable by the Tenant pursuant to clauses 2.5, 3.1, 3.2, 3.3, 3.4, 8.11, 8.13, 9.2.6, 9.6 and 32.9.

 

(b)“Architect” means an Architect who is a member in good standing of the Alberta Association of Architects.

 

(c)“Authority” means the City of Medicine Hat’s Planning and Development Services Department, and any and all city or other municipal, provincial or federal authority having jurisdiction over development on the Lands.

 

(d)“Basic Rent” as of any particular time means the net basic rental provided for in the Lease as specified in Article 2 of this Lease.

 

(e)“Business Day” means any day other than a Saturday, Sunday or statutory holiday in Medicine Hat, Alberta.

 

(f)“Commencement Date” means June 1, 2018.

 

(g)“CPI Adjustment” means the amount calculated using the following formula:

 

CPI Adjustmentt = nt-1 * ((CPIt-1 –CPIt-2)/CPIt-2)

 

Where: 

‘n’ represents the figure for which the CPI Adjustment is being calculated (e.g., Basic Rent, Deposit) 

‘t’ represents the Lease year 

‘t-1’ represents the year immediately preceding the Lease year 

‘t-2’ represents the year immediately preceding t-1 

CPIt represents the Alberta CPI (All-Items) for the month of June in year t

 

(h)“Development” means the conversion of the Lands into a site equipped for the operation of the Business, all structures and buildings constructed upon the Lands or any part of them by or for the Tenant pursuant to the provisions of this Lease or the Access Agreement, including without limitation, fencing, hard landscaping, storm pond, and all necessary services and ancillary facilities, together with all replacements, alterations, additions, changes, substitutions, improvements, or repairs to them and all other improvements from time to time constructed upon or affixed or appurtenant to the Lands, including the placement, installation and construction of the Tenant Trade Fixtures and Equipment on the Lands, but excluding the Interconnection Facilities and the placement, installation and construction of the Interconnection Facilities.

3

 

(i)“Development Permit” means a development permit required by the Authority or issued by the Authority to the Tenant relating to the Development.

 

(j)“Effective Date” means April 1, 2018.

 

(k)“Engineer” means an Engineer, who is a member in good standing of the Alberta Association of Professional Engineers and Geoscientists of Alberta.

 

(l)“Environmental Contaminants” means any contaminants, pollutants, hazardous, corrosive or toxic substances, flammable materials, explosive materials, radioactive materials, dangerous goods, microwaves, hazardous waste, urea formaldehyde, asbestos, noxious substances, compounds known as chlorobiphenyls, mould, and any other substance or material the storage of, manufacture, disposal, treatment, generation, use, transport, remediation, or release of which into the environment is prohibited, regulated, controlled, or licensed under Environmental Laws.

 

(m)“Environmental Laws” means any laws, statutes, regulations, orders, bylaws, permits or lawful requirements of any government authority with respect to environmental protection, or regulating, controlling, licensing, or prohibiting Environmental Contaminants.

 

(n)“Improvements” means the Development, excluding the Tenant Trade Fixtures and Equipment.

 

(o)“Initial Term” means the period, commencing on April 1, 2018 and ending at 11:59 p.m. MST on June 30, 2028.

 

(p)“Insolvency Event” means, in relation to the Tenant, the occurrence of one or more of the following:

 

i.an order is made or an effective resolution passed for the winding-up, liquidation or dissolution of the Tenant;

ii.the Tenant institutes proceedings for its winding up, liquidation or dissolution, or takes action to become a voluntary bankrupt, or consents to the filing of a bankruptcy proceeding against it, or files a proposal, a notice of intention to make a proposal, a petition or answer or consent seeking reorganization, readjustment, arrangement, composition or similar relief under any bankruptcy law or any other similar applicable law or consents to the filing of any such petition, or consents to the appointment of a receiver, liquidator, trustee or assignee in bankruptcy or insolvency of all or a substantial part of the property of the Tenant or makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts generally as they come due or commits any other act of bankruptcy, or suspends or threatens to suspend transaction of its usual business, or any action is taken by the Tenant in furtherance of any of the aforesaid;

4

 

iii.a court having jurisdiction enters a decree or order adjudging the Tenant as bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, readjustment, arrangement, composition or similar relief under any bankruptcy law or any other similar applicable law, or a decree or order of a court having jurisdiction for the appointment of a receiver, liquidator, trustee or assignee in bankruptcy or insolvency of all or a substantial part of the undertaking or property of the Tenant, or for the winding up, dissolution or liquidation of its affairs, is entered and such decree, order or petition is not contested and the effect thereof stayed, or any material part of the property of the Tenant is sequestered or attached and is not returned to the possession of the Tenant or released from such attachment within twenty (20) days thereafter;

iv.any proceedings, voluntary or involuntary, are commenced, or an order or petition is issued, respecting the Tenant pursuant to any applicable law relating to bankruptcy, insolvency, reorganization of debts, liquidation, winding-up or dissolution;

v.the Tenant causes or institutes any proceeding for its dissolution or termination and such proceeding is not stayed or discontinued within ten (10) days of the Tenant instituting such proceedings or the Tenant being notified such proceedings, whichever occurs first;

vi.the Tenant is generally not paying its debts as they become due, or the Tenant makes a general assignment for the benefit of creditors.

 

(q)“Interconnection Facilities” has the meaning ascribed thereto in the Electricity Supply Agreement.

 

(r)“Landlord Representatives” means the Landlord’s elected officials, officers, servants, employees, agents, workmen, contractors, subcontractors, successors and assigns.

 

(s)“Mortgage” means a mortgage or mortgages upon or in respect of and specifically charging the leasehold interest of the Tenant in the Lands and the Development or any part of them and includes any debenture or deed of trust and mortgage to secure any bonds or debentures issued under it, and any assignment of rents made to the Mortgagee as security.

 

(t)“Mortgagee” means a mortgagee or mortgagees under a Mortgage.

 

(u)“Municipal Improvements and Infrastructure” includes but is not limited to roads, sidewalks, boulevards and street lighting.

 

(v)“Person” or any word or expression descriptive of a person, includes any body corporate and politic, the heirs, executors, administrators, or other legal representatives of such person.

 

(w)“Prime Rate” means for any day, the rate of interest expressed as a rate per annum which The Royal Bank of Canada, Main Branch, Calgary, Alberta, announces publicly from time to time as the reference rate used by it for determining the rates of interest on Canadian dollar commercial loans made by it in Canada and which it refers to as its “prime rate”.

 

(x)“Private Access Area” means the area shown outlined with a green line on the drawing attached as Schedule “A”.

5

 

(y)“Rent” means the Basic Rent, Additional Rent, and any other amounts payable by the Tenant under this Lease.

 

(z)“Substantial Completion” means substantial completion as defined in clause 6.2 of this Lease.

 

(aa)“Tenant Representatives” means the Tenant’s officers, servants, employees, agents, workmen, contractors, subcontractors, successors and assigns.

 

(bb)“Tenant Trade Fixtures and Equipment” means modular equipment data processing units, pre-manufactured buildings, electrical distribution equipment, trade fixtures and all other chattels and personal property owned or leased by the Tenant, but excludes, for certainty, the Interconnection Facilities and the Improvements.

 

(cc)“Term” means the Initial Term together with any Extension Term granted by the Landlord pursuant to Article 28.

 

(dd)“Trustee” means a trust company duly authorized to carry on business in the Province of Alberta appointed by the Landlord for the purposes of clauses 6.3 and 8.7.

 

(ee)“Utility Services” includes but is not limited to gas, electric, water, sanitary sewers, storm sewers, and telecommunications (including but not limited to telephone, optical fiber, and cable television).

 

1.2.All of the provisions of this Lease will be deemed and construed to be conditions as well as covenants as though the words specifically expressing or importing covenants or conditions were used in each separate clause of this Lease.

 

1.3.The words “herein”, “hereby”, “hereunder”, and words of similar import refer to this Lease as a whole and not to any particular article, clause, or sub-clause of the Lease.

 

1.4.The captions and headings throughout this Lease are for convenience and reference only and the words and phrases used in the captions and headings will in no way be held or deemed to define, limit, describe, explain, modify, amplify, or add to the interpretation construction, or meaning of any clause or the scope or intent of this Lease, nor in any way affect this Lease.

 

2.PAYMENT OF RENT

 

2.1.Rent

 

2.1.1.The Tenant covenants and agrees to pay to the Landlord the Basic Rent specified in sub-clause 2.1.1(a) and (b) and to perform the other obligations specified in this Article 2:

 

(a)For the twelve (12) month period commencing on the Commencement Date, Basic Rent of TEN THOUSAND, FIVE HUNDRED DOLLARS ($10,500.00) per month (calculated based on NINE HUNDRED FIFTY NINE DOLLARS AND SEVENTY-EIGHT CENTS ($959.78) per acre of the Lands per month), payable on or before the Commencement Date and on the first day of each of the following months in such period.

6

 

(b)For each subsequent twelve (12) month period Basic Rent equal to the monthly Basic Rent payable in the immediately preceding twelve (12) month period plus the CPI Adjustment, payable on the first day of each month in such period.

 

2.2.Deposit

 

2.2.1.The Tenant covenants and agrees to pay the Landlord a deposit in the amount of THREE HUNDRED EIGHTY-ONE THOUSAND, TWO HUNDRED DOLLARS ($381,200.00) upon execution and delivery of the Lease by the Tenant to the Landlord and an amount equal to the CPI Adjustment for the Deposit on each anniversary of the Lease (the “Deposit”). The parties agree that the deposit required pursuant to Article 8 of the Access Agreement, will be credited toward the Deposit. After execution of this Lease by the Landlord, the Deposit may be immediately deposited by the Landlord in its general account with all interest earned to accrue to the benefit of the Landlord.

 

2.2.2.The Deposit will be held by the Landlord as security for the faithful performance by the Tenant of all of the provisions of this Lease to be performed or observed by the Tenant. If the Tenant fails to pay Rent or otherwise defaults with respect to any provision of this Lease, the Landlord may use, apply or retain all or any portion of the Deposit for the payment of any Rent in default, or of the payment of any other expense which the Landlord may incur by reason of the Tenant’s default, or to compensate the Landlord for any loss or damage which the Landlord may suffer thereby. If the Landlord so uses or applies all or any portion of the Deposit, the Tenant will within ten (10) days after demand therefor pay to the Landlord an amount sufficient to restore the Deposit to the full amount thereof. The Landlord will not be required to keep the Deposit separate from its general accounts. If the Tenant performs all of the Tenant’s obligations hereunder, the Deposit, or so much thereof as has not theretofore been applied by the Landlord, will be returned, without payment of interest or other increment for its use, to the Tenant at the expiration of the Term, and after the Tenant has vacated the Lands. No trust relationship is created in this Lease between the Landlord and the Tenant with respect to the Deposit.

 

2.3.Payments Generally

 

2.3.1.All payments by the Tenant to the Landlord of whatsoever nature required or contemplated by this Lease will be:

 

(a)paid to the Landlord by the Tenant in lawful currency of Canada, in Canadian dollars, by cheque or electronic funds transfer;

 

(b)made when due under this Lease, without prior demand and without any set-off, abatement, or deduction whatsoever, at the office of the Landlord or such other place as the Landlord may designate from time to time to the Tenant;

 

(c)applied towards amounts then outstanding under this Lease, in such manner as the Landlord may see fit;

 

(d)deemed to be Rent, in partial consideration for which this Lease has been entered into, and will be payable and recoverable as Rent, such that the Landlord will have all of the rights and remedies against the Tenant for default in making any such payment that may not be expressly designated as rent, as the Landlord has for default in payment of Rent; and

7

 

(e)if any portion of Rent cannot be calculated until after the expiration or earlier termination of this Lease, then the Tenant’s obligation to pay such portion of the Rent will survive the expiration or earlier termination of this Lease.

 

2.4.Net Lease

 

2.4.1.It is the intention of the Landlord and Tenant that, unless expressly stipulated to the contrary in this Lease, all expenses, costs, payments, and outgoings incurred by the Landlord in respect of the Lands, the Development, and any other improvements of the Lands or for any other matter or thing affecting the Lands, will be borne by the Tenant. Further, unless expressly stipulated to the contrary in this Lease, the Basic Rent will be absolutely net to the Landlord and free of all abatements, set-off, or deduction, and any amount and any obligation which is not expressly declared in this Lease to be the responsibility of the Landlord will be the responsibility of the Tenant to be paid or performed by or at the Tenant’s expense in accordance with the terms of this Lease.

 

2.5.Interest on Amounts in Arrears

 

2.5.1.When the Rent is in arrears, such amounts will bear interest, including interest on overdue interest, at the Prime Rate plus 6% per annum calculated monthly not in advance from the date due until paid, irrespective of whether or not the Landlord demanded payment. The Landlord will have all the remedies for the collection of such interest, if unpaid after demand, as in the case of Rent in arrears, but this stipulation for interest will not prejudice or affect any other remedy of the Landlord under this Lease. If the Tenant fails to pay taxes under clause 3.1 when due, then clause 3.2 will apply rather than this clause 2.5.

 

2.6.Goods and Services Taxes

 

2.6.1.The Tenant agrees to pay to the Landlord at the times required by the applicable legislation all goods and services taxes or harmonized sales taxes payable under the Excise Tax Act (Canada), or such other tax as may be substituted for those taxes from time to time.

 

2.7.Rent for Irregular Period

 

2.7.1.All Rent reserved in this Lease will be deemed to accrue from day to day, and if for any reason it will become necessary to calculate Rent for irregular periods of less than one year, an appropriate pro-rata adjustment will be made on a per diem basis in order to compute Rent for that irregular period.

8

 

3.PAYMENT OF TAXES

 

3.1.Payment of Taxes

 

3.1.1.Except as otherwise provided in clause 3.2, the Tenant will in each and every year during the Term, not later than the day immediately preceding the date or dates on which real property taxes and other charges imposed upon real property within the Province of Alberta become due and payable, whether monthly, quarterly, twice-yearly, or otherwise, pay and discharge or cause to be paid and discharged all taxes, rates, duties, charges, and assessments, including school taxes, local improvement rates, and other charges that now are or will or may be levied, rated, charged, or assessed against the Lands, the Development, all other structures, all machinery, equipment, facilities, and other property of any nature whatsoever in or on them, whether such taxes, rates, duties, charges, and assessments are charged by any municipal, parliamentary, legislative, regional, school, or other authority during the Term and will indemnify and keep indemnified the Landlord from and against payment of all losses, costs, charges, and expenses occasioned by or arising from any and all such taxes, rates, duties, charges, and assessments; and any such losses, costs, charges, and expenses incurred by the Landlord may be collected by the Landlord as Additional Rent. The Tenant further covenants and agrees that during the Term it will, upon written request, deliver to the Landlord for inspection receipts for payments of all taxes, rates, duties, charges, and assessments, including school taxes, local improvement rates, and other charges in respect of the Lands, the Development, all other structures, all machinery, equipment, facilities, and other property of any nature whatsoever on or in the Lands or Development that were due and payable during the Term within fourteen (14) days following receipt by the Tenant of each of such receipts for payment. The Landlord will, not later than fourteen (14) days following receipt of any assessment notices delivered to the Landlord by any taxing authority relating to the Lands, the Development or any other structures, any machinery, equipment, facilities, and other property of any nature whatsoever on or in the Lands or Development, forward a copy of those notices to the Tenant. The Tenant will have the right to appeal any assessment of the Lands or the Development or any other tax, rate, duty, charge, or amount referred to in this clause 3.1 provided that such appeal will be at the sole cost and expense of the Tenant. The Tenant will be responsible for the payments referred to in this clause 3.1 from the Commencement Date. For clarity, the Tenant will not be responsible for any such amounts in respect of any period prior to or following the Term.

  

3.1.2.The Tenant will receive a separate tax billing or assessment for the Lands.

 

3.2.Delinquent Taxes

 

3.2.1.If the Tenant in any year during the Term fails to pay the taxes under clause 3.1 when due, the Tenant will pay to the Landlord, on demand, interest on the amount outstanding at the percentage rate or rates established by the Province of Alberta, the City of Medicine Hat, or any other taxing authority for unpaid real property taxes in the Province of Alberta.

 

3.3.Payment of Utility Services

 

3.3.1.The Tenant covenants with the Landlord to pay for or cause to be paid when due to the providers thereof all charges for gas, electricity, light, heat, power, telephone, cable, water, and other utilities and services used in or supplied to the Lands and the Development throughout the Term, and will indemnify and keep indemnified the Landlord from and against payment of all losses, costs, charges, and expenses occasioned by or arising from any and all such charges, and any such loss, costs, charges, and expenses that relate to such charges suffered by the Landlord may be collected by the Landlord as Additional Rent.

9

 

3.4.Business Tax and License Fees

 

3.4.1.The Tenant covenants with the Landlord to pay for or cause to be paid when due every tax and permit and license fee in respect of the use or occupancy of the Lands by the Tenant (and any and every subtenant, permittee, and licensee) other than such taxes as corporate income, profits, or excess profit taxes assessed upon the income of the Tenant (or such subtenant, permittee, and licensee) whether such taxes or permit and license fees are charged by any municipal, parliamentary, legislative, regional, or other authority during the Term, and will indemnify and keep indemnified the Landlord from and against payment of all losses, costs, charges, and expenses occasioned by or arising from any and all such taxes and permit and license fees; and any such loss, costs, charges, and expenses that relate to such charges incurred by the Landlord may be collected by the Landlord as Additional Rent.

 

4.Payment for Utilities and Infrastructure

 

4.1.The Tenant understands that the Lands are not currently serviced, including by Utility Services or Municipal Improvements and Infrastructure. The Tenant understands and agrees that neither the Landlord, nor the City of Medicine Hat, have any obligation to provide services to the Lands, except to the extent specified in the Electricity Supply Agreement

 

4.2.For clarity, without limiting the generality of the foregoing:

 

4.2.1.the Tenant acknowledges and agrees that it is responsible, at its sole cost and expense, for determining the Tenant’s specifications and requirements for Utility Services and for verifying the location, standards, specifications and availability of Utility Services with the Authority;

 

4.2.2.the Tenant acknowledges and agrees that the Landlord has made no representation, warranty, or agreement with respect to the Development, except as expressly set out in this Lease; and

 

4.3.Notwithstanding any covenant of the Tenant or anything to the contrary set forth in this Lease, if the City of Medicine Hat, at its sole discretion, installs or causes to be installed:

 

4.3.1.a Utility Service in proximity to the Lands and such Utility Service (or service connections at the Lands with respect thereto) are required by the City of Medicine Hat to be provided to the Lands, then the Landlord will be responsible for the installation of such Utility Services (or service connections at the Lands with respect thereto), at the Landlord’s sole cost and expense, provided, however that the Tenant will reimburse the Landlord in respect of the costs and expenses incurred by the Landlord in respect of any such service connections at the Lands which the Tenant has requested in writing be made available to the Lands or which the Tenant actually utilizes in connection with its use of the Lands.

 

4.3.2.Municipal Improvements and Infrastructure in proximity to the Lands, then the Landlord will be responsible for the installation of such Municipal Improvements and Infrastructure at the Landlord’s sole cost and expense, provided, however that the Tenant will reimburse the Landlord in respect of the costs and expenses incurred by the Landlord in respect of any such Municipal Improvements and Infrastructure which the Tenant has requested in writing be made available to the Lands.

10

 

5.CONDITIONS

 

5.1.This Lease is expressly subject to and conditional upon:

 

5.1.1.The approval of Council at a public meeting of the lease of the Lands to the Tenant on the general terms and conditions set out in this Lease, at Council’s absolute discretion, on or before 4 p.m. (Alberta time) on March 31, 2018. This condition is for the mutual benefit of the Tenant and the Landlord.

 

5.1.2.The Parties entering into the Electricity Supply Agreement on terms and conditions satisfactory to both Parties, at each Party’s absolute discretion, on or before 4 p.m. (Alberta time) on March 31, 2018. This condition is for the mutual benefit of the Tenant and the Landlord.

 

5.1.3.A Development Permit being issued and released on terms and conditions satisfactory to the Tenant acting reasonably, on or before 4 p.m. (Alberta time) on May 31, 2018. This condition is for the mutual benefit of the Tenant and the Landlord.

 

5.1.4.The Access Agreement being executed and delivered by all parties thereto on or before 4 p.m. (Alberta time) on May 31, 2018. This condition is for the sole benefit of the Tenant.

 

5.2.A condition set forth in this clause 5.1 may be waived or confirmed satisfied by a Party having the benefit of such condition by notice in writing to the other Party hereto on or before the time by which such condition is to be satisfied or waived.

 

5.3.In the event that the conditions set forth in clause 5.1 are not waived or satisfied by the Parties having the benefit thereof by the time and in the manner set forth in clause 5.1, this Lease may be terminated by either Party by notice in writing to the other Party and neither Party will have any obligation or liability to the other Party in respect of this Lease, save and except for the Landlord’s obligations in respect of the Deposit and the Tenant’s obligations pursuant to clause 22.1.

 

5.4.The Tenant will not be entitled to any compensation from the Landlord for surrendering and yielding up the Lands and the Improvements in accordance with clause 5.3.

 

6.CONSTRUCTION

 

6.1.Tenant to Construct Development

 

6.1.1.Prior to the commencement of any Development on the Lands, the Tenant will apply to the Authority for a Development Permit and any other permits necessary in respect of such Development, and at the same time deliver to the Landlord copies of drawings, elevations (where applicable), specifications (including the materials to be used), locations (where applicable), and exterior decoration and design of the buildings (if any) from time to time proposed as part of such Development for the Landlord’s approval, which approval the Landlord agrees not to unreasonably withhold. Upon receipt of the Landlord’s approval and, if applicable, a building permit (if applicable), the Tenant will construct the Development on the Lands, expeditiously and in a good and workmanlike manner and in substantial accordance with the drawings, elevations, specifications (including materials to be used), location on the Lands, and exterior decoration and design all upon which the issuance of the permits by the Authority having jurisdiction are based.

11

 

6.1.2.Without limiting the foregoing, the Tenant will:

 

(a)comply with all applicable laws, including building bylaws and regulations of the Authority;

 

(b)complete the development in all material respects in a proper and workmanlike manner and in accordance with the applicable plans, specifications, and supporting documents submitted to and accepted by the Landlord upon which the issuance by the Authority of any permits for the Development have been based; and

 

(c)obtain all permits that may be required by the Authority for occupancy, prior to occupancy.

 

6.1.3.The Tenant will provide the Landlord with notice of any changes to the drawings, specifications, location, exterior decoration, design, or appearance of the Development and a copy of any application required to be made to the Authority in connection therewith.

 

6.1.4.In no case will the Tenant interfere with the Landlord’s Unit 16 Generation Facility (“Unit 16”) operations, including during its construction activities.

 

6.1.5.Notwithstanding anything set forth in this Lease requiring the Tenant to obtain the prior consent or approval of the Landlord, the Tenant may, from time to time, without the Landlord’s consent or approval, install, modify, add to, replace or remove Tenant Trade Fixtures and Equipment as the Tenant deems necessary or desirable in connection with the Business, provided that such installations, additions, modifications, replacements, or removals are in accordance with all laws in effect from time to time and the requirements of the Authority. The Tenant will provide the Landlord with notice of any such installation, modification, addition, replacement or removal and a copy of any application required to be made to the Authority in connection therewith.

 

6.2.Substantial Completion of Development

 

6.2.1.The Development will be deemed to have been Substantially Completed when the Architect or Engineer of the Tenant has issued a certificate to the Landlord, signed and sealed by the Architect or Engineer, certifying that:

 

(a)the Development is substantially complete in all material respects in a proper and workmanlike manner and in accordance with the applicable plans, specifications, and supporting documents submitted to and accepted by the Landlord upon which the issuance by the Authority of any Development Permit and building permits for the Development have been based, except for deficiencies the correction of which, in the opinion of the Architect or Engineer, is adequately ensured;

 

(b)all applicable laws, including building bylaws and regulations of the Authority, have been complied with by the Tenant except for deficiencies the correction of which, in the opinion of the Architect or Engineer, is adequately ensured;

12

 

(c)all permits for occupancy that may be required by the Authority have been obtained; and

 

(d)the part or parts of the Development intended for occupancy are ready for occupancy.

 

6.3.Fire and Liability Insurance During Construction of Development

 

6.3.1.The Tenant will effect or will cause each of its contractors to effect prior to the commencement of any Development on the Lands, and will maintain and keep in force until the insurance required under Article 8 is effected and a certificate of completion is issued to the Tenant by the Landlord, insurance:

 

(a)protecting both the Tenant and the Landlord and the Landlord’s servants and agents (without any rights of cross claim or subrogation against the Landlord) against claims for personal injury, death, or property damage, or other third-party or public liability claims arising from any accident or occurrence upon, in, or about the Lands, including the risks occasioned by the construction of the Development, and to an amount reasonably satisfactory to the Landlord, for any personal injury, death, property, or other claims in respect of any one accident or occurrence; and

 

(b)protecting both the Tenant and the Landlord and the Landlord’s servants and agents from loss or damage (without any rights of cross claim or subrogation against the Landlord) to the Development and all fixtures, equipment, improvements, and building materials on the Lands from time to time both during and after construction (but which may be by policies effected from time to time covering the risk during different phases of construction of the Development) against fire, earthquake and all other perils from time to time customarily included in the usual all-risks builders’ risk form of policy applicable to similar properties during construction and effected in the Province of Alberta by prudent owners, and such other perils as the Landlord may reasonably require to be insured against to the full insurable value thereof at all times and in any event in the amount sufficient to prevent the Landlord or the Tenant being deemed co-insurer.

 

6.3.2.The Tenant will require each of its contractors to effect prior to the commencement of any Development on the Lands, and maintain and keep in force until a completion certificate is issued to the Tenant by the Landlord, builder’s risk and wrap up liability policies for the construction of the Development.

 

6.3.3.The proceeds of insurance that may become payable under any policy of insurance effected pursuant to this clause 6.3 in respect of the Improvements will be payable to the Mortgagee, or to the Trustee if there is no Mortgagee, and will be available to finance repair and reconstruction of such Improvements.

 

6.3.4.All of the provisions of Article 8 respecting insurance that are of general application will apply to the insurance applying during construction of the Development required by this clause 6.3.

 

7.USE OF THE LANDS AND DEVELOPMENT

 

7.1.The Tenant covenants and agrees with the Landlord that neither the Lands nor the Development, nor any part of the Lands or the Development, will be used for any purposes except the operation of the Business without the prior written approval of the Landlord, which approval will not be unreasonably withheld.

13

 

8.INSURANCE

 

8.1.Insurance

 

8.1.1.At all times during the Term immediately following the Substantial Completion of the Development, the Tenant will, at its expense, insure and keep insured or cause to be insured the Development with one or more companies entitled to do business in the Province of Alberta, including all “All Risks” property insurance including earthquake and flood, or the equivalent replacement, which will have limits of not less than the full replacement cost of the Development.

 

8.2.Boiler and Machinery Insurance

 

8.2.1.At all times during the Term the Tenant will, at its expense, maintain or cause to be maintained in respect of the Development, Boiler and Machinery Insurance on a Comprehensive Form, including production machinery, piping, connected accessories which include and are not limited to refrigeration and air-conditioning units, for the Development, not less than the insurance provided by the “Comprehensive Boiler and Machinery”, including boiler insurance on temporary boilers and pressure vessels.

 

8.3.Deductible Amounts

 

8.3.1.Any of the policies of insurance referred to in clauses 6.3, 8.1, or 8.2 may, with the approval of the Landlord, which approval will not be unreasonably withheld, provide that the amount payable in the event of any loss will be reduced by a reasonable deductible amount designated by the Tenant, acting reasonably. The Tenant will be a co-insurer to the extent of the amount deducted from the insurance monies paid in the event of any loss, and that amount will, for the purpose of clause 8.7, be included as part of the insurance monies payable and paid.

 

8.4.Co-insurance Clause

 

8.4.1.If any of the policies of insurance referred to in clauses 6.3, 8.1, or 8.2 contain any co-insurance clauses, the Tenant will maintain at all times a sufficient amount of insurance to meet the requirements of such co-insurance clause so as to prevent the Landlord or the Tenant from becoming a co-insurer under the terms of such policy or policies and to permit full recovery from the insurer in the event of loss.

 

8.5.Identity of Insured and Subrogation

 

8.5.1.Any and all policies of insurance referred to in clauses 6.3, 8.1, or 8.2 will:

 

(a)be written in the name of the Tenant as the insured, and the Landlord as additional insured in respect of liability coverage and with loss payable to the Landlord and the Mortgagee, if any, as their respective interests may appear in respect of property coverage;

14

 

(b)contain a waiver of subrogation clause in favour of the Landlord and its employees, agents or Mortgagee; and

 

(c)contain a provision or bear an endorsement that the insurer will not cancel such policy without first giving the Landlord and the Mortgagee at least thirty (30) days’ notice in writing of its intention to cancel the policy.

 

8.6.Release from Liability for Insured Loss or Damage

 

8.6.1.The Tenant hereby releases the Landlord and its servants, agents, successors, and assigns from any and all liability for loss or damage caused by any of the perils against which the Tenant has insured or pursuant to the terms of this Lease is obligated to insure the Development, or any part or parts of it, and the Tenant hereby covenants to indemnify and save harmless the Landlord and its respective servants, agents, successors, and assigns from and against all manner of actions, causes of action, suits, damages, loss, costs, claims, and demands of any nature whatsoever relating to such insured loss or damage or loss or damage that the Tenant is obligated to insure.

 

8.7.Payment of Loss Under the Insurance Policy Referred to in Clauses 8.1 and 8.2

 

8.7.1.The insurance monies payable under any or all of the policies of insurance referred to in clauses 8.1 or 8.2 will, notwithstanding the terms of the policy or policies, be paid to the order of the Mortgagee, or to the order of the Trustee if there is no Mortgagee, as their interests may appear.

 

8.7.2.Subject to Article 10 (Damage or Destruction), the Landlord and the Tenant agree that the Mortgagee or Trustee (as the case may be) will use such insurance monies for the restoration, reconstruction, or replacement of the loss or damage to the Improvements against certificates of the Architect engaged by the Tenant or such other person as the Landlord and the Tenant may agree upon who is in charge of such restoration, reconstruction, or replacement.

 

8.8.Landlord’s Right to Repair and Receive the Insurance Proceeds

 

8.8.1.Should the Tenant fail to effect the restoration, reconstruction, or replacement of the loss or damage in respect of which the insurance monies are payable, without unreasonable delay, the Landlord will be entitled to effect such restoration, reconstruction, or replacement and the Mortgagee or Trustee to whom such insurance monies are payable will pay or cause to be paid to the Landlord such insurance monies in the same manner the Mortgagee or Trustee (as the case may be) would have done had the Tenant effected such restoration, reconstruction, or replacement.

 

8.9.Workers’ Compensation Coverage

 

8.9.1.At all times during the Term, the Tenant will at its own expense procure and carry, or cause to be procured and carried and paid for, full workers’ compensation coverage in respect of all workers, employees, servants, and others engaged in or upon any work, non-payment of which would create a lien on the Lands or the Development. The Parties agree that at all times during the Term, if there is a Work Site on the Land, the Tenant will be the Prime Contractor for the Work Site and the Tenant will comply with all requirements thereof including but not limited to, ensuring that the Occupational Health and Safety Act (Alberta), the regulations and the adopted code, as amended form time to time, are complied with in respect of the Work Site. For the purposes of this Section 8.9.1, “Work Site” and “Prime Contractor” will have the meanings given to them in the Occupational Health and Safety Act (Alberta).

15

 

8.9.2.The Tenant will immediately notify the Landlord of any dispute involving third parties that may arise in connection with obtaining and maintaining the workers’ compensation coverage required under this Lease if such dispute results in the requisite coverage not being in place, and the Tenant will take all reasonable steps to ensure the resolution of such dispute promptly. At all times the Tenant will indemnify and save harmless the Landlord, its servants and agents from and against all damages, costs, claims, suits, judgments, and demands that the Landlord may incur as a result of any default by the Tenant of its obligation under this clause 8.9 to ensure that the full workers’ compensation coverage is maintained. The Tenant will further ensure that no amount of the workers’ compensation coverage is left unpaid so as to create a lien on the Lands or the Development. If the workers’ compensation coverage required by this clause 8.9 is not in place within thirty (30) days of the date of the notice to the Landlord mentioned above, the Landlord will be entitled to have recourse to the remedies of the Landlord specified in this Lease or at law or equity.

 

8.10.Commercial General Liability and Directors and Officers Insurance

 

8.10.1. At all times during the Term, the Tenant will at its own expense maintain with one or more companies duly authorized to carry on business within the Province of Alberta and approved by the Landlord, five million ($5,000,000.00) commercial general liability insurance, on an occurrence basis, covering all operations and activities of the Tenant and use and occupation of the Lands and Development, including, without limitation, coverages, extension, or additions for:

 

(a)owners’ and contractors’ protective;

 

(b)products and complete operations;

 

(c)bodily injury;

 

(d)personal injury;

 

(e)death;

 

(f)blanket contractual liability;

 

(g)occurrence property damage;

 

(h)cross liability;

 

(i)tenants legal liability on an “all risks” basis;

16

 

(j)broad form property damage; and

 

(k)sudden and accidental pollution (IBC 2313), which coverage may be subject to a sublimit of two million ($2,000,000.00)

 

which insurance will include the Landlord as additional insured, indemnifying and protecting the Landlord and its respective servants and agents and the Tenant to limits approved by the Landlord. The liability insurance will contain a cross-liability clause and severability of interest endorsement in favour of the Landlord, and also a waiver of subrogation in favour of the Landlord, its employees or agents.

 

8.10.2.At all times during the Term the Tenant will at its own expense maintain with one or more companies duly authorized to carry on business within the Province of Alberta and approved by the Landlord, ten million ($10,000,000.00) directors and officers liability insurance.

 

8.11.Payment of Insurance Premiums

 

8.11.1.The Tenant will pay or cause to be paid all of the premiums under the policies of insurance referred to in this Article 8 as they become due and payable; and in default of payment by the Tenant, the Landlord may pay the same and add the amount so paid to the Additional Rent.

 

8.12.Copies of Insurance Policies

 

8.12.1.If requested by the Landlord the Tenant will promptly from time to time deliver or cause to be delivered to the Landlord certified copies of all policies of insurance referred to in this Article 8 and obtained and maintained by the Tenant, accompanied by evidence satisfactory to the Landlord that the premiums on those policies have been paid. The Tenant will promptly notify the Landlord in the event that any policy of insurance referred to in this Article 8 is, or is threatened to be, canceled or adversely changed (including a substantial premium or deductible increase).

 

8.13.Insurance May Be Maintained by Landlord

 

8.13.1.The Tenant agrees that should the Tenant at any time during the Term fail to insure or keep insured the Development against loss or damage by fire and other perils as required under clause 8.1, or fail to maintain insurance against claims for personal injury, death, or property damage or loss as required under clause 8.10, then in any of such events, the Landlord, although not obliged to do so, may obtain and maintain such insurance in such amount or amounts with such deductible amounts and for such period or periods of time as the Landlord deems advisable; and the Tenant will pay to the Landlord as Additional Rent, upon the Landlord obtaining any such insurance and thereafter annually during the Term, within 30 days after receipt of any invoice from the Landlord, such amounts as the Landlord has expended for such insurance. If the Landlord pays for or obtains and maintains any insurance pursuant to this clause 8.13, the Landlord will submit to the Tenant, annually, a statement of the amount or amounts payable by the Tenant under this clause 8.13 as the cost of such insurance for the next ensuing year, and upon receipt of payment will apply the payment on account of the premiums of such insurance with the loss, if any, thereunder payable to the Landlord, the Tenant, and any Mortgagee as their interests may appear.

17

 

9.REPAIRS AND MAINTENANCE

 

9.1.Landlord Not Obliged to Repair

 

9.1.1.Except to the extent specified in the Electricity Supply Agreement, the Landlord will not be obliged to furnish any services or facilities or to make repairs or alterations in or to the Lands or the Development, the Tenant hereby assuming the full and sole responsibility for the condition, operation, repair, replacement, maintenance, and management of the Lands and the Development.

 

9.1.2.Without limiting the generality of the foregoing sub-clause 9.1.1, except to the extent specified in the Electricity Supply Agreement, the Landlord will not be liable for any damages or injury to person or property or to the Business by reason of any interruption in the supply or operation of any Utility Service, Municipal Improvements and Infrastructure, municipal service or in making alterations or repairs to such services.

 

9.2.Repair by the Tenant

 

9.2.1.The Tenant will during the Term, at its sole cost and expense, put and keep in good order and condition the Development (reasonable wear and tear excepted so long as the reasonable wear and tear does not unreasonably affect the foundation or structure of any building or of the Tenant Trade Fixtures and Equipment) the Lands and the appurtenances and equipment of them, both inside and outside, including heating and air-conditioning equipment, sidewalks, landscaping, water, sewer, steam, gas, electric and telecommunications facilities, pipes and conduits, and all other fixtures, machinery and equipment, whether or not enumerated in this Lease, and will, in the same manner and to the same extent as a prudent owner, make any and all necessary repairs, replacements, alterations, additions, changes, substitutions, and improvements, ordinary or extraordinary, foreseen or unforeseen, structural or otherwise, and keep the Development and aforesaid fixtures, appurtenances, and equipment fully usable for all of the purposes for which the Development was erected and constructed and the specified fixtures, appurtenances, and equipment were supplied and installed. Such repairs will be in all respects to the standard at least substantially equal in quality of material and workmanship to the original work and material in the Development and satisfy any requirements imposed by the Authority.

 

9.2.2.The Tenant will during the Term, at its sole cost and expense, keep the Lands free of debris and neat and tidy at all times; maintain weed control on the Lands, maintain proper water drainage from the Lands, and provide complete and proper arrangements for the adequate sanitary handling and disposal of all trash, garbage, and other refuse on the Lands.

 

9.2.3.The Tenant will not store or permit to be stored on the Lands any recreation vehicles, trailers, campers, boats, snowmobiles, trail bikes, all-terrain vehicles or any other equipment not directly utilized by the Tenant in connection with the Business.

 

9.2.4.The Tenant covenants and agrees that in no case will the Tenant interfere with or cut into any utility system on the Lands or the Landlord’s Lands without the prior written approval of the Landlord.

18

 

9.2.5.The Tenant will give immediate notice to the Landlord of the existence of any need for repair or of any condition which might cause any damage or injury or is a hazard to any portion of the Lands, Unit 16 or the public.

 

9.2.6.Should the Landlord, acting reasonably, deem it necessary to supervise any repairs by the Tenant, or should any damage be caused in the course of such repairs or the Landlord otherwise be put to any expense in connection with such repairs, the Tenant will upon demand, reimburse to the Landlord all reasonable expenses incurred by the Landlord in connection therewith as Additional Rent.

 

9.3.Tenant Not to Commit Waste or Injury

 

9.3.1.The Tenant will not commit or permit waste to the Lands, the Development or any part of it (reasonable wear and tear excepted so long as the reasonable wear and tear does not unreasonably affect the foundation or structure of any building or of the Tenant Trade Fixtures and Equipment); nor will the Tenant injure or disfigure the Lands or the Development or permit them to be injured or disfigured in any way.

 

9.4.No Unlawful Purpose

 

9.4.1.The Tenant will not use or occupy or permit to be used or occupied the Lands or the Development or any part of them for any illegal or unlawful purpose or in any manner that may or will result in the cancellation of any insurance, or in the refusal of any insurers generally to issue any insurance as requested.

 

9.5.Lands Accepted “As Is”

 

9.5.1.The Tenant accepts the Lands “as is” knowing the condition of the Lands, and agreeing that the Landlord has made no representation, warranty, or agreement with respect to the Lands, except as expressly set forth herein.

 

9.6.Repairs to Development by Landlord

 

9.6.1.If at any time during the Term the Tenant fails to maintain the Lands and the Improvements, both inside and outside, in the condition required by the provisions of clause 9.2 (Repair by the Tenant), the Landlord through its agents, servants, contractors, and subcontractors may but will not be obliged to enter upon those parts of the Lands and the Improvements required for the purpose of making the repairs required by clause 9.2 (Repair by the Tenant). The Landlord will make such repairs, only after giving the Tenant fifteen (15) days’ written notice of its intention so to do, except in the case of an emergency when no notice to the Tenant is required. Any amount paid by the Landlord in making such repairs to the Lands and the Improvements or any part or parts thereof, together with all costs and expenses of the Landlord, will be reimbursed to the Landlord by the Tenant on demand plus a 15% administration fee together with interest at the rate specified in clause 2.5.

19

 

10.DAMAGE OR DESTRUCTION

 

10.1.Rent Not to Abate

 

10.1.1.The partial destruction or damage or complete destruction by fire or other casualty of the Development will not terminate this Lease or entitle the Tenant to surrender possession of the Lands or the Development or to demand any abatement or reduction of the Rent or other charges payable under this Lease, any law or statute now or in the future to the contrary.

 

10.2.Tenant’s Obligations When the Improvements Are Damaged or Partially Destroyed

 

10.2.1.The Tenant covenants and agrees with the Landlord that in the event of damage to or partial destruction of the Development, the Tenant, subject to the regulations and requirements of the Authority and any other government authority having jurisdiction, will repair, replace, or restore any part of the Improvements so destroyed.

 

10.3.Tenant’s Obligations When the Improvements Are Completely or Substantially Destroyed

 

10.3.1.The Tenant covenants and agrees with the Landlord that in the event of complete or substantially complete destruction of the Development, the Tenant, subject to the regulations and requirements of the Authority and any other government authority having jurisdiction, will reconstruct or replace the Improvements with structures comparable to those being replaced.

 

10.4.Replacement, Repair or Reconstruction Under Clauses 10.2 or 10.3 to Be Carried Out in Compliance with Clause 9.2 and Article 11

 

10.4.1.Any replacement, repair, or reconstruction of the Improvements or any part of the Improvements pursuant to the provisions of clauses 10.2 or 10.3 will be made or done in compliance with the provisions of clause 9.2 (Repair by the Tenant) and Article 11 (Replacement, Changes, Alterations and Substitutions).

 

11.REPLACEMENT, CHANGES, ALTERATIONS, AND SUBSTITUTIONS

 

11.1.The Tenant will not make or permit to be made any changes, alterations, replacements, substitutions, or additions affecting the structure of the Improvements, the major electrical and/or mechanical systems contained in the Improvements, or design, or appearance of the Improvements without the written approval of the Landlord, which approval the Landlord will not withhold unreasonably. No changes, alterations, replacements, substitutions, or additions of the Improvements will be undertaken until the Tenant has submitted or caused to be submitted to the Landlord drawings, elevations (where applicable), specifications (including the materials to be used), locations (where applicable), and exterior decoration and design of the proposed changes, alterations, replacements, substitutions, or additions, and until they have been approved in writing by the Landlord, which approval the Landlord agrees not to unreasonably withhold.

 

11.2.The Tenant covenants and agrees with the Landlord that, subject to Article 12 (Unavoidable Delays), all changes, alterations, replacements, substitutions, and additions undertaken by or for the Tenant once begun will be prosecuted with due diligence to completion. All such changes, alterations, and additions will meet the requirements of the Authority and any other government authorities having jurisdiction.

20

 

12.UNAVOIDABLE DELAYS

 

12.1.If the Landlord or the Tenant is, in good faith, delayed or prevented from doing anything required by this Lease, because of a strike, labour trouble inability to obtain materials or services, power failure, restrictive government laws or regulations, riots, insurrection, sabotage, rebellion, war, act of God, terrorism or any other similar reason (including, without limitation, adverse weather) that is beyond the reasonable control of the Party delayed, the doing of the thing is excused for the period of the delay and the Party delayed will do what was delayed or prevented within the appropriate period after the delay. For the purposes of this clause 12.1 the inability of the Tenant to meet its financial obligations under this Lease or otherwise will not be a circumstance beyond the reasonable control of the Tenant and not avoidable by the exercise of reasonable effort or foresight by the Tenant.

 

12.2.Nothing in clause 12.1 excuses the Tenant from payment of Rent, in the amounts and at the times specified in this Lease.

 

13.BUILDERS’ LIENS AND WRITS OF ENFORCEMENT

 

13.1.Tenant to Remove Liens

 

13.1.1.The Tenant will, throughout the Term at its own cost and expense, cause any and all builders’ liens and other liens for labour, services, or materials alleged to have been furnished with respect to the Lands or the Development, and any writ of enforcement filed against the title to the Lands, which may be registered against or otherwise affect the Lands or the Development, to be paid, satisfied, released (including, without limitation, the release of all such liens and writs from the interest of the Landlord in the Lands), or vacated within forty-two (42) days after any claim for any such lien or writ is filed against the title to the Lands. PROVIDED HOWEVER that in the event of a bona fide dispute by the Tenant of the validity or correctness of any claim for any such lien or writ the Tenant will not be bound by the foregoing, but will be entitled to defend against the claim in any proceedings brought in respect of the claim after first paying into court the amount claimed or sufficient security, and such costs as the court may direct, or the Tenant may provide, at the Tenant’s sole expense, as security in respect of such claim, an irrevocable letter of credit, lodged with the Landlord, for 120% of the full amount of any claim for any such lien or writ of enforcement, the amount of which letter of credit will be increased every six (6) months to include interest on the claimed amount at the Prime Rate, calculated semi-annually not in advance from the date any such claim is registered against or otherwise affects the Lands or the Development, continuing so long as the proceedings continue and which letter of credit will be on terms sufficient to protect the Landlord’s interest in the Lands and the Development and in a form reasonably satisfactory to the Landlord and will be issued by one of the chartered Banks of Canada; and, upon being entitled to do so, the Tenant will register all such documents as may be necessary to cancel such lien or writ from the Lands and the Development, including the Landlord’s interest in them.

21

 

13.2.Landlord Not Responsible for Liens or Writs of Enforcement

 

13.2.1.It is agreed that the Landlord will not be responsible for claims of builder’s liens or writs of enforcement filed by persons claiming by, through or under the Tenant or persons for whom the Tenant is in law responsible. The Tenant acknowledges and agrees that the improvements to be made to the Lands are made at the Tenant’s request solely for the benefit of the Tenant and those for whom the Tenant is in law responsible.

 

14.INSPECTION AND EXHIBITION BY LANDLORD

 

14.1.Inspection by Landlord

 

14.1.1.The Landlord and the Tenant agree that it will be lawful for a representative of the Landlord at all reasonable times during the Term, upon not less than three (3) days’ notice in writing and, if required by the Tenant, accompanied by a representative of the Tenant, to enter the Lands and the Development, or any of them and to examine their condition, and to ensure the Tenant’s compliance with the terms of this Lease. The Landlord will give to the Tenant notice of any repairs or restorations required in accordance with clause 9.2 (Repair by the Tenant) and the Tenant will, within thirty (30) days after every such notice or such other period as provided in clause 19.1.1(b), well and sufficiently repair, restore, and make good accordingly.

 

14.2.Exhibition by Landlord

 

14.2.1.During the final six (6) months of the Term, the Landlord will be entitled to display upon the Lands the usual signs advertising the Lands and the Improvements as being available for purchase or letting, provided such signs are displayed in such a manner as not to interfere unreasonably with the Tenant’s use and enjoyment of the Lands and the Development.

 

15.OBSERVANCE OF REGULATIONS

 

15.1.The Tenant covenants with the Landlord that, notwithstanding any other provision of this Lease to the contrary, throughout the Term the Tenant will abide by and comply with all provisions of law, including without limitation municipal, regional, provincial, and federal legislative enactments, measures and policy directives concerning, without limitation, all environmental, police, fire, and sanitary regulations, zoning and building bylaws, and any municipal, regional, provincial, federal or other government regulations that relate to the construction and erection of the Development, to the equipment and maintenance of the Development to the operation, occupation, and use of the Development or the Lands to the extent that the Tenant operates, occupies and uses the Development or the Lands, whether by subletting them or any part of them or otherwise, and to the making of any repairs, replacements, alterations, additions, changes, substitutions, or improvements of or to the Development, the Lands, or any part of them.

 

16.INDEMNITY

 

16.1.Breach, Violation, or Non-performance of Covenants

 

16.1.1.The Tenant will indemnify and save harmless the Landlord and the Landlord Representatives from any and all manner of actions, causes of action, suits, damages, expenses, loss, costs, builders’ liens, claims, and demands of any nature whatsoever relating to and arising during the Term out of any breach, violation, or non-performance of any covenant, condition, or agreement in this Lease to be fulfilled, kept, observed and performed by the Tenant or the Tenant Representatives, except to the extent arising out of any action or omission of the Landlord.

22

 

16.1.2.The Landlord will indemnify and save harmless the Tenant, its directors, officers, servants, agents, successors, and assigns from any and all manner of actions, causes of action, suits, damages, expenses, loss, costs, claims, and demands of any nature whatsoever relating to and arising during the Term out of any breach, violation, or non-performance of any covenant, condition, or agreement in this Lease to be fulfilled, kept, observed and performed by the Landlord or the Landlord Representatives, except to the extent arising out of any action or omission of the Tenant.

 

16.2.Injury, Damage, or Loss of Property

 

16.2.1.Notwithstanding the provisions of Article 8 (Insurance), the Tenant will indemnify and save harmless the Landlord and the Landlord Representatives from any and all manner of actions, causes of action, suits, damages, loss, costs, claims, and demands of any nature whatsoever relating to and arising during the Term out of:

 

(a)any injury to person or persons, including death resulting at any time therefrom, occurring in or about the Lands or the Development;

 

(b)any damage to or loss of property occasioned by or attributable to the use and occupation of the Lands or the Development;

 

(c)any and all claims arising under the Workers’ Compensation Act, Occupational Health and Safety Act, Occupiers’ Liability Act or other statute that imposes liability upon the owners or occupiers of land or in relation to the operation of a worksite in relation to the activities of the Tenant and the Tenant Representatives in or about the Private Access Area or the Lands; and

 

(d)the conduct of the Business from the Lands.

 

however, no provision of this Lease will require the Tenant to indemnify the Landlord against any actions, causes of actions, suits, claims, or demands for damages arising out of the willful misconduct or grossly negligent acts or grossly negligent omissions of the Landlord or the Landlord Representatives, unless such act or omission involves a peril against which the Tenant is obligated to place insurance, in which case the release and indemnity specified in clause 8.6 absolves the Landlord of all liability with respect to the act or omission.

 

16.3.Limitation

 

16.3.1.In no event will a Party be liable for consequential, incidental, punitive, exemplary or indirect damages, lost profits or other business damages whether by statute, in tort or contract under any indemnity provision or otherwise, whatever may be the cause of such damages.

23

 

16.4.Indemnification Survives Termination of Lease

 

16.4.1.The obligations of the Landlord and the Tenant to indemnify the other under any provision of this Lease with respect to liability by reason of any matter arising prior to the end of the Term, including without limitation under the provisions of clauses 3.1, 3.2, 3.3, 5.1, 8.6, 16.1, 16.2, 22.1, and 32.8 will survive any termination of this Lease, anything in this Lease to the contrary notwithstanding.

 

17.SUBLETTING AND ASSIGNING

 

17.1.Subletting and Assigning

 

17.1.1.Except as expressly provided in this Article 17, the Tenant will not assign this Lease in whole or in part, or sublease the Lands or Development or any part of them, or grant any concession or license of any part of the Lands or the Development, without the written approval of the Landlord, which approval the Landlord will not unreasonably withhold.

 

17.1.2.The Tenant will not mortgage its leasehold interest under this Lease and its interest in the Lands and the Development without the consent of the Landlord, which consent the Landlord will not unreasonably withhold.

 

17.1.3.Notwithstanding the foregoing provisions of this clause 17.1, the Tenant may, upon reasonable notice to the Landlord, assign this Lease or mortgage its leasehold interest under this Lease to any person taking an assignment of the Tenant’s interest under the Electricity Supply Agreement, including an assignment by way of security in favour of a lender, provided that the City of Medicine Hat has consented to such assignment pursuant to the Electricity Supply Agreement.

 

17.1.4.No assignment, sublease, concession or license will release the Tenant from its obligations and covenants under this Lease.

 

17.1.5.The Tenant will observe and perform all of its obligations incurred in respect of assignments, subleases, agreements for lease, and Mortgages of its leasehold interest under this Lease, and will not allow any such obligations to be in default; and if any such default occurs, the Landlord may, but will not be obliged to, rectify such default for the account of the Tenant, and any amount paid by the Landlord in so doing, together with all costs and expenses of the Landlord, will be reimbursed to the Landlord by the Tenant on demand plus an administration fee of 15% together with interest at the rate specified in clause 2.5.

 

18.REGISTRATION

 

18.1.Neither the Tenant nor anyone on the Tenant’s behalf or claiming under the Tenant (including any assignee, subtenant or other occupant) will register in full this Lease or any assignment, sublease or other instrument relating to this Lease against the Lands or the Development. The Tenant may register a notice or caveat of its interests under this Lease, including the easement granted pursuant to clause 32.1, provided that:

 

(a)a copy of the Lease is not attached; and

24

 

(b)the Landlord gives its prior written approval of the notice or caveat, which approval will not be unreasonably withheld.

 

18.2.Upon the expiration or earlier termination of the Term, the Tenant will immediately discharge or otherwise vacate any such notice or caveat.

 

18.3.The Landlord will provide or cause to be provided a registrable postponement of any mortgage, or similar financial encumbrance, granted by the Landlord from time to time to any caveat filed by the Tenant in respect of its interests under this Lease in accordance with clause 18.1.

 

19.DEFAULT BY TENANT

 

19.1.Events of Default

 

19.1.1.The Landlord and the Tenant agree that any of the following constitutes an “Event of Default” under this Lease:

 

(a)the Tenant fails to pay any Rent or any other sums required to be paid to the Landlord by any provision of this Lease and such Rent remains unpaid ten (10) Business Days following the Landlord providing a written demand for payment therefor to the Tenant (but no such notice will be required if the Tenant defaults more than three (3) times in a year in the payment of Rent even though such defaults may each have been timely cured, but in any event the Tenant agrees that Rent is due and payable by the Tenant under the Lease on its due date);

 

(b)the Tenant defaults in performing or observing any of its covenants or obligations under this Lease (other than those referred to in sub-clause 19.1.1(a)) and such default has not been cured within thirty (30) days following written notice thereof from the Landlord (or such longer period as may be reasonably required where there is a reasonable expectation that such default can be cured and where the Tenant commences within thirty (30) days to take steps to cure such default and continues to thereafter diligently pursue a cure with respect to such default);

 

(c)the Tenant abandons or attempts to abandon the Lands, or the Lands become vacant or substantially unoccupied for a period of thirty (30) consecutive days or more without the consent of the Landlord; or

 

(d)an Insolvency Event occurs in respect of the Tenant.

 

19.2.Default and Remedies

 

19.2.1.The Landlord and the Tenant agree that if and whenever an Event of Default occurs, then, without prejudice to any other rights which it has pursuant to this Lease or at law, the Landlord will have the following rights and remedies, which are cumulative and not alternative:

 

(a)To terminate this Lease by notice to the Tenant or to re-enter the Lands and Development and repossess them and, in either case, enjoy them as of its former estate, and to remove all persons and property from the Lands and Development and store such property at the expense and risk of the Tenant or sell or dispose of such property in such manner as the Landlord sees fit without notice to the Tenant. If the Landlord enters the Lands and Development without notice to the Tenants to whether it is terminating this Lease under this sub-clause 19.2.1(a) or proceeding under 19.2.1(b) or any other provision of this Lease, the Landlord will be deemed to be proceeding under sub-clause 19.2.1(b), and the Lease will not be terminated, nor will there be any surrender by operation of law, but the Lease will remain in full force and effect until the Landlord notifies the Tenant that it has elected to terminate this Lease. No entry by the Landlord will have the effect of terminating the Lease without notice to that effect to the Tenant;

25

 

(b)To enter the Lands and Development as agent of the Tenant to do any or all of the following:

 

i.Relet the Lands and Improvements for whatever length of time and on such terms as the Landlord, in its discretion, may determine, and to receive the Rent therefore;

 

ii.Take possession of any property of the Tenant on the Lands and Development, and store such property at the expense and risk of the Tenant, or sell or otherwise dispose of such property in such a manner as the Landlord sees fit without notice to the Tenant;

 

iii.Make alterations to the Lands and Development to facilitate their reletting, including but not limited to removing (including selling or otherwise disposing of) the Development and restoring the Land to a condition substantially the same as the Lands existed immediately prior to the Tenant’s first entry upon the Lands pursuant to the Access Agreement;

 

iv.Apply the proceeds of any such sale or reletting, first, to the payment of any expenses incurred by the Landlord with respect to any such reletting or sale, second, to the payment of any indebtedness of the Tenant to the Landlord other than Rent, and, third, to the Payment of Rent in arrears, with the residue to be held by the Landlord and applied to payment of future Rent as it becomes due and payable, provided that the Tenant will remain liable for any deficiency to the Landlord;

 

(c)To remedy or attempt to remedy any default of the Tenant under this Lease for the account of the Tenant and to enter upon the Lands for such purposes. No notice of the Landlord’s intention to remedy or attempt to remedy such default need be given to the Tenant unless expressly required by this Lease, and the Landlord will not be liable to the Tenant for any loss, injury or damages caused by acts of the Landlord in remedying or attempting to remedy such default. The Tenant will pay to the Landlord all expenses incurred by the Landlord in connection therewith;

 

(d)To recover from the Tenant all damages, costs and expenses incurred by the Landlord as a result of any default by the Tenant including, if the Landlord terminates this Lease, and deficiency between those amounts which would have been payable by the Tenant for the portion of the Term following such termination and the net amounts actually received by the Landlord during such period of time with respect to the Lands; and

26

 

(e)To recover from the Tenant the full amount of the current month’s Rent together with the next three (3) months’ installments of Rent, all of which will immediately become due and payable as accelerated rent.

 

19.3.Distress

 

19.3.1.Notwithstanding any provision of this Lease or any provision of any applicable legislation, the goods and chattels of the Tenant on the Lands at any time will be exempt from levy by distress save and except in respect of Base Rent in arrears or amounts payable pursuant to clause 3.1 and unpaid, and the Tenant waives any exemption applicable to such permitted distress. If the Landlord makes any claim against the goods and chattels of the Tenant by way of distress permitted as aforesaid, this provision may be pleaded as an estoppel against the Tenant in any action brought to test the right of the Landlord to levy such distress.

 

19.4.Costs

 

19.4.1.The Tenant agrees to pay to the Landlord all damages, costs and expenses (including, without limitation, all legal fees on a substantial indemnity basis) incurred by the Landlord in enforcing the terms of the Lease, or with respect to any matter or thing which is the obligation of the Tenant under this Lease, or in respect of which the Tenant has agreed to insure or to indemnify the Landlord.

 

19.5.Remedies of Landlord Are Cumulative

 

19.5.1.The remedies of the Landlord specified in this Lease are cumulative and are in addition to any remedies of the Landlord at law or equity. No remedy will be deemed to be exclusive, and the Landlord may from time to time have recourse to one or more or all of the available remedies specified in this Lease or at law or equity. In addition to any other remedies provided in this Lease, the Landlord will be entitled to restrain by injunction any violation or attempted or threatened violation by the Tenant of any of the covenants or agreements under this Lease.

 

19.6.Waiver by Landlord

 

19.6.1.The failure of the Landlord to insist upon the strict performance of any covenant or agreement of this Lease will not waive such covenant or agreement, and the waiver by the Landlord of any breach of any covenant or agreement of this Lease will not waive such covenant or agreement in respect of any other breach. The receipt and acceptance by the Landlord of Rent or other moneys due under this Lease with knowledge of any breach of any covenant or agreement by the Tenant will not waive such breach. No waiver by the Landlord will be effective unless made in writing.

27

 

20.DISPUTE RESOLUTION PROCEDURE

 

20.1.Except as otherwise provided in this Lease, any dispute between the Parties as to the interpretation of, subject matter of, or in any way related to, this Lease will be resolved by the Parties attempting to research a fair and equitable resolution by using, in good faith, the following means in the order listed and on an escalating basis, until resolution is achieved. The means to be used are:

 

20.1.1.Negotiation between the Commissioner of Development and Infrastructure and the Tenant’s Chief Executive Officer;

 

20.1.2.Negotiation between the City’s Chief Administrative Officer and the Chairman of the Board of the Tenant; and

 

20.1.3.Subject to agreement between the Parties, mediation by a jointly appointed mediator. In the event the Parties are unable to agree on a single mediator within ten (10) Business Days, each Party will appoint a mediator within ten (10) Business Days thereafter by written notice, and the two mediators will together appoint a third mediator within ten (10) Business Days of written notice of their appointment. Unless otherwise agreed in writing by the Parties, mediation will be carried out in accordance with the procedures of the ADR Institute of Canada, Inc. (the “Institute”). Mediation will continue for a period of not more than thirty (30) days after the mediator(s) has or have been selected.

 

20.2.In no event will any stage of the resolution of a dispute pursuant to this Article 20 between the Parties exceed thirty (30) Business Days (or thirty (30) Business Days after appointment of a mediator), or one hundred twenty (120) Business Days in total.

 

21.CONDUCT ON LANDS, DEVELOPMENT

 

21.1.Taking into account that during construction of the Development the Lands will be operated as a normal construction site, the Tenant covenants and agrees with the Landlord that it will not carry on or do, or allow to be carried on or done upon the Lands or the in or on the Development any work, business, or occupation that may be a nuisance or annoyance, or cause any damage or inconvenience to the Landlord or other persons occupying lands adjacent to the Lands or the Landlord’s Lands, or that may be improper, noisy, or contrary to any law or to any bylaw or to any regulation of the Authority or any enactment of any other government agencies or authorities having jurisdiction for the time being in force.

 

22.SURRENDER OF LEASE

 

22.1.At the expiration or sooner determination of the Term, the Tenant will remove all Tenant Trade Fixtures and Equipment, repair any damage to the Land or the Improvements caused by such removal, and surrender the Lands and the Improvements to the Landlord in the condition in which they were required to be kept by the Tenant under the provisions of this Lease, provided however that the Landlord may, at its sole option, provide written notice to the Tenant (a “Restoration Notice”) no later than six (6) months prior to the expiry of the Term, or if this Lease is terminated prior to the expiry of the Term, provide notice to the Tenant within fifteen (15) days of such termination, requesting that the Tenant remove such Improvements and restore the Lands (or such portions thereof as may be specified in such notice) as nearly as reasonably practicable to the state and condition in which the Lands (or such portions thereof) were in as of the time immediately prior to the first entry upon the Lands (or such portion thereof) by the Tenant or the Tenant Representatives. If the Landlord provides such Restoration Notice the Tenant will, prior to the expiry of the Term (or if the Lease is terminated prior to the expiry of the Term within sixty (60) days of the date of the delivery of the Restoration Notice), at its sole expense, remove such Improvements as specified in the Restoration Notice and restore the Lands (or such portion thereof) as aforesaid, which will include without limitation, if specified in such Restoration Notice, grading, reseeding and removing gravel and fencing. Prior to beginning work on removing the Improvements and restoring the Lands, the Tenant will obtain the written approval of the Landlord for the plan for removing the Improvements and restoring the Lands, including details as to disposition of concrete and other building materials. The Tenant will complete all work on removing the Improvements and restoring the Lands in accordance with all requirements of the Authority, and all laws, including but not limited to, the Safety Codes Act (Alberta), permit regulations and the Alberta Building Code and will obtain a demolition permit prior to commencing any demolition. If the Landlord delivers a Restoration Notice and the Tenant fails to perform its removal and restoration obligations as aforesaid, the Landlord may, at its absolute discretion, and without notice to the Tenant, perform such removal and restoration obligations and the Tenant will reimburse the Landlord for all costs and expenses reasonably incurred by the Landlord in performing such work in excess of the Deposit within thirty (30) days following written demand therefor being given to the Tenant, together with documentation satisfactory to the Tenant, acting reasonably, which establishes the amount of such costs and expenses, it being agreed by the Tenant and the Landlord that the Landlord will be entitled to (and will) apply the Deposit on account of the costs and expenses reasonably incurred by the Landlord in performing such restoration work prior to seeking further reimbursement from the Tenant.

28

 

22.2.If the Tenant fails to fulfill its obligation to remove the Tenant Trade Fixtures and Equipment and the Improvements and restore the Lands as aforesaid, to the satisfaction of the Landlord, the Landlord may, at its sole discretion remove (including selling or otherwise disposing of) the Tenant Trade Fixtures and Equipment and Improvements and restore the Lands in such a manner as the Landlord sees fit, without notice to the Tenant. The Tenant covenants with the Landlord to reimburse the Landlord for all costs and expenses associated with such removal and restoration. The Tenant will not be entitled to any compensation from the Landlord for surrendering and yielding up the Lands and the Improvements as provided.

 

23.QUIET ENJOYMENT AND OWNERSHIP OF TENANT’S FIXTURES

 

23.1.Covenant for Quiet Enjoyment

 

23.1.1.For so long as an Event of Default has not occurred which is then continuing, the Tenant will and may peaceably enjoy and exclusively possess the Lands and enjoy the easements, rights and privileges granted to the Tenant pursuant to this Lease for the Term, without interruption or disturbance whatsoever from the Landlord or any other person, firm, or corporation lawfully claiming from or under the Landlord, provided however that nothing in this clause 23.1 will limit the rights of access reserved by the Landlord under clause 9.6 (Repairs to Development by Landlord), the rights of inspection conferred upon the Landlord by clause 14.1 (Inspection by Landlord), the right of the Landlord to show the Lands and the Development and to post “for rent” or “for sale” signs, pursuant to clause 14.2 (Exhibition by Landlord), the rights of investigation conferred upon the Landlord by clause 26.1 (Environmental Provisions), or any rights of access provided pursuant to the Electricity Supply Agreement.

29

 

23.1.2.The Landlord hereby represents that the Lands are not subject to any lease, restrictive covenant, easement, right of way or other encumbrance, lien or interest, save and except to the extent specified in this Lease or the Access Agreement or registered against title to the Landlord’s Lands as of the date of this Lease, and that such specified or registered encumbrances, liens and interests do not conflict with or interfere with the Tenant’s use of the Lands or the easements, rights or privileges granted to the Tenant pursuant to this Lease, save and except to the extent specified in this Lease or the Access Agreement.

 

23.2.Landlord’s Right to Further Encumber

 

23.2.1.The Landlord hereby reserves the right to further charge the Lands, or any part of them, by way of easement, right of way, or restrictive covenant in favour of a Crown corporation or agency, a municipality, a regional district, or other government agency or authority, provided that any such easement, right of way or restrictive covenant may prohibit, restrict or interfere with the Tenant’s use and enjoyment of the Lands in accordance with this Lease or the enjoyment of the easements, rights and privileges granted to the Tenant pursuant to this Lease, and the Tenant agrees, at the request of the Landlord, promptly to execute and deliver to the Landlord such instrument as may be necessary to subordinate the Tenant’s right and interest in the Lands under this Lease to such charge subject always to the foregoing proviso.

 

23.3.Ownership of the Development

 

23.3.1.The Landlord and the Tenant agree that the title to and ownership of the Improvements and all alterations, additions, changes, substitutions, or improvements to them will at all times during the Term be vested in the Tenant, notwithstanding any rule or law as to the immediate vesting of the title to and ownership of the Improvements in the Landlord as owner of the freehold. The title to and ownership of the Improvements will not pass to or become vested in the Landlord until the determination of the Term either by forfeiture, default, or lapse of time under the terms of this Lease, in which event the Improvements will become the absolute property of the Landlord free of all encumbrances, except for the Improvements, or parts thereof, that the Landlord requests to be removed pursuant to Article 22.

 

23.3.2.The Landlord and the Tenant agree that the title to and ownership of the Tenant Trade Fixtures and Equipment will at all times be vested in the Tenant, notwithstanding the degree of affixation thereof to the Lands or the Improvements.

 

23.3.3.The Landlord and the Tenant agree that the title to and ownership of the Interconnection Facilities will at all times be vested in the City of Medicine Hat as party to the Electricity Supply Agreement.

 

24.OVERHOLDING

 

24.1.The Tenant covenants and agrees with the Landlord that if the Tenant holds over and the Landlord accepts Rent after the expiration of the Term, the new tenancy thereby created will be a tenancy from month to month, at a rent that is equal to 125% of the Basic Rent applicable in the month immediately prior to such overholding, and not a tenancy from year to year and will be subject to the covenants and conditions in this Lease so far as they are applicable to a tenancy from month to month.

30

 

25.NOTICE

 

25.1.All notices, demands, and requests that may be or are required to be given pursuant to this Lease will be in writing and will be sufficiently given if served personally upon, faxed or emailed to, the party or an executive officer of the party for whom it is intended or mailed prepaid and registered addressed to the parties at the addresses below, or such other addresses as the parties may from time to time advise by notice in writing. Mortgagees of this Lease will supply their respective mailing addresses to the Landlord and the Tenant. Any such notice, demand, or request, if sent by personal delivery, facsimile or email, will be deemed to have been given on the same Business Day that the notice was sent, if sent during normal business hours, or the next Business Day if sent after normal business hours. Any notice, demand, or request delivered by mail will be deemed to have been received on the fifth Business Day following the postmark date, excepting that in the case of a postal strike or disruption, such notice or correspondence must be delivered by personal delivery or sent by email or facsimile.

  

Landlord Address Tenant Address

Manager of Land and Business Support

City of Medicine Hat

580 First Street SE

Medicine Hat, Alberta T1A 8E6

 

Hut 8 Holdings Inc.

Suite 1700, 666 Burrard Street

Vancouver, BC V6C 2X8

Phone: (403) 502-8055

 

 Phone:

Email: [REDACTED]

 

 Email: [REDACTED]

Fax:

 

 Fax:

 

26.ENVIRONMENTAL

 

26.1.Environmental Provisions

 

26.1.1.The Tenant covenants and agrees with the Landlord to:

 

(a)develop and use the Lands and Development only in compliance with all Environmental Laws;

 

(b)permit the Landlord to investigate the Lands and Development, any goods on the Lands or Development, and the Tenant’s records at any time and from time to time to verify such compliance with Environmental Laws and this Lease upon not less than three (3) days’ notice in writing and, if required by the Tenant, accompanied by a representative of the Tenant;

 

(c)where the Landlord has reasonable grounds to believe that the Tenant is in breach of its obligations under this Article 26, obtain at the reasonable request of the Landlord, obtain from time to time at the Tenant’s cost a report from an independent consultant designated or approved by the Landlord verifying the Tenant’s compliance with Environmental Laws and this Lease or the extent of any non-compliance;

31

 

(d)not store, manufacture, dispose, treat, generate, use, transport, remediate, or release Environmental Contaminants on or from the Lands or the Development except in compliance with Environmental Laws without notifying the Landlord in writing and receiving prior written consent from the Landlord, which consent may be unreasonably or arbitrarily withheld;

 

(e)promptly remove any Environmental Contaminants from the Lands or Development released or placed upon the Lands by the Tenant during the Term or the term of the Access Agreement in a manner that conforms to Environmental Laws governing their removal; and

 

(f)notify the Landlord in writing of:

 

i.any enforcement, clean-up, removal, litigation, or other governmental, regulatory, judicial, or administrative action instituted, contemplated, or threatened against the Tenant, the Lands, or the Development pursuant to any Environmental Laws;

ii.all claims, actions, orders, or investigations instituted, contemplated, or threatened by any third party against the Tenant, the Lands, or the Development relating to damage, contribution, cost recovery, compensation, loss, or injuries resulting from any Environmental Contaminants or any breach of the Environmental Laws; and

iii.the discovery of any Environmental Contaminants or any occurrence or condition on the Lands or Development or any real property adjoining or in the vicinity of the Lands that could subject the Tenant, the Lands, or the Development to any fines, penalties, orders, or proceedings under any Environmental Laws.

 

26.2.Landlord May Make Inquiries

 

26.2.1.The Tenant hereby authorizes the Landlord to make inquiries from time to time of any government authority with respect to the compliance by the Tenant with Environmental Laws, and the Tenant agrees that the Tenant will from time to time provide to the Landlord such written authorization as the Landlord may reasonably require in order to facilitate the obtaining of such information.

 

26.3.Clean Up

 

26.3.1.The Tenant agrees with the Landlord that if any government authority having jurisdiction issues a lawful order requiring the clean-up of any Environmental Contaminants held or released into or place upon the Lands or the environment as a result of the Tenant’s use or occupancy of the Lands during this Lease, then the Tenant will, at its cost, prepare all necessary studies, plans and proposals and submit copies thereof to the Landlord, provide all bonds and other security required by governmental authorities having jurisdiction and carry out the work required, and keep the Landlord fully informed with respect to proposed plans and comply with the Landlord’s reasonable requirements with respect to such plans. The Tenant further agrees that if the Landlord determines, in its sole discretion, that the Lands, the Development or their reputation is placed in jeopardy by the requirement for any such work, the Landlord may undertake such work or any part thereof, and the Tenant will forthwith pay to the Landlord a cost of such work plus an administration fee of 15% together with interest at the rate specified in clause 2.5.

32

 

26.3.2.Without limiting the generality of the foregoing, the Tenant agrees with the Landlord that the Tenant assumes responsibility for any and all Environmental Contaminants held or released into or placed upon the Lands or the environment as a result of the Tenant’s use or occupancy of the Lands during this Lease and any other environmental liabilities caused by or attributable to the Tenant’s use and occupation of the Lands, including but not limited to any liability for clean-up of any Environmental Contaminants on, over or under the Lands or the surrounding environment.

 

27.EARLY WORKS

 

27.1.Prior to the Commencement Date, the Landlord will, at its discretion, upon the written request of the Tenant and at the Tenant’s expense:

 

27.1.1.facilitate the purchase of equipment that the Tenant may be required to purchase pursuant to the Electricity Supply Agreement, including equipment purchased by the Tenant for installation in Unit 16.

 

27.1.2.provide information to the Tenant regarding standards.

 

27.1.3.provide other services related to the Tenant’s preparation of the Lands for the Business and the implementation of the Electricity Supply Agreement

 

(the “Services”).

 

27.2.The Landlord will invoice the Tenant monthly for:

 

27.2.1.the Services provided at the rates attached in Schedule “B”, which is attached and forms part of this Lease; and

 

27.2.2.all out of pocket expenses incurred by the Landlord related to the Services, including without limitation purchase of equipment and supplies.

 

27.3.The Landlord’s monthly invoice will not exceed FIFTY THOUSAND DOLLARS ($50,000.00) in any given month without the prior written approval of the Tenant.

 

27.4.The Tenant will pay all invoices within fifteen (15) days of receipt.

 

27.5.The Landlord, its elected officials, officers, servants, agents, successors, and assigns will not have any liability to the Tenant, whether pursuant to this Lease, equity or any applicable law, for any damages, liabilities, costs, expenses or claims of any type or kind, arising out of any matter in relation to the Services other than due to the gross negligence or willful misconduct of Landlord in its provision of the Services.

 

27.6.The Tenant will release, indemnify and hold the Landlord, its elected officials, officers, servants, agents, successors, and assigns harmless from any and all claims, damages, costs, expenses, or liabilities whatsoever incurred by the Landlord in relation to the performance of the Services, unless caused by the gross negligence or willful misconduct of Landlord.

33

 

28.EXTENSION

 

28.1.The Tenant will provide written notice to the Landlord at least twenty-four (24) months prior to the expiration of the last day of the Initial Term indicating either that: (i) the Tenant is willing to consider extending this Lease for a period of ten (10) years (the “Extension Term”), or (ii) the Tenant does not wish to extend this Lease and accordingly, this Lease will terminate upon the expiry of the Initial Term.

 

28.2.If the Tenant provides notice to the Landlord that the Tenant is willing to consider extending this Lease for the Extension Term, the Tenant and the Landlord may meet to discuss any changes to Rent or other terms to take effect during the Extension Term. If the Parties do not mutually agree to the terms and conditions which will apply during the Extension Term by December 31, 2027, or such other date as the Parties may mutually agree to in writing, this Lease will terminate upon the expiry of the Initial Term.

 

29.POSSESSION PRIOR TO THE COMMENCEMENT DATE

 

29.1.Provided that and for so long as this Lease has not been terminated in accordance with its terms, the Tenant will be entitled to exclusive vacant possession of the Lands from and after execution of this Lease by the Landlord and the Tenant, subject to and upon the terms and conditions of this Lease. For greater certainty, notwithstanding that the conditions set forth in Article 5 will not have been satisfied or, if applicable, waived, in accordance with Article 5, the Tenant may commence its use and development of the Lands in accordance with the provisions of this Lease.

 

30.TERMINATION UPON TERMINATION OF ELECTRICITY SUPPLY AGREEMENT

 

30.1.In the event of the expiration or termination of the Electricity Supply Agreement, this Lease may be terminated by either Party by notice in writing to the other Party and neither Party will have any obligation or liability to the other Party in respect of such termination except as expressly set forth in this Lease. Any termination pursuant to this Clause 30.1 will be effective as of the ninetieth (90th) day following the delivery of such notice or such earlier date as may be determined by the Tenant.

 

31.SUBDIVISION

 

31.1.Within sixty (60) days following the Effective Date, the Landlord will make application to the subdivision authority for the City of Medicine Hat for the approval (the “Subdivision Approval”) of a plan of subdivision (the “Subdivision Plan”) in respect of the Landlord’s Lands which, upon registration, will create the Lands as a separate and distinct legal parcel. The Landlord will keep the Tenant informed as to the progress and status of the Landlord’s subdivision application and, without limitation to the foregoing, will provide a copy of the subdivision application, including the proposed tentative plan of subdivision, before submitting the same to the subdivision approving authority, and a copy of the Subdivision Approval as and when issued. The Landlord will be responsible, at its sole cost and expense, for the satisfaction of any conditions of approval to the Subdivision Approval, including without limitation, the payment of any off-site levies and the dedication of reserves (or payment of cash in lieu thereof), and will make all reasonable commercial efforts to obtain the Subdivision Approval and to cause the Subdivision Plan to be registered as soon as reasonably practicable thereafter. Any easements, rights of way or other interests to be granted in respect of the Lands in connection with the aforesaid subdivision will be approved by the Tenant, acting reasonably. The Tenant will reimburse the Landlord in respect of the Landlord’s out of pocket costs and expenses reasonably incurred in connection with the submission of the application for the subdivision approval and in preparing and registering the Subdivision Plan. Upon registration of the Subdivision Plan, the Tenant will promptly discharge (except as to the Lands), at its sole cost and expense, any caveat, encumbrance, lien, charge or other instrument which the Tenant may have registered or caused to be registered against the title to the Landlord’s Lands, save and except a caveat in respect of the easement granted pursuant to clause 32.1 and any caveat or easement registered in respect of any easement agreement entered into by the Parties pursuant to clause 32.7.

34

 

32.ACCESS EASEMENT

 

32.1.Subject to the full execution and delivery of the Access Agreement by the parties thereto, the Landlord hereby grants, to and for the benefit of the Lands, for as long as the Tenant enjoys a leasehold interest in the Lands, as appurtenant to the Tenant’s leasehold interest under this Lease, as dominant tenement, a non-exclusive easement over the Private Access Area in common with the Landlord and such other persons as may from time to time be entitled to the use thereof for purposes of full, free and uninterrupted pedestrian and vehicular access to and from the Lands from and after the full execution and delivery of the Access Agreement by the parties thereto. The Tenant hereby covenants and agrees that it will not hinder, impede, or obstruct or permit or cause the hindrance, impediment, or obstruction, of such non-exclusive use of the Private Access Area by any other person as may from time to time be permitted or entitled to the use thereof for purposes of pedestrian and vehicular access. The “Access License” granted pursuant to the Access Agreement will terminate upon the satisfaction or waiver of the conditions set forth in clause 5.1 of this Lease.

 

32.2.The Tenant will carry out the following work and improvements with respect to the Private Access Area (the “Access Work”) by May 15, 2018, at the Tenant’s sole expense:

 

32.2.1.Develop the Private Access Area to a standard that is compliant with the City of Medicine Hat’s Municipal Servicing Standards Manual (“MSSM”) and satisfactory to the Landlord, acting reasonably, and satisfactory to the Authority.

 

32.2.2.Develop a transition point at the westerly terminus of the Private Access Area to allow for smooth pedestrian and vehicular transition from the Private Access Area onto the grass trial that leads to the lands marked as “Leased Area B” on the drawing attached as Schedule “A”, to a standard that is compliant with the MSSM and satisfactory to the Authority;

 

32.2.3.Remove the gate located at the easterly end of the private driveway where the Private Access Area adjoins Box Springs Road NW and install a replacement gate of a kind, quality and in a location that is acceptable to the City, acting reasonably; and

 

32.2.4.Develop the access point from the Private Access Area to Box Springs Road NW to a standard that is compliant with the MSSM and satisfactory to the Authority.

35

 

32.3.The Tenant hereby agrees and covenants with the Landlord to perform the Access Work in a good, diligent, and workmanlike manner, and in such manner as causes as little damage and inconvenience as reasonably possible to the interest of any other person as may from time to time be permitted or entitled to the use of the Private Access Area for the purpose of pedestrian and vehicular access.

 

32.4.The Landlord will not be obligated to provide any services or facilities or to make any repairs or alterations in or to the Private Access Area.

 

32.5.The Tenant hereby assumes the full and sole responsibility for the condition, operation, repair, replacement, maintenance, and management for the Private Access Area.

 

32.6.Commencing on the Effective Date:

 

32.6.1.the Tenant will, at its sole cost and expense, repair and maintain in good order and condition and keep the Private Access Area fully usable for the safe passage of pedestrians and vehicles, all to the same standard and extent as would a prudent owner of a similarly improved private road used for the Tenant’s proposed use and other uses similar to the uses for which the Private Access Area is being used as of the commencement of the Initial Term.

 

32.6.2.without limiting the generality of its obligation under sub-clause 32.6.1, the Tenant will, at its sole cost and expense, keep the Private Access Area free of debris and neat and tidy at all times, maintain weed control on the Private Access Area, clear and remove snow and ice from the Private Access Area, and maintain proper water drainage from the Private Access Area.

 

32.7.At the request of either Party to the other, the Landlord and the Tenant will enter into an easement agreement which provides for the easement granted pursuant to clause 32.1, which easement agreement will be consistent with the rights and obligations of the Parties set forth therein, and have and content satisfactory to the Parties, each acting reasonably, and the Authority.

 

32.8.The Tenant will indemnify, defend, and hold harmless the Landlord and the Landlord Representatives from and against any and all actions, suits, claims, liabilities, damages, costs (including reasonable solicitor client costs), liens and encumbrances whatsoever arising from or in any way related to:

 

32.8.1.Any failure by any one or more of the Tenant or the Tenant Representatives to observe, perform, and comply with this Article 32; or

 

32.8.2.Any act or omission of any one or more of the Tenant and Tenant Representatives in exercising their respective rights under this Article 32,

 

save and except to the extent caused or contributed to by the negligent act or negligent omission of the Landlord or the Landlord Representatives.

36

 

32.9.If at any time during the Term the Tenant fails to perform the Access Work, or any of it, or maintain and repair the Private Access Area in accordance with sub-clause 32.6, the Landlord through its agents, servants, contractors, and subcontractors may but will not be obliged to conduct the maintenance and repairs required. The Landlord will make such repairs, only after giving the Tenant fifteen (15) days’ written notice of its intention so to do, except in the case of an emergency when no notice to the Tenant is required. Any amount paid by the Landlord in making such repairs to the Lands and the Development or any part or parts thereof, together with all costs and expenses of the Landlord, will be reimbursed to the Landlord by the Tenant on demand plus a 15% administration fee together with interest at the rate specified in clause 2.5.

 

33.ASSUMPTION AGREEMENT

 

33.1.Prior to the completion of any sale or disposition of all or any portion of the Landlord’s right, title or interest in the Lands, the Landlord Purchaser and the person to whom such sale or disposition is to be made (the “Transferee”) will enter into an agreement with the Tenant which is satisfactory to the Tenant, acting reasonably, pursuant to which the Transferee agrees to assume the obligations and liabilities of the Landlord under this Lease from and after such sale or disposition. No such sale or disposition will release the Landlord from its obligations and covenants under this Lease.

 

34.MISCELLANEOUS

 

34.1.Certificate of Good Standing

 

34.1.1.The Landlord and the Tenant agree that at any time and from time to time upon not less than fifteen (15) days’ prior written request by the other party, each will, but not more than once in any twelve (12) month period, execute acknowledge, and deliver to the other a statement in writing certifying:

 

(a)that this Lease is unmodified and in full force and effect or if there have been modifications that the same are in full force and effect as modified and identifying the modifications;

 

(b)the dates to which the Rent and other charges have been paid, and the request will specify the charges in respect of which such information is required; and

 

(c)that, so far as the maker of the statement knows, without having conducted any searches or made any particular inquiries, the Party who requests the statement is not in default under any provisions of this Lease, or if in default, the particulars of the default.

 

The aforesaid certifications will be provided by the Parties on the following conditions:

 

i.that neither the Party providing such certification nor the party signing on behalf of such Party will be liable for any damage or expense should for any reason, including negligence, the information provided be inaccurate, incomplete, or misleading;

 

ii.that should any or all of the information be inaccurate, incomplete, or misleading for any reason, including negligence, the Party providing such certification will, as against any person or corporation who may rely on the contents of this certification statement, be able to assert and enforce its full rights in strict accordance with the Lease as if this certification statement had not been signed on behalf of such Party and as if any or all persons and corporations who may rely on the contents of the certification statement had not relied on the contents of the certification statement.

37

 

34.2.Time Is of the Essence

 

34.2.1.Time is of the essence of this Lease.

 

34.3.No Modification

 

34.3.1.This Lease may not be modified or amended except by an instrument in writing of equal formality as this Lease executed by the Landlord and the Tenant or by the successors or assigns of the Landlord and the successors or permitted assigns of the Tenant.

 

34.4.Successors and Assigns

 

34.4.1.It is agreed that these presents will extend to, be binding upon, and enure to the benefit of the Landlord and the Tenant and the successors and assigns of the Landlord and the successors and permitted assigns of the Tenant.

 

34.5.Relationship of the Parties

 

34.5.1.Nothing contained in this Lease will be deemed or construed by the Landlord or the Tenant, nor by any third party, as creating the relationship of principal and agent or of partnership, or of a joint venture agreement between the Landlord and the Tenant, it being understood and agreed that none of the provisions contained in this Lease nor any act of the parties will be deemed to create any relationship between the Landlord and the Tenant other than the relationship of a landlord and tenant.

 

34.6.Invalid Provisions

 

34.6.1.If any of the provisions of this Lease, or any portions thereof, are held to be invalid under any applicable law, the invalid part or provision will be severed therefrom and the balance of this Lease will remain in full force and effect.

 

34.7.Paramountcy of Municipal Discretion

 

34.7.1.It is understood and agreed by the parties that nothing contained in this Lease will be interpreted or deemed to fetter the discretion of Council, its commissions, committees, boards, officers, officials or employees, including but not limited to with respect to the approval of the lease of the Lands, the issuance or revocation of a development permit in relation to the Lands or any terms and conditions set out in this Lease.

 

34.7.2.It is understood and agreed by the parties that nothing contained in this Lease will be interpreted or deemed to fetter or limit the duties, rights or responsibilities that the Landlord may have as a Municipal Corporation in the Province of Alberta.

38

 

34.8.Governing Law

 

34.8.1.This Agreement will be governed by the laws of Alberta. The parties hereby attorn to the exclusive jurisdiction of the Courts of Alberta (and all courts competent to hear appeals from the Courts of Alberta) to hear any and all actions or matters arising out of or related to this Agreement.

 

34.9.Counterparts

 

34.9.1.This Agreement may be executed in any number of counterparts and delivered by facsimile transmission or other means of electronic communication capable of producing a printed copy, each of which will be deemed an original and all of which together constitute one and the same instrument.

 

34.10.References to Legislation

 

34.10.1. Reference to any statute or legislation in this Lease will be deemed to refer to such statute or legislation as may be amended or replaced from time to time.

 

34.11.No Relief

 

34.11.1. Nothing in this Lease will relieve the Landlord or the Tenant from duly and punctually observing and performing their respective covenants, agreements, conditions, and provisos to be observed and performed pursuant to the Electricity Supply Agreement or any other agreement between the Tenant and the City of Medicine Hat.

 

34.12.Effective Time

 

34.12.1. This Lease will come into force and effect upon being executed and delivered by the Parties.

 

 

39

 

Schedule “A” 

The Lands

 

(See Attached)

40

 

 

 

Schedule “B”

Early Works – Services Rate Sheet

 

Position/Job Description 

Hourly Charge Out Rate ($/Hour)

 
Project Manager  $125 
Technical Manager  $120 
Operations Manager  $110 
Foreman  $90 
Instrumentation Journeyman  $81 
Electrical Journeyman  $81 
Operator  $90 
Project Administration   $52 

42

 

Exhibit 10.4

 

LEASE AMENDING AGREEMENT REGARDING OPTION TO LEASE

 

THIS AMENDING AGREEMENT (this “Agreement”) is dated for reference this 19th day of September, 2018 (the “Agreement Date”)

 

BETWEEN:  
   
  CITY OF MEDICINE HAT, a municipal corporation in the Province of Alberta with offices at City Hall, 580 First Street SE, Medicine Hat, Alberta T1A 8E6
   
  (the “Landlord”)
   
AND  
   
  HUT 8 HOLDINGS INC., a British Columbia Corporation with a registered office at Suite 1700, Park Place, 666 Burrard Street, Vancouver BC, V6C 2X8
   
  (the “Tenant”)

 

BACKGROUND

 

A.The Tenant is a wholly owned subsidiary of Hut 8 Mining Corp. (formerly Oriana Resources Corporation).

 

B.The Parties entered into a Lease dated March 15, 2018 (the “Lease”) wherein the Landlord, as lessor, agreed to lease the Lands to the Tenant, and the Tenant, as lessee, agreed to lease the Lands from the Landlord in order that the Tenant may operate the Business, upon and subject to the terms and conditions contained in the Lease.

 

C.The Parties entered into an Electricity Supply Agreement dated March 20, 2018 (as amended, supplemented or restated from time to time, the “Electricity Supply Agreement”) wherein the Landlord agreed to provide the Tenant with electric energy upon and subject to the terms and conditions thereof.

 

D.The Tenant wants the Landlord to grant it an option to lease over a portion of the Landlord’s Lands represented diagrammatically as the area outlined in red on the drawing attached as Appendix “A” (the “Option Lands”), which area comprises approximately 10.92 acres, for the purpose of accommodating a possible future expansion of the Data Centre.

 

E.The Option Lands are not serviced and have no improvements presently on them.

 

F.The Landlord has agreed to grant the Tenant an option to lease the Option Lands expiring on June 30, 2023.

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 2

 

NOW THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements to be paid, observed, and performed by the Tenant, in this Agreement and the Lease, the Parties covenant and agree as follows:

 

1.DEFINED TERMS

 

1.1.For the purposes of this Agreement all capitalized terms, unless specifically defined herein or unless the context otherwise requires, will have the meanings ascribed thereto in the Lease.

 

1.2.All of the provisions of this Agreement will be deemed and construed to be conditions as well as covenants as though the words specifically expressing or importing covenants or conditions were used in each separate clause of this Agreement.

 

1.3.The words “herein”, “hereby”, “hereunder”, and words of similar import refer to this Agreement as a whole and not to any particular article, clause, or sub-clause of the Agreement.

 

1.4.The captions and headings throughout this Agreement are for convenience and reference only and the words and phrases used in the captions and headings will in no way be held or deemed to define, limit, describe, explain, modify, amplify, or add to the interpretation construction, or meaning of any clause or the scope or intent of this Agreement, nor in any way affect this Agreement.

 

2.AMENDMENT TO THE LEASE

 

2.1.Pursuant to sub-clause 34.3.1 of the Lease and effective upon the satisfaction or waiver of the conditions set forth in clause 3.1 of this Agreement, the Lease is hereby amended as follows:

 

2.1.1.the following definition is added to the Lease as sub-section 1.1(u.1):

 

(u.1) “Option Expiry Date” means 4 p.m. (Alberta time) on June 30, 2023.

 

2.1.2.the following definition is added to the Lease as sub-section 1.1(u.2):

 

(u.2) “Option Fee” as of any particular time means the option fee provided for in the Lease as specified in sub-clause 35.3.

 

2.1.3.the following definition is added to the Lease as sub-section 1.1(u.3):

 

(u.3) “Option Lands” means the portion of the Landlord’s Lands represented diagrammatically as the area outlined in red on the drawing attached as Schedule “C”, which area comprises approximately 10.92 acres.

 

2.1.4.the drawing attached to this Agreement as Appendix “A” is added to the Lease as Schedule “C”.

 

2.1.5.Sub-clause 23.2.1 is deleted in its entirety and replaced with the following:

 

23.2.1. The Landlord hereby reserves the right to further charge the Landlord’s Lands or any part of them, by way of easement, right of way, or restrictive covenant in favour of a Crown corporation or agency, a municipality, a regional district, or other government agency or authority, provided that any such easement, right of way or restrictive covenant may not prohibit, restrict or interfere with the Tenant’s use and enjoyment of the Lands (which shall for purposes of this sub-clause 23.2.1 be deemed to include the Option Lands for so long as the Option to Lease has not expired without being exercised in the time and manner stated in sub-clause 35.1.1 or has not been terminated or surrendered) in accordance with this Lease or the enjoyment of the easements, rights and privileges granted to the Tenant pursuant to this Lease, and the Tenant agrees, at the request of the Landlord, promptly to execute and deliver to the Landlord such instruments as may be necessary to subordinate the Tenant’s right and interest in the Lands under this Lease to such charge subject always to the foregoing proviso. 

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 3

 

2.1.6.the following provisions are added to the Lease after subsection 34.12.1:

 

35. OPTION TO LEASE THE OPTION LANDS

 

35.1 Provided that an Event of Default has not occurred which is then continuing and further provided that a Customer Event of Default (as defined in the Electricity Supply Agreement) has not occurred which is then continuing, the Tenant will have a one-time option to lease in respect of the Option Lands, expiring on the Option Expiry Date (the “Option to Lease”), as follows:

 

35.1.1 The Option to Lease may be exercised any time on or before the Option Expiry Date and will be exercised by delivering to or mailing by prepaid registered mail, addressed to the Landlord, a notice in writing of such exercise. If the Tenant fails to exercise the Option to Lease in the manner required by the Option Expiry Date (as extended from time to time), or if the Lease is terminated, the Option to Lease will immediately lapse and expire and be of no further force and effect and the Tenant will have no further interest in the Option Lands pursuant to the Option to Lease.

 

35.1.2 Within fifteen (15) days following the Tenant exercising the Option to Lease within the time and manner stated in sub-clause 35.1.1, the Parties will each appoint, at each Party’s sole expense, one (1) certified AACI real estate appraiser who has been active full time over the previous five (5) years in the appraisal of properties and real estate related assets that are comparable to the Option Lands. The two real estate appraisers so appointed will each provide, within thirty (30) days of such appointment, an estimate of the then prevailing fair market value of the Option Lands. The “Option Lands Fair Market Value” means the “Estimated Value” multiplied by seven point five percent (7.5%) and divided by twelve (12), where the Estimated Value is determined as follows:

 

(a) if the estimate of the then prevailing fair market value of the Option Lands provided by the two appraisers are within five percent (5%) of each other, the Estimated Value will be the average of the two appraised values;

 

(b) if the two appraised values are not within five (5%) of each other, the two selected appraisers will, within ten (10) days after their estimates of value, mutually agree upon a third appraiser who will have been active full time over the previous five (5) years in the appraisal of comparable properties and real estate related assets that are comparable to the Option Lands, and the third appraiser will be provided with copies of the two appraisal reports and, within thirty (30) days of such appointment, provide an estimate of the then prevailing fair market value of the Option Lands. The Estimated Value will then be equal to the average of the third appraised value and whichever of the prior appraised values is closest to the third appraised value unless the third appraised value is the average of the prior appraised values in which case the third appraised value will be the Estimated Value. The cost of the third appraiser will be shared equally between the Parties; and 

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 4

 

(c) if a Party fails to appoint an appropriately qualified appraiser within the time period specified above, the Estimated Value will be the estimate of the then prevailing fair market value of the Option Lands provided by the appraiser appointed by the other Party.

 

35.1.3 If the Tenant exercises the Option to Lease within the time and in the manner stated in sub-clause 35.1.1, the Parties hereto agree that the Tenant will be bound to lease the Option Lands from the Landlord, and the Landlord will be bound to lease the Option Lands to the Tenant on the same terms and conditions as are contained in this Lease, including without limitation, the extension provisions contained in clause 28 hereof, save and except that:

 

(a) provided that the Tenant shall have paid the Additional Deposit (as defined in sub-clause 35.1.3(c)) to the Landlord and the Landlord and the Tenant have entered into the Lease Amending Agreement (as defined in sub-clause 35.1.4), the Tenant will be provided with exclusive vacant possession of the Option Lands, free and clear of all Interim Leases (as defined in clause 35.2), on the tenth (10th) day following the registration of the Option Lands Subdivision Plan (as defined in clause 35.5) (such date being the “Option Lands Commencement Date”);

 

(a) the Option Lands will be included as part of the Lands;

 

(b) the monthly Basic Rent will be increased by an amount equal to the Option Lands Fair Market Value, with such Basic Rent being subject to adjustment as provided for in sub-clause 2.1.1(b), mutatis mutandis;

 

(c) the Deposit will be increased by an amount equal to THREE HUNDRED ONE THOUSAND, FIVE HUNDRED DOLLARS ($381,500), which amount (the “Additional Deposit”) will be payable on or before the Option Lands Commencement Date (as defined in sub-clause 35.1.3(a)), with the aggregate Deposit being subject to adjustment as provided for in sub-clause 2.2.1; and

 

(d) Article 31 will not apply with respect to the Option Lands. 

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 5

 

35.1.4 Within thirty (30) days following the determination of the Option Lands Fair Market Value as provided for in sub-clause 35.1.2 or such Option Lands Fair Market Value being agreed by the Landlord and the Tenant in writing, and prior to the Tenant taking possession of the Option Lands, the Landlord and the Tenant will enter into a lease amending agreement (the “Lease Amending Agreement”) amending the Lease to provide for the terms set forth in sub-clause 35.1.3. The Landlord will deliver the proposed form of Lease Amending Agreement to the Tenant within thirty (30) days following the exercise by the Tenant of the Option to Lease in accordance with sub-clause 35.1.1.

 

35.2 Until such time as the Tenant exercises the Option to Lease, nothing in this Article 35 will prevent the Landlord from leasing its interest in the Option Lands, or any part or parts thereof, to any person(s) pursuant to one or more leases from time to time (any such lease being an “Interim Lease”) provided that the Tenant gives its prior written consent to such Interim Lease, which consent will not be unreasonably withheld, and provided that the Interim Leases contain a provision permitting the Landlord to terminate the Interim Leases for convenience by providing no more than 90 days’ notice, and:

 

35.2.1 if the term of an Interim Lease is for a period of less than three (3) years, a provision prohibiting the tenant thereunder from registering a caveat in respect of its interest pursuant to such Interim Lease; or

 

35.2.2 if the term of an Interim Lease is for a period of three (3) years or more, a provision requiring the tenant thereunder to execute a registrable postponement which postpones such tenants’ interest in the Option Lands to the Option to Lease, and requiring such tenant to discharge any such caveat promptly upon the expiration or termination of such Interim Lease.

 

Without limiting the right of the Tenant to withhold its consent to any proposed Interim Lease, provided that such consent is not unreasonably withheld, the Landlord acknowledges and agrees that it will be reasonable for the Tenant to withhold its consent to any Interim Lease where the Tenant determines, acting reasonably, that the use permitted by the tenant pursuant to such Interim Lease may (i) interfere with the Tenant’s use and enjoyment of the Lands permitted pursuant to this Lease, (ii) result in a health or safety risk, or (iii) alter the physical, environmental or other condition of all or any part of the Option Lands such that the Tenant may incur additional liability or costs as tenant of the Option Lands in its use and enjoyment of the Option Lands or the development of the Option Lands for the Tenant’s intended use. 

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 6

 

35.3 In consideration of the Landlord granting the Tenant the Option to Lease as outlined in this Article 35, the Tenant covenants and agrees to pay the Landlord a fee (the “Option Fee”) as follows, until such time as the Option to Lease expires in accordance with this Article has been exercised by the Tenant in accordance with sub-clause 35.1.1, or has been surrendered by the Tenant as provided for in clause 35.6, which Option Fee will not be applied toward the Basic Rent if the Tenant exercises its option to lease the Option Lands:

 

35.3.1 for the twelve (12) month period commencing on the Commencement Date, an Option Fee of FIVE HUNDRED DOLLARS ($500.00) per month, on the first day of each month in such period; and

 

35.3.2 for each subsequent twelve (12) month period, an Option Fee equal to the monthly Option Fee payable in the immediately preceding twelve (12) month period plus the CPI Adjustment, payable on the first day of each month in such period, to and including the month in which the Option to Lease is surrendered, expires or is otherwise terminated in accordance with this Article 35.

 

35.4 Neither the Tenant nor anyone on the Tenant’s behalf or claiming under the Tenant (including any assignee) will register any instrument or caveat relating to the Option to Lease or the Lease Amending Agreement, except in accordance with clause 18.1 of this Lease. For the avoidance of doubt, the provisions of clause 18.2 and 18.3 of this Lease will apply in respect of any such caveats filed by the Tenant.

 

35.5 Not later than thirty (30) days following the exercise by the Tenant of the Option to Lease within the time and manner stated in sub-clause 35.1.1, the Landlord will make application to the subdivision authority for the City of Medicine Hat for the approval (the “Option Lands Subdivision Approval”) of a plan of subdivision (the “Option Lands Subdivision Plan”) in respect of the Landlord’s Lands which, upon registration, will consolidate the Option Lands and the Lands as a separate and distinct legal parcel. The Landlord will keep the Tenant informed as to the progress and status of the Landlord’s subdivision application and, without limitation to the foregoing, will provide a copy of the subdivision application, including the proposed tentative plan of subdivision, before submitting the same to the subdivision approving authority, and a copy of the Option Lands Subdivision Approval as and when issued. The Landlord will be responsible, at its sole cost and expense, for the satisfaction of any conditions of approval to the Option Lands Subdivision Approval, including without limitation, the payment of any off-site levies and the dedication of reserves (or payment of cash in lieu thereof), and will make all reasonable commercial efforts to obtain the Option Lands Subdivision Approval and to cause the Option Lands Subdivision Plan to be registered as soon as reasonably practicable thereafter. Any easements, rights of way or other interests to be granted in connection with the aforesaid subdivision will be approved by the Tenant, acting reasonably. The Tenant will reimburse the Landlord in respect of the Landlord’s out of pocket costs and expenses reasonably incurred in connection with the submission of the application for the Option Lands Subdivision Approval and in preparing and registering the Option Lands Subdivision Plan. Upon the registration of the Option Lands Subdivision Plan and the execution and delivery of the Lease Amending Agreement (as defined in sub clause 35.1.4) by the Landlord and Tenant, the Tenant will promptly discharge (except as to the Lands and the Option Lands), at its sole cost and expense, any caveat or interest which the Tenant may have registered or caused to be registered against the title to the Landlord’s Lands in respect of the Option to Lease. In the event that the Option Lands Subdivision Plan has not been registered by the 180th day following the exercise by the Tenant of the Option to Lease in accordance with sub-clause 35.1.1, the Tenant may give notice in writing to the Landlord that it elects to not lease the Option Lands whereupon the Tenant will have no obligation to lease the Option Lands, the Additional Deposit (if paid) will be forthwith returned to the Tenant without set-off or deduction, and the Lease Amending Agreement will automatically terminate and be of no further force or effect. 

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 7

 

35.6 The Tenant may surrender the Option to Lease at any time by notice in writing to the Landlord whereupon the Option to Lease will immediately lapse and expire and be of no further force and effect and the Tenant will have no further interest in the Option Lands.

 

35.7 If the Tenant fails to exercise the Option to Lease, in the time and manner stated in sub-clause 35.1.1, or if the Option to Lease is surrendered, expires or otherwise terminated, or if this Lease is terminated, the Tenant will immediately discharge or otherwise vacate, at its sole cost and expense, any caveat or interest, which the Tenant may have registered or caused to be registered against the title to the Landlord’s Lands in respect of the Option to Lease or the Lease Amending Agreement.

 

35.8 The Landlord acknowledges and agrees that the Tenant will be permitted to utilize the Private Access Area for purposes of access to the Option Lands from and after the Option Lands Commencement Date.

 

35.9 The Parties may agree to extend the Option Expiry Date in two year increments, at each Party’s sole discretion, by written agreement, executed by the Parties no later than the then current Option Expiry Date, failing which, the Option to Lease will immediately lapse and expire and be of no further force and effect and the Tenant will have no further interest in the Option Lands.

 

3.CONDITIONS

 

3.1.This Agreement is expressly subject to and conditional upon the approval of the City of Medicine Hat of the general terms and conditions set out in this Agreement, in accordance with the Municipal Government Act (Alberta), at the City of Medicine Hat’s absolute discretion, on or before 4 p.m. (Alberta time) on October 15, 2018. This condition is for the mutual benefit of the Tenant and the Landlord.

 

3.2.In the event that the condition set forth in clause 3.1 is not waived or satisfied by the time and in the manner set forth in clause 3.1, this Agreement may be terminated by either Party by notice in writing to the other Party and neither Party will have any obligation or liability to the other Party in respect of this Agreement.

 

3.3.The Parties agree that notwithstanding sub-clause 35.3 of the Lease, the Tenant will not be obliged to pay any installment on account of the Option Fee payable in respect of the period prior to the satisfaction or waiver of the condition set forth in clause 3.1 until the tenth (10th) day following the satisfaction or waiver of the condition set forth in clause 3.1.

 

4.OTHER TERMS AND CONDITIONS

 

4.1.Except as amended hereby, the terms, conditions and schedules of the Lease are confirmed and ratified as in force and full effect as if the same had been fully repeated herein.

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 8

 

4.2.Landlord and Tenant hereby acknowledge and confirm that the conditions set forth in Clause 5.1 of the Lease were previously agreed to have been satisfied (or deemed to have been satisfied) and written notice thereof deemed to have been given in the manner and within the time required by the lease.

 

4.3.The Landlord hereby represents that the Option Lands are not subject to any lease, restrictive covenant, easement, right of way or other encumbrance, lien or interest, save and except to the extent specified in the Lease or the Access Agreement or registered against title to the Landlord’s Lands as of the date of this Agreement, and that such specified or registered encumbrances, liens and interests do not conflict with or interfere with the Tenant’s use of the Option Lands for the purposes the Lands are permitted to be used pursuant to the Lease, save and except to the extent specified in the Lease or the Access Agreement.

 

5.NOTICE

 

5.1.All notices, demands, and requests that may be or are required to be given pursuant to this Agreement will be in writing and will be sufficiently given if mailed prepaid, served personally upon, faxed or emailed to, the party or an executive officer of the party for whom it is intended in accordance with the notice provisions of the Lease.

 

6.MISCELLANEOUS

 

6.1.Time Is of the Essence

 

6.1.1.     Time is of the essence of this Agreement.

 

6.2.No Modification

 

6.2.1.     This Agreement may not be modified or amended except by an instrument in writing of equal formality as this Agreement executed by the Landlord and the Tenant or by the successors or assigns of the Landlord and the successors or permitted assigns of the Tenant.

 

6.3.Successors and Assigns

 

6.3.1.     It is agreed that these presents will extend to, be binding upon, and enure to the benefit of the Landlord and the Tenant and the successors and assigns of the Landlord and the successors and permitted assigns of the Tenant.

 

6.4.Relationship of the Parties

 

6.4.1.     Nothing contained in this Agreement will be deemed or construed by the Landlord or the Tenant, nor by any third party, as creating the relationship of principal and agent or of partnership, or of a joint venture agreement between the Landlord and the Tenant, it being understood and agreed that none of the provisions contained in this Agreement nor any act of the parties will be deemed to create any relationship between the Landlord and the Tenant other than the relationship of a landlord and tenant.

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 9

 

6.5.Invalid Provisions

 

6.5.1.     If any of the provisions of this Agreement, or any portions thereof, are held to be invalid under any applicable law, the invalid part or provision will be severed therefrom and the balance of this Agreement will remain in full force and effect.

 

6.6.Paramountcy of Municipal Discretion

 

6.6.1.     It is understood and agreed by the parties that nothing contained in this Agreement will be interpreted or deemed to fetter the discretion of Council, its commissions, committees, boards, officers, officials or employees, including but not limited to with respect to the approval of the lease of the Option Lands, the issuance or revocation of a development permit in relation to the Option Lands or any terms and conditions set out in this Agreement.

 

6.6.2.     It is understood and agreed by the parties that nothing contained in this Agreement will be interpreted or deemed to modify, fetter, or limit the duties, rights or responsibilities that the Landlord may have as a Municipal Corporation in the Province of Alberta.

 

6.7.Governing Law

 

6.7.1.     This Agreement will be governed by the laws of Alberta. The parties hereby attorn to the exclusive jurisdiction of the Courts of Alberta (and all courts competent to hear appeals from the Courts of Alberta) to hear any and all actions or matters arising out of or related to this Agreement.

 

6.8.Counterparts

 

6.8.1.     This Agreement may be executed in any number of counterparts and delivered by facsimile transmission or other means of electronic communication capable of producing a printed copy, each of which will be deemed an original and all of which together constitute one and the same instrument.

 

6.9.References to Legislation

 

6.9.1.     Reference to any statute or legislation in this Agreement will be deemed to refer to such statute or legislation as may be amended or replaced from time to time.

 

6.10.No Relief

 

6.10.1.   Nothing in this Agreement will relieve the Landlord or the Tenant from duly and punctually observing and performing their respective covenants, agreements, conditions, and provisos to be observed and performed pursuant to the Electricity Supply Agreement or any other agreement between the Tenant and the City of Medicine Hat. 

 

 

Lease Amending Agreement between City of Medicine Hat and  
Hut 8 Holdings Inc. 10

 

6.11.Effective Time

 

6.11.1.   This Agreement will come into force and effect upon being executed and delivered by the Parties. 

 

 

Appendix “A”
The Option Lands

 

(See Attached)

11

 

Appendix “A”

 

 

 

Exhibit 10.5

 

LEASE SECOND AMENDING AGREEMENT

 

THIS SECOND AMENDING AGREEMENT (this “Agreement”) is dated for reference this 1st day of July, 2019 (the “Agreement Date”)

 

BETWEEN:

 

CITY OF MEDICINE HAT, a municipal corporation in the Province of Alberta with offices at City Hall, 580 First Street SE, Medicine Hat, Alberta T1A 8E6

 

(the “Landlord”)

 

AND

 

HUT 8 HOLDINGS INC., a British Columbia Corporation with a registered office at Suite 1700, Park Place, 666 Burrard Street, Vancouver BC, V6C 2X8

 

(the “Tenant”)

 

BACKGROUND

 

A.The Parties entered into a Lease dated March 15, 2018 wherein the Landlord agreed to lease the Lands to the Tenant, and the Tenant agreed to lease the Lands from the Landlord, upon and subject to the terms and conditions contained in the therein, as amended by the Lease Amending Agreement Regarding Option to Lease dated September 19, 2018 (the “Lease”).

 

B.The Parties entered into an Electricity Supply Agreement dated March 20, 2018 (as amended, supplemented or restated from time to time, the “Electricity Supply Agreement”) wherein the Landlord agreed to provide the Tenant with electric energy upon and subject to the terms and conditions thereof.

 

C.The Parties have agreed to further amend the Lease in regard to a Lease rate reduction for the Landlord’s Lands as described in the Lease.

 

NOW THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements to be paid, observed, and performed by the Tenant, in this Agreement and the Lease, the Parties covenant and agree as follows:

 

1.DEFINED TERMS

 

1.1.For the purposes of this Agreement all capitalized terms, unless specifically defined herein or unless the context otherwise requires, will have the meanings ascribed thereto in the Lease.

 

1.2.All of the provisions of this Agreement will be deemed and construed to be conditions as well as covenants as though the words specifically expressing or importing covenants or conditions were used in each separate clause of this Agreement.

 

1.3.The words “herein”, “hereby”, “hereunder”, and words of similar import refer to this Agreement as a whole and not to any particular article, clause, or sub-clause of the Agreement.

 

 

Lease Second Amending Agreement between City of Medicine Hat and 

Hut 8 Holdings Inc. 2

 

1.4.The captions and headings throughout this Agreement are for convenience and reference only and the words and phrases used in the captions and headings will in no way be held or deemed to define, limit, describe, explain, modify, amplify, or add to the interpretation construction, or meaning of any clause or the scope or intent of this Agreement, nor in any way affect this Agreement.

 

2.CONDITIONS

 

2.1.This Agreement is expressly subject to and conditional upon the approval of the City of Medicine Hat of the general terms and conditions set out in this Agreement, in accordance with the Municipal Government Act (Alberta), at the City of Medicine Hat’s absolute discretion, on or before 4 p.m. (Alberta time) on JULY 19, 2019. This condition is for the mutual benefit of the Tenant and the Landlord.

 

2.2.In the event that the condition set forth in clause2.1 is not waived or satisfied by the time and in the manner set forth in clause 2.1, this Agreement shall be null and void without any legal proceedings being taken or other act being performed by either Party and neither Party will have any obligation or liability to the other Party in respect of this Agreement.

 

3.AMENDMENT TO THE LEASE

 

3.1.Pursuant to sub-clause 34.3.1 of the Lease and effective upon the Agreement Date, the Lease is hereby amended as follows:

 

3.1.1.Sub-clause 2.1.1 is deleted in its entirety and replaced with the following:

 

2.1.1. The Tenant covenants and agrees to pay to the Landlord the Basic Rent specified in sub-clause 2.1.1(a), (b) and (c) and to perform the other obligations specified in this Article 2:

 

(a)For the thirteen (13) month period commencing on the Commencement Date and ending on June 30, 2019, Basic Rent of TEN THOUSAND, FIVE HUNDRED DOLLARS ($10,500.00) per month (calculated based on NINE HUNDRED FIFTY NINE DOLLARS AND SEVENTY-EIGHT CENTS ($959.78) per acre of the Lands per month), payable on or before the Commencement Date and on the first day of each of the following months in such period.

 

(b)For the twelve (12) month period commencing on July 1, 2019, Basic Rent of ONE THOUSAND THREE HUNDRED NINETY-FIVE DOLLARS ($1,395.00) per month (calculated based on ONE HUNDRED TWENTY-SEVEN DOLLARS AND FIFTY-ONE CENTS ($127.51) per acre of the Lands per month) payable on or before July 1, 2019 and on the first day of each of the following months in such period.

 

(c)For each subsequent twelve (12) month period, Basic Rent equal to the monthly Basic Rent payable in the immediately preceding twelve (12) month period plus the CPI Adjustment, payable on the first day of each month in such period.

 

 

Lease Second Amending Agreement between City of Medicine Hat and
Hut 8 Holdings Inc.		 3

 

4.OTHER TERMS AND CONDITIONS

 

4.1.Except as amended hereby, the terms, conditions and schedules of the Lease are confirmed and ratified as in force and full effect as if the same had been fully repeated herein.

 

5.NOTICE

 

5.1.All notices, demands, and requests that may be or are required to be given pursuant to this Agreement will be in writing and will be sufficiently given if mailed prepaid, served personally upon, faxed or emailed to, the party or an executive officer of the party for whom it is intended in accordance with the notice provisions of the Lease.

 

6.MISCELLANEOUS

 

6.1.Time Is of the Essence

 

6.1.1.      Time is of the essence of this Agreement.

 

6.2.No Modification

 

6.2.1.      This Agreement may not be modified or amended except by an instrument in writing of equal formality as this Agreement executed by the Landlord and the Tenant or by the successors or assigns of the Landlord and the successors or permitted assigns of the Tenant.

 

6.3.Successors and Assigns

 

6.3.1.      It is agreed that the Agreement will extend to, be binding upon, and enure to the benefit of the Landlord and the Tenant and the successors and assigns of the Landlord and the successors and permitted assigns of the Tenant.

 

6.4.Relationship of the Parties

 

6.4.1.      Nothing contained in this Agreement will be deemed or construed by the Landlord or the Tenant, nor by any third party, as creating the relationship of principal and agent or of partnership, or of a joint venture agreement between the Landlord and the Tenant, it being understood and agreed that none of the provisions contained in this Agreement nor any act of the parties will be deemed to create any relationship between the Landlord and the Tenant other than the relationship of a landlord and tenant.

 

6.5.Invalid Provisions

 

6.5.1.      If any of the provisions of this Agreement, or any portions thereof, are held to be invalid under any applicable law, the invalid part or provision will be severed therefrom and the balance of this Agreement will remain in full force and effect.

 

6.6.Paramountcy of Municipal Discretion

 

6.6.1.      It is understood and agreed by the parties that nothing contained in this Agreement will be interpreted or deemed to fetter the discretion of Council, its commissions, committees, boards, officers, officials or employees.

 

 

Lease Second Amending Agreement between City of Medicine Hat and
Hut 8 Holdings Inc. 		4

 

6.6.2.      It is understood and agreed by the parties that nothing contained in this Agreement will be interpreted or deemed to modify, fetter, or limit the duties, rights or responsibilities that the Landlord may have as a Municipal Corporation in the Province of Alberta.            

 

6.7.Governing Law

 

6.7.1.      This Agreement will be governed by the laws of Alberta. The parties hereby attorn to the exclusive jurisdiction of the Courts of Alberta (and all courts competent to hear appeals from the Courts of Alberta) to hear any and all actions or matters arising out of or related to this Agreement.

 

6.8.Counterparts

 

6.8.1.      This Agreement may be executed in any number of counterparts and delivered by facsimile transmission or other means of electronic communication capable of producing a printed copy, each of which will be deemed an original and all of which together constitute one and the same instrument.

 

6.9.References to Legislation

 

6.9.1      Reference to any statute or legislation in this Agreement will be deemed to refer to such statute or legislation as may be amended or replaced from time to time.

 

6.10.No Relief

 

6.10.1.   Nothing in this Agreement will relieve the Landlord or the Tenant from duly and punctually observing and performing their respective covenants, agreements, conditions, and provisos to be observed and performed pursuant to the Electricity Supply Agreement or any other agreement between the Tenant and the City of Medicine Hat.

 

 

Exhibit 10.6

GRAPHIC

Execution Version SECURED PROMISSORY NOTE FOR VALUE RECEIVED, and subject to the terms and conditions set forth herein, COMPUTE NORTH MEMBER LLC, a Delaware limited liability company (the “Borrower”), hereby unconditionally promises to pay to TZ Capital Holdings, LLC, a Delaware limited liability company (“TZCH Member” or the “Noteholder”), the principal sum of NINETY-EIGHT MILLION FIVE HUNRED EIGHT THOUSAND NINE HUNDRED TWENTY AND NO/100 DOLLARS ($98,508,920.00) or so much thereof as may be advanced by the Noteholder from time to time hereunder to or for the benefit of the Borrower, together with all accrued interest thereon and otherwise in strict accordance with the terms and provisions set forth in this Secured Promissory Note (the “Note”). This Note is being executed on April 8, 2022 (the “Effective Date”). WHEREAS, the Borrower and the Noteholder have entered into that certain Limited Liability Company Agreement, dated as of November 24, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “LLC Agreement”), setting forth the terms and conditions governing the operation and management of TZRC LLC, a Delaware limited liability company (the “Company”); WHEREAS, pursuant to Section 3.02(b)(i)(B) of the LLC Agreement, TZCH Member may require that the Borrower execute and deliver a promissory note to the Noteholder, which promissory note shall evidence the Member Loans referred to therein; and WHEREAS, this Note is one of the promissory notes referred to in Section 3.02(b)(i)(B) of the LLC Agreement and amounts due hereunder shall constitute “Member Loans” and “Member Loan Secured Obligations”. 1. Definitions; Interpretation. 1.1 Capitalized terms used herein shall have the meanings set forth in this Section 1. Capitalized terms used herein without being herein defined shall have the meanings assigned to such terms in the LLC Agreement or the Parent Guaranty or, if not defined therein, in Article 8 or Article 9 of the Uniform Commercial Code (the “Code”) as in effect from time to time in the State of New York. “Bankrupt” means, with respect to Parent, the occurrence of any of the following: (a) the filing of an application by Parent for, or a consent to, the appointment of a trustee of Parent’s assets; (b) the filing by Parent of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing Parent’s inability to pay its debts as they come due; (c) the making by Parent of a general assignment for the benefit of Parent’s creditors; (d) the filing by Parent of an answer admitting the material allegations of, or Parent’s consenting to, or defaulting in answering a bankruptcy petition filed against Parent in any bankruptcy proceeding; or (e) the expiration of ninety (90) days following the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating Parent bankrupt or appointing a trustee of Parent’s assets. “Borrower” has the meaning set forth in the introductory paragraph. FOR VALUE RECEIVED, and subject to the terms and conditions set forth herein, Borrower”), hereby unconditionally promises to pay to TZ Capital Holdings, LLC, a Delaware limited liability the principal sum of NINETY-EIGHT MILLION FIVE HUNRED EIGHT THOUSAND NINE HUNDRED TWENTY AND NO/100 DOLLARS ($98,508,920.00) or so much thereof as may be advanced by the Noteholder from time to time hereunder to or for the benefit of the Borrower, together with all accrued interest thereon and otherwise in strict accordance with the terms and provisions set forth in this Secured This Note is being executed on April 8, 2022 (the WHEREAS, the Borrower and the Noteholder have entered into that certain Limited Liability Company Agreement, dated as of November 24, 2021 (as amended, restated, LLC Agreement terms and conditions governing the operation and management of TZRC LLC, a Delaware limited WHEREAS, pursuant to Section 3.02(b)(i)(B) of the LLC Agreement, TZCH Member may require that the Borrower execute and deliver a promissory note to the Noteholder, which promissory note shall evidence the Member Loans referred to therein; and WHEREAS, this Note is one of the promissory notes referred to in Section 3.02(b)(i)(B) of the LLC Agreement and amounts due hereunder shall constitute 1.1 Capitalized terms used herein shall have the meanings set forth in this 1. Capitalized terms used herein without being herein defined shall have the meanings assigned to such terms in the LLC Agreement or the Parent Guaranty or, if not defined therein, in Article 8 or Article 9 of the Uniform Commercial Code (the to time in the State of New York. Bankrupt” means, with respect to Parent, the occurrence of any of the following: (a) the filing of an application by Parent for, or a consent to, the appointment of a ’s assets; (b) the filing by Parent of a voluntary petition in bankruptcy or the filing of a pleading in any court of record admitting in writing Parent debts as they come due; (c) the making by Parent of a general assignment for the benefit of s creditors; (d) the filing by Parent of an answer admitting the material allegations of, or Parent’s consenting to, or defaulting in answering a bankruptcy petition filed against Parent in any bankruptcy proceeding; or (e) the expiration of ninety (90) days following the entry of an order, judgment or decree by any court of competent jurisdiction adjudicating Parent bankrupt or appointing a trustee of Parent

GRAPHIC

“Business Day” means a day other than a Saturday, Sunday, or other day on which commercial banks in New York City are authorized or required by law to close. “Business Debt” means, with respect to the Company or any of its Subsidiaries, indebtedness for borrowed money incurred by such Person, whether evidenced by loan agreements, bonds, debentures, notes or similar instruments, in each case, all or a portion of the proceeds of which are used in support of the Business. “Business Debt Distribution” has the meaning set forth in Section 4.5. “Company” has the meaning set forth in the recitals. “Default Rate” means the Interest Rate plus 2% per annum. “Distributed Amount” has the meaning set forth in Section 4.4. “Event of Dissolution” shall have the meaning assigned to such term in the LLC Agreement. “Governmental Authority” means the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government. “Guarantor Default” means, with respect to Borrower’s Parent, (a) Parent’s breach of Section 4 of the Parent Guaranty; (b) Parent’s failure to make any payment required or to perform any other material covenant or obligation in the Parent Guaranty and such failure shall not be remedied within three (3) Business Days after written notice thereof; (c) Parent becomes Bankrupt; (d) the failure of the Parent Guaranty to be in full force and effect (other than in accordance with its terms) prior to the satisfaction of all obligations of Borrower under this Note without the written consent of TZCH Member; or (e) Parent repudiates, disaffirms, disclaims, or rejects, in whole or in part, or challenges the validity of the Parent Guaranty. “Guaranty Issuance Period” has the meaning set forth in Section 5.2. “Interest Rate” means a rate per annum equal to the lesser of (a) a varying rate per annum equal to the sum of (i) the prime rate as published in The Wall Street Journal, with adjustments in that varying rate to be made on the same date as any change in that rate is so published, plus (ii) twelve percent (12.0%) per annum, and (b) the Maximum Rate. “Law” as to any Person, means the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law (including common law), statute, ordinance, treaty, rule, regulation, order, decree, judgment, writ, injunction, settlement agreement, requirement or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. “LLC Agreement” has the meaning set forth in the recitals hereto. means, with respect to the Company or any of its Subsidiaries, indebtedness for borrowed money incurred by such Person, whether evidenced by loan agreements, bonds, debentures, notes or similar instruments, in each case, all or a portion of Section 4.5. means the Interest Rate plus 2% per annum. Section 4.4. shall have the meaning assigned to such term in the LLC means the government of any nation or any political subdivision thereof, whether at the national, state, territorial, provincial, municipal or any other level, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of, or pertaining to, government. means, with respect to Borrower breach of Section 4 of the Parent Guaranty; (b) Parent or to perform any other material covenant or obligation in the Parent Guaranty and such failure shall not be remedied within three (3) Business Days after written notice thereof; (c) Parent becomes Bankrupt; (d) the failure of the Parent Guaranty to be in full force and effect (other than in accordance with its terms) prior to the satisfaction of all obligations of Borrower under this Note without the written consent of TZCH Member; or (e) Parent repudiates, disaffirms, disclaims, or rejects, in whole or in part, or challenges the validity of the Parent Guaranty. Guaranty Issuance Period Interest Rate per annum equal to the sum of (i) the prime rate as published in The Wall Street Journal, with adjustments in that varying rate to be made on the same date as any change in that rate is so published, plus (ii) twelve percent (12.0%) per annum, and (b) the Maximum Rate. “ other organizational or governing documents of such Person, and any law (including common law), statute, ordinance, treaty, rule, regulation, order, decree, judgment, writ, injunction, settlement agreement, requirement or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

GRAPHIC

“Maximum Rate” means maximum rate of non-usurious interest permitted by Law. “Member Loan Event of Default” has the meaning set forth in Section 10.1. “Member Loan Funding Schedule” means the Member Loan Funding Schedule attached hereto as Exhibit B. “Member Loan Interest Payment Date” means the last Business Day of each month and the Member Loan Maturity Date; provided, however, the first Member Loan Interest Payment Date shall be the date that is six (6) months after the date the initial Member Loan was advanced. “Member Loan Maturity Date” means, with respect to each Member Loan advanced hereunder, the first to occur of (a) the date that is four years from the date of such Member Loan; provided, however, that if such date does not satisfy the definition of “Business Day,” the Member Loan Maturity Date shall be the next succeeding Business Day, (b) the date of any Event of Dissolution and (c) the date of the closing of any transaction contemplated by Section 7.17 or Section 12.07 of the LLC Agreement. “Member Loan Monthly Sweep Amount” has the meaning set forth in Section 4.2. “Member Loan Principal Payment Date” means the last Business Day of each month and the Member Loan Maturity Date. “Member Loan Secured Obligations” means all of the present and future obligations of the Borrower arising from, or owing under or pursuant to, Member Loans, including principal and interest (including any interest that accrues after the commencement of an insolvency proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such insolvency proceeding), obligations (including indemnification obligations), expenses (including any such expenses that accrue after the commencement of an insolvency proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such insolvency proceeding), and irrespective of whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and other amounts that the Borrower is required to pay or reimburse by Law or otherwise in connection with the Member Loans. “Member Loan Target Balance Schedule” means the Member Loan Target Balance Schedule attached hereto as Exhibit C. “Membership Interest” shall have the meaning given to such term in the LLC Agreement. “Note” has the meaning set forth in the introductory paragraph. “Noteholder” has the meaning set forth in the introductory paragraph. Section 10.1. means the Member Loan Funding means the last Business Day of each , the first Member Loan Interest Payment Date shall be the date that is six (6) months after the date the initial Member means, with respect to each Member Loan advanced hereunder, the first to occur of (a) the date that is four years from the date of such , that if such date does not satisfy the definition of the Member Loan Maturity Date shall be the next succeeding Business Day, (b) the date of any Event of Dissolution and (c) the date of the closing of any transaction contemplated by Section 7.17 or Section 12.07 of the LLC Agreement. Member Loan Monthly Sweep Amount” has the meaning set forth in Section Member Loan Principal Payment Date month and the Member Loan Maturity Date. Member Loan Secured Obligations obligations of the Borrower arising from, or owing under or pursuant to, Member Loans, including principal and interest (including any interest that accrues after the commencement of an insolvency proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such insolvency proceeding), obligations (including indemnification obligations), expenses (including any such expenses that accrue after the commencement of an insolvency proceeding, regardless of whether allowed or allowable in whole or in part as a claim in any such insolvency proceeding), and irrespective of whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter arising, and other amounts that the Borrower is required to pay or reimburse by Law or otherwise in connection with the Member Loans. “Member Loan Target Balance Schedule Balance Schedule attached hereto as Exhibit C. Agreement.

GRAPHIC

“Parent Guaranty” means a guaranty pursuant to which Parent irrevocably and unconditionally guarantees, as a primary obligor and not merely as a surety, to the Noteholder, the due and punctual payment and performance of the Borrower’s obligations under this Note, in form and substance reasonably satisfactory to TZCH Member, as more particularly described in Section 5.2. “Person” shall have the meaning assigned to such term in the LLC Agreement. “PIK Payments” has the meaning set forth in Section 4.4. “TZCH Member” has the meaning set forth in the introductory paragraph. 1.2 Interpretation. For purposes of this Note (a) the words “include,” “includes,” and “including” shall be deemed to be followed by the words “without limitation”; (b) the word “or” is not exclusive; and (c) the words “herein,” “hereof,” “hereby,” “hereto,” and “hereunder” refer to this Note as a whole. The definitions given for any defined terms in this Note shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. Unless the context otherwise requires, references herein to: (x) Exhibits and Sections mean the Exhibits and Sections of this Note; (y) an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (z) a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Note shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. 2. Loan Terms. 2.1 Loan. Unless expressly set forth herein to the contrary, Section 3.02(b) of the LLC Agreement shall apply in respect of the Member Loans evidenced by this Note, and each such provision therein is hereby incorporated herein by reference. In the event of any conflict, discrepancy, or inconsistency between any terms expressly set forth in this Note and the LLC Agreement, the terms of this Note will control. 2.2 Origination Fee. The Borrower shall pay to TZCH Member a fee for the origination of the Member Loans evidenced by this Note. Such fee shall (a) be in an amount equal to the cost incurred by TZCH Member or its Affiliate to procure tax indemnity insurance in connection with a Project or Company’s Business but it shall not exceed $3,500,000.00, (b) be deemed fully earned and payable on the date the initial Member Loan is disbursed by TZCH Member, (c) shall be funded with the proceeds of the initial Member Loan, (d) be nonrefundable for any reason whatsoever and (e) not be subject to counterclaim or setoff. 3. Loan Disbursement Mechanics. The Noteholder shall disburse the Member Loans hereunder directly to the Company on behalf of the Borrower as set forth in the Member Loan Funding Schedule; provided that, prior to or concurrently with such disbursement to the Company on behalf of the Borrower, the TZCH Member shall contribute in cash to the Company a Capital Contribution in an amount equal to TZCH Member’s share of the corresponding Capital s obligations under this Note, in form and substance reasonably satisfactory to TZCH Member, as more particularly shall have the meaning assigned to such term in the LLC Agreement. has the meaning set forth in the introductory paragraph. 1.2 Interpretation. For purposes of this Note (a) the words “include, without limitation hereof,” “hereby, refer to this Note as a whole. The definitions given for any defined terms in this Note shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine, and neuter forms. Unless the context otherwise requires, references herein to: (x) Exhibits and Sections mean the Exhibits and Sections of this Note; (y) an agreement, instrument, or other document means such agreement, instrument, or other document as amended, supplemented, and modified from time to time to the extent permitted by the provisions thereof; and (z) a statute means such statute as amended from time to time and includes any successor legislation thereto and any regulations promulgated thereunder. This Note shall be construed without regard to any presumption or rule requiring construction or interpretation against the party drafting an instrument or causing any instrument to be drafted. 2.1 Loan. Unless expressly set forth herein to the contrary, Section 3.02(b) of the LLC Agreement shall apply in respect of the Member Loans evidenced by this Note, and each such provision therein is hereby incorporated herein by reference. In the event of any conflict, discrepancy, or inconsistency between any terms expressly set forth in this Note and the LLC Agreement, the terms of this Note will control. 2.2 Origination Fee. The Borrower shall pay to TZCH Member a fee for the origination of the Member Loans evidenced by this Note. Such fee shall (a) be in an amount equal to the cost incurred by TZCH Member or its Affiliate to procure tax indemnity insurance in connection with a Project or Company (b) be deemed fully earned and payable on the date the initial Member Loan is disbursed by TZCH Member, (c) shall be funded with the proceeds of the initial Member Loan, (d) be nonrefundable for any reason whatsoever and (e) not be subject to counterclaim or setoff. 3. Loan Disbursement Mechanics. hereunder directly to the Company on behalf of the Borrower as set forth in the Member Loan Funding Schedule; provided that, prior to or concurrently with such disbursement to the Company on behalf of the Borrower, the TZCH Member shall contribute in cash to the Company a Capital Contribution in an amount equal to TZCH Member

GRAPHIC

Contribution obligation. Upon such disbursement, the amount advanced shall automatically constitute Member Loans hereunder and for all purposes under the LLC Agreement. Upon each disbursement of a Member Loan hereunder, the Borrower shall be deemed to repeat the Borrower’s representations and warranties in Section 8 hereof as of the date of such disbursement. 4. Payment; Optional Prepayments. 4.1 Member Loan Interest Payment Date. On each Member Loan Interest Payment Date, the Borrower shall repay to the Noteholder all accrued interest then due and owing on such Member Loan Interest Payment Date; provided that, for the avoidance of doubt, PIK Payments shall satisfy the Borrower’s obligations under this Section 4.1 as and to the extent set forth in Section 4.4. 4.2 Member Loan Principal Payment Date. On each Member Loan Principal Payment Date, the Borrower shall repay to the Noteholder the outstanding principal amount of the Member Loans advanced hereunder in an amount that would cause the outstanding principal amount of the Member Loans advanced hereunder to be equal to the amount set forth in the Member Loan Target Balance Schedule as of such Member Loan Principal Payment Date (the amount described in this Section 4.2, including after giving effect to clause (a) of the proviso hereto, the “Member Loan Monthly Sweep Amount”); provided that, (a) the amount set forth in the Member Loan Target Balance Schedule as of a Member Loan Principal Payment Date (and for each subsequent Member Loan Principal Payment Date) shall be reduced by the amount of any Business Debt Distribution made pursuant to Section 4.5 after the immediately preceding Member Loan Principal Payment Date and on or prior to such Member Loan Principal Payment Date and (b) for the avoidance of doubt, PIK Payments shall satisfy the Borrower’s obligations under this Section 4.2 as and to the extent set forth in Section 4.4. 4.3 Member Loan Maturity Date. On the Member Loan Maturity Date, the Borrower shall repay the aggregate principal amount of Member Loans outstanding hereunder, together with all accrued and unpaid interest. 4.4 PIK Payments. Notwithstanding any provision in this Note to the contrary, if on any Member Loan Principal Payment Date or Member Loan Interest Payment Date (in each case, other than the Member Loan Maturity Date), the sum of (a) the amount of Available Cash to be distributed to the Borrower pursuant to Section 6.01(a) of the LLC Agreement, (b) the amount of Fees (as defined in the Property Management Agreement) to be paid to the Borrower in accordance with Section 7.3(b) and (c) the amount of any Business Debt Distribution made pursuant to Section 4.5 after the immediately preceding Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable, and on or prior to such Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable (such aggregate amount, the “Distributed Amount”), is insufficient to pay the full amount of the principal and/or interest due on such date, then the Borrower shall be permitted to elect (a) such interest due to be capitalized and added as of such date to the principal amount of this Note and (b) the principal amount simultaneously (x) be repaid in an amount equal to such deficiency (less the interest amount described in clause (a)) and (y) such principal amount deemed re-paid shall be deemed re-borrowed (such amounts added to the principal pursuant clauses (a) and (b), collectively, the “PIK Payments”); provided, that the Borrower s 4.1 Member Loan Interest Payment Date. On each Member Loan Interest Payment Date, the Borrower shall repay to the Noteholder all accrued interest then due and owing on such Member Loan Interest Payment Date; provided that, for the avoidance of doubt, s obligations under this Section 4.1 as and to the 4.2 Member Loan Principal Payment Date. On each Member Loan Principal Payment Date, the Borrower shall repay to the Noteholder the outstanding principal amount of the Member Loans advanced hereunder in an amount that would cause the outstanding principal amount of the Member Loans advanced hereunder to be equal to the amount set forth in the Member Loan Target Balance Schedule as of such Member Loan Principal Payment Date (the amount described in this Section 4.2, including after giving effect to clause (a) of Member Loan Monthly Sweep Amount amount set forth in the Member Loan Target Balance Schedule as of a Member Loan Principal Payment Date (and for each subsequent Member Loan Principal Payment Date) shall be reduced by the amount of any Business Debt Distribution made pursuant to Section 4.5 after the immediately preceding Member Loan Principal Payment Date and on or prior to such Member Loan Principal Payment Date and (b) for the avoidance of doubt, PIK Payments shall s obligations under this Section 4.2 as and to the extent set forth in 4.3 Member Loan Maturity Date. On the Member Loan Maturity Date, the Borrower shall repay the aggregate principal amount of Member Loans outstanding hereunder, together with all accrued and unpaid interest. 4.4 PIK Payments. Notwithstanding any provision in this Note to the contrary, if on any Member Loan Principal Payment Date or Member Loan Interest Payment Date (in each case, other than the Member Loan Maturity Date), the sum of (a) the amount of Available Cash to be distributed to the Borrower pursuant to Section 6.01(a) of the LLC Agreement, (b) the amount of Fees (as defined in the Property Management Agreement) to be paid to the Borrower in accordance with Section Distribution made pursuant to Section 4.5 after the immediately preceding Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable, and on or prior to such Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable (such aggregate amount, the amount of the principal and/or interest due on such date, then the Borrower shall be permitted to elect (a) such interest due to be capitalized and added as of such date to the principal amount of this Note and (b) the principal amount simultaneously (x) be repaid in an amount equal to such deficiency (less the interest amount described in clause (a)) and (y) such principal amount deemed re-paid shall be deemed re-borrowed (such amounts added to the principal

GRAPHIC

shall not be permitted to elect any PIK Payment in an amount that exceeds twenty percent (20%) of the Member Loan Target Balance Schedule (as adjusted pursuant to clause (a) of the proviso to Section 4.2) as of such Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable. Except for PIK Payments, all other payments of principal or interest on this Note shall be made as set forth in Section 7.1. 4.5 Business Debt. Notwithstanding any provision in this Note to the contrary, the Borrower agrees that in the event that the Company or any of its Subsidiaries receives cash proceeds from Business Debt and the Company subsequently makes a distribution to the Members in connection therewith, the Company shall direct any such distribution to which the Borrower would otherwise be entitled (such amount, a “Business Debt Distribution”) to the Noteholder in partial or full repayment of the Member Loan Secured Obligations until all Member Loan Secured Obligations are paid in full. Any such distributions diverted to the Noteholder shall be deemed to have first been distributed to the Borrower and then paid by the Borrower to the Noteholder in repayment thereof. 4.6 Optional Prepayments. The Borrower may, at any time and from time to time, voluntarily prepay this Note in whole or in part without premium or penalty. Any prepayment hereunder shall be accompanied by all accrued and unpaid interest on the principal amount prepaid and all other amounts due and payable under this Note. 5. Collateral and Guaranty. 5.1 Security Interest. The Borrower hereby pledges, assigns and grants a first priority security interest in the Collateral to the Noteholder to secure the prompt and complete payment and performance of all Member Loan Secured Obligations. 5.2 Guaranty. On the Effective Date hereof Borrower shall deliver to the Noteholder a Parent Guaranty that is in the form attached hereto as Exhibit D. This Section 5.2 replaces the obligation to deliver a guaranty described in Section 3.02(b)(i)(B) of the LLC Agreement solely with respect to the obligations under this Note. 6. Interest. 6.1 Interest Rate. Except as otherwise provided herein, the outstanding principal amount of any Member Loan made hereunder shall bear interest at the Interest Rate from the date such Member Loan was made until such Member Loan is paid in full, whether at maturity, upon acceleration, by prepayment, or otherwise. Notwithstanding anything to the contrary contained herein, the interest paid or agreed to be paid shall not exceed the Maximum Rate. If the Noteholder shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Member Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Noteholder exceeds the Member Loan Maximum Rate, the Noteholder may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the payment obligations thereunder. proviso to Section 4.2) as of such Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable. Except for PIK Payments, all other payments of 4.5 Business Debt. Notwithstanding any provision in this Note to the contrary, the Borrower agrees that in the event that the Company or any of its Subsidiaries receives cash proceeds from Business Debt and the Company subsequently makes a distribution to the Members in connection therewith, the Company shall direct any such distribution to which Business Debt Distribution the Noteholder in partial or full repayment of the Member Loan Secured Obligations until all Member Loan Secured Obligations are paid in full. Any such distributions diverted to the Noteholder shall be deemed to have first been distributed to the Borrower and then paid by 4.6 Optional Prepayments. The Borrower may, at any time and from time to time, voluntarily prepay this Note in whole or in part without premium or penalty. Any prepayment hereunder shall be accompanied by all accrued and unpaid interest on the principal amount prepaid and all other amounts due and payable under this Note. 5.1 Security Interest. The Borrower hereby pledges, assigns and grants a first priority security interest in the Collateral to the Noteholder to secure the prompt and complete payment and performance of all Member Loan Secured Obligations. 5.2 Guaranty. On the Effective Date hereof Borrower shall deliver to the Noteholder a Parent Guaranty that is in the form attached hereto as Exhibit D. This Section 5.2 replaces the obligation to deliver a guaranty described in Section 3.02(b)(i)(B) of the LLC Agreement solely with respect to the obligations under this Note. 6.1 Interest Rate. Except as otherwise provided herein, the outstanding principal amount of any Member Loan made hereunder shall bear interest at the Interest Rate from the date such Member Loan was made until such Member Loan is paid in full, whether at maturity, upon acceleration, by prepayment, or otherwise. Notwithstanding anything to the contrary contained herein, the interest paid or agreed to be paid shall not exceed the Maximum Rate. If the Noteholder shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Member Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Noteholder exceeds the Member Loan Maximum Rate, the Noteholder may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the payment

GRAPHIC

6.2 Default Interest. If any amount payable hereunder is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at the Default Rate from the date of such non-payment until such amount is paid in full. 6.3 Computation of Interest. All computations of interest shall be made on the basis of 365 or 366 days, as the case may be, and the actual number of days elapsed, compounded monthly. Interest shall accrue on each Member Loan on the day on which such Member Loan is made and shall not accrue on such Member Loan for the day on which it is paid. 7. Payment Mechanics. 7.1 Manner of Payments. All payments of interest and principal on Member Loans shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff and shall be made in U.S. dollars in immediately available funds not later than 5:00 p.m. Eastern Time on the date specified herein, to the Noteholder’s account at a bank specified by the Noteholder in writing to the Borrower from time to time. 7.2 Application of Payments. All payments and distributions made to the Noteholder on account of one or more Member Loans shall be applied, (a) first, to payment of any fees and expenses of the Noteholder payable by the Borrower hereunder, (b) second, to payment of any interest due under all such Member Loans and (c) third, to payment of the principal of all such Member Loans until all amounts due thereunder are paid in full. Payments on account of interest on Member Loans shall be made on a “last in, first out basis” so that the accrued interest on the newest Member Loans is paid first. Likewise, principal payments on Member Loans shall be made on a “first in, first out basis” such that the oldest Member Loan is repaid first. 7.3 Turnover of Proceeds. While any Member Loan is outstanding, the Borrower acknowledges that, to the extent required to pay the Member Loan Monthly Sweep amount in full, in repayment thereof: (a) the Company shall be obligated to pay directly to the Noteholder the amount of any distributions payable to the Borrower under the LLC Agreement as set forth herein and (b) to the extent the amounts in clause (a) are not sufficient, the Operator shall be obligated to pay directly to the Noteholder the Fees (as defined in the Property Management Agreement) payable to the Borrower in accordance with the Property Management Agreement. The Borrower shall be entitled to distributions and the Operator shall be entitled to the payment of the Fee to the extent such amounts exceed the amount required to pay such Member Loan Monthly Sweep in accordance with this Section 7.3. For so long as the Member Loan is outstanding, Compute North Member LLC shall remain the Borrower under this Note and Operator under the Property Management Agreement. 7.4 Business Day Convention. Whenever any payment to be made hereunder shall be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension will be taken into account in calculating the amount of interest payable under this Note. 7.5 Evidence of Debt. The Noteholder is authorized to record on the grid attached hereto as Exhibit A each Member Loan made to the Borrower and each payment or otherwise, such amount shall thereafter bear interest at the Default Rate from the date of such 6.3 Computation of Interest. All computations of interest shall be made on the basis of 365 or 366 days, as the case may be, and the actual number of days elapsed, compounded monthly. Interest shall accrue on each Member Loan on the day on which such Member Loan is made and shall not accrue on such Member Loan for the day on which it is paid. 7.1 Manner of Payments. All payments of interest and principal on Member Loans shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff and shall be made in U.S. dollars in immediately available funds not later than 5:00 p.m. Eastern Time on the date specified herein, to the Noteholder’s account at a bank specified by the Noteholder in writing to the Borrower from time to time. 7.2 Application of Payments. All payments and distributions made to the Noteholder on account of one or more Member Loans shall be applied, (a) and expenses of the Noteholder payable by the Borrower hereunder, (b) of any interest due under all such Member Loans and (c) all such Member Loans until all amounts due thereunder are paid in full. Payments on account of interest on Member Loans shall be made on a “last in, first out basis interest on the newest Member Loans is paid first. Likewise, principal payments on Member first in, first out basis 7.3 Turnover of Proceeds. While any Member Loan is outstanding, the Borrower acknowledges that, to the extent required to pay the Member Loan Monthly Sweep amount in full, in repayment thereof: (a) the Company shall be obligated to pay directly to the Noteholder the amount of any distributions payable to the Borrower under the LLC Agreement as set forth herein and (b) to the extent the amounts in clause (a) are not sufficient, the Operator shall be obligated to pay directly to the Noteholder the Fees (as defined in the Property Management Agreement) payable to the Borrower in accordance with the Property Management Agreement. The Borrower shall be entitled to distributions and the Operator shall be entitled to the payment of the Fee to the extent such amounts exceed the amount required to pay such Member Loan Monthly Sweep in accordance with this Section Loan is outstanding, Compute North Member LLC shall remain the Borrower under this Note and Operator under the Property Management Agreement. 7.4 Business Day Convention. Whenever any payment to be made hereunder shall be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension will be taken into account in calculating the amount of interest payable under this Note.

GRAPHIC

prepayment thereof. The entries made by the Noteholder shall, to the extent permitted by applicable Law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of the Noteholder to record such payments or prepayments, or any inaccuracy therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loan in accordance with the terms of this Note. 7.6 Rescission of Payments. If at any time any payment made by the Borrower under this Note is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise, the Borrower's obligation to make such payment shall be reinstated as though such payment had not been made. 8. Representations and Warranties. The Borrower hereby represents and warrants to the Noteholder on the date hereof as follows: 8.1 Existence; Power and Authority; Compliance with Laws. The Borrower (a) is a limited liability company duly organized, validly existing, and in good standing under the laws of the state of Delaware, and (b) has the requisite power and authority, and the legal right, to own, lease, and operate its properties and assets and to conduct its business as it is now being conducted, to execute and deliver this Note, and to perform its obligations hereunder. 8.2 Authorization; Execution and Delivery. The execution and delivery of this Note by the Borrower and the performance of its obligations hereunder have been duly authorized by all necessary limited liability company action in accordance with all applicable Laws. The Borrower has duly executed and delivered this Note. 8.3 No Approvals. No consent or authorization of, filing with, notice to, or other act by, or in respect of, any Governmental Authority or any other Person is required in order for the Borrower to execute, deliver, or perform any of its obligations under this Note. 8.4 No Violations. The execution and delivery of this Note and the consummation by the Borrower of the transactions contemplated hereby do not and will not (a) violate any Law applicable to the Borrower or by which any of its properties or assets may be bound; or (b) constitute a default under any material agreement or contract by which the Borrower may be bound. 8.5 Enforceability. The Note is a valid, legal, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 9. Restrictions on Transfer; Pledge or Other Encumbrance. The Borrower may not Transfer all or any portion of its Membership Interest other than as expressly permitted by the LLC Agreement. The Borrower may not Encumber its Membership Interests without the prior written consent of TZCH Member, which consent may be granted or withheld in TZCH Member’s sole that the failure of the Noteholder to record such payments or prepayments, or any inaccuracy therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loan in accordance with the 7.6 Rescission of Payments. If at any time any payment made by the Borrower under this Note is rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, or reorganization of the Borrower or otherwise, the Borrower's obligation to make such payment shall be reinstated as though such payment had not been made. 8. Representations and Warranties. The Borrower hereby represents and warrants to the 8.1 Existence; Power and Authority; Compliance with Laws. The Borrower (a) is a limited liability company duly organized, validly existing, and in good standing under the laws of the state of Delaware, and (b) has the requisite power and authority, and the legal right, to own, lease, and operate its properties and assets and to conduct its business as it is now being conducted, to execute and deliver this Note, and to perform its obligations 8.2 Authorization; Execution and Delivery. The execution and delivery of this Note by the Borrower and the performance of its obligations hereunder have been duly authorized by all necessary limited liability company action in accordance with all applicable Laws. The Borrower has duly executed and delivered this Note. 8.3 No Approvals. No consent or authorization of, filing with, notice to, or other act by, or in respect of, any Governmental Authority or any other Person is required in order for the Borrower to execute, deliver, or perform any of its obligations under this Note. 8.4 No Violations. The execution and delivery of this Note and the consummation by the Borrower of the transactions contemplated hereby do not and will not (a) violate any Law applicable to the Borrower or by which any of its properties or assets may be bound; or (b) constitute a default under any material agreement or contract by which the Borrower may 8.5 Enforceability. The Note is a valid, legal, and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 9. Restrictions on Transfer; Pledge or Other Encumbrance. Transfer all or any portion of its Membership Interest other than as expressly permitted by the LLC Agreement. The Borrower may not Encumber its Membership Interests without the prior written consent of TZCH Member, which consent may be granted or withheld in TZCH Member

GRAPHIC

discretion and any Encumbrance in contravention of this Note or the LLC Agreement shall be null and void. 10. Events of Default. 10.1 Each Member Loan Event of Default under the LLC Agreement shall constitute a “Member Loan Event of Default” hereunder. In addition to the foregoing, Borrower acknowledges and agrees that a Guarantor Default shall also constitute a Member Loan Event of Default. 10.2 If any Member Loan Event of Default occurs and is continuing, the Noteholder may, without liability to the Borrower, (a) declare the unpaid principal amount of all outstanding Member Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other document evidencing Member Loans to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower and (b) take any other action set forth in Section 3.02(b)(i)(L) of the LLC Agreement; provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States or any other debtor relief Law, the unpaid principal amount of all outstanding Member Loans and all interest and other amounts that have accrued and are owing as aforesaid shall automatically become due and payable. 10.3 No failure on the Noteholder’s part to exercise, and no delay in exercising, any right hereunder will operate as a waiver thereof; nor will any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. 11. Miscellaneous. 11.1 Notices. All notices, requests, or other communications required or permitted to be delivered hereunder shall be delivered in writing, in each case to the address specified in Section 13.03 of the LLC Agreement or to such other address as such party may from time to time specify in writing in compliance with this provision, and shall be deemed to have been given when given in such matter and by such times as set forth in Section 13.03 of the LLC Agreement. 11.2 Expenses. The Borrower agrees to pay within ten (10) Business Days of demand thereof, all out-of-pocket costs, expenses and fees incurred by the Noteholder (including without limitation, counsel fees and expenses) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of the Member Loans made hereunder or any workout or restructuring in respect thereof. For the avoidance of doubt, the Borrower is not obligated to pay costs, expenses or fees in connection with the preparation, execution, or delivery of this Note. 11.3 Governing Law. This Note and any claim, controversy, dispute, or cause of action (whether in contract or tort or otherwise) based upon, arising out of, or relating to this Note, and the transactions contemplated hereby shall be governed by the laws of the State of Delaware. 10.1 Each Member Loan Event of Default under the LLC Agreement shall constitute hereunder. In addition to the foregoing, Borrower acknowledges and agrees that a Guarantor Default shall also constitute a Member Loan Event 10.2 If any Member Loan Event of Default occurs and is continuing, the Noteholder may, without liability to the Borrower, (a) declare the unpaid principal amount of all outstanding Member Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other document evidencing Member Loans to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower and (b) take any other action provided occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States or any other debtor relief Law, the unpaid principal amount of all outstanding Member Loans and all interest and other amounts that have accrued and are owing as aforesaid shall automatically become due and payable. s part to exercise, and no delay in exercising, any right hereunder will operate as a waiver thereof; nor will any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies provided herein are cumulative and not exclusive of any remedies provided by law. All notices, requests, or other communications required or permitted to be delivered hereunder shall be delivered in writing, in each case to the address specified in Section 13.03 of the LLC Agreement or to such other address as such party may from time to time specify in writing in compliance with this provision, and shall be deemed to have been given when given in such matter and by such times as set forth in Section 13.03 of the LLC 11.2 Expenses. The Borrower agrees to pay within ten (10) Business Days of demand thereof, all out-of-pocket costs, expenses and fees incurred by the Noteholder (including without limitation, counsel fees and expenses) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of the Member Loans made hereunder or any workout or restructuring in respect thereof. For the avoidance of doubt, the Borrower is not obligated to pay costs, expenses or fees in connection with the preparation, execution, or delivery of this Note. action (whether in contract or tort or otherwise) based upon, arising out of, or relating to this Note, and the transactions contemplated hereby shall be governed by the laws of the State of

GRAPHIC

11.4 Submission to Jurisdiction. (a) Each of the Borrower and the Noteholder hereby irrevocably and unconditionally (i) agrees that any legal action, suit, or proceeding arising out of or relating to this Note shall be brought in the United States District Court for the District of Delaware or in the Court of Chancery of the State of Delaware (or, if such court lacks subject matter jurisdiction, in the Superior Court of the State of Delaware) and (ii) submits to the exclusive jurisdiction of any such court in any such action, suit, or proceeding. Final judgment against the Borrower or the Noteholder in any action, suit, or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit on the judgment. (b) Nothing in this Section 11.4 shall affect the right of the Borrower or the Noteholder to (i) commence legal proceedings or otherwise sue the other party in any other court having jurisdiction over such party or (ii) serve process upon the other party in any manner authorized by the laws of any such jurisdiction. 11.5 Venue. Each of the Borrower and the Noteholder irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Note in any court referred to in Section 11.4 and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 11.6 Waiver of Jury Trial. EACH OF THE BORROWER AND THE NOTEHOLDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY. 11.7 Integration. This Note and the LLC Agreement constitute the entire contract between the parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto. 11.8 Successors and Assigns. This Note may not be assigned or transferred by the Noteholder to any Person without the prior written approval of the Borrower, except that this Note may be assigned to Affiliates of the Noteholder (so long as such entity remains an Affiliate of Noteholder) and shall be assigned by Noteholder to any successor TZCH Member or in connection with a Permitted Transfer. The Borrower may not assign or transfer this Note or any of its rights hereunder without the prior written consent of TZCH Member and any assignment or transfer of this Note in contravention hereof shall be null and void. This Note shall inure to the benefit of, and be binding upon, the parties and their successors or permitted assigns. 11.9 Waiver of Notice. The Borrower hereby waives demand for payment, presentment for payment, protest, notice of payment, notice of dishonor, notice of nonpayment, notice of acceleration of maturity, and diligence in taking any action to collect sums owing hereunder. (a) Each of the Borrower and the Noteholder hereby irrevocably and unconditionally (i) agrees that any legal action, suit, or proceeding arising out of or relating to this Note shall be brought in the United States District Court for the District of Delaware or in the Court of Chancery of the State of Delaware (or, if such court lacks subject matter jurisdiction, in the Superior Court of the State of Delaware) and (ii) submits to the exclusive jurisdiction of any such court in any such action, suit, or proceeding. Final judgment against the Borrower or the Noteholder in any action, suit, or proceeding shall be conclusive and may be enforced in any other jurisdiction by suit (b) Nothing in this Section 11.4 shall affect the right of the Borrower or the Noteholder to (i) commence legal proceedings or otherwise sue the other party in any other court having jurisdiction over such party or (ii) serve process upon the other party in any manner authorized by the laws of any such jurisdiction. 11.5 Venue. Each of the Borrower and the Noteholder irrevocably and unconditionally waives, to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Note in any court referred to in Section 11.4 and the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 11.6 Waiver of Jury Trial. EACH OF THE BORROWER AND THE NOTEHOLDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY RELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY. 11.7 Integration. This Note and the LLC Agreement constitute the entire contract between the parties with respect to the subject matter hereof and supersede all previous agreements and understandings, oral or written, with respect thereto. 11.8 Successors and Assigns. This Note may not be assigned or transferred by the Noteholder to any Person without the prior written approval of the Borrower, except that this Note may be assigned to Affiliates of the Noteholder (so long as such entity remains an Affiliate of Noteholder) and shall be assigned by Noteholder to any successor TZCH Member or in connection with a Permitted Transfer. The Borrower may not assign or transfer this Note or any of its rights hereunder without the prior written consent of TZCH Member and any assignment or transfer of this Note in contravention hereof shall be null and void. This Note shall inure to the benefit of, and be binding upon, the parties and their successors or permitted assigns. presentment for payment, protest, notice of payment, notice of dishonor, notice of nonpayment, notice of acceleration of maturity, and diligence in taking any action to collect

GRAPHIC

11.10 Amendments and Waivers. No term of this Note may be waived, modified, or amended except by an instrument in writing signed by both of the parties. Any waiver of the terms hereof shall be effective only in the specific instance and for the specific purpose given. 11.11 Headings. The headings of the various Sections and subsections herein are for reference only and shall not define, modify, expand, or limit any of the terms or provisions hereof. 11.12 No Waiver; Cumulative Remedies. No failure to exercise, and no delay in exercising on the part of the Noteholder, of any right, remedy, power, or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. The rights, remedies, powers, and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers, and privileges provided by law. 11.13 Electronic Execution. The words “execution,” “signed,” “signature,” and words of similar import in the Note shall be deemed to include electronic or digital signatures or electronic records, each of which shall be of the same effect, validity, and enforceability as manually executed signatures or a paper-based record-keeping system, as the case may be, to the extent and as provided for under applicable law, including the Electronic Signatures in Global and National Commerce Act of 2000 (15 U.S.C. §§ 7001 to 7031), the Uniform Electronic Transactions Act (UETA), or any state law based on the UETA, including the New York Electronic Signatures and Records Act (N.Y. State Tech. §§ 301 to 309). 11.14 Severability. If any term or provision of this Note is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Note or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the parties shall negotiate in good faith to modify this Note so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. 11.15 Termination. Upon the occurrence of payment in full of the Member Loan Secured Obligations in accordance with the terms hereof, this Promissory Note and the security interest granted hereby and Article III of the LLC Agreement shall automatically terminate, all rights to the Collateral shall automatically revert to the Borrower accordingly, and the Noteholder shall within a reasonable period of time cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect of the Collateral, to or on the order of a Borrower. The Noteholder shall also execute and deliver to the Borrower, at the Borrower’s expense, such UCC termination statements and other documentation as shall be reasonably requested by such Borrower to effect the termination and release of the Liens created under this Agreement and the LLC Agreement in respect of this Note (and if this is the only Note, all such Liens). [SIGNATURE PAGE FOLLOWS] terms hereof shall be effective only in the specific instance and for the specific purpose given. 11.11 Headings. The headings of the various Sections and subsections herein are for reference only and shall not define, modify, expand, or limit any of the terms or provisions 11.12 No Waiver; Cumulative Remedies. No failure to exercise, and no delay in exercising on the part of the Noteholder, of any right, remedy, power, or privilege hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power, or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power, or privilege. The rights, remedies, powers, and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers, and signed, of similar import in the Note shall be deemed to include electronic or digital signatures or electronic records, each of which shall be of the same effect, validity, and enforceability as manually executed signatures or a paper-based record-keeping system, as the case may be, to the extent and as provided for under applicable law, including the Electronic Signatures in Global and National Commerce Act of 2000 (15 U.S.C. §§ 7001 to 7031), the Uniform Electronic Transactions Act (UETA), or any state law based on the UETA, including the New York Electronic Signatures and Records Act (N.Y. State Tech. §§ 301 to 309). 11.14 Severability. If any term or provision of this Note is invalid, illegal, or unenforceable in any jurisdiction, such invalidity, illegality, or unenforceability shall not affect any other term or provision of this Note or invalidate or render unenforceable such term or provision in any other jurisdiction. Upon such determination that any term or other provision is invalid, illegal, or unenforceable, the parties shall negotiate in good faith to modify this Note so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the greatest extent possible. 11.15 Termination. Upon the occurrence of payment in full of the Member Loan Secured Obligations in accordance with the terms hereof, this Promissory Note and the security interest granted hereby and Article III of the LLC Agreement shall automatically terminate, all rights to the Collateral shall automatically revert to the Borrower accordingly, and the Noteholder shall within a reasonable period of time cause to be assigned, transferred and delivered, against receipt but without any recourse, warranty or representation whatsoever, any remaining Collateral and money received in respect of the Collateral, to or on the order of a Borrower. The Noteholder shall also execute and deliver to the Borrower, at the Borrower be reasonably requested by such Borrower to effect the termination and release of the Liens created under this Agreement and the LLC Agreement in respect of this Note (and if this is the only Note, all such Liens).

GRAPHIC

[Signature Page to Secured Promissory Note] IN WITNESS WHEREOF, the Borrower has executed this Note as of the date first above written. COMPUTE NORTH MEMBER LLC By: By:__________________________________ Name: Drake Harvey Title: Authorized Person

Exhibit 10.7

GRAPHIC

FIRST AMENDMENT TO SECURED PROMISSORY NOTE THIS FIRST AMENDMENT TO SECURED PROMISSORY NOTE (this “Amendment”) is executed as of July 26, 2022 (the “Amendment Date”) by Compute North Member LLC, a Delaware limited liability company (the “Borrower”). Capitalized terms used and not otherwise defined herein have the meanings set forth in the Original Note (as hereinafter defined). WITNESSETH: WHEREAS, reference is hereby made to that certain Secured Promissory Note executed by the Borrower on April 8, 2022 (the “Original Note”); and WHEREAS, the Borrower desires to amend the Original Note, and the Noteholder desires to consent to amendment of the Original Note, in each case on the terms set forth herein; NOW, THEREFORE, in furtherance of the obligations of the Borrower under the Original Note, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and the Noteholder agree as follows: 1. Interest Rate. The definition of the term Interest Rate is hereby amended and restated as follows: “Interest Rate” means, from and after the Amendment Date, a rate per annum equal to the lesser of (a) a varying rate per annum equal to the sum of (i) the prime rate as published in The Wall Street Journal, with adjustments in that varying rate to be made on the same date as any change in that rate is so published, plus (ii) twelve percent (12.0%) per annum, (b) fifteen and one quarter percent (15.25%) per annum, and (c) the Maximum Rate. 2. Member Loan Maturity Date. The definition of the term Member Loan Maturity Date is hereby amended and restated as follows: “Member Loan Maturity Date” means, with respect to each Member Loan advanced hereunder, the first to occur of (a) the date that is five years from the Effective Date; provided, however, that if such date does not satisfy the definition of “Business Day,” the Member Loan Maturity Date shall be the next succeeding Business Day, (b) the date of any Event of Dissolution and (c) the date of the closing of any transaction contemplated by Section 7.17 or Section 12.07 of the LLC Agreement. 3. Turnover of Proceeds. Section 7.3 (Turnover of Proceeds) is hereby amended and restated in its entirety as follows: 7.3 Turnover of Proceeds. While any Member Loan is outstanding, the Borrower acknowledges that, to the extent required to repay any Member Loan (including accrued and unpaid interest) in full, in repayment thereof the Company shall be obligated to pay directly to the Noteholder the amount of any distributions payable to the Borrower

GRAPHIC

2 under the LLC Agreement as set forth herein. For so long as any Member Loan is outstanding, Compute North Member LLC shall remain the Borrower under this Note. 4. Member Loans and Payments on the Loan. Exhibit A is hereby amended and restated in its entirety as set forth on Annex 1 (Exhibit A) to this Amendment. 5. Member Loan Target Balance Schedule. Exhibit C is hereby amended and restated in its entirety as set forth on Annex 2 (Exhibit C) to this Amendment. 6. Failure to Deliver Financial Information, Statements or Reports. In the event any financial disclosure required under Section 8.17 of the Property Management Agreement is not delivered within fifteen (15) days of the due date therefor, the full amount owing under this Note shall thereafter bear interest at the Interest Rate plus 1% per annum from such due date until such information, statement or report is duly delivered or made available (as applicable). 7. Guarantor Affirmation. Borrower’s Parent, by its signature hereto, represents and warrants that it has no defense to the enforcement of the Parent Guaranty, and that according to its terms the Parent Guaranty will continue in full force and effect to guaranty the Borrower’s obligations and the other amounts described in the Parent Guaranty following execution of this Amendment. Borrower and Guarantor each acknowledges and agrees that any and all of Borrower’s obligations are secured indebtedness under, and are secured by, each and every Collateral document with respect to the Collateral pledged thereunder by Borrower. 8. Full Force and Effect; Inconsistency. Except as herein modified, all of the terms, covenants and conditions of the Original Note are and shall remain in full force and effect and are hereby ratified and confirmed. To the extent of any inconsistency between the terms and provisions of this Amendment and the Original Note, the terms and provisions of this Amendment shall govern and control. 9. Miscellaneous. The provisions of Section 11 of the Original Note shall apply to this Amendment, mutatis mutandis, as if set forth herein. [Remainder of Page Intentionally Left Blank]

GRAPHIC

IN WITNESS WHEREOF, the Borrower has executed this Amendment and the Noteholder has accepted and agreed to this Amendment, each:as of the date first above written. Accepted and Agreed: TZ CAPITAL HOLDINGS, LLC COMPUTE NORIB MEMBER LLC By:~ l<--- Name: Dave Perrill Title: CEO By:. _______________ _ Name: Daniel Lotano Title: Vice President Accepted and Agreed: COMPUTE NORIB HOLDINGS, INC. By:~~ Name: Dave Perrill Title: CEO J a Ne ed a, NN. —v-

Exhibit 10.8

GRAPHIC

1 Execution Version SECOND AMENDMENT TO SECURED PROMISSORY NOTE THIS SECOND AMENDMENT TO SECURED PROMISSORY NOTE (this “Amendment”) is executed as of December 6, 2022 (the “Amendment Date”) by US Data King Mountain LLC, a Nevada limited liability company (the “Borrower”). Capitalized terms used and not otherwise defined herein have the meanings set forth in the Original Note (as hereinafter defined). WITNESSETH: WHEREAS, reference is hereby made to that certain Secured Promissory Note executed by the Borrower on April 8, 2022, (as amended, the “Original Note”), which was amended by that certain First Amendment to Secured Promissory Note dated as of July 26, 2022 (the “First Amendment”); and WHEREAS, the Borrower desires to amend the Original Note and the First Amendment, and the Noteholder desires to consent to amendment of the Original Note and the First Amendment, in each case on the terms set forth herein; NOW, THEREFORE, in furtherance of the obligations of the Borrower under the Original Note and the First Amendment, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Borrower and the Noteholder agree as follows: 1. Definitions. The defined terms “Bankrupt”, “Guarantor Default”, “Guaranty Issuance Period” and “Parent Guaranty” in Section 1.01 of the Original Note are hereby deleted in their entirety. 2. PIK Payments. Section 4.4 of the Original Note is hereby amended and restated in its entirety as set forth below: 4.4 PIK Payments. Notwithstanding any provision in this Note to the contrary, if on any Member Loan Principal Payment Date or Member Loan Interest Payment Date (in each case, other than the Member Loan Maturity Date), the sum of (a) the amount of Available Cash to be distributed to the Borrower pursuant to Section 6.01(a) of the LLC Agreement and (b) the amount of any Business Debt Distribution made pursuant to Section 4.5 after the immediately preceding Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable, and on or prior to such Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable (such aggregate amount, the “Distributed Amount”), is insufficient to pay the full amount of the principal and/or interest due on such date, then the Borrower shall be permitted to elect (a) such interest due to be capitalized and added as of such date to the principal amount of this Note and (b) the principal amount simultaneously (x) be repaid in an amount equal to such deficiency (less the interest amount described in clause (a)) and (y) such principal amount deemed re-paid shall be deemed re-borrowed (such amounts added to the principal pursuant clauses (a) and (b), collectively, the “PIK Payments”); provided, that the Borrower shall not be

GRAPHIC

2 permitted to elect any PIK Payment in an amount that exceeds sixty percent (60%) of the Member Loan Target Balance Schedule (as adjusted pursuant to Section 4.2) as of such Member Loan Principal Payment Date or Member Loan Interest Payment Date, as applicable (“PIK Payment Threshold”). 3. Guaranty. The content of Section 5.2 of the Original Note is hereby deleted in its entirety and replaced with the following: “Reserved”. 4. Turnover of Proceeds. Section 7.3 of the Original Note is hereby amended and restated in its entirety as follows: 7.3 Turnover of Proceeds. While any Member Loan is outstanding, the Borrower acknowledges that, to the extent required to pay any Member Loan (including accrued and unpaid interest) in full, in repayment thereof the Company shall be obligated to pay directly to the Noteholder the amount of any distributions payable to the Borrower under the LLC Agreement as set forth herein. 5. Events of Default. Section 10.1 of the Original Note is hereby amended and restated in its entirety as follows: 10.1 Each Member Loan Event of Default under the LLC Agreement shall constitute a “Member Loan Event of Default” hereunder. In addition to the foregoing, Borrower acknowledges and agrees that Borrower’s failure to comply with Section 2.2 hereof shall also constitute a Member Loan Event of Default. 6. Expenses. Section 11.2 of the Original Note is hereby amended and restated in its entirety as follows: 11.2 Expenses. The Borrower agrees to pay within ten (10) Business Days of demand thereof, all reasonable and documented, out-of-pocket costs, expenses and fees incurred by the Noteholder (including without limitation, counsel fees and expenses) in connection with the enforcement (whether through negotiations, legal proceedings or otherwise) of the Member Loans made hereunder or any workout or restructuring in respect thereof. For the avoidance of doubt, the Borrower is not obligated to pay costs, expenses or fees in connection with the preparation, execution, or delivery of this Amended and Restated Note. 7. Exhibit D, Parent Guaranty. The content of Exhibit D to the Original Note, including the attached form guaranty agreement, is hereby deleted in its entirety and replaced with the following: “Reserved”. 8. Failure to Deliver Financial Information, Statements or Reports; Guarantor Affirmation. The content of each of Sections 6 and 7 of the First Amendment is hereby deleted in its entirety and replaced with the following: “Reserved”. 9. Full Force and Effect; Inconsistency. Except as herein modified, all of the terms, covenants and conditions of the Original Note are and shall remain in full force and effect and are hereby ratified and confirmed. To the extent of any inconsistency between the terms and provisions of this Amendment and the Original Note, the terms and provisions of this Amendment shall govern and control.

GRAPHIC

3 10. Miscellaneous. The provisions of Section 11 of the Original Note shall apply to this Amendment, mutatis mutandis, as if set forth herein. [Remainder of Page Intentionally Left Blank; Signatures follow]

GRAPHIC

4 IN WITNESS WHEREOF, the Borrower has executed this Amendment and the Noteholder has accepted and agreed to this Amendment, each as of the date first above written. US DATA KING MOUNTAIN LLC By:______________________________________ Name: Asher Genoot Title: Authorized Person Accepted and Agreed: TZ CAPITAL HOLDINGS, LLC By:______________________________________ Name: Daniel Lotano Title: Vice President

 

Exhibit 10.9

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED].

 

VOTING AND SUPPORT AGREEMENT

 

THIS AGREEMENT is made as of February 6, 2023.

 

BETWEEN:

 

U.S. DATA MINING GROUP, INC., a corporation existing under the laws of the State of Nevada (“USBTC”)

 

– and –

 

[●], an individual resident in the city of [●] (the “Securityholder”)

 

RECITALS:

 

A.The Securityholder is the beneficial owner of, or has control or direction over, the Subject Securities (as defined herein).

 

B.The Securityholder understands that USBTC and Hut 8 Mining Corp. (“Hut”) are, concurrently with the execution and delivery of this Agreement, executing and delivering the Business Combination Agreement (as defined herein).

 

C.This Agreement sets out the terms and conditions of the agreement of the Securityholder to abide by the covenants in respect of the Subject Securities and the other restrictions and covenants set forth herein.

 

NOW THEREFORE, in consideration of the mutual covenants in this Agreement and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged) the parties hereto agree as follows:

 

ARTICLE 1
INTERPRETATION

 

1.1Definitions

 

In this Agreement, the following terms shall have the following meanings, and grammatical variations shall have the respective corresponding meanings:

 

“Acquisition Proposal” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Affiliate” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Agreement” means this agreement, including Schedule A annexed hereto, as it may be amended, modified or supplemented from time to time in accordance with the terms hereof.

 

“Alternative Transaction” has the meaning ascribed thereto in Section 3.3.

 

“Arrangement” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Arrangement Resolution” has the meaning ascribed thereto in the Business Combination Agreement.

 

 

 

 

“Business Combination Agreement” means the business combination agreement dated as of the date hereof among Hut, USBTC and Hut 8 Corp., as the same may be amended in accordance with its terms.

 

“Business Day” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Contract” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Depositary” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Dissent Rights” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Effective Time” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Expiry Time” has the meaning ascribed thereto in Section 3.1(a).

 

“Governmental Entity” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut” has the meaning ascribed thereto in the recitals of this Agreement.

 

“Hut Board” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut Consideration” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut Consideration Shares” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut DSUs” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut Meeting” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut Options” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut RSUs” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut Shares” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Hut Shareholders” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Law” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Material Adverse Effect” has the meaning ascribed thereto in the Business Combination Agreement.

 

“New Hut” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Outside Date” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Permitted Transfer” has the meaning ascribed thereto in Section 3.1(a)(i).

 

“Person” includes any individual, partnership, association, body corporate, organization, trust, estate, trustee, executor, administrator, legal representative, government (including Governmental Entity), syndicate or other entity, whether or not having legal status.

 

 

 

 

“Plan of Arrangement” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Securities Authority” has the meaning ascribed thereto in the Business Combination Agreement.

 

“Securityholder” has the meaning ascribed thereto in the preamble of this Agreement.

 

“Subject Securities” means all Hut Shares, Hut Options, Hut DSUs, and Hut RSUs beneficially owned or over which control or direction is exercised, directly or indirectly, by the Securityholder as at the date hereof, and shall further include any Hut Shares, Hut Options, Hut DSUs, and Hut RSUs, acquired or over which ownership, control or direction is acquired by the Securityholder after the date hereof, including any Hut Shares acquired as a result of any exercise of Hut Options or redemption of any Hut DSUs, Hut RSUs or the conversion of any other security.

 

“Superior Proposal” has the meaning ascribed thereto in the Business Combination Agreement.

 

“USBTC” has the meaning ascribed thereto in the preamble of this Agreement.

 

1.2Headings, etc.

 

The division of this Agreement into Articles and Sections and the insertion of headings are for convenient reference only and do not affect the construction or interpretation of this Agreement.

 

1.3Currency

 

All references to dollars, or to $, are expressed in Canadian currency except as otherwise indicated.

 

1.4Gender and Number

 

Any reference to gender includes all genders. Words importing the singular number only shall include the plural and vice versa.

 

1.5Phrasing

 

The words (i) “including”, “includes” and “include” mean “including (or includes or include) without limitation”, (ii) “the aggregate of”, “the total of”, “the sum of”, or a phrase of similar meaning means “the aggregate (or total or sum), without duplication, of,” and (iii) “Article” and “Section” followed by a number mean and refer to the specified Article or Section of this Agreement.

 

1.6References to Persons

 

Any reference to a Person includes its heirs, administrators, executors, legal personal, representatives, successors and permitted assigns.

 

1.7Statutes

 

Any reference to a statute refers to such statute and all rules and regulations made under it, as it or they may have been or may from time to time be amended or re-enacted, unless stated otherwise.

 

1.8Computation of Time

 

A period of time is to be computed as beginning on the day following the event that began the period and ending at 5:00 p.m. on the last day of the period, if the last day of the period is a Business Day, or at 5:00 p.m. on the next Business Day if the last day of the period is not a Business Day.

 

 

 

 

1.9Governing Law

 

This Agreement shall be governed in all respects, including validity, interpretation and effect, by the Laws of the Province of British Columbia and the federal Laws of Canada applicable therein, without giving effect to any principles of conflict of Laws thereof that would result in the application of the Laws of any other jurisdiction, and all actions and proceedings arising out of or relating to this Agreement shall be heard and determined exclusively in the courts of the Province of British Columbia.

 

1.10Schedules

 

The schedules attached to this Agreement form an integral part of this Agreement for all purposes of it.

 

ARTICLE 2
REPRESENTATIONS AND WARRANTIES

 

2.1Representations and Warranties of the Securityholder

 

The Securityholder represents and warrants to USBTC (and acknowledges that USBTC is relying on these representations and warranties in completing the transactions contemplated hereby and by the Business Combination Agreement) the matters set out below:

 

(a)The Securityholder has the legal capacity to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by the Securityholder, and, assuming the due execution and delivery by USBTC, constitutes a legal, valid and binding agreement of the Securityholder enforceable against it in accordance with its terms subject only to any limitation under bankruptcy, insolvency or other Law affecting the enforcement of creditors’ rights generally and the discretion that a court may exercise in the granting of equitable remedies such as specific performance and injunction.

 

(b)The securities as set forth in Schedule A represent all Subject Securities held of record or beneficially owned or over which control or direction is exercised, directly or indirectly, by the Securityholder as of the date hereof. Other than the securities set forth in Schedule A, as of the date hereof, the Securityholder does not own of record or beneficially own, or exercise control or direction over, directly or indirectly, or have any agreement or option, or right or privilege (whether by Law, pre-emptive or contractual) capable of becoming an agreement or option, for the purchase or acquisition by the Securityholder or transfer or issuance to the Securityholder of, additional Hut Shares, Hut Options, Hut DSUs, or Hut RSUs.

 

(c)The Securityholder is, and will continue to be until the Effective Time, the sole beneficial owner of the Subject Securities, with good title thereto, free and clear of all encumbrances, liens, restrictions (other than resale, vesting or other similar restrictions), charges, claims and rights of others.

 

(d)The Securityholder has the sole right to sell (or cause to be sold) and vote (or cause to be voted) all of the Hut Shares set forth in Schedule A and, if applicable, all of Hut Shares acquired or over which ownership, control or direction is acquired by the Securityholder after the date hereof.

 

(e)No Person has any agreement or option, or any right or privilege (whether by Laws, pre-emptive or contractual) capable of becoming an agreement or option, for the purchase, acquisition or transfer of any of the Subject Securities or any interest therein or right thereto, except USBTC or New Hut pursuant to the Arrangement.

 

 

 

 

(f)None of the Subject Securities is subject to any power of attorney, proxy, voting trust, vote pooling or other agreement with respect to the voting or right to vote, call meetings of any of the Hut Shareholders or give consents or approvals of any kind.

 

(g)None of the execution and delivery by the Securityholder of this Agreement or the completion of the transactions contemplated hereby or the compliance by the Securityholder with the Securityholder’s obligations hereunder will violate, contravene, result in any breach of, or be in conflict with, or constitute a default under, or create a state of facts which after notice or lapse of time or both would constitute a default under: (i) any Contract to which the Securityholder is a party or by which the Securityholder or any of the property or assets of the Securityholder are bound; (ii) any judgment, decree, order or award of any Governmental Entity; or (iii) any applicable Laws, except as would not, individually or in the aggregate, reasonably be expected to materially adversely affect the Securityholder’s ability to perform its obligations under this Agreement.

 

(h)No consent, waiver, approval, authorization, order, exemption, registration, licence or declaration of or by, or filing with, or notification to any Governmental Entity which has not been made or obtained is required to be made or obtained by the Securityholder in connection with the execution and delivery by the Securityholder and enforcement against the Securityholder of this Agreement or the performance of the Securityholder’s obligations provided for herein other than any filings under insider or early warning requirements of applicable securities laws (provided that the Securityholder makes no representations or warranties with respect to the consents, waivers, approvals, authorizations or declarations of or by, or filings with, or notices to any Governmental Entities or other third parties on the part of Hut or USBTC necessary for the consummation of the transactions contemplated by the Business Combination Agreement).

 

(i)There are no claims, actions, suits, audits, proceedings, investigations or other actions pending against, or, to the knowledge of the Securityholder, threated against or affecting the Securityholder that, individually or in the aggregate, could reasonably be expected to have a material and adverse effect on the Securityholder’s ability to perform its obligations under this Agreement.

 

2.2Representations and Warranties of USBTC

 

USBTC hereby represents and warrants to the Securityholder (and acknowledges that the Securityholder is relying on these representations and warranties in completing the transactions contemplated by this Agreement and the Business Combination Agreement) the matters set out below:

 

(a)USBTC is a corporation duly incorporated, validly existing and in good standing under the Laws of the State of Nevada.

 

(b)USBTC has the requisite corporate power, authority and approvals to enter into and perform its obligations under this Agreement and the Business Combination Agreement.

 

(c)The execution, delivery and performance by USBTC of its obligations under this Agreement and the consummation of the transactions contemplated by the Business Combination Agreement (including the Arrangement) have been duly authorized by all necessary corporate action on the part of USBTC, and no other corporate proceedings or other actions on the part of the USBTC are necessary to authorize this Agreement.

 

 

 

 

(d)This Agreement has been duly executed and delivered by USBTC, and, assuming the due execution and delivery by the Securityholder, constitutes a legal, valid and binding agreement of USBTC enforceable against it in accordance with its terms subject only to any limitation under bankruptcy, insolvency or other Law affecting the enforcement of creditors’ rights generally and the discretion that a court may exercise in the granting of equitable remedies such as specific performance and injunction.

 

(e)There are no claims, actions, suits, audits, proceedings, investigations or other actions pending against, or, to the knowledge of USBTC, threated against or affecting USBTC that, individually or in the aggregate, could reasonably be expected to have a material and adverse effect on USBTC’s ability to perform its obligations under this Agreement.

 

(f)No consent, waiver, approval, authorization, order, exemption, registration, licence or declaration of or by, or filing with, or notification to any Governmental Entity which has not been made or obtained is required to be made or obtained by USBTC in connection with the execution and delivery by USBTC, and enforcement against USBTC of this Agreement other than those that: (i) have been obtained; (ii) are contemplated by the Business Combination Agreement; or (iii) the failure of which to make or obtain would not reasonably be expected to have a material and adverse effect on USBTC's ability to perform its obligations under this Agreement.

 

ARTICLE 3
COVENANTS

 

3.1Covenants of the Securityholder

 

(a)The Securityholder hereby irrevocably and unconditionally covenants with USBTC that, from the date of this Agreement until the termination of this Agreement in accordance with its terms (the “Expiry Time”), the Securityholder shall not, without having first obtained the prior written consent of USBTC:

 

(i)sell, transfer, gift, assign, convey, pledge, hypothecate, encumber, option, grant a security interest in or otherwise dispose of any right or interest in (including by way of deposit or tender under any take-over bid) any of the Subject Securities, or enter into any agreement, arrangement or understanding in connection therewith (whether by actual disposition or effective economic disposition due to cash settlement or otherwise), other than (A) pursuant to the Arrangement, Business Combination Agreement or an Alternative Transaction, (B) any exercise or settlement, as applicable, of Hut Options, Hut DSUs, or Hut RSUs for Hut Shares in accordance with their terms including any disposition thereof for tax purposes or for purposes of "sell-to-cover" transactions, or (C) without affecting beneficial ownership or control or direction over the Subject Securities, to one or more corporations directly or indirectly wholly owned by the Securityholder or to any member of the Securityholder’s immediate family or to a trust, partnership, limited liability company, or other similar estate planning vehicle for the benefit of the Securityholder or any member of the Securityholder’s immediate family, pursuant to a will, testamentary document or intestate succession upon the death of a Securityholder who is an individual or pursuant to a family court order (each, a “Permitted Transfer”), provided that in each case and for greater certainty, any Hut Shares acquired as a result thereof shall be Subject Securities and subject to the terms and conditions of this Agreement,

 

(ii)requisition or join in the requisition of any meeting of any of the Hut Shareholders for the purpose of considering any resolution, or

 

 

 

 

(iii)other than as set forth herein, grant any proxies or powers of attorney, deposit any Subject Securities into a voting trust, in any way transfer any of the voting rights associated with any of the Subject Securities, or enter into a voting agreement, understanding or arrangement with respect to the voting, the right to vote, call meetings of the Hut Shareholders or give consents or approval of any kind with respect to any Subject Securities.

 

(b)The Securityholder hereby covenants, undertakes and agrees, from the date of this Agreement until the Expiry Time, to vote (or cause to be voted) all the Subject Securities at any meeting of any of the Hut Shareholders at which the Securityholder is entitled to vote in respect of such Subject Securities, including without limitation the Hut Meeting, and in any action by written consent of the Hut Shareholders:

 

(i)in favour of the approval, consent, ratification and adoption of the Arrangement (including, without limitation, the Arrangement Resolution) and the transactions contemplated by the Business Combination Agreement (and any actions reasonably required for the consummation of the transactions contemplated by the Business Combination Agreement); and

 

(ii)against (A) any Acquisition Proposal (other than the transactions contemplated by the Business Combination Agreement); and (B) any action that would reasonably be expected to impede, delay, interfere with, or discourage in any material respect the transactions contemplated by the Business Combination Agreement and any action that would reasonably be expected to result in any material breach of any representation, warranty or covenant of Hut in the Business Combination Agreement.

 

In connection with the foregoing, subject to this Section 3.1(b), the Securityholder hereby irrevocably and unconditionally agrees to deposit an irrevocable proxy or voting instruction form, duly completed and executed in respect of all of the Subject Securities, at least ten Business Days prior to the Hut Meeting, voting all such Subject Securities in favour of the Arrangement Resolution. The Securityholder hereby irrevocably and unconditionally agrees that neither it nor any Person on its behalf will take any action to withdraw, amend or invalidate any proxy or voting instruction form deposited or delivered by the Securityholder pursuant to this Agreement notwithstanding any statutory or other rights which the Securityholder might have unless this Agreement is terminated in accordance with Section 4.1. If for any reason such proxy or voting instruction form is invalid and not effective, as determined by the Depositary, or is not delivered in accordance with this Section 3.1(b), the Securityholder hereby unconditionally and irrevocably appoints USBTC as attorney in fact (which appointment is coupled with an interest) for and on its behalf to act in respect of any resolution in connection with the Arrangement.

 

(c)The Securityholder hereby covenants, undertakes and agrees to immediately cease and cause to be terminated any existing solicitation, discussion or negotiation commenced prior to the date of this Agreement with any Person (other than USBTC or an Affiliate thereof) by such Securityholder or, if applicable, any of its officers, directors, employees, representatives or agents with respect to any potential Acquisition Proposal (other than the transactions contemplated by the Business Combination Agreement), whether or not initiated by the Securityholder or any of its officers, directors, employees, representatives or agents;

 

 

 

 

(d)Subject to the terms and conditions of this Agreement (including, for the avoidance of doubt, Section 4.5) or except as may be expressly permitted by the Business Combination Agreement or by USBTC in writing, the Securityholder agrees, until the Expiry Time:

 

(i)not to exercise any rights of appraisal, Dissent Rights or other rights of dissent that the Securityholder may have arising from the transactions contemplated by the Business Combination Agreement;

 

(ii)not to bring, or threaten to bring, any suit or proceeding for the purpose of, or which has the effect of, directly or indirectly, stopping, preventing, impeding, delaying or varying in any material respect such transactions or any aspect thereof;

 

(iii)not to take any action of any kind, directly or indirectly, which might reasonably be regarded as likely to reduce the success of, or delay or interfere with, the completion of the transactions contemplated by the Business Combination Agreement;

 

(iv)to cooperate with Hut and USBTC to successfully complete the Arrangement and the other transactions contemplated by the Business Combination Agreement and this Agreement, and to oppose any of the matters in Section 3.1(b)(ii);

 

(v)not to solicit, initiate or otherwise knowingly facilitate any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to, an Acquisition Proposal (other than an Acquisition Proposal made by USBTC or an Affiliate of USBTC pursuant to the Business Combination Agreement);

 

(vi)not to participate in any discussions or negotiations with any Person (other than USBTC or an Affiliate of USBTC) regarding any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to an Acquisition Proposal;

 

(vii)not to accept or enter into, or publicly propose to accept or enter into, any letter of intent, agreement, arrangement or understanding related to any Acquisition Proposal (other than an Acquisition Proposal made by USBTC or an Affiliate of USBTC pursuant to the Business Combination Agreement); and

 

(viii)not to cooperate in any way with, or knowingly assist or participate in, any effort or attempt by any other Person to do or seek to do any of the foregoing.

 

(e)The Securityholder hereby irrevocably consents to:

 

(i)details of this Agreement being set out in any information circular or U.S. registration statement and court documents produced by Hut, USBTC or any of their respective Affiliates in connection with the transactions contemplated by this Agreement and the Business Combination Agreement; and

 

(ii)this Agreement or details of this Agreement otherwise being made publicly available, including by filing on the System for Electronic Document Analysis and Retrieval (SEDAR) operated on behalf of the Securities Authority and the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).

 

(f)Except as required by applicable Law, applicable stock exchange requirements or the Business Combination Agreement, the Securityholder shall not make any public announcement or statement with respect to the transactions contemplated herein or pursuant to the Business Combination Agreement without the prior written approval of USBTC.

 

 

 

 

3.2Covenants of USBTC

 

(a)USBTC hereby agrees and confirms to the Securityholder that it shall take all steps required of it under the Business Combination Agreement to consummate the transactions contemplated by the Business Combination Agreement (including the Arrangement) and to cause New Hut to deliver the Hut Consideration Shares to the Depositary, in each case in accordance with and subject to the terms and conditions of the Business Combination Agreement and the Plan of Arrangement.

 

(b)The obligation of USBTC to complete the transactions contemplated by the Business Combination Agreement (including the Arrangement) shall be subject to the conditions set forth in the Business Combination Agreement.

 

3.3Co-operation/Alternative Transaction

 

In the event that, in lieu of or in conjunction with the Arrangement, USBTC seeks to complete the transactions contemplated in the Business Combination Agreement other than as contemplated by this Agreement and the Business Combination Agreement on a basis that (a) provides for economic terms which, in relation to the Securityholder, on an after-tax basis, are at least equivalent to or better than those contemplated by this Agreement and the Business Combination Agreement, (b) would not likely result in a delay or time to completion beyond the Outside Date, and (c) is otherwise on terms and conditions not materially more onerous on the Securityholder than the transactions contemplated in the Business Combination (any such transaction, an “Alternative Transaction”), then during the term of this Agreement the Securityholder may, on its own accord, and shall, upon written request of USBTC, support the completion of such Alternative Transaction in the same manner as the transactions contemplated in the Business Combination Agreement in accordance with the terms and conditions of this Agreement, including by (A) if applicable, depositing or causing the deposit of its Subject Securities, into an Alternative Transaction conducted by way of a take-over bid made by USBTC or an Affiliate of USBTC and not withdrawing them; and/ or (B) voting or causing to be voted all of the Subject Securities (to the extent that they carry the right to vote) in favour of, and not dissenting from (to the extent dissent rights are available under applicable law), such Alternative Transaction proposed by USBTC and, in the event of any such proposed Alternative Transaction, the references in this Agreement to the “Arrangement” shall be deemed to be changed to “Alternative Transaction” and all terms, covenants, representations and warranties of this Agreement shall be and shall be deemed to have been made in the context of the Alternative Transaction.

 

ARTICLE 4
GENERAL

 

4.1Termination

 

This Agreement shall automatically terminate and be of no further force or effect only upon the earliest of:

 

(a)the written agreement of USBTC and the Securityholder;

 

(b)the date and time the Business Combination Agreement is terminated in accordance with its terms;

 

 

 

 

(c)written notice by the Securityholder to USBTC if, without the prior written consent of the Securityholder, there is any decrease in the aggregate amount of the Hut Consideration to be received by non-dissenting Hut Shareholders under the terms of the Arrangement; or

 

(d)the Effective Time.

 

Any such termination of this Agreement in accordance with this Section 4.1 shall render the provisions of this Agreement of no further force and effect and no party shall have any further liability or obligations to any other party hereunder, provided however that such termination shall not prejudice the rights of a party as a result of a breach by any other party of its obligations hereunder occurring prior to such termination.

 

4.2Time of the Essence

 

Time is of the essence in the performance of the parties’ respective obligations.

 

4.3Amendment

 

This Agreement may, at any time and from time to time prior to the Effective Time, be amended by mutual written agreement of the parties hereto.

 

4.4Equitable Relief

 

The parties hereby agree that irreparable damage would occur in the event that any provision of this Agreement was not performed in accordance with its specific terms or was otherwise breached, and that monetary damages or other legal remedies would not be an adequate remedy for any such damages. Accordingly, the parties acknowledge and hereby agree that in the event of any breach or threatened breach by the Securityholder of any of its covenants or obligations set forth in this Agreement, USBTC shall be entitled to an injunction or injunctions to prevent or restrain breaches of this Agreement by the Securityholder, and to specifically enforce the terms and provisions of this Agreement to prevent breaches of, or to enforce compliance with, the covenants and obligations of the other under this Agreement. The Securityholder hereby agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches of this Agreement by it, and to specifically enforce the terms and provisions of this Agreement to prevent breaches of, or to enforce compliance with, the covenants and obligations of the other party under this Agreement. The parties further agree that (a) by seeking the remedies provided for in this Section 4.4, a party shall not in any respect waive its right to seek any other form of relief that may be available to a party under this Agreement in the event that this Agreement has been terminated or in the event that the remedies provided for in this Section 4.4 are not available or otherwise are not granted, and (b) nothing set forth in this Section 4.4 shall require any party to institute any proceeding for (or limit any party’s right to institute any proceeding for) specific performance under this Section 4.4 prior or as a condition to exercising any termination right under Section 4.1 or pursuing damages after such termination, nor shall the commencement of any legal proceeding restrict or limit any party’s right to terminate this Agreement in accordance with the terms of Section 4.1 or pursue any other remedies under this Agreement that may be available then or thereafter.

 

4.5Fiduciary Duties

 

USBTC agrees and acknowledges that the Securityholder is bound hereunder solely in his or her capacity as a shareholder of Hut and that the provisions of this Agreement shall not be deemed or interpreted to bind the Securityholder or any of its directors, officers or principal shareholders in his or her capacity as a director or officer of Hut or any of its subsidiaries. For the avoidance of doubt, nothing in this Agreement shall limit or restrict any party from properly fulfilling his or her fiduciary duties as a director or officer of Hut.

 

 

 

 

4.6Waiver

 

No waiver of any of the provisions of this Agreement will constitute a waiver of any other provision (whether or not similar). No waiver will be binding unless executed in writing by the party to be bound by the waiver. A party’s failure or delay in exercising any right under this Agreement will not operate as a waiver of that right. A single or partial exercise of any right will not preclude a party from any other or further exercise of that right or the exercise of any other right.

 

4.7Entire Agreement

 

This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties. There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the parties in connection with the subject matter of this Agreement, except as specifically set forth in this Agreement.

 

4.8Notices

 

Any notice, or other communication given regarding the matters contemplated by this Agreement must be in writing, sent by personal delivery, courier, facsimile or electronic mail and addressed:

 

(a)to USBTC at:

 

U.S. Data Mining Group, Inc. 

1221 Brickell Avenue, Suite 900 

Miami, Florida 33131

 

Attention:Asher Genoot
Email:[REDACTED]

 

with a copy to:

 

Stikeman Elliott LLP 

5300 Commerce Court West 

199 Bay Street 

Toronto, ON M5L 1B9
Canada

 

Attention:Amanda Linett
Email:[REDACTED]

 

and to:

 

Greenberg Traurig, P.A. 

333 S.E. 2nd Avenue, #4400 

Miami, Florida 33131

 

Attention:Daniella G. Silberstein
Email:[REDACTED]

 

 

 

 

(b)if to the Securityholder, at the address for notices set out in Schedule A attached hereto.

 

Any notice or other communication is deemed to be given and received (i) if sent by personal delivery or same day courier, on the date of delivery if it is a Business Day and the delivery was made prior to 5:00 p.m. (local time in place of receipt) and otherwise on the next Business Day, (ii) if sent by overnight courier, on the next Business Day, (iii) if sent by facsimile, on the Business Day following the date of confirmation of transmission by the originating facsimile, or (iv) if sent by electronic mail, when the sender receives an email from the recipient acknowledging receipt, provided that an automatic “read receipt” does not constitute acknowledgment of an email for purposes of this Section 4.8. Sending a copy of a notice or other communication to a party’s legal counsel as contemplated above is for information purposes only and does not constitute delivery of the notice or other communication to that party. The failure to send a copy of a notice or other communication to legal counsel does not invalidate delivery of that notice or other communication to a party.

 

4.9Severability

 

If any provision of this Agreement is determined to be illegal, invalid or unenforceable by any court of competent jurisdiction, that provision will be severed from this Agreement and the remaining provisions shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.

 

4.10Successors and Assigns

 

The provisions of this Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors, permitted assigns and legal personal representatives, provided that, except as permitted by Section 3.1(a)(i) in connection with a Permitted Transfer (provided that the Securityholder shall continue to be liable jointly and severally with the transferee(s) to such Permitted Transfer), no party may assign, delegate or otherwise transfer any of its rights, interests or obligations under this Agreement without the prior written consent of the other parties hereto, provided that USBTC may assign all or part of its right under this Agreement to, and its obligations under this Agreement may be assumed by, any of its Affiliates, provided that if such agreement and/or assumption takes place, USBTC shall continue to be liable jointly and severally with such Affiliate, as the case may be, for all of its obligations hereunder, without the consent of the Securityholder.

 

4.11Fees and Expenses

 

Each party shall pay all fees, costs and expenses incurred by such party in connection with this Agreement.

 

4.12Independent Legal Advice

 

The Securityholder acknowledges that it has been afforded the opportunity to obtain independent legal advice and confirms by the execution of this Agreement that it has either done so or waived its right to do so in connection with the entering into of this Agreement.

 

4.13Further Assurances

 

Each of the parties will, from time to time, execute and deliver all such further documents and instruments and do all such acts and things as the other party may reasonably require and at the requesting party’s cost (it being agreed that the requesting party will only be responsible for the reasonable, out-of-pocket costs incurred by the incurring party) to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement.

 

 

 

 

4.14Counterparts

 

This Agreement may be executed in any number of counterparts (including counterparts by facsimile) and all such counterparts taken together shall be deemed to constitute one and the same instrument. The parties shall be entitled to rely upon delivery of an executed facsimile or similar executed electronic copy of this Agreement, and such facsimile or similar executed electronic copy shall be legally effective to create a valid and binding agreement between the parties.

 

[Signature page follows]

 

 

 

Exhibit 10.10

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED].

 

STOCKHOLDER SUPPORT AGREEMENT

 

STOCKHOLDER SUPPORT AGREEMENT, dated as of February 6, 2023 (this “Agreement”), by and among U.S. Data Mining Group, Inc., a Nevada corporation (“USBTC”), Hut 8 Mining Corp., a corporation existing under the laws of the Province of British Columbia (“Hut”) and each of the stockholders of USBTC whose names appear on the signature pages of this Agreement (each, a “Stockholder” and, collectively, the “Stockholders”).

 

WHEREAS, Hut, USBTC and Hut 8 Corp., a Delaware corporation and wholly owned subsidiary of USBTC (“New Hut”) propose to enter into, simultaneously herewith, a business combination agreement in the form attached hereto as Exhibit B (the “BCA”; terms used but not defined in this Agreement shall have the meanings ascribed to them in the BCA), which provides, among other things, that, upon the terms and subject to the conditions thereof, Merger Subco will be merged with and into USBTC (the “Merger”), with USBTC surviving the Merger as a wholly owned subsidiary of New Hut; and

 

WHEREAS, as of the date hereof, each Stockholder is the beneficial owner of, or has control or direction over, the number of shares of USBTC Common Stock, shares of USBTC Preferred Stock and/or USBTC Common Stock issuable under USBTC Options as set forth opposite such Stockholder’s name on Exhibit A hereto (all such shares of USBTC Common Stock, shares of USBTC Preferred Stock and USBTC Common Stock issuable under USBTC Options, and any shares of USBTC Common Stock, shares of USBTC Preferred Stock and USBTC Common Stock issuable under USBTC Options of which beneficial ownership or the power to vote, directly or indirectly, is hereafter acquired, including as a result of any exercise of USBTC Options or the conversion of any other security, by the Stockholders prior to the termination of this Agreement being referred to herein as the “Shares”).

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto hereby agree as follows:

 

1.             Agreement to Vote. Subject to the earlier termination of this Agreement in accordance with Section 6, each Stockholder, severally and not jointly, hereby irrevocably agrees to vote at any meeting of the USBTC Stockholders, and to execute any action by written consent of the USBTC Stockholders (which written consent shall be delivered promptly, and in any event within two business days, after USBTC requests such delivery, and which request will only be made after the Clearance Date), all of such Stockholder’s Shares beneficially owned by such Stockholder at such time (i) in favor of the approval of the BCA as the plan of merger for the Merger and all other transactions contemplated by the BCA, and to take such other action as may be reasonably necessary to provide the USBTC Stockholder Approval with respect to all such Shares, and (ii) against any action, agreement or transaction or proposal that would or would reasonably be expected to result in a breach of any covenant, representation or warranty or any other obligation or agreement of USBTC under the BCA or that would or would reasonably be expected to impede, delay, interfere with, discourage, or result in the failure of the Merger from being consummated. For the avoidance of doubt, with respect to any Stockholder that is a Requisite Holder, as such term is defined in the Fourth Amended and Restated Articles of Incorporation of USBTC, dated as of December 4, 2020 (the “Articles”), such Stockholder hereby further irrevocably agrees to vote at any meeting of the USBTC Stockholders, and to execute any action by written consent of the USBTC Stockholders (which written consent shall be delivered promptly, and in any event within twenty-four (24) hours, after USBTC requests such delivery, and which request will only be made after the Clearance Date), in such Stockholder’s capacity as a Requisite Holder, in favor of the approval of the BCA as the plan of merger for the Merger and all other transactions contemplated by the BCA, and to take such other action in such capacity as may be reasonably necessary to provide the USBTC Stockholder Approval with respect to such Stockholder, in its capacity as a Requisite Holder, for all purposes, including under the Articles.

 

 

 

2.             Termination of Stockholders Agreements. Each Stockholder, by this Agreement, with respect to its Shares, severally and not jointly, hereby irrevocably agrees and consents to the termination of (a) that certain Stockholders’ Agreement, dated as of August 31, 2021, among USBTC and the stockholders of USBTC named therein, (b) that certain Amended and Restated Investors’ Rights Agreement, dated August 31, 2021 among USBTC and the stockholders of USBTC named therein, (c) that certain letter agreement, dated September 16, 2021, among USBTC and the stockholders of USBTC named therein, and (d) that certain letter agreement, dated March 17, 2021, by and between USBTC and JHS Bitcoin Mining LLC (collectively, such agreements in clauses (a) through (d), the “Specified Agreements”), in each case, such termination subject to the occurrence of, and effective immediately prior to, the Merger Effective Time.

 

3.             Transfer of Shares. Each Stockholder, severally and not jointly, irrevocably agrees that it shall not, directly or indirectly, (a) sell, assign, transfer (including by operation of law or otherwise), lien, pledge, dispose of or otherwise encumber any of the Shares or otherwise agree to do any of the foregoing, except for a sale, assignment or transfer pursuant to the BCA or to another USBTC Stockholder that is a party to this Agreement and bound by the terms and obligations hereof, (b) deposit any Shares into a voting trust or enter into a voting agreement or arrangement or grant any proxy or power of attorney with respect thereto that is inconsistent with this Agreement or (c) enter into any contract, option or other arrangement or undertaking with respect to the direct or indirect acquisition or sale, assignment, transfer (including by operation of law) or other disposition of any Shares (collectively, clauses (a) through (c), “Transfers”); provided that the foregoing shall not prohibit the transfer of the Shares by a Stockholder without affecting beneficial ownership or control or direction over the Shares to a controlled Affiliate of such Stockholder, but only if such Affiliate shall execute at or prior to the time of such Transfer this Agreement or a joinder agreeing to become a party to and bound by the terms and conditions of this Agreement and any other document or instrument that the Stockholder is required to execute hereunder.

 

4.             Other Covenants of Stockholder.

 

(a)           During the Pre-Closing Period, each Stockholder, severally and not jointly, shall, and shall cause its respective Representatives to: (a) cease all existing discussions and negotiations with any Persons that commenced prior to the date of this Agreement with respect to any Alternative Transaction, and (b) terminate access by any Person to any physical or electronic data room in connection with any Alternative Transaction. During the Pre-Closing Period, subject to this Section 4(a), each Stockholder, severally and not jointly, shall not, and shall cause its respective Representatives not to, directly or indirectly, (i) solicit, initiate, encourage or otherwise knowingly facilitate any proposal or offer from any third party (other than Hut or its Affiliates) with respect to an Alternative Transaction, (ii) enter into any letter of intent, memorandum of understanding, agreement or similar agreement or arrangement or Contract (in each case, other than with Hut and its Affiliates) with respect to any Alternative Transaction, or (iii) enter into or participate, engage or knowingly assist in any negotiations or discussions with any Person (other than Hut or its Affiliates) relating to any Alternative Transaction. As soon as reasonably practicable after the date hereof, each Stockholder, severally and not jointly, shall instruct each Person (other than Hut and its Affiliates) in possession of confidential information about USBTC in connection with any actual or potential proposal by such Person to acquire USBTC (or any portion thereof) to promptly return or destroy all such information. If any Stockholder or any of its Representatives receives any inquiry, proposal or offer in connection with an Alternative Transaction after the date of this Agreement, or any request for copies of, access to, or disclosure of, confidential information relating to USBTC or any USBTC Subsidiary in connection with such proposed Alternative Transaction, inquiry, proposal, offer or request, such Stockholder shall as soon as practicable notify Hut (in writing) of such proposed Alternative Transaction, inquiry, proposal, offer or request. Such notice shall include: (i) a description of the material terms and conditions of such proposed Alternative Transaction, inquiry, proposal, offer or request and; (ii) the identity of all Persons making the proposed Alternative Transaction, inquiry, proposal, offer or request. Each Stockholder, severally and not jointly, shall keep Hut reasonably informed on a current basis of the status of material or substantive developments and the status of discussions and negotiations with respect to any such proposed Alternative Transaction, inquiry, proposal, offer or request or change thereof. With respect to any such proposed Alternative Transaction, each Stockholder, severally and not jointly, shall be subject to the terms and conditions (including the restrictions) set forth in this Agreement, including this Section 4(a). Without limiting the generality of the foregoing, each Stockholder, severally and not jointly, shall advise its respective Representatives of the prohibitions set out in this Agreement, including this Section 4(a), and that any violation of the restrictions set forth in this Section 4(a) by such Stockholder or its respective Representatives is deemed to be a breach of this Section 4(a) by such Stockholder.

 

 

 

(b)            Each Stockholder, severally and not jointly, irrevocably consents to: (i) details of this Agreement being set out in any information circular or U.S. registration statement and court documents produced by Hut, USBTC or any of their respective Affiliates in connection with the transactions contemplated by this Agreement and the BCA; and (ii) this Agreement or details of this Agreement otherwise being made publicly available, including by filing on the System for Electronic Document Analysis and Retrieval (SEDAR) operated on behalf of the Securities Authority and the Electronic Data Gathering, Analysis, and Retrieval system (EDGAR).

 

(c)            Except as required by applicable Law, applicable stock exchange requirements or the BCA, each Stockholder, severally and not jointly, agrees that it shall not make any public announcement or statement with respect to the transactions contemplated herein or pursuant to the BCA without the prior written approval of Hut.

 

5.              Representations and Warranties. Each Stockholder, severally and not jointly, represents and warrants to USBTC and Hut (and acknowledges that USBTC and Hut are relying on these representations and warranties in completing the transactions contemplated hereby and by the BCA) as follows:

 

(a)            The execution, delivery and performance by such Stockholder of this Agreement and the consummation by such Stockholder of the transactions contemplated hereby do not and will not (i) conflict with or violate any United States or non-United States statute, law, ordinance, regulation, rule, code, executive order, injunction, judgment, decree or other order applicable to such Stockholder, (ii) conflict with any Contract to which the Stockholder is a party or by which the Stockholder or any of the property or assets (including the Shares) of the Stockholder are bound, (iii) require any consent, approval or authorization of, declaration, filing or registration with, or notice to, any person or entity, (iv) result in the creation of any encumbrance on any Shares (other than under this Agreement, the BCA and the agreements contemplated by the BCA) or (v) if applicable, conflict with or result in a breach of or constitute a default under any provision of such Stockholder’s governing documents.

 

(b)            As of the date of this Agreement (and until the Merger Effective Time), such Stockholder is the beneficial owner of, or has control or direction over, and has good and valid title to the Shares set forth opposite such Stockholder’s name on Exhibit A free and clear of any security interest, lien, claim, pledge, proxy, power of attorney, option, right of first refusal, agreement, voting restriction, limitation on disposition, charge, adverse claim of ownership or use or other encumbrance of any kind, other than pursuant to (i) this Agreement, (ii) applicable securities laws, (iii) USBTC’s Organizational Documents, (iv) that certain share purchase agreement, dated February 6, 2023, by and among Michael Ho, Asher Genoot and MGG Strategic SICAF SIF and (v) the Specified Agreements. As of the date of this Agreement, such Stockholder has the sole power (as currently in effect) to vote and right, power and authority to sell, transfer and deliver such Shares, and such Stockholder does not own, directly or indirectly, or have any agreement or option, or right or privilege (whether by Law, pre-emptive or contractual) capable of becoming an agreement or option, for the purchase or acquisition by the Stockholder of any other Shares.

 

 

 

(c)            Such Stockholder has the power, authority and capacity (including, if an entity, any corporate or similar power and has taken all corporate or similar actions necessary) to execute, deliver and perform this Agreement and this Agreement has been duly authorized, executed and delivered by such Stockholder and, assuming the due execution and delivery by USBTC and Hut, constitutes a legal, valid and binding agreement of the Stockholder enforceable against it in accordance with its terms subject only to any limitation under bankruptcy, insolvency or other Law affecting the enforcement of creditors’ rights generally and the discretion that a court may exercise in the granting of equitable remedies such as specific performance and injunction.

 

(d)            There are no claims, actions, suits, audits, proceedings, investigations or other actions pending against, or, to the knowledge of the Stockholder, threatened against or affecting the Stockholder that, individually or in the aggregate, could reasonably be expected to have a material and adverse effect on the Stockholder’s ability to perform its obligations under this Agreement.

 

6.              Termination. Notwithstanding anything in this Agreement to the contrary, this Agreement and the obligations of the Stockholders under this Agreement shall automatically terminate upon the earliest of (a) the Merger Effective Time; (b) the termination of the BCA in accordance with its terms and (c) the effective date of a written agreement of the parties hereto terminating this Agreement. If the BCA is terminated in accordance with its terms, USBTC hereby agrees to notify the Stockholders of such termination. Upon termination of this Agreement, neither party shall have any further obligations or liabilities under this Agreement; provided that nothing in this Section 6 shall relieve any party of liability for any willful material breach of this Agreement occurring prior to termination. The representations and warranties contained in this Agreement and in any certificate or other writing delivered pursuant hereto shall not survive the Closing or the termination of this Agreement except as contemplated by the immediately preceding proviso.

 

7.              Miscellaneous.

 

(a)            Except as otherwise expressly provided herein, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses, whether or not the transactions contemplated hereby are consummated.

 

(b)            All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or sent if delivered personally or by e-mail transmission, or as of the following Business Day if sent by prepaid overnight, internationally-recognized courier, to the parties at the following addresses (or at such other addresses as shall be specified by any party by notice to the other given in accordance with this Section 7(b)):

 

 

 

If to USBTC:

 

U.S. Data Mining Group, Inc.

1221 Brickell Avenue, Suite 900

Miami, Florida 33131

 

Attention: Asher Genoot
Email: [REDACTED]

 

with a copy (which shall not constitute notice) to:

 

Stikeman Elliott LLP

5300 Commerce Court West

199 Bay Street

Toronto, ON M5L 1B9

 

Attention: Amanda Linett
Email: [REDACTED]

 

If to Hut, to it at:

 

Hut 8 Mining Corp.
24 Duncan Street, Suite 500
Toronto, ON M5V 2B8

 

Attention: Chief Legal Officer
Email: [REDACTED]

 

with a copy (which shall not constitute notice) to:

 

Bennett Jones LLP
One First Canadian Place, Suite 3400
100 King Street West
Toronto, ON M5X 1A4

 

Attention: Curtis Cusinato / Matthew Hunt
Email: [REDACTED]

 

and to:

 

Skadden, Arps, Slate, Meagher & Flom LLP
222 Bay Street, Suite 1750
Toronto, ON M5K 1J5

 

Attention: Ryan Dzierniejko / June S. Dipchand
Email: [REDACTED]

 

If to a Stockholder, to the address or email address set forth for such Stockholder on the signature pages hereof.

 

(c)            If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

 

 

 

(d)            This Agreement and any other Ancillary Agreement to which the Stockholder is a party constitute the entire agreement among the parties with respect to the subject matter hereof and supersedes all prior agreements and undertakings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof. This Agreement shall not be assigned (whether pursuant to a merger, by operation of law or otherwise), by any party without the prior express written consent of the other parties hereto.

 

(e)            This Agreement shall be binding upon and inure solely to the benefit of each party hereto and their respective successors and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. No Stockholder shall be liable for the breach by any other Stockholder of this Agreement.

 

(f)            This Agreement may not be amended, modified or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing signed by each of the parties hereto; provided, however, that an amendment, modification or supplement to this Agreement that only affects a particular Stockholder may be entered into by an instrument in writing signed by USBTC, Hut and that particular Stockholder.

 

(g)            The parties hereto agree that irreparable damage would occur in the event any provision of this Agreement was not performed in accordance with its specific terms or was otherwise breached, and that monetary damages or other legal remedies would not be an adequate remedy for any such damages. Accordingly, the parties acknowledge and hereby agree that in the event of any breach or threatened breach by the Stockholder of any of its covenants or obligations set forth in this Agreement, each of Hut and USBTC, independently or together, shall be entitled to an injunction or injunctions to prevent or restrain breaches of this Agreement by the Stockholder, and to specifically enforce the terms and provisions of this Agreement to prevent breaches of, or to enforce compliance with, the covenants and obligations of the other under this Agreement. The Stockholder hereby agrees not to raise any objections to the availability of the equitable remedy of specific performance to prevent or restrain breaches of this Agreement by it, and to specifically enforce the terms and provisions of this Agreement to prevent breaches of, or to enforce compliance with, the covenants and obligations of the other party under this Agreement. The parties further agree that (i) by seeking the remedies provided for in this Section 7(g), a party shall not in any respect waive its right to seek any other form of relief that may be available to a party under this Agreement in the event that this Agreement has been terminated and whether or not the remedies provided for in this Section 7(g) are not available or otherwise are not granted, and (ii) nothing set forth in this Section 7(g) shall require any party to institute any proceeding for (or limit any party’s right to institute any proceeding for) specific performance under this Section 7(g) prior or as a condition to exercising any termination right under Section 6 or pursuing damages after such termination, nor shall the commencement of any legal proceeding restrict or limit any party’s right to terminate this Agreement in accordance with the terms of Section 6 or pursue any other remedies under this Agreement that may be available then or thereafter.

 

 

 

(h)           This Agreement shall be governed, including as to validity, interpretation and effect, by the laws of the State of Nevada without giving effect to principles or rules of conflict of laws to the extent such principles or rules would require or permit the application of laws of another jurisdiction. Any proceeding or action based upon, arising out of or related to the transactions contemplated hereby must be brought in the Eighth Judicial District Court of the State of Nevada sitting in Clark County, Nevada, or, if such court does not have jurisdiction, in the United States District Court for the District of Nevada sitting in Clark County, Nevada, and each of the parties hereto irrevocably (i) submits to the exclusive jurisdiction of each such court in any such proceeding or action, (ii) waives any objection it may now or hereafter have to personal jurisdiction, venue or to convenience of forum, (iii) agrees that all claims in respect of the proceeding or action shall be heard and determined only in any such court, and (iv) agrees not to bring any proceeding or action arising out of or relating to the transactions contemplated hereby in any other court. Nothing herein contained shall be deemed to affect the right of any party hereto to serve process in any manner permitted by law or to commence legal proceedings or otherwise proceed against any other party hereto in any other jurisdiction, in each case, to enforce judgments obtained in any action, suit or proceeding brought pursuant to this Section 7(h).

 

(i)            This Agreement may be executed and delivered (including by facsimile or portable document format (.pdf) transmission) in counterparts, and by the different parties hereto in separate counterparts, each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement.

 

(j)            At the request of Hut, in the case of any Stockholder, or at the request of the Stockholders, in the case of Hut, and without further consideration, each party shall execute and deliver or cause to be executed and delivered such additional documents and instruments and take such further action as may be reasonably necessary to consummate the transactions contemplated by this Agreement.

 

(k)           This Agreement shall not be effective or binding upon any Stockholder until after such time as the BCA is executed and delivered by all of the parties thereto.

 

(l)            Notwithstanding anything herein to the contrary, each Stockholder signs this Agreement solely in such Stockholder’s capacity as a stockholder of USBTC, and not in any other capacity and, if applicable, this Agreement shall not limit or otherwise affect the actions of any Affiliate, employee or designee of such Stockholder or any of its Affiliates in his or her capacity as an officer or director of USBTC.

 

(m)          Each of the parties hereto hereby waives to the fullest extent permitted by applicable law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each of the parties hereto (i) certifies that no Representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce the foregoing waiver and (ii) acknowledges that it and the other parties hereto have been induced to enter into this Agreement and the transactions contemplated hereby, as applicable, by, among other things, the mutual waivers and certifications in this Section 7(m).

 

[Signature pages follow]

 

 

 

 

Exhibit 10.11

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED].

 

LOAN, GUARANTY AND SECURITY AGREEMENT

 

THIS LOAN, GUARANTY AND SECURITY AGREEMENT (this “Agreement”) dated as of February 3, 2023 (the “Closing Date”), is by and among Anchorage Lending CA, LLC (“Lender”), U.S. Data Mining Group, Inc. (d/b/a U.S. Bitcoin Corp.), a Nevada corporation (“USDG”), as a Guarantor (as defined below), US Data Guardian LLC, a Nevada limited liability company and USDG’s direct wholly owned Subsidiary (“Borrower”) U.S. Data Mining Technologies Group Ltd., a Delaware corporation (“USDTG”), from and after the Qualifying IPO, the Parent Company, as a Guarantor and other Guarantors (as defined below), from time to time party hereto.

 

WHEREAS, prior to the date hereof, USDG, as borrower, and Lender, entered into those certain Equipment Loan and Security Agreements (as hereinafter defined), pursuant to which Lender provided USDG $50,000,000 for the purpose of financing USDG’s acquisition of certain equipment to be used by USDG in connection with its business (consisting of mining certain cryptocurrencies and digital assets);

 

WHEREAS, USDG has requested that it be permitted to transfer certain assets to Borrower and in connection therewith to be substituted as “Borrower” with respect to the financing described in the preceding recital and Lender has consented to the restructuring of the refinancing as set forth herein;

 

In consideration of the premises and the covenants and agreements contained herein, the parties hereto agree as follows:

 

1.ACCOUNTING AND OTHER TERMS

 

Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall be construed in conformity with GAAP. Financial statements and other information required to be delivered by any Loan Party to the Lender pursuant to Sections 7.2(a) and (b) shall be prepared in accordance with GAAP as in effect at the time of such preparation and, except as otherwise expressly provided herein, calculations and other determinations under the Loan Documents shall be made in accordance with GAAP. Capitalized terms not otherwise defined in this Agreement shall have the meanings set forth in Section 14 of this Agreement. All other terms contained in this Agreement, unless otherwise indicated, shall have the meaning provided by the Code to the extent such terms are defined therein. Terms defined in the Code in effect on the Closing Date and not otherwise defined herein shall, unless the context otherwise indicates, have the meanings provided by those definitions. Subject to the foregoing, the term “Code” refers, as of any date of determination, to the Code then in effect. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i)  any reference to any law shall include all statutory and regulatory rules, regulations, orders and provisions consolidating, amending, replacing or interpreting such law and any reference to any law, rule or regulation shall, unless otherwise specified, refer to such law, rule or regulation as amended, modified, extended, restated, replaced or supplemented from time to time, and (ii) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” the word “through” means “to and including; and the words “or” and mean “and/or” as the context may require. Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document. Any reference herein to a merger, transfer, consolidation, amalgamation, assignment, sale, disposition or transfer, or similar term, shall be deemed to apply to a Division of or by a limited liability company, or an allocation of assets to a series of a limited liability company (or the unwinding of such a Division or allocation), as if it were a merger, transfer, consolidation, amalgamation, assignment, sale, disposition or transfer, or similar term, as applicable, to, of or with a separate Person. Any division of a limited liability company shall constitute a separate Person hereunder (and each division of any limited liability company that is a Subsidiary, joint venture or any other like term shall also constitute such a Person or entity).

 

 

 

2.LOAN AND TERMS OF PAYMENT

 

2.1          Effect of Equipment Loan and Security Agreements.

 

(a)           Prior to the date hereof, Lender made loans in an aggregate principal amount of $50,000,000 (“Original Loan”) to USDG under and pursuant to the terms of those certain Equipment Loan and Security Agreements. The Original Loan remains unpaid and the outstanding principal balance thereof on the Closing Date is $48,611,111.11 (the “Current Loan Balance”).

 

(b)          The Borrower (and each Loan Party) hereby unconditionally promises to pay to Lender the outstanding principal amount of the Current Loan Balance, which amount shall constitute the Loan under this Agreement together with accrued and unpaid interest (including any interest that is capitalized (including pursuant to Section 2.3)) and fees (including any capitalized fees) (in each case, whether or not allowable in any proceeding under any Debtor Relief Law) thereon, together with any fees and premiums and all other Obligations, in each case, as and when due in accordance with this Agreement.

 

(c)           It is the express intent of the parties that, as of the Closing Date, (i)  this Agreement shall re-evidence the Current Loan Balance, (ii) this Agreement is entered into in substitution for, and not in payment of the Current Loan Balance, (iii) the Current Loan Balance shall be governed by and deemed to be outstanding under this Agreement, and (iv) that the terms of this Agreement and the Loan Documents shall supersede the terms of the Equipment Loan and Security Agreements and any other document executed in connection therewith; provided, that this Agreement shall not discharge or release the Lien granted pursuant to the Equipment Loan and Security Agreement, or the priority of such Liens or any other security granted thereunder, and all such liens shall continue to secure the Loan and all other Obligations hereunder, in each case, solely as to the Collateral granted hereunder by any Loan Party that was party to the Equipment Loan and Security Agreements. Nothing herein contained shall be construed as a substitution or novation of the obligations outstanding under the Equipment Loan and Security Agreements.

 

2.2          Loan.

 

(a)          Subject to the terms and conditions of this Agreement, on the Closing Date, the Current Loan Balance of the Original Loan shall be deemed and shall be automatically converted into loan and borrowings made (or deemed made) to Borrower on the Closing Date in an aggregate original principal amount of (i) Current Loan Balance plus (ii) the capitalized portion of the Closing Fee of $400,000 (the “Capitalized Fee”) (and such amounts under clauses (i) and (ii) together with all fees, interests or other amounts capitalized as an increase on the aggregate outstanding principal amount of the Loan in accordance with the terms hereof, including pursuant to Section 2.3(a), the “Loan”). The aggregate principal amount of the Loan amount on the Closing Date is $49,011,111.11.

 

2

 

 

(b)          Any amount borrowed and/or deemed borrowed under Section 2.2(a) and subsequently repaid or prepaid may not be reborrowed.

 

(c)          The principal amount of the Loan (which would increase to include capitalized interest (including pursuant to Section 2.3) and capitalized fees) together with accrued and unpaid interest accruing in accordance with Section 2.3(a) shall be payable on each Payment Date commencing on the Payment Date occurring on March 15, 2023 and continuing until the earlier of (i) the Maturity Date and (ii) the date in which the Loans have been repaid in full as follows: 100% of Net Monthly Cash Flow and any other payments received for the immediately preceding calendar month shall be paid to the Lender. The Net Monthly Cash Flow payment received shall be used to: first, to pay all unpaid fees, costs and expenses under this Agreement and the other Loan Documents; second, to the payment of accrued and unpaid interest on the Loan; and third, to the principal amount of the Loan.

 

(d)          All outstanding principal amount of the Loan and accrued and unpaid interest with respect to the Loan are due and payable in full on the Maturity Date.

 

(e)           Voluntary Prepayment. Borrower shall have the option to prepay all or any portion of the Loan together with all accrued and unpaid interest on the Loan; provided that (i) any partial prepayments shall be in increments of at least $500,000, (ii) Borrower delivers written notice to the Lender of its election to prepay all or such portion of the Loan at least one (1) Business Day prior to such prepayment. Any partial prepayments of principal with respect to the Loan made under this Section 2.2(e) will be applied: first, to pay all unpaid fees, costs and expenses under this Agreement and the other Loan Documents, including Lender’s Expenses; second, to the payment of accrued and unpaid interest on the Loan; and third, to the principal amount of the Loan.

 

(f)           Mandatory Prepayments Upon Certain Events.

 

(i)           Borrower shall apply an amount equal to all Net Proceeds from any Asset Sale promptly, but in any event within one (1) Business Day, after receipt thereof to prepay the Loan.

 

(ii)           Borrower shall apply an amount equal to all Net Proceeds from any Casualty Event no later than 90 days following receipt of such Net Proceeds. So long as no Default or Event of Default has occurred and continues to then exist, the Borrower may apply such Net Proceeds toward the replacement, restoration or repair of the Collateral which may be subject to such Casualty Event, provided, that until so applied, such Net Proceeds shall be held by the Borrower in a deposit account subject to a Qualifying Control Agreement. In the event that the Borrower has failed to deploy such Net Proceeds within 90 days following the receipt thereof, or if an Event of Default has occurred and continues to then exist, Lender may, in its sole discretion, elect whether to permit such Net Proceeds to be applied to the repair and replacement of the affected Collateral, or toward payment of the Loan.

 

(iii)          Any partial prepayments of principal with respect to the Loan made under this Section 2.2(f) will be applied: first, to pay all unpaid fees, costs and expenses under this Agreement and the other Loan Documents, including Lender’s Expenses; second, to the payment of accrued and unpaid interest on the Loan; and third, to the principal amount of the Loan.

 

3

 

 

(g)          Mandatory Prepayment Upon an Acceleration. If the Loan is accelerated by the Lender following the occurrence and during the continuance of an Event of Default, Borrower shall immediately pay to the Lender for the account of the Lender an amount equal to the sum of (i) all outstanding principal amount of the Loan plus accrued and unpaid interest with respect to the Loan and (ii) all other Obligations, if any, that shall have become due and payable with respect to the Loan, including Lender’s Expenses.

 

2.3          Payment of Interest on the Loan.

 

(a)          Interest Rate. Subject to Section 2.3(b), the Loan (other than the portion of the Loan constituting the Capitalized Fee) shall bear interest on the outstanding principal amount thereof from time to time at a per annum rate equal to the Applicable Rate, which interest shall be paid as provided in Section 2.2 above on each Payment Date, in cash, or, in-kind, in accordance with Section 2.3(c) below. The Applicable Rate for each year of the Loan (other than the portion of the Loan constituting the Capitalized Fee) shall be established and fully earned on the Closing Date for the First Annual Period and thereafter for each Annual Period on each anniversary of the Loan as follows: (i) for the Second Annual Period on the date is the first anniversary of the Closing Date; (ii) for the Third Annual Period on the date is the second anniversary of the Closing Date; (iii) for the Fourth Annual Period on the date is the third anniversary of the Closing Date and (iv) for the Fifth Annual Period on the date is the fourth anniversary of the Closing Date, and, in each case, shall not be subject to any downward adjustment as a result of any repayment or prepayment during such year. In the event for any month, the Net Monthly Cash Flow thereof is insufficient to cover interest payment under this Agreement, such deficiency shall be deemed paid-in-kind by capitalizing such deficiency in interest payment and adding such amount to the principal amount of the Loan evidenced under this Agreement and shall be included in the Amount for the next succeeding Annual Period and will earn interest at the Applicable Rate for such Annual Period. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

 

(b)          Default Rate. Upon the occurrence and during the continuance of an Event of Default, the Obligations shall bear interest at a rate per annum which is two percent (2.0%) above the Applicable Rate in the year in which the Event of Default occurs (the “Default Rate”); provided that if the Event of Default occurs as a result of non-payment on the Maturity Date, then the Default Rate shall be 16.0%/annum. Fees and expenses which are required to be paid by any Loan Party pursuant to the Loan Documents (including, without limitation, Lender’s Expenses) but are not paid when due shall bear interest until paid at a rate equal to the highest rate then applicable to the Obligations. Payment or acceptance of the increased interest rate provided in this Section 2.3(b) is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of the Lender.

 

(c)          Payment; Interest Computation. Interest is payable on each Payment Date and on the Maturity Date; provided that in the event of any repayment or prepayment of any Loan, accrued and unpaid interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment. All computations of interest and fees shall be made on the basis of a three hundred sixty (360) day year and actual days elapsed. Each determination by the Lender of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. In computing interest, (x) all payments received after 3:00 p.m. (Eastern time) on any day shall be deemed received at the opening of business on the next Business Day, and (y) the date of the making of the applicable Loan (i.e. the Closing Date and the date any unpaid interest is capitalized) shall be included and the date of payment shall be excluded, provided that any Loan that is repaid on the same day on which it is made bears interest for one (1) day.

 

4

 

 

(d)          Anything herein to the contrary notwithstanding, the obligations of the Borrower hereunder shall be subject to the limitation that payments of interest shall not be required, for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by the Lender would be contrary to the provisions of any law applicable to the Lender limiting the highest rate of interest which may be lawfully contracted for, charged or received by the Lender, and in such event the Borrower shall pay the Lender interest at the highest rate permitted by applicable law (“Maximum Lawful Rate”); provided, however, that if at any time thereafter the rate of interest payable hereunder is less than the Maximum Lawful Rate, the Borrower shall continue to pay interest hereunder at the Maximum Lawful Rate until such time as the total interest received by the Lender is equal to the total interest that would have been received had the interest payable hereunder been (but for the operation of this paragraph) the interest rate payable since the Closing Date as otherwise provided in this Agreement.

 

2.4          Fees. Borrower shall pay to the Lender:

 

(a)           Closing Fee. On the Closing Date, a fully earned, non-refundable closing fee equal to $750,000 (the “Closing Fee”) to be paid to the Lender for the account of the Lender, of which an amount equal to $350,000 shall be paid in cash on the Closing Date and the balance of $400,000 shall be capitalized and added to the principal balance of the Loan; and

 

(b)          Lender’s Expenses. All Lender’s Expenses incurred through and after the Closing Date, within five (5) days after demand by the Lender.

 

2.5          Payments; Application of Payments.

 

(a)          All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff. When a payment is due on a day that is not a Business Day, the payment shall be due the next Business Day (unless such next Business Day falls on a date that is in a subsequent month, then such payment shall be made on the immediately preceding Business Day), and additional fees or interest, as applicable, shall continue to accrue until paid.

 

(b)          Except when such allocation or application is specified elsewhere in this Agreement, the Lender have the exclusive right to determine the order and manner in which all payments with respect to the Obligations may be applied and Borrower shall have no right to specify the order or the accounts to which the Lender shall allocate or apply any payments required to be made by Borrower to the Lender or otherwise received by the Lender under this Agreement.

 

(c)           Lender shall maintain in accordance with its usual practice an account or accounts evidencing the Indebtedness of Borrower to the Lender resulting from the Loan made by the Lender, including the amounts of principal and interest payable and paid to the Lender from time to time hereunder. The entries made in the accounts maintained pursuant to this Section 2.5(c) shall be prima facie evidence (absent manifest error) of the existence and amounts of the obligations recorded therein; provided that the failure of the Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of Borrower to repay the Loan in accordance with the terms of this Agreement.

 

(d)          The Lender may request that Loan made by it be evidenced by a promissory note (a “Note”). In such event, Borrower shall prepare, execute and deliver to the Lender a promissory note payable to the Lender or its registered assigns and in a form approved by the Lender. Thereafter, unless otherwise agreed to by the Lender, the Loan evidenced by such promissory note and interest thereon shall at all times be represented by one or more promissory notes in such form payable to the payee named therein or its registered assigns.

 

5

 

 

2.6          Settlement Procedures. If the Lender receives any payment for the account of the Lender after 3:00 p.m. (Eastern time) on any Business Day, the Lender shall be deemed to have received such payment on the next Business Day.

 

2.7          Taxes.

 

(a)          Payments Free of Taxes. Payments made by any Loan Party under the Loan Documents will be made free and clear of and without deduction for any and all Taxes, except as required by applicable Law. If at any time any Governmental Authority (including guidance therefrom), applicable law, regulation or international agreement requires any Loan Party to make any withholding or deduction of Indemnified Taxes from any such payment or other sum payable hereunder to the Lender, Borrower hereby covenants and agrees that the sum payable by Borrower with respect to such payment will be increased to the extent necessary to ensure that, after the making of such required withholding or deduction of Indemnified Taxes (including such deductions and withholdings applicable to additional sums payable under this sentence), the Lender receives a net sum equal to the sum which it would have received had no withholding or deduction of Indemnified Taxes been required, and Borrower shall pay the full amount withheld or deducted to the relevant Governmental Authority. Borrower will, upon request, furnish such Lender with proof reasonably satisfactory to such Lender indicating that Borrower has made such withholding payment.

 

(b)          Status of Lenders. Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower, at the time or times reasonably requested by the Borrower, such properly completed and executed documentation reasonably requested by Borrower as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower as will enable the Borrower to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in paragraphs (b)(i)(1), (i)(2) and (i)(4) of this Section) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.

 

(i)          Without limiting the generality of the foregoing,

 

(1)any Lender that is a U.S. Person shall deliver to the Borrower on or about the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower), executed copies of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;

 

6

 

 

(2)any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower (in such number of copies as shall be requested by the recipient) on or about the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower), whichever of the following is applicable:

 

(A) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or IRS Form W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;

 

(B) executed copies of IRS Form W-8ECI;

 

(C) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the IRC, (x) a certificate substantially in the form of Exhibit B-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the IRC, a “10 percent shareholder” of the Borrower within the meaning of Section 871(h)(3)(B) of the IRC, or a “controlled foreign corporation” related to the Borrower as described in Section 881(c)(3)(C) of the IRC (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN or IRS Form W 8BEN-E; or;

 

(D) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, IRS Form W 8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit B-2 or Exhibit B-3, IRS Form W-9, or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit B-4 on behalf of each such direct and indirect partner;

 

(3)any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower (in such number of copies as shall be requested by the recipient) on or about the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower), executed copies of any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by Applicable Law to permit the Borrower to determine the withholding or deduction required to be made; and

 

7

 

 

(4)if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the IRC, as applicable), such Lender shall deliver to the Borrower at the time or times prescribed by law and at such time or times reasonably requested by the Borrower such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the IRC) and such additional documentation reasonably requested by the Borrower as may be necessary for the Borrower to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount, if any, to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.

 

Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower in writing of its legal inability to do so.

 

(c)          Payment of Other Taxes by Borrower. Borrower shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Lender, timely reimburse it for the payment of Other Taxes.

 

(d)          Indemnification by Borrower. Borrower shall indemnify the Lender, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 2.7) payable or paid by the Lender or required to be withheld or deducted from a payment to the Lender and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrower by the applicable Lender shall be conclusive absent manifest error. The agreements and obligations contained in this Section 2.7 shall survive the termination of this Agreement.

 

(e)           Evidence of Payments. As soon as practicable after any payment of Taxes by the Borrower to a Governmental Authority pursuant to this Section, the Borrower shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender.

 

(f)           Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section (including by the payment of additional amounts pursuant to this Section), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (f) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (f), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (f) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.

 

8

 

 

(g)          The agreements and obligations contained in this Section 2.7 shall survive any assignment of rights by, or the replacement of, the Lender, the repayment, satisfaction or discharge of all Obligations under any Loan Document and the termination of this Agreement.

 

2.8          Increased Costs and Reduction of Return.

 

 (a)          If the Lender shall determine that, due to either (i) the introduction of, or any change in, or in the interpretation of, any Requirement of Law or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), in the case of either clause (i) or (ii) subsequent to the date hereof, the Lender shall be subject to any Taxes on the Loan, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto, then the Borrower shall be liable for, and shall from time to time, within thirty (30) days of demand therefor by the Lender (with a copy of such demand to the Lender), pay to the Lender for the account of the Lender, additional amounts as are sufficient to compensate the Lender for such increased costs or such Taxes; provided, that the Borrower shall not be required to compensate the Lender pursuant to this Section 2.8 for any such additional amounts incurred more than 180 days after the Maturity Date; provided, further, that if such change in Requirement of Law giving rise to such additional amounts is retroactive, then such period will be extended to include the period of retroactive effect thereof.

 

 (b)          If the Lender shall have determined that:

 

(i)          the introduction of any Capital Adequacy Regulation;

 

(ii)         any change in any Capital Adequacy Regulation;

 

(iii)        any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof; or

 

(iv)        compliance by the Lender (or its lending office) or any entity controlling the Lender, with any Capital Adequacy Regulation;

 

affects the amount of capital required or expected to be maintained by the Lender or any entity controlling the Lender and (taking into consideration the Lender’s or such entities’ policies with respect to capital adequacy and the Lender’s desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment(s), Loan, credits or obligations under this Agreement, then, within thirty (30) days of demand of the Lender (with a copy to the Lender), the Borrower shall pay to the Lender, from time to time as specified by the Lender, additional amounts sufficient to compensate the Lender (or the entity controlling the Lender) for such increase; provided, that the Borrower shall not be required to compensate the Lender pursuant to this Section 2.8 for any such additional amounts incurred more than 180 days after the Maturity Date; provided, further, that if such change in Capital Adequacy Regulation giving rise to such additional amounts is retroactive, then such period will be extended to include the period of retroactive effect thereof.

 

9

 

 

(c)          Notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case in respect of this clause (ii) pursuant to Basel III, shall, in each case, be deemed to be a change in a Requirement of Law under Section 2.8(a) above and/or a change in Capital Adequacy Regulation under Section 2.8(b) above, as applicable, regardless of the date enacted, adopted or issued.

 

3.CONDITIONS PRECEDENT

 

3.1          Closing Date Lender’s obligation to make the Loan hereunder shall not become effective until the date on which the Lender shall have received, in form and substance reasonably satisfactory to the Lender, each of the following:

 

(a)           from each party thereto, a counterpart of this Agreement and the other Loan Documents to be executed and delivered as of the Closing Date, signed and delivered on behalf of such party;

 

(b)          Closing Date Equity Issuance for the Lender;

 

(c)           the Operating Documents and certified good standing certificates of each as of a recent date;

 

(d)          an officer’s certificate of each Loan Party with respect to such Loan Party’s Operating Documents, incumbency, specimen signatures and resolutions authorizing the execution and delivery of this Agreement and the other Loan Documents to which it is a party;

 

(e)          searches of Code filings in the jurisdiction of incorporation or formation, as applicable, of the Loan Party and in the jurisdiction of its chief executive office, copies of the financing statements on file in such jurisdictions and evidence that no Liens exist on any property and asset of the Borrower and with respect to asset and properties of any Guarantor, no Liens exist other than Permitted Liens and tax lien, judgment and bankruptcy searches;

 

(f)           the Perfection Certificate of the Loan Parties, together with the duly executed signatures thereto;

 

(g)          Code financing statements in appropriate form for filing each appropriate jurisdiction as is necessary to perfect the Lender’s Lien in the Collateral;

 

(h)          a legal opinion of counsel to the Loan Parties dated the Closing Date;

 

10

 

 

(i)            payment of the fees then due and Lender’s Expenses incurred on or prior to the Closing Date and the $350,000 closing fee that is payable in cash on the Closing Date;

 

(j)            searches of ownership of Intellectual Property in the appropriate governmental offices and such patent/trademark/copyright filings as requested by the Lender to clear chain of title and to determine filings that need to be made in order to perfect the Lender’s security interest in the Intellectual Property;

 

(k)           subject to Section 7.13, in the case of any personal property Collateral located at premises leased by a Loan Party, such estoppel letters, consents and waivers from the landlords of such real property to the extent required to be delivered hereunder (such letters, consents and waivers shall be in form and substance reasonably satisfactory to the Lender);

 

(l)            to the extent required to be delivered, filed, registered or recorded, all instruments, documents and chattel paper in the possession of any of the Loan Parties, together with allonges or assignments as may be necessary or appropriate to create and perfect the Lender’s and the Lender’ security interest in the Collateral;

 

(m)          subject to Section 7.13 and Section 5.9, Qualifying Control Agreements reasonably satisfactory to the Lender;

 

(n)          subject to Section 7.13, Wallet Security Agreements for each Wallet;

 

(o)          subject to Section 7.13, the Lender shall have received certificates evidencing liability, casualty and property insurance meeting the requirements set forth herein or in the other Loan Documents;

 

(p)          the Lender shall have received a solvency certificate signed by a Responsible Officer of each Loan Party as to the financial condition, solvency and related matters of the Loan Parties, after giving effect to the Loan under the Loan Documents and the other transactions contemplated hereby;

 

(q)          the Borrower shall have provided to the Lender, and the Lender shall be reasonably satisfied with, the documentation and other information so requested in connection with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Patriot Act, and any Loan Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation;

 

(r)           (i) the representations and warranties contained in ARTICLE VI and in each other Loan Document, certificate or other writing delivered to the Lender pursuant hereto or thereto on or prior to the date hereof are true and correct in all material respects (except that such materiality qualifier shall not be applicable to representations and warranties that already are qualified or modified as to “materiality” or “Material Adverse Effect” in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date in which case such representations and warranties shall have been true and correct on such earlier date, and (ii) no Default or Event of Default shall have occurred and be continuing on the Closing Date or would result from this Agreement or the other Loan Documents becoming effective in accordance with its or their respective terms;

 

(s)          NYDIG Document Transactions shall have been consummated;

 

11

 

 

(t)           [reserved];

 

(u)          USDG shall have not less than $2,000,000 in Liquidity;

 

(v)          Asset Purchase Agreement Transactions shall have been consummated; and

 

(w)          Certification from a Responsible Officer as to satisfaction of conditions set forth in clauses (r) – (v) above.

 

4.GUARANTY

 

4.1          The Guaranty. Each of the Guarantors hereby jointly and severally guarantees to the Lender for the benefit of the Lender as hereinafter provided, as primary obligor and not as surety, the prompt payment of all Obligations in full when due (whether at stated maturity, by acceleration or otherwise) strictly in accordance with the terms thereof. Guarantors hereby further agree that if any of the Obligations are not paid in full when due (whether at stated maturity, by acceleration or otherwise), Guarantors will, jointly and severally, promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.

 

Notwithstanding any provision to the contrary contained herein or in any other of the Loan Documents, the obligations of each Guarantor under this Agreement and the other Loan Documents shall be limited to an aggregate amount equal to the largest amount that would not render such obligations subject to avoidance under the Debtor Relief Laws or any comparable provisions of any applicable state law.

 

4.2          Obligations Unconditional. The Obligations of the Guarantors under Section 4.1 are joint and several, absolute and unconditional, irrespective of the value, genuineness, validity, regularity or enforceability of any of the Loan Documents or any other agreement or instrument referred to therein, or any substitution, release, impairment or exchange of any other guarantee of or security for any of the Obligations, and, to the fullest extent permitted by applicable law, irrespective of any law or regulation or other circumstance whatsoever which might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor (other than payment in full of the Obligations), it being the intent of this Section 4.2 that the Obligations of the Guarantors hereunder shall be absolute and unconditional under any and all circumstances. Each Guarantor agrees that any right of subrogation, indemnity, reimbursement or contribution it may have against Borrower or any other Guarantor for amounts paid under this Section 4 shall be subordinate and subject in right of payment to the Obligations of such Guarantors under the Loan Documents and no Guarantor shall exercise such rights of subrogation, indemnity, reimbursement or contribution until the applicable Termination Date shall have occurred. Without limiting the generality of the foregoing, it is agreed that, to the fullest extent permitted by law, the occurrence of any one or more of the following shall not alter or impair the liability of any Guarantor hereunder, which shall remain absolute and unconditional as described above: (a) at any time or from time to time, without notice to any Guarantor, the time for any performance of or compliance with any of the Obligations shall be extended, or such performance or compliance shall be waived; (b) any of the acts mentioned in any of the provisions of any of the Loan Documents or any other agreement or instrument referred to in the Loan Documents shall be done or omitted; (c) the maturity of any of the Obligations shall be accelerated, or any of the Obligations shall be modified, supplemented or amended in any respect, or any right under any of the Loan Documents or any other agreement or instrument referred to in the Loan Documents shall be waived or any other guarantee of any of the Obligations or any security therefor shall be released, impaired or exchanged in whole or in part or otherwise dealt with; (d) any Lien granted to, or in favor of, the Lender as security for any of the Obligations shall fail to attach or be perfected or if there shall be any exchange or release of any security interest in any collateral; or (e) any of the Obligations shall be determined to be void or voidable (including, without limitation, for the benefit of any creditor of any Guarantor) or shall be subordinated to the claims of any Person (including, without limitation, any creditor of any Guarantor).

 

12

 

 

The liability of the Guarantors under this Section 4 shall be absolute, irrevocable and unconditional irrespective of (a) any lack of validity, regularity or enforceability of the Loan Agreement or any other Loan Document, (b) any lack of validity, regulatory or enforceability of this guaranty, (c) any failure on the part of the Lender or any other Person to exercise, or delay in exercising, any right under the Loan Agreement or any other Loan Document or (d) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Borrower, the Guarantors or any other guarantor with respect to the Obligations, this Guaranty and the obligations of the Guarantors under this guaranty (including, without limitation, all defenses based on suretyship or impairment of collateral, and all defenses that Borrower may assert to the repayment of the Obligations, including, without limitation, failure of consideration, breach of warranty, payment, statute of frauds, bankruptcy, lack of legal capacity, statute of limitations, lender liability, accord and satisfaction, and usury).

 

The Guarantors hereby agree that if Borrower or any other guarantor of all or a portion of the Obligations is the subject of a bankruptcy or similar case under any Debtor Relief Laws, it will not assert the pendency of such case or any order entered therein as a defense to the timely payment of the Obligations. The Guarantors hereby waive notice of or proof of reliance by the Lender upon this Guaranty, and the Obligations shall conclusively be deemed to have been created, contracted, incurred, renewed, extended, amended or reduced (as to Borrower only) in reliance upon this Guaranty.

 

With respect to its Obligations hereunder, each Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that the Lender exhaust any right, power or remedy or proceed against any Person under any of the Loan Documents or any other agreement or instrument referred to in the Loan Documents, or against any other Person under any other guarantee of, or security for, any of the Obligations.

 

The guarantee in Section 4.1 is a guaranty of payment and not of collection, is a continuing guarantee, and shall apply to all Obligations whenever arising.

 

Notwithstanding anything to the contrary in this Agreement, except as set forth in the proviso hereof and the next sentence, recourse against any Limited Recourse Guarantor in respect of any amount payable under this Agreement shall be limited solely to Collateral; provided that each Limited Recourse Guarantor shall be fully liable to the Lender for any deficiency, loss or damage suffered by the Lender as a result of any sale, transfer or other disposal by any Limited Recourse Guarantor of any interest in, or any Lien or encumbrance created by any Limited Recourse Guarantor upon or with respect to, the Collateral that is not permitted under this Agreement. In addition, each Guarantor (including each Limited Recourse Guarantor) shall be liable for Lender Expenses if any Limited Recourse Guarantor fails to perform any agreement contained herein or any other Loan Document or any Limited Recourse Guarantor fails to turn over to the Lender, or provide Lender with access to (but without having the Lender to incur any costs related to such access), any portion of Collateral following an Event of Default.

 

13

 

 

4.3          Reinstatement.

 

The Obligations of the Guarantors under this Section 4 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of any Person in respect of the Obligations is rescinded or must be otherwise restored by any holder of any of the Obligations, whether as a result of any proceeding under any Debtor Relief Law or otherwise.

 

4.4          Remedies.

 

The Guarantors agree that, to the fullest extent permitted by law, as between the Guarantors, on the one hand, and the Lender, on the other hand, the Obligations may be declared to be forthwith due and payable as provided in Section 10.1 (and shall be deemed to have become automatically due and payable in the circumstances provided in Section 10.1) for purposes of Section 4.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or preventing the Obligations from becoming automatically due and payable) as against any other Person and that, in the event of such declaration (or the Obligations being deemed to have become automatically due and payable), the Obligations (whether or not due and payable by any other Person) shall forthwith become due and payable by the Guarantors for purposes of Section 4.1. The Guarantors acknowledge and agree that their Obligations hereunder are secured in accordance with the terms of this Agreement and the other Loan Documents and that the Lender may exercise their remedies thereunder in accordance with the terms hereof and thereof.

 

4.5          Rights of Contribution.

 

The Guarantors agree among themselves that, in connection with payments made hereunder, each Guarantor shall have contribution rights against the other Guarantors as permitted under Requirement of Law. Such contribution rights shall be subordinate and subject in right of payment to the Obligations of such Guarantors under the Loan Documents and no Guarantor shall exercise such rights of contribution until the applicable Termination Date shall have occurred.

 

5.COLLATERAL

 

5.1          Grant of Security Interest. Each Loan Party hereby grants the Lender, for the ratable benefit of the Lender, to secure the payment and performance in full of all of the Obligations, a continuing security interest (the “Security Interest”) in, and pledges to the Lender, for the ratable benefit of the Lender, the Collateral, wherever located, whether now owned or hereafter acquired or arising. For clarity, any reference to “the Lender’s Lien” or any granting of collateral to the Lender in this Agreement or any Loan Document means the Lien granted to the Lender. All rights of the Lender hereunder, the Security Interest, the grant of a security interest in the pledged Collateral and all obligations of each Loan Party hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of this Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing, (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from this Agreement, any other Loan Document or any other agreement or instrument, (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from any guarantee, securing or guaranteeing all or any of the Obligations or (d) any other circumstance (other than payment in full of the Obligations) that might otherwise constitute a defense available to, or a discharge of, any Loan Party in respect of the Obligations or this Agreement.

 

14

 

 

5.2          Perfection of Security Interest. Subject to the limitations set forth herein and in the other Loan Documents, each Loan Party shall take all action that the Lender may reasonably request, so as at all times to maintain the validity, perfection, enforceability and priority of the Lender’s security interest in and Lien on the Collateral to the extent such perfection and priority are contemplated herein or under any other Loan Document, or to enable the Lender to protect, exercise or enforce its rights hereunder and in the Collateral, including, but not limited to, executing and delivering financing statements, instruments of pledge and other documents as the Lender may reasonably request, in each case in form and substance reasonably satisfactory to the Lender, relating to the creation, validity, perfection, maintenance or continuation of the Lender’s Lien granted hereunder under the Code or other applicable to the extent contemplated by this Agreement and the other Loan Documents. By its signature hereto, each Loan Party hereby authorizes the Lender to file against such Loan Party, one or more financing, continuation or amendment statements pursuant to the Code in form and substance reasonably satisfactory to the Lender (which statements may have a description of collateral which is broader than that set forth herein, including without limitation a description of Collateral as “all assets” and/or “all personal property” of any Loan Party). The Lender is further authorized to file with the United States Patent and Trademark Office or United States Copyright Office the Notice of Grant of Security Interest in Intellectual Property in the form acceptable to the Lender in its sole discretion and such other documents as may be reasonably necessary or advisable for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest granted by the Loan Party in such Loan Party’s Patents, Trademarks and Copyrights, without the signature of such Loan Party, and naming such Loan Party or the Loan Parties, as debtors and the Lender as secured party.

 

5.3          Chattel Paper. To the extent any Loan Party holds or obtains any chattel paper that is Collateral with an amount payable thereunder or in connection therewith in excess of $10,000, the Borrower will promptly (i) deliver to the Lender all such tangible chattel paper duly endorsed and accompanied by duly executed instruments of transfer or assignment and (ii) upon the Lender’s request, take commercially reasonable steps necessary to provide the Lender with “control” as defined in the Code of all such electronic chattel paper, by having the Lender identified as the assignee of the records(s) (as defined in the Code) pertaining to the single authoritative copy thereof and otherwise complying with the applicable elements of control set forth in the Code. Upon the Lender’s written request, the Loan Party will mark conspicuously all such chattel paper with a legend indicating that such chattel paper is subject to the Lender’s Lien.

 

5.4          Instruments. Each Loan Party will promptly deliver to the Lender all instruments that are Collateral with an amount payable thereunder in excess of $10,000 it holds or obtains, duly endorsed and accompanied by duly executed instruments of transfer or assignment.

 

5.5          Pledged Equity Interests.

 

(a)          Each Loan Party will promptly deliver to the Lender all Equity Interests included in the Collateral that are evidenced by a certificate it holds, accompanied by duly executed stock powers or instruments of transfer in blank. Each Loan Party that is an issuer of the Equity Interests pledged hereunder confirms that it has received notice of the security interest granted hereunder and consents to such security interest and agrees to transfer record ownership of the securities issued by it in connection with any request by the Lender, if an Event of Default has occurred and is continuing.

 

15

 

 

(b)          Unless and until an Event of Default shall have occurred and be continuing each Loan Party shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of such Equity Interests or any part thereof for any purpose not prohibited by the terms of this Agreement or the other Loan Documents.

 

(c)          With respect to an uncertificated security included in the Collateral held by any Loan Party, such Loan Party shall promptly (but in any event within five (5) Business Days) execute, and cause the issuer of such uncertificated security to duly authorize, execute and deliver to the Lender, an agreement reasonably satisfactory in form and substance to the Lender pursuant to which such issuer agrees to comply with any and all instructions originated by the Lender without further consent by such Loan Party and not to comply with instructions regarding such uncertificated security (and any partnership interests and limited liability company interests issued by such issuer) originated by any other Person other than a court of competent jurisdiction.

 

5.6          Letters of Credit. Each Loan Party will provide the Lender with prompt notice if it shall obtain any letter-of-credit rights that is Collateral in excess of $10,000 and, upon the Lender’s written request, use commercially reasonable efforts to cause the Lender to obtain “control” (as defined in the Code) of such letter-of-credit-rights constituting Collateral (excluding any letter-of-credit rights that are supporting obligations in which a security interest may be perfected by filing a Code financing statement) in a manner reasonably acceptable to the Lender.

 

5.7          Intellectual Property. If any Loan Party acquires ownership of any new or additional issued or applied for United States federal Patent, registered or applied for United States Trademark or registered United States federal Copyright, in each case, that is Collateral, the Loan Party shall give to the Lender written notice thereof following the end of the fiscal quarter in which such new or additional issued or applied for United States federal Patent, registered or applied for United States Trademark or registered United States federal Copyright were acquired not later than the day on which financial statements are delivered with respect to such fiscal quarter pursuant to Section 7.2(a) or (b), and shall deliver a Notice of Grant of Security Interest in Intellectual Property. Each Loan Party shall with respect to the following to the extent it is Collateral: (a) prosecute diligently any copyright, patent or trademark application at any time pending in the name of such Loan Party; (b) make application for registration or issuance of all new copyrights, patents and trademarks owned by such Loan Party as reasonably deemed appropriate by such Loan Party; and (c) preserve and maintain all rights in the Intellectual Property owned by such Loan Party, in each case, where the failure to do so could reasonably be expected to have a Material Adverse Effect. For the purpose of enabling the Lender to exercise rights and remedies under this Agreement at such time as the Lender shall be lawfully entitled to exercise such rights and remedies under this Agreement, each Loan Party hereby grants to the Lender a nonexclusive, irrevocable license (exercisable without payment of royalty or other compensation to any such Loan Party) to use or sublicense any of the Collateral now owned or hereafter acquired by such Loan Party that constitutes Intellectual Property and license rights included in the General Intangibles, wherever the same may be located, and including in such license, solely to the extent necessary to exercise such rights and remedies, reasonable access to media in which any of the licensed items may be recorded or stored and to all computer software used for the compilation or printout thereof.

 

5.8          Commercial Tort Claims. If any Loan Party shall hold a commercial tort claim that is Collateral in an amount reasonably estimated by such Loan Party to be equal to or exceed $10,000, the Borrower shall promptly notify the Lender thereof in a writing signed by such Loan Party, including a summary description of such claim, and grant to the Lender in writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to include a supplement to Schedule 2 hereto and be in form and substance reasonably satisfactory to the Lender.

 

16

 

 

5.9          Deposit Accounts. Each Loan Party shall enter into a Qualifying Control Agreements (each, an “Account Control Agreement”), with the Lender and any bank with which such Loan Party maintains a deposit account on the Closing Date (other than Excluded Deposit Accounts) with respect to each such deposit account (within thirty (30) days after the Closing Date (or such longer period as the Lender may agree). In addition, the Loan Parties shall enter into an Account Control Agreement with respect to any new deposit account (other than Excluded Deposit Accounts) opened or acquired after the Closing Date within thirty (30) days (or such longer period as the Lender may agree) after such account is established or acquired.

 

6.REPRESENTATIONS AND WARRANTIES

 

Each Loan Party represents and warrants as follows:

 

6.1          Due Organization, Authorization, Power and Authority.

 

(a)          Such Loan Party (i) is duly organized or formed, validly existing and in good standing as a Registered Organization in its jurisdiction of formation, (ii) has all requisite power and authority and all requisite governmental licenses, permits, registrations, authorizations, consents and approvals to (x) own or lease its assets and carry on its business, and (y) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (iii) is duly qualified and licensed to do business and is in good standing in any jurisdiction in which the conduct of its business or its ownership of property and other assets or business which it is engaged in requires that it be qualified except, in the case of this clause (iii), where the failure to do so could not reasonably be expected to have a Material Adverse Effect. The copy of the Operating Documents of each Loan Party provided to the Lender pursuant to the terms of this Agreement is a true and correct copy of each such document, each of which is valid and in full force and effect.

 

(b)          The execution, delivery and performance by each Loan Party of the Loan Documents to which it is a party have been duly authorized, and do not (i) conflict with any of such Loan Party’s organizational documents, (ii) contravene, conflict with, constitute a default under or violate any material Requirement of Law, (iii) contravene, conflict with or violate any applicable order, writ, judgment, injunction, decree, determination or award of any Governmental Authority by which such Loan Party or any of its Subsidiaries or any of their property or assets may be bound or affected, (iv) require any action by, filing, registration, or qualification with, or Governmental Approval from, any Governmental Authority (except such Governmental Approvals which have already been obtained and are in full force and effect and filings necessary to perfect the security interests granted hereunder), or (v) conflict with, contravene, constitute a default or breach under, or result in or permit the termination or acceleration of, any material agreement by which such Loan Party is bound. Except as set forth on Schedule 1, no Loan Party is in default under any material agreement to which it is a party or by which it is bound.

 

(c)          No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (i)  the grant by any Loan Party of the Liens granted by it pursuant to the Loan Documents, (ii) the perfection or maintenance of the Liens created under the Loan Documents (including the first priority nature thereof) or (iii) the exercise by the Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Loan Documents, other than (x) authorizations, approvals, actions, notices and filings which have been duly obtained and (y) filings to perfect the Liens created by the Loan Documents.

 

17

 

 

(d)          This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by the Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against the Loan Party that is party thereto in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and subject to general principles of equity.

 

6.2          Collateral.

 

(a)          Each Loan Party has good title to, rights in, and the power to pledge each item of the Collateral upon which it purports to grant a Lien under this Agreement and the other Loan Documents, free and clear of Liens except, Permitted Liens. Each Loan Party has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, in each case free and clear of Liens prohibited by this Agreement.

 

(b)          On the Closing Date, each Loan Party has delivered to the Lender a completed Perfection Certificate signed by such Loan Party. As of the date hereof (i) such Loan Party’s exact legal name is that indicated on the Perfection Certificate and on the signature page hereof, (ii) such Loan Party is an organization of the type and is organized or incorporated in the jurisdiction set forth in the Perfection Certificate, (iii) the Perfection Certificate accurately sets forth such Loan Party’s organizational identification number or accurately states that such Loan Party has none, (iv) the Perfection Certificate accurately sets forth such Loan Party’s place of business, or, if more than one, its chief executive office as well as such Loan Party’s mailing address (if different than its chief executive office), (v) such Loan Party (and each of its predecessors) has not, in the past five (5) years, changed its jurisdiction of formation, organizational structure or type, or any organizational number assigned by its jurisdiction and (vi) all other information set forth on the Perfection Certificate pertaining to such Loan Party is true and correct in all material respects.

 

(c)          The Code financing statements or other appropriate filings, recordings or registrations containing a description of the Collateral have been prepared based upon the information set forth in the Perfection Certificate and constitute all the filings, recordings and registrations (other than filings required to be made in the United States Patent and Trademark Office and the United States Copyright Office in order to perfect the Security Interest in Collateral consisting of United States Patents, United States Trademarks and United States registered Copyrights) that are necessary as of the Closing Date to establish a valid and perfected security interest in favor of the Lender, for the benefit of the Lender, in respect of the Collateral in which the Security Interest may be perfected by filing, recording or registration in the United States (or any political subdivision thereof). The Notices of Grant of Security Interest in Intellectual Property executed by the applicable Loan Parties containing descriptions of all Collateral that consists of material United States federally issued Patents (and material Patents for which United States federal registration applications are pending), material United States federally registered Trademarks (and material Trademarks for which United States federal registration applications are pending) and material United States federally registered Copyrights (i) have been delivered to the Lender for recording with the United States Patent and Trademark Office and the United States Copyright Office, and (ii) are sufficient to protect the validity of and to establish a legal, valid and perfected security interest (or, in the case of Patents and Trademarks, notice thereof) in favor of the Lender, for the benefit of the Lender, in respect of all Collateral consisting of such Intellectual Property as of the Closing Date in which a security interest may be perfected by recording with the United States Patent and Trademark Office and the United States Copyright Office.

 

18

 

 

(d)          The Security Interest constitutes (i) a legal and valid security interest in the Collateral securing the payment and performance of the Obligations, (ii) subject to the filings described in Section 6.2(c), a perfected security interest in all Collateral in which a security interest may be perfected by filing, recording or registering a Code financing statement or analogous document in the United States (or any political subdivision thereof) and its territories and possessions pursuant to the Code or other applicable law in such jurisdictions and (iii) subject to the filings described in Section 6.2(c), a security interest that shall be perfected in all Collateral in which a security interest may be perfected upon the receipt and recording of the Notices of Grant of Security Interest in Intellectual Property with the United States Copyright Office. The Security Interest is and shall be prior to any other Lien on any of the Collateral, other than certain statutory Liens.

 

(e)          As of the date hereof, the Loan Parties do not hold commercial tort claims in the aggregate reasonably estimated to be equal to or in excess of $10,000 except as set forth on Schedule 2 hereto.

 

(f)          The Perfection Certificate includes a complete and accurate list as of the date hereof of (i) all Subsidiaries, joint ventures and partnerships and other equity investments of the Loan Parties, (ii) the number of shares of each class of Equity Interests in each Subsidiary outstanding, (iii) the number and percentage of outstanding shares of each class of Equity Interests owned by the Loan Parties and their Subsidiaries and (iv) the class or nature of such Equity Interests (i.e., voting, non-voting, preferred, etc.). The outstanding Equity Interests in all Subsidiaries are validly issued, fully paid and non-assessable and are owned free and clear of all Liens. There are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors’ qualifying shares) of any nature relating to the Equity Interests of any Loan Party or any Subsidiary thereof, except as contemplated in connection with the Loan Documents.

 

(g)          The Perfection Certificate includes a complete and accurate list of all Intellectual Property (including all applications for registration and issuance) owned by and a list of all material licensed Intellectual Property licensed by or to each of the Loan Parties (including the name/title of the property, current owner, registration or application number, and registration or application date and such other information as reasonably requested by the Lender).

 

(h)          The Perfection Certificate includes a complete and accurate description of all documents, instruments, and tangible chattel paper (each, as defined in the Code) of the Loan Parties (including the Loan Party owning such documents, instruments, and tangible chattel paper and such other information as reasonably requested by the Lender).

 

(i)          The Perfection Certificate includes a complete and accurate description of all deposit accounts and securities accounts of the Loan Parties, including the name of (A) the applicable Loan Party, (B) in the case of a deposit account, the depository institution and whether such account is a zero balance account or a payroll account, and (C) in the case of a securities account, the securities intermediary or issuer, as applicable.

 

(j)          The Perfection Certificate includes a complete and accurate description of all Electronic Chattel Paper (as defined in the Code) and Letter-of-Credit Rights (as defined in the Code) of the Loan Parties, including the name of (A) the applicable Loan Party, (B) in the case of Electronic Chattel Paper (as defined in the Code), the account debtor and (C) in the case of Letter-of-Credit Rights (as defined in the Code), the issuer or nominated person, as applicable.

 

19

 

 

(k)          The Perfection Certificate includes a complete and accurate list of (i) all pledged securities and (ii) all other Equity Interests required to be pledged to the Lender pursuant to the Loan Documents (in each case, detailing the Loan Party, the Person whose Equity Interests are pledged, the number of shares of each class of Equity Interests, the certificate number and percentage ownership of outstanding shares of each class of Equity Interests and the class or nature of such Equity Interests (i.e., voting, non-voting, preferred, etc.)).

 

(l)          [reserved].

 

(m)          The Loan Party owns, licenses or otherwise has a valid right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, trade secrets, know-how, franchises, licenses and other intellectual property rights that are material to the operation of their respective businesses. To the knowledge of each Loan Party, neither the operation of the business, nor any product, service, process, method, substance, part or other material now used, or now contemplated to be used, by any Loan Party infringes, misappropriates, dilutes or otherwise violates in any material respect upon any rights held by any other Person. Except as set forth on Schedule 4, no claim or litigation regarding any of the foregoing is pending or, to the knowledge of any Loan Party, threatened in writing, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. To the knowledge of any Loan Party, there has been no unauthorized use, access, interruption, modification, corruption or malfunction of any information technology assets or systems (or any information or transactions stored or contained therein or transmitted thereby) owned or used by any Loan Party, which, either individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.

 

6.3          Litigation. Except as disclosed on Schedule 4, there are no actions, suits, investigations, proceedings, claims or disputes pending, or, to the knowledge of the Loan Parties, threatened or contemplated in writing, at law, in equity, in arbitration or before any Governmental Authority, by or against any Loan Party or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement or any other Loan Document or any of the transactions contemplated hereby, or (b) either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.

 

6.4          Financial Statements. The consolidated financial statements for Borrower delivered to the Lender in connection with the Loan Documents or pursuant to Section 7.2(a) or 7.2(b) (a) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (b) fairly present in all material respects the consolidated financial condition of the Borrower and each of its Subsidiaries as of the date thereof and their results of operations, cash flows and shareholders’ or members’ equity for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (c) show all material Indebtedness and other liabilities, direct or contingent, of the Borrower and each of its Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

 

6.5          Solvency. On the Closing Date, USDG, on a consolidated basis with its Subsidiaries, both before and after giving effect to the borrowing of the Loan on the Closing Date and the application of the proceeds thereof, is Solvent. On the Closing Date, the Borrower, both before and after giving effect to the borrowing of the Loan on the Closing Date and the application of the proceeds thereof, is Solvent.

 

20

 

 

6.6          Regulatory Compliance. Neither any Loan Party nor any of its Subsidiaries is an “investment company” required to be registered under the Investment Company Act of 1940, as amended. Neither any Loan Party nor any of its Subsidiaries is engaged as one of its important activities in extending credit for margin stock (under Regulations U and X of the Federal Reserve Board of Governors). Following the application of the proceeds of the Loan, not more than twenty-five percent (25%) of the value of the assets (either of the Borrower only or of USDG and each of its Subsidiaries on a consolidated basis) will be margin stock. None of the Borrower, any Person Controlling the Borrower, or any Subsidiary is or is required to be registered as an “investment company” under the Investment Company Act of 1940, or subject to regulation under the Public Utility Holding Company Act of 2005, the ICC Termination Act of 1995, or the Federal Power Act. Each Loan Party has obtained all consents, approvals and authorizations of, made all declarations or filings with, and given all notices to, all Governmental Authorities that are necessary to continue their respective businesses as currently conducted, except to the extent such failure to so obtain, make or give such consents, approvals, authorizations, declarations, filings or notices could not reasonably be expected to have a Material Adverse Effect. Each of the Loan Parties is in compliance with all Requirements of Law, except where such failure to comply could not reasonably be expected to have a Material Adverse Effect. No Loan Party is an Affected Financial Institution. No Loan Party is a Covered Entity.

 

6.7          Tax Returns and Payments. Each Loan Party and its Subsidiaries have filed all federal, state and other material tax returns and reports required to be filed, and have paid all federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP (such taxes, “Contested Taxes”). There is no proposed tax assessment against any Loan Party or any Subsidiary that would, if made, have a Material Adverse Effect, nor is there any tax sharing agreement applicable to the Borrower or any Subsidiary. The charges, accruals and reserves on the books of the Loan Party and its Subsidiaries in respect of U.S. federal, state or other taxes for all fiscal periods are adequate in all material respects.

 

6.8          Full Disclosure. The Loan Parties and their Subsidiaries have disclosed to the Lender all material agreements, instruments and corporate or other restrictions to which any Loan Party or any of its Subsidiaries or any other Loan Party is subject and there is no material fact known to any Responsible Officer of a Loan Party or any employee, the Lender or representative of any Loan Party that is communicating with the Lender in connection with the transactions (other than matters of a general economic or industry nature) that has not been disclosed to the Lender. No representation, warranty or other statement of any Loan Party in any certificate or written statement submitted to the Lender in connection with the Loan Documents (other than any projections, forecasts, other forward looking information and information of a general or industry specific nature), as of the date such representation, warranty, or other statement was made, taken together with all other such representations, warranties, certificates and written statements submitted to the Lender, contains any material misstatement of fact or omits to state a material fact necessary to make the statements contained therein taken as a whole not materially misleading in light of the circumstances under which they were made (provided that with respect to projections and forecasts provided by any Loan Party, the Loan Parties represent only that they were prepared in good faith based upon assumptions believe to be reasonable at the time made; it being recognized by the Lender that such projections and forecasts are not viewed as facts and that actual results during the period or periods covered thereby may differ from the projected or forecasted results).

 

21

 

 

6.9          Sanctions Concerns Etc.

 

(a)          No Loan Party or any of its Subsidiaries or, to the knowledge of the any Loan Party, any director, officer, employee of any Loan Party or any of its Subsidiaries is an individual or an entity that is (i) a Sanctioned Person or (ii) located, organized or resident in a Designated Jurisdiction. Each Loan Party and each of its Subsidiaries have conducted their businesses in compliance with all applicable Sanctions. No Loan Party nor Subsidiary (i) has violated, been found in violation of, or been charged or convicted under, any applicable Sanctions or (ii) to the knowledge of the Loan Parties and their Subsidiaries, is under investigation by any Governmental Authority for possible violation of any Sanctions. The Loan and the use of proceeds thereof will not violate applicable Sanctions.

 

(b)          The Loan Parties and their Subsidiaries have conducted their business in compliance with Anti-Corruption Laws and Anti-Money Laundering Laws. No Loan Party nor Subsidiary (i) has violated, been found in violation of, or been charged or convicted under, any applicable Anti-Money Laundering Laws or Anti-Corruption Laws or (ii) to the knowledge of the Loan Parties and their Subsidiaries, is under investigation by any Governmental Authority for possible violation of any Anti-Money Laundering Laws or Anti-Corruption Laws.

 

(c)          No part of the proceeds from any Loan hereunder:

 

(i)            will be used by the Loan Parties or their Subsidiaries, directly or indirectly, (A) in connection with any investment in, or any transactions or dealings with, any Sanctioned Person, (B) for any purpose that would cause the Lender to be in violation of any Sanctions or (C) otherwise in violation of any Sanctions;

 

(ii)           will be used, directly or indirectly, in violation of, or cause the Lender to be in violation of, any applicable Anti-Money Laundering Laws; or

 

(iii)          will be used, directly or indirectly, for the purpose of making any improper payments, including bribes, to any official of any Governmental Authority or commercial counterparty in order to obtain, retain or direct business or obtain any improper advantage, in each case which would be in violation of, or cause the Lender to be in violation of, any applicable Anti-Corruption Laws.

 

6.10       [Reserved].

 

6.11       No Default. After giving effect to this Agreement and the NYDIG Credit Transaction, no Default or Event of Default has occurred and is continuing, or would result from, the consummation of the transactions contemplated by this Agreement or any other Loan Document.

 

6.12       Environmental Law. Except as could not, individually or in the aggregate, reasonably be expected to result in any Material Adverse Effect on any of the Loan Parties or any of their respective Subsidiaries:

 

(i)          (A) None of the properties currently or formerly owned, leased or operated by any Loan Party or any of its Subsidiaries is listed or formally proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property; (B) there are no, and to the knowledge of the Loan Parties and their Subsidiaries never have been any underground or above-ground storage tanks or any surface impoundments, septic tanks, pits, sumps or lagoons in which Hazardous Materials are being or have been treated, stored or disposed on any property currently owned, leased or operated by any Loan Party or any of its Subsidiaries or, to the knowledge of the Loan Parties, on any property formerly owned, leased or operated by any Loan Party or any of its Subsidiaries; (C) there is no and there has never been any asbestos or asbestos-containing material on, at or in any property currently owned, leased or operated by any Loan Party or any of its Subsidiaries, except for asbestos or asbestos containing materials encapsulated in building materials and not friable or in a condition likely to lead to the exposure of persons to such material; (D) Hazardous Materials have not been released on, at, under or from) any property currently or formerly owned, leased or operated by any Loan Party or any of its Subsidiaries; and (E) no Loan Party or any of its Subsidiaries is subject to any Environmental Liability or knows of any facts or circumstances that could reasonably be expected to give rise to any Environmental Liability;

 

22

 

 

(ii)          (A) Neither any Loan Party nor any of its Subsidiaries is undertaking, and has not completed, either individually or together with other potentially responsible parties, any investigation or assessment or remedial or response action relating to any actual or threatened Release of Hazardous Materials at, on, under, or from any site, location or operation, either voluntarily or pursuant to the order of any Governmental Authority or the requirements of any Environmental Law; and (B) all Hazardous Materials generated, used, treated, handled or stored at, or transported by any Loan Party to or from, any property currently or formerly owned, leased or operated by any Loan Party or any of its Subsidiaries have been disposed of in a manner which could not reasonably expected to result in liability to any Loan Party or any of its Subsidiaries;

 

(iii)          The Loan Parties and their respective Subsidiaries: (A) are, and within the period of all applicable statutes of limitation have been, in compliance with all applicable Environmental Laws and have not incurred any liability under any Environmental Laws; (B) hold all Environmental Permits (each of which is in full force and effect) required for any of their current or intended operations or for any property owned, leased, or otherwise operated by any of them; (C) are, and within the period of all applicable statutes of limitation have been, in compliance with all of their Environmental Permits; (D) to the extent within the control of the Loan Parties and their respective Subsidiaries, will timely renew and comply with each of their Environmental Permits and any additional Environmental permits that may be required of any of them without material expense, and timely comply with any current, future or potential Environmental Law without material expense; and (E) are not aware of any requirements proposed for adoption or implementation under any Environmental Law.

 

 6.13       Each Loan Party and each of its Subsidiaries (and their properties) are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the applicable Loan Party or the applicable Subsidiary operates. The general liability, casualty and property coverage of the Loan Parties as in effect on the Closing Date complies with the requirements set forth in Section 7.4 of this Agreement.

 

23

 

 

6.14       Private Placement Representations.

 

(a)          None of the Loan Parties nor any of their affiliates (as defined in Rule 501(b) of Regulation D under the Securities Act) has, directly or through any the Lender, sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act), that is or will be integrated with the making of any Loan in a manner that would require registration of the Loan under the Securities Act.

 

(b)          None of the Loan Parties, any of their affiliates nor any other person acting on its or their behalf has solicited offers for, or offered, sold or assigned, any Loan by means of any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D under the Securities Act or in any manner involving a public offering within the meaning of Section 4(2) of the Securities Act.

 

(c)          It is not necessary, in connection with the making of Loan in the manner contemplated by this Agreement to register the Loan under the Securities Act or to qualify this Agreement under the Trust Indenture Act of 1939, as amended.

 

6.15       Compliance with ERISA; Labor Matters.

 

(a)           Except as would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect, each Plan and Foreign Plan is in compliance with the applicable provisions of ERISA, the Code and other federal or state Requirements of Law and applicable foreign laws, respectively.

 

(b)          (i) No ERISA Event or similar event with respect to a Foreign Plan has occurred or is reasonably expected to occur; (ii) neither any Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 et seq. or 4243 of ERISA with respect to a Multiemployer Plan; and (iii) neither any Loan Party nor any ERISA Affiliate has engaged in a transaction that would be subject to Section 4069 or 4212(c) of ERISA, except, with respect to each of the foregoing clauses of this Section 3.10(b), as would not reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.

 

(c)          There are no collective bargaining agreements or Multiemployer Plans covering the employees of any Loan Party as of the Closing Date and neither the Borrower nor any other Loan Party has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five (5) years preceding the Closing Date.

 

6.16          Loan.

 

Neither (a) any equipment or asset purchased using proceeds of the Original Loan or the Loan nor (b) any Crypto Assets that is Collateral, in each case, are or shall be subject to any Lien or security interest in favor of any person other than the Lender.

 

24

 

 

7.AFFIRMATIVE COVENANTS

 

Until the applicable Termination Date, the Loan Parties shall do all of the following:

 

7.1          Existence; Business and Properties; Laws; Etc..

 

(a)          Maintain its legal existence and good standing in their respective jurisdictions of formation except in a transaction permitted by Section 8.1 or, other than with respect to any Loan Party. The Loan Party shall maintain qualification in each jurisdiction in which the failure to so qualify could reasonably be expected to have a Material Adverse Effect.

 

(b)          Obtain all of the Governmental Approvals necessary for the performance by such Loan Party of its obligations under the Loan Documents to which it is a party and the grant of a security interest to the Lender, for the ratable benefit of the Lender, in the Collateral.

 

(c)           Comply, and cause its Subsidiaries to comply, with all Requirements of Law, except in each case in such instances in which (i) such Requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted, or (ii) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.

 

(d)          Do or cause to be done all things necessary to (i) lawfully obtain, preserve, renew, extend and keep in full force and effect the permits, franchises, authorizations, licenses and rights with respect thereto necessary to the normal conduct of its business, and (ii) at all times maintain, protect and preserve all property necessary to the normal conduct of its business and keep such property in good repair, working order and condition (ordinary wear and tear excepted), from time to time make, or cause to be made, all repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith, if any, may be properly conducted at all times.

 

(e)          Each Loan Party will, and will cause each of its Subsidiaries to, except where failure to comply would not reasonably be expected to result in a Material Adverse Effect (a) comply with all Environmental Laws, (b) obtain, maintain in full force and effect and comply with any permits, licenses or approvals required pursuant to Environmental Laws for the facilities or operations of the Loan Parties or any of their Subsidiaries, and (c) to the extent required by Environmental Laws, conduct and complete any investigation, study, sampling or testing, and undertake any corrective, cleanup, removal, response, remedial or other action necessary to identify, report, remove and clean up all Hazardous Materials present or released at, on, in, under or from any of the facilities or real properties of any Loan Party or any of its Subsidiaries.

 

(f)           Conduct its business in compliance in all material respects with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions and, maintain policies and procedures designed to promote and achieve compliance with such Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions.

 

(g)          Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of such Loan Party or such Subsidiary, as the case may be.

 

(h)          Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits, obtain and renew all Environmental Permits necessary for its operations and properties, and not incur any material liability under any Environmental Law.

 

25

 

 

7.2          Financial Statements, Reports and Notices. Provide the Lender (for prompt distribution to the Lender) with the following:

 

(a)           Quarterly Financial Statements; Monthly Financial Statements.

 

(i)            as soon as available and in any event within forty five (45) days after the end of each fiscal quarter that is also not the last fiscal quarter of a Fiscal Year of each Fiscal Year of the Borrower (A) beginning with the fiscal quarter ending March 31, 2023, unaudited balance sheet of the Borrower as of the end of such fiscal quarter and statements of operations and cash flow and shareholders’ or members’ equity of the Borrower for such fiscal quarter, all in reasonable detail and certified by a Responsible Officer of Borrower as presenting fairly in all material respects the financial condition and results of operation of the Borrower in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) and (B) beginning with the financial statements delivered as of and for the fiscal quarter ending March 31, 2024, for each such fiscal quarter, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous Fiscal Year all in reasonable detail.

 

(ii)           as soon as available and in any event within forty five (45) days after the end of each fiscal quarter that is also not the last fiscal quarter of a Fiscal Year of each Fiscal Year of USDG or, following the Qualifying IPO, the Parent Company (A) beginning with the fiscal quarter ending March 31, 2023, an unaudited consolidated and consolidating balance sheet of USDG and its Subsidiaries or, following the Qualifying IPO, the Parent Company and its Subsidiaries as of the end of such fiscal quarter and consolidated and consolidating statements of operations and cash flow and shareholders’ or members’ equity of USDG or the Parent Company, as the case may be, for such fiscal quarter, all in reasonable detail and certified by a Responsible Officer of USDG or the Parent Company, as the case may be, as presenting fairly in all material respects the financial condition and results of operation of USDG or the Parent Company, as the case may be, and such entity’s Subsidiaries on a consolidated basis in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes) and (B) beginning with the financial statements delivered as of and for the fiscal quarter ending March 31, 2024, for each such fiscal quarter, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous Fiscal Year all in reasonable detail.

 

(iii)          as soon as available, but in any event within thirty (30) days after the end of each month of each fiscal quarter of the Borrower (commencing with the fiscal month ending February 28, 2023), an unaudited balance sheet of the Borrower as of the end of such month and consolidated and consolidating statements of operations and cash flow and shareholders’ or members’ equity of the Borrower for such month and for the portion of the Borrower’s fiscal year than ended, all in reasonable detail and certified by a Responsible Officer of Borrower as presenting fairly in all material respects the financial condition and results of operation of the Borrower in accordance with GAAP (subject to normal year-end audit adjustments and the absence of footnotes.

 

(b)          Annual Financial Statements.

 

(i)            As soon as available and in any event within one hundred and twenty (120) days after the end of each Fiscal Year commencing with the Fiscal Year ending June 30, 2023, a copy of the unaudited balance sheet of the Borrower, and the related audited statements of operations, stockholders’ equity and cash flow of the Borrower for such Fiscal Year, and, beginning with the Fiscal Year ending June 30, 2023, setting forth in each case in comparative form the figures for the previous Fiscal Year, prepared in accordance with GAAP, consistently applied, together with an unqualified opinion from an independent public accountant reasonably acceptable to the Lender.

 

26

 

 

(ii)           as soon as available and in any event within one hundred and twenty (120) after the end of each Fiscal Year commencing with the Fiscal Year ending June 30, 2023 or, following the Qualifying IPO, December 31, 2023, a copy of the audited consolidated and consolidating balance sheet of USDG and its Subsidiaries or, following the Qualifying IPO, the Parent Company and its Subsidiaries, and the related audited consolidated and consolidating statements of operations, stockholders’ equity and cash flow of the Loan Parties for such Fiscal Year, and, beginning with the Fiscal Year ending June 30, 2023 or, following the Qualifying IPO, December 31, 2023, setting forth in each case in comparative form the figures for the previous Fiscal Year, prepared in accordance with GAAP, consistently applied, together with an unqualified opinion from an independent public accountant reasonably acceptable to the Lender.

 

Notwithstanding the foregoing, the obligations in paragraphs (a)(ii) and (b)(ii) of this Section 7.1 may be satisfied by furnishing the applicable financial statements of Parent Company, Form 10-K or 10-Q, as applicable, filed with the SEC; provided that to the extent such information is in lieu of information required to be provided under Section 7.1(b)(ii), such materials are accompanied by a report and opinion of an independent registered public accounting firm of nationally recognized standing, which report and opinion shall be prepared in accordance with generally accepted auditing standards subject, to the extent applicable, to the limitations set forth in Section 7.1(b)(ii).

 

(c)           Compliance Certificate. Concurrently with the delivery of the financial information pursuant to Sections 7.2(a)(i), 7.2(a)(ii), 7.2(b), a Compliance Certificate (in the form annexed hereto as Exhibit C) certifying that no Default or Event of Default has occurred and is continuing (or, if a Default or Event of Default has occurred, specifying the details of such Default or Event of Default and the action that the applicable Loan Party has taken or proposes to take with respect thereto).

 

(d)          Monthly Certificate. Within fifteen (15) days after the end of each fiscal month, commencing with March 2023, a certificate of a Responsible Officer of Borrower (in the form annexed hereto as Exhibit D), certifying compliance with Section 8.18 for such month and setting forth a calculation of (i) the Hash Rate performed by the Borrower for such month, (ii) Net Monthly Cash Flow (together with back-up detail and calculation thereof) for such month, (iii) Liquidity for each day of such month and (v) the SG&A for such month.

 

(e)           As soon as available, and in any event within 30 days after the end of each fiscal month of the Loan Parties and their Subsidiaries, commencing with the fiscal month ending February 28, 2023, each of the following reports, in a form reasonably acceptable to the Lender: (i) report on earned “hosting fees”; (ii) transaction details with respect to Bitcoin revenue and trades; (iii) invoices, account statements or similar documents from the power provider or hosting facility, as the case may be; (iv) monthly accounts receivable aging reports and monthly accounts payable aging reports and (v) a copies of the monthly bank statements.

 

(f)           Annual Operating Budget. On or prior to the Closing Date deliver a projection (on a monthly basis) of the Borrower’s SG&A for 2023 for the Lender’s approval and which shall be in form and substance acceptable to the Lender and thereafter as soon as available, and in any event no later than 90-days after the end of each Fiscal Year, commencing with the Fiscal Year ending June 30, 2023, a projection (on a monthly basis) of the Borrower’s SG&A for the next fiscal year for the Lender’s approval and which shall be in form and substance acceptable to the Lender.

 

27

 

 

(g)          Other Statements. Promptly after delivery, copies of all material statements, reports and notices (other than administrative communications) made available to Borrower’s security holders. Promptly upon receipt thereof, copies of all management letters submitted to the Borrower or any other Loan Party by independent auditors in connection with each annual audit made by such auditors of the books of the Borrower or any other Loan Party.

 

(h)          SEC Filings. Promptly after the same become publicly available, copies of all periodic and other publicly available reports or proxy statements publicly filed with the SEC.

 

(i)            Legal Action Notice; Material Adverse Events. Promptly after knowledge thereof by a Responsible Officer of any Loan Party (but in no case more than two (2) Business Days thereafter), (i) a report of any legal actions or governmental proceeding (including, without limitation, pursuant to any applicable Environmental Laws) pending or threatened in writing against any Loan Party or a Subsidiary of a Loan Party, or the occurrence of any other event, that could reasonably be expected to either have a Material Adverse Effect or a claim in excess of (x) $200,000 with respect to any Loan Party (other than the Parent Company) and (y) $1,000,000 with respect to the Parent Company or (ii) of the occurrence of any ERISA Event or similar event with respect to a Foreign Plan that would reasonably be expected to have either a Material Adverse Effect or result in a Lien not permitted by Section 8.3 on the property, assets or revenues of any Loan Party.

 

(j)            Notice of Default. Promptly after knowledge thereof by a Responsible Officer of any Loan Party (but in no case more than two (2) Business Days thereafter), notice of the occurrence of any Default or Event of Default setting forth details of the occurrence referred to therein and stating what action the applicable Loan Party has taken and proposes to take with respect thereto.

 

(k)           Beneficial Ownership Information. Prompt written notice of any changes to the beneficial ownership information provided to the Lender prior to the Closing Date, other than as a result of the consummation of the Qualified IPO. Promptly following any request therefor, information and documentation reasonably requested by the Lender for purposes of compliance with applicable “know your customer” and anti-money-laundering rules and regulations, including, without limitation, the Patriot Act and Beneficial Ownership Regulation. Borrower understands and acknowledges that Lender relies on such true and accurate beneficial ownership information to meet the Lender’s regulatory obligations to obtain, verify and record information about the beneficial owners of its legal entity customers;

 

(l)            Changes in Information. Within ten (10) days prior to any merger, consolidation, dissolution or other change in entity structure of any Loan Party or any of its Subsidiaries permitted pursuant to the terms hereof (or such extended period of time as agreed to by the Lender), provide notice of such change in entity structure to the Lender, along with such other information as reasonably requested by the Lender. Provide notice to the Lender, not less than ten (10) days prior (or such extended period of time as agreed to by the Lender) prompt written notice of (i)  any change of its jurisdiction of organization, (ii) any change of its organizational type, (iii) any change of its legal name, (iv) any change of its principal place of business or chief executive office or (v) any change in any organizational number (if any) assigned by its jurisdiction of organization. The Loan Parties agree not to effect or permit any change referred to in the preceding sentence unless all filings have been made, or shall be made substantially concurrently therewith, under the Code or otherwise that are required in order for the Lender to continue at all times following such change to have a valid, legal, and perfected security interest in all the Collateral as contemplated by the Loan Documents. Concurrently with the delivery of the Compliance Certificate referred to in Section 7.1(c) required to be delivered with the financial statements referred to in Sections 7.1(a)(i) or (b), the Loan Parties shall deliver to the Lender an officer’s certificate either confirming that there has been no change in such information since the date of the Perfection Certificate delivered on the Closing Date or the date of the most recent Perfection Certificate supplement delivered pursuant to this Section 7.2(k) and/or identifying such changes.

 

28

 

 

(m)          Concurrently with the delivery of each Compliance Certificate referred to in Section 7.2(c) required to be delivered with the financial statements referred to in Sections 7.2(a)(i), 7.2(a)(ii) or (b), a certificate (which may be included in such Compliance Certificate) including the amount of all (i) Restricted Payments made during such applicable period, (ii) Investments made during such applicable period, (iii) Asset Sales made during such applicable period, and (iv) Equity Interests issued during such period.

 

(n)          of any resignation by or replacement of the Borrower’s auditors.

 

(o)          Other Information. Other information reasonably requested by the Lender.

 

7.3          Taxes. Pay, and require each of its Subsidiaries to pay, all federal, state, local and foreign Taxes owed by Borrower and each of its Subsidiaries before the same shall become delinquent, except (i) for deferred payment of any Contested Taxes or (ii) to the extent the failure to pay such Taxes could not reasonably be expected to have a Material Adverse Effect.

 

7.4          Insurance.

 

(a)          At their sole cost and expense, maintain, with financially sound and reputable insurance companies, insurance (subject to customary deductibles and retentions) in such amounts (giving effect to self-insurance) and against such risks as are customarily maintained by similarly situated companies engaged in the same or similar businesses, and cause the Lender to be listed as a co-loss payee on property policies with respect to Collateral and as an additional insured on general liability policies. Borrower agrees to deliver to the Lender evidence of compliance with this Section 7.4(a), including any requested copies of policies, certificates and endorsements, on an annual basis and from time to time upon the Lender’s request. If any Loan Party fails to obtain insurance as required under this Section 7.4 or to pay any amount or furnish any required proof of payment to third persons and the Lender, the Lender may make all or part of such payment or obtain such insurance policies required in this Section 7.4, and take any action under such policies the Lender deems prudent and consistent with the provisions of the Loan Documents.

 

(b)          Bear the entire risk of loss, theft, damage to or destruction of the Collateral (including any condemnation, seizure, or requisition of title or use) (collectively, a “Casualty Event”). No Casualty Event shall relieve Borrower from any Obligation hereunder. Borrower shall promptly notify the Lender of any insurance claim or any Casualty Event resulting in $50,000 or more of damage to Collateral, and inform them of the circumstances and extent of the Casualty Event. Any Net Proceeds received by any Loan Party as the result of a Casualty Event with respect to any item of Collateral (including insurance proceeds and proceeds of condemnation or requisition) shall be applied to prepay the Loan in accordance with Section 2.2(f) and the definition of “Net Proceeds.”

 

7.5          Mining Equipment; Etc..

 

(a)          Subject to the limitations set forth in Section 7.7, the Loan Parties shall permit any representative that the Lender authorizes, all at the expense of the Borrower, to enter the location where mining equipment included in the Collateral is located at reasonable times and upon reasonable notice to inspect the mining equipment, subject to reasonable limitations placed on entry by the owner of the premises, if different from applicable Loan Party. Such mining equipment shall not constitute, and the Loan Parties shall ensure that it shall not constitute, real property or fixtures and the parties agree that such mining equipment is and shall be removable from, and is not essential to, the premises where such mining equipment is located.

 

29

 

 

(b)          The Loan Parties agree to provide the Lender with at all times (ii) (reasonable, unintentional outages excepted) “watcher link” view-only access to equipment monitoring software, “Application Programming Interface”, “Bitcoin Mining Pool Account” or similar which shall include, among other things, the hashrate and temperature for each machine constituting the Collateral at any given time, and (ii) account access to Borrower’s Bitcoin exchange or brokerage account, which provides transaction details including Bitcoin revenue and trades.

 

(c)          The Alpha Facility Miners shall at all times be located at the Alpha Facility, Wolf Hollow or another location that is reasonably acceptable to the Lender.

 

(d)          The Canaan Miners shall at all times be located at the Alpha Facility or Wolf Hollow.

 

(e)          The Wolf Hollow Miners shall at all times be located at Wolf Hollow.

 

(f)           Until the Qualified IPO, with respect to the Deployed Miners, the Borrower shall exclusively utilize Wallet, custody, and trading execution services offered by Lender (or an Affiliate of the Lender), as applicable, solely to the extent the fees required to be paid to the Lender (or an Affiliate of the Lender) in connection with such services are comparable or less than those of a third party and solely to the extent the services to be provided by the Lender (or an Affiliate of the Lender) are if the services are available and are equivalent in quality to similar offerings by a third-party. If such Wallet, custody, and trading execution services are not available or fail to satisfy the criteria set forth in the immediately preceding sentence, Borrower agrees to exclusively utilize Wallet, custody, and trading execution services approved by Lender in Lender’s reasonable discretion. With respect to any such Wallet, subject to Section 7.13, the Borrower shall execute a Wallet Security Agreement in favor of the Lender.

 

(g)          Loan Parties shall, use their best efforts, to introduce “hosting agreement” customers to Wallet, custody, and trading execution services offered by Lender (or an Affiliate of the Lender) and integrate Lender’s Wallet, custody, and trading execution services into operations as feasible, as applicable.

 

(h)          Loan Parties shall, use best efforts, to source or otherwise facilitate third-party “hosting agreement” services with respect to “miners” that are owned by the Lender (or an Affiliate of the Lender), as applicable, on a cost only basis.

 

7.6          Further Assurances.

 

(a)           Execute any further instruments and take further action as the Lender reasonably requests to perfect or continue the Lender’s Lien in the Collateral to the extent contemplated hereunder or to effect the purposes of this Agreement.

 

(b)          The Borrower and USDTG shall not open, maintain or otherwise have any deposit or other accounts (including securities accounts) at any bank or other financial institution, or any other account where money or securities are or may be deposited or maintained with any Person, other than (i) deposit accounts that are maintained at all times with depositary institutions as to which the Lender shall have received a Qualifying Control Agreement (other than with respect to Excluded Deposit Accounts)v and (ii) securities accounts that are maintained at all times with financial institutions as to which the Lender shall have received a Qualifying Control Agreement, in each case, subject to Section 5.9.

 

30

 

 

(c)          Subject to Section 7.13, the Borrower shall maintain all Crypto Assets in a Wallet in the custody and control of the Lender or an Affiliate of the Lender and such Wallet shall at all times be subject to a Wallet Security Agreement in favor of the Lender.

 

(d)          In the case of (i) each headquarter location of the Loan Parties and each other location where the Loan Parties maintain any books or records (electronic or otherwise, but excluding copies of books or records), in each case, to the extent constituting a property leased by a Loan Party and (ii) any personal property Collateral of a Loan Party located at any other premises not owned by such Loan Party containing personal property Collateral with a value in excess of $50,000, the Loan Parties will, subject to Section 7.13, provide the Lender with such estoppel letters, consents and waivers from the landlords on such real property to the extent requested by the Lender (such letters, consents and waivers shall be in form and substance reasonably satisfactory to the Lender).

 

(e)           Each Loan Party (other than the Borrower) will cause all of its tangible and intangible personal property now owned (or with respect to the Deployed Miners, at any time owned) by it that is Collateral (and proceeds now owned or hereafter acquired of Collateral), and the Borrower will cause all of its tangible and intangible personal property now owned or hereafter acquired by it that is Collateral (and proceeds of Collateral), to be subject at all times to a first priority, perfected Lien (subject to certain statutory Liens) in favor of the Lender for the benefit of the Lender to secure the Obligations and, solely as to Collateral (or proceeds of Collateral), shall provide to the Lender within thirty (30) days (or such extended period of time as agreed to by the Lender) such supporting documentation (in form and substance reasonably satisfactory to the Lender) as the Lender may request to cause such tangible and intangible personal property now owned or hereafter acquired by it to be subject at all times to a first priority, perfected Lien in favor of the Lender for the benefit of the Lender to secure the Obligations.

 

(f)           On the date of the Qualifying IPO, the Parent Company shall execute the Joinder Agreement in the form annexed to this Agreement as Exhibit E to this Agreement and become a Guarantor hereunder.

 

7.7          Inspections. Permit any representative that the Lender authorizes, including its attorneys and accountants, to inspect the Collateral and examine and make copies and abstracts of the books of account and records of Loan Parties at reasonable times and upon reasonable notice during normal business hours all at the expense of the Borrower; provided that, so long as no Event of Default has occurred and is continuing, such examinations that may be conducted at the Loan Parties cost and expense shall be limited to no more often than four (4) times per fiscal year; provided, further, that in the case of any third-party facility, the Loan Parties shall use commercially reasonable efforts to permit such inspections and examinations, in each case, in accordance with and subject to any landlord waiver, collateral access agreement or other similar agreement then in effect. In addition, any such representative shall have the right to meet with management and officers of the Loan Parties to discuss such books of account and records. In addition, the Lender shall be entitled at reasonable times and intervals to consult with and advise the management and officers of the Loan Parties concerning significant business issues affecting the Loan Parties. Such consultations shall not unreasonably interfere with the Loan Parties’ business operations.

 

31

 

 

7.8          Equity Issuance.

 

(a)          On the Closing Date, USDG shall issue to Lender an aggregate of 2,960,000 shares of USDG’s common stock, $0.00001 par value (the “Closing Date Equity Issuance”), in connection with the transactions contemplated in this Agreement. Equity Interests issued in connection with the Closing Date Equity Issuance shall represent, prior to the Qualifying IPO, 4.5% of USDG’s Securities on a Fully Diluted Basis.

 

7.9         Board Observer. Until the occurrence of the Qualifying IPO, the Lender shall have the right to send one (1) representative to attend all meetings of the board of director or similar governing body of each Loan Party (and any committees thereof), as applicable, as an observer without the right to vote. Such representative will be entitled to receive copies of all materials prepared for such meetings (or otherwise prepared for the Board). The Loan Parties will reimburse (or cause one or more of its Subsidiaries to reimburse) such observer for all reasonable out-of-pocket expenses incurred in connection with attending such meetings, but none of the Lender or any such observer shall receive any additional compensation or remuneration in respect of such observer’s service.

 

7.10       Borrower Status as a SPV. So long as any portion of the Loan or any other Obligation remains outstanding, the Borrower shall:

 

(a)          maintain its own separate books and records and, subject to Section 7.13, bank accounts;

 

(b)          at all times hold itself out to the public and all other Persons as a legal entity separate from holders of its Equity Interest and any other Person;

 

(c)          timely file its own tax returns, if any, as may be required under applicable law, to the extent (1) not part of a consolidated group filing a consolidated return or returns or (2) not treated as a division for tax purposes of another taxpayer, and pay any taxes so required to be paid under applicable law;

 

(d)          not commingle its assets with assets of any other Person;

 

(e)          conduct its business in its own name and strictly comply with all organizational formalities to maintain its separate existence;

 

(f)           maintain separate financial statements;

 

(g)          pay its own liabilities only out of its own funds;

 

(h)          maintain an arm's length relationship with its affiliates and holders of its Equity Interest;

 

(i)           pay the salaries of its own employees, if any;

 

(j)           not hold out its credit or assets as being available to satisfy the obligations of others;

 

(k)          allocate fairly and reasonably any shared expenses, including but not limited to overhead for shared office space;

 

32

 

 

(l)           use separate stationery, invoices and checks;

 

(m)         except as permitted under the Loan Documents, not pledge or transfer its assets for the benefit of any other Person;

 

(n)          correct any known misunderstanding regarding its separate identity;

 

(o)          maintain adequate capital in light of its contemplated business purpose, transactions and liabilities;

 

(p)          not acquire any obligations or securities of holders of its Equity Interest;

 

(q)          cause the officers, agents and other representatives of the Borrower to act at all times with respect to the Borrower consistently and in furtherance of the foregoing and in the best interests of the Borrower; and

 

(r)           subject to Section 7.13, have an “independent director” who is appointed on terms and conditions reasonably acceptable to the Lender.

 

Failure of the Borrower, or holders of its Equity Interest on behalf of the Borrower, to comply with any of the foregoing covenants shall not affect the status of the Borrower as a separate legal entity.

 

7.11       Minimum Uptime.     Cause, and, with respect to mining equipment located at a third-party facility (i.e. a facility that is neither owned nor leased by a Loan Party or a Subsidiary of a Loan Party), use commercially reasonable efforts to cause, all mining equipment once put into use to remain operational and fully utilized at its rated “hash rate” and “rated power” at all times. Cause the Adjusted Uptime for mining equipment located at a facility that is either owned or leased by a Loan Party or a Subsidiary of a Loan Party to be not less than 95% during any fiscal month. In the event of cessation of operations at the Alpha Facility, or the relocation of any mining equipment to another facility in accordance with Section 7.5, there shall be no breach of this Section 7.11 so long as the Loan Parties are using commercially reasonable efforts to cause such mining equipment to comply with the Adjusted Uptime requirements of this Section 7.11.

 

7.12       Miner Deployment. Cause, on or prior to March 15, 2023, all of the Deployed Miners to be fully installed, put into use to remain operational and fully utilized at the Alpha Facility and/or Wolf Hollow.

 

7.13       Post-Closing Requirement. The Borrower shall, or shall cause, the following to be completed by each Loan Party by the following dates (as such date may be extended by the Lender):

 

(a)           On or prior to February 17, 2023, 2747 Buffalo Avenue, LLC and the other Persons party thereto shall have executed the “access” agreement in the form annexed hereto as Exhibit F, together with any changes consented to by Lender in its sole discretion.

 

(b)          On or prior to February 17, 2023, Lender shall have received Qualifying Control Agreements for each deposit account (other than any Excluded Account) of each Loan Party that exists on the Closing Date.

 

(c)           On or prior to February 17, 2023, Lender shall have received Wallet Security Agreement for each Wallet of each Loan Party that exists on the Closing Date.

 

33

 

 

(d)          On or prior to February 17, 2023, Lender shall have received certificates of insurance evidencing liability, casualty and property insurance along with Lender loss payee certificates and endorsement with respect to casualty and property insurance and additional insured certificates and endorsements for liability insurance.

 

(e)           On or prior to February 9, 2023, Lender shall have received a control agreement from USDG with respect to its Equity Interest in the Borrower and U.S. Data Mining Group, Inc.

 

(f)           On or prior to February 17, 2023, Borrower shall have an “independent director” who is appointed on terms and conditions reasonably acceptable to the Lender.

 

(g)          On or prior to February 17, 2023, the Limited Liability Company Agreement of the Borrower shall be amended to comply with the provisions of Section 7.10.

 

(h)          On or prior to February 17, 2023, the Borrower shall establish a deposit account in its name.

 

(i)            On or prior to February 17, 2023, the Borrower shall deliver lien searches and complete guaranty and collateral requirements with respect to the Collateral as of the Closing Date, including further assurances (including, without limitation, recording a memorandum of lease, delivery of stock certificates, control agreements for Equity Interests and items required to but not delivered under Section 3.1).

 

(j)            Loan Parties shall update the schedules attached to Exhibit A as and within three (3) Business Days the "equipment"/"miners" are received.

 

8.NEGATIVE COVENANTS

 

Until the applicable Termination Date, the Loan Parties shall not do any of the following without the prior written consent of the Lender:

 

8.1          Changes in Business, Management, Control, or Business Locations. (a) Engage in or permit any of its Subsidiaries to engage in any material respect in any business or business activity that is substantially different for any business or business activity engaged in by USDG and its Subsidiaries as of the Closing Date, or reasonably related thereto or a reasonable extension development or expansion or development thereof; (b) liquidate or dissolve; (c) undergo a division (or similar transaction) or (d) permit or suffer any Change in Control, unless prior to or simultaneously with the closing of any such Change in Control transaction, the Termination Date shall occur.

 

8.2          Mergers or Consolidations. Merge or consolidate with any other Person undergo a division (or similar transaction) unless the Loan Party is the surviving Person or the surviving Person becomes a Loan Party concurrently with the consummation of such merger or consolidation; provided that (i) there shall be no merger or consolidation involving Borrower or USDTG; and (ii) if the merger or consolidation involves a Recourse Loan Party, the surviving Person shall be a Recourse Loan Party. Nothing in this Section 8.2 shall prohibit the consummation of the Qualifying IPO or any of the transactions contemplated by the Merger Agreement, in each case, solely in accordance with the Merger Agreement and related documentation; provided that no Prohibited Transaction shall be permitted.

 

8.3          Create, incur, allow, or suffer any Lien on any of the Collateral other than Permitted Liens.

 

34

 

 

8.4          Transactions with Affiliates. Directly or indirectly enter into or permit to exist any transaction with any Affiliate of a Loan Party, except for (a) transactions that are upon fair and reasonable terms that are no less favorable to the applicable Loan Party than would be obtained in an arm’s length transaction with a non-affiliated Person; provided that prior to the Qualifying IPO, any transaction with any Affiliate (other than those that exist on the Closing Date) shall require the prior written consent of the Lender, (b) reasonable and customary employment and compensation arrangements and benefit plans for officers, consultants and other employees of the Loan Parties and their Subsidiaries entered into or maintained in the ordinary course of business, and (c) reasonable and customary fees and expenses paid to directors in the ordinary course of business.

 

8.5          Investments.    Make any Investment except (a) Investments in another Loan Party, (b) advances to officers, directors and employees of a Loan Party in an aggregate amount not exceeding $50,000 at any time outstanding, for travel, entertainment, relocation and similar ordinary business purposes, (c) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, (d) Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors, (e) Investments consisting of the indorsement by any Loan Party of negotiable instruments payable to such Person for deposit or collection in the ordinary course of business, (f) Permitted Investments; (g) Investments that exist on the Closing Date; (h) other Investments in an aggregate outstanding amount not exceeding $500,000, and (i) other than a Prohibited Transaction, Investments made by USDG in connection with the Merger that are required pursuant to the terms of the Merger Agreement (in each case, solely in accordance with the Merger Agreement); provided that (i) no Investments of any Crypto Assets, equity interest of any Loan Party, or Intellectual Property shall be permitted unless such Investments are in a Loan Party, (ii) that the Borrower and USDTG shall not make any Investment other than Permitted Investments, (iii) no Investment of any property or asset that is Collateral shall be permitted into any Person other than the Borrower and (iv) Investments by a Recourse Loan Party into a Limited Recourse Guarantor shall not result in the Investment or transfer of any Collateral in such Limited Recourse Guarantor.

 

8.6          Restricted Payments. Declare or make, directly or indirectly, any Restricted Payment, except in respect of (a) general corporate operating and overhead, legal, accounting and other professional fees and expenses of USDG or any Parent Company, or (b) other than a Prohibited Transaction, fees and expenses related to the transactions contemplated by the Merger Agreement that are paid on the date of the Merger (in each case, solely in accordance with the Merger Agreement); provided that (i) no Restricted Payment of any Crypto Assets, equity interest of any Loan Party, or Intellectual Property shall be permitted, (ii) the Borrower and USDTG shall not make any Restricted Payment and (iii) this Section 8.6 shall not prohibit any Restricted Payments by the Limited Recourse Guarantor. Notwithstanding anything to the contrary herein, each Loan Party may pay dividends or make other distributions to its holders of Equity Interest for the payment of (i) the Taxes of its direct or indirect holders of Equity Interests attributable to the income of such Loan Party in respect of which a consolidated, combined, unitary or affiliated return is filed by holders of such Person’s Equity Interest (or such direct or indirect parent) that includes such Loan Party as a member of the group filing provided that no such Restricted Payment shall be made in an amount exceeding the lesser of (A) the Taxes that would have been payable by such Loan Party included in the filing of such return as a stand-alone group (calculated for purposes of this clause (A) as though any entity treated as a disregarded entity, partnership or other flow-through entity for U.S. federal income tax purposes were instead treated as a corporation) and (B) the actual Tax liability (including, for the avoidance of doubt, any estimated Taxes required to be paid in order to avoid a payment for underpayment of taxes) of the consolidated, combined, unitary or affiliated group (assuming that such Loan Party is its only direct Subsidiary). If a Loan Party pays dividends or makes other distributions to its holders of Equity Interest in a tax year pursuant to the previous sentence in an amount that, in the aggregate, exceeds the actual Tax liability for such tax year as assessed by all Governmental Authorities on the consolidated, combined, unitary or affiliated group (assuming that such Loan Party is its only direct Subsidiary) for such tax year (such excesses over the actual Tax liability, the “Excess Tax Payments”), such Excess Tax Payments shall be applied to payments of Taxes for subsequent tax years and reduce dollar-for-dollar the amount permitted to be distributed pursuant to the previous sentence.

 

35

 

 

8.7          Compliance. Become required to be registered as an “investment company” under the Investment Company Act of 1940, as amended, or undertake as one of its important activities extending credit to purchase or carry margin stock (as defined in Regulation U of the Board of Governors of the Federal Reserve System), or use the proceeds of any Loan in a manner that would violate Regulation U or X of the Board of Governors of the Federal Reserve System; fail to comply with any Requirement of Law, if the violation could reasonably be expected to have a Material Adverse Effect, or permit any of its Subsidiaries to do so; or fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or non-exempt Prohibited Transaction, as defined in ERISA, to occur or withdraw or permit any Subsidiary to withdraw from participation in, permit partial or complete termination of, or permit the occurrence of any other event with respect to, any present pension, profit sharing and deferred compensation plan, in each case, which could reasonably be expected to have a Material Adverse Effect.

 

8.8          Operating Documents; Fiscal Year; Changes to Certain Agreements.

 

(a)          With respect to: (i) the Borrower, amend, modify or change its Operating Documents (other than an amendment after the Closing Date to comply with the provisions of Section 7.10) and (ii) any other Loan Party, amend, modify or change its Operating Documents in a manner materially adverse to the Lender.

 

(b)          Change its fiscal year from the fiscal year as in effect on the Closing Date without prior written notice to the Lender.

 

(c)          Amend, modify or change the Merger Agreement in a manner materially adverse to (i) any Loan Party and/or (ii) the Lender.

 

(d)          Amend, modify or change any contract with any Affiliate or any material contract that exists on the Closing Date in a manner materially adverse to (i) any Loan Party and/or (ii) the Lender.

 

8.9          Indebtedness

 

Incur or guaranty any Indebtedness except Permitted Indebtedness; provided that the Borrower and USDTG shall not incur any Indebtedness other than under this Agreement or under clause (i) of the definition of “Permitted Indebtedness”.

 

8.10       Sale of Assets, Etc.

 

Conduct any Asset Sale, or enter into any agreement, or otherwise commit, to make any Asset Sale, except:

 

(a)          USDG may transfer or cause the transfer of assets constituting, or intending to constitute, Collateral of the Borrower to the Borrower;

  

36

 

 

(b)          any Loan Party (other than the Borrower) may dispose of assets that are worn out or obsolete in the ordinary course of the Loan Parties’ business or determined in good faith by such Person to no longer be used or useful in the operation of the business of such Person; provided that USDTG shall not be permitted to dispose of any portion of the property and asset constituting the Alpha Facility except as provided under clause (e) of this Section 8.10;

 

(c)          any Loan Party (other than the Borrower) may liquidate (i) Permitted Investments into cash and (ii) Crypto Assets into other Crypto Assets, in each case, in the ordinary course of business;

 

(d)          the sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof;

 

(e)          the Borrower and USDTG may dispose of the Alpha Facility (but not the Alpha Facility Miners) for cash in an arms’ length transaction for fair market value (as certified by an independent appraisal conducted by an appraisal firm reasonably satisfactory to the Lender) to a Person other than any Affiliate of the Borrower or any other Loan Party; provided that 100% of proceeds of such Asset Sale must repay the Obligations in accordance with Section 2.2(f) (unless the Lender consents in writing to permit reinvestment of such proceeds);

 

(f)          any Loan Party (other than the Borrower) may sell Inventory (including Cryptocurrency) or, other than Borrower and USDTG, lease equipment in the ordinary course of business; provided that (x) proceeds thereof are not used for any purpose except for Investments permitted under Section 8.5, for purchase of assets that become Collateral, for payment of Obligations and for general corporate purposes of the Loan Parties and (y) USDTG shall not be permitted to dispose of any portion of the property and asset constituting the Alpha Facility except as provided under clause (e) of this Section 8.10;

 

(g)          Asset Sales constituting the use of cash and cash equivalents in the ordinary course of business; and

 

(h)          USDG (and from and after the Qualifying IPO, the Parent Company) may transfer or cause the transfer of Equity Interest (other than of USDG or of any other Loan Party).

 

provided that, notwithstanding anything to the contrary contained herein, in no event shall any Loan Party make any disposition or other asset sale that results in the transfer of ownership (directly or indirectly) of (i) any Crypto Asset (except as set forth in clause (f)), (ii) any Intellectual Property or (iii) Equity Interest of any other Loan Party or (iii) any property or asset that is Collateral by a Recourse Loan Party into a Limited Recourse Guarantor.

 

8.11          Restrictive Agreements.

 

Enter into, or permit to exist, or be otherwise subject to, any contract or agreement (including its certificate of incorporation or formation, by-laws, limited liability company operating agreement or partnership agreement) which limits the amount of or otherwise imposes restrictions on (i) the payment by any Subsidiary of any Indebtedness or obligation owed to the Borrower or USDTG, (ii) the guaranty by any Loan Party of the Obligations or (iii) the ability of the Borrower or any Loan Party to grant any Lien on any of its assets or properties to secure the Obligations; provided that the foregoing shall not apply to restrictions and conditions imposed by this Agreement or the Merger Agreement (in each case, solely in accordance with the Merger Agreement and related documentation, provided that no Prohibited Transaction shall be permitted).

 

37

 

 

8.12          Sale and Leaseback Transactions; Swap Contracts.

 

(a)          Enter into any Sale and Leaseback Transaction.

 

(b)          Enter into any Swap Contracts (without having obtained the Lender’s prior written consent, which may be granted or withheld by the Lender in the Lender’s sole discretion).

 

8.13          Sanctions.

 

(a)          Directly or indirectly, use any Loan or the proceeds of any Loan, or lend, contribute or otherwise make available such Loan or the proceeds of any Loan to any Person, to fund any activities of or business with any Person, that, at the time of such funding, is the subject of Sanctions, or in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as Lender, the Lender, or otherwise) of Sanctions.

 

(b)          Permit any Loan Party (i) become (including by virtue of being owned or controlled by a Sanctioned Person), own or control a Sanctioned Person or (ii) directly or indirectly have any investment in or engage in any dealing or transaction (including, without limitation, any investment, dealing or transaction involving the proceeds of any Loan) with any Person if such investment, dealing or transaction would be in violation of or would cause the Lender (or any affiliate thereof) to be in violation of, or subject to, Sanctions.

 

8.14        Anti-Corruption and Anti-Money Laundering Laws.

 

Directly or indirectly, use any Loan or the proceeds of any Loan for any purpose which would breach Anti-Corruption Laws or Anti-Money Laundering Laws.

 

8.15       [Reserved].

 

8.16       Covenant of USDG.

 

So long as any Obligations remain outstanding, USDG (and from and after the Qualifying IPO, the Parent Company) shall not cause or permit the Borrower to:

 

(a)          guarantee any obligation of any Person, including any Affiliate;

 

(b)          engage, directly or indirectly, in any business other than the actions required or permitted to be performed under this Agreement;

 

(c)           incur, create or assume any Indebtedness other than under the Loan Documents or as permitted under the Loan Documents;

 

38

 

 

(d)          make or permit to remain outstanding any loan or advance to, or own or acquire any stock or securities of, any Person, except that the Borrower may invest in those Investments permitted under the Loan Documents;

 

(e)          to the fullest extent permitted by law, engage in any dissolution, liquidation, consolidation, merger, division, asset sale or transfer of ownership interests other than such activities as are permitted under the Loan Documents; and

 

(f)           form, acquire or hold any Subsidiary (whether corporate, partnership, limited liability company or other entity);

 

(g)          issue, sell or otherwise dispose of, or part with control of, any Equity Interests of any class (either directly or indirectly by the issuance of rights or options for, or securities convertible into, such Equity Interests); and

 

(h)          subject to section 7.13, not have an independent director.

 

8.17       Key Management Employees.

 

Prior to the Qualifying IPO, permit any Key Management Employee to: (a) no longer be employed in the role and capacity held by such Key Management Employee on and as of January 1, 2023 and/or (b) not perform the same level of functions and duties performed by such Key Management Employee on and as of January 1, 2023.

 

8.18       Minimum Liquidity.

 

Permit Liquidity on each day to be less than $2,000,000.

 

9.EVENTS OF DEFAULT

 

Any one of the following shall constitute an event of default (an “Event of Default”) under this Agreement:

 

9.1          Payment Default. Borrower fails to (a) make any payment of principal or interest on the Loan within three (3) Business Days after the same becomes due or (b) pay any other Obligations within five (5) (in each case, which cure periods shall not apply to payments due on the Maturity Date);

 

9.2          Misrepresentations. Any representation or warranty made or deemed made by or on behalf of any Loan Party in or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof, or any waiver hereunder or thereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any other Loan Document or any amendment or modification hereof or thereof, or any waiver hereunder or thereunder, shall prove to have been (i) intentionally false or misleading or (ii) incorrect in any material respect (or, in the case of any such representation or warranty under this Agreement or any other Loan Document already qualified by materiality, such representation or warranty shall prove to have been incorrect) when made or deemed made;

 

39

 

 

9.3          Covenant Default.

 

(a)          Any Loan Party fails or neglects to perform any obligation in Section 4, Sections 7.1, 7.2(j), 7.5, 7.6 (other than 7.6(c) with respect to any Wallet acquired or created after the Closing Date), or 7.8 through 7.13 or violates any covenant in Section 8; or

 

(b)          Any Loan Party fails or neglects to perform any obligation in Sections 7.2 (other than clause (j)), 7.4, 7.6(c) (other with respect to any Wallet existing as of the Closing Date) or 7.7 and such failure shall continue unremedied for a period of ten (10) or more days.

 

(c)          Any Loan Party fails or neglects to perform, keep, or observe any other term, provision, condition, covenant or agreement contained in this Agreement or any other Loan Document (other than those specified in Section 9.1, 9.2, 9.3(a) or 9.3(b)) and such failure shall continue unremedied for a period of 30 or more days;

 

9.4          Insolvency.

 

(a)          An involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Loan Party or its debts, or of a substantial part of its assets, under any Debtor Relief Law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for a period of thirty (30) or more days or an order or decree approving or ordering any of the foregoing shall be entered;

 

(b)          any Loan Party shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Debtor Relief Law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in Section 9.4(a), (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Loan Party or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing;

 

(c)          any Loan Party shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; or

 

(d)          any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within thirty (30) days after its issue or levy;

 

9.5          Other Agreements. (i) Any Loan Party shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness (other than Indebtedness under the Loan Documents) having an aggregate principal amount of more than the applicable Threshold Amount, in each case beyond the applicable grace period with respect thereto, if any; or (ii) any Loan Party shall fail to observe or perform any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders or beneficiary or beneficiaries of such Indebtedness (or a trustee or the Lender on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity; provided that this clause (ii) shall not apply to secured Indebtedness that becomes due as a result of the voluntary sale or transfer of the property or assets securing such Indebtedness, if such sale or transfer is permitted hereunder and under the documents providing for such Indebtedness and such Indebtedness is repaid when required under the documents providing for such Indebtedness;

 

40

 

 

 

9.6            Judgments. Any judgment or order for the payment of money, individually or in the aggregate, in excess of the applicable Threshold Amount (exclusive of any amounts fully covered by insurance (less any applicable deductible) and as to which the insurer has not disclaimed its responsibility to cover such judgment or order) or for injunctive relief that has resulted in a Material Adverse Effect shall be rendered against any Loan Party and such judgment shall not have been vacated or discharged or stayed or bonded pending appeal within thirty (30) days after the entry thereof or enforcement proceedings shall have been commenced by any creditor upon such judgment or order, in each case, other than in connection with, arising out of, or as a result of, the Niagara Falls Litigation;

 

9.7            Loan Documents. Any material provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all Obligations, ceases to be in full force and effect; or Borrower or any other Loan Party contests in writing the validity or enforceability of any provision of any Loan Document; or Borrower or any other Loan Party denies in writing that it has any or further liability or obligation under any Loan Document, or purports in writing to revoke, terminate or rescind any Loan Document;

 

9.8            ERISA. (i) An ERISA Event occurs with respect to a Plan, Pension Plan or Multiemployer Plan which has resulted or would reasonably be expected to result in liability of any Loan Party or ERISA Affiliate under Title IV of ERISA which would reasonably be expected to result in a Material Adverse Effect, (ii) any Loan Party or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its Withdrawal Liability under Section 4201 of ERISA under a Multiemployer Plan and a Material Adverse Effect would reasonably be expected to result, (iii) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is insolvent or is being terminated, within the meaning of Title IV of ERISA, and as a result of such insolvency or termination the aggregate annual contributions of the Credit Parties and the ERISA Affiliates to all Multiemployer Plans that are then insolvent or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such insolvency or termination occurs and a Material Adverse Effect would reasonably be expected to result; or (iv) a termination, withdrawal or noncompliance with applicable law or plan terms or termination, withdrawal or other event similar to an ERISA Event occurs with respect to a Plan or Foreign Plan that would reasonably be expected to result in a Material Adverse Effect.

 

9.9            Change in Control. There occurs any Change in Control.

 

41

 

 

9.10         Material Adverse Effect. From and after the Closing Date and until the occurrence of the Qualifying IPO, there shall have been any Material Adverse Effect, other than in connection with, arising out of, or as a result of, the Niagara Falls Litigation.

 

9.12         Closing Date Equity Issuance. Any Loan Party breached its obligations under any agreement entered in connection with the Closing Date Equity Issuance.

 

10.THE LENDER’S RIGHTS AND REMEDIES

 

10.1         Rights and Remedies. Upon the occurrence and during the continuance of an Event of Default, the Lender, may, without notice or demand, do any or all of the following:

 

(a)            declare all Obligations immediately due and payable (but if an Event of Default described in Section 9.4 occurs all Obligations are immediately due and payable without any action by the Lender);

 

(b)            stop advancing money or extending credit for Borrower’s benefit under this Agreement or under any other agreement among Borrower (or any Affiliate of the Borrower) and the Lender (or an Affiliate of the Lender);

 

(c)            verify the amount of, demand payment of and performance under, and collect any Accounts and General Intangibles, settle or adjust disputes and claims directly with Account Debtors for amounts on terms and in any order that the Lender and/or the Lender consider advisable, and notify any Person owing any Loan Party money of the Lender’s security interest in such funds. The Loan Party shall collect all payments in trust for the Lender, for the ratable benefit of the Lender and, if requested by the Lender, immediately deliver the payments to the Lender, for the ratable benefit of the Lender in the form received from the Account Debtor, with proper endorsements for deposit;

 

(d)            make any payments and do any acts the Lender considers necessary or reasonable to protect the Collateral and/or the Lender’s security interest in the Collateral. The Loan Party shall assemble the Collateral if the Lender requests and make it available as the Lender designates. The Lender may enter premises where the Collateral is located, take and maintain possession of any part of the Collateral, and pay, purchase, contest, or compromise any Lien which appears to be prior or superior to its security interest and pay all expenses incurred. The Loan Party grants the Lender a license to enter and occupy any of its premises, without charge, to exercise any of the Lender’s rights or remedies;

 

(e)            apply to the Obligations (i) any balances and deposits of any Loan Party it holds, or (ii) any amount held by the Lender owing to or for the credit or the account of any Loan Party;

 

(f)            ship, reclaim, recover, store, finish, maintain, repair, prepare for sale, advertise for sale, and sell the Collateral. The Lender is hereby granted a non-exclusive, royalty-free license or other right to use, without charge, each Loan Party’s labels, Patents, Copyrights, mask works, rights of use of any name, trade secrets, trade names, Trademarks, and advertising matter, or any similar property as it pertains to the Collateral, in completing production of, advertising for sale, and selling any Collateral and, in connection with the Lender’s exercise of its rights under this Section 10.1, each Loan Party’s rights under all licenses inure to the Lender, for the ratable benefit of the Lender;

 

(g)            demand and receive possession of the Loan Parties’ Books; and

 

42

 

 

(h)            exercise all rights and remedies available to the Lender under the Loan Documents or at law or equity, including all remedies provided under the Code (including disposal of the Collateral pursuant to the terms thereof) or other applicable law.

 

10.2          Power of Attorney. The Loan Party hereby irrevocably appoints the Lender, for the benefit of the Lender, as its lawful attorney-in-fact, exercisable solely upon the occurrence and during the continuance of an Event of Default, to: (a) endorse such Loan Party’s name on any checks or other forms of payment or security; (b) sign such Loan Party’s name on any invoice or bill of lading for any Account or drafts against Account Debtors; (c) settle and adjust disputes and claims about the Accounts directly with Account Debtors, for amounts and on terms the Lender determines reasonable; (d) make, settle, and adjust all claims under any Loan Party’s insurance policies; (e) pay, contest or settle any Lien, charge, encumbrance, security interest, and adverse claim in or to the Collateral, or any judgment based thereon, or otherwise take any action to terminate or discharge the same; and (f) transfer the Collateral into the name of the Lender or a third party as the Code permits. The Lender’s foregoing appointment as the Loan Parties’ attorney in fact, and all of the Lender’s rights and powers, coupled with an interest, are irrevocable until the applicable Termination Date shall have occurred. Upon the occurrence and during the continuance of an Event of Default, the Lender may appoint or reappoint by instrument in writing, any Person or Persons, whether an officer or officers or an employee or employees of the Lender or not, to be an interim receiver, receiver or receivers (hereinafter called a “Receiver”, which term when used herein shall include a receiver and manager) of the Collateral and may remove any Receiver so appointed and appoint another in his/her/its stead. Subject to the provisions of the instrument appointing a Receiver of the Collateral, any such Receiver shall have power to take possession of the Collateral, to preserve the Collateral or its value, to carry on or concur in carrying on all or any part of the business of the Loan Parties and to sell, lease, license or otherwise dispose of or concur in selling, leasing, licensing or otherwise disposing of the Collateral. To facilitate the foregoing powers, any such Receiver may, to the exclusion of all others, including the Loan Parties, enter upon, use and occupy all premises owned or occupied by the Loan Parties wherein the Collateral may be situated, maintain the Collateral upon such premises, borrow money on a secured or unsecured basis and use the Collateral directly in carrying on the Loan Parties’ business or as security for Loan or advances to enable the Receiver to carry on the Loan Parties’ business or otherwise, as such Receiver shall, in its reasonable discretion, determine. Except as may be otherwise directed by the Lender, all money received from time to time by such Receiver in carrying out his/her/its appointment shall be received in trust for and be paid over to the Lender. Every such Receiver may, in the discretion of the Lender, be vested with all or any of the rights and powers of the Lender. The identity of the Receiver, its replacement and its remuneration shall be within the reasonable discretion of the Lender.

 

10.3          Protective Payments. If any Loan Party fails to obtain the insurance called for by Section 7.4 or fails to pay any premium thereon or fails to pay any other amount which such Loan Party is obligated to pay under this Agreement or any other Loan Document or which may be required to preserve the Collateral, the Lender may obtain such insurance or make such payment, and all amounts so paid by the Lender are Lender’s Expenses and due and payable on demand, and are secured by the Collateral. The Lender will make reasonable efforts to provide Borrower with notice of the Lender obtaining such insurance at the time it is obtained or within a reasonable time thereafter. No payments by the Lender hereunder are deemed an agreement to make similar payments in the future or the Lender’s and/or Lender’s waiver of any Event of Default.

 

10.4          Application of Payments and Proceeds Upon Default. If an Event of Default has occurred and is continuing, the Lender shall have the right to apply in any order any funds in its possession, whether from Borrower’s or any other Loan Party’s account balances, payments, proceeds realized as the result of any collection of Accounts or other disposition of the Collateral, or otherwise, to the Obligations. In making the determinations and allocations required by this Section 10.4, the Lender may conclusively rely upon information available to the Lender as to the amounts of unpaid principal and interest and other amounts outstanding with respect to the Obligations, and the Lender shall have no liability to any Person for actions taken in reliance on such information. All distributions made by the Lender pursuant to this Section 10.4 shall be (subject to any decree of any court of competent jurisdiction) final (absent manifest error). The Lender shall pay any surplus to Borrower or to other Persons legally entitled thereto; and the Loan Parties shall remain liable to the Lender for any deficiency. If the Lender, directly or indirectly, enters into a deferred payment or other credit transaction with any purchaser at any sale of Collateral, the Lender shall have the option, exercisable at any time, of either reducing the Obligations by the principal amount of the purchase price or deferring the reduction of the Obligations until the actual receipt by the Lender of cash therefor.

 

43

 

 

10.5          Liability for Collateral. The Lender shall not be liable or responsible for: (a) the safekeeping of the Collateral; (b) any loss or damage to the Collateral; (c) any diminution in the value of the Collateral; or (d) any act or default of any carrier, warehouseman, bailee, or other Person. Borrower bears all risk of loss, damage or destruction of the Collateral.

 

10.6          No Waiver; Remedies Cumulative. The Lender’s failure, at any time or times, to require strict performance by any Loan Party of any provision of this Agreement or any other Loan Document shall not waive, affect, or diminish any right of the Lender thereafter to demand strict performance and compliance herewith or therewith. No waiver hereunder shall be effective unless signed by the party granting the waiver and then is only effective for the specific instance and purpose for which it is given. The Lender’s and remedies under this Agreement and the other Loan Documents are cumulative. The Lender shall have all rights and remedies provided under the Code, by law, or in equity. The Lender’s exercise of one right or remedy is not an election and shall not preclude the Lender from exercising any other remedy under this Agreement or any other Loan Document or other remedy available at law or in equity, and the Lender’s waiver of any Event of Default is not a continuing waiver. The Lender’s delay in exercising any remedy is not a waiver, election, or acquiescence.

 

10.7          Demand Waiver. The Loan Parties waive demand, notice of default or dishonor, notice of payment and nonpayment, notice of any default, nonpayment at maturity, release, compromise, settlement, extension, or renewal of accounts, documents, instruments, chattel paper, and guarantees held by the Lender on which any Loan Party is liable.

 

11.            NOTICES

 

(a)            All notices, consents, requests, approvals, demands, or other communication by any party to this Agreement or any other Loan Document must be in writing and shall be deemed to have been validly served, given, or delivered: (a) upon the earlier of actual receipt and three (3) Business Days after deposit in the U.S. mail, first class, registered or certified mail return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic mail; (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address, or email address indicated below. the Lender, Borrower, any Loan Party or the Lender may change its mailing or electronic mail address or facsimile number by giving the other parties written notice thereof in accordance with the terms of this Section 11.

 

44

 

 

If to Borrower or any other Loan Party:

U.S. Data Mining Group, Inc.
1221 Brickell Ave Ste 900
Miami, FL 33131
Attention:  Asher Genoot
Email: [REDACTED]

 

with a copy to:

Brown Rudnick LLP
Seven Times Square
New York, NY 10036
Attention: Andrew Carty
Email: [REDACTED]

 

Brown Rudnick LLP
One Financial Center
Boston, MA 02111
Attention: Tia Wallach
Email: [REDACTED]

 

If to the Lender:

Anchorage Lending CA, LLC
101 S. Reid Street, Suite 329

Sioux Falls, South Dakota 57103

Attention: Jennifer Liu
Email: [REDACTED]

 

with a copy to:

Winston & Strawn LLP

200 Park Avenue

New York, New York 10166

Attention: Sanjay Thapar

Email: [REDACTED]

 

(b)            Electronic Communications. Notices and other communications to the Loan Parties may be delivered or furnished by electronic communication (including e-mail, FPML messaging, and Internet or intranet websites) pursuant to an electronic communications agreement (or such other procedures approved by the Lender in its sole discretion). The Lender may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

 

(c)            Change of Address, Etc. The Lender may change its address, or telephone number or e-mail address for notices and other communications hereunder by notice to the Borrower.

 

12.            CHOICE OF LAW, VENUE, JURY TRIAL WAIVER AND JUDICIAL REFERENCE

 

Except as otherwise expressly provided in any of the Loan Documents, New York law (including Section 5-1401 and Section 5-1402 of the General Obligations Law of the State of New York) governs the Loan Documents without regard to principles of conflicts of law. Borrower, Guarantors and the Lender each submit to the exclusive jurisdiction of the courts of the State of New York sitting in New York County and of the United States District Court of the Southern District of New York sitting in New York County, and any appellate court from any thereof; provided that nothing in this Agreement shall be deemed to operate to preclude the Lender from bringing suit or taking other legal action in any other jurisdiction to realize on the Collateral or any other security for the Obligations, or to enforce a judgment or other court order in favor of the Lender. Each Loan Party expressly submits and consents in advance to such jurisdiction in any action or suit commenced in any such court, and each Loan Party hereby waives any objection that it may have based upon lack of personal jurisdiction, improper venue, or forum non conveniens and hereby consents to the granting of such legal or equitable relief as is deemed appropriate by such court. Each Loan Party hereby waives personal service of the summons, complaints, and other process issued in such action or suit and agrees that service of such summons, complaints, and other process may be made by registered or certified mail addressed to Borrower at the address set forth in accordance with, Section 11 of this Agreement and that service so made shall be deemed completed upon the earlier to occur of Borrower’s actual receipt thereof or three (3) days after deposit in the U.S. mails, proper postage prepaid.

 

45

 

 

TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, EACH LOAN PARTY AND THE LENDER EACH WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE LOAN DOCUMENTS OR ANY CONTEMPLATED TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL INDUCEMENT FOR ALL PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.

 

This Section 12 shall survive the termination of this Agreement.

 

13.            GENERAL PROVISIONS

 

13.1          Termination Prior to Maturity Date; Effect of Qualifying IPO; Survival.

 

(a)            Except as set forth in this Section 13, all covenants, representations and warranties made in this Agreement continue in full force until the applicable Termination Date shall occur. Those obligations that are expressly specified in this Agreement as surviving this Agreement’s termination shall continue to survive notwithstanding this Agreement’s termination. For purposes hereunder “Termination Date” shall mean the date on which the principal of and interest on the Loan and all Obligations shall have been paid in full (other than in respect of contingent indemnification obligations for which no claim has been made).

 

(b)            Notwithstanding anything herein to the contrary, upon the consummation of the Qualifying IPO and only so long as such Qualifying IPO does not result in a Default or an Event of Default and at the time of such Qualifying IPO, the Parent Company guaranties on a full recourse basis the Obligations by becoming a Guarantor hereunder by execution of the Joinder Agreement attached hereto as Exhibit E: (i) the Security Interest of the Lender in any Limited Recourse Guarantor shall automatically be terminated, released and discharged, all rights in such Collateral that is property of a Limited Recourse Guarantor (other than any asset or property described in clause(b) of the defined term “Collateral” on Exhibit A) shall revert to such Limited Recourse Guarantor, and, thereafter, the Security Interest of the Lender shall attach only in the assets described in clause (b) of Exhibit A and (ii) any Limited Recourse Guarantor shall no longer be Guarantor hereunder.

 

(c)            Notwithstanding anything herein to the contrary, upon the consummation of the Qualifying IPO and only so long as such Qualifying IPO does not result in a Default or an Event of Default, the Parent Company shall not be subject to any representation, warranty or covenant under the Loan Agreement, other than those representations, warranties and covenants set forth in Sections 2, 4, Section 6 (other than Sections 6.2, 6.5, 6.10-6.11), 7.1, 7.2(a), 7.2(b), 7.2(h), 7.3, 7.4, 7.5, 7.6(f), 7.10, 8.1, 8.2, 8.7, 8.8(b), 8.8(c), 8.8(d), 8.13, 8.14, and 8.16; provided that the foregoing shall not limit (x) the Lender’s rights and remedies under this Agreement or any other Loan Document as a result of a breach or any and all representations, covenants and warranties by any other Loan Party, including those under Section 9 and (y) the Public Company’s guaranty of the Obligations, including under Section 4.

 

46

 

 

(d)            Except as set forth in this Section 13.1, no termination of this Agreement shall in any way affect or impair any right or remedy of the Lender, nor shall any such termination relieve any Loan Party of any Obligation to the Lender, until all of the Obligations have been paid and performed in full. Those Obligations that are expressly specified in this Agreement as surviving this Agreement’s termination shall continue to survive notwithstanding this Agreement’s termination and payment in full of the Obligations then outstanding.

 

13.2          Successors and Assigns.

 

(a)            This Agreement binds and is for the benefit of the successors and permitted assigns of each party. No Loan Party may assign this Agreement or any rights or obligations under it without the prior written consent of the Lender (which may be granted or withheld in Lender’s sole discretion). Lender has the right to sell, transfer, assign, negotiate, or grant participation in all or any part of, or any interest in, the Lender’s obligations, rights, and benefits under this Agreement and the other Loan Documents without the consent of any Loan Party; provided that from and after the Qualifying IPO, Borrower’s consent shall be required with respect to an assignment to any Person (such consent not to be unreasonably withheld, delayed or conditioned) and such consent shall be deemed to have been given if Borrower has not responded within five (5) days of a written request for such consent.

 

(b)            Register. The Lender, acting solely for this purpose as an agent of Borrower, shall maintain at one of its offices in the United States a copy of each assignment and assumption pursuant to Section 13.2(a) delivered to it and a register for the recordation of the names and addresses of the Lender, and the principal amounts (and stated interest) of the Loan owing to, Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and Borrower and each Guarantor, shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as the Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by Borrower at any reasonable time and from time to time upon reasonable prior notice.

 

(c)            Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement to secure obligations of the Lender; provided that no such pledge or assignment shall release the Lender from any of its obligations hereunder or substitute any such pledgee or assignee for the Lender as a party hereto.

 

13.3          Indemnification.

 

(a)            Costs and Expenses. The Loan Parties shall pay (i) all reasonable out-of-pocket expenses incurred by the Lender and its Affiliates (including, but not limited to, (A) the reasonable and documented fees, charges and disbursements of counsel for the Lender and (B) due diligence expenses), in connection with the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), and (ii)  all out-of-pocket expenses incurred by the Lender (including the fees, charges and disbursements of any counsel for the Lender) in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section 13.3, or (B) in connection with Loan made hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loan.

 

47

 

 

(b)            Indemnification by the Loan Parties. The Loan Parties shall indemnify the Lender and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee, and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party) arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Lender and its Related Parties only, the administration of this Agreement and the other Loan Documents (including in respect of any matters addressed in Section 3), (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or Release of Hazardous Materials on or from any property owned, leased or operated by a Loan Party or any of its Subsidiaries, or any Environmental Liability related in any way to a Loan Party or any of its Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party, and regardless of whether any Indemnitee is a party thereto, IN ALL CASES, WHETHER OR NOT CAUSED BY OR ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, CONTRIBUTORY OR SOLE NEGLIGENCE OF THE INDEMNITEE; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and non-appealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee. This paragraph (b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.

 

(c)            Waiver of Consequential Damages, Etc. To the fullest extent permitted by Applicable Law, no Loan Party shall assert, and the Loan Parties hereby waive, and acknowledges that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee referred to in clause (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee, as determined by a final and non-appealable judgment of a court of competent jurisdiction.

 

48

 

 

(d)            Payments. All amounts due under this Section 13.3 shall be payable not later than five (5) days after demand therefor setting forth a reasonably detailed calculation thereof.

 

(e)            Survival. The agreements in this Section 13.3 and the other indemnity provisions of this Agreement shall survive the repayment, satisfaction or discharge of all Obligations.

 

13.4          Severability of Provisions. Each provision of this Agreement is severable from every other provision in determining the enforceability of any provision.

 

13.5          Waivers; Amendments.

 

(a)            No failure or delay by the Lender in exercising any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, remedy, power or privilege, or any abandonment or discontinuance of steps to enforce such a right remedy, power or privilege, preclude any other or further exercise thereof or the exercise of any other right remedy, power or privilege. The rights, remedies, powers and privileges of the Lender hereunder and under the Loan Documents are cumulative and are not exclusive of any rights, remedies, powers or privileges that any such Person would otherwise have.

 

(b)            Except as otherwise expressly set forth in this Agreement, no amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by any Loan Party therefrom, shall be effective unless in writing executed by the Loan Parties and the Lender, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

13.6          Counterparts. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 3.1, this Agreement shall become effective when it shall have been executed by the Lender and when the Lender shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (e.g., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.

 

13.7          Attorneys’ Fees, Costs and Expenses. In any action or proceeding between any Loan Party and the Lender arising out of or relating to the Loan Documents, the Lender shall be entitled to recover its reasonable and documented out-of-pocket attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred, in addition to any other relief to which it may be entitled.

 

13.8          Right of Setoff. Each Loan Party hereby grants to the Lender, for the benefit of the Lender, a Lien and a right of setoff as security for all Obligations to the Lender, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Lender or any entity under the control of the Lender (including a subsidiary of the Lender) in transit to any of them. At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, the Lender may set off the same or any part thereof and apply the same to any liability or Obligation of any Loan Party even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE THE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF ANY LOAN PARTY, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

49

 

 

13.9          Electronic Execution of Documents. The words “execution,” “signed,” “signature” and words of like import in any Loan Document shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity and enforceability as a manually executed signature or the use of a paper-based recordkeeping systems, as the case may be, to the extent and as provided for in any applicable law, including, without limitation, the New York State Electronic Signatures and Records Act, or any other similar state law based on the Uniform Electronic Transactions Act.

 

13.10       Captions. The headings used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement.

 

13.11       Construction of Agreement. The parties mutually acknowledge that they and their attorneys have participated in the preparation and negotiation of this Agreement. In cases of uncertainty this Agreement shall be construed without regard to which of the parties caused the uncertainty to exist.

 

13.12       Relationship. The relationship of the parties to this Agreement is determined solely by the provisions of this Agreement. The parties do not intend to create any agency, partnership, joint venture, trust, fiduciary or other relationship with duties or incidents different from those of parties to an arm’s-length contract.

 

13.13       Third Parties. Nothing in this Agreement, whether express or implied, is intended to: (a) confer any benefits, rights or remedies under or by reason of this Agreement on any Persons other than the express parties to it and their respective permitted successors and assigns; (b) relieve or discharge the obligation or liability of any Person not an express party to this Agreement; or (c) give any Person not an express party to this Agreement any right of subrogation or action against any party to this Agreement.

 

13.14       Patriot Act. Lender hereby notifies Borrower that pursuant to the requirements of the USA PATRIOT Act, it is required to obtain, verify and record information that identifies USDG and each of its Subsidiaries, which information includes the names and addresses of each USDG and each of its Subsidiaries and other information that will allow the Lender to identify USDG and each of its Subsidiaries in accordance with the USA PATRIOT Act.

 

13.15       Judgment Currency.

 

If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Lender could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Loan Party in respect of any such sum due from it to the Lender hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the “Judgment Currency”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “Agreement Currency”); i.e. Dollars, be discharged only to the extent that on the Business Day following receipt by the Lender, as the case may be, of any sum adjudged to be so due in the Judgment Currency, the Lender, as the case may be, may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Lender, as the case may be, from the applicable Loan Party in the Agreement Currency, such Loan Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Lender, as the case may be, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Lender, as the case may be, in such currency, the Lender, as the case may be, agrees to return the amount of any excess to such Loan Party (or to any other Person who may be entitled thereto under Applicable law).

 

50

 

 

13.16       No Party Deemed Drafter.

 

Each of the parties hereto agrees that no party hereto shall be deemed to be the drafter of this Agreement. This Agreement and the other Loan Documents are the result of negotiations among the parties hereto and thereto and have been reviewed by counsel to each of the parties hereto and thereto and are the products of all parties; accordingly, they shall not be construed against the Lender.

 

14.            DEFINITIONS

 

14.1          Definitions. As used in the Loan Documents, the word “shall” is mandatory, the word “may” is permissive, the word “or” is not exclusive, the singular includes the plural, and numbers denoting amounts that are set off in brackets are negative. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” The word “year” shall refer (i) in the case of a leap year, to a year of three hundred sixty-six (366) days, and (ii) otherwise, to a year of three hundred sixty-five (365) days. Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein,” “hereof” and “hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Sections, Exhibits and Schedules shall be construed to refer to Sections of, and Exhibits and Schedules to, this Agreement, (e) any reference to any law or regulation herein shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (f) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. As used in this Agreement, the following capitalized terms have the following meanings:

 

“Account Debtor” is any “account debtor” as defined in the Code with such additions to such term as may hereafter be made.

 

“Adjusted Uptime” means the uptime for mining equipment, as adjusted in accordance with the parameters set forth on Schedule 2.

 

51

 

 

“Affiliate” is, with respect to any Person, each other Person that owns or controls directly or indirectly the Person, any Person that controls or is controlled by or is under common control with the Person, and each of that Person’s senior executive officers, directors, partners and, for any Person that is a limited liability company, that Person’s managers and members. In addition, for purposes hereof, “Affiliates” of any Permitted Holder shall include (a) any Family Member of any Permitted Holder, (b) all trusts for the benefit of any Permitted Holder and/or any one or more of the Persons described in clause (a), and (c) any Person directly or indirectly owned by, controlled by or under common control with any Permitted Holder and/or any one or more of the Persons described in clauses (a) or (b). For the avoidance of doubt, the Lender shall not be deemed to be an Affiliate of any Loan Party or any Permitted Holder.

 

“Agreement” is defined in the preamble hereof.

 

“Alpha Facility” means that 40 Mega Watt mining facility located at 2747 Buffalo Ave Niagara Falls, NY 14303 and including, without limitation, all assets and property of the Borrower and USDTG in respect thereof and located therein.

 

“Alpha Facility Miners” are the 5,233 units the serial numbers of which are set forth on Schedule 3 to Exhibit A hereto (as such Schedule may be amended from time to time), which is a combination of MicroBT M30S, MicroBT M30S+ and MicroBT M30S++.

 

“Annual Period” has the meaning given to such term in the definition of “Applicable Rate”.

 

“Anti-Corruption Laws” means any law or regulation in a U.S. or any non-U.S. jurisdiction regarding bribery or any other corrupt activity, including the U.S. Foreign Corrupt Practices Act of 1997 (“FCPA”) and the U.K. Bribery Act 2010.

 

“Anti-Money Laundering Laws” means any law or regulation in a U.S. or any non-U.S. jurisdiction regarding money laundering, drug trafficking, terrorist-related activities or other money laundering predicate crimes, including the Currency and Foreign Transactions Reporting Act of 1970 (otherwise known as the Bank Secrecy Act) and the Patriot Act.

 

“Applicable Law” or “applicable law” is as to any Person any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Applicable Rate” is:

 

(a)            For the period from and after the Closing Date to and including February 2, 2024 (the “First Annual Period”), an amount equal to 14% of the Amount;

 

(b)            If the Loan is and all other Obligations are not paid in full during the First Annual Period, then for the period after February 3, 2024 to and including February 2, 2025 (the “Second Annual Period”), an amount equal to the sum of (i) 23% of the Amount less (ii) the actual cash payment(s) received pursuant to Section 2.2 during the First Annual Period;

 

(c)            If the Loan is and all other Obligations are not paid in full during the Second Annual Period, then for the period after February 3, 2025 to and including February 2, 2026 (the “Third Annual Period”), an amount equal to the sum of (i) 34% of the Amount less (ii) the actual cash payment received under clauses (a) and (b) above during the First Annual Period and the Second Annual Period;

 

52

 

 

(d)            If the Loan is and all other Obligations are not paid in full during the Third Annual Period, then for the period after February 3, 2026 to and including February 2, 2027 (the “Fourth Annual Period”), an amount equal to 11% of the Adjusted Amount; and

 

(e)            If the Loan is and all other Obligations are not paid in full during the Fourth Annual Period, then for the period after February 3, 2027 to and including the Maturity Date (the “Fifth Annual Period” and together with the First Annual Period, the Second Annual Period, the Third Annual Period and the Fourth Annual Period, each an “Annual Period” and collectively, the “Annual Periods”), an amount equal to the sum of (i) 22% of the Adjusted Amount less (ii) the actual cash payment received under clause (d) above during the Fourth Annual Period.

 

As used herein, (a) “Amount” is:

 

(i)            with respect to the First Annual Period, $48,611,111.11;

 

(ii)           with respect to the Second Annual Period, (x) $48,611,111.11 plus (y) all capitalized interest during the First Annual Period ; and

 

(iii)          with respect to the Third Annual Period, (x) $48,611,111.11 plus (y) all capitalized interest during the First Annual Period and the Second Annual Period;

 

(b)            “Adjusted Amount” is:

 

(i)            with respect to the Fourth Annual Period, the lesser of (x) $48,611,111.11 and (y) the sum of (1) $48,611,111.11 plus (2) all capitalized interest during the First Annual Period, the Second Annual Period and the Third Annual Period less (3) all payment of principal of the Loan that is made during the First Annual Period, the Second Annual Period and Third Annual Period; and

 

(ii)           with respect to the Fifth Annual Period, the lesser of (x) the sum of (1) $48,611,111.11 plus (2) all capitalized interest during the Fourth Annual Period and (y) the sum of (1) $48,611,111.11 plus (2) all capitalized interest during the First Annual Period, the Second Annual Period and the Third Annual Period less (3) all payment of principal of the Loan that is made during the First Annual Period, Second Annual Period, Third Annual Period and Fourth Annual Period, until the date that is the forty eight (48) anniversary of the Closing Date.

 

“Asset Purchase Agreement” means the Asset Purchase Agreement dated as of the Closing Date between USDG and the Borrower pursuant to which USDG shall transfer all of its right, title and interest in Collateral described under clause (b) of the term “Collateral” (other than USDG’s Equity Interest in the Borrower), free and clear of any and all Liens and encumbrances (other than Permitted Liens) to the Borrower.

 

“Asset Purchase Agreement Transactions” means the transactions contemplated by the Asset Purchase Agreement, including transfer by USDG of all of its right, title and interest in Collateral described under clause (b) of the term “Collateral” (other than USDG’s Equity Interest in the Borrower), free and clear of any and all Liens and encumbrances (other than Permitted Liens) to the Borrower.

 

53

 

 

“Asset Sale” is any conveyance, sale, lease, division, sale and leaseback, assignment, transfer or other disposition to any Person of, or any loss, damage, destruction or condemnation of, any asset or assets of any Loan Party, including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

 

“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.

 

“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the IRC or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the IRC) the assets of any such “employee benefit plan” or “plan”.

 

“Bitcoin” means the type of virtual currency based on an open source cryptographic protocol existing on the Bitcoin Network.

 

“Borrower” is defined in the preamble hereof.

 

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state of New York.

 

“Canaan Miners” are the 2,000 Canaan units (Avalon 1166 Pro (1105 machines) and Avalon 1246 (895 machines)), the serial numbers of which are set forth on Schedule 2 to Exhibit A hereto (as such Schedule may be amended from time to time).

 

“Capital Adequacy Regulation” means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy or liquidity requirements of the Lender or of any corporation controlling the Lender.

 

“Capitalized Fee” has the meaning given to such term in Section 2.2(a).

 

“Casualty Event” is defined in Section 7.4(b).

 

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

 

“CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

 

“Change in Control” (a) the Permitted Holders cease to own beneficially, directly or indirectly, the then issued and outstanding Stock of USDG having at least 75% of the ordinary voting power for the election of directors, managers or other governing body of the Borrower on a fully diluted basis; provided that the occurrence of the foregoing event shall not be deemed a Change in Control if, any time upon or after the consummation of a Qualifying IPO, and for any reason whatsoever, no “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), excluding the Permitted Holders, shall become the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under such Exchange Act), directly or indirectly, of more than (x) thirty-five percent (35%) or more of the then outstanding voting Stock of the Parent Company on a fully diluted basis or (y) a greater the percentage of the then outstanding voting Stock of the Parent Company on a fully diluted basis owned, directly or indirectly, beneficially by the Permitted Holders; (b) from and after the Qualifying IPO, the Parent Company shall fail to own and control, directly or indirectly, 100% of the outstanding Equity Interests of USDG or (c) USDG shall fail to own and control, directly or indirectly, 100% of the outstanding Equity Interests of the Borrower and USDTG, on a fully diluted basis.

 

54

 

 

“Closing Date” is defined in the preamble hereof.

 

“Closing Date Equity Issuance” is defined in Section 7.8(a).

 

“Closing Fee” has the meaning given to such term in Section 2.4(a).

 

“Code” is the Uniform Commercial Code, as the same may, from time to time, be enacted and in effect in the State of New York; provided that, to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in Article or Division 9 shall govern; provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection, or priority of, or remedies with respect to, the Lender’s Lien on any Collateral is governed by the Uniform Commercial Code in effect in a jurisdiction other than the State of New York, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority, or remedies and for purposes of definitions relating to such provisions.

 

“Collateral” is any and all properties, rights and assets of any Loan Party described on Exhibit A.

 

“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profit Taxes.

 

“Contested Taxes” is defined in Section 6.7.

 

“Contingent Obligation” is, for any Person, any direct or indirect liability, contingent or not, of that Person for (a) any indebtedness, lease, dividend, letter of credit or other obligation of another such as an obligation, in each case, directly or indirectly guaranteed, endorsed, co-made, discounted or sold with recourse by that Person, or for which that Person is directly or indirectly liable; (b) any obligations for undrawn letters of credit for the account of that Person; and (c) all obligations from any interest rate, currency or commodity swap agreement, interest rate cap or collar agreement, or other agreement or arrangement designated to protect a Person against fluctuation in interest rates, currency exchange rates or commodity prices; but “Contingent Obligation” does not include endorsements in the ordinary course of business. The amount of a Contingent Obligation is the stated or determined amount of the primary obligation for which the Contingent Obligation is made or, if not determinable, the maximum reasonably anticipated liability for it determined by the Person in good faith; but the amount may not exceed the maximum of the obligations under any guarantee or other support arrangement.

 

“Copyright License” means any written agreement, now or hereafter in effect, granting any right to any Loan Party under any Copyright now or hereafter owned by any third party, and all rights of any Loan Party under any such agreement (including any such rights that such Loan Party has the right to license), together with any amendments, modifications, renewals, extensions and supplements thereof.

 

55

 

 

“Copyrights” means all of the following: (a) all copyright rights in any work subject to the copyright laws of the United States or any other country, whether as author, assignee, transferee or otherwise; (b) all registrations and applications for registration of any such Copyright in the United States or any other country, including registrations, supplemental registrations and pending applications for registration in the United States Copyright Office and/or any other equivalent intellectual property agency or office in any foreign country and the right to obtain all renewals, extensions, supplements, reversions, reissues and continuations thereof; (c) all claims for, and rights to sue or otherwise recover for, past, present or future infringements or other violations of any of the foregoing; and (d) all income, royalties, damages and payments now or hereafter due and payable with respect to any of the foregoing, including damages and payments for past, present or future infringement or other violations thereof.

 

“Covered Entity” means any of the following: (a) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b); (b) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or (c) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).

 

“Crypto Assets” mean Cryptocurrencies, their derivatives or other types of digitalized assets and any Cryptocurrency Addresses and any and all associated Wallets.

 

“Cryptocurrency” means encrypted or digital tokens or cryptocurrencies that are based on blockchain and cryptography technologies and are issued and managed in a decentralized form, including, without limitation, Bitcoin and Ether and any and all associated Wallets.

 

“Cryptocurrency Address” means an identifier of alphanumeric characters that represents a possible destination for a transfer of Cryptocurrencies.

 

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect.

 

“Default” means any event or condition which, but for the giving of notice, lapse of time, or both, would constitute an Event of Default.

 

“Default Rate” is defined in Section 2.3(b).

 

“Deployed Miners” are the Alpha Facility Miners, the Canaan Miners and the Wolf Hollow Miners.

 

“Designated Jurisdiction” is any country or territory that is itself the subject of any comprehensive Sanctions (including, without limitation, Cuba, Iran, North Korea, Syria, and the Crimea region of Ukraine).

 

“Disqualified Equity Interests” means any Equity Interests that, by their terms (or by the terms of any security into which they are convertible or for which they are exchangeable) or upon the happening of any event, mature or are mandatorily redeemable for any consideration other than for Qualified Equity Interests, pursuant to a sinking fund obligation or otherwise, or are convertible or exchangeable for Indebtedness or redeemable for any consideration other than other Qualified Equity Interests at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the earlier of (i) the Maturity Date and (ii) the first date on which none of the Indebtedness or other obligations, or commitments, remain outstanding under any Loan Document.

 

56

 

 

 

“Division” “division” means, in reference to any Person which is an entity, the division of such Person into two (2) or more separate Persons, with the dividing Person either continuing or terminating its existence as part of such division, including, without limitation, as contemplated under Section 18-217 of the Delaware Limited Liability Company Act for limited liability companies formed under Delaware law, or any analogous action taken pursuant to any other applicable law with respect to any corporation, limited liability company, partnership or other entity.

 

“Dollars,” “dollars” or use of the sign “$” means only lawful money of the United States and not any other currency, regardless of whether that currency uses the “$” sign to denote its currency or may be readily converted into lawful money of the United States.

 

“Environment” means ambient air, indoor air, surface water, groundwater, drinking water, soil, surface and subsurface strata, and natural resources such as wetlands, flora and fauna.

 

“Environmental Laws” means any and all applicable federal, state, local, and foreign statutes, laws (including common law), regulations, standards, ordinances, rules, judgments, orders, decrees, permits, agreements or governmental restrictions relating to pollution or the protection of the Environment or human health, including those relating to the manufacture, generation, handling, transport, storage, treatment, Release or threat of Release of Hazardous Materials, air emissions and discharges to waste or land.

 

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of investigation, environmental remediation, fines, penalties or indemnities) of any Loan Party whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, relating to (a) any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) the exposure of Persons to any Hazardous Materials, (d) Release or threatened Release of any Hazardous Materials or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

 

“Environmental Permit” means any permit, certification, registration, approval, identification number, license or other authorization required under any Environmental Law.

 

“Equipment” is all “equipment” as defined in the Code with such additions to such term as may hereafter be made, and includes without limitation all machinery, fixtures, goods, vehicles (including motor vehicles and trailers), and any interest in any of the foregoing.

 

“Equipment Loan and Security Agreements” means, collectively, (i) that certain Equipment Loan and Security Agreement, dated as of March 31, 2022, by and between USDG, as borrower and Lender and (ii) that certain Equipment Loan and Security Agreement, dated as of April 26, 2022, by and between USDG, as borrower, and Lender.

 

“Equity Interests” are, as to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.

 

57

 

 

“ERISA” is the Employee Retirement Income Security Act of 1974, and its regulations.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that is under common control with any Loan Party and is treated as a single employer within the meaning of Section 414 of the IRC or Section 4001 of ERISA.

 

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by any Loan Party or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a failure to satisfy the minimum funding standard under Section 412 of the IRC or Section 302 of ERISA with respect to a Pension Plan, whether or not waived, or a failure to make any required contribution to a Multiemployer Plan; (d) a complete or partial withdrawal by any Loan Party or any ERISA Affiliate from a Multiemployer Plan, notification of any Loan Party or ERISA Affiliate concerning the imposition of Withdrawal Liability or notification that a Multiemployer Plan is insolvent within the meaning of Title IV of ERISA or that is in endangered or critical status, within the meaning of Section 305 of ERISA; (e) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (f) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; (g) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Loan Party or any ERISA Affiliate; (h) a determination that any Pension Plan is, or is expected to be, in “at-risk” status (within the meaning of Section 303(i)(4)(A) of ERISA or Section 430(i)(4)(A) of the IRC); or (i) the occurrence of a non-exempt prohibited transaction with respect to any Plan or Pension Plan maintained or contributed to by any Loan Party (within the meaning of Section 4975 of the IRC or Section 406 of ERISA) which would result in liability to any Loan Party.

 

“Ether” means the native Cryptocurrency of the Ethereum application platform trading under the symbol “ETH”.

 

“Ethereum” means the decentralized, open source and distributed computing platform that enables the creation of smart contracts and decentralized applications, also known as dapps and commonly known as “ethereum”.

 

“Event of Default” is defined in Section 9.

 

“Exchange Act” is the Securities Exchange Act of 1934, as amended.

 

“Excluded Deposit Account” means any deposit account: (1) that is solely used to cover wages and payroll for employees of a Credit Party (and related contributions to be made on behalf of such employees to employee health and benefit plans) plus balances for outstanding checks for wages and payroll from prior periods; and (2) that constitutes employee withholding accounts and containing only funds deducted from pay otherwise due to employees for services rendered to be applied toward the Tax obligations of such employees.

 

58

 

 

“Excluded Property” means (i) any governmental licenses or state or local franchises, charters or authorizations, to the extent a security interest in any such licenses, franchise, charter or authorization would be prohibited or restricted thereby (including any legally effective prohibition or restriction) after giving effect to the applicable anti-assignment clauses of the Code and Applicable Laws, other than the proceeds and receivables thereof the assignment of which is expressly deemed effective under the Code or any similar applicable laws notwithstanding such prohibition, (ii) assets and personal property for which a pledge thereof or a security interest therein is prohibited by Applicable Laws (including any legally effective requirement to obtain the consent of any Governmental Authority), rule, regulation or contractual obligation with an unaffiliated third party (in each case, (y) only so long as such contractual obligation was not entered into in contemplation of the acquisition thereof and (z) except to the extent such prohibition is unenforceable or ineffective after giving effect to the applicable provisions of the Code or other applicable law), (iii) any intent-to-use trademark application prior to the filing and acceptance of a “Statement of Use” or “Amendment to Allege Use” with respect thereto, to the extent, if any, that, and solely during the period, if any, in which, the grant of a security interest therein would impair the validity or enforceability of such intent-to-use trademark application under applicable federal Law, it being agreed that for purposes of this Agreement and the Loan Documents, no Lien granted to Lender on any “intent-to-use” United States trademark applications is intended to be a present assignment thereof and (iv) any Excluded Deposit Accounts; provided that notwithstanding anything herein to the contrary, Excluded Property shall not include any proceeds, replacements or substitutions of Collateral.

 

“Excluded Subsidiary” means (a) U.S. Data Group, Inc., a Nevada corporation, and each direct or indirect Subsidiary of such Person, but only so long as the sole assets, property and operations of such Persons are limited to Generate Capital Assets, the King Mountain Assets or the direct and indirect Equity Interests in Subsidiaries holdings solely the Generate Capital Assets and the King Mountain Assets and, in each case, no such Subsidiary shall receive any Investment from any Loan Party, (b) (i) Pecos Data Technologies, LLC, a Nevada limited liability company, (ii) USB4S, LLC, a Nevada limited liability company, (iii) U.S. Data Loan Star, Inc., a Nevada corporation, and (iv) U.S. Data Falls, Inc., a Nevada corporation, in each case, so long as each such Subsidiary has no operations, business, assets and/or property and each such Subsidiary shall be dissolved on or prior to the date that is 60-days after the Closing Date and, in each case, no such Subsidiary shall receive any Investment from any Loan Party.

 

“Excluded Taxes” means any of the following Taxes imposed on or with respect to any Lender or required to be withheld or deducted from a payment to any Lender, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of any Lender being organized under the laws of, or having its principal office or its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) U.S. federal withholding Taxes imposed on amounts payable to or for the account of any Lender with respect to an applicable interest in the Loan pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 2.7, amounts with respect to such Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Taxes attributable to any Lender’s failure to comply with Section 2.7(b) and (d) any withholding Taxes imposed under FATCA.

 

59

 

 

“FATCA” means Sections 1471 through 1474 of the IRC, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, any agreements entered into pursuant to Section 1471(b)(1) of the IRC and any fiscal or regulatory legislation, rules or practices adopted pursuant to any intergovernmental agreement, treaty or convention among Governmental Authorities and implementing such Sections of the IRC.

 

“Fiscal Year” means, (i) as to the Borrower, each fiscal year of the Borrower ended June 30, (ii) as to USDG, each fiscal year of USDG ended June 30, and (iii) as to Parent Company, each fiscal year of Parent Company ended December 31.

 

“Foreign Lender” means any Lender that is not a U.S. Person.

 

“Family Member” means, with respect to any Person, (a) the parents and other lineal ancestors of such Person, (b) the current spouses of such Person, (c) the lineal descendants of such Person and (d) the siblings of such Person and their lineal descendants.

 

“Foreign Plan” means any employee benefit plan, program, policy, arrangement or agreement maintained or contributed to or by, or entered into with, any Loan Party with respect to employees outside the United States.

 

“Fully Diluted Basis” means at any time (i) as applied to any calculation of the number of Securities of USDG, after giving effect to (x) all shares of Securities of USDG outstanding at the time of determination and (y) all shares of Securities issuable upon the exercise of any vested Stock Equivalents outstanding as of the date hereof with a strike or exercise price below the market value thereof (assuming for such purpose the consummation of the Merger); and (ii) as applied to any calculation of value, after giving effect to the foregoing securities and the payment of any consideration payable upon the exercise of any Stock Equivalents referred to in clause above if such Stock Equivalents were exercisable at such time. .

 

“GAAP” is generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other Person as may be approved by a significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination.

 

“General Intangibles” is all “general intangibles” as defined in the Code in effect on the date hereof with such additions to such term as may hereafter be made, and includes without limitation, all Intellectual Property, claims, income and other tax refunds, security and other deposits, payment intangibles, contract rights, options to purchase or sell real or personal property, rights in all litigation presently or hereafter pending (whether in contract, tort or otherwise), insurance policies (including without limitation key man, property damage, and business interruption insurance), payments of insurance and rights to payment of any kind.

 

“Generate Capital Assets” means (i) the assets and operations of USMIO Delta LLC that operate and service the obligations under the “Strategic Operator Agreement Wolf Hollow Project / Granbury, TX” contract, (ii) the assets and operations of USMIO Charlie LLC that operate and service the obligations under the “Strategic Operator Agreement Kearney Project / Kearney, NE” contract, (iii) the Strategic Operator Agreement Wolf Hollow Project / Granbury, TX  and the Strategic Operator Agreement Kearney Project / Kearney, NE contracts and (iv) the guaranty given by GC Data Center Equity Holdings, LLC. for both USMIO Charlie LLC and USMIO Delta LLC; provided that notwithstanding the foregoing, Generate Capital Assets shall not include any property or asset that is set forth under clause (b) of the defined “Collateral” that is set forth in Exhibit A of this Agreement.

 

60

 

 

“Governmental Approval” is any consent, authorization, approval, order, license, franchise, permit, certificate, accreditation, registration, filing or notice, of, issued by, from or to, or other act by or in respect of, any Governmental Authority.

 

“Governmental Authority” is any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative functions of or pertaining to government, any securities exchange and any self-regulatory organization.

 

“Guarantor” is each of (a) prior to the Qualifying IPO, USDG, USDTG and each Limited Recourse Guarantor, (b) from and after the Qualifying IPO, USDG, USDTG and each Subsidiary of USDG that owns any asset or property constituting Collateral (other than Borrower and USDTG), and (c) from and after the Qualifying IPO, the Parent Company and (e) any other Person that is “publicly traded” on a “stock exchange” entity and hold’s USDG’s Equity Interest.

 

“Guaranty” is the guarantee made by the Guarantors in favor of the Lender pursuant to Section 4.

 

“Hash Rate” means number of terahashes per second.

 

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes, and other substances or wastes of any nature regulated under or with respect to which liability or standards of conduct are imposed pursuant to any Environmental Law.

 

“Indebtedness” is (a) indebtedness for borrowed money or the deferred price of property or services, such as reimbursement and other obligations for surety bonds and letters of credit, (b) obligations evidenced by notes, bonds, debentures or similar instruments, (c) capital lease obligations, (d) all obligations (including, without limitation, earnout obligations) of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than sixty (60) days after the date on which such trade account was created), (d) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (e) all obligations of such Person in respect of any Disqualified Equity Interests, (f) Contingent Obligations, and (g) all guarantees of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person. The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

 

61

 

 

“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), any Other Taxes.

 

“Indemnitee” is defined in Section 13.3.

 

“Intellectual Property” means all intellectual property and similar proprietary rights of every kind and nature throughout the world of any Loan Party, whether now owned or hereafter acquired by any Loan Party, including, inventions, designs, Patents, Copyrights, Trademarks, Patent Licenses, Copyright Licenses, Trademark Licenses, trade secrets, domain names, confidential or proprietary technical and business information, know-how, show-how or other data or information and all related documentation.

 

“Investment” is (i) any purchase or acquisition (including pursuant to any merger with a Person that is not a wholly owned Subsidiary immediately prior to such merger) of any Equity Interests, evidences of indebtedness or other securities of any other Person, (ii) any making of Loan or advances to or guarantees of the indebtedness of any other Person or (iii) any purchase or other acquisition, in one transaction or a series of related transactions, of (x) all or substantially all of the property and assets or business of another Person or (y) assets constituting a business unit, line of business or division of such Person. The amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment, net of any return in respect thereof, including dividends, interest, distributions, returns of principal, profits on sale, repayments, income and similar amounts.

 

“IRC” is the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.

 

“IRS” is the United States Internal Revenue Service.

 

“Key Management Employees” are, the following Mike Ho (Chief Executive Officer), Asher Genoot (President), Joel Block (Chief Financial Officer) and Matt Prusak (Chief Compliance Officer).

 

“King Mountain Assets” means (i) the 50% of the equity interests of TZRC LLC held by US Data King Mountain LLC, (ii) the assets and operations of USMIO Echo LLC and (iii) the Property Management Agreement to run the King Mountain Modular Data Center, Upton County, Texas; provided that notwithstanding the foregoing, Generate Capital Assets shall not include any property or asset that is set forth under clause (b) of the defined “Collateral” that is set forth in Exhibit A of this Agreement.

 

“Laws” or “laws” means, collectively, all international, foreign, federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case having the force of law.

 

“Lender’s Expenses” are the Lender’s and the Lender’ reasonable and documented out-of-pocket costs and expenses (including reasonable and documented or invoiced attorneys’ fees and expenses) for preparing, amending, negotiating, administering, defending and enforcing the Loan Documents (including, without limitation, those incurred in connection with appeals or any proceeding under any Debtor Relief Law) or otherwise incurred with respect to transactions contemplated by the Loan Documents.

 

62

 

 

“Lien” is a mortgage, pledge, hypothecation, collateral assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

 

“Limited Recourse Guarantor(s)” is (i) prior to the Qualifying IPO, each Subsidiary (other than an Excluded Subsidiary, the Borrower and/or USDTG) of USDG that exists or is created on the Closing Date and (ii) from and after the Qualifying IPO, USDG and any Subsidiary of USDG that owns assets constituting Collateral (other than the Borrower and/or USDTG).

 

“Liquidity” means, as of any date of determination, the aggregate amount of Unrestricted cash held by USDG.

 

“Loan” means the loan made or deemed made pursuant to Section 2.2 (which for the avoidance of doubt includes the Capitalized Fee and all other fees, interest or other amounts capitalized as an increase on the aggregate outstanding principal amount of the Loan in accordance with the terms of this Agreement, including pursuant to Section 2.3(a)).

 

“Loan Documents” are, collectively, this Agreement and any schedules, exhibits, certificates, notices, and any other documents related to this Agreement, the Note, the Perfection Certificate, the Notices of Grant of Security Interest in Intellectual Property, the Qualifying Control Agreements, the Wallet Security Agreements, any subordination agreement, any note, or notes or guaranties executed by Borrower or any Guarantor, and any other present or future agreement by Borrower and/or any Guarantor with or for the benefit of the Lender in connection with this Agreement, all as amended, restated, or otherwise modified.

 

“Loan Parties” are, collectively, Borrower and the Guarantors.

 

“Loan Parties’ Books” are all the Loan Parties’ books and records including ledgers, federal and state tax returns, records regarding the Loan Parties’ assets or liabilities, the Collateral, business operations or financial condition, and all computer programs or storage or any equipment containing such information.

 

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or financial condition of any Loan Party or any Subsidiary of any Loan Party, taken as a whole, or (b) a material adverse effect on (i) the ability of any Loan Party to perform its Obligations or any other material obligations under any Loan Document to which it is a party, (ii) the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party or (iii) the rights, remedies and benefits available to, or conferred upon, the Lender under any Loan Documents.

 

“Maturity Date” means February 2, 2028.

 

“Merger” means the transactions contemplated by the Merger Agreement.

 

63

 

 

“Merger Agreement” means that certain Business Combination Agreement, to be entered into by and among Hut 8 Mining Corp., a corporation existing under the laws of the Province of British Columbia, USDG and “New Hut”, a Delaware corporation, in the form provided to the Lender prior to the Closing Date, together with all other revisions, modifications or changes not materially adverse to the Lender or resulting in the occurrence of a Prohibited Transaction.

 

“Moody’s” shall mean Moody’s Investors Service, Inc. and its successors and assigns.

 

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate makes or is obligated to make contributions, or during the immediately preceding six (6) years, has made or been obligated to make contributions.

 

“Net Monthly Cash Flow” means, means, for each calendar month, (a) all Bitcoin generated by the Deployed Miners less (b) the Borrower’s (but no other Person’s) SG&A, but not to exceed the amount that is previously preapproved by the Lender in writing for such calendar month.

 

“Net Proceeds” are, in each case, an amount equal to: 100% of the cash proceeds actually received by any Loan Party or any Subsidiary of any Loan Party (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise and including casualty insurance settlements and condemnation awards, but only as and when received) from any Asset Sale and/or any Casualty Event, in each case, in respect of Collateral, net of (i) attorneys’ fees, accountants’ fees, investment banking fees, survey costs, search and recording charges, transfer taxes and required payments of debt or other obligations relating to the applicable asset to the extent such debt or obligations are secured by a Lien not prohibited hereunder (other than pursuant to the Loan Documents) on such asset, other customary fees and expenses actually incurred to obtain such Net Proceeds or otherwise in connection therewith and (ii) Taxes paid or payable as a result thereof.

 

“Niagara Falls Litigation” is as defined on Schedule 4.

 

“Note” is defined in Section 2.5(d).

 

“Notice of Grant of Security Interest in Intellectual Property” is a Notice of Grant of Security Interest in Intellectual Property.

 

“NPL” means the National Priorities List under CERCLA.

 

“NYDIG Documents” means that certain (i) Asset Purchase Agreement dated on or about the date hereof by and among NYDIG Mining Equipment SPV IX LLC, NYDIG Mining Equipment SPV X LLC, NYDIG Mining Equipment SPV XI LLC, NYDIG Mining Equipment SPV XII LLC, NYDIG Mining Equipment SPV XIII LLC, MS SPV I LLC (“NYDIG SPV I”), USDG, U.S. Data Lone Star, Inc., Pecos Data Technologies, LLC (“Pecos”), and NYDIG ABL LLC, solely in its capacity as agent under the Credit Agreement referenced therein and (ii) that certain Real Estate Purchase Agreement, dated on or about the date hereof, by and among NYDIG SPV I and Pecos; provided that notwithstanding the foregoing, the foregoing shall not result in the transfer to “NYDIG” or a Person other than the Borrower of any property or asset that is set forth under clause (b) of the defined “Collateral” that is set forth in Exhibit A of this Agreement.

 

64

 

 

“NYDIG Document Transactions” are the transactions contemplated by the NYDIG Documents.

 

“Obligations” are Borrower’s and each Guarantor’s obligations to pay when due any debts, principal, interest, fees, Lender’s Expenses, indemnification obligations and other amounts owing to the Lender now or later, under or in connection with this Agreement or any of the other Loan Documents, including, without limitation, any interest, expenses and fees accruing after the commencement of any proceeding under any Debtor Relief Law begin regardless of whether such interest, expenses and fees are allowed claims in such proceedings, and to perform any Loan Party’s duties under the Loan Documents, in each case whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising.

 

“OFAC” is the U.S. Department of Treasury Office of Foreign Assets Control.

 

“Operating Documents” are, for any Person, such Person’s formation documents, as certified by the Secretary of State (or equivalent agency) of such Person’s jurisdiction of organization on a date that is no earlier than thirty (30) days prior to the Closing Date, and, (a) if such Person is a corporation, its bylaws in current form, (b) if such Person is a limited liability company, its limited liability company agreement (or similar agreement), and (c) if such Person is a partnership, its partnership agreement (or similar agreement), each of the foregoing with all current amendments or modifications thereto.

 

“Original Loan” is defined in Section 2.1.

 

“Other Connection Taxes” means, with respect to any Lender, Taxes imposed as a result of a present or former connection between such Lender and the jurisdiction imposing such Tax (other than connections arising from such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).

 

“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document.

 

“Parent Company” means Hut 8 Corp., a Delaware corporation.

 

“Patent License” shall mean any written agreement, now or hereafter in effect, granting to any Loan Party any right to make, use or sell any invention covered by a Patent now or hereafter owned by any third party (including any such rights that such Loan Party has the right to license), together with any amendments, modifications, renewals, extensions and supplements thereof.

 

“Patents” means all of the following: (a) all patents of the United States or the equivalent thereof in any other country or jurisdiction, and all applications for patents of the United States or the equivalent thereof in any other country or jurisdiction, (b) all provisionals, reissues, extensions, continuations, divisions, continuations-in-part, reexaminations or revisions thereof, and the inventions, discoveries, improvements and designs disclosed or claimed therein, including the right to make, use, import and/or sell the inventions disclosed or claimed therein, (c) all claims for, and rights to sue or otherwise recover for, past, present or future infringements or other violations of any of the foregoing and (d) all income, royalties, damages and payments now or hereafter due and payable with respect to any of the foregoing, including damages and payments for past, present or future infringement or other violation thereof.

 

65

 

 

“Payment Date” is the fifteenth day of each month of each year commencing March 15, 2023; provided that the Net Monthly Cash Flow that will be payable on March 15, 2023 shall be for the period (a) from the Closing Date through (b) February 28, 2023.

 

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA) other than a Multiemployer Plan, that is subject to Title IV of ERISA or Section 412 of the Code and is sponsored or maintained by any Loan Party or any ERISA Affiliate or to which any Loan Party or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding six (6) years.

 

“Perfection Certificate” is a perfection certificate substantially in the form acceptable to the Lender delivered on the Closing Date by the Loan Parties.

 

“Permitted Holders” are, at any time, each holder of USDG’s Equity Interest on the Closing Date and their respective Affiliates.

 

“Permitted Investments” are , as at any date, (a) investments in direct obligations of the United States of America or any agency or instrumentality thereof to the extent such obligations constitute full faith and credit obligations of the United States of America, provided that any such obligations mature within one year of the date of issuance thereof, (b) (x) Dollars and cash in local currencies held in the ordinary course of business and (y) Dollar denominated time deposits and certificates of deposit of (i) any domestic commercial bank of recognized standing having capital and surplus in excess of $500,000,000 or (ii) any bank whose short-term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody’s is at least P-1 or the equivalent thereof (any such bank being an “Approved Bank”), in each case with maturities of not more than 270 days from the date of acquisition, (c) commercial paper and variable or fixed rate notes issued by any Approved Bank (or by the parent company thereof) or any variable rate notes issued by, or guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or better by S&P or P-1 (or the equivalent thereof) or better by Moody’s and maturing within one year of the date of acquisition, (d) repurchase agreements entered into by any Person with a bank or trust company or recognized securities dealer having capital and surplus in excess of $500,000,000 for direct obligations issued by or fully guaranteed by the United States in which such Person shall have a perfected first priority security interest (subject to no other Liens) and having, on the date of purchase thereof, a fair market value of at least 100% of the amount of the repurchase obligations and (e) Investments, classified in accordance with GAAP as current assets, in money market investment programs registered under the Investment Company Act of 1940 which are administered by reputable financial institutions having capital of at least $500,000,000 and the portfolios of which are limited to Investments of the character described in the foregoing clauses (a) through (d).

 

“Permitted Indebtedness” means:

 

(a)            Indebtedness under the Loan Documents;

 

(b)            Indebtedness existing on the Closing Date which are shown on the Perfection Certificate.

 

66

 

 

(c)            Indebtedness in respect of Taxes constituting Contested Taxes;

 

(d)            Indebtedness in respect of judgments or awards, individually, or, in the aggregate, not constituting an Event of Default;

 

(e)            Indebtedness under cash management agreements, bank overdrafts, returned items or like items incurred in the ordinary course of business of a Loan Party that are promptly repaid;

 

(f)            Indebtedness in respect of worker's compensation claims, disability, health or employee benefits and self-insurance obligations incurred in the ordinary course of business of a Loan Party;

 

(g)            Indebtedness constituting unpaid insurance premiums (not in excess of one year's premium) owing to insurance companies and insurance brokers incurred in connection with the financing of insurance premiums in the ordinary course of business of a Loan Party;

 

(h)            unsecured guarantees arising as a result of customary indemnification obligations to purchasers that are not Affiliates of a Loan Party in connection with any Asset Sale permitted under Section 8.10 or in connection with the NYDIG Document Transactions; and

 

(i)            Indebtedness under any Swap Contract entered into with the prior written consent of the Lender.

 

“Permitted Liens” are:

 

(a)            Liens existing on the Closing Date which are shown on the Perfection Certificate or arising under this Agreement or the other Loan Documents;

 

(b)            Liens for taxes, fees, assessments or other government charges or levies, either (i) not overdue by more than 30 days or (ii) being contested in good faith and for which the Loan Parties maintain adequate reserves on the Loan Parties’ Books;

 

(c)            Liens imposed by law, such as landlord’s (including for this purpose landlord’s Liens created pursuant to the applicable lease), carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s, supplier’s, construction or other like Liens, securing obligations that are not overdue by more than 30 days or that are being contested in good faith by appropriate proceedings and for which the Loan Parties maintains adequate reserves on the Loan Parties’ Books;

 

(d)            Liens to secure the performance of bids, trade contracts, contracts for the purchase property, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case, not representing an obligation for borrowed money;

 

(e)            Liens securing judgments not constituting an Event of Default;

 

(f)            leases or subleases, licenses or sublicenses granted to others in the ordinary course of business not interfering in any material respect with the business of the Loan Parties, taken as a whole;

 

67

 

 

(g)            in the case of leasehold interests in real property, any Lien to which the fee simple interest (or any superior leasehold interest) is subject;

 

(h)            easements, rights-of-way, restrictions and other similar encumbrances affecting real property that, in the aggregate, are not substantial in amount, and that do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person, and any zoning or similar law or right reserved to or vested in any Governmental Authority to control or regulate the use of any real property that does not materially interfere with the ordinary conduct of the business of Borrower or any other Loan Party;

 

(i)            Liens securing any Swap Contract permitted under clause (i) of the definition of “Permitted Indebtedness”; and

 

(j)            Liens in favor of financial institutions arising in connection with a Loan Party’s deposit accounts and/or securities accounts held at such institutions.

 

“Person” is any individual, sole proprietorship, partnership, limited liability company, joint venture, company, trust, unincorporated organization, association, corporation, institution, public benefit corporation, firm, joint stock company, estate, entity or government agency.

 

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) other than a Foreign Plan, established or maintained by any Loan Party or, with respect to any such plan that is subject to Section 412 of the IRC or Title IV of ERISA, any ERISA Affiliate.

 

“Prohibited Transaction” means any of the foregoing: (a) the occurrence of a Change of Control; (b) the assumption of any Lien or Indebtedness (or Guaranty of any Indebtedness) by the Borrower and/or USDTG; (c) Borrower’s and USDTG’s Equity Interest secured any Lien other than Liens securing the Obligations; (d) any asset or property described under clause (b) (except (b)(1)(A)) of the term Collateral is owned by any Person other than the Borrower and USDG; (e)  any asset or property described under clause (b)(1) or clause (b)(6) of the term Collateral is owned by any Person other than the Borrower and USDTG; (f) USDG, USDTG or the Borrower make any Restricted Payment, other than Restricted Payments not prohibited hereunder; (g) any document, agreement or contract exists, is executed or comes into effect that results in any Guarantor (other than any Limited Recourse Guarantor) to be released from its guaranty of the Obligations hereunder; (h) the Parent Company, USDG and/or USDTG are not Recourse Loan Parties hereunder; (i) the Parent Company’s is not listed on the “National Association of Securities Dealers Automated Quotations” (“NASDAQ”) and Equity Interests are not freely tradable on the “NASDAQ”; (j) the Parent Company is not organized under the laws of Delaware; (k) the Parent Company does not hold 100% of USDG’s Equity Interest and (l) any other transaction that is materially adverse to the interests of Lender.

 

“Qualifying Control Agreement” means an agreement, among a Loan Party, a depository institution or securities intermediary and the Lender, which agreement is in form and substance reasonably acceptable to the Lender and which provides the Lender with “control” (as such term is used in Article 9 of the Code) over the deposit account(s) or securities account(s) described therein.

 

“Qualifying IPO” means the occurrence of the Merger pursuant to the Merger Agreement.

 

“Recourse Loan Parties” are Loan Parties other than any Limited Recourse Guarantor. For the avoidance of doubt, prior to the Qualified IPO, Recourse Loan Parties are the Borrower, USDG and USDTG and from and after the Qualifying IPO, Recourse Loan Parties are the Borrower, USDG, USDTG the Parent Company and any other Person that is “publicly traded” on a “stock exchange” entity and hold’s USDG’s Equity Interest.

 

68

 

 

“Register” is defined in Section 13.2(b).

 

“Registered Organization” is any “registered organization” as defined in the Code with such additions to such term as may hereafter be made.

 

“Regulation U” means Regulation U of the FRB, as in effect from time to time and all official rulings and interpretations thereunder or thereof.

 

“Related Parties” are, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, the Lender, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.

 

“Release” means any release, spill, emission, discharge, deposit, disposal, leaking, pumping, pouring, dumping, emptying, injection or leaching into the Environment, or into, from or through any building, structure or facility.

 

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the thirty (30) day notice period has been waived.

 

“Requirement of Law” is, as to any Person, the organizational or governing documents of such Person, and any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject.

 

“Responsible Officer” is, as to any Loan Party, Chief Executive Officer, the President and Chief Financial Officer of such Loan Party.

 

“Restricted Payment” is any dividend or other distribution (whether in cash, securities or other property) to the extent in respect to any Equity Interest of any Loan Party, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any Equity Interest of any Loan Party, or on account of any return of capital to such Loan Party’s shareholders, partners or members (or the equivalent Persons thereof) in respect of their Equity Interests in any Loan Party.

 

“Sale and Leaseback Transaction” means, with respect to any Loan Party, any arrangement, directly or indirectly, with any Person whereby such Loan Party shall sell or transfer any property used or useful in its business, whether now owned or hereafter acquired, and thereafter rent or lease such property or other property that it intends to use for substantially the same purpose or purposes as the property being sold or transferred.

 

“S&P” shall mean Standard & Poor’s Ratings Group, Inc. and its successors and assigns.

 

“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by the Office of Foreign Assets Control of the U.S. Department of the Treasury or the U.S. Department of State, the United Nations Security Council, the European Union, any Member State of the European Union, or the United Kingdom (irrespective of its status vis-à-vis the European Union), (b) any Person located or resident in or organized under the laws of a Designated Jurisdiction or (c) a Person that is an the Lender, department or instrumentality of, or is otherwise beneficially owned by, controlled by or acting on behalf of, directly or indirectly, any Person, entity, organization, country or regime described in immediately preceding clauses (a) or (b).

 

69

 

 

“Sanctions” means economic or financial sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the U.S. government, including those administered by OFAC and the U.S. Department of State, and the U.S. Department of Commerce or (b) the United Nations Security Council, the European Union, any European Union member state or Her Majesty’s Treasury of the United Kingdom or other relevant sanctions authority.

 

“SEC” is the Securities and Exchange Commission, any successor thereto, and any analogous Governmental Authority.

 

“Securities” has the meaning specified in the Stockholders Agreement as in effect on the Closing Date.

 

“Securities Act” means the Securities Act of 1933, including all amendments thereto and regulations promulgated thereunder.

 

“Security Interest” is defined in Section 5.1.

 

“SG&A” means, with respect to the Borrower, the following expenses (without duplication): (a) employee wages or other hosting fees (provided that unless any of the foregoing is not preapproved in writing by the Lender (plus a cumulative variance not to exceed 10%), such amounts shall be $0) and (b) invoiced and paid for insurance cost, electricity cost, and hosting service costs, in each case, with respect to clauses (a) and (b) solely with respect to the Deployed Miners.

 

“Solvent” means, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they become absolute and matured, (d) such Person is not engaged in any business, as conducted on such date and as proposed to be conducted following such date, for which such Person’s property would constitute an unreasonably small capital and , and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

 

“Stock Equivalents” has the meaning specified in the Stockholders Agreement as in effect on the Closing Date.

 

“Stockholders Agreement” means USDG’s Stockholders’ Agreement dated as of August 31, 2021 by and among USDG and the stockholders of USDG.

 

“Subsidiary” is, as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person.

 

70

 

 

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

 

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto, including, without limitation, any real estate taxes and any Other Taxes.

 

“Threshold Amount” means (i) as to the Borrower, USDG, USDTG, or a Limited Recourse Guarantor, $200,000 and (ii) as to the Parent Company, $25,000,000.

 

“Trademark License” shall mean any written agreement, now or hereafter in effect, granting to any Loan Party any right to use any Trademark now or hereafter owned by any third party (including any such rights that such Loan Party has the right to license), together with any amendments, modifications, renewals, extensions and supplements thereof.

 

“Trademarks” shall mean all of the following: (a) all trademarks, service marks, certification marks, corporate names, company names, business names, fictitious business names, trade styles, trade dress, logos, internet domain names, other source or business identifiers, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all registrations thereof (if any), and all registration and recording applications filed in connection therewith, including registrations and registration applications in the United States Patent and Trademark Office or any similar offices in any State of the United States or any other country or any political subdivision thereof, and all renewals thereof, (b) all goodwill associated with or symbolized by the foregoing, (c) all claims for, and rights to sue or otherwise recover for, past, present or future infringements, dilutions or other violations of any of the foregoing or unfair competition therewith and (d) all income, royalties, damages and payments now or hereafter due and payable with respect to any of the foregoing, including damages and payments for past, present or future infringement, dilutions or other violations thereof or unfair competition therewith.

 

“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the IRC.

 

71

 

 

“U.S. Tax Compliance Certificate” has the meaning specified in Section 2.7(b).

 

“United States” and “U.S.” mean the United States of America.

 

“Unrestricted” means, when referring to USDG’s cash, that such cash (i) does not appear or would not be required to appear as “restricted” on the financial statements of USDG (unless related to the Loan Documents or the Liens created thereunder) and (ii) is not subject to a Lien in favor of any Person other than the Lender under the Loan Documents

 

“USDG” has the meaning given to such term in the preamble hereto.

 

“USDTG” has the meaning given to such term in the preamble hereto.

 

“Voting Stock” means, with respect to any Person, Equity Interests issued by such Person the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even though the right so to vote has been suspended by the happening of such a contingency.

 

“Wallet” means the location, wallet, address, account or storage device designated by the Borrower in a written notice given to the Lender as the location at which Cryptocurrency or any other Crypto Assets is located.

 

“Wallet Security Agreements” means any access, control or other acknowledgment agreement that may from time to time be entered into between the Lender, the applicable Loan Party and the custodian having custody and control of a Wallet, which shall be in form and substance reasonably acceptable to the Lender.

 

“Wolf Hollow” means that 300 Mega Watt mining facility owned by Generate Capital located at 2001 Mitchell Bend Highway, Granbury, TX 76048.

 

“Wolf Hollow Miners” are the 16,276 MicroBT M30S++ units the serial numbers of which are set forth on Schedule 1 to Exhibit A hereto (as such Schedule may be amended from time to time).

 

[Signature Page Follows.]

 

72

 

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the Closing Date.

 

BORROWER:

 

US DATA GUARDIAN LLC  
   
By: /s/ Asher Genoot  
  Name: Asher Genoot  
  Title: President  
   
GUARANTORS:  
   
U.S. DATA MINING GROUP, INC.  
   
   
By: /s/ Asher Genoot  
  Name: Asher Genoot  
  Title: President  
   
   
U.S. DATA TECHNOLOGIES GROUP LTD.  
   
   
By: /s/ Asher Genoot  
  Name: Asher Genoot  
  Title: President  

 

73

 

 

 

THE LENDER:

 

ANCHORAGE LENDING CA, LLC, as the Lender

 

 

By: /s/ Jennifer Liu  
  Name: Jennifer Liu  
  Title: Manager  

 

74

 

 

 

Exhibit 10.12
 
SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED]. 
 

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

GRAPHIC

 

Exhibit 10.13

 

LEASE AGREEMENT

 

THIS LEASE is made this 8th day of May, 2017.

 

BETWEEN:

 

JOSEPH G. GASCHNITZ, an individual residing in or near the
Town of Drumheller in the Province of Alberta
(hereinafter called the “Landlord”)

 

- and -

 

BITFURY TECHNOLOGY INC., a body corporate incorporated

pursuant to the laws of British Columbia

(hereinafter called the “Tenant”)

 

IN CONSIDERATION of the covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which is acknowledged by each party to this Lease, the parties agree as follows:

 

ARTICLE 1 BASIC TERMS, SCHEDULES, DEFINITIONS

 

1.1Basic Terms

 

(a)Landlord:

 

Joseph G. Gaschnitz
P.O. Box 1448
Drumheller, Alberta 

 

 

  

(b)Tenant:

 

Bitfury Technology Inc.

800 – 885 West Georgia Street
Vancouver, British Columbia
V6C 3H1
Attention: Mr. Valerijs Vavilovs

 

(c)Term:

 

(i)Three (3) years; and

 

(ii)Commencement Date: May 15, 2017.

 

(d)Renewal Term: The Tenant shall be entitled to one (1) renewal term of three (3) years in accordance with Section 13.3.

 

(e)Minimum Rent means the amount of $3,600.00 per acre annually for a total of $18,000.00 annually (based upon an initial Demised Premises of five (5) acres, subject to modification pursuant to subsection 1.1(g)), payable in monthly installments of $1,500.00 in accordance with Article 4.

 

2 

(f)Legal Description of Property:

 

THE SOUTH EAST QUARTER OF SECTION TWENTY SEVEN (27)
IN TOWNSHIP TWENTY NINE (29)
RANGE TWENTY (20)
WEST OF THE FOURTH MERIDIAN, AS SHOWN ON THE
TOWNSHIP PLAN APPROVED AT OTTAWA 3RD NOVEMBER 1908
CONTAINING 64.3 HECTARES (159 ACRES) MORE OR LESS
EXCEPTING THEREOUT THE ROADWAY AS SHOWN ON PLAN 6667GX
CONTAINING .809 HECTARES (2 ACRES) MORE OR LESS
EXCEPTING THEREOUT ALL MINES AND MINERALS

 

(g)The Demised Premises shall consist of a portion of the Property outlined in red on Schedule “A” attached hereto of up to Ten (10) acres as determined by the Tenant. The Tenant shall provide the Landlord with a plan of the Property showing the Demised Premises to be used initially by the Tenant for its operations and the Tenant shall only be required to pay rent on such portion of the Property as is used by the Tenant (which may be pro-rated as required), but which may be increased by the Tenant to up to Ten (10) acres. The Tenant advises the Landlord that it initially expects to use an area of five (5) acres (as outlined in blue on Schedule “A” attached hereto.

 

The foregoing Basic Terms (“Basic Terms”) are hereby approved by the parties and each reference in this Lease to any of the Basic Terms shall be construed to include the provisions set forth above as well as all of the additional terms and conditions of the applicable sections of this Lease where such Basic Terms are more fully set forth.

 

1.2Definitions

 

In this Lease, the following words, phrases and expressions are used with the meanings defined as follows:

 

(a)“Additional Rent” means any monies or charges payable by the Tenant to the Landlord pursuant to any provision of the Lease, other than Minimum Rent and the amount payable pursuant to Section 4.6, all of which are recoverable by the Landlord as rent;

 

(b)“Bank” means the Toronto Dominion Bank;

 

(c)“Commencement Date” means the date as set out in Article 1.1(c)(ii);

 

(d)“Contaminant” includes, but is not limited to, any pollutants, dangerous substances, liquid waste, toxic substances, hazardous wastes, hazardous materials, hazardous substances and contaminants including any of the foregoing as defined in any Environmental Law;

 

(e)“Demised Premises” has the meaning ascribed thereto in subsection 1.1(g);

 

3 

(f)“Environment” means the components of the earth and includes:

 

(i)air, land and water;

 

(ii)all layers of the atmosphere;

 

(iii)all organic or inorganic matter and living organisms; and

 

(iv)the interacting natural systems including components referred to in the preceding subsections of this definition;

 

(g)“Environmental Activity” means any activities, events or circumstances in respect of a Contaminant, including its storage, use, holding, collection, purchase, accumulation, assessment, generation, manufacture, construction, processing, treatment, stabilization, disposition, handling or transportation, or its Release into the Environment;

 

(h)“Environmental Authority” means any international, federal, provincial or municipal ministry, department or agency which enforces Environmental Laws;

 

(i)“Environmental Damage” means any direct or indirect damage from any Environmental Activity;

 

(j)“Environmental Law” means any and all current and future applicable international, federal, provincial or municipal laws, by-laws, statutes, regulations, orders or judgments, relating to the environment, occupational health and safety, or any Environmental Activity;

 

(k)“including” means including without limiting the generality of the foregoing unless the context otherwise specifically requires;

 

(l)“Landlord” means Joseph G. Gaschnitz;

 

(m)“Lease” means this document, the recitals and Schedules, if any, hereto and includes all amendments to the foregoing;

 

(n)“Lease Year” means all one year periods commencing January 1 and ending the last day of December of that same year during each year of the Term;

 

(o)“Minimum Rent” means the rent set out in Article 1.1(d). For greater certainty “Minimum Rent” does not include any GST, which is payable by the Tenant in addition to Minimum Rent;

 

(p)“Notice” includes requests, demands, designations, statements or other writings in this Lease required or permitted to be given by the Landlord to the Tenant or by the Tenant to the Landlord and all writs, originating notices of motion, affidavits and any other ancillary documents in support of all legal proceedings;

 

(q)“Order” means any claim, action, lien, prosecution, notice, work order, control order, stop order or directive, written or oral, issued from any court or Environmental Authority;

 

4 

(r)“Permitted Use” means the operation of a data centre site to process transactions on the Bitcoin Blockchain and which will be understood to include, without limitation:

 

(i)related substation operations;

 

(ii)storage;

 

(iii)work spaces (with portable toilets); and

 

(iv)access for heavy trucks and cranes;

 

(s)“Property” means the lands legally described as set out in Article 1.1(e);

 

(t)“Property Taxes” means all general, special, local improvement, school and water taxes, levies, rates and charges from time to time imposed against the Demised Premises, or any part thereof, by municipal or other governmental authorities having jurisdiction, together with the costs of contesting or negotiating the same, but exclusive of income taxes, business taxes, place of business taxes, estate, inheritance, succession, capital levy or transfer tax;

 

(u)“Release” includes but is not limited to: spill, discharge, dispose of, spray, inject, inoculate, abandon, deposit, leak, seep, pour, emit, empty, throw, dump, place and exhaust and any definition of Release in any future applicable Environmental Law

 

(v)“Sales Tax” means the Goods and Services Tax (“GST”) and any other sales tax, consumption tax, business transfer tax, value added tax or any similar tax or replacement tax imposed by the Government of Canada, or any provincial or municipal government to the extent that such tax is imposed on the Landlord or is required to be paid by or collected by the Landlord by reason of the supply of any goods or services by the Landlord to the Tenant, or any payments of Minimum Rent or Additional Rent by the Tenant to the Landlord pursuant to any provision of this Lease;

 

(w)“Tenant” means Bitfury Technology Inc., its successors and permitted assigns; and

 

(x)“Term” means the term of this Lease set out in Article 1.1(c)(i).

 

The definitions contained herein are not exhaustive of the defined terms or expressions used in this Lease and other terms or expressions may be defined throughout this Lease.

 

5 

ARTICLE 2 GRANT OF LEASE

 

2.1Demise of Demised Premises

 

The Landlord, being registered as owner of the Property does hereby lease to the Tenant the Demised Premises for the Term commencing on the Commencement Date and upon and subject to the covenants and conditions contained herein.

 

ARTICLE 3 TERM

 

3.1Term

 

The term of this Lease shall be the period set out in Article 1.1(c)(i), beginning on the Commencement Date set out in Article 1.1(c)(ii). Notwithstanding the foregoing, the Tenant shall have the option of terminating this Lease at any time upon not less than six (6) months’ written notice to the Landlord. The Tenant shall be responsible for the payment of all rent up to the end of such notice period.

 

ARTICLE 4 RENT

 

4.1Minimum Rent

 

The Tenant shall pay the Landlord in and for each Lease Year, Minimum Rent in the amount per annum set out in subsection 1.1(e) for the respective Lease Year, by equal consecutive monthly installments.

 

4.2Payment of Minimum Rent

 

Instalments of Minimum Rent shall be paid strictly in advance on the first day of each and every month throughout the Term.

 

4.3Pro Rata Adjustment of Rent

 

All rent shall be deemed to accrue from day to day, and if for any reason it shall become necessary to calculate rent for irregular periods of less than one (1) year or one (1) month, as the case may be, an appropriate pro rata adjustment shall be made in order to calculate rent for such irregular period.

 

4.4Payments Generally

 

All payments by the Tenant to the Landlord of whatsoever nature required or contemplated by this Lease shall be:

 

(a)paid to the Landlord by the Tenant in Canadian dollars;

 

(b)made when due hereunder, without prior demand therefore and without any set off, compensation or deduction whatsoever;

 

(c)applied towards amounts then outstanding hereunder, in such manner as the Landlord may, in its discretion, see fit, and without restricting the generality of the foregoing, the acceptance by the Landlord of any amount less than the full amount which is due and owing by the Tenant shall not constitute an accord and satisfaction or otherwise oblige the Landlord to accept in full settlement, anything less than the full amount owing and outstanding at any time;

 

6 

(d)deemed to be rent, in partial consideration for which this Lease has been entered into, and shall be payable and recoverable as rent, such that the Landlord shall have all rights and remedies against the Tenant for default in making any such payment which may not be expressly said to be rent as the Landlord has for default in payment of rent; and

 

(e)subject to an overdue charge if any such payment is not made within three (3) days of the date due, which charge shall be equal to and collectible as Additional Rent at a rate equal to the Bank’s prime lending rate plus ten (10%) percent per annum, simple interest, of the overdue amount both before and after judgment. calculated and payable monthly with the next monthly instalment of Minimum Rent, all without prejudice to any other right or remedy of the Landlord.

 

4.5Prepaid Rent

 

The Landlord hereby acknowledges receipt of the sum of Three Thousand Dollars ($3,000.00) paid to it by the Tenant representing payment of Minimum Rent (including GST) for the first and last month of the Term (based upon an initial Demised Premises of five (5) acres).

 

4.6Initial Payment

 

The Landlord hereby acknowledges receipt of the sum of Fifteen Thousand Dollars ($15,000.00) paid to it by the Tenant representing an initial payment with respect to the Lease, which payment shall compensate the Landlord for any expenses incurred with respect to the preparation of this Lease and for initial crop loss or damage.

 

ARTICLE 5 TENANT’S DIRECT COSTS AND ADDITIONAL RENT

 

5.1Intent of Lease

 

The Tenant acknowledges and agrees that it is intended that this Lease shall be a net Lease for the Landlord except as specifically otherwise set out in this Lease. It is the intent of the parties that the Tenant shall be responsible for the performance of the obligations of the Tenant and the Landlord shall not be responsible during the Term or any renewal for any costs of any nature whatsoever respecting the Demised Premises and the Tenant shall pay without deduction or set-off all costs relating to the Demised Premises, including payment of amounts required to be paid by the Tenant pursuant to the terms of this Lease, and without limiting the generality of the foregoing, that the Tenant shall be responsible for the payment of the costs set out in Articles 5.2 and 5.3 hereof.

 

5.2Tenant to Pay Costs Directly

 

Without limiting the generality of the preceding Article, the Tenant is responsible for and shall promptly pay directly all of the following:

 

(a)all utilities and services supplied to the Demised Premises;

 

7 

  (b) the cost of installation, construction and maintenance of an access road or approach such that the Tenant can operate for the Permitted Use on the Demised Premises;

 

  (c) the cost of cleaning, waste removal and snow and ice removal for the Demised Premises; and

 

  (d) the cost of servicing, maintaining, operating and repairing the Demised Premises except, however, for repairs and replacements to be performed by the Landlord as defined in Article 9.4, if any.

 

5.3 Tenant’s Responsibility for Other Costs

 

Without limiting the generality of the preceding Articles, the Tenant shall pay to the Landlord, in each Lease Year during the Term hereof the aggregate of all other costs, charges and expenses in respect of the Demised Premises, including:

 

  (a) any increase in property taxes levied against the Property solely as a result of the Tenant’s use of the Demised Premises (the Landlord shall be responsible for the payment of all property taxes levied against the Property, including the Demised Premises); and

 

  (b) all Sales Tax in respect of the lease of the Demised Premises, which for avoidance of doubt includes GST, but excludes all income taxes or capital taxes of the Landlord.

 

5.4 Additional Rent

 

The Tenant is responsible for paying to the Landlord all costs as outlined in Article 5.3. The Landlord shall be entitled to collect these amounts from the Tenant as Additional Rent.

 

ARTICLE 6 TAXES

 

6.1Tenant’s Taxes

 

The Tenant shall pay promptly when due all business, sales, machinery, equipment and all other taxes, assessments, charges and rates, as well as any permit or license fees, attributable to the Tenant or the business, sales or income of the Tenant conducted on or arising from the Demised Premises.

 

ARTICLE 7 INSURANCE

 

7.1Tenant’s Insurance

 

(a)The Tenant shall, during the whole of the Term and during such other time as the Tenant occupies the Demised Premises, take out and maintain the following insurance, at the Tenant’s sole expense, in such form and with such companies as the Landlord may reasonably approve:

 

(i)commercial general liability insurance applying to all operations of the Tenant and against claims for bodily injury, including death, and property damage or loss arising out of the use or occupation of the Demised Premises or the Tenant’s business on or about the Demised Premises; such insurance shall be for the amount of not less than Two Million ($2,000,000.00) dollars; and

 

8 

(ii)so-called “all risks” insurance upon its machinery and equipment, trade fixtures and improvements including leasehold improvements, against breakage and damage from any covered cause of loss, all in an amount equal to replacement cost thereof.

 

(b)Certificates of insurance evidencing the coverage required herein shall be provided to the Landlord upon request and the Tenant shall be responsible to provide the Landlord with notice of any changes in the Tenant’s Insurance.

 

ARTICLE 8 USE AND OCCUPATION

 

8.1Quiet Enjoyment

 

The Landlord covenants with the Tenant for quiet enjoyment, for so long as the Tenant is not in default hereunder.

 

8.2Use

 

The Tenant shall use the Demised Premises for Permitted Use only and for no other purpose without the prior written consent of the Landlord which consent may not be arbitrarily or unreasonably withheld.

 

8.3Compliance with Laws

 

The Tenant shall carry on and conduct its business from the Demised Premises in such manner as to comply with any and all applicable statutes, bylaws, rules and regulations of any Federal, Provincial, Municipal or other competent authority from time to time in force during the Term and shall not do anything upon the Demised Premises in contravention thereof.

 

ARTICLE 9 CLEANING, REPAIR & REMEDIATION

 

9.1Cleaning, Repair and Remediation

 

(a)The Landlord represents and warrants that the Demised Premises are free from contaminants and that the Demised Premises have not been used for any Environmental Activity and there is no Environmental Damage to the Demised Premises.

 

(b)The Tenant shall be permitted, in its sole discretion and at its sole cost, to obtain an environmental site assessment of the Demised Premises prepared by a qualified environmental engineer at any time after the date hereof for a period of up to three (3) months, and which shall serve as a baseline for the environmental condition of the Demised Premises.

 

9 

(c)The Tenant shall, immediately before the termination of the Term, clean and remediate the Demised Premises such that the Demised Premises is in the condition the Demised Premises were in at the Commencement Date of this Lease (reasonable wear and tear excepted).

 

(d)The Tenant shall, at its sole cost, obtain an environmental site assessment of the Demised Premises prepared by a qualified environmental engineer as at the expiry or earlier termination of this Lease which shall confirm that the Tenant has completed any necessary remediation pursuant to the terms of subsection 9.1(c).

 

9.2Deposit

 

The Tenant shall provide to the Tenant’s solicitor, as escrow agent, a deposit in the amount of $15,000 (the “Deposit”) prior to entering the Demised Premises, to ensure that the Vendor will have sufficient funds to reclaim the Demised Premises if the Tenant fails to complete the reclamation and return the Demised Premises to the condition it was in at the Commencement Date, pursuant to Article 9.1. The Deposit, or such portion thereof as is necessary to compensate the Landlord, shall be paid to the Landlord in the event that upon the expiration or earlier termination of this Lease the Tenant has not, within sixty (60) days from the date thereof, returned the Demised Premises to the condition it was in at the Commencement Date as required by Article 9.1 (reasonable wear and tear excepted).

 

The Landlord shall be entitled to such amount of the Deposit as is required to return, restore, repair, remove or remediate as required pursuant to this Article 9.2 and the balance of the Deposit shall be returned or released to the Tenant within sixty (60) days following the expiration or earlier termination of this Lease, or such later time as is reasonably required to complete such restoration, repair, removal or remediation.

 

The Deposit shall be held in the trust account of the Landlord’s solicitor and shall be invested in an interest bearing trust account with interest to be for the benefit of the Tenant.

 

The Landlord and the Tenant agree that the Deposit may be replaced at any time by the Tenant with a letter of credit provided by a major Canadian bank upon the same terms as the Deposit. Upon the provision of such letter of credit the Deposit shall be released to the Tenant.

 

9.3View Status of Demised Premises

 

The Landlord may, upon reasonable notice and provided the Landlord is accompanied by a representative of the Tenant, enter the Demised Premises at any reasonable time during business hours and at any time during any emergency to view the state of the Demised Premises, including but not limited to the status of noxious weeds and any refuse, garbage or waste material on the Demised Premises, and the Landlord shall conduct its review in such manner as will cause the minimum interference with the normal business operations of the Tenant in the Demised Premises. The Tenant shall carry out all reasonable Landlord requirements to repair, maintain and upkeep as set forth in any written notice given to the Tenant.

 

10 

9.4Landlord’s Repairs

 

(a)The Landlord shall not be responsible for any repairs, replacements, maintenance or upkeep on the Demised Premises or any damage to the Demised Premises, except in cases where the damage is caused by the acts or omissions or negligence of the Landlord or those for which the Landlord is responsible at law.

 

(b)In fulfilling its obligations pursuant to this Article, the Landlord shall be entitled, subject to the provisions of Section 9.1, to enter the Demised Premises and shall act as expeditiously as is reasonably possible in the circumstances. The Landlord shall conduct its activities at such time during normal business hours and in such manner as will cause the minimum interference to the Tenant’s normal business operations at the Demised Premises.

 

9.5Environmental Indemnity

 

The Tenant shall indemnify and hold harmless the Landlord for any loss, cost or damage suffered by the Landlord as a result of any Contamination or Environmental Damage to the Demised Premises caused by the Tenant or those for which the Tenant is in law responsible.

 

ARTICLE 10 SUBSTANTIAL DAMAGE AND DESTRUCTION, EXPROPRIATION

 

10.1No Abatement of Rent

 

If during the Term, the Demised Premises shall be damaged or destroyed, in whole or in part, the rent shall continue to be due and payable in accordance with Article 4 and there will be no abatement of rent for the period of time that the Demised Premises is rendered and remain unusable for the purposes of the Tenant’s business.

 

ARTICLE 11 ASSIGNMENT, SUBLETTING, SALE OR MORTGAGE

 

11.1Assignment and Subletting

 

(a)The Tenant shall not assign this Lease in whole or in part, nor sublet all or any part of the Demised Premises, nor grant any license or part with possession of the Demised Premises, nor transfer any other right or interest under this Lease without the prior written consent of the Landlord in each instance, which consent may not be unreasonably or arbitrarily withheld.

 

(b)Notwithstanding any assignment or sublease, the Tenant shall remain fully liable on this Lease and shall not be released from performing any of the terms, covenants and conditions of this Lease.

 

(c)If the Lease is assigned or if the Demised Premises or any part thereof is sublet or occupied by anyone other than the Tenant with appropriate consent of the Landlord, the Landlord may collect rent directly from the assignee, subtenant or occupant, and apply the net amount collected, or the necessary portion thereof, to the rent herein reserved.

 

11 

(d)The prohibition against assigning, subletting, licensing, and transferring without the consent required by this Article shall be construed to include a prohibition against any such assignment, sublease, license, transfer or mortgage by operation of law.

 

(e)The consent by the Landlord to any assignment, sublease, license, or transfer shall not constitute a waiver of the necessity of such consent to any subsequent assignment, sublease, license, or transfer.

 

(f)All costs incurred by the Landlord in respect of any such request for consent, including reasonable legal costs on a full indemnity basis and the Landlord’s reasonable administration costs are the responsibility of and shall be paid by the Tenant forthwith upon request, whether or not the Landlord’s consent is granted.

 

(g)The Tenant shall be permitted to assign this Lease or sublet all or any portion of the Demised Premises to an affiliate (as such term is defined in the Business Corporations Act (Alberta)) of the Tenant provided that the Tenant shall not be released upon such assignment or sublet and further provided that the Tenant shall provide notice to the Landlord of such assignment.

 

11.2Subordination and Attornment

 

(a)The Landlord shall, upon request by the Tenant, obtain from any mortgagee, trustee or holder under any mortgage, deed of trust, lien or other charge assurance to the Tenant of quiet possession so long as the Tenant is not in default hereunder pursuant to the provisions of a lease recognition agreement or non-disturbance agreement (on and subject to terms and conditions acceptable to the Landlord, the Tenant and such mortgagee, acting reasonably). This Lease and the Tenant’s rights hereunder shall be subordinate to any mortgage or mortgages, or encumbrance resulting from any other method of financing or refinancing, now or hereafter in force against the Property or any part thereof, as now or hereafter constituted, and to all advances made or hereafter to be made upon the security thereof and, upon the request of the Landlord (provided the required lease recognition or non-disturbance agreement has been provided), the Tenant shall execute such documentation as may be required by the Landlord in order to confirm and evidence such subordination.

 

(b)The Tenant shall, in the event any proceedings are brought (provided the required lease recognition or non-disturbance agreement has been provided), whether in foreclosure or by way of the exercise of the power of sale or otherwise, under any mortgage or other method of financing or refinancing made by the Landlord in respect of the Property, attorn to the encumbrancer upon any such foreclosure or sale and recognize such encumbrancer as the Landlord under this Lease, should such encumbrancer so elect and require, without waiving or being deemed to waive any rights or remedies the Tenant may have with respect to any default of the Landlord hereunder.

 

11.3Estoppel Certificate. Acknowledgment

 

Whenever reasonably requested by the Landlord, a mortgagee or an encumbrance holder or other third party having any interest in the Property, the Tenant shall within ten (10) business days of the request execute and deliver an estoppel certificate or other form of certified acknowledgment as to the Commencement Date, the status and the validity of this Lease, the state of the rental account hereunder, any incurred defaults on the part of the Landlord alleged by the Tenant, and such other information as may reasonably be required.

 

12 

11.4Sale by Landlord

 

In the event of a sale by the Landlord (“Selling Landlord”) of any portion or all its interest in the Property, the Selling Landlord shall provide to the Tenant an agreement whereby the purchaser agrees with the Tenant to assume this Lease, and all obligations, covenants, and responsibilities of Landlord hereunder and the Selling Landlord shall thereupon be entirely released from the performance of all terms, covenants and obligations of the Landlord under this Lease.

 

11.5Tenant’s Mortgage or Financing

 

The Tenant shall have the right to place a mortgage or other financing on any of the Tenant’s equipment or trade fixtures on the Demised Premises and to mortgage the Tenant’s interest in this Lease and in the Demised Premises.

 

ARTICLE 12 ENVIRONMENTAL

 

12.1Tenant’s Covenants

 

The Tenant covenants and agrees with the Landlord:

 

(a)to comply with all Environmental Laws existing now or in the future and/or any environmental permits held by the Tenant; and

 

(b)to take, within a reasonable time, all remedial action required by any Order in the event of a violation of any Environmental Law by the Tenant or Release, by the Tenant, of a Contaminant on the Demised Premises and to forthwith advise the Landlord in writing of such violation and of the remedial action being taken in respect thereto for violation of any Environmental Law.

 

12.2Liability for Environmental Damage

 

The Tenant is responsible for and liable for all Environmental Damage occurring on or to the Demised Premises or emanating from the Demised Premises, as a result of:

 

(a)any business or activity carried on the Demised Premises by the Tenant, its employees, contractors, agents and invitees; or

 

(b)any Environmental Damage to the Demised Premises or the Environment caused by the Tenant, its employees, contractors, agents and invitees.

 

13 

ARTICLE 13 DEFAULT, REMEDIES, TERMINATION

 

13.1Default

 

If and whenever:

  

(a)the Tenant shall be in default in the payment of any money, whether hereby expressly reserved or deemed as rent, or any part thereof, and such default shall continue for five (5) days following notice provided by the Landlord to the Tenant; or

 

(b)the Tenant’s leasehold interest hereunder, or any goods, chattels or, equipment required for the operation of the Tenant’s business located in the Demised Premises shall be taken or seized in execution or attachment, or if any writ of execution shall issue against the Tenant and not be discharged within twenty one (21) days of its issuance, or the Tenant shall become insolvent or commit an act of bankruptcy or become bankrupt or take the benefit of any Act that may be in force for bankrupt or insolvent debtors or become involved in voluntary or involuntary winding up, dissolution or liquidation proceedings, or if a receiver or receiver and manager shall be appointed for the affairs, business or revenues of the Tenant; or

 

(c)the Tenant shall abandon the Demised Premises or use or permit or suffer the use of the Demised Premises for any purposes other than as allowed pursuant to this Lease, or fail to remedy or rectify any act or omission hereunder; or

 

(d)the Tenant shall not observe, perform and keep each and every of the covenants, agreements, stipulations, obligations, conditions and other provisions of this Lease to be observed. performed and kept by the Tenant and shall persist in such default (other than in the case of monetary payments which are governed by paragraph 13.1(a) aforesaid) after thirty (30) days following written notice from the Landlord requiring that the Tenant remedy, correct or comply or, in the case of any such material default which would reasonably require more than thirty (30) days to rectify, unless the Tenant shall commence rectification within the said thirty (30) days or provide the Landlord with a reasonable schedule for rectification within the thirty (30) day notice period and thereafter promptly, diligently and continuously proceed with the rectification of any such default;

 

then the Tenant shall be in default, and in each such case, the Landlord may exercise any and all rights or remedies the Landlord may have at law.

 

13.2Holding Over

 

If the Tenant continues to occupy the Demised Premises with the written consent of the Landlord after the expiration or other termination of the Term, then, without any further written agreement, the Tenant shall be a tenant from month to month at the aggregate of:

 

(a)a minimum monthly rent equal to one hundred twenty-five (125%) percent of the monthly Minimum Rent prevailing immediately prior to expiration or termination; plus

 

(b)Additional Rent as herein provided;

 

14 

and subject always to all of the other provisions in this Lease insofar as the same are applicable to a month to month tenancy and a tenancy from year to year shall not be created by implication of law; provided that if the Tenant continues to occupy the Demised Premises without the written consent of the Landlord at the expiration or other termination of the Term, then the Tenant shall be a tenant at will and shall pay to the Landlord, as liquidated damages and not as rent, an amount equal to the aggregate set forth above during the period of such occupancy, accruing from day to day and adjusted pro rata accordingly and subject always to all of the other provisions of this Lease insofar as they are applicable to a tenancy at sufferance and a tenancy from month to month or from year to year shall not be created by implication of law; provided that nothing herein contained shall preclude the Landlord from taking action for recovery of possession of the Demised Premises.

 

13.3Renewal

 

In consideration of the payment of rent and other charges and provided the Tenant is not in material default under this Lease at the date of exercise of the option hereby granted, the Landlord grants to the Tenant an option, subject to the provisions below, to renew this Lease for a further term of three (3) years commencing on the expiration of the initial Term on the same terms and conditions as are herein contained excluding any provisions for free rent, bonuses, or leasehold improvements or signing inducements. The Minimum Rent for the renewal period shall be equal to the Minimum Rent for the initial term of this Lease increased by 9%. The Tenant shall provide the Landlord with written notice of its intention to renew no later than six (6) months prior to the expiration of the initial Term of the Lease. The Tenant shall have the option to terminate the renewal term upon not less than six (6) months notice to the Landlord provided the Tenant shall be responsible for all rent payable up to the date of such termination.

 

ARTICLE 14 REPRESENTATIONS, WARRANTIES AND OBLIGATIONS

 

14.1Landlord’s Representations and Warranties

 

The Landlord represents and warrants that:

 

(a)the Demised Premises are zoned to permit the Permitted Use;

 

(b)there is no agreement, encumbrance, rule or regulation with respect to the Property or the Demised Premises which will prevent the Permitted Use; and

 

(c)the Tenant shall have access to the Demised Premises from a roadway which is maintained on a year round basis by Starland County.

 

14.2Confidentiality

 

The Landlord and the Tenant agree to keep the terms of this Lease confidential and not to disclose its terms to any party except to their financial, legal or other advisors or as otherwise required by law. The Tenant agrees that it shall not disclose the nature of the Tenant’s operations on the Demised Premises to any party except to its financial, legal or other advisors or as otherwise required by law.

 

15 

14.3Non-Disparagement

 

The Landlord agrees that it will not oppose any applications or operations of the Tenant on the Demised Premises provided that same are consistent with the Permitted Use and will not disparage in any way the Tenant, its business or operations (except to the extent of an actual default under this Lease).

 

ARTICLE 15 GENERAL PROVISIONS

 

15.1Approvals

 

The Landlord agrees that it shall provide all necessary reasonable cooperation and support to the Tenant with respect to any permits sought or applications made provided such permits and applications are for the Permitted Use.

 

15.2Relationship of Parties

 

Nothing contained herein shall be deemed or construed by the parties hereto, nor by any third party, as creating the relationship of principal and agent or of partnership or of joint venture between the parties hereto, it being understood and agreed that neither the method of computation of rent nor any other provision contained herein, nor any acts of the parties herein, shall be deemed to create any relationship between the parties other than the relationship of Landlord and Tenant.

 

15.3Entire Agreement

 

This Lease sets forth all of the warranties, representations, covenants, promises, agreements, conditions and understandings between the parties concerning the Demised Premises and the Property and there are no warranties, representations, covenants, promises, agreements, conditions or understandings, either oral or written, express or implied, between them other than as set forth in this Lease.

 

15.4Modifications

 

Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon the parties unless reduced to writing and signed by the parties.

 

15.5Condition of Demised Premises

 

Subject to the compliance with the terms of this Lease by the Landlord, and without limiting the generality of the foregoing, the Tenant acknowledges that it has inspected the Demised Premises and that the Tenant has accepted the Demised Premises on an “as is” basis without representation or warranty.

 

15.6Registration

 

Neither the Tenant nor anyone on the Tenant’s behalf or claiming under the Tenant shall register this Lease or any permitted assignment or permitted sublease of this Lease against the Property or any part thereof comprising the Demised Premises, provided that the Tenant may register a caveat in respect of its interest under this Lease.

 

16 

15.7Construed Covenant, Severability

 

All of the provisions of this Lease are to be construed as covenants and agreements. Should any provision of this Lease be or become illegal, invalid or not enforceable, it shall be considered separate and severable from this Lease and the remaining provisions shall remain in force and be binding upon the parties hereto and be enforceable to the fullest extent of the law.

 

15.8Further Assurances

 

The parties hereto and each of them do hereby covenant and agree to do such things and execute such further documents, agreements and assurances as may be necessary or advisable from time to time in order to carry out the terms and conditions of this Lease in accordance with their true intent.

 

15.9Governing Law

 

This Lease shall be governed in accordance with the laws of the Province of Alberta, the Courts of the Province of Alberta shall have exclusive jurisdiction and the parties hereto irrevocably attorn to such jurisdiction.

 

15.10Time

 

Time shall be of the essence hereof.

 

15.11Notices

 

Whenever any Notice, is required or permitted to be given by one party to another party under this Lease, such Notice shall be in writing and may be given by personal delivery to an individual party or to an officer, director or legal representative of a party (which will be deemed to be received on the date of such personal service), or by prepaid regular mail to the address set forth herein, provided that this is an address in Canada or the United States of America, (which will be deemed to be received on the tenth (10th) day following the date of mailing by prepaid regular mail unless that day is a Saturday, Sunday or statutory holiday in Calgary, Alberta, Canada in which case it will be deemed to be received on the next day that is not a Saturday, Sunday or statutory holiday in Calgary, Alberta. Canada), or by facsimile or other electronic transmission at the facsimile number or e-mail address provided herein, with receipt confirmed (which will be deemed to have been received on the first day, excluding any Saturday, Sunday or statutory holiday in Calgary, Alberta, Canada following the date that the facsimile or electronic transmission is received at that facsimile number or e-mail address as established by the typical receipt confirmation notice received by the sender) as follows:

 

To:the Landlord:
   
  

Joseph G. Gaschnitz

P.O. Box 1448

Drumheller, Alberta

____________________

Fax No.:  ____________________

 

17 

To:the Tenant:
   
  

Bitfury Technology Inc.

800 – 885 West Georgia Street
Vancouver, British Columbia
V6C 3H1
Attention: Mr. Valerijs Vavilovs
Fax No.: ____________________

e-mail: ____________________

 

With a copy to:

 

Bitfury Technology Inc.
c/o Gowling WLG (Canada) LLP
550 Burrard Street
Suite 2300, Bentall 5
Vancouver, British Columbia V6C 2B5
Attention: Mr. Brent Kerr, QC
Fax No. (604) 443-5621

 

Each party may only have its address for service in Canada or the United States of America and such address not be solely a post office box. Any party may change its address for service as aforesaid to another address in Canada or the United States of America, by providing Notice to all other parties in accordance with the provisions of this paragraph. No party may serve any Notice by prepaid regular mail or other mail service during any period where the postal service at the address of the sender or the receiver is affected by an interruption of normal postal service, including reason of strike, lock-out or other circumstances.

 

15.12Successors Bound

 

All rights and liabilities herein given to, or imposed upon, the respective parties hereto shall extend to and bind the several respective heirs, executors, administrators, successors and assigns of the said parties and if there is more than one (1) Tenant, they shall all be bound jointly and severally by the terms, covenants and agreements herein on the part of the Tenant. No rights, however shall enure to the benefit of any assignee of the Tenant unless the assignment to such assignee has been first approved by the Landlord. All covenants, agreements, stipulations, obligations and other provisions of this Lease to be observed, performed and kept by the Tenant shall run with the land and therefore be enforceable by all the successors of the Landlord.

 

15.13Index and Headings

 

The index and headings in this Lease have been inserted for reference and as a matter of convenience only and in no way define, limit or enlarge the scope or meaning of this Lease or any provisions hereof.

 

18 

15.14Contra Proforentem

 

The parties hereto expressly agree that the doctrine of contra proforentem shall not apply to this Lease. The Landlord acknowledges having been advised to consult with independent legal counsel before entering into this Lease and has decided to waive such representation and advice.

 

15.15Copies Provided

 

The Landlord acknowledges that he has read and understood this Lease and has been furnished a duplicate original.

 

15.16Counterpart Execution and Facsimile Delivery

 

This Lease may be executed in separate counterparts and delivered by facsimile or other electronic transmission.

 

IN WITNESS WHEREOF the parties hereto have executed this Lease as of the day and year first above written.

 

/s/ [ILLEGIBLE]   /s/ JOSEPH G. GASCHNITZ
Witness   JOSEPH G. GASCHNITZ
     
    BITFURY TECHNOLOGY INC.
     
    Per: /s/ [ILLEGIBLE]
     
    Per:  

 

 

Exhibit 10.14

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED].

 

LEASE AMENDING AGREEMENT

 

This Lease Amending Agreement (this “Agreement”) made effective the 8th day of December, 2017.

 

BETWEEN:

 

JOSEPH G. GASCHNITZ, an individual residing
in or near the Town of Drumheller, in the Province
of Alberta

 

(the “Landlord”)

 

- and -

 

BITFURY TECHNOLOGY INC., a corporation
incorporated under the laws of British Columbia

 

(the “Tenant”)

 

WHEREAS the Landlord and the Tenant entered into a lease dated May 8, 2017 (the “Lease”) pertaining to premises containing five (5) acres as described in the Lease (the “Demised Premises”) with a provision that the Demised Premises could be expanded to up to ten (10) acres;

 

AND WHEREAS the Landlord and the Tenant have agreed to amend the Lease effective November 3, 2017;

 

NOW THEREFORE in consideration of the mutual covenants and agreements herein contained, the parties hereto agree as follows:

 

1.Definitions

 

Capitalized terms used herein, and not otherwise defined herein, shall have the meanings ascribed to such terms in the Lease.

 

2.Demised Premises Expansion

 

The Landlord and the Tenant acknowledge and agree that the area of the Demised Premises is understood to be ten (10) acres and the Lease will be amended below to reflect such increase.

 

2 

3.Amendments to the Lease

 

(a)Minimum Rent – Section 1.1(e) of the Lease is hereby deleted and replaced with the following:

 

“(e)      Minimum Rent means the amount of $3,600.00 per acre annually for a total of $36,000.00 annually, payable in monthly installments of $3,000.00 in accordance with Article 4.”

 

(b)Term – Section 3.1 of the Lease is hereby amended by adding the following language at the end of Section 3.1:

 

“Upon the expiration or earlier termination of the Lease the Tenant shall continue to make payments to the Landlord for an amount equal to the Minimum Rent until such time as all of following have been satisfied:

 

a)       the Tenant has removed all equipment and improvements placed by the Tenant, replaced all soil and regraded and reclaimed the Demised Premises to the reasonable satisfaction of a third party environmental assessor (being either Terra Sano or such other third party environmental assessor as may be agreed to by both parties acting reasonably) (“Initial Reclamation”);

 

b)       the Landlord has had an opportunity, in the first full growing season following Reclamation, to plant crops on the Demised Premises.

 

i) in the event that the crops planted during such first growing season are reasonably similar in quality and yield to surrounding lands, the Tenant’s obligation to pay any further Minimum Rent will cease;

 

ii) in the event that the crops planted during such first growing season are NOT reasonably similar in quality and yield to surrounding lands, the Tenant’s obligation to continue to pay Minimum Rent shall continue on a pro rata basis with respect to those portions of the Demised Premises which are not providing similar quality and yield as surrounding lands as well as any additional required space to perform further reclamation work, but will cease upon such quality and yield being obtained.

 

The Tenant shall retain the right to have any quality or yield determinations validated by the third party environmental assessor.

 

Upon completion of the Initial Reclamation, $400,000 of the Deposit (as hereinafter defined) will be returned to the Tenant.

 

Upon the full Demised Premises producing reasonably similar in quality and yield to surrounding lands, the Demised Premises will be deemed fully reclaimed (“Full Reclamation”) and the full amount (balance) of the Deposit will be returned to the Tenant.

 

3 

(c)Prepaid Rent – Section 4.5 of the Lease is hereby deleted and replaced with the following:

 

“4.5 Prepaid Rent

 

The Landlord hereby acknowledges receipt of the sum of Six Thousand Dollars ($6,000.00) plus GST, paid to it by the Tenant representing payment of Minimum Rent for the first and last month of the Term (based upon a Demised Premises of ten (10) acres).”

 

(d)Liens and Encumbrances – The following is added as Section 8.4:

 

“8.4 Liens and Encumbrances

 

In connection with the making, erection, installation, or alteration of the Tenant’s leasehold improvements and trade fixtures and all other work or installations made by or for the Tenant in the Leased Premises, the Tenant covenants that it shall:

 

(a)In connection with the making, erection, installation, operation, or maintenance of any materials, buildings, roads, or any other infrastructure used by the Tenant in furtherance of the Permitted Use, the Tenant covenants that it shall:

 

(i)promptly pay all accounts relating to the making, erection, installation, operation, or maintenance of any materials, buildings, roads, or any other infrastructure located on the Demised Premises or the Property and used by the Tenant in furtherance of the Permitted;

 

(ii)subject to Section 11.5, not create or cause to be created any mortgage, conditional sale agreement, lease, builders’ lien, or any other type of lien (collectively, the “Encumbrances”) to attach to the Demised Premises, the Property, or any part thereof;

 

(b)If any Encumbrance for which the Tenant is liable should attach to the Demised Premises or the Property, except as permitted pursuant to Section 11.5, then the Tenant shall procure the discharge of same within twenty (20) days of its receipt of a notice of such Encumbrance from the Landlord.

 

4 

(c)Should the Tenant fail to discharge any Encumbrance within the aforementioned twenty (20) day timeframe, then the Landlord may, without any liability to the Tenant and without prejudice to any other rights and remedies available to it pursuant to this Lease, any applicable law, or the common law, take such steps as are reasonably necessary to discharge such Encumbrance and the Tenant shall reimburse the Landlord for the cost of same, plus an additional fifteen (15%) percent, such cost to be paid as Additional Rent.

 

(d)Provided the Landlord has acted reasonably, the Landlord’s right to reimbursement provided by subsection (c), above, shall not be affected or impaired if the Tenant shall then or subsequently establish or claim that any Encumbrance so discharged was without merit, was excessive, or was subject to any abatement, setoff, or defense.”

 

(e)Cleaning, Repair and Remediation – Section 9.1(a) of the Lease is hereby deleted amended as follows:

 

“(a)The Landlord represents and warrants that the Demised Premises are free from Contaminants and that the Demised Premises have not been used for any Environmental Activity (except to the extent that any Contaminant has been used or any Environmental Activity has been conducted in the ordinary course of farming) and there is no Environmental Damage to the Demised Premises.”

 

(f)Deposit – Section 9.2 of the Lease is hereby deleted and replaced with the following:

 

  “9.2 Deposit

 

The Tenant shall provide to the Tenant’s solicitor, as escrow agent, a deposit in the amount of $500,000 (the “Deposit”) to ensure that the Landlord will have sufficient funds to reclaim the Demised Premises if the Tenant fails to complete the reclamation and return the Demised Premises to the condition it was in at the Commencement Date, pursuant to Article 9.1.

 

5 

The Deposit shall be paid (to the Escrow Agent) as follows:

 

(i)$320,000 within one week following the execution of the Lease Amending Agreement; and

 

(ii)$30,000 each month thereafter, to be paid concurrently with the Minimum Rent, for the next six (6) months,

 

with such amounts to be paid to the Escrow Agent under the Escrow Agreement as hereinafter defined.

 

If the Tenant has not completed Full Remediation within three (3) years from the date of the expiration or earlier termination of this Lease, the balance of the Deposit, or such portion thereof as is necessary to compensate the Landlord, shall be paid to the Landlord and this Lease and the Escrow Agreement shall be terminated.

 

The Deposit shall be held in the trust account of the Tenant’s solicitor and shall be invested in an interest bearing trust account with interest to be for the benefit of the Tenant, all in accordance with the terms of the Escrow Agreement attached hereto as Schedule “A”.

 

The Landlord and the Tenant agree that the Deposit may be replaced at any time by the Tenant with:

 

(a)       a letter of credit or bank guarantee provided by a major Canadian bank;

 

(b)       a performance bond issued by a bonding company or agent; or

 

(c)       an insurance policy,

 

upon the same terms as the Deposit. Upon the provision of such letter of credit, guarantee, performance bond or insurance policy, the Deposit shall be released to the Tenant.”

 

(g)Indemnity – Section 9.5 of the Lease is hereby deleted and replaced with the following:

 

“9.5Indemnity

 

The Tenant shall indemnify the Landlord for any loss, cost, or damage suffered by the Landlord as a result of: 

 

(a)any Contamination or Environmental Damage to the Demised Premises or the Property;

 

6 

(b)loss or damage to the Demised Premises, the Property, any property of the Tenant, or any other person in respect of any occurrence at the Demised Premises;

 

(c)the fault, default, or negligent act or omission of the Tenant or its agents, servants, employees, contractors, invitees, or any other person for whom the Tenant is responsible, in law;

 

(d)any builders’ or other liens registered against title to the Property stemming from any work done or materials furnished by on or on behalf of the Tenant; and

 

(e)the Tenant’s default in the observance or performance of the covenants and agreements contained in this Lease;

 

arising from the Tenant’s use of the Demised Premises, except to the extent that any such loss, cost, or damage results from any fault, negligent act, or omission of the Landlord or the Landlord’s agents, servants, employees, contractors, invitees, or any other person for whom the Landlord is responsible, in law.”

 

(h)Assignment, Subletting. Sale or Mortgage

 

The following is inserted as 11.1(b):

 

“(b)Any request by the Tenant to assign, sublet, or transfer all or a portion of the Tenant’s interest in this Lease shall be accompanied by a true copy of any offer to assign, sublet, or transfer, as well as a true copy of the proposed assignment agreement, sublease, or transfer agreement. The Tenant shall also be required to provide any information reasonably requested by the Landlord for the purposes of assessing the business, standing, and financial stability of the proposed assignee, subtenant, or transferee.”

 

The current 11.1(b) (now 11.1(c)) is hereby deleted and replaced with the following:

 

“(c)The Tenant shall remain fully liable on this Lease and shall not be released from performing any of the terms, covenants, and conditions of this Lease. Notwithstanding the foregoing, in the case of a sublease, the Tenant shall cause such the sub-lessor to agree to be bound by all the terms, conditions, covenants, agreements, and provisos herein contained to be observed and performed by the Tenant. In the case of an assignment or any other transfer, it shall be a condition precedent of such assignment or transfer that the Tenant, the Landlord, and the proposed assignee enter into a written assignment and assumption agreement (“Assignment Agreement”), in a form satisfactory to the Landlord, acting reasonably, which provides for the assignee’s assumption of all of the Tenant’s obligations and covenants hereunder.”

 

7 

4.General

 

(a)Except as amended herein, the Lease is hereby ratified and confirmed.

 

(b)This Agreement may be executed and delivered by the parties in one or more counterparts, each of which will be an original, and each of which may be delivered by facsimile, e-mail or other functionally equivalent electronic means of transmission, and those counterparts will together constitute one and the same instrument.

 

(c)This Agreement shall enure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, personal representatives, successors and where applicable, permitted assigns.

 

(d)This Agreement may be executed in separate counterparts and delivered by facsimile or other electronic transmission in counterparts.

 

(e)This Agreement shall be governed by the laws of the Province of Alberta and the laws of Canada.

 

SIGNATURE PAGE TO FOLLOW

 

8 

IN WITNESS WHEREOF this Agreement has been executed effective the day and year first above written.

 

BITFURY TECHNOLOGY INC.

 

Per: /s/ Oleg Blinkov, Director  
     
Per:             

 

      /s/ JOSEPH G. GASCHNITZ
WITNESS   JOSEPH G. GASCHNITZ

 

 

SCHEDULE “A”
ESCROW AGREEMENT

 

THIS ESCROW AGREEMENT (the “Escrow Agreement”) is made as of December 8, 2017.

 

BETWEEN:

 

JOSEPH G. GASCHNITZ, an individual residing in or near the Town of Drumheller, in the Province of Alberta (“Gaschnitz”),

 

– and –

 

BITFURY TECHNOLOGY INC., a corporation incorporated under the laws of the Province of British Columbia (“Bitfury”),

 

– and –

 

GOWLING WLG (CANADA) LLP, a limited liability partnership with offices in the City of Calgary, in the Province of Alberta (the “Escrow Agent”)

 

RECITALS:

 

A.GASCHNITZ and Bitfury are parties to a Lease dated May 8, 2017, as amended by Lease Amending Agreement dated December 8, 2017 (as amended, the “Lease”) pursuant to which GASCHNITZ has agreed to lease certain lands to Bitfury.

 

B.The Escrow Agent has been retained to represent the interests of Bitfury with respect to the Lease.

 

C.Bitfury will provide to the Escrow Agent the sum of $500,000 (the “Funds”) pursuant to the terms of the Lease, which will be held in the trust account of the Escrow Agent.

 

D.The Funds arc hereinafter referred to as the “Escrowed Property” and will be held in escrow by the Escrow Agent pursuant to the terms of this Agreement.

 

G.Until such time as the conditions contained in this Escrow Agreement are fulfilled, the Escrowed Property shall remain in escrow and shall be delivered to and held by the Escrow Agent in escrow pursuant to the terms hereof.

 

H.The Escrow Agent is willing to act as escrow agent for the sole purpose of accepting, holding and disbursing the Escrowed Property in accordance with the terms and conditions of this Escrow Agreement.

 

- 2 -

IN CONSIDERATION of the covenants and agreements of the parties herein set forth, the parties agree as follows:

 

1.Definitions

 

All capitalized terms used herein, including the recitals, shall have the meaning ascribed thereto in the Lease unless they are otherwise defined in this Escrow Agreement.

 

2.Appointment of Escrow Agent

 

GASCHNITZ and Bitfury hereby appoint the Escrow Agent to act as escrow agent on the terms and conditions set forth herein and the Escrow Agent hereby accepts such appointment on such terms and conditions.

 

3.Receipt of Escrowed Property

 

The Escrow Agent, will, upon receipt of the Escrowed Property (or portions thereof pursuant to the terms of the Lease) acknowledge receipt of the Escrowed Property from Bitfury provided notice of receipt of such Escrowed Property (or portion thereof) by sending notice to both Bitfury and GASCHNITZ. Such notice shall be provided to GASCHNITZ by e-mail provided to [REDACTED] (or such other address as GASCHNITZ shall advise the Escrow Agent in writing. The Escrow Agent agrees to deal with the Escrowed Property in accordance with the terms and conditions of this Escrow Agreement.

 

4.Distribution of Funds

 

The Escrow Agent agrees that it will distribute the Funds only in accordance with the Lease, and specifically Section 9.2 of the Lease.

 

5.Termination of Escrow Agreement

 

This Escrow Agreement may be terminated at any time by and upon the receipt by the Escrow Agent of written notice of termination signed by each of GASCHNITZ and Bitfury, which notice of termination shall be accompanied by a written direction to the Escrow Agent signed by each of GASCHNITZ and Bitfury specifying the person to which the Escrowed Property is to be distributed.

 

This Escrow Agreement shall terminate and cease to be of any further force and effect (except for the provisions of this Escrow Agreement relating to protection of the Escrow Agent which shall survive any termination of this Escrow Agreement) on the date on which the Escrow Agent has distributed the Escrowed Property in accordance with Section 4 of this Escrow Agreement, as applicable.

 

- 3 -

6.Determination

 

The parties agree that the Escrow Agent shall not be required to make any determination or decision with respect to the validity of any claim made by any party, or of any denial thereof (including, without limitation, the validity of any escrow release notice given hereunder), but shall be entitled to act and rely conclusively on the terms of this Escrow Agreement and the documents tendered to it in accordance with the terms hereof.

 

7.Escrow Agent

 

The acceptance by the Escrow Agent of its duties under this Escrow Agreement is subject to the following terms and conditions which shall govern and control the rights, duties, liabilities and immunities of the Escrow Agent:

 

(a)The Escrow Agent may resign at any time as escrow agent upon 15 days prior written notice to GASCHINITZ and Bitfury, or such shorter notice as GASCHNITZ and Bitfury may accept as sufficient GASCHNITZ and Bitfury shall have the power at any time on 15 days prior written notice to remove the Escrow Agent and appoint a replacement escrow agent. In the event of the Escrow Agent resigning or being removed as aforesaid, GASCHNITZ and Bitfury shall jointly appoint a new escrow agent, whereupon the Escrow Agent shall transfer the Escrowed Property to the replacement escrow agent. Any replacement escrow agent shall be subject to removal in the same manner as aforesaid. On any such appointment, the replacement escrow agent shall be vested with the same powers, rights and obligations as if it had been originally named herein as escrow agent, without any further assurance, conveyance, act or deed and shall thereupon be the Escrow Agent; but they shall immediately execute, at the expense of GASCHNITZ and Bitfury, all such conveyances or other instruments as may, in (he reasonable opinion of the Escrow Agent, be necessary or advisable for the purpose of effectively transferring the Escrowed Property to the replacement escrow agent and otherwise assuring the replacement escrow agent a full estate in the premises. Should GASCHNITZ and Bitfury fail to appoint a replacement escrow agent as outlined above, then the Escrow Agent shall cease its function at the expiration of the period of notice and may retain the Escrowed Property on a merely safekeeping basis at such reasonable fee as may be determined solely by the Escrow Agent, or may otherwise deposit the Escrowed Property with a court of competent jurisdiction in Calgary, Alberta pending the appointment of such a replacement escrow agent.

 

(b)The Escrow Agent is not bound by any agreement, arrangement or understanding relating to or arising out of the matters provided for in this Escrow Agreement, other than as expressly set forth herein. The Escrow Agent shall have no duties or responsibilities with the Escrowed Property except as expressly provided in this Escrow Agreement and shall have no liability or responsibility arising under any other agreements including agreements referred to in this Escrow Agreement to which the Escrow Agent is not a party.

 

- 4 -

(c)The Escrow Agent shall be entitled to act and rely on any notice, declaration, certificate, waiver, consent, receipt or other paper or document purporting to be delivered pursuant to this Escrow Agreement and shall not enquire as to the veracity, accuracy or adequacy thereof or be bound by any notice or direction to the contrary by any person other than a person entitled to give that notice and, in absence of bad faith or fraud on the part of the Escrow Agent, GASCHNITZ and Bitfury shall not hold the Escrow Agent liable for any loss or injury to them with respect to that act or reliance.

 

(d)It is understood and agreed that the duties of the Escrow Agent hereunder are purely administrative in nature and that the Escrow Agent shall not be liable for any error of judgment, or for any act done or step taken or omitted to be taken by it in good faith, or for any mistake of fact or law, or for anything which it may do or refrain from doing in connection herewith, except for its own bad faith or fraud, or its failure to deliver the Escrowed Property in accordance with the written directions of GASCHNITZ and Bitfury.

 

(e)In the event of any disagreement between the parties concerning the terms of this Escrow Agreement or any related matter which in the reasonable opinion of the Escrow Agent may result in adverse claims or demands with respect to the Escrowed Property, or if any of the parties, including, without limitation, the Escrow Agent, are in disagreement about the interpretation of this Escrow Agreement or about the rights and obligations of the Escrow Agent or the propriety of an action contemplated by the Escrow Agent under this Escrow Agreement, the Escrow Agent may, at its option, if it then holds the Escrowed Property, deposit such Escrowed Property with a court of competent jurisdiction in Edmonton, Alberta. Upon the Escrow Agent making such deposit, the Escrow Agent shall be discharged and released of its duties and obligations hereunder.

 

(f)Any measures taken by any court or authority having jurisdiction over the Escrow Agent which might prevent the Escrow Agent from executing its obligations under this Escrow Agreement shall exempt the Escrow Agent from performing its obligations hereunder in due time or at all so long as such measures are in effect,

 

(g)The Escrow Agent shall be under no obligation to institute, appear in or defend any action, suit or legal or arbitration proceeding in connection with this Escrow Agreement or to take any other action likely to involve it in liability, cost or expense, unless first indemnified to its satisfaction, acting reasonably

 

(h)The Escrow Agent shall not be liable for or by reason of any statements of fact or recitals in this Escrow Agreement and all such statements and recitals are and shall be deemed to be made by the other parties to this Escrow Agreement.

 

- 5 -

8.Notice

 

Any notice, approval, consent, instruction, direction or other communication to be given under or in connection with this Escrow Agreement shall be in writing and shall be given at and accordance with the notice provisions of the Lease.

 

9.Entire Agreement

 

This Escrow Agreement constitutes the entire agreement among the parties with respect to the escrow, delivery of, and subsequent dealings with, the Escrowed Property.

 

10.Severability

 

Any provision hereof that is held to be inoperative, unenforceable or invalid in any jurisdiction shall be severable from the remaining provisions which shall continue to be valid and enforceable to the fullest extent permitted by applicable laws.

 

11.Applicable Laws

 

This Escrow Agreement shall be governed by and construed in accordance with the laws of the Province of Alberta and the federal laws of Canada applicable therein.

 

12.Further Assurances

 

GASCHNITZ and Bitfury will at any time and from time to time, on the request of any party to this Escrow Agreement, execute and deliver such further documents and do such further acts and things as may reasonably be requested by any party hereto in order to evidence, carry out and give effect to the terms, conditions, intent and meaning of this Escrow Agreement.

 

13.No Waiver

 

No failure or delay on the part of the Escrow Agent, GASCHNITZ and Bitfury in exercising any right, power or remedy provided herein may be, or may be deemed to be, a waiver thereof; nor shall any single or partial exercise of any right, power or remedy preclude any other or further exercise of such right, power or remedy or other right, power or remedy.

 

14.Amendments

 

This Escrow Agreement may not be amended or modified in any respect except by written instrument signed by all the parties hereto including the Escrow Agent.

 

15.No Assignment; Successors

 

Other than as expressly contemplated herein, no party shall be permitted to assign its rights under this Escrow Agreement without the express written consent of each of the other parties. This Escrow Agreement shall be binding on, and shall enure to the benefit of each of the parties and their respective successors and permitted assigns.

 

- 6 -

16.Currency

 

Unless otherwise specified herein, all references to currency herein are to Canadian currency.

 

17.Time

 

Time shall be of the essence in this Escrow Agreement.

 

18.Counterparts

 

This Escrow Agreement may be signed in counterparts (including counterparts by facsimile or other electronic means) which shall be considered as valid as an original counterpart and all counterparts taken together shall be deemed to constitute one and the same instrument.

 

IN WITNESS WHEREOF the parties have duly executed this Escrow Agreement.

 

BITFURY TECHNOLOGY INC.

 

Per: /s/ Oleg Blinkov, Director
  Authorized Signatory

 

GOWLING WLG (CANADA) LLP

 

Per:  
  Authorized Signatory

 

 

      /s/ JOSEPH G. GASCHNITZ
WITNESS   JOSEPH G. GASCHNITZ

 

 

Exhibit 10.15

 

ASSIGNMENT AGREEMENT

 

THIS ASSIGNMENT AGREEMENT (the “Agreement”) is dated 14 May 2020 (the “Effective Date”) by and between:

 

(1)BITFURY TECHNOLOGY INC., a corporation incorporated and existing under the laws of the Province of British Columbia, with its registered office is at 550 Burrard Street, Suite 2300, Bentall 5, Vancouver, British Columbia V6C 2B5, Canada (“Bitfury”, the “Tenant” or the “Assignor”);

 

(2)JOSEPH G. GASCHNITZ, an individual residing in or near the Town of Drumheller, in the Province of Alberta, Canada (“Gaschnitz” or the “Landlord”); and

 

(3)HUT 8 HOLDINGS INC., an amalgamated corporation existing under the laws of the Province of British Columbia, with its principal place of business at 666 Burrard Street, Suite 1700, Vancouver, British Columbia, V6C 2X8 Canada (“Hut 8” or the “Assignee”),

 

Each individually referred to as a “Party”, collectively - as the “Parties” and the Assignor and Gaschnitz together – the “Original Parties”.

 

RECITALS:

 

A.WHEREAS, Gaschnitz and Bitfury are parties to a Lease Agreement dated 8 May 2017, as amended by a Lease Amending Agreement dated 8 December 2017 (as amended, the “Lease”) pursuant to which Gaschnitz as agreed to lease certain lands to Bitfury;

 

B.WHEREAS, the Assignor had entered into a written agreement with Hut 8 Mining Corp. (“Hut 8 Parent”) to assign the Lease to Hut 8 Parent, but it was the intention of Hut 8 Parent that the Lease be assigned to Hut 8;

 

C.WHEREAS, the Assignor proposes to transfer its entire right, title and interest in and to the Lease in whole, whenever created or incurred, whether before, on or after the Effective Date (the “Assigned Interest”) and all obligations of the Assignor arising from or in connection with the Lease in whole, whenever created or incurred, whether before, on or after the Effective Date, (the “Assigned Obligations”) to the Assignee, and the Assignee agrees to take such assignment of the Assigned Interest and the Assigned Obligations under the Lease;

 

D.WHEREAS, the Assignor is permitted to assign its rights and obligations under the Service Agreement with the prior written consent of Gaschnitz, which is hereby being granted; and

 

E.WHEREAS capitalised terms used but not defined in this Agreement have the meanings ascribed to them in the Service Agreement,

 

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements hereinafter contained, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), the Parties hereto agree as follows:

 

1.ASSIGNMENT

 

1.1The Assignor assigns, transfers, sets over and conveys to the Assignee, and the Assignee accepts, as of the Effective Date, the assignment of the Assigned Interest and all the benefits and advantages to be derived therefrom, to hold same to the Assignee for its sole use and benefit.

 

1.2The Assignor assigns, transfers and conveys the Assigned Obligations to the Assignee, and the Assignee hereby assumes, as of the Effective Date, the Assigned Obligations and other terms and conditions of the Service Agreement.

 

1.3Gaschnitz hereby consents to the assignment of the Assigned Interest and the Assigned Obligations, as well as all other terms and conditions of the Service Agreement from the Assignor to the Assignee.

 

1.4The Parties further agree that, by executing the present Agreement, Bitfury is hereby deemed to have sufficiently and finally met its obligations under Clause 11.1(b) of the Lease with respect to effecting an assignment. However, Bitfury shall provide any information reasonably requested by the Landlord for the purposes of assessing the business, standing and financial stability of the Assignee, which any such potential request of the Landlord will not affect the validity of the assignment hereunder.

 

1.5For the avoidance of doubt, the Parties hereby agree that, despite the assignment hereunder, Bitfury shall be fully and finally released from its obligations under and in relation to the Lease notwithstanding anything to the contrary under Clauses. 11.1(c) or Clause 11.1(g) of the Lease.

 

1.6The Original Parties hereby jointly and severally represent and warrant to Assignee that the Lease is a good, valid and subsisting lease and the rent thereby reserved has been paid up to the Effective Date and the covenants and conditions therein contained have been observed and performed by the Assignor up to the Effective Date.

 

2.CONSIDERATION

 

2.1The Parties acknowledge receipt of good and sufficient consideration. The assignment hereunder shall be effected without requirement for payment by any Party for such assignment.

 

2.2Any and all deposits (or submissions or payments to the similar effect) made by Bitfury under or in connection with the Lease and, in particular, under Clause 9.2 (Deposit) of the Lease as of the Effective Date shall be transferred to the Assignee and the Assignee shall reimburse Bitfury for an equivalent amount of any such deposit(s) (or submission(s) or payment(s)) along with any interest accrued thereon within the time periods and according to the terms and conditions for such reimbursement as agreed between Bitfury and the Assignee in that Amended and Restated Equipment and Transfer Agreement dated effective the October 9, 2019.

 

2.3Bitfury shall be responsible for all costs, charges, penalties or similar fees arising out of or related to this Assignment except for any legal and advisory fees incurred by Assignee.

 

3.NOTICES

 

3.1Each of the parties hereto will from time to time and at all times hereafter, do and perform all such further acts and execute and deliver all such further assignments, notices, releases and other documents and instruments, as may be reasonably required to more fully effect and assure the assignment of the Assigned Interest, the Assigned Obligations and the Service Agreement as a whole to the Assignee.

2

 

3.2The address of the Assignee for all notices and other communication under the Agreement, will be:

 

Hut 8 Holdings Inc. 

666 Burrard Street, Suite 1700

Vancouver, British Columbia, Canada

V6C 2X8

 

Attention: Director

 

4.LEASE AMENDMENT

 

4.1The Assignee and the Landlord agree that the following amendments shall be made to the Lease effective as of the Effective Date:

 

(a)Notwithstanding anything in the Lease to the contrary, the Term of the Lease shall be and is hereby extended for a further period of three (3) years commencing on May 14, 2020 and expiring on May 13, 2023 (the “First Extension Term”). The Landlord and the Tenant hereby covenant and agree that the definition of “Term” set out in the Lease is amended to include the First Extension Term.

 

(b)Notwithstanding the use of the terms “Minimum Rent” and “Additional Rent”, during each year of the First Extension Term, the Tenant shall pay to the Landlord each and every month during the First Extension Term, in equal monthly installments in advance on the first day of each month of the First Extension Term, annual gross rent with respect to the Demised Premises in the amount of $6,000.00 based on an annual gross rent of $72,000.00.

 

(c)Annual gross rent shall include all costs for which the Tenant was otherwise liable under Section 5.3 of the Lease (excepting Sales Taxes, for which the Tenant shall remain liable throughout the First Extension Term). The Landlord shall be responsible for making the timely payment of all property taxes or any other assessments levied against the Property. In the event the Landlord fails to make such payments, Tenant may, but shall not be obligated to make such payments upon the Landlord’s behalf and the Landlord shall forthwith reimburse Tenant upon receipt of reasonable evidence of Tenant to such effect.

 

(d)In relation to the Tenant’s surrender an Initial Reclamation and Final Reclamation obligations, the Tenant shall not be obliged to pay rent following the Initial Reclamation and during the Landlord’s growing season, UNLESS the crops planted are not reasonably similar in quality (as provided in Section 3(b) of the Lease Amending Agreement, in which case the Tenant shall pay rent for that period as provided in the Lease Amending Agreement, FURTHER, the Landlord’s crops planted in that growing season must be the same as the crops planted on the surrounding lands (such that the yield comparison is accurate) and in the event the Landlord elects not to plant crops during that growing season, then the Full Reclamation shall be deemed to have occurred.

 

(e)The Landlord and Tenant confirm that the Schedule B attached to this Assignment Agreement sets out the Schedule “A” to the Lease, outlining in red the Demised Premises, comprising 10 acres.

3

 

(f)Paragraph 3 of Section 9.2 of the Lease is amended such that the Tenant may hold the Deposit with its solicitors or a recognized trust company, upon escrow terms acceptable to the Landlord, acting reasonably.

 

5.GOVERNING LAW AND JURISDICTION

 

5.1This Agreement and any contractual and non-contractual obligations arising out of or in connection with it shall be governed by and construed in accordance with the laws of the Province of Alberta and the Courts of the Province of Alberta shall have exclusive jurisdiction and the Parties hereto irrevocably attorn to such jurisdiction.

  

6.MISCLEANEOUS

 

6.1This Agreement will inure to the benefit of and is binding on the Parties hereto and their respective successors and permitted assigns.

 

6.2This Agreement may be executed in any numbers of counterparts. This Agreement may be created, retained, or otherwise dealt with in digital or other intangible form of any format (including PDF), and may be delivered, transmitted, or otherwise dealt with by any digital or other intangible means (including by email, facsimile, or otherwise). Each digital or other intangible form of this Agreement, and each copy and printout thereof, is hereby declared and agreed to be as valid and effective as a manually signed agreement. When a counterpart has been executed and delivered by each of the parties hereto, all executed counterparts together will constitute one agreement and will have the same force and effect as if all the Parties had executed and delivered the same agreement.

 

(Signature Page Follows)

4

 

IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the date first written above.

 

BITFURY TECHNOLOGY INC.  
     
Per: /s/ Olegs Blinkovs  
Name: Olegs Blinkovs  
Title: Director  
     
JOSEPH G. GASCHNITZ  
     
Per: /s/ Joseph G. Gaschnitz  
Name:    
Title:    
     
HUT 8 HOLDINGS INC.  
     
Per: /s/ Jaime Leverton  
Name: Jaime Leverton  
Title: CEO  

 

[Signature Page to the Lease Assignment Agreement]

 

 

SCHEDULE A

 

THIS IS SCHEDULE A TO THE ASSIGNMENT AGREEMENT MADE EFFECTIVE 14 MAY 2020 AMONG BITFURY TECHNOLOGY INC., JOSEPH G. GASCHNITZ AND HUT 8 HOLDINGS INC.

 

THE LEASE AGREEMENT

 

On 8 May 2017, Bitfury Technology Inc. and Joseph G. Gaschnitz entered into a Lease Agreement, which they amended by a Lease Amending Agreement on 8 December 2017.

 

According to the Lease Agreement, as amended, Gaschnitz as agreed to lease certain lands to Bitfury. In particular, Joseph G. Gaschnitz leased 10 (ten) acres of area to Bitfury Technology Inc. in the following property owned by Joseph G. Gaschnitz:

 

THE SOUTH EAST QUARTER OF SECTION TWENTY SEVEN (27)

IN TOWNSHIP TWENTY NINE (29)

RANGE TWENTY (20) 

WEST OF THE FOURTH MERIDIAN, AS SHOWN ON THE

TOWNSHIP PLAN APPROVED AT OTTAWA 3RD NOVEMBER 1908

CONTAINING 64.3 HECTARES (159 ACRES) MORE OR LESS

EXCEPTING THEREOUT THE ROADWAY AS SHOWN ON PLAN 6667GX

CONTAINING .809 HECTARES (2 ACRES) MORE OR LESS

EXCEPTING THEREOUT ALL MINES AND MINERALS

 

 

SCHEDULE B

 

SCHEDULE A TO THE LEASE

 

MAP – 4;20;29;27;SE

 

 

 

[NTD: Landlord and Tenant to outline in red the location of the Demised Premises and initial this Schedule B]

 

 

Exhibit 10.16

 

SPECIFIC TERMS IN THIS EXHIBIT HAVE BEEN REDACTED BECAUSE SUCH TERMS ARE BOTH NOT MATERIAL AND ARE THE TYPE THAT THE REGISTRANT TREATS AS PRIVATE OR CONFIDENTIAL. THESE REDACTED TERMS HAVE BEEN MARKED IN THIS EXHIBIT WITH [REDACTED]. 

 

THIS INDENTURE (the “Lease”) made this 27th day of October, 2021 between VALIDUS POWER CORP. and HUT 8 MINING CORP. (“Hut 8”).

 

WHEREAS:

 

(a)Bay Power Corp., a wholly owned subsidiary of VPC, is the registered and beneficial owner of the Lands and with VPC shall be responsible for the obligations of VPC set forth herein (Bay Power and VPC together being “VPC”);

 

(b)VPC and Hut 8 entered into that certain power purchase agreement dated the date hereof pursuant to which, among other things, VPC agreed to design, construct, own, operate and maintain a combined cycle natural gas fired power plant and related instruments, equipment and facilities to service certain Hut 8 equipment and facilities located thereon, and Hut 8 agreed to purchase, on a physical off-take basis, electricity generated from such power plant (the “PPA”);

 

(c)VPC and Hut 8 entered into a Design-Build Stipulated Price Contract CCDC14-2013 dated the date hereof and dated, a Letter Agreement dated June 28,2021 and Hut 8 received a Confirmation of Ownership letter agreement dated July 30, 2021, as amended (collectively, the “EPC Agreement”);

 

(d)any capitalized terms used herein shall have the meanings given to them in the PPA;

 

(e)pursuant to Section 2.5 of the PPA, VPC agreed to grant a Commercial Lease and Access Agreement to Hut 8 in respect of the portion of the Project Site within which the Data Centre will be located;

 

(f)the Project Site is located at 4001 Highway 11 N North Bay ON P1B 8G3 on certain lands legally described in Schedule “A” attached hereto (the “Lands”)

 

NOW THEREFORE THIS INDENTURE WITNESSETH that in consideration of the premises and the mutual covenants and conditions hereinafter contained, the parties hereto covenant and agree as follows:

 

1.    Building: In consideration of the rents and mutual agreements hereinafter contained, VPC leases to Hut 8, and Hut 8 leases from VPC on the terms hereof, certain premises located on the Lands being the 30,000 square foot stressed membrane structure with the specifications and floorplan described in Schedule “B” attached hereto (the “Building”) and located on the Lands as shown outlined in blue on Schedule “C” attached hereto (the Building together with the Office Space (defined below), collectively, the “Premises”);

 

2.    Term: To have and to hold the Premises for and during the term of 5 years commencing on the 1st day of January, 2022 and expiring on the 31st day of December, 2026 (or such later date as the parties hereto may agree to in writing) (the “Term”).

 

3.Rent:

 

(a)Subject to Section 4(c), the gross rent (“Gross Rent”) shall be payable in equal monthly instalments of $250,200, in advance on the 1st day of each calendar month during the Term (defined below). Gross Rent includes the supply at no additional cost to Hut 8 of utilities (including water, gas, telephone and Internet connectivity, but excluding electricity under the PPA) to the Premises and the Licensed Premises maintenance, repair and replacement of the Premises and the Licensed Premises (including janitorial service, light bulbs and garbage removal), VPC’s insurance and real property taxes, levies and charges whatsoever levied in relation to the Lands or any improvements thereon at any time.

 

 

(b)Hut 8 shall pay to VPC, without deduction, abatement or set off the Gross Rent as herein set forth at VPC’s address set out herein (or at such other place as VPC may hereafter from time to time direct).

 

(c)Hut 8 shall pay to VPC H.S.T. and all other similar taxes charged by any federal, provincial or municipal government on all rent and the provisions of any services by VPC.

 

(d)Hut 8 agrees to participate in an electronic funds transfer system or similar system whereby Hut 8 will authorize its bank, trust company, credit union or other financial institution to credit VPC’s bank account on the 1st day of calendar each month in an amount equal to the Gross Rent payable on a monthly basis pursuant to the provisions of this Lease. All payments that must be effected in accordance with this Lease shall be made in lawful money of Canada, plus applicable taxes. Adjustments for parts of months shall be made on a per diem basis.

 

4.Phase 2 and Phase 3 Expansion Structures:

 

(a)Construction of Expansion Structures.

 

(i)VPC agrees to design and construct for Hut 8, at its expense, one or more expansions of the Building for Phase 2 and Phase 3 under the PPA (each, an “Expansion Structure”). The parties hereto acknowledge that any Expansion Structure will be subject to formal site plan approvals as permitted by local authorities, taking into account reasonable provisions for parking, landscaping, fire code compliance and other reasonable design requirements and accordingly, the size and dimensions of any Expansion Structure may differ from those of the Building. It is the intention of VPC and Hut 8 that any such Expansion Structure will be constructed prior to the Commercial Operation Deadline with respect to Phase 2 or Phase 3, as the case may be; subject to any delays described in clause (ii) below.

 

(ii)If and to the extent that construction of an Expansion Structure shall be delayed by reason of unavailability of material, equipment, utilities, services or by reason of any applicable laws, or by reason of any Force Majeure event, then VPC shall be entitled to extend the time for fulfilment of construction by a time equal to the duration of such delay and Hut 8 shall not be entitled to any compensation for any loss or inconvenience occasioned thereby; provided that: (A) such event is not attributable to fault or negligence or action or inaction on the part of VPC; (B) such event is caused by factors beyond VPC’s reasonable control; and (C) despite taking all reasonable technical and commercial precautions and measures to prevent, avoid, mitigate or overcome such event and the consequences thereof, VPC has been unable to prevent, avoid, mitigate or overcome such event or consequences; and provided further that VPC provides: (V) prompt notice of such delay to Hut 8, giving an estimate of its expected duration and the probable impact on the performance of VPC’s obligations under this Section 4; (X) exercises all reasonable efforts to continue to perform its obligations under this Section 4; (Y) expeditiously takes action to correct or cure the event or condition excusing performance so that the suspension of performance is no greater in scope and no longer in duration than is dictated by the problem, provided, however, that settlement of strikes or other labor disputes shall be completely within the sole discretion of VPC; and (Z) exercises commercially reasonable efforts to mitigate or limit damages to Hut 8.

2

 

(b)Plans for the Expansion Structure.

 

(i)VPC and Hut 8 shall meet to discuss the plans and specifications for an Expansion Structure no later than the date being 90 days prior to the Commercial Operation Deadline for each Phase. The parties acknowledge and agree that each Expansion Structure shall be of a design determined by VPC and Hut 8, acting reasonably, provided that the area and dimension shall comply with all applicable zoning, coverage and other governmental laws, rules and regulations and shall be of a design functionally similar to the stressed membrane structure and improvements comprising the Building.

 

(ii)Following the meeting described in paragraph (i) above, VPC shall prepare, at its expense, plans and specifications (“Plans”) for the particular Expansion Structure and provide Hut 8 with a copy of such Plans for Hut 8’s review, consultation. Hut 8 will have up to fourteen (14) days following its receipt of the Plans, to review the Plans prior to the commencement of construction of the particular Expansion Structure and Hut 8 will have the right to make such non-material modifications to the Plans as it deems reasonably necessary in order to ensure that the Plans meet its reasonable requirements. Once finalized, VPC’s construction of the Expansion Structure shall be in accordance with the Plans.

 

(c)Adjustment to Gross Rent. Upon the finalization of the Plan, VPC and Hut 8 shall negotiate in good faith the adjustment to the monthly Gross Rent applicable to the addition of the Expansion Structure to the Building. The parties agree to amend this Lease as may be required to give effect to any adjustments and the inclusion of any Expansion Structures as part of this Lease. If the parties do not amend the Lease, then any Expansion Structure shall be deemed to form part of the definition of Premises and Hut 8 shall have no obligation to pay the adjusted Gross Rent until VPC delivers vacant possession to such Expansion Structure.

 

(d)Commencement of Construction. Upon finalization of the Plans and the agreement of the parties hereto with respect to the adjustment to the Gross Rent applicable to the Building including any Expansion Structure(s), VPC shall commence construction of the Expansion Structure at its expense.

 

5.Default:

 

(a)It shall be an “Event of Default” if any of the following shall occur:

 

(i)with respect to Hut 8, if:

 

(ii)Hut 8 is in default of any rent for thirty (30) days or more;

 

(A)any of VPC’s insurance policies are actually or at risk of being cancelled or adversely changed as a result of Hut 8’s use or occupancy of the Building or Licensed Premises (defined below);

 

(B)Hut 8 attempts to or does abandon or vacate the Premises;

 

(C)Hut 8 assigns this Lease, sublets or sublicenses any portion of the Premises or Licensed Premises in contravention of this Lease;

 

(D)any change in the use of the Premises without VPC’s prior written consent;

3

 

(E)any wilful or negligent damage to the Premises caused by Hut 8 or by persons permitted to be in the Premises by Hut 8; or

 

(F)any writ, lien, mortgage, or other encumbrance in respect of this Lease or the Premises is registered by or in respect of Hut 8 or any service or work commissioned by Hut 8, against or otherwise attached to the Premises, the Lands, or Hut 8’s interest in this Lease, except where the writ, lien, mortgage, or other encumbrance is due to the failure of VPC to perform its obligations hereunder, under the PPA or under the EPC Agreement; or

 

(G)Hut 8 fails to use or take possession of an Expansion Structure for 60 continuous days after VPC delivers vacant possession to Hut 8 of same; and

 

(iii)with respect to either party hereto:

 

(A)if such party fails to perform any obligations (except as provided in 5(a)(i)(A)) hereunder for fifteen (15) days or more after notice; or

 

(B)an event of default under the PPA or the EPC Agreement shall have occurred with respect to such party (or its Affiliate), which is then continuing.

 

(b)VPC Remedies For Hut 8’s Default. In the event of the occurrence of an Event of Default with respect to Hut 8 or in the event that the PPA or the EPC Agreement is terminated in accordance with its terms (provided that such termination is not due to a default by VPC in the performance of its obligations thereunder), the then current and the next three (3) months’ Gross Rent shall be forthwith due and payable and, in addition to any other rights it may have, VPC shall have all of the following rights and remedies:

 

(i)to terminate this Lease and to obtain damages from Hut 8 including all deficiencies between what would have been paid by Hut 8 for what would have been the balance of the Term, but for such termination, less only the net amounts (after expenses) actually received by VPC for such period;

 

(ii)to re-enter the Premises and to re-let the same for the account of Hut 8;

 

(iii)to distrain for all unpaid rent and VPC shall have all rights in respect of the same as if it was rent in arrears;

 

(iv)to remedy any default of Hut 8 in performing any obligations hereunder without constituting a re-entry or termination of this Lease, and Hut 8 shall pay the cost of such remediation including VPC’s legal fees plus fifteen percent (15%) thereof; provided that no such termination or exercise of remedies may occur unless and until written notice of such default has been delivered by VPC to Hut 8, and such default has not been cured within thirty (30) days of delivery of such notice.

 

(c)Hut 8 Remedies For VPC Default. In the event of the occurrence of an Event of Default with respect to VPC, or in the event that the PPA or the EPC Agreement is terminated in accordance with its terms (provided that such termination is not due to a default by Hut 8 in the performance of its obligations thereunder), then in addition to any other rights it may have, Hut 8 shall have the following rights and remedies:

 

(i)Gross Rent shall abate until VPC has cured such Event of Default where the Event of Default relates to a VPC default under the PPA or EPC Agreements or this Agreement;

4

 

(ii)Hut 8 may elect, upon no less than two (2) days’ notice to VPC, to cure any such Event of Default on behalf of VPC, and to set off against Gross Rent all costs and expenses incurred by Hut 8’s in curing such Event of Default;

 

(iii)Where such Event of Default has not been cured within thirty (30) days, to terminate this Lease and receive all damages from VPC to which Hut 8 would be entitled under this Lease or at law.

 

6.     Internet: At no additional cost or expense to Hut 8, VPC shall provide fibre based high-speed internet connection to the Office Space (defined below) and the Building during the Term.

 

7.     Heating, Air Conditioning and Utilities: VPC shall be responsible for procuring, constructing and installing the 32 louvered openings and 15 high cubic feet per minute fans on the roof of the Building, if additional louvered openings or high cubic feet per minute fans are required it will be at Hut 8’s expense. Any additional fixtures solely purchased by Hut 8 will be owned by Hut 8 and can be claimed upon the termination of this Lease provided the Building is returned to its former state. In the event Hut 8 desires to have alternative heating, such as geothermal, supplied to the Premises for sustainability or other bona fides reasons, then VPC and Hut 8 shall discuss costs and plans for such alterations, at Hut 8’s cost, and upon agreement, VPC shall cause such installations to be installed in accordance with such plans, at Hut 8’s cost. For greater certainty, heating, air conditioning, base building electricity costs for usage and building management systems, and to the extent applicable, alternative heating (or other alternative utilities agreed to by the parties) for the Building (collectively, “Utilities”), and the installation, maintenance and repair of equipment related to Utilities, with respect to: (a) the Office Space are the responsibility of VPC, at its cost; and (b) the Building are the responsibility of Hut 8, at its cost. Excepting only the installation costs for alternative heating (or other alternative utilities agreed to by the parties), Hut 8 shall execute and deliver any agreements required by VPC in respect of the supply of any utilities to the Building. Hut 8’s use of any such utilities shall not exceed the available capacity of the existing systems from time to time.

 

8.     Use of Premises: The Office Space (defined below) may not be used for any purpose other than for general office purposes and the Building may not be used for any purpose other than as a cryptocurrency mining centre and for all ancillary uses as reasonably required by Hut 8 to operate its business from time to time, to the extent permitted by all applicable laws. Hut 8 shall not carry on any business or do or suffer any act or thing which may constitute or result in a nuisance to VPC or do or suffer any waste or damage to the Licensed Premises, the Premises or the Lands; provided that the conduct of Hut 8’s business in compliance with applicable laws, in the ordinary course shall not be considered a nuisance.

 

9.     Condition Of Building on Delivery - VPC shall deliver the Building: (i) in compliance with the specifications set out in Schedule C attached hereto; (ii) in good repair and working order; and (iii) in compliance with all applicable laws, by-laws and codes prior to the commencement of the Term.

 

10.Representations and Warranties of VPC. VPC represents and warrants that:

 

(a)Title and Zoning

 

(i)VPC, indirectly through its wholly owned subsidiary, Bay Power Corp., has good and marketable title to the Lands free and clear of any and all encumbrances or restrictive covenants which would prohibit Hut 8 from operating its business from the Premises or which might deprive Hut 8 of quiet enjoyment of the Premises.

 

(ii)at the commencement of the Term, the zoning of the Premises will permit the Hut 8 to use the Premises for its intended use as permitted hereunder; and

5

 

(iii)VPC knows of no reason why: (A) lawful vehicular access and egress between the Premises and the dedicated highways on will not be permitted by applicable law; or (B) the Parking Facility (defined below) cannot be used for the purpose of parking vehicles;

 

(b)Hazardous Substances

 

(i)the Premises and Licensed Premises are free from all Hazardous Substances;

 

(ii)to the best of VPC’s knowledge and belief, the Premises are not being and have not in the past been used for the storage, manufacture or sale of, or any activity involving Hazardous Substances; and

 

(iii)VPC is not aware of not has received any order or notification from any governmental agency or authority relating to the existence of any Hazardous Substances in, on or about the Lands, Premises and/or Licensed Premises;

 

11.Indemnification:

 

(a)VPC shall indemnify and save harmless Hut 8 from any and all claims suffered by Hut 8 as a result of (i) the foregoing representations and warranties (or Recital F) not being true and correct, or (ii) any damage or injury to any person or property in or about the Premises, the Licensed Premises, the Facilities or the Lands which is caused by, through or under VPC. In the event that the Premises is restricted by any federal, provincial, municipal or other governmental law, ordinance, rule or regulation which prohibit, limit or restrict the use of the Premises for Hut 8’s intended use as permitted hereunder, VPC shall forthwith use its best efforts to secure rezoning, special use permits or variances (“Authorizations”) so that the Premises may be used for Hut 8’s intended use as permitted hereunder. The cost of securing the Authorizations shall be at VPC’s expense and shall be paid forthwith by VPC. Despite any provision of this Lease to the contrary, and without limitation of any other remedy under this Lease, any breach of warranty or representation by VPC shall entitle Hut 8, at its sole option and without liability on its part, to immediately remedy any such breach at the cost of VPC.

 

(b)Hut 8 hereby covenant and agrees with to indemnify and save harmless VPC and all of its servants, agents, employees, contractors and persons for whom VPC is in law responsible from any and all liability, costs, claims, demands or actions for damages, injury or loss suffered or sustained by any person or persons or property in or about the Premises or any part thereof; provided that Hut 8 shall not be required to indemnify VPC in respect of matters where VPC is required to indemnify Hut 8 under this Section 11

 

12.End of Term:

 

(a)At the expiry date or the earlier termination of the Term, Hut 8 will peacefully surrender the Premises to VPC in the same state and condition as accepted at the commencement, and Hut 8 shall remove all of its trade fixtures and chattels from the Premises and shall repair all damage caused by the installation or removal of same, and Hut 8 shall remove any leasehold improvements installed in the Premises as required by VPC and shall repair all damage caused by the installation or removal of same in line with reasonable commercial standards and otherwise as mutually agreed between the parties.

 

(b)Should Hut 8 remain in possession of the Premises after the termination of the original term hereby created, with agreement of VPC, it shall be as a monthly Hut 8 on the same terms as herein set forth but for the length of the Term except that Gross Rent for such overholding period shall be 125% of the Gross Rent for the last month of the Term.

6

 

13.Insurance:

 

(a)Hut 8 shall maintain in full force at all times through the Term insurance policies as required under the PPA.

 

(b)VPC covenants and agrees to place and maintain with respect to the Premises, the Facilities and the Lands throughout the Term insurance policies as required under the PPA as well as any other insurance considered necessary by VPC acting, in its sole discretion, as a prudent owner of similar properties in similar locations. For certainty, the insurance taken out under the PPA will be applied to the Premises and Licensed Premises.

 

(c)Notwithstanding the foregoing, VPC shall not be required to take out or maintain any insurance with respect to any loss, injury, or damage against which Hut 8 is required to insure pursuant to paragraph (a) above. Notwithstanding any contribution by Hut 8 to the Landlord’s insurance premiums as provided in this Lease, no insurable interest is conferred upon the Tenant under policies carried by the Landlord.

 

(d)Each policy of insurance maintained by VPC under Sections 13(c)(i) and 13(c)(iv) shall contain a waiver by the insurer of any right of subrogation against Hut 8 in connection with any loss or damage covered by such insurance. VPC shall take out such insurance with reputable insurance company acceptable to Hut 8 acting reasonably and shall provide evidence of such insurance to Hut 8 upon reasonable request.

 

14.Cleaning, Damage and Repairs:

 

(a)(i)           Except for the interior of the Building, which shall be maintained by Hut 8 at it sole cost and expense, VPC shall replace where necessary, repair, maintain, and keep the Premises and the Licensed Premises and every part thereof in good order and condition and promptly make all needed repairs and replacements. VPC shall maintain proper ventilation of the Building to suit the needs of Hut 8’s particular requirements

 

(ii)VPC shall at its own expense keep all entranceways, steps, platforms and sidewalks leading to the Premises clean of all snow, ice, debris and rubbish and maintain same in a clean and orderly condition at all times, so that Hut 8 has access at all times to the Premises without impediment.

 

(iii)Hut 8 will permit VPC at all reasonable times to enter into the interior of the Building to inspect and view the state of maintenance of the Building and Hut 8 agrees to comply with all reasonable requirements of VPC with regard to care, maintenance thereof. In emergencies, VPC may enter the Building without notice.

 

(iv)Hut 8 shall not allow any refuse, garbage or other loose or objectionable material to accumulate in or about the said Premises and will at all times keep the said Building in a clean and wholesome condition. VPC shall maintain garbage and recycling receptacles that are reasonably required and shall remove such refuse at its cost. Hut 8 will store and dispose of all of its waste in a lawful manner. In particular, Hut 8 will only dispose of solid waste (which is not a Hazardous Substance) which can lawfully be transported to, and dumped at, the closest landfill site without requiring payment of surcharges or penalties and, if applicable, will use the sewers only to dispose of liquid waste (which is not a Hazardous Substance) which may be lawfully discharged into the municipal sewer. All other wastes will be disposed of by Hut 8, at its expense,

 

(a)Subject to 14(a), VPC shall perform such maintenance, repairs and replacements as may be required in order maintain the Licensed Premises and all furniture, fixtures and equipment therein in first-class condition and repair, including keeping the Licensed Premises clean and free of any odours, noise, music or other sound, throughout the Term.

7

 

(b)The parties hereto acknowledge that any services or expenses required by Hut 8 for its use of the Building and not referred to herein shall be at Hut 8’s sole expense.

 

15.  Control of Premises: Hut 8 shall have exclusive control over anything in or on the Premises that directly affects the operation of Hut 8’s business to be conducted on the Premises, and has the right to establish rules and regulations with respect to the operation of the Premises or any part thereof in respect of same. With respect to the maintenance and repair of the Premises, VPC may do and perform such other acts in and to the Building as, in the use of good business judgement, VPC determines advisable for efficient and proper operation of the Building.

 

16.  Signage and Alterations: Hut 8, at its own expense, shall have the right to erect alternations, decorations, additions and improvements (each a “Building Alteration”) affixed to the exterior of the Building with the prior written consent of VPC, which consent is not to be unreasonably withheld, and provided that such Building Alteration conforms to the design and operation of the Building and the Facility (if applicable) and is in compliance with all municipal and governmental requirements. If requested by VPC, Hut 8 shall, before surrendering the Building as aforesaid, remove any such Building Alternations designated by VPC, and shall repair any damage to the Building caused by their installation and/or removal.

 

17.  Security and Gating: VPC shall provide fencing around perimeter of that portion of the Lands containing the Building with gated entrances, lighting and CCTV surveillance. Hut 8 will be responsible for physical security of Building, Building entrances and inside of Building.

 

18.Compliance with Laws:

 

(a)Hut 8 shall comply, at its sole cost, with all applicable laws and by-laws of any municipal, provincial or federal government respecting the use, condition and occupation of the Premises and all leasehold improvements and contents thereof.

 

(b)Without limiting the generality of the foregoing, Hut 8 shall at its expense comply with all laws and by-laws of any municipal, provincial or federal government relating to contaminants, pollutants and dangerous, toxic, noxious or hazardous substances (“Environmental Laws”) and shall not use or permit the use of any portion of the Premises in violation of any Environmental Laws. Hut 8 shall indemnify VPC in respect thereof.

 

19.Assignment and Lease:

 

(a)Hut 8 shall have the right, provided no Event of Default has occurred with respect to it which is then continuing, assign this Lease or sublet or part with or share possession of all or any part of the Building with the written consent of VPC, which consent shall not be unreasonably withheld Hut 8 shall be responsible for all of VPC’s costs relating to any request for assignment, sublease, sharing of possession or other transfer, including without limitation VPC’s legal and administrative fees.

 

20.Damage and Destruction:

 

(a)In the event of damage or destruction to the Premises as a result of fire or any other risk insured by VPC as required by this Lease, subject to the following provisions hereof, VPC shall repair the Premises and Hut 8 shall repair all leasehold improvements and contents of the Premises that it is required to install under this Lease.

 

(b)If the damage is such that it is not capable of being repaired within ninety (90) days, Hut 8 shall have the right at its sole and unfettered discretion to terminate this Lease, provided that where such damage occurs during the last year of the Term, either party shall have the right to terminate the Lease upon notice to the other

8

 

21.  Expropriation: In the event of any expropriation of all or part of the Premises, Hut 8 shall be entitled to the appropriate compensation for relocation costs and business interruption and VPC shall be entitled to all other compensation resulting from such expropriation.

 

22.Licences:

 

(a)Office Space. VPC hereby leases as part of the Premises certain premises comprised of 200 square feet of standard office space to Hut 8’s which will be determined within 60 days of executing this Lease. HVAC and internet will be provided within this space.

 

(b)Right to use Common Areas: VPC hereby license to Hut 8 (i) the non-exclusive right of the Hut 8, in common with VPC and its employees, agents and a contractors to the use of the common areas and facilities of the building in which the Office Space is located (including but not limited to the parking areas, exterior facilities, driveways, sidewalks, kitchen area and washrooms); (ii) the non-exclusive use to pass over the Lands to access the Premises and the Licensed Premises, which license may not be revoked during the Term.

 

(c)Parking: VPC hereby licences the use by Hut 8 and its officers and employees of up to 5 unreserved parking spaces (each of which shall hereinafter be referred to as the “Parking Space”, and collectively, the “Parking Spaces” and together with the Common Areas, collectively, the “Licensed Premises”) in the parking lot (the “Parking Facility”) outlined in red in the attached Schedule “C” throughout the Term for the parking of private automobiles only. Hut 8 accepts the Parking Spaces on an “as is” condition at the commencement of the Term without VPC being required to perform any work on the Parking Spaces for use by the Hut 8. Hut 8 acknowledges that the Parking Spaces are unreserved and non-designated and VPC shall not be responsible for any failure to provide parking if the Parking Spaces are occupied by persons not authorized to park there. VPC shall have no obligation to police the Parking Spaces. VPC shall not in any way be responsible or liable for any damage, destruction, loss or theft to or of any property of Hut 8 or any of its officers, agents or employees or for any personal or other injury of any nature whatsoever (including death) that may be suffered or sustained by the Hut 8 or any of its officers, agents or employees whether or not such death, injury, loss or damage is caused or contributed to by the negligence of VPC, its servants, agents, employees, contractors or persons for whom VPC is in law responsible. All property kept or stored in or about the Parking Facility by Hut 8 or any of its servants, agents or employees shall be at the sole risk of the Hut 8 and Hut 8 shall indemnify VPC and save it harmless in respect of same.

 

23. Notice: Any notice which may or is to be given pursuant hereto shall be in writing and shall be delivered in person or sent by prepaid registered Canadian mail, addressed, if to Hut 8, at the Building and, if to VPC, at:

 

Hut 8: Attn: Jaime Leverton, CEO
   
 

24 Duncan Street, Suite 500

Toronto, Ontario, Canada

M5V 2B8

Email: [REDACTED]

with a copy to:

Attn: Tanya Woods, General Counsel and EVP Regulatory Affairs

Email: [REDACTED]

 

VPC: Attn: Todd Shortt, President and CEO
   
 

100 Wellington Street West, Suite 2300

Toronto, Ontario, Canada

M5J 2R2

Email: [REDACTED]

 

with a copy to: [REDACTED]

9

 

All such notices shall be conclusively deemed to have been given or received on the date upon which the same is personally delivered or, if mailed as aforesaid, four (4) business days after same is mailed as aforesaid.

 

24.  Complete Agreement: This Lease along with the PPA and the EPC Agreement is the complete agreement relating to the subject matter hereof (whether oral or written) between the parties and there are no other terms relevant hereto other than as set forth herein and, to the extent applicable, in the PPA. No amendment hereto shall be valid unless in writing and executed by both parties. In the event of any conflict between this Agreement and the PPA, the PPA shall govern. In the event of any conflict between this Agreement and the EPC Agreement, the EPC Agreement shall govern.

 

25.  Severability: If any provision hereof is illegal or unenforceable, it shall be considered separate and severable from the balance of this Lease which shall remain in full force and effect but for such provision.

 

26. General: This Lease and everything herein contained shall ensure to the benefit of and be binding upon the parties hereto and their respective successors and assigns, subject to the consent of VPC being obtained as hereinbefore provided to any assignment, sublicense or sublease by Hut 8. Time shall in all respects be of the essence hereof. Paragraph headings in this Lease are for convenience only and shall not affect the interpretation hereof. All covenants herein contained shall be deemed joint and several and all rights and powers reserved to VPC may be exercised either by VPC or by its agents or representatives from time to time. The provisions hereof shall in all respects be construed according to and governed by the laws of the Province of Ontario.

 

27.  Quiet Enjoyment: VPC covenants with Hut 8 that so long as Hut 8 complies with the terms of this Lease, Hut 8 may occupy and enjoy the Building without interruption from VPC.

 

28.  Sale or Demolition: VPC and Bay Power Corp. may not demolish, dispose of, part with, sell or encumber any part of the Premises or Licensed Premises (each a “Disposition”) without the prior written approval of Hut 8, which may not be unreasonably withheld; provided and except that the foregoing shall not apply to: any Disposition : (i) to an Affiliate; and (ii) in connection with any merger, consolidation or sale of all or substantially all of the assets or equity interests of VPC and/or Bay Power Corp; provided the successor of any merger, consolidation, or sale is not an entity that is adverse to Hut 8’s business or will cause any adverse impact for Hut 8. It must also be a condition of any Disposition that VPC assign the EPC, PPA and this Agreement to the successor unless Hut 8 provides written consent to wave this obligation. For greater certainty, should any Disposition negatively impact or cause an interruption, interference or negative impact to Hut 8 in relation to VPC’s obligations pursuant to the PPA or EPC Agreements or this Agreement then all such agreements shall be terminated at the sole discretion of Hut 8.              

 

29. Planning Act: This Agreement is expressly conditional upon compliance with the Planning Act of Ontario. In the event this Lease does not comply with the Planning Act of Ontario, then the parties will use best commercial efforts to obtain consent for this Lease, the cost of which will be shared by the parties in equal portion, prior to the commencement of the Term, if required. 

10

 

30. Counterparts and Electronic Execution: This Lease may be executed by counterparts or electronic (e-mail) transmission, and if so executed, each document shall be deemed to be an original, shall have the same effect as if all parties had executed the same copy of this Lease in hard copy and all of which copies when taken together shall constitute one and the same document. Upon acceptance or execution of this Lease as aforesaid, original documents shall be executed by all of the parties hereto in the same form as the counterpart and/or electronic version and delivered.

 

[ Signature page follows.]

11

 

IN WITNESS WHEREOF the parties hereto have executed this Lease.

     
  BAY POWER CORP.
     
  Per: /s/ Craig Tavares
    Craig Tavares, Authorized Signatory
    I have authority to bind the Corporation.

     
  VALIDUS POWER CORP.
     
  Per: /s/ Craig Tavares
    Craig Tavares, COO
    I have authority to bind the Corporation.

     
  HUT 8 MINING CORP.
     
  Per: /s/ Jaime Leverton
    Jaime Leverton, CEO
    I have authority to bind the Corporation.

 

 

SCHEDULE “A”- LEGAL DESCRIPTION OF THE LANDS

 

PIN 49127-0021 (LT) being PCL 18734 SEC WF; PT LT 21 CON 2 WIDDIFIELD PT 7 & 8, 36R9382 T/W PT 1, 36R9384 AS IN LT332823, PT 1, 36R9381 AS IN LT332824, PT 2, 36R9381 AS IN LT332826, PT 2, 36R9384 AS IN LT332902, PT 3 & 9, 36R9381 AS IN LT332885, PT 7 & 8, 36R9381 AS IN LT333337, PT 4-6, 36R9381 AS IN LT339664, PT 2, 36R9382 & PT 1, 2, 3 & 5, 36Rl0374 AS IN LT366707, PT 1-3, 36Rl0375 AS IN LT366710; T/W LT366708 & LT366709; NORTH BAY; DISTRICT OF NIPISSING

 

 

 

- 2 -

 

SCHEDULE “B” - PREMISES SPECIFICATIONS AND FLOORPLAN

 

SPECIFICATIONS

 

•Stressed membrane structure located adjacent to the Facility and measuring 90 feet wide by 350 feet long (measured by maximum width by maximum length)

•Approximately 30,000 square feet

•Louvered openings with electronically operated damper and bird screens for air flow management and fans at a minimum rate of 135,000 cubic feet per minute

 

FLOOR PLAN

 

2

 

 

SCHEDULE “C” - LOCATION OF PREMISES AND PARKING

 

 

 

 

Exhibit 23.2

 

   

 

Consent of Independent Registered
Public Accounting Firm
 		 Raymond Chabot
Grant Thornton LLP
Suite 2000
National Bank Tower
600 De La Gauchetière Street West
Montréal, Quebec
H3B 4L8  

T 514-878-2691

 

The undersigned hereby consents to the incorporation by reference into the Registration Statement on Form S-4 of Hut 8 Corp. being filed with the United States Securities and Exchange Commission, of its report dated February 10, 2023, on the consolidated statements of financial position of Hut 8 Mining Corp. as at December 31, 2021 and 2020, and the consolidated statements of comprehensive income (loss), the consolidated statements of changes in equity and the consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements including a summary of significant accounting policies, prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

The undersigned further consents to reference of the undersigned’s name under the heading “Experts” in the prospectus included in the registration statement.

 

Yours very truly,

 

/s/ RAYMOND CHABOT GRANT THORNTON

 

Chartered Professional Accountants 

Montreal, Quebec, Canada 

Date: February 13, 2023

 

Member of Grant Thornton International Ltd   rcgt.com

 

 

 

 

Exhibit 23.3

 

Consent of Independent Auditor

 

We consent to the use in this Registration Statement on Form S-4 of Hut 8 Corp. of our report dated February 4, 2023, relating to the consolidated financial statements of U.S. Data Mining Group, Inc. and subsidiaries, included in the Prospectus, which is part of this Registration Statement.

 

We also consent to the reference of our firm under the heading “Experts” in such Prospectus.

 

/s/ RSM US LLP

 

Boston, Massachusetts

February 13, 2023

 

1

 

 

 

 

Exhibit 99.1

 

 

Stifel Nicolaus Canada Inc.
145 King Street West, Suite 300
Toronto, ON M5H 1J8
Tel: (416) 367-8600     Fax: (416) 943-6160

 

February 7, 2023

 

The Board of Directors

Hut 8 Mining Corp.

24 Duncan Street, Suite 500 

Toronto, ON 

M5V 2B8

 

Dear Sirs / Madams:

 

Stifel Nicolaus Canada Inc. ("Stifel GMP", “we” or “our”) understands that Hut 8 Mining Corp. (“Hut 8”) will effect a business combination with U.S. Data Mining Group, Inc. (“USBTC”) and Hut 8 Corp. (“New Hut 8”), a newly-formed Delaware-domiciled company (the transactions therein, collectively, the “Proposed Transaction”), the steps of which are set forth in the business combination agreement (the “Combination Agreement”) and pursuant to which, among other things, (i) the holders of common shares of Hut 8 will exchange their shares of Hut 8 for common stock of New Hut 8 on the basis of the Hut Exchange Ratio (as defined in the Combination Agreement) of 0.2 of a share of New Hut 8 common stock for each common share of Hut 8, having the effect of consolidating the common shares of Hut 8 on a 5:1 basis; and (iii) the holders of common stock and preferred stock of USBTC will exchange their shares of USBTC for common stock of New Hut 8 on the basis of the USBTC Exchange Ratio (as defined in the Combination Agreement) of 0.6716 of a share of New Hut 8 common stock for each share of USBTC common stock and preferred stock, which incorporates the effect of the consolidation of the common shares of Hut 8. We understand that based on the issued and outstanding securities of each of Hut 8, USBTC and New Hut 8 as of the date hereof, upon completion of the Proposed Transaction, the existing shareholders of Hut 8, and the existing preferred and common stockholders of USBTC (on an as-converted basis), will each own 50% of the common stock of New Hut 8 (calculated on a fully-diluted in-the-money basis).

 

Stifel GMP’s Engagement

 

Hut 8 initially contacted Stifel GMP regarding a potential advisory engagement on November 20, 2022, though the parties had more general discussions prior to that date. The Board of Directors of Hut 8 (the “Board”) formally retained Stifel GMP to act as its exclusive financial advisor in respect of the Proposed Transaction pursuant to an engagement letter (the “Engagement Letter”) dated as of January 9, 2023. Pursuant to the Engagement Letter, Stifel GMP has agreed to, among other things, deliver, at the request of the Board, an opinion (the “Opinion”) as to whether the USBTC Exchange Ratio is fair, from a financial point of view, to Hut 8. Pursuant to the Engagement Letter, on February 6, 2023, Stifel GMP delivered to the Board its verbal opinion that, subject to certain assumptions, limitations and qualifications, the USBTC Exchange Ratio is fair, from a financial point of view, to Hut 8.

 

The Engagement Letter provides that Stifel GMP will be paid by Hut 8 for the services provided thereunder, including for the delivery of the Opinion, as well as reimbursement of certain legal and out-of-pocket expenses. A substantial portion of the fees payable to Stifel GMP are contingent on completion of the Proposed Transaction or an alternative transaction. In addition, Stifel GMP and its affiliates and their respective directors, officers, employees, shareholders, partners and duly authorized agents are to be indemnified by Hut 8 under certain circumstances from and against certain liabilities arising out of the performance of professional services rendered to Hut 8.

 

Stifel GMP has not been engaged to prepare, and has not prepared, a formal valuation or appraisal of Hut 8 or USBTC, or any of their respective assets, securities or liabilities (whether on a standalone basis or as a combined entity), and the Opinion should not be construed as such. Stifel GMP was similarly not engaged to review any legal, tax, regulatory or accounting aspects of the Proposed Transaction and, accordingly, expresses no views thereon. Stifel GMP’s engagement does not include, and this Opinion should not be considered to represent, a formal valuation under Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions.

 

 

 

 

Credentials of Stifel GMP

 

Stifel GMP is a leading independent Canadian investment dealer focused on investment banking and institutional equities for corporate clients and institutional investors. As part of our investment banking activities, we are regularly engaged in the valuation of securities in connection with mergers and acquisitions, public offerings and private placements of listed and unlisted securities and regularly engage in market making, underwriting and secondary trading of securities in connection with a variety of transactions. Stifel GMP is not in the business of providing auditing services and is not controlled by a financial institution. Stifel GMP and Stifel FirstEnergy are brand names of Stifel Nicolaus Canada Inc.

 

The Opinion expressed herein represents the opinion of Stifel GMP and the form and content hereof has been approved for release by a group of professionals of Stifel GMP, each of whom is experienced in merger, acquisition, divestiture, restructuring, valuation and fairness opinion matters.

 

Independence of Stifel GMP

 

Neither Stifel GMP, nor any of its affiliates, is an insider, associate or affiliate (as such terms are defined in the Securities Act (Ontario) (the “Act”)) of Hut 8, USBTC or New Hut 8, or any of their respective associates or affiliates (collectively, the "Interested Parties").

 

Neither Stifel GMP nor any of its affiliates have been engaged to provide any financial advisory services nor have they participated in any financings involving the Interested Parties in the two years prior to initial contact in connection with this engagement, other than: (i) acted as co-lead underwriter on Hut 8’s June 2021 unit financing for gross proceeds of C$115,000,000, (ii) acted as co-manager on Hut 8’s September 2021 common share financing for gross proceeds of US$172,560,375, (iii) acted as financial advisor to Hut 8 in connection with their January 2022 acquisition of the cloud and colocation data center business from TeraGo Inc., (iv) acted as agent and joint-bookrunner in connection with Hut 8’s August 2022 at-the-market equity program, and (v) advised USBTC in connection with a January 2022 proposed financing that was not completed and for which Stifel GMP collected no fees.

 

There are no understandings, agreements or commitments between Stifel GMP and any Interested Parties with respect to any future business dealings. Stifel GMP may, however, in the future in the ordinary course of business seek to perform financial advisory services for any one or more of them from time to time. In the ordinary course of its business, Stifel GMP acts as a trader and dealer, both as principal and agent, in major financial markets and, as such, may have, today, or in the future, positions in the securities of Hut 8, USBTC or New Hut 8 and, from time to time, may have executed or may execute transactions on behalf of Hut 8, USBTC or New Hut 8 or other clients for which it received or may receive compensation. In addition, as an investment dealer, Stifel GMP conducts research on securities and may, in the ordinary course of its business, provide research reports and investment advice to its clients on investment matters, including research with respect to Hut 8, USBTC or New Hut 8 and/or their respective affiliates or associates.

 

Scope of Review

 

In connection with rendering the Opinion, we have reviewed and relied upon, or carried out, among other things, the following:

 

1.a draft of the Combination Agreement dated February 2, 2023;

 

2.a draft of the plan of arrangement dated February 2, 2023;

 

3.certain publicly available information relating to the business, operations, financial condition and security trading history of Hut 8, USBTC and New Hut 8, as applicable, and other selected companies we considered relevant;

 

- 2 -

 

 

4.certain internal financial, operating, corporate and other information prepared or provided by or on behalf of Hut 8, USBTC and New Hut 8, as applicable, relating to the business, operations and financial condition of Hut 8, USBTC and New Hut 8, as applicable;

 

5.internal management forecasts, projections, estimates and budgets prepared or provided by or on behalf of management of Hut 8 and USBTC;

 

6.discussions with management of Hut 8 relating to Hut 8, USBTC and New Hut 8’s current business, plan, financial condition and prospects;

 

7.public information with respect to selected precedent transactions we considered relevant;

 

8.various reports published by equity research analysts and industry sources we considered relevant;

 

9.a certificate with respect to certain factual matters and the completeness and accuracy of certain information upon which the Opinion is based, addressed to us and dated as of the date hereof, provided by senior officers of Hut 8 (the “Hut 8 Certificate”); and

 

10.such other information, investigations, analyses and discussions as we considered necessary or appropriate in the circumstances.

 

Stifel GMP did not meet with the auditors of Hut 8 or USBTC and, as stipulated below, has assumed, without independent investigation, the accuracy and fair presentation of the audited financial statements of Hut 8 and USBTC and the reports of the auditors thereon, and of the unaudited interim financial statements of Hut 8 and USBTC.

 

Stifel GMP has not, to the best of its knowledge, been denied access by Hut 8 to any information requested by Stifel GMP.

 

Assumptions and Limitations

 

With Hut 8’s approval and as provided for in the Engagement Letter, Stifel GMP has relied upon and has assumed, without independent investigation, the completeness, accuracy and fair presentation of all financial, technical and other information, data, documents, advice, opinions, budgets, projections, estimates, forecasts, representations and other materials obtained by Stifel GMP from public sources, including information relating to Hut 8, USBTC, New Hut 8 and the Proposed Transaction, or provided to Stifel GMP by Hut 8, USBTC and their respective affiliates or advisors or otherwise pursuant to our engagement (collectively, the “Information”) and the Opinion is conditional upon such completeness, accuracy and fair presentation. Subject to the exercise of professional judgment and except as expressly described herein, Stifel GMP has not attempted to verify independently the accuracy or completeness of any such Information. Furthermore, Stifel GMP has not assumed any obligation to conduct, and has conducted only very limited, physical inspections of the properties or facilities of Hut 8 or USBTC.

 

The Hut 8 Certificate includes, among other things, representations that: (i) the Information provided to Stifel GMP orally by, or in the presence of, an officer or employee of Hut 8 or any of its subsidiaries or in writing by Hut 8 or any of its subsidiaries or any of its or their representatives in connection with our engagement was, at the date the Information was provided, and is, as of the date hereof, complete, true and correct in all material respects, and did not and does not contain a misrepresentation (as defined in the Act); and (ii) since the dates on which such Information was provided to Stifel GMP, except as disclosed in writing to us, there has been no material change, financial or otherwise, in the financial condition, assets, liabilities (contingent or otherwise), business, operations or prospects of Hut 8 or any of its subsidiaries, and no change has occurred in such Information or any part thereof which would have or which could reasonably be expected to have a material effect on the Opinion.

 

- 3 -

 

 

The Opinion is rendered as of February 7, 2023 on the basis of securities markets, economic, financial and general business conditions prevailing as at such date, and the condition and prospects, financial and otherwise, of Hut 8 and USBTC as they were reflected in the Information and as they were represented to Stifel GMP in discussions with the management of Hut 8 and USBTC. In rendering the Opinion, Stifel GMP has assumed that there are no material changes or material facts relating to Hut 8 or USBTC, or their respective businesses, operations, capital or future prospects which have not been generally disclosed. Any changes therein may affect the Opinion and, although Stifel GMP reserves the right to change or withdraw the Opinion in such event, we disclaim any obligation to advise any person of any change that may come to our attention or to update the Opinion after the date hereof. We have also assumed that the executed Combination Agreement, along with any ancillary documents to be entered into by Hut 8, USBTC or New Hut 8 in connection with the Proposed Transaction, will not differ in any material respect from the drafts of such documents that we have reviewed. Other than as authorized below, any reference to the Opinion or the engagement of Stifel GMP by Hut 8 is expressly prohibited without the express written consent of Stifel GMP.

 

Stifel GMP is not a legal, tax, accounting or regulatory advisor or expert. Stifel GMP is a financial advisor only and has relied upon, without independent verification, the assessment of Hut 8 and USBTC and their respective legal, tax, accounting and regulatory advisors with respect to legal, tax, accounting and regulatory matters. Stifel GMP has not made any independent valuation or appraisal of the assets or liabilities of Hut 8 or USBTC, nor has Stifel GMP been furnished with any such appraisals. As such, Stifel GMP was not engaged to review any legal, tax, accounting or regulatory aspects of the Proposed Transaction and accordingly expresses no view thereon. The Proposed Transaction is subject to a number of conditions outside the control of Hut 8 and USBTC, and Stifel GMP has assumed that all conditions precedent to the completion of the Proposed Transaction can and will be satisfied in due course and all consents, permissions, exemptions or orders of relevant regulatory authorities will be obtained, without adverse conditions or qualification and that the Proposed Transaction can and will be completed as currently planned without additional material costs or liabilities to Hut 8 or USBTC. Stifel GMP has also assumed that the Proposed Transaction will be completed in accordance with the terms and conditions of the Combination Agreement without waiver of, or amendment to, any term or condition that is any way material to our analyses or the Opinion, that the Proposed Transaction will be completed in compliance with applicable laws and that the disclosure relating to Hut 8, USBTC and the Proposed Transaction in any disclosure documents will be accurate and will comply with the requirements of applicable laws. In rendering the Opinion, Stifel GMP expresses no view as to the likelihood that the conditions respecting the Proposed Transaction will be satisfied or waived or that the Proposed Transaction will be implemented on a timely basis or at all. The Opinion does not address the relative merits of the Proposed Transaction as compared to other transaction or business strategies that might be available to Hut 8 or Hut 8’s underlying business decision to effect the Proposed Transaction. The Opinion does not constitute a recommendation as to how the Board or any Hut 8 or USBTC shareholder should vote or act in any matter relating to the Proposed Transaction.

 

Stifel GMP believes that the analyses and factors considered in arriving at the Opinion must be considered as a whole and are not amenable to partial analyses or summary description and that selecting portions of the analyses and the factors considered, without considering all factors and analyses together, could create a misleading view of the process employed and the conclusions reached. Any attempt to do so could lead to undue emphasis on any particular factor or analysis. In arriving at the Opinion, Stifel GMP has not attributed any particular weight to any specific analysis or factor but rather based the Opinion on a number of qualitative and quantitative factors deemed appropriate by Stifel GMP based on Stifel GMP’s experience in rendering such opinions.

 

In our analyses and in connection with the preparation of the Opinion, Stifel GMP made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Proposed Transaction. While, in the professional opinion of Stifel GMP, the assumptions used in preparing the Opinion are reasonable in the current circumstances, some or all of these assumptions may prove to be incorrect. We also considered several methodologies, analyses and techniques and used a combination of those approaches in order to produce the Opinion.

 

- 4 -

 

 

The Opinion only considers the USBTC Exchange Ratio as applied to USBTC Options (as defined in the Combination Agreement) that have vested and are in-the-money as of the date hereof. Any USBTC Options that remain either unvested or out-the-money as of such date are specifically excluded from the conclusions reached in this Opinion.

 

The Opinion is provided to the Board for its exclusive use only in considering the Proposed Transaction and may not be used or relied upon by any other person or for any other purpose without our prior written consent. Except for the inclusion of the Opinion in its entirety and a summary thereof (in a form acceptable to us) in the Hut 8 circular to be prepared in connection with the Proposed Transaction or any registration statement on Form S-4 that may be filed by New Hut 8 with the U.S. Securities Exchange Commission in connection with New Hut 8 becoming a new pubic company, the Opinion is not to be reproduced, disseminated, quoted from or referred to (in whole or in part) without our prior written consent.

 

Conclusion and Fairness Opinion

 

Based upon and subject to all of the foregoing and such other matters as we have considered relevant, Stifel GMP is of the opinion that, as at the date hereof, the USBTC Exchange Ratio is fair, from a financial point of view, to Hut 8.

 

Yours very truly,

 

/s/ Stifel Nicolaus Canada Inc.

 

- 5 -

 

Exhibit 99.2

 

 

 

Confidential
 
Board of Directors
Hut 8 Mining Corp.
24 Duncan Street, Suite 500
Toronto, ON
M5V 2B8, Canada
  February 6, 2023

 

Dear Members of the Board of Directors:

 

Hut 8 Mining Corp. (the “Company” or “Hut 8”) has engaged Kroll, LLC (“Duff & Phelps”), operating through its Duff & Phelps Opinions Practice, to serve as an independent financial advisor to the Board of Directors (the “Board of Directors”) of the Company (solely in their capacity as members of the Board of Directors) to provide an opinion (the “Opinion”) as of the date hereof as to the fairness, from a financial point of view, to the Company of the USBTC Exchange Ratio (as defined in the Merger Agreement (as defined herein)) in the Proposed Transaction (as defined herein).

 

Description of the Proposed Transaction

 

It is Duff & Phelps’ understanding that Hut 8 will effect a business combination with U.S. Data Mining Group, Inc. (“USBTC”) and Hut 8 Corp. (“New Hut 8”), a newly-created Delaware-domiciled company (the transactions therein, collectively, the “Proposed Transaction”), the steps of which are set forth in the Merger Agreement (as defined below) and pursuant to which, among other things, (i) the holders of common shares of Hut 8 will exchange their shares of Hut 8 for common stock of New Hut 8 on the basis of the Hut Exchange Ratio (as defined in the Merger Agreement) of 0.2 of a share of New Hut 8 common stock for each common share of Hut 8, having the effect of consolidating the common shares of Hut 8 on a 5:1 basis, and following which (ii) the holders of common stock and preferred stock of USBTC will exchange their shares of USBTC for common stock of New Hut 8 on the basis of the USBTC Exchange Ratio of 0.6716 of a share of New Hut 8 common stock for each share of USBTC common or preferred stock, which incorporates the effect of the consolidation of the common shares of Hut 8. We understand that based on the issued and outstanding securities of each of the Company, USBTC and New Hut 8 as of the date hereof, upon completion of the Proposed Transaction, the existing shareholders of Hut 8, and the existing preferred and common stockholders of USBTC (on an as-converted basis), will each own as a group 50% of the common stock of New Hut 8 (calculated on a fully-diluted in-the-money basis).

 

kroll.com Kroll, LLC
167 N. Green Street
Floor 12
Chicago, IL 60607		 T: +1 312 697 4600
F: +1 312 697 0112		  

 

 

 

 

Hut 8 Mining Corp.

February 6, 2023

Page 2 of 6

 

Scope of Analysis

 

In connection with this Opinion, Duff & Phelps has made such reviews, analyses and inquiries as it has deemed necessary and appropriate under the circumstances. Duff & Phelps also took into account its assessment of general economic, market and financial conditions, as well as its experience in securities and business valuation, in general, and with respect to similar transactions, in particular. Duff & Phelps’ procedures, investigations, and financial analysis with respect to the preparation of its Opinion included, but were not limited to, the items summarized below:

 

1.Reviewed the following documents:

 

a.Hut 8’s annual reports and audited financial statements included in Hut 8’s Form 40-F filed with the Securities and Exchange Commission (“SEC”) for the year ended December 31, 2021 and Hut 8’s unaudited interim financial statements for the quarter ended September 30, 2022 included in the Company’s Form 6-K filed with the SEC;

 

b.Unaudited internal financial information for Hut 8 for the twelve months ended December 31, 2022, which Hut 8 management identified as being the most current financial statements available;

 

c.USBTC’s audited financial statements for the period from December 4, 2020 (inception) through June 30, 2021 included in USBTC’s draft registration statement on Form S-1 as amended and filed with the SEC on August 12, 2022, and USBTC’s internal unaudited financial statements for the fiscal year ended June 30, 2022 and for the three months ended September 30, 2022;

 

d.USBTC’s internal unaudited balance sheet as of December 31, 2022 and pro forma balance sheet as of January 31, 2023, which USBTC management identified as being the most current financial statements available;

 

e.Financial projections for Hut 8 for the years ending December 31, 2023 through 2025 as shown in the file named “Hut 8 Operating Model vF”, prepared and provided to us by management of Hut 8 (the “Management Projections – Hut 8”);

 

f.Financial projections for USBTC for the years ending December 31, 2023 through 2025 as shown in the file named “USBTC Operating Model – vF”, prepared by management of USBTC and provided to us and approved by management of Hut 8 (the “Management Projections – USBTC”);

 

g.Financial projections for New Hut 8 after giving effect to the Proposed Transaction for the years ending December 31, 2023 through 2025 as shown in the file named “CombineCo Model VF”, provided to us by management of Hut 8 and prepared and approved by the managements of Hut 8 and USBTC (the “Management Projections – New Hut 8”, and together with the Management Projections – Hut 8 and the Management Projections – USBTC, the “Management Projections”);

 

h.Information regarding the equity capitalization of Hut 8 and USBTC prepared by the managements of Hut 8 and USBTC;

 

2

 

 

Hut 8 Mining Corp.

February 6, 2023

Page 3 of 6

 

i.Other internal documents relating to the history, current operations, and probable future outlook of Hut 8 and USBTC provided to us by the management of Hut 8;

 

j.A letter dated the date hereof from the management of the Company addressed to Duff & Phelps which made certain representations as to historical financial statements, financial projections and the underlying assumptions, and a pro forma schedule of assets and liabilities (including identified contingent liabilities) for the Company, USBTC and New Hut 8 (on a post-transaction basis);

 

k.The Confidential Non-Binding Letter of Intent (‘LOI”) by and between the Company and USBTC dated December 30, 2022; and

 

l.A draft dated February 2, 2023 of the Business Combination Agreement by and among the Company, USBTC and New Hut 8 (the “Merger Agreement”), including the plan of arrangement;

 

2.Discussed the information referred to above and the background and other elements of the Proposed Transaction with the management of Hut 8;

 

3.Discussed with the management of Hut 8 the plans and intentions with respect to the management and operation of Hut 8 and USBTC;

 

4.Reviewed the historical trading price and trading volume of the common shares of Hut 8, and the publicly traded securities of certain other companies that Duff & Phelps deemed relevant;

 

5.Performed certain valuation and comparative analyses using generally accepted valuation and analytical techniques including a discounted cash flow analysis and an analysis of selected public companies that Duff & Phelps deemed relevant; and

 

6.Conducted such other analyses and considered such other factors as Duff & Phelps deemed appropriate.

 

Assumptions, Qualifications and Limiting Conditions

 

In performing its analyses and rendering this Opinion with respect to the Proposed Transaction, Duff & Phelps, with the Company’s consent:

 

1.Relied upon the accuracy, completeness, and fair presentation of all information, data, advice, opinions and representations obtained from public sources or provided to it from private sources, including the managements of the Company and USBTC, and did not independently verify such information;

 

2.Relied upon the fact that the Board of Directors and the Company have been advised by counsel as to all legal matters with respect to the Proposed Transaction, including whether all procedures required by law to be taken in connection with the Proposed Transaction have been duly, validly and timely taken;

 

3.Assumed that any estimates, evaluations, forecasts and projections furnished to Duff & Phelps by or on behalf of the Company or USBTC, including without limitation, projections, forward looking statements and underlying assumptions, were reasonably prepared and based upon the best currently available information and good faith judgment of the person furnishing the same, and Duff & Phelps expresses no opinion with respect to such projections or the underlying assumptions;

 

3

 

 

Hut 8 Mining Corp.

February 6, 2023

Page 4 of 6

 

4.Assumed that information supplied and representations made by the managements of the Company and USBTC are substantially accurate regarding the Company, USBTC, and the Proposed Transaction

 

5.Assumed that the representations and warranties made in the Merger Agreement are accurate;

 

6.Assumed that the final versions of all documents reviewed by Duff & Phelps in draft form conform in all material respects to the drafts reviewed;

 

7.Assumed that there has been no material change in the assets, liabilities, financial condition, results of operations, business, or prospects of the Company or USBTC since the date of the most recent financial statements and other information made available to Duff & Phelps, and that there is no information or facts that would make the information reviewed by Duff & Phelps incomplete or misleading;

 

8.Assumed that all of the conditions required to implement the Proposed Transaction will be satisfied and that the Proposed Transaction will be completed in accordance with the Merger Agreement without any amendments thereto or any waivers of any terms or conditions thereof; and

 

9.Assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Proposed Transaction will be obtained without any adverse effect on the Company, USBTC or New Hut 8.

 

To the extent that any of the foregoing assumptions or any of the facts on which this Opinion is based prove to be untrue in any material respect, this Opinion cannot and should not be relied upon. Furthermore, in Duff & Phelps’ analysis and in connection with the preparation of this Opinion, Duff & Phelps has made numerous assumptions with respect to industry performance, general business, market and economic conditions and other matters, many of which are beyond the control of any party involved in the Proposed Transaction.

 

Duff & Phelps has prepared this Opinion effective as of the date hereof. This Opinion is necessarily based upon market, economic, financial and other conditions as they exist and can be evaluated as of the date hereof, and Duff & Phelps disclaims any undertaking or obligation to advise any person of any change in any fact or matter affecting this Opinion which may come or be brought to the attention of Duff & Phelps after the date hereof. In particular, volatility in the price of bitcoin on any date after the date hereof could affect the outcome of the Opinion were it given on such date. As you are aware, the credit, financial and stock markets have been experiencing unusual volatility and we express no opinion or view as to any potential effects of such volatility on the Company, USBTC, or the Proposed Transaction.

 

Duff & Phelps did not evaluate the Company’s or USBTC’s solvency or conduct an independent appraisal or physical inspection of any specific assets or liabilities (contingent or otherwise). Duff & Phelps has not been requested to, and did not, (i) initiate any discussions with, or solicit any indications of interest from, third parties with respect to the Proposed Transaction, the assets, businesses or operations of the Company or USBTC, or any alternatives to the Proposed Transaction, (ii) negotiate the terms of the Proposed Transaction, and therefore, Duff & Phelps has assumed that such terms are the most beneficial terms, from the Company’s perspective, that could, under the circumstances, be negotiated among the parties to the Merger Agreement and the Proposed Transaction, or (iii) advise the Company, the Board of Directors or any other party with respect to alternatives to the Proposed Transaction.

 

4

 

 

Hut 8 Mining Corp.

February 6, 2023

Page 5 of 6

 

Duff & Phelps is not expressing any opinion as to the market price or value of the Company’s common shares, USBTC’s common stock or preferred stock or New Hut 8’s common stock (or anything else), including after the announcement or the consummation of the Proposed Transaction. This Opinion should not be construed as a valuation opinion, credit rating, solvency opinion, an analysis of the credit worthiness of the Company or USBTC, as tax advice, or as accounting advice. Duff & Phelps is expressing no opinion as to projections, forward-looking statements or underlying assumptions provided in connection herewith. Without limiting the generality of the foregoing, Duff & Phelps further does not express an opinion as to the reasonableness or attainability of any projection, forward-looking statement or underlying assumption provided or prepared by or on behalf of the Company’s management or USBTC’s management. Duff & Phelps has not made, and assumes no responsibility to make, any representation, or render any opinion, as to any legal matter.

 

In rendering this Opinion, Duff & Phelps is not expressing any opinion with respect to the amount or nature of any compensation to any of the Company’s, USBTC’s or New Hut 8’s officers, directors, or employees, or any class of such persons, relative to the consideration to be received by the public shareholders of the Company in the Proposed Transaction, or with respect to the fairness of any such compensation.

 

This Opinion is furnished solely for the use and benefit of the Board of Directors in connection with its consideration of the Proposed Transaction and is not intended to, and does not, confer any rights or remedies upon any other person, and is not intended to be used, and may not be used, by any other person or for any other purpose, without Duff & Phelps’ express consent.

 

This Opinion (i) does not address the merits of the underlying business decision to enter into the Proposed Transaction versus any alternative strategy or transaction; (ii) does not address any transaction related to the Proposed Transaction; (iii) is not a recommendation as to how the Board of Directors or any shareholder should vote or act with respect to any matters relating to the Proposed Transaction, or whether to proceed with the Proposed Transaction or any related transaction, and (iv) does not indicate that the USBTC Exchange Ratio is the best possibly attainable under any circumstances; instead, it merely states whether the USBTC Exchange Ratio in the Proposed Transaction is within a range suggested by certain financial analyses. The decision as to whether to proceed with the Proposed Transaction or any related transaction may depend on an assessment of factors unrelated to the financial analysis on which this Opinion is based. This letter should not be construed as creating any fiduciary or other duty on the part of Duff & Phelps to any party.

 

This Opinion is solely that of Duff & Phelps, and Duff & Phelps’ liability in connection with this letter shall be limited in accordance with the terms set forth in the engagement letter between Duff & Phelps and the Company dated January 24, 2023 (the “Engagement Letter”). This letter is confidential, and its use and disclosure are strictly limited in accordance with the terms set forth in the Engagement Letter, except that the Opinion in its entirety and a summary thereof (in a form acceptable to us) may be included in the Hut 8 circular to be prepared in connection with the Proposed Transaction or any registration statement on Form S-4 that may be filed by New Hut 8 with the U.S. Securities Exchange Commission in connection with New Hut 8 becoming a new public company.

 

5

 

 

Hut 8 Mining Corp.

February 6, 2023

Page 6 of 6

 

Disclosure of Prior Relationships

 

Duff & Phelps has acted as financial advisor to the Board of Directors and will receive a fee for its services. No portion of Duff & Phelps’ fee is contingent upon either the conclusion expressed in this Opinion or whether or not the Proposed Transaction is successfully consummated. Pursuant to the terms of the Engagement Letter, a portion of Duff & Phelps’ fee is payable upon Duff & Phelps informing Hut 8 that it is prepared to deliver its Opinion. Other than this engagement, during the two years preceding the date of this Opinion, Duff & Phelps has provided compliance consulting services to an affiliate of USBTC and valuation services to Hut 8. For these prior engagements, Duff & Phelps received customary fees, expense reimbursement, and indemnification.

 

Conclusion

 

Based upon and subject to the foregoing, Duff & Phelps is of the opinion that, as of the date hereof, the USBTC Exchange Ratio in the Proposed Transaction is fair, from a financial point of view, to Hut 8.

 

This Opinion has been approved by the Opinion Review Committee of Duff & Phelps.

 

Respectfully submitted,

 

/s/ Kroll, LLC

 

Duff & Phelps Opinions Practice

Kroll, LLC

 

6

 

Exhibit 99.3

 

Consent of Stifel Nicolaus Canada Inc.

 

We hereby consent to (i) the inclusion of our opinion letter (the “Opinion”), dated February 7, 2023, to the Board of Directors of Hut 8 Mining Corp. (“Hut 8”), as Exhibit 99.1 to the prospectus that forms a part of the Registration Statement on Form S-4 of Hut 8 (the “Registration Statement”) relating to the proposed business combination of Hut 8, U.S. Data Mining Group, Inc. and Hut 8 Corp., and (ii) to the description of such Opinion and to the references in the Registration Statement to such Opinion and our firm under the headings “Summary—Fairness Opinion of Stifel GMP” and “The Business Combination—Fairness Opinion of Stifel GMP.” Notwithstanding the foregoing, it is understood that our consent is being delivered solely in connection with the filing of the Registration Statement and any other use of the Opinion remains subject to the terms and conditions included therein and those set forth in our engagement letter with Hut 8.

 

In giving such consent, we do not admit that we come within the category of persons whose consent is required under Section 7 of the U.S. Securities Act of 1933, as amended, or the rules and regulations adopted by the U.S. Securities and Exchange Commission thereunder, nor do we admit that we are experts with respect to any part of the Registration Statement within the meaning of the term “experts” as used in the U.S. Securities Act of 1933, as amended, or the rules and regulations of the U.S. Securities and Exchange Commission thereunder.

 

STIFEL NICOLAUS CANADA INC.

 

/s/ Stifel Nicolaus Canada Inc.

 

February 13, 2023

 

 

 

 

Exhibit 99.4

 

CONSENT OF DUFF & PHELPS

 

Kroll, LLC, operating through its Duff & Phelps Opinions Practice (“Duff & Phelps”), hereby consents to (i) the inclusion of our fairness opinion, dated February 6, 2023, to the Board of Directors of Hut 8 Mining Corp. in the filing of the Registration Statement on Form S-4 of Hut 8 Corp., filed on February 13, 2023 (the “Registration Statement”), and (ii) all references to the fairness opinion in the Registration Statement.

 

Notwithstanding the foregoing, it is understood that our consent is being delivered solely in connection with the filing of the above–mentioned version of the Registration Statement and that our opinion is not to be used, circulated, quoted or otherwise referred to in whole or in part in any registration statement (including any subsequent amendments to the above–mentioned Registration Statement), proxy statement/prospectus or any other document, except in accordance with our prior written consent. In giving such consent, we do not admit that we come within the category of persons whose consent is required under, and we do not admit that we are “experts” for purposes of, the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

/s/ Kroll, LLC  
Duff & Phelps Opinions Practice  
Kroll, LLC  
New York, New York  
February 13, 2023  

 

 

 

Exhibit 99.5

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Michael Ho
 

Michael Ho

 

  February 13, 2023

 

 

 

 

Exhibit 99.6

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Bill Tai
 

Bill Tai

 

  February 13, 2023

 

 

 

 

Exhibit 99.7

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Stanley O’Neal
 

Stanley O’Neal

 

  February 13, 2023

 

 

 

 

Exhibit 99.8

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Mayo A. Shattuck III
 

Mayo A. Shattuck III

 

  February 13, 2023

 

 

 

 

Exhibit 99.9

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Amy Wilkinson
 

Amy Wilkinson

 

  February 13, 2023

 

 

 

 

Exhibit 99.10

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Jaime Leverton
 

Jaime Leverton

 

  February 13, 2023

 

 

 

 

Exhibit 99.11

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Rick Rickertsen
 

Rick Rickertsen

 

  February 13, 2023

 

 

 

 

Exhibit 99.12

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Alexia Hefti
 

Alexia Hefti

 

  February 13, 2023

 

 

 

Exhibit 99.13

 

CONSENT OF PROSPECTIVE DIRECTOR

 

In accordance with Rule 438 promulgated under the Securities Act of 1933, as amended, I hereby consent to my being named in the Registration Statement on Form S-4, to which this consent is an exhibit, filed by Hut 8 Corp. (“New Hut”) with the Securities and Exchange Commission, and all amendments (including post-effective amendments) thereto (the “Registration Statement”) and any prospectus contained therein and any amendment or supplement thereto, as a person who is to become a director of New Hut, effective immediately following the Effective Time (as such term is defined in the Business Combination Agreement, dated as of February 6, 2023 (the “Business Combination Agreement”), by and among Hut 8 Mining Corp, U.S. Data Mining Group, Inc. and New Hut) and to the filing of this consent as an exhibit to the Registration Statement.

 

  /s/ Joseph Flinn
 

Joseph Flinn

 

  February 13, 2023