Riot Platforms, Inc 10-Q for FY2022 Q3
Riot Platforms, Inc. (RIOT)
About this 10-Q
Riot Platforms, Inc filed this 10-Q on November 7, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $46.29M
- down 28.6% from $64.81M a year earlier
- Net loss
- $36.57M
- compared with a net loss of $15.34M a year earlier
- Diluted EPS
- -$0.24
- compared with -$0.16 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from __________ to __________
Commission file number:
| (Exact name of registrant as specified in its charter) |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| | ||
| (Address of principal executive offices) (Zip Code) | ||
| (Registrant’s telephone number, including area code) | ||
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbol(s): | Name of each exchange on which registered: | ||
Indicate by check mark whether the registrant (1)
has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☒ | 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 13(a) of the Exchange Act. ☐
Indicate by check mark whether registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
The number of shares of no-par value common stock
outstanding as of November 4, 2022 was
RIOT BLOCKCHAIN, INC.
| i |
RIOT BLOCKCHAIN, INC.
As used in this Quarterly Report on Form 10-Q (this “Quarterly Report”), the terms “we,” “us,” “our,” the “Company,” the “Registrant,” “Riot Blockchain, Inc.,” and “Riot” mean Riot Blockchain, Inc. and its consolidated subsidiaries, unless otherwise indicated.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report and the documents incorporated by reference herein contain forward-looking statements that involve risks and uncertainties, including those discussed under the heading “Risk Factors” in this Quarterly Report and under similar headings in the other filings we make with the U.S. Securities and Exchange Commission (the “SEC”), and are based on management’s assumptions and beliefs about the future that may not materialize or prove to be correct, which could cause our results to differ materially from those expressed in or implied by such forward-looking statements. All statements contained in this Quarterly Report and the documents incorporated by reference herein other than statements of historical fact, such as those set forth under Part I, Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Quarterly Report, are statements that could be deemed forward-looking statements. Such forward-looking statements may include, without limitation, statements concerning: our plans, strategies and objectives for future operations; new equipment, systems, technologies, services or developments, such as our investment in our development and implementation of industrial-scale immersion-cooled Bitcoin mining hardware and our planned one gigawatt data center development in Corsicana, Texas; future economic conditions, performance or outlook; future political conditions; the outcome of contingencies; potential acquisitions or divestitures; the number and value of Bitcoin rewards we earn from our mining operations; expected cash flows or capital expenditures; our beliefs or expectations; activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future; and our assumptions and beliefs underlying or based upon any of the foregoing. Forward-looking statements are made in reliance on the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) and the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by their use of forward-looking terminology, such as “believes,” “expects,” “may,” “should,” “would,” “will,” “intends,” “plans,” “estimates,” “anticipates,” “projects,” or the negative of these words, and similar words or expressions. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking, and you should consider any statement contained in this Quarterly Report or the documents incorporated by reference herein other, than statements of historical fact, to be a “forward-looking statement” within the meaning of this cautionary note. You should not place undue reliance on these forward-looking statements, which reflect our management’s opinions only as of the date such statements are made and are not guarantees of future performance or actual results. The following are some of the risks, factors and uncertainties which we believe could cause our actual results to differ materially from our historical results or our current expectations or projections expressed in or underlying such forward-looking statements:
• our strategic decision to concentrate on Bitcoin mining ties the success of our business to the success of Bitcoin;
• our Bitcoin mining operations are capital-intensive and can only be successful if our mining costs are lower than the value of the Bitcoin we mine, which has historically been subject to significant price volatility; therefore, our ability to make accurate projections about our business and future contingencies is significantly impaired as a result of this price volatility and other risks that lie largely outside of our control, such as our suppliers’ inability to perform or timely deliver new miners, parts, or services we purchase from them, as well as other risks we may not anticipate;
• our Bitcoin mining operations are subject to unique industry risks outside of our control that could have material adverse effects on our business, including, among others: our need for significant amounts of low-cost and reliable electricity; changes to laws and regulations pertaining to mining, transacting in, or holding Bitcoin; the historical volatility in the demand for, and the price of, Bitcoin; changes in the public perception of Bitcoin; our need for consistent, high-speed, and highly secure Internet connectivity; intense competition for new miners and the necessary infrastructure, personnel, material and components to support industrial-scale Bitcoin mining operations; cybersecurity risks; increased global Bitcoin network hash rate and difficulty; and competition for a fixed supply of Bitcoin rewards;
| ii |
• we have made significant investments in our development of industrial-scale immersion-cooled Bitcoin mining infrastructure, which is subject to unique risks and uncertainties, and if we are unable to effectively implement this innovative technology because of these risks or other factors, we may not realize the benefits we anticipate from our substantial investment in immersion-cooled Bitcoin mining on the schedule we anticipate, if at all;
• our Bitcoin mining operations are concentrated in discrete locations, and a natural disaster, unforeseen environmental issues, or other significant disruption affecting our facilities could severely impact our ability to operate, which could have a material adverse effect on our business, results of operations, financial condition, and the market price of our securities;
• we cannot predict the consequences of future geo-political events, such as international conflict and related sanctions, COVID-19 and the ongoing global supply chain crisis that has resulted, to our business, our suppliers, and the markets in which we operate, which significantly impairs our ability to make accurate projections of future revenues, costs, and risks, and we may be unable to properly insure against these risks as a result;
• the growing public awareness of climate change and the negative media attention given to the energy consumption of proof-of-work cryptography may lead to the implementation of new taxes, laws and regulations affecting our access to energy, a decline in the demand for new Bitcoin, or other factors that could have a material adverse effect on our business, results of operations, and the market price of our securities, regardless of our efforts to control the climate impact of our operations;
• we may be required to record a significant charge to earnings if the value of our amortizable intangible assets, or Bitcoin holdings become impaired due to a change in circumstances indicating that the carrying value of these assets may not be recoverable, such as a sustained decline in the value of a Bitcoin from the value recorded when we mined it, a decline in our stock price and market capitalization, reduced future cash flow estimates, and other changes to our industry and the macroeconomic environment in which we operate;
• we have made, and expect to continue to make, strategic acquisitions and investments, including our recent decision to develop a second large-scale Bitcoin mining and data center facility in Corsicana, Texas, which entail significant risks and uncertainties that could adversely affect our business, results of operations, and financial condition, such as unforeseen difficulties in integrating the operations of an acquired business into our own, and we may fail to realize the anticipated benefits of these acquisitions on the schedule we expect, if at all;
• we expect to need to raise additional capital, in the form of equity or debt, to fund our business objectives, goals, and strategies; however, volatility in the trading price of shares of our common stock, the number of authorized shares available for issuance and the price of Bitcoin may jeopardize our ability to raise the necessary additional capital;
• we could be negatively impacted by a security breach, through cyber-attack, cyber-intrusion, insider threats or otherwise, or other significant disruption of our information technology networks and related systems;
• global macroeconomic conditions have given rise to significantly increased competition for labor, and we may be unable to hire the qualified and talented personnel we need for our operations and to carry out our business strategy, or to retain our workforce without substantially increasing our compensation and other benefits, which could increase our operating costs significantly;
• our reputation and ability to do business may be impacted by the improper conduct of our employees, agents or business partners; and
• the outcome of litigation and other disputes in which we are involved from time to time is unpredictable, and an adverse decision in any such matter could have a material adverse effect on our financial condition, results of operations, cash flows and equity.
| iii |
Additional details and discussions concerning some of the various risks, factors and uncertainties that could cause future results to differ materially from those expressed or implied in our forward-looking statements are set forth under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021, as amended (the “2021 Annual Report”), as well as those which may be disclosed in current reports on Form 8-K and other subsequent filings we make with the SEC. The foregoing list of factors and the factors set forth under the heading “Risk Factors” included in our 2021 Annual Report, this Quarterly Report, and the other filings we make with the SEC are not exhaustive. Additional risks and uncertainties not known to us or that we currently believe not to be material may adversely impact our business, financial condition, results of operations and cash flows. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Should any risks or uncertainties develop into actual events, these developments could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Accordingly, you should read this Quarterly Report completely and with the understanding that our actual future results may be materially different from our historical results and also from those expressed in or implied by the forward-looking statements contained in this Quarterly Report and the documents incorporated by reference herein. The forward-looking statements contained in this Quarterly Report and the documents incorporated by reference herein speak only as of the date they are made and, unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements attributable to us are expressly qualified by these cautionary statements.
| iv |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Riot Blockchain, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except for share and per share amounts)
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Costs and estimated earnings in excess of billings | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Bitcoin | ||||||||
| Future power credits, current portion | ||||||||
| Investments in marketable equity securities, at fair value | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Deposits | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Derivative asset | ||||||||
| Right of use assets | ||||||||
| Future power credits, less current portion | ||||||||
| Other long-term assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Billings in excess of costs and estimated earnings | ||||||||
| Accrued compensation | ||||||||
| Accrued expenses | ||||||||
| Deferred revenue, current portion | ||||||||
| Contingent consideration liability - future power credits, current portion | ||||||||
| Operating lease liability, current portion | ||||||||
| Total current liabilities | ||||||||
| Deferred revenue, less current portion | ||||||||
| Operating lease liability, less current portion | ||||||||
| Contingent consideration liability - future power credits, less current portion | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies - Note 16 | ||||||||
| Stockholders' equity | ||||||||
| Preferred stock, par value, | ||||||||
| 2% Series A Convertible stock, | ||||||||
| 0% Series B Convertible stock, | ||||||||
| Common stock, par value; | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders' equity | ||||||||
| Total liabilities and stockholders' equity | $ | $ | ||||||
See the accompanying Notes to Condensed Consolidated
Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.
| 1 |
Riot Blockchain, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except for share and per share amounts)
(Unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue, net: | ||||||||||||||||
| Mining | $ | $ | $ | $ | ||||||||||||
| Data Center Hosting | ||||||||||||||||
| Engineering | ||||||||||||||||
| Other revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenues (exclusive of depreciation and amortization shown below): | ||||||||||||||||
| Mining | ||||||||||||||||
| Data Center Hosting | ||||||||||||||||
| Engineering | ||||||||||||||||
| Acquisition-related costs | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Change in fair value of derivative asset | ( | ) | ( | ) | ( | ) | ||||||||||
| Power curtailment credits | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of contingent consideration | ||||||||||||||||
| Realized gain on sale/exchange of Bitcoin | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on exchange of equipment | ( | ) | ( | ) | ||||||||||||
| Impairment of Bitcoin | ||||||||||||||||
| Impairment of goodwill | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income (expense) | ( | ) | ||||||||||||||
| Realized loss on sale of marketable equity securities | ( | ) | ||||||||||||||
| Realized gain on sale/exchange of long-term investment | ||||||||||||||||
| Unrealized gain (loss) on marketable equity securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Total other income (expense) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) before taxes | ( | ) | ( | ) | ( | ) | ||||||||||
| Current income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| Deferred income tax benefit (expense) | ( | ) | ||||||||||||||
| Total income tax benefit (expense) | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Basic net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Basic weighted average number of shares outstanding | ||||||||||||||||
| Diluted weighted average number of shares outstanding | ||||||||||||||||
See the accompanying Notes to Condensed Consolidated
Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.
| 2 |
Riot Blockchain, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except for share and per share amounts)
(Unaudited)
Three Months Ended September 30, 2022
| Total | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | stockholders' | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | deficit | equity | |||||||||||||||||||
| Balance as of July 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of restricted stock | ||||||||||||||||||||||||
| Issuance of common stock/At-the-market offering, net of offering costs | ||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Three Months Ended September 30, 2021
| Total | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | stockholders' | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | deficit | equity | |||||||||||||||||||
| Balance as of July 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement | ( | ) | ( | ) | ||||||||||||||||||||
Issuance of common stock/At-the-market offering, net of offering costs | ||||||||||||||||||||||||
| Issuance of common stock warrant for settlement of advisory fees | — | — | ||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
See the accompanying Notes to Condensed Consolidated
Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.
| 3 |
Riot Blockchain, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands, except for share and per share amounts)
(Unaudited)
Nine Months Ended September 30, 2022
| Total | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | stockholders' | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | deficit | equity | |||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of restricted stock | ||||||||||||||||||||||||
| Issuance of common stock/At-the-market offering, net of offering costs | ||||||||||||||||||||||||
| Conversion of preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||
| Balance as of September 30, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
Nine Months Ended September 30, 2021
| Total | ||||||||||||||||||||||||
| Preferred Stock | Common Stock | Accumulated | stockholders' | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | deficit | equity | |||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Delivery of common stock underlying restricted stock units, net of shares settled for tax withholding settlement | ( | ) | ( | ) | ||||||||||||||||||||
| Issuance of common stock related to exercise of warrants | ||||||||||||||||||||||||
| Issuance of common stock for settlement of | — | — | — | — | ||||||||||||||||||||
| Issuance of common stock in connection with the acquisition of Whinstone | ||||||||||||||||||||||||
Issuance of common stock/At-the-market offering, net of offering costs | ||||||||||||||||||||||||
| Issuance of common stock warrant for settlement of advisory fees | — | — | ||||||||||||||||||||||
| Conversion of preferred stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
See the accompanying Notes to Condensed Consolidated
Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.
| 4 |
Riot Blockchain, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Stock-based compensation | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of license fee revenue | ( | ) | ( | ) | ||||
| Amortization of right of use assets | ( | ) | ||||||
| Income tax (benefit) expense | ( | ) | ||||||
| Issuance of common stock warrant for settlement of advisory fees | ||||||||
| Impairment of Bitcoin | ||||||||
| Impairment of goodwill | ||||||||
| Change in fair value of derivative asset | ( | ) | ( | ) | ||||
| Change in fair value of contingent consideration | ||||||||
| Realized loss on sale of marketable securities | ||||||||
| Realized gain on sale/exchange of long-term investment | ( | ) | ||||||
| Realized gain on sale/exchange of Bitcoin | ( | ) | ( | ) | ||||
| Unrealized loss on marketable equity securities | ||||||||
| Gain on exchange of equipment | ( | ) | ||||||
| Bitcoin - mining, net | ( | ) | ( | ) | ||||
| Changes in assets and liabilities: | ||||||||
| Proceeds from sale of Bitcoin | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Costs and estimated earnings in excess of billings | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Future power credits | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Billings in excess of costs and estimated earnings | ||||||||
| Accrued compensation | ( | ) | ||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Customer deposits | ||||||||
| Deferred revenue | ( | ) | ( | ) | ||||
| Lease liability | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds from the sale of marketable equity securities | ||||||||
| Acquisition of Whinstone, net of cash acquired | ( | ) | ||||||
| Proceeds from the sale of long-term investments | ||||||||
| Deposits on equipment | ( | ) | ( | ) | ||||
| Other deposits | ( | ) | ||||||
| Purchases of property and equipment, including construction in progress | ( | ) | ( | ) | ||||
| Patent costs incurred | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from the issuance of common stock / At-the-market offering | ||||||||
| Offering costs for the issuance of common stock / At-the-market offering | ( | ) | ( | ) | ||||
| Proceeds from exercise of common stock warrants | ||||||||
| Payments on contingent consideration liability - future power credits | ( | ) | ||||||
| Repurchase of common shares to pay employee withholding taxes | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Issuance of common stock for business combination | $ | $ | ||||||
| Reclassification of deposits to property and equipment | $ | $ | ||||||
| Conversion of preferred stock to common stock | $ | $ | ||||||
| Property and equipment obtained in exchange transaction | $ | $ | ||||||
| Construction in progress included in accrued expenses | $ | $ | ||||||
See the accompanying
Notes to Condensed Consolidated Financial Statements,
which are an integral part of these Condensed Consolidated Financial Statements.
| 5 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Organization and Operation of Our Business
Nature of Operations:
We are a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin. We also provide the critical mining infrastructure for our institutional-scale hosted clients to mine Bitcoin at our Bitcoin mining facility in Rockdale, Texas (the “Rockdale Facility”). The Rockdale Facility currently provides 700 megawatts in total capacity. Our Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity, and we are currently expanding its capacity. Additionally, we are beginning development of a second large-scale Bitcoin mining data center facility in Corsicana, Texas (the “Corsicana Facility”), which is expected to have approximately one gigawatt of capacity available for both our Bitcoin mining operations and hosting of institutional-scale Bitcoin mining and data center clients upon completion.
We operate in an environment that is constantly evolving based on the proliferation of Bitcoin and cryptocurrencies in general. A significant component of our strategy is to effectively and efficiently allocate capital among opportunities that generate the highest return on our investment.
As described in Note 17. “Segment Information” to these unaudited Notes to Condensed Consolidated Financial Statements, we operate in three business segments: (1) Bitcoin Mining (“Mining”), (2) Data Center Hosting (“Data Center Hosting”), and (3) Electrical Products and Engineering (“Engineering”).
Note 2. Liquidity and Financial Condition
At September 30, 2022, the Company had approximate
balances of cash and cash equivalents of $
During the nine months ended September 30,
2022, the Company paid approximately $
2022 ATM Offering:
As disclosed in Note 13, “Stockholders’ Equity”, the Company
entered into a Sales Agreement with Cantor Fitzgerald & Co., B. Riley Securities, Inc., BTIG, LLC, Roth Capital Partners, LLC, D.A.
Davidson & Co., Macquarie Capital (USA) Inc., and Northland Securities, Inc. (the “Sales Agents”) dated March 31, 2022
(the “Sales Agreement”), pursuant to which the Company may, from time to time, sell up to $
| 6 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
COVID-19:
The COVID-19 global pandemic has been unprecedented and unpredictable; there continues to be widespread impact resulting from the COVID-19 pandemic and this is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. Based on our current assessment, however, we do not expect any material impact on our long-term development, our operations, or our liquidity due to the worldwide spread of COVID-19, other than the potential impact of COVID-19 on global logistics discussed below. We continue to monitor this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and industry.
In addition, nationally, we have experienced and are experiencing varying degrees of inflation, resulting in part from various supply chain disruptions, increased shipping and transportation costs, and increased raw material and labor costs as well as other disruptions resulting from the continuing COVID-19 pandemic and general global economic conditions. This inflationary impact on our cost structure has contributed to adjustments in operations and our ability to obtain materials and retain talent, despite a continued focus on reducing our costs where possible.
Global Logistics:
Ongoing global supply logistics have caused delays across all channels of distribution. Similarly, we have also experienced delays in certain of our miner delivery schedules and in our infrastructure development schedules due to constraints on the globalized supply chains for miners, electricity distribution equipment and construction materials. Through the date of this Quarterly Report, we have been able to effectively mitigate delivery delays to avoid materially impacting our miner deployment schedule; however, there are no assurances we will be able to continue to mitigate delivery delays in the future. Additionally, the expansion of the Rockdale Facility and the development of our new Corsicana Facility requires large quantities of construction materials, specialized electricity distribution equipment and other component parts that can be difficult to source. In anticipation of the development of the Corsicana Facility, we have procured and hold much of the required materials to help mitigate against global supply logistic and pricing issues. We also monitor developments in the global supply chain on an ongoing basis and make efforts to determine how that may potentially impact our expansion plans. See the discussion under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and under Part I, Item 1A of the 2021 Annual Report for additional discussion regarding potential impacts the global supply chain crisis may have on our operations and plans for expansion.
Note 3. Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation and Principles of Consolidation:
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. 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 December 31, 2022 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 December 31, 2021, and notes thereto, included in the 2021 Annual Report.
Reclassifications:
Certain prior period amounts have been reclassified to conform to the current period presentation in the consolidated financial statements and these accompanying notes. The reclassifications did not have a material impact on the Company's unaudited condensed consolidated financial statements and related disclosures. The impact on any prior period disclosures was immaterial.
| 7 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Use of Estimates:
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the balance sheet and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ significantly from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s unaudited condensed consolidated financial statements include estimates associated with valuing contingent consideration for a business combination and periodic reassessment of its fair value, allocating the fair value of purchase consideration to assets acquired and liabilities assumed in business acquisitions, revenue recognition, valuing the derivative asset classified under Level 3 fair value hierarchy, determining the useful lives and recoverability of long-lived assets, impairment analysis of goodwill and finite-lived intangibles, stock-based compensation, and the valuation allowance associated with the Company’s deferred tax assets.
Significant Accounting Policies:
For a detailed discussion about the Company’s significant accounting policies, see the Company’s December 31, 2021 consolidated financial statements included in its 2021 Annual Report.
Segment and Reporting Unit Information:
Operating segments are defined as components of an entity for which discrete financial information is available that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The CODM is comprised of a committee of the Company’s executive officers. The Company had three operating segments as of September 30, 2022. See Note 17. “Segment Information” to these unaudited Notes to Condensed Consolidated Financial Statements.
Income Taxes:
The Company accounts for income taxes under the asset and liability method, in which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.
ASC Topic 740, Income Taxes, (“ASC 740”), also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s consolidated financial statements. The Company believes that its income tax positions and deductions would be sustained on audit and does not anticipate any adjustments that would result in material changes to its financial position.
During the three and nine months ended September
30, 2022, the deferred income tax benefit of $
| 8 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Income (Loss) Per Share:
Basic net income (loss) per share (“EPS”)
of common stock is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period.
Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The Company excludes
its unvested shares of stock-based compensation and the holdback of
For the nine months ended September 30, 2021,
the Company recorded net income and therefore, EPS was calculated using the treasury stock method. Dilutive potential common shares include
outstanding stock options, unvested shares of stock-based compensation, warrants and the outstanding shares of the Company’s 0%
Series B Convertible Preferred Stock (the “Series B Preferred Stock”). Potentially dilutive shares are determined by applying
the treasury stock method to the assumed exercise of outstanding stock options, restricted stock awards and warrants. Potentially dilutive
shares issuable upon conversion of our Series B Preferred Stock for 2021 are calculated using the if-converted method. During the nine
months ended September 30, 2022, the remaining
The following is a reconciliation of the numerator and denominator of the diluted net income (loss) per share computations for the periods presented below (in thousands except for share and per share amounts):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Basic and diluted income (loss) per share: | ||||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Basic weighted average number of shares outstanding | ||||||||||||||||
| Add: | ||||||||||||||||
| Options to purchase common stock | ||||||||||||||||
| Unvested stock-based compensation | ||||||||||||||||
| Convertible Series B preferred shares | ||||||||||||||||
| Diluted weighted average number of shares outstanding | ||||||||||||||||
| Basic net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| Diluted net income (loss) per share | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
Securities that could potentially dilute income (loss) per share in the future were not included in the computation of diluted income (loss) per share at September 30, 2022 and 2021 because their inclusion would be anti-dilutive are as follows:
| September 30, 2022 | September 30, 2021 | |||||||
| Warrants to purchase common stock | ||||||||
| Options to purchase common stock | ||||||||
| Unvested restricted stock units | ||||||||
| Unvested restricted stock awards | ||||||||
| Convertible Series B preferred stock | ||||||||
| Total | ||||||||
| 9 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Recently Issued and Adopted Accounting Pronouncements:
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), (“ASU 2021-04”). This ASU reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU is effective for all entities for fiscal years beginning after December 15, 2021. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2021-04 on January 1, 2022 did not have a material impact on the Company’s condensed consolidated financial statements or disclosures.
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 condensed consolidated financial statements and assures that there are proper controls in place to ascertain that the Company’s unaudited condensed consolidated financial statements properly reflect the change.
Note 4. Acquisitions
Acquisition of ESS Metron:
On December 1, 2021 (the “ESS Metron
Acquisition Date”), the Company acquired
The ESS Metron Acquisition Date fair value
of the total consideration transferred was comprised of $
Other than an insignificant post-closing settlement of preliminary net working capital pursuant to the Membership Interest Purchase Agreement dated December 1, 2021, there have been no adjustments to the provisional purchase price and fair value estimates presented in Note 4. “Acquisitions” of the 2021 Annual Report. The Company expects to finalize the valuation of these assets and liabilities, and consideration transferred, as soon as practicable, but not later than one year from the ESS Metron Acquisition Date. Any changes to the preliminary estimates of the fair value of the assets acquired and liabilities assumed will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill.
Acquisition of Whinstone:
On May 26, 2021 (the “Whinstone Acquisition Date”), the Company acquired
| 10 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The Whinstone Acquisition Date fair value of
the total consideration transferred was comprised of $
Other than the impairment charge to goodwill described below, there have been no adjustments to the provisional purchase price and fair value estimates presented in Note 4. “Acquisitions”, of the 2021 Annual Report. The Company finalized the valuation of these assets and liabilities, and consideration transferred, in May of 2022.
Impairment of Goodwill:
In response to recent adverse changes in business
climate, including decreases in the price of Bitcoin and the related volatility of equity markets, including the Bitcoin mining industry,
as evidenced by declines in the market price of the Company’s securities, those of its peers, and major market indices, during the
nine months ended September 30, 2022, the Company recognized a non-cash impairment charge of $
Pro Forma Information (Unaudited):
The following unaudited pro forma financial
information summarizes the combined results of operations for Riot, Whinstone and ESS Metron as if the companies were combined as of January
1, 2020. The unaudited pro forma information does not reflect the effect of costs or synergies that may result from the acquisitions.
The pro forma information excludes acquisition-related costs of $
| Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 | |||||||
| Total revenue | $ | $ | ||||||
| Net income | $ | ( | ) | $ | ||||
Acquisition of Corsicana Facility Land Site:
During the nine months ended September 30, 2022, the Company announced that it has initiated a large-scale development to expand its Bitcoin mining and data center hosting capabilities in Navarro County, Texas with the acquisition of the 265-acre site where the anticipated one-gigawatt Corsicana Facility will be constructed. The initial phase of the development of the Corsicana Facility involves the construction on the 265-acre site of 400 megawatts of immersion-cooled Bitcoin mining and data center hosting infrastructure spread across multiple buildings, as well as a high-voltage power substation and transmission facilities to supply power to the facility. Construction of the substation and the data centers is expected to be carried out concurrently, with self-mining and data center hosting operations expected to commence by the fourth quarter of 2023, following the commissioning of the substation, which is expected to be completed in summer 2023.
This first phase of the development of the Corsicana Facility includes land acquisition, site preparation, substation development, and transmission construction, along with construction of ancillary buildings and four buildings utilizing the Company’s immersion-cooling infrastructure and technology. Through September 30, 2022, the Company has incurred costs of approximately $
| 11 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Revenue from Contracts with Customers
The Company recognizes revenue when it transfers promised services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those services.
Disaggregated revenue:
The following table presents the Company’s revenues disaggregated into categories based on the nature of such revenues (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Mining | $ | $ | $ | $ | ||||||||||||
| Data center hosting | ||||||||||||||||
| Engineering | ||||||||||||||||
| Other | ||||||||||||||||
| Total revenue | $ | $ | $ | $ | ||||||||||||
Contract balances:
Contract assets consist of costs and estimated
earnings in excess of billings on uncompleted engineering contracts. The balance was entirely from the ESS Metron acquisition, and was
$
The Company’s contract liabilities primarily relate to upfront payments and consideration received from customers for Data Center Hosting, billings in excess of costs and estimated earnings on uncompleted Engineering contracts and the upfront license fee generated from our legacy animal health business. The table below presents changes in the total deferred revenue liability and billings in excess of costs and estimated earnings.
| Beginning balance - January 1, 2022 | $ | |||
| Revenue recognized | ( | ) | ||
| Billings in excess of costs and estimated earnings | ||||
| Ending balance - September 30, 2022 | $ |
Transaction price allocated to remaining performance obligations:
Remaining performance obligations represent the transaction price of contracts for work that has not yet been performed. Amounts related to Bitcoin mining are not included because the Company elected the practical expedient to not disclose amounts related to contracts with a duration of one year or less.
Additionally, we have elected to use the practical expedient to not adjust the transaction price for the existence of a significant financing component if the timing difference between a customer’s payment and our performance is one year or less.
| 12 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 6. Bitcoin
The following table presents additional information about the Company’s Bitcoin:
| Beginning balance - January 1, 2022 | $ | |||
| Revenue recognized from Bitcoin mined | ||||
| Proceeds from sale of Bitcoin | ( | ) | ||
| Exchange of Bitcoin for employee compensation | ( | ) | ||
| Realized gain on sale/exchange of Bitcoin | ||||
| Impairment of Bitcoin | ( | ) | ||
| Ending balance - September 30, 2022 | $ |
Note 7. Investments in Marketable Equity Securities
On June 28, 2022, the Company sold
Note 8. Property and Equipment
Property and equipment:
Property and equipment consisted of the following as of September 30, 2022 and December 31, 2021:
| Life (Years) | September 30, 2022 | December 31, 2021 | ||||||||||
| Buildings and building improvements | $ | $ | ||||||||||
| Land rights and land improvements | ||||||||||||
| Miners and mining equipment | ||||||||||||
| Machinery and facility equipment | ||||||||||||
| Office and computer equipment | ||||||||||||
| Construction in progress | ||||||||||||
| Total cost of property and equipment | ||||||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||||||
| Property and equipment, net | $ | $ | ||||||||||
As of September 30, 2022, the
Company had deployed a total of
During the nine months ended
September 30, 2022, the Company paid approximately $
| 13 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the nine months ended
September 30, 2022, the Company elected not to renew its co-location mining services agreement with Coinmint, which was therefore terminated
automatically by its terms, effective as of July 8, 2022. In connection with the termination of its agreement with Coinmint, the Company
arranged for the transfer of the miners it was operating at Coinmint’s Massena, New York facility (the “Coinmint Facility”)
to the Company’s Rockdale Facility. The Company also entered into an equipment exchange agreement (the “Swap Agreement”)
with a third-party Bitcoin mining company (the “Counterparty”) whereby Riot transferred approximately
During the year ended December 31, 2021, the
Company entered into six additional purchase agreements with Bitmain Technologies Ltd. (“Bitmain”) to acquire
Included in construction in progress as of
September 30, 2022, are deposit payments of approximately $
Depreciation
and amortization expense related to property and equipment totaled approximately $
Depreciation is computed on the straight-line basis for the periods the assets are in service.
| 14 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Commitment:
As of September 30, 2022, the
Company had outstanding executed purchase agreements for the purchase of miners from Bitmain for a total of approximately
| Agreement Date (1) | Original Purchase Commitment | Open Purchase Commitment | Deposit Balance | Expected Shipping | ||||||||||
| $ | $ | $ | ||||||||||||
| ( | ) | |||||||||||||
| $ | $ | $ |
(1) Pursuant to the Company’s agreements with Bitmain, among other provisions, the Company is responsible for all shipping charges incurred in connection with the delivery of the miners.
Note 9. Intangible Assets and Goodwill
Intangible Assets, net:
Intangible assets consisted of the following as of September 30, 2022 and December 31, 2021:
| Gross book value | Accumulated amortization | Net book value | Weighted-average life (years) | |||||||||||||
| Customer contracts | $ | $ | ( | ) | $ | |||||||||||
| Trademark | ( | ) | ||||||||||||||
| UL Listings | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Intangible assets, net as of September 30, 2022 | $ | $ | ( | ) | $ | |||||||||||
| Gross book value | Accumulated amortization | Net book value | Weighted-average life (years) | |||||||||||||
| Customer contracts | $ | $ | ( | ) | $ | |||||||||||
| Trademark | ( | ) | ||||||||||||||
| UL Listings | ( | ) | ||||||||||||||
| Patents | ( | ) | ||||||||||||||
| Intangible assets, net as of December 31, 2021 | $ | $ | ( | ) | $ | |||||||||||
The intangible assets are amortized over their respective
original useful lives. The Company recorded amortization expense of $
| 15 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The estimated future amortization expense associated with intangible assets is as follows:
| Estimated amortization expense | ||||
| For the three months ending December 31, 2022 | $ | |||
| For the year ending December 31, 2023 | ||||
| For the year ending December 31, 2024 | ||||
| For the year ending December 31, 2025 | ||||
| For the year ending December 31, 2026 | ||||
| For the year ending December 31, 2027 | ||||
| For the year ending December 31, 2028 and thereafter | ||||
| Total | $ | |||
Goodwill:
The following table represents the changes in goodwill for the nine months ended September 30, 2022:
| Balance at January 1, 2022 | $ | |||
| Impairment | ( | ) | ||
| ESS Metron purchase accounting adjustment | ||||
| Balance at September 30, 2022 | $ |
During the second quarter of 2022, adverse
changes in business climate, including decreases in the price of Bitcoin and increased volatility of equity markets, as evidenced by declines
in the market price of the Company’s securities, those of its peers, and major market indices, have reduced market multiples and
increased weighted-average costs of capital, primarily driven by an increase in interest rates. Market concerns related to inflation,
supply chain disruption issues and other macroeconomic factors have been some of the primary causes for these declines. Additionally,
the price of Bitcoin has declined significantly, notably during the second quarter of 2022. Due primarily to these factors, the Company
determined that a triggering event had occurred, and therefore, performed an interim goodwill impairment assessment
as of June 30, 2022. The valuation of our reporting units was determined with the assistance of an independent valuation specialist firm
using a market approach. The market approach was based on the Guideline Public Company Method, which is derived from metrics of publicly
traded companies or historically completed transactions of comparable businesses. The selection of comparable businesses is based on the
markets in which the reporting units operate, giving consideration to risk profiles, size, geography, and diversity of products and services.
Under the market approach, the Company evaluated the fair value based on trailing and forward-looking earnings and revenue multiples derived
from comparable publicly traded companies with similar market position and size as the Company’s reporting units. The unobservable
inputs used to measure the fair value included projected revenue growth rates, the price of Bitcoin, the global Bitcoin network hash rate,
the timing of miner shipments under currently executed contracts and their subsequent deployment, and the determination of appropriate
market comparison companies. The trailing-twelve-month and next-twelve-month enterprise value-to-revenue multiples assumed in the analysis
ranged from approximately 0.7x to approximately 3.9x. The resulting estimated fair values of the combined reporting units were reconciled
to the Company’s market capitalization, including an estimated implied control premium of approximately
| 16 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The results of the quantitative test indicated
the fair value of the reporting units did not exceed their carrying amounts, including goodwill. The difference between the carrying amount
and the fair value of $
Note 10. Long-Term Assets
Deposits:
Deposits consisted of the following as of September 30, 2022:
| Deposits on equipment | ||||
| Beginning balance at January 1, 2022 | $ | |||
| Additions | ||||
| Reclassification to equipment | ( | ) | ||
| Ending balance | ||||
| Security and other deposits | ||||
| Deposits at September 30, 2022 | $ | |||
Deposits on Equipment:
During the nine months ended September 30,
2022, the Company paid approximately $
Right of Use Assets:
See Note 12. “Leases” to these unaudited Notes to Condensed Consolidated Financial Statements.
Note 11. Accrued Expenses
As of September 30, 2022 and December 31, 2021, the Company’s accrued expenses consisted of the following:
| September 30, 2022 | December 31, 2021 | |||||||
| Construction in progress | $ | $ | ||||||
| Power related costs and remittances | ||||||||
| Insurance | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
| 17 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12. Leases
At September 30, 2022, the Company had operating leases for its offices, manufacturing facilities of ESS Metron, and a ground lease at the Rockdale Facility that expire on various dates through January 2032, inclusive of extension options the Company is reasonably certain will be exercised.
Rental expense for lease payments related to the Company’s operating leases is recognized on a straight-line basis over the remaining lease term. The Company currently does not hold any finance leases. The Company elected to use the practical expedient of not separating lease components for its real estate leases. The Company has elected the short-term lease exception provided, and therefore only recognizes right of use assets and lease liabilities for leases with a term greater than one year. Leases qualifying for the short-term lease exception were insignificant.
As of September 30, 2022 and December 31, 2021,
the right of use assets were $
During the nine months ended September 30,
2022, the Company executed a third lease amendment to the ground lease for the Rockdale facility, to add a second 100-acre tract of real
property contiguous to the existing 100-acre tract on which the existing Rockdale Facility sits for an additional $
| 18 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The components of lease expense for the three and nine months ended September 30, 2022 (in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating lease cost | $ | $ | $ | $ | ||||||||||||
| Variable lease cost(1) | ||||||||||||||||
| Operating lease expense | ||||||||||||||||
| Short-term lease rent expense | ||||||||||||||||
| Total rent expense | $ | $ | $ | $ | ||||||||||||
| (1) | Amounts primarily include common area maintenance and utility charges not included in the measurement of right of use assets and operating lease liabilities. |
The following table presents other amounts related to our leases:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | $ | ||||||||||||
| Right of use assets exchanged for new operating lease liabilities | $ | $ | $ | $ | ||||||||||||
| Weighted-average remaining lease term – operating leases | ||||||||||||||||
| Weighted-average discount rate – operating leases | % | % | % | % | ||||||||||||
The following table presents our future minimum operating lease payments as of, and subsequent to, September 30, 2022 under ASC 842 (in thousands):
| Ground lease | Office and other leases | Total | |||||||||||
| Three months ending December 31, 2022 | $ | $ | $ | ||||||||||
| 2023 | |||||||||||||
| 2024 | |||||||||||||
| 2025 | |||||||||||||
| 2026 | |||||||||||||
| 2027 | |||||||||||||
| Thereafter | |||||||||||||
| Total undiscounted lease payments | |||||||||||||
| Less present value discount | ( | ) | ( | ) | ( | ) | |||||||
| Present value of lease liabilities | $ | $ | $ | ||||||||||
We recognize ground lease expense in cost of revenues – Data Center Hosting, and office and other lease expense in selling, general and administrative expenses, respectively, in the accompanying unaudited condensed consolidated statements of operations.
Note 13. Stockholders’ Equity
Preferred stock:
During the nine months ended September 30, 2022, the
remaining
At-the-Market Equity Offering:
During the nine months ended September 30, 2022, in
connection with the At-the-Market Sales Agreement between the Company and its Sales Agents, the Company received gross proceeds of approximately
$
| 19 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Common Stock:
During the nine months ended September 30, 2022,
Note 14. Restricted Common Stock, Stock Options, Restricted Stock Units and Warrants
Stock-Based Compensation:
The Company provides stock-based compensation to directors,
employees and consultants under the 2019 Equity Plan, which was approved by stockholders on October 23, 2019 at the 2019 Annual Meeting
of Stockholders. On November 12, 2020 at the 2020 Annual Meeting of Stockholders, the stockholders approved the First Amendment to the
2019 Equity Plan, which raised the total number of shares of the Company’s common stock by
The Company’s stock-based compensation expenses recognized during the three and nine months ended September 30, 2022 and 2021 were included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations.
The Company recognized stock-based compensation expense during the three and nine months ended September 30, 2022 and 2021 as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Service-based restricted stock awards | $ | $ | $ | $ | ||||||||||||
| Performance-based restricted stock awards | ||||||||||||||||
| Total stock-based compensation | $ | $ | $ | $ | ||||||||||||
Restricted Common Stock:
During the three months ended September
30, 2022, the Company granted
During the three months ended September 30,
2022,
During the three months ended September 30,
2022, the Company’s board of directors approved the exchange of all outstanding unvested performance and service-based RSUs for
performance and service-based restricted stock awards (RSAs) on a one-for-one basis. All material terms of the award agreements remain
the same, including the timing of all vesting periods and the vesting benchmarks. During the quarter ended September 30, 2022, approximately
| 20 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Performance-based RSUs
A summary of the Company’s unvested performance-based RSUs for the nine months ended September 30, 2022 is presented here:
| Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
| Unvested at January 1, 2022 | $ | |||||||
| Granted | $ | |||||||
| Vested | ( | ) | $ | |||||
| Forfeited | ( | ) | $ | |||||
| Converted to RSAs | ( | ) | $ | |||||
| Unvested at September 30, 2022 | $ | |||||||
During the nine months ended September 30,
2022, the Company awarded
The value of performance-based RSU’s is measured based on their fair value on the date of grant and amortized over their respective estimated implicit service periods.
During the nine months ended September 30, 2022,
Performance-based RSAs
A summary of the Company’s unvested performance-based RSAs for the nine months ended September 30, 2022 is presented here:
| Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
| Unvested at January 1, 2022 | — | $ | — | |||||
| Granted | $ | |||||||
| Converted from RSUs | $ | |||||||
| Unvested at September 30, 2022 | $ | |||||||
| 21 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the nine months ended September 30,
2022, the Company awarded
The value of performance-based RSAs is measured based on their fair value on the date of grant and amortized over their respective estimated implicit service periods.
As of September 30, 2022, there was approximately
$
Service-based RSUs
A summary of the Company’s unvested service-based RSUs for the nine months ended September 30, 2022 is presented here:
| Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
| Unvested at January 1, 2022 | $ | |||||||
| Vested | ( | ) | $ | |||||
| Granted | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Converted to RSAs | ( | ) | $ | |||||
| Unvested at September 30, 2022 | $ | |||||||
The value of service-based RSUs is measured
based on their fair value on the date of grant and amortized over their respective vesting periods. During the nine months ended
September 30, 2022, the fair value of RSUs granted totaled $
During the nine months ended September 30, 2022,
Service-based RSAs
A summary of the Company’s unvested service-based RSAs for the nine months ended September 30, 2022 is presented here:
| Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
| Unvested at January 1, 2022 | — | $ | — | |||||
| Vested | ( | ) | $ | |||||
| Granted | $ | |||||||
| Converted from RSUs | $ | |||||||
| Unvested at September 30, 2022 | $ | |||||||
The value of service-based RSAs is measured
based on their fair value on the date of grant and amortized over their respective vesting periods. During the nine months ended
September 30, 2022, the fair value of awards granted totaled $
| 22 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As of September 30, 2022, there was approximately
$
Other Common Stock Purchase Warrants:
As of September 30, 2022, XMS Capital Partners,
LLC (“XMS”) held a warrant to purchase up to
No warrants were issued during the nine months ended September 30, 2022.
Note 15. Fair Value Measurements
Assets and liabilities measured at fair value on a recurring basis:
The Company’s assets and liabilities measured at fair value on a recurring basis consisted of the following as of September 30, 2022, and December 31, 2021:
| Fair value measured at September 30, 2022 | ||||||||||||||||
| Total carrying value at September 30, 2022 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Derivative asset | $ | $ | $ | $ | ||||||||||||
| Contingent consideration liability | $ | $ | $ | $ | ||||||||||||
| Fair value measured at December 31, 2021 | ||||||||||||||||
| Total carrying value at December 31, 2021 | Quoted prices in active markets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | |||||||||||||
| Derivative asset | $ | $ | $ | $ | ||||||||||||
| Contingent consideration liability | $ | $ | $ | $ | ||||||||||||
Level 3 Assets:
Power Supply Agreement
During the year ended December 31, 2021, the Company recorded a derivative asset related to its Power Supply Agreement with TXU Energy Retail Company LLC (“TXU”), the energy supplier to the Company’s Rockdale Facility (the “Power Supply Agreement”). The Power Supply Agreement was classified as a derivative asset and measured at fair value on the date of the Company’s acquisition of Whinstone, with changes in fair value recognized in change in fair value of derivative asset in operating income or loss on the accompanying unaudited condensed consolidated statements of operations. The derivative was not designated as a hedging instrument. Prior to the Whinstone Acquisition, the Company did not have any contracts classified as derivative instruments. The estimated fair value of the Company’s derivate asset is classified in Level 3 of the fair value hierarchy due to the significant unobservable inputs utilized in the valuation. Specifically, our discounted cash flow estimation models contain quoted commodity exchange spot and forward prices and are adjusted for basis spreads for load zone-to-hub differentials through the term of the Power Supply Agreement, which ends in April 2030. The discount rate utilized of approximately
| 23 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The terms of the Power Supply Agreement require margin-based collateral for both TXU and the Company, calculated as exposure resulting from fluctuations in the market cost rate of electricity versus the fixed price stated in the contract. The margin-based collateral requirement of the Company was zero as of September 30, 2022 and December 31, 2021.
Level 3 Liabilities:
Business Combination Contingent Consideration
The Company recorded a Level 3 financial liability
during the year ended December 31, 2021, relating to the contingent consideration arrangement arising from the acquisition of Whinstone.
Contingent consideration represents an obligation of the Company to transfer cash to the Whinstone Seller when Whinstone realizes or receives
a benefit from utilization of certain defined power credits. The Company estimated the fair value of the contingent consideration using
a discounted cash flow analysis, which includes estimates of both the timing and amounts of potential future power credits. These estimates
were determined using the Company’s historical consumption quantities and patterns combined with management’s expectations
of its future consumption requirements, which require significant judgment and depend on various factors outside the Company’s control,
such as construction delays. The discount rate of approximately
Changes in Level 3 assets and liabilities measured at fair value on a recurring basis:
Unobservable inputs were used to determine the fair value of positions that the Company has classified within the Level 3 category. Unrealized gains and losses associated with the asset within the Level 3 category includes changes in fair value that were attributable to unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
The following table presents the changes in the estimated fair value of the derivative asset measured using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022 and 2021:
| 2022 | 2021 | |||||||
| Balance as of January 1 | $ | $ | ||||||
| Acquisition of Whinstone | ||||||||
| Change in fair value | ||||||||
| Balance as of September 30 | $ | $ | ||||||
For the three and nine months ended September
30, 2022, there were changes of approximately ($
| 24 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table presents the changes in the estimated fair value of our liability for contingent consideration measured using significant unobservable inputs (Level 3) for the nine months ended September 30, 2022 and 2021:
| 2022 | 2021 | |||||||
| Balance as of January 1 | $ | $ | ||||||
| Acquisition of Whinstone | ||||||||
| Change in contingent consideration | ( | ) | ||||||
| Change in fair value | ||||||||
| Balance as of September 30 | $ | $ | ||||||
For the three and nine months ended September
30, 2022, the change in Level 3 liabilities measured at fair value was
There were no transfers of financial instruments between any of Level 1, Level 2 or Level 3 during the periods presented.
Assets and Liabilities Not Measured at Fair Value on a Recurring Basis:
In addition to assets and liabilities that are measured at fair value on a recurring basis, we also measure certain assets and liabilities at fair value on a nonrecurring basis. Our non-financial assets, including intangible assets, operating lease right of use assets, and property, plant and equipment, are measured at fair value when there is an indication of impairment and the carrying amount exceeds the asset’s projected undiscounted cash flows. These assets are recorded at fair value only when an impairment charge is recognized.
At September 30, 2022, the fair values of cash and cash equivalents, accounts receivable, costs and estimated earnings in excess of billings, prepaid expenses and other current assets, accounts payable, billings in excess of costs and estimated earnings, accrued compensation and accrued expenses approximated their carrying values because of the short term nature of these instruments.
Bitcoin held are accounted for as intangible
assets with indefinite useful lives. An intangible asset with an indefinite useful life is not amortized but assessed for impairment annually,
or more frequently, when events or changes in circumstances occur indicating that it is more likely than not that the indefinite-lived
asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of Bitcoin
at the time its fair value is being measured. 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. 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 carrying value of our Bitcoin assets at September 30, 2022 of $
Applying the market price of one Bitcoin on September
30, 2022 of approximately $
| 25 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 16. Commitments and Contingencies
Commitments:
Operating Leases:
The Company leases its primary office locations, manufacturing facilities and data center hosting facilities, as well as a ground lease, under noncancelable lease agreements that expire on varying dates through 2032. See Note 12. “Leases” to these unaudited Notes to Condensed Consolidated Financial Statements.
Water Reservation Agreement:
Whinstone executed a water reservation agreement in April 2021 with the lessor of the ground lease to obtain a certain quantity of non-potable cooling water from a nearby lake to be used by the Company for evaporative cooling at our Rockdale Facility. During the nine months ended September 30, 2022, and concurrent with the third amendment to the ground lease described in Note 12. “Leases” to these unaudited Notes to Condensed Consolidated Financial Statements, the Company executed a first amendment to the water reservation agreement to obtain additional non-potable cooling water for the expanded lease area, for an additional $
The Company concluded that the agreement was not a lease or a derivative instrument. Because the Company obtained an additional right of use for the reserved non-potable cooling water amount, and the charges were increased by a standalone price commensurate with the additional non-potable cooling water use rights and at market rates, the water reservation agreement was determined to be a lease modification accounted for as a separate contract. As such, the fees of the water reservation agreement were excluded from the lease payments of the ground lease and the water reservation agreement was accounted for as a separate executory contract.
Contingencies:
Legal Proceedings:
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 any such proceedings; however, it assesses the probability of an unfavorable outcome of any material litigation, claims or proceedings to determine whether a liability had been incurred. 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 to protect the Company from such claims. In terms of any matters where no insurance coverage is 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. Based on current information, the Company does not believe there is a reasonable possibility that, other than with regard to the Class Action described below, a material loss, if any, will result from claims, lawsuits or proceedings to which the Company is subject to either individually, or in the aggregate.
Northern Data Working Capital Dispute
Riot Blockchain, Inc. v.
Northern Data AG. On September 7, 2022, the Company filed a complaint against Northern Data AG, a company organized under the laws
of Germany (“Northern Data”) in the Court of Chancery of the State of Delaware for, among other things, breach of contract.
The complaint alleges Northern Data breached the terms of the Stock Purchase Agreement (the “SPA”), entered into, as of April
8, 2021, with Riot for the purchase of Whinstone by, among other things, refusing to engage in a contractually prescribed process to resolve
disputes over the acquisition price of Whinstone. Riot believes it is owed over $
On September 27, 2022, Northern
Data filed its Answer, Affirmative Defenses, and Verified Counterclaims and Third-Party Claims, which claim that Riot and Whinstone breached
the SPA by allegedly failing to timely remit to Northern Data certain energy credit payments and that Riot is improperly seeking to introduce
indemnification claims into the contractual process to resolve the parties’ dispute over purchase price. Northern Data alleges that
there are approximately $
| 26 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Whinstone Customer Dispute
On June
13, 2022, GMO Gamecenter USA, Inc., a California corporation, and GMO Internet, Inc., a corporation organized and existing under
the laws of Tokyo, Japan (collectively “GMO”), filed a complaint against Whinstone US, Inc. in the Supreme Court of the State
of New York, County of New York: Commercial Division, Index No.: 656762/2022, subsequently removed to the United States District Court,
S.D.N.Y., Case No. 1:22-cv-05974-JPC (the “Complaint”). After extensive discussions and upon Whinstone demanding that GMO
reasonably negotiate a new hosting agreement in good faith pursuant to the terms of its existing agreement, GMO filed the Complaint.
GMO alleges Whinstone breached the terms of the Colocation Services Agreement between GMO and Whinstone by failing to indemnify GMO for
certain contractual loss of profit and causing certain other damages to GMO in the nature of loss of revenue, lost profits and loss of
savings. GMO is seeking – without substantiation - compensatory damages in excess of $
Class Actions and Related Claims
On February 17, 2018, Creighton Takata filed an action asserting putative class action claims on behalf of the Company’s stockholders in the United District Court for the District of New Jersey, Takata v. Riot Blockchain Inc., et al., Case No. 3: 18-cv-02293. On April 18, 2018, Joseph J. Klapper, Jr., filed a complaint against Riot Blockchain, Inc., and certain of its officers and directors in the United District Court for the District of New Jersey, Klapper v. Riot Blockchain Inc., et al., Case No. 3: 18-cv-8031. The complaints contained substantially similar allegations, asserting violations of federal securities laws under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of stockholders that purchased stock from November 13, 2017 through February 15, 2018. The complaints alleged that the Company and certain of its officers and directors made, caused to be made, or failed to correct false and/or misleading statements in press releases and public filings regarding its business plan in connection with its cryptocurrency business. The complaints request damages in unspecified amounts, costs and fees of bringing the action, and other unspecified relief.
On November 6, 2018, the court in the Takata action issued an order consolidating Takata with Klapper into a single putative class action. On April 30, 2020, the court granted Defendants’ motions to dismiss the consolidated complaint, which resulted in the dismissal of all claims without prejudice.
On December 24, 2020, Lead Plaintiff filed another amended complaint. On April 8, 2022, the court again granted Defendants’ motions to dismiss the operative complaint without prejudice. On May 27, 2022, Lead Plaintiff filed the third amended consolidated complaint. Defendants submitted motions to dismiss on July 18, 2022. Briefing on the motions to dismiss was completed in October 2022. Because this litigation is still at this early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.
Shareholder Derivative
In 2018, five shareholder derivative actions were filed on behalf of the Company. The complaints in each of these actions contain allegations similar to the allegations set forth in the shareholder class action complaint pending in the United States District Court for the District of New Jersey and seek recovery against the Company and certain of the Company’s officers and directors and an investor for alleged claims including breaches of fiduciary duty, aiding and abetting breaches of fiduciary duty, unjust enrichment, waste of corporate assets, abuse of control, and mismanagement. Each of the complaints also seek unspecified monetary damages and corporate governance changes. All of the cases have been stayed pending resolution of the motion to dismiss in the securities class action pending in the United States District Court for the District of New Jersey, except for one matter (Jackson v. Riot Blockchain, Inc., et al., Case No. 604520/18, Supreme Court of the State of New York, County of Nassau) in which the court has adjourned the preliminary conference until February 7, 2023 in lieu of staying the action. Defendants do not anticipate any other activity on this case until the next preliminary conference.
Defendants intend to vigorously contest plaintiffs’ allegations in the shareholder derivative actions and plaintiffs’ right to bring the action in the name of Riot Blockchain. As this litigation is still at an early stage, we cannot reasonably estimate the likelihood of an unfavorable outcome or the magnitude of such an outcome, if any.
| 27 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 17. Segment Information
The Company applies ASC 280, Segment Reporting, in determining its reportable segments. The Company has three reportable segments: Mining, Data Center Hosting, and Engineering. The guidance requires that segment disclosures present the measure(s) used by the CODM to decide how to allocate resources and for purposes of assessing such segments’ performance. The Company’s CODM is comprised of several members of its executive management team who use revenue and cost of revenues of our three reporting segments to assess the performance of the business of our reportable operating segments.
No operating segments have been aggregated to form the reportable segments. The Company does not allocate all assets to the reporting segments as these are managed on an entity-wide basis. Therefore, the Company does not separately disclose the total assets of its reportable operating segments.
The Mining segment generates revenue from the Bitcoin the Company earns through its mining activities. The Data Center Hosting segment generates revenue from long-term customer contracts for the provision/consumption of electricity, construction of infrastructure, operation of data centers and maintenance/management of computing capacity from the Company’s data center facility in Rockdale, Texas. The Engineering segment generates revenue through customer contracts for custom engineered electrical products.
The Data Center Hosting segment purchases custom
engineered electrical products from the Engineering segment in the ordinary course of business. Effective January 1, 2022, the Mining
segment entered into a colocation services agreement with the Data Center Hosting segment whereby the Mining segment is charged a base
colocation fee per miner deployed at Whinstone plus a performance fee calculated as a percentage of gross mining profit. The revenue and
cost of revenues from intersegment transactions have been eliminated in the consolidated statements of operations in accordance with U.S.
GAAP. For purposes of segment reporting, the revenues and cost of revenues for each segment are presented in the table below on a stand-alone
basis, with the intersegment eliminations presented separately, such that total revenue and total cost of revenues total to the consolidated
statements of operations. All other revenues are from external customers. No single third-party customer or related group of third-party
customers contributed
For the three months ended September 30, 2022,
approximately
| 28 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table details revenue and cost of revenues for the Company’s reportable segments for the three and nine months ended September 30, 2022 and 2021, and reconciles to net income (loss) on the unaudited condensed consolidated statements of operations:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Reportable segment revenue, net: | ||||||||||||||||
| Mining | $ | $ | $ | $ | ||||||||||||
| Data Center Hosting | ||||||||||||||||
| Engineering | ||||||||||||||||
| Other revenue | ||||||||||||||||
| Eliminations | ( | ) | ( | ) | ||||||||||||
| Total segment and consolidated revenue | ||||||||||||||||
| Reportable segment cost of revenues (exclusive of depreciation and amortization shown below): | ||||||||||||||||
| Mining | ||||||||||||||||
| Data Center Hosting | ||||||||||||||||
| Engineering | ||||||||||||||||
| Eliminations | ( | ) | ( | ) | ||||||||||||
| Total segment and consolidated cost of revenues (exclusive of depreciation and amortization shown below) | ||||||||||||||||
| Reconciling Items: | ||||||||||||||||
| Acquisition-related costs | ( | ) | ( | ) | ( | ) | ||||||||||
| Selling, general and administrative | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Depreciation and amortization | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Change in fair value of derivative asset | ( | ) | ||||||||||||||
| Power curtailment credits | ||||||||||||||||
| Change in fair value of contingent consideration | ( | ) | ( | ) | ( | ) | ||||||||||
| Realized gain on sale/exchange of Bitcoin | ||||||||||||||||
| Gain on exchange of equipment | ||||||||||||||||
| Impairment of Bitcoin | ( | ) | ( | ) | ( | ) | ||||||||||
| Impairment of goodwill | ( | ) | ||||||||||||||
| Interest income (expense) | ( | ) | ||||||||||||||
| Realized loss on sale of marketable equity securities | ( | ) | ||||||||||||||
| Realized gain on sale/exchange of long-term investment | ||||||||||||||||
| Unrealized gain (loss) on marketable equity securities | ( | ) | ( | ) | ( | ) | ||||||||||
| Other income (expense) | ( | ) | ( | ) | ||||||||||||
| Current income tax benefit (expense) | ( | ) | ( | ) | ||||||||||||
| Deferred income tax benefit (expense) | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ||||||
| 29 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 18. Revisions of Previously Issued Financial Statements
As noted in Note 4. “Acquisitions”, on
May 26, 2021, the Company acquired
In accordance with Staff Accounting Bulletin (“SAB”) 99, Materiality, and SAB 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the materiality of the error from qualitative and quantitative perspectives, and concluded that the error was immaterial to any prior annual or interim financial statements. Notwithstanding this conclusion, management has revised the accompanying condensed consolidated financial statements and related notes included herein to correct this error for all periods presented.
The following tables present the effect of correcting this error on the Company’s previously issued financial statements. There were no changes to the statements of stockholders’ equity that have not otherwise been reflected in the balance sheets and statements of operations as detailed in the tables below.
| As of June 30, 2021 | ||||||||||||
| Condensed Consolidated Balance Sheet | As previously reported | Adjustment | As revised | |||||||||
| Property & equipment, net | $ | $ | $ | |||||||||
| Goodwill | ( | ) | ||||||||||
| Total assets | ||||||||||||
| As of September 30, 2021 | ||||||||||||
| Condensed Consolidated Balance Sheet | As previously reported | Adjustment | As revised | |||||||||
| Property & equipment, net | $ | $ | $ | |||||||||
| Goodwill | ( | ) | ||||||||||
| Total assets | ||||||||||||
| As of December 31, 2021 | ||||||||||||
| Consolidated Balance Sheet | As previously reported | Adjustment | As revised | |||||||||
| Property & equipment, net | $ | $ | $ | |||||||||
| Goodwill | ( | ) | ||||||||||
| Total assets | ||||||||||||
| 30 |
Riot Blockchain, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
| As of March 31, 2022 | ||||||||||||
| Condensed Consolidated Balance Sheet | As previously reported | Adjustment | As revised | |||||||||
| Property & equipment, net | $ | $ | $ | |||||||||
| Goodwill | ( | ) | ||||||||||
| Total assets | ||||||||||||
| As of June 30, 2022 | ||||||||||||
| Condensed Consolidated Balance Sheet | As previously reported | Adjustment | As revised | |||||||||
| Property & equipment, net | $ | $ | $ | |||||||||
| Goodwill | ||||||||||||
| Total assets | ||||||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||||||
| Total stockholders’ equity | ||||||||||||
| Total liabilities and stockholders’ equity | ||||||||||||
| Three Months Ended June 30, 2022 | ||||||||||||
| Condensed Consolidated Statement of Operations | As previously reported | Adjustment | As revised | |||||||||
| Impairment of goodwill | $ | $ | ( | ) | $ | |||||||
| Total costs and expenses | ( | ) | ||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||
| Net income (loss) before taxes | ( | ) | ( | ) | ||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||
| Basic net income (loss) per share | ( | ) | ( | ) | ||||||||
| Diluted net income (loss) per share | ( | ) | ( | ) | ||||||||
| Six Months Ended June 30, 2022 | ||||||||||||
| Condensed Consolidated Statement of Operations | As previously reported | Adjustment | As revised | |||||||||
| Impairment of goodwill | $ | $ | ( | ) | $ | |||||||
| Total costs and expenses | ( | ) | ||||||||||
| Operating income (loss) | ( | ) | ( | ) | ||||||||
| Net income (loss) before taxes | ( | ) | ( | ) | ||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||
| Basic net income (loss) per share | ( | ) | ( | ) | ||||||||
| Diluted net income (loss) per share | ( | ) | ( | ) | ||||||||
| Six Months Ended June 30, 2022 | ||||||||||||
| Condensed Consolidated Statement of Cash Flows | As previously reported | Adjustment | As revised | |||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | |||||
| Impairment of goodwill | ( | ) | ||||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||||||
| 31 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis should be read in conjunction with our unaudited condensed interim consolidated financial statements and the related notes and other financial information included elsewhere in this Quarterly Report and with our audited consolidated financial statements for the fiscal year ended December 31, 2021, as included in our 2021 Annual Report. In addition to historical consolidated financial information, the following discussion includes forward-looking statements about our business, financial condition and results of operations, including discussions about management’s expectations for our business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and our actual results could differ materially from those discussed in these forward-looking statements. Further, these forward-looking statements should not be construed either as assurances of performance or as promises of a given course of action. You should review the sections of this Quarterly Report entitled “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” for a discussion of factors that could cause actual results to differ materially – and potentially adversely – from the results described in or implied by the forward-looking statements contained in the following discussion and analysis and elsewhere in this Quarterly Report.
Business Overview:
We are a vertically integrated Bitcoin mining company principally engaged in enhancing our capabilities to mine Bitcoin. We also provide the critical mining infrastructure for our institutional-scale hosted clients to mine Bitcoin at our Rockdale Facility, with 700 megawatts in total capacity. Our Rockdale Facility is believed to be the largest Bitcoin mining facility in North America, as measured by developed capacity, and we are currently expanding its capacity. Additionally, we are beginning development of a second large-scale Bitcoin mining data center at our Corsicana Facility, which is expected to have approximately one gigawatt of available capacity for both our Bitcoin mining operations and hosting of institutional-scale Bitcoin mining and data center clients.
We operate in an environment which is consistently evolving based on the proliferation of Bitcoin and cryptocurrencies in general. A significant component of our strategy is to effectively and efficiently allocate capital among opportunities that generate the highest return on our capital.
Industry Trends
During 2022, we observed a number of companies in the Bitcoin ecosystem experience significant challenges and failure due to the precipitous decline in the price of Bitcoin. We anticipate this trend will likely continue as companies attempt to shift their business models to operate on compressed margins. The dramatic increase in the price of Bitcoin observed in the market during the last few years caused many companies to over-leverage themselves, operating in an unsustainable way given the recent instability in the price of Bitcoin. Despite challenges in the ecosystem, Riot continues to focus on building long-term stockholder value by taking strategic action to vertically integrate, expanding the Rockdale Facility and developing our Corsicana Facility. As we grow our business, we continue to focus on deploying our efficient mining fleet, at scale, while realizing benefit of being an owner and operator of our Bitcoin mining facilities.
We anticipate that other companies in the industry will continue to experience challenges, and the end of 2022 and the start of 2023 will continue to be a period of consolidation in the Bitcoin mining industry, and we believe that, given our relative position, liquidity and absence of long-term debt, in the competitive landscape, we are likely positioned to benefit from this consolidation. As a result of any strategic action undertaken by us, our business and financial results may change significantly. We are continuously evaluating strategic opportunities which we may decide to undertake as part of our strategic growth initiatives; however, we can offer no assurances that any strategic opportunities which we decide to undertake will be achieved on the schedule or within the budget we anticipate, if at all, in our competitive and evolving industry. See Part I, Item 1A. “Risk Factors” of our 2021 Annual Report for additional discussion regarding potential impacts our competitive and evolving industry may have on our business.
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Bitcoin Mining
The Company’s current focus is on its mining operation, and during the nine months ended September 30, 2022, we continued to deploy miners at our Rockdale Facility and continued development activities at the Corsicana Facility, with the objective of increasing the Company’s operational efficiency and performance.
As of September 30, 2022, our Mining business operated approximately 55,728 ASIC miners, with a hash rate capacity of approximately 5.6 exahash per second (“EH/s”). During the nine months ended September 30, 2022, we mined 3,842 Bitcoin, which represented an increase of 36% over the 2,458 Bitcoin we mined during the nine months ended September 30, 2021. Based on our existing operations and expected deliveries of miners pursuant to our purchase orders with their manufacturer, Bitmain, we anticipate having approximately 115,450 miners in operation, with a hash rate capacity of approximately 12.5 EH/s by the first quarter of 2023.
During the three months ended September 30, 2022, we fully exited our Mining operations at the Coinmint Facility. We believe this transition will lower our overall cost of revenues for the Mining business as new miners will be deployed at the Rockdale Facility. See Note 8. “Property and Equipment” to these unaudited Notes to Condensed Consolidated Financial Statements.
Our Bitcoin mining operations are subject to unique industry risks such as the historical volatility in the demand for, and price of, Bitcoin and changes in the public perception of Bitcoin.
Miner Purchases and Deployments
At September 30, 2022, we had purchased, received and/or deployed the following miners:
| Number of miners | ||||
| Miners deployed at January 1, 2022 | 30,907 | |||
| Net miners deployed during the nine months ended September 30, 2022 | 24,821 | |||
| Miners received, but not yet deployed | 27,678 | |||
| Miners under contract, but not yet received | 32,044 | |||
| Total miners under contract, deployed or expected to be received, at September 30, 2022 | 115,450 | |||
As of September 30, 2022, the Company had outstanding executed purchase agreements for the purchase of miners from Bitmain for a total of approximately 12,097 new model S19j Pro miners and 19,947 new model S19XP miners, scheduled to be shipped through December 2022. Pursuant to these agreements, approximately $44.9 million remains payable to Bitmain in installments in advance of shipment of the miners, which is scheduled to occur monthly through December 2022, subject to future adjustments as provided in the contracts.
To take advantage of our low-cost power supply agreement at the Company’s Rockdale Facility and eliminate third-party hosting fees, during the nine months ended September 30, 2022, the Company elected not to renew its co-location mining services agreement with Coinmint, which was, therefore, terminated automatically by its terms as of July 8, 2022.
COVID-19
The COVID-19 global pandemic has been unprecedented and unpredictable; its impact is likely to continue to result in significant national and global economic disruption, which may adversely affect our business. Based on our current assessment, however, we do not expect any material impact on our long-term development, our operations, or our liquidity due to the worldwide spread of COVID-19, other than the potential impact of COVID-19 on global logistics discussed below. We are actively monitoring this situation and the possible effects on our financial condition, liquidity, operations, suppliers, and industry.
In addition, nationally, we have experienced and are experiencing varying degrees of inflation, resulting in part from various supply chain disruptions, increased shipping and transportation costs, and increased raw material and labor costs, as well as other disruptions resulting from the continuing COVID-19 pandemic and general global economic conditions. This inflationary impact on our cost structure has contributed to adjustments in operations, ability to obtain materials and retain talent, despite a continued focus on reducing our costs where possible.
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Global Logistics:
Global supply logistics have caused delays across all channels of distribution. Similarly, we have also experienced delays in certain of our miner delivery schedules and in our infrastructure development schedules due to constraints on the globalized supply chains for miners, electricity distribution equipment and construction materials. Through the date of this Quarterly Report, we have been able to effectively mitigate any delivery delays to avoid materially impacting our miner deployment schedule, however, there are no assurances we will be able to continue to mitigate any such delivery delays in the future. Additionally, the expansion of the Rockdale Facility and the development of our new Corsicana Facility requires large quantities of construction materials, specialized electricity distribution equipment and other component parts that can be difficult to source. We have procured and hold many of the required materials to help mitigate against global supply logistic and pricing concerns. We continue to monitor developments in the global supply chain and assess their potential impact on our expansion plans.
Summary of Mining Results
The following table presents additional information about our Mining activities, including Bitcoin production and sales of the Bitcoin the Company mined during the nine months ended September 30, 2022, and 2021 ($ in thousands):
| Quantities | ||||||||
| (in coins) | Amounts | |||||||
| Balance at January 1, 2022 | 4,884 | $ | 159,544 | |||||
| Revenue recognized from Bitcoin mined | 3,842 | 126,166 | ||||||
| Proceeds from sale of Bitcoin | (1,925 | ) | (52,491 | ) | ||||
| Exchange of Bitcoin for employee compensation | (35 | ) | (1,434 | ) | ||||
| Realized gain on sale/exchange of Bitcoin | — | 25,443 | ||||||
| Impairment of Bitcoin | — | (132,077 | ) | |||||
| Balance at September 30, 2022 | 6,766 | $ | 125,151 | |||||
| Quantities | ||||||||
| (in coins) | Amounts | |||||||
| Balance at January 1, 2021 | 1,078 | $ | 11,626 | |||||
| Revenue recognized from Bitcoin mined | 2,458 | 108,213 | ||||||
| Proceeds from sale of Bitcoin | — | — | ||||||
| Exchange of Bitcoin for employee compensation | (3 | ) | (113 | ) | ||||
| Realized gain on sale/exchange of Bitcoin | — | 94 | ||||||
| Impairment of Bitcoin | — | (17,507 | ) | |||||
| Balance at September 30, 2021 | 3,533 | $ | 102,313 | |||||
Results of Operations Comparative Results for the Three Months Ended September 30, 2022 and 2021:
Revenue:
For the three months ended September 30, 2022 and 2021, Mining revenue was $22.1 million, and $53.6 million, respectively. The decrease of $31.5 million was due to a lower number of Bitcoin mined of 1,042 in the 2022 period, as compared to 1,292 in the 2021 period, combined with lower Bitcoin values in the 2022 period, averaging $21,184 per coin as compared to $41,837 per coin in the 2021 period. The primary reason for the decrease in the number of Bitcoin mined was due to the Company’s effective employment of its proprietary power strategy to significantly reduce overall power costs. As noted below, during the three months ended September 30, 2022, the Company earned $13.1 million in power credits, to be credited against its power invoices, as a result of temporarily pausing its operations. The power credits equate to approximately 760 Bitcoin, as computed by using the average daily closing BTC prices on a monthly basis. During the three months ended September 30, 2021, the Company earned $2.5 million in power credits, or the equivalent of approximately 66 Bitcoin.
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For the three months ended September 30, 2022 and 2021, Data Center Hosting revenue was $8.4 million, and $11.2 million, respectively. The decrease of $2.8 million was due primarily to lower revenue share from customers due to the lower Bitcoin values in the 2022 period combined with lower customer billings due to Whinstone’s participation in ERCOT’s energy demand response programs. Data Center Hosting revenue includes upfront payments which we record as deferred revenue and generally recognize as services are provided. We provide energized space and operating and maintenance services to third-party mining companies who locate their mining hardware at our Rockdale Facility under long-term contracts. We account for these agreements as a single performance obligation for services being delivered in a series with delivery being measured by daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of performance obligations are met. The contracts are recognized in the amount for which we have the right to invoice because we elected the “right to invoice” practical expedient.
For the three months ended September 30, 2022, Engineering revenue was $15.8 million. There was no Engineering revenue for the three months ended September 30, 2021 as such date was prior to the acquisition of the Engineering segment. Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified performance obligation. Engineering revenues are recognized over time as performance creates or enhances an asset with no alternative use, and for which the Company has an enforceable right to receive compensation as defined under the contract.
Costs and expenses:
Cost of revenues for Mining for the three months ended September 30, 2022 and 2021 was $14.7 million and $13.0 million, respectively, representing an increase of approximately $1.7 million. As a percentage of Mining revenue, cost of revenues totaled 66.5% and 24.3% for each of the three months ended September 30, 2022 and 2021, respectively. Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor, insurance and the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated. The increase of $1.6 million in cost of revenues was primarily due to the increase in mining capacity at the Rockdale Facility, which requires more headcount and direct costs necessary to maintain and support the mining operations. As noted below, during the three months ended September 30, 2022 and 2021, the Company earned $13.1 million and $2.5 million, respectively, in power credits to be credited against its power invoices, as a result of temporarily pausing its operations. These credits are recognized in power curtailment credits in the statements of operations, outside of cost of revenues, but significantly reduce the Company’s overall cost to mine Bitcoin. When netting the power curtailment credits with the costs of revenues, the net costs as a percentage of Mining revenue were 38.8% and 24.3% for the three months ended September 30, 2022 and 2021, respectively.
Cost of revenues for Data Center Hosting for the three months ended September 30, 2022 and 2021 was $14.2 million and $12.6 million, respectively. The costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs.
Cost of revenues for Engineering for the three months ended September 30, 2022 was $13.8 million. There were no engineering costs for the three months ended September 30, 2021 as such date was prior to the acquisition of the Engineering segment. The 2022 costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs. The increase in cost of revenues was primarily due to the increase in headcount to support the Company’s growth combined with an increase in power costs.
Selling, general and administrative expenses during the three months ended September 30, 2022 and 2021 totaled $16.0 million and $40.3 million, respectively. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The decrease of $24.3 million is primarily due to a decrease of $29.7 million in compensation-related expense due to the adoption of the Company’s performance-based stock plan in August 2021, partially offset by additional employees to support the Company’s growth, an increase in audit and consulting fees of $1.9 million resulting primarily from assistance on internal control systems and procedures and information technology projects and an increase in other general operating costs, including rent, to support the Company’s growth.
Depreciation and amortization expenses during the three months ended September 30, 2022 totaled $26.6 million, an increase of approximately $14.4 million as compared to $12.2 million for the three months ended September 30, 2021. The increase was primarily due to higher depreciation expense recognized for the Rockdale Facility and our recently acquired miners.
Change in fair value of our derivative asset for the three months ended September 30, 2022 and 2021, was ($17.7) million and $7.4 million, respectively, and was recorded to adjust the fair value of our Power Supply Agreement, which was classified as a derivative asset and measured at fair value.
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Power curtailment credits for the three months ended September 30, 2022 and 2021, was $13.1 million and $2.5 million, respectively, and represents power sales into the ERCOT marketplace through Whinstone’s participation in ERCOT’s energy demand response programs.
Realized gain on sale/exchange of Bitcoin for the three months ended September 30, 2022 was $1.9 million. The realized gain or loss on sale/exchange of Bitcoin for the three months ended September 30, 2021 was nominal.
Gain on exchange of equipment for the three months ended September 30, 2022 was $7.7 million arising from the equipment exchange agreement with a third-party Bitcoin mining company. There was no gain on exchange of equipment during the three months ended September 30, 2021.
Impairment of Bitcoin for the three months ended September 30, 2022 was $5.9 million arising from the decline in Bitcoin prices. There was no impairment of Bitcoin recognized during the three months ended September 30, 2021.
Other income and expenses:
Other income for the three months ended September 30, 2022 was $0.5 million, and primarily consisted of interest and other income of $0.3 million and the unrealized gain on marketable equity securities of $0.1 million. Other expense for the three months ended September 30, 2021 was $11.2 million, which primarily related to the unrealized loss recognized due to the decline in the fair value of our marketable equity securities.
Results of Operations Comparative Results for the Nine Months Ended September 30, 2022 and 2021:
Revenue:
For the nine months ended September 30, 2022 and 2021, Mining revenue was $126.2 million, and $108.2 million, respectively. The increase of $18.0 million was due to a higher number of Bitcoin mined of 3,842 in the 2022 period, as compared to 2,458 in the 2021 period, partially offset by lower Bitcoin values in the 2022 period, averaging $32,839 per coin as compared to $44,591 per coin in the 2021 period. The number of Bitcoin mined during 2022 was significantly impacted by the Company’s effective employment of its proprietary power strategy to significantly reduce overall power costs. As noted below, during the nine months ended September 30, 2022, the Company earned $21.3 million in power credits to be credited against its power invoices, as a result of temporarily pausing its operations. The power credits equate to approximately 1,160 Bitcoin, as computed by using the average daily closing BTC prices on a monthly basis. During the nine months ended September 30, 2021, the Company earned $3.7 million in power credits, or the equivalent of approximately 92 Bitcoin.
For the nine months ended September 30, 2022 and 2021, Data Center Hosting revenue was $27.9 million, and $14.1 million, respectively. The $13.8 million increase was primarily due to the 2021 period only containing four months of Data Center Hosting revenue versus nine for the 2022 period. Data Center Hosting revenue includes upfront payments which we record as deferred revenue and generally recognize as services are provided. We provide energized space and operating and maintenance services to third-party mining companies who locate their mining hardware at our Rockdale Facility under long-term contracts. We account for these agreements as a single performance obligation for services being delivered in a series with delivery being measured by daily successful operation of the mining hardware. As such, we recognize revenue over the life of the contract as its series of performance obligations are met. The contracts are recognized in the amount for which we have the right to invoice because we elected the “right to invoice” practical expedient. The Data Center Hosting segment was acquired in May 2021, and therefore its results of operations are only included in the Company’s consolidated results of operations for four months during 2021 compared to nine in 2022.
For the nine months ended September 30, 2022, Engineering revenue was $44.9 million. There was no Engineering revenue for the nine months ended September 30, 2021 as such date was prior to the acquisition of the Engineering segment. Engineering revenue is derived from the sale of custom products built to customers’ specifications under fixed-price contracts with one identified performance obligation. Engineering revenues are recognized over time as performance creates or enhances an asset with no alternative use, and for which the Company has an enforceable right to receive compensation as defined under the contract.
Other revenue consisting of license fees was not significant in either period.
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Costs and expenses:
Cost of revenues for Mining for the nine months ended September 30, 2022 and 2021 was $51.8 million and $29.9 million, respectively, representing an increase of approximately $21.9 million. As a percentage of Mining revenue, cost of revenues totaled 41.0% and 27.6% for each of the nine months ended September 30, 2022 and 2021, respectively. Cost of revenues consists primarily of direct production costs of mining operations, including electricity, labor, insurance and the variable Coinmint hosting fee, but excluding depreciation and amortization, which are separately stated. The increase of $21.9 million in cost of revenues is primarily due to the increase in mining capacity at the Rockdale Facility, which requires more headcount and direct costs necessary to maintain and support the mining operations. As noted below, during the nine months ended September 30, 2022 and 2021, the Company earned $21.3 million and $3.7 million, respectively, in power credits, to be credited against its power invoices, as a result of temporarily pausing its operations. These credits are recognized in power curtailment credits in the statements of operations, outside of cost of revenues, but significantly reduce the Company’s overall cost to mine Bitcoin. When netting the power curtailment credits with the costs of revenues, the net costs as a percentage of Mining revenue were 34.6% and 27.6% for the nine months ended September 30, 2022 and 2021, respectively.
Cost of revenues for Data Center Hosting for the nine months ended September 30, 2022 and 2021 was $44.4 million and $16.3 million, respectively. The costs consisted primarily of direct power costs, with the balance primarily incurred for rent and compensation costs. Whinstone was acquired in May 2021, and therefore its results of operations are only included in the Company’s consolidated results of operations for four months during 2021 compared to nine in 2022.
Cost of revenues for Engineering for the nine months ended September 30, 2022 was $40.5 million. There were no Engineering costs for the nine months ended September 30, 2021 as such date was prior to the acquisition of the Engineering segment. The 2022 costs consisted primarily of direct materials and labor, as well as indirect manufacturing costs.
Acquisition-costs for the nine months ended September 30, 2022 were nominal. Acquisition-related costs for the nine months ended September 30, 2021, totaled $18.9 million, and consisted of expenses incurred in connection with our acquisition of Whinstone.
Selling, general and administrative expenses during the nine months ended September 30, 2022 and 2021 totaled $37.5 million and $48.0 million, respectively. Selling, general and administrative expenses consist of stock-based compensation, legal and professional fees and other personnel and related costs. The decrease of $10.5 million is primarily due to a decrease of $24.8 million in compensation-related expense due to the adoption of the performance-based stock plan in August 2021, partially offset by additional employees to support the Company’s growth, an increase in audit and consulting fees of $3.8 million resulting primarily from assistance on internal control systems and procedures and information technology projects, an increase in insurance expense of $1.2 million, and an increase in other general operating costs, including rent, to support the Company’s growth.
Depreciation and amortization expenses during the nine months ended September 30, 2022 totaled $61.4 million, an increase of approximately $40.6 million as compared to $20.8 million for the nine months ended September 30, 2021. The increase was primarily due to higher depreciation expense recognized for the Rockdale Facility and our recently acquired miners.
Change in fair value of our derivative asset for the nine months ended September 30, 2022 and 2021 was $86.9 million and $23.8 million, respectively, and was recorded to adjust the fair value of our Power Supply Agreement, which is classified as a derivative asset and measured at fair value.
Power curtailment credits for the nine months ended September 30, 2022 and 2021 was $21.3 million and $3.7 million, respectively, and represents power sales into the ERCOT marketplace through Whinstone’s participation in ERCOT’s energy demand response programs.
Realized gain on sale/exchange of Bitcoin for the nine months ended September 30, 2022 and 2021 was $25.4 million and $0.1 million, respectively.
Gain on exchange of equipment for the nine months ended September 30, 2022 was $16.3 million arising from the equipment exchange agreement with a third-party Bitcoin mining company. There was no gain on exchange of equipment during the nine months ended September 30, 2021.
Impairment of Bitcoin for the nine months ended September 30, 2022 and 2021 was $132.1 million and $17.5 million, respectively, arising from the decline in Bitcoin prices.
Impairment of goodwill for the nine months ended September 30, 2022 was $335.6 million arising from recent adverse changes in business climate, including decreases in the price of Bitcoin and increased volatility of equity markets, as evidenced by declines in the market price of the Company’s securities, those of its peers, and major market indices. There was no impairment recognized during the nine months ended September 30, 2021.
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Other income and expenses:
Other expense for the nine months ended September 30, 2022 was $8.0 million and primarily consisted of the unrealized loss on marketable equity securities of $6.3 million and the realized loss on sale of marketable equity securities of $1.6 million recognized in connection with the sale of a portion of our shares of Mogo. Other income for the nine months ended September 30, 2021 was $17.2 million, which primarily related to a $26.3 million realized gain on sale/exchange of long-term investment recognized in connection with the exchange of our shares of Coinsquare Ltd. (“Coinsquare”) for shares of Mogo, partially offset by $10.8 million of unrealized loss recognized on our investment in Mogo.
Non-GAAP Measures
In addition to consolidated U.S. GAAP financial measures, we consistently evaluate our use of and calculation of the non-GAAP financial measures, “Adjusted EBITDA” and Adjusted earnings per share (“Adjusted EPS”). Adjusted EBITDA is a financial measure defined as our EBITDA, adjusted to eliminate the effects of certain non-cash and / or non-recurring items, that do not reflect our ongoing strategic business operations. EBITDA is computed as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is EBITDA further adjusted for certain income and expenses, which management believes results in a performance measurement that represents a key indicator of the Company’s core business operations of Bitcoin mining. The adjustments include fair value adjustments such as derivative power contract adjustments, equity securities value changes, and non-cash stock-based compensation expense, in addition to financing and legacy business income and expense items. The Company determined to exclude impairments and gains or losses on sales or exchanges of Bitcoin from our calculation of Adjusted Non-GAAP EBITDA for all periods presented.
Adjusted EPS is a financial measure defined as our EBITDA divided by our diluted weighted-average shares outstanding, adjusted to eliminate the effects of certain non-cash and / or non-recurring items, that do not reflect our ongoing strategic business operations. EBITDA is computed as net income before interest, taxes, depreciation, and amortization. Adjusted EPS is EBITDA further adjusted for certain income and expenses, which management believes results in a performance measurement that represents a key indicator of the Company’s core business operations of Bitcoin mining. The adjustments include fair value adjustments such as derivative power contract adjustments, equity securities value changes, and non-cash stock-based compensation expense, in addition to financing and legacy business income and expense items. The Company determined to exclude impairments and gains or losses on sales or exchanges of Bitcoin from our calculation of Adjusted Non-GAAP EPS for all periods presented.
We believe Adjusted EBITDA and Adjusted EPS can be important financial measures because they allow management, investors, and our board of directors to evaluate and compare our operating results, including our return on capital and operating efficiencies, from period-to-period by making such adjustments.
Adjusted EBITDA and Adjusted EPS are provided in addition to and should not be considered to be a substitute for, or superior to net income, the comparable measure under U.S. GAAP. Further, Adjusted EBITDA and Adjusted EPS should not be considered as an alternative to revenue growth, net income, diluted earnings per share or any other performance measure derived in accordance with U.S. GAAP, or as an alternative to cash flow from operating activities as a measure of our liquidity. Adjusted EBITDA and Adjusted EPS have limitations as analytical tools, and you should not consider such measures either in isolation or as substitutes for analyzing our results as reported under U.S. GAAP.
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Reconciliations of Adjusted EBITDA and Adjusted EPS to the most comparable U.S. GAAP financial metric for historical periods are presented in the table below:
Reconciliation of GAAP and Non-GAAP Financial Information
| Non-GAAP Adjusted EBITDA | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | ||||||||||||
| Net income (loss) | $ | (36,569 | ) | $ | (15,343 | ) | $ | (353,774 | ) | $ | 11,524 | |||||
| Interest (income) expense | (348 | ) | (40 | ) | 9 | (295 | ) | |||||||||
| Income tax expense (benefit) | (2,952 | ) | — | (8,839 | ) | 3,730 | ||||||||||
| Depreciation and amortization | 26,559 | 12,207 | 61,366 | 20,791 | ||||||||||||
| EBITDA | (13,310 | ) | (3,176 | ) | (301,238 | ) | 35,750 | |||||||||
| Adjustments: | ||||||||||||||||
| Non-cash/non-recurring operating expense: | ||||||||||||||||
| Stock-based compensation expense | 3,561 | 36,023 | 7,304 | 37,928 | ||||||||||||
| Acquisition-related costs | — | 552 | 78 | 18,894 | ||||||||||||
| Change in fair value of derivative asset | 17,749 | (7,413 | ) | (86,865 | ) | (23,806 | ) | |||||||||
| Change in fair value of contingent consideration | — | 259 | 176 | 444 | ||||||||||||
| Realized loss on sale of marketable equity securities | — | — | 1,624 | — | ||||||||||||
| Unrealized loss (gain) on marketable equity securities | (142 | ) | 11,151 | 6,306 | 10,812 | |||||||||||
| Realized gain on sale/exchange of long-term investment | — | — | — | (26,260 | ) | |||||||||||
| Gain on exchange of equipment | (7,667 | ) | — | (16,281 | ) | — | ||||||||||
| Impairment of goodwill | — | — | 335,648 | — | ||||||||||||
| Other (income) expense | — | 85 | 59 | (1,425 | ) | |||||||||||
| Other revenue, (income) expense items: | ||||||||||||||||
| License fees | (25 | ) | (25 | ) | (73 | ) | (73 | ) | ||||||||
| Adjusted EBITDA | $ | 166 | $ | 37,456 | $ | (53,262 | ) | $ | 52,264 | |||||||
| Non-GAAP Adjusted EPS | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Diluted net income (loss) per share | $ | (0.24 | ) | $ | (0.16 | ) | $ | (2.64 | ) | $ | 0.13 | |||||
| Interest (income) expense | — | — | — | — | ||||||||||||
| Income tax expense (benefit) | (0.02 | ) | — | (0.07 | ) | 0.04 | ||||||||||
| Depreciation and amortization | 0.17 | 0.13 | 0.46 | 0.23 | ||||||||||||
| EBITDA | (0.09 | ) | (0.03 | ) | (2.25 | ) | 0.40 | |||||||||
| Adjustments: | ||||||||||||||||
| Non-cash/non-recurring operating expense: | ||||||||||||||||
| Stock-based compensation expense | 0.02 | 0.37 | 0.05 | 0.42 | ||||||||||||
| Acquisition-related costs | — | 0.01 | — | 0.21 | ||||||||||||
| Change in fair value of derivative asset | 0.12 | (0.08 | ) | (0.65 | ) | (0.26 | ) | |||||||||
| Change in fair value of contingent consideration | — | — | — | — | ||||||||||||
| Realized loss on sale of marketable equity securities | — | — | 0.01 | — | ||||||||||||
| Unrealized loss (gain) on marketable equity securities | — | 0.12 | 0.05 | 0.12 | ||||||||||||
| Realized gain on sale/exchange of long-term investment | — | — | — | (0.29 | ) | |||||||||||
| Gain on exchange of equipment | (0.05 | ) | — | (0.12 | ) | — | ||||||||||
| Other (income) expense | — | — | — | (0.02 | ) | |||||||||||
| Impairment of goodwill | — | — | 2.51 | — | ||||||||||||
| Other revenue, (income) expense items: | ||||||||||||||||
| License fees | — | — | — | — | ||||||||||||
| Adjusted EPS | $ | — | $ | 0.39 | $ | (0.40 | ) | $ | 0.58 | |||||||
| Diluted weighted average number of shares outstanding | 153,895,123 | 96,064,036 | 133,894,338 | 89,896,374 | ||||||||||||
In addition to the non-GAAP financial measures of Adjusted EBITDA and Adjusted EPS described above, we believe “Mining revenue in excess of cost of revenues, net of power curtailment credits”, “Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits”, “Cost of revenues – Mining, net of power curtailment credits” and “Cost of revenues – Data Center Hosting, net of power curtailment credits” are additional performance measurements that represent a key indicator of the Company’s core business operations of both Bitcoin mining and Data Center Hosting.
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We believe our ability to sell power back to the grid at market-driven spot prices, thereby reducing our operating costs, is integral to our overall strategy, specifically our power management strategy and our commitment to supporting the ERCOT grid. While participation in various grid demand response programs may impact our Bitcoin production, we view this as an important part of our partnership-driven approach with ERCOT and our commitment to being a good corporate citizen in our communities.
We believe netting the power sales against our costs can be an important financial measure because it allows management, investors, and our board of directors to evaluate and compare our operating results, including our operating efficiencies, from period-to-period by making such adjustments. We have allocated the benefit of the power sales to our Data Center Hosting and Mining segments based on their proportional power consumption during the periods presented.
Mining revenue in excess of cost of revenues, net of power curtailment credits, Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits, Cost of revenues – Mining, net of power curtailment credits and Cost of revenues – Data Center Hosting, net of power curtailment credits are provided in addition to and should not be considered to be a substitute for, or superior to Revenue – Mining, Revenue – Data Center Hosting, Cost of revenues – Mining or Cost of revenues – Data Center Hosting as presented in our consolidated statements of operations.
Reconciliations of these measurements to the most comparable U.S. GAAP financial metrics for historical periods are presented in the table below:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Mining: | ||||||||||||||||
| Revenue | $ | 22,070 | $ | 53,590 | $ | 126,166 | $ | 108,213 | ||||||||
| Cost of revenues | 14,677 | 13,034 | 51,766 | 29,893 | ||||||||||||
| Power curtailment credits | (6,104 | ) | — | (8,175 | ) | — | ||||||||||
| Cost of revenues, net of power curtailment credits | 8,573 | 13,034 | 43,591 | 29,893 | ||||||||||||
| Mining revenue in excess of cost of revenues, net of power curtailment credits | $ | 13,497 | $ | 40,556 | $ | 82,575 | $ | 78,320 | ||||||||
| Mining revenue in excess of cost of revenues, net of power curtailment credits as a percentage of revenue | 61.2 | % | 75.7 | % | 65.4 | % | 72.4 | % | ||||||||
| Data Center Hosting: | ||||||||||||||||
| Revenue | $ | 8,371 | $ | 11,193 | $ | 27,899 | $ | 14,067 | ||||||||
| Cost of revenues | 14,223 | $ | 12,581 | $ | 44,392 | $ | 16,317 | |||||||||
| Power curtailment credits | (6,996 | ) | (2,507 | ) | (13,153 | ) | (3,650 | |||||||||
| Cost of revenues, net of power curtailment credits | 7,257 | 10,074 | 31,239 | 12,667 | ||||||||||||
| Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits | $ | 1,114 | $ | 1,119 | $ | (3,340 | ) | $ | 1,400 | |||||||
| Data Center Hosting revenue in excess of cost of revenues, net of power curtailment credits as a percentage of revenue | 13.3 | % | 10.0 | % | (12.0 | )% | 10.0 | % | ||||||||
| Total power curtailment credits | $ | (13,070 | ) | $ | (2,507 | ) | $ | (21,328 | ) | $ | (3,650 | ) | ||||
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2022, we had working capital of approximately $369.8 million, which included cash and cash equivalents of $255.0 million. We reported net loss of $353.8 million during the nine months ended September 30, 2022. Net loss included $285.2 million in non-cash items consisting primarily of the change in fair value of our derivative asset of $86.9 million, the increase in Bitcoin held of $124.7 million, a realized gain on the sale/exchange of Bitcoin of $25.4 million, the gain on exchange of equipment of $16.3 million, and an income tax benefit of $8.7 million, offset by the impairment of goodwill of $335.6 million, impairment of Bitcoin of $132.1 million, depreciation and amortization of $61.4 million, an unrealized loss on marketable equity securities of $6.3 million, stock-based compensation expense of $7.3 million, the realized loss on sale of marketable equity securities of $1.6 million, and the amortization of our right of use asset of $2.9 million.
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Contractual Commitments
At September 30, 2022, we had the following contractual commitments, subject to future adjustments as provided in the contracts (in thousands):
| Agreement Date (1) | Original Purchase Commitment | Open Purchase Commitment | Deposit Balance | Expected Shipping | ||||||||||
| April 5, 2021 | $ | 138,506 | $ | 10,395 | $ | 53,070 | Fourth Quarter 2022 | |||||||
| October 29, 2021 | 56,250 | (422 | ) | 1,609 | Fourth Quarter 2022 | |||||||||
| November 22, 2021 | 32,550 | 2,969 | 21,938 | Fourth Quarter 2022 | ||||||||||
| December 10, 2021 | 97,650 | 11,865 | 65,814 | Fourth Quarter 2022 | ||||||||||
| December 24, 2021 | 202,860 | 20,118 | 134,904 | Fourth Quarter 2022 | ||||||||||
| Total | $ | 527,816 | $ | 44,925 | $ | 277,335 |
(1) Pursuant to the Company’s agreements with Bitmain, among other provisions, the Company is responsible for all shipping charges incurred in connection with the delivery of the miners.
Coinmint Co-location Mining Services Agreement
On April 8, 2020, the Company entered into an agreement with Coinmint, pursuant to which Coinmint agreed to provide up to approximately 9.5 megawatts of electrical power and to perform all maintenance necessary to operate the Company’s miners deployed at the Coinmint Facility. In exchange, Coinmint was reimbursed for direct production expenses and received a performance fee based on the net Bitcoin generated by the Company’s miners deployed at the Coinmint Facility. The amount of electrical power supplied to the Company’s miners at the Coinmint Facility was subsequently increased to accommodate the Company’s expanding miner fleet. During the nine months ended September 30, 2022, the Company elected not to renew its co-location mining services agreement with Coinmint, which was, therefore, terminated automatically by its terms as of July 8, 2022.
Miners
As of September 30, 2022, the Company had outstanding executed purchase agreements for the purchase of miners from Bitmain for a total of approximately 12,097 new model S19j Pro miners and 19,947 new model S19XP miners, scheduled to be shipped through December 2022. Pursuant to these agreements, approximately $44.9 million remains payable to Bitmain, subject to future adjustments as provided in the contracts, in installments in advance of shipment of the miners, which is scheduled to occur monthly through December 2022.
Development of the Corsicana Facility Data Center:
During the nine months ended September 30, 2022, the Company announced that it has initiated a large-scale development to expand its Bitcoin mining and data center hosting capabilities in Navarro County, Texas with the acquisition of a 265-acre site where the anticipated one-gigawatt Corsicana Facility is being constructed. The Company received approval from ERCOT for the entire one-gigawatt capacity. The initial phase of the development of the Corsicana Facility involves the construction on the 265-acre site of 400 megawatts of immersion-cooled Bitcoin mining and data center hosting infrastructure spread across multiple buildings, as well as a high-voltage power substation and transmission facilities to supply power to the facility. Construction of the substation and the data centers is expected to be carried out concurrently, with self-mining and data center hosting operations expected to commence by the fourth quarter of 2023, following the commissioning of the substation, which is expected to be completed in summer 2023.
This first phase of the development of the Corsicana Facility includes land acquisition, site preparation, substation development, and transmission construction, along with construction of ancillary buildings and four buildings utilizing the Company’s immersion-cooling infrastructure and technology. The Company estimates that the total cost of the first phase of the development will be approximately $333 million, which is scheduled to be invested over the remainder of 2022, 2023, and the first quarter of 2024. Through September 30, 2022, the Company has incurred costs of approximately $30 million related to the development of the Corsicana Facility. The acquisition costs include $10 million for land, $15 million of initial developments costs and a $5 million deposit for future power usage. The Company expects to incur costs of approximately $74.0 million over the remaining period of 2022, approximately $223.9 million during 2023, and approximately $9.5 million during the first quarter of 2024.
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Revenue from Operations
Funding our operations on a go-forward basis will rely significantly on our ability to mine Bitcoin at a price above our Mining costs and revenue generated from our Data Center Hosting and Engineering customers. We expect to generate ongoing revenues from Bitcoin rewards from our Mining operations and our ability to liquidate Bitcoin rewards at future values will be evaluated from time-to-time to generate cash for operations.
Generating Bitcoin rewards, for example, which exceed our production and overhead costs will determine our ability to report profit margins related to such mining operations, although accounting for our reported profitability is significantly complex. Furthermore, regardless of our ability to generate cash from the sale of our Bitcoin from our Mining business, we may need to raise additional capital in the form of equity or debt to fund our operations and pursue our business strategy.
The ability to raise funds through the sale of equity, debt financings, or the sale of Bitcoin to maintain our operations is subject to many risks and uncertainties and, even if we were successful, future equity issuances or convertible debt offerings could result in dilution to our existing stockholders and any future debt or debt securities may contain covenants that limit our operations or ability to enter into certain transactions. Our ability to realize revenue through Bitcoin production and successfully convert Bitcoin into cash or fund overhead with Bitcoin is subject to a number of risks, including regulatory, financial and business risks, many of which are beyond our control. Additionally, we have observed significant historical volatility in the market price of Bitcoin and, as such, future prices cannot be predicted. See the discussion of risks affecting our business under the heading “Risk Factors” in Part II, Item 1A of this Quarterly Report and in Part I, Item 1A of the 2021 Annual Report.
If we are unable to generate sufficient revenue from our Mining operations, Data Center Hosting operations or Engineering operations when needed or secure additional sources of funding, it may be necessary to adjust our strategy or explore other strategic alternatives.
At-the-Market Equity Offering
The Company entered into the Sales Agreement with the Sales Agents dated March 31, 2022, pursuant to which the Company may, from time to time, sell up to $500 million in shares of the Company’s common stock through the Sales Agents, acting as the Company’s sales agent and/or principal, in a continuous at-the-market offering. The Company will pay the Sales Agents a commission of up to 3.0% of the aggregate gross proceeds the Company receives from all sales of the Company’s common stock under the Sales Agreement. As of September 30, 2022, the Company had received net proceeds of approximately $298.4 million (after deducting $6.5 million in commissions and expenses) on sales of 37.1 million shares of common stock under the Sales Agreement at a weighted average price of $8.23 per share.
Legal Proceedings
The Company is a party in several contractual lawsuits and has also been named a defendant in several legacy class action and other investor related lawsuits as more fully described under the heading “Legal Proceedings” in Part I, Item 3 of the 2021 Annual Report and in Note 16. “Commitments and Contingencies” in the unaudited Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report. While the Company maintains policies of insurance, such policies may not cover all the costs or expenses associated with responding to such matters or any liability or settlement associated with any lawsuits and are subject to significant deductible or retention amounts.
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Whinstone Related Party Transactions
Included in construction in progress as of September 30, 2022, are deposit payments of approximately $0.1 million that relate to a Whinstone initiative for providing certain on-site temporary housing for stakeholders, including partners, analysts, stockholders, etc. The initiative arose as a result of limited accommodations for visitors in the Rockdale, TX, area, which is generally a remote area. The transaction as contemplated would involve Whinstone developing the temporary housing on land owned by Lyle Theriot (indirectly, through a limited liability company). Mr. Theriot is part of the management team at Whinstone and is considered a related party of Whinstone. The Company is evaluating certain related party implications of the initiative on an ongoing basis, under U.S. GAAP and other applicable regulatory reporting requirements including, but not limited to, the Sarbanes-Oxley Act of 2002.
As part of, and contingent upon the closing of the Whinstone Acquisition in May 2021, employment agreements were entered into with the founding management team of Whinstone. The agreements contain customary terms and conditions covering compensation, benefits, duties and services and other terms and conditions. The agreements provide that services shall initially be provided in the Rockdale, Texas area. The agreements provide that the employee be reimbursed for reasonable lodging, housing and utilities, travel, and food in area of project sites, and costs of owning and operating an automobile. Such reimbursed costs have not been material.
During the nine months ended September 30, 2022, a total of $0.7 million was paid in expenses to or on behalf of the Whinstone management team, which included the deposit payments discussed above, and including reimbursement of expenses previously determined to qualify as reimbursable expenses in accordance with the respective employment agreements. During the period from the Whinstone acquisition to September 30, 2021, a total of $0.4 million was paid in expenses to or on behalf of the Whinstone management team, including reimbursement of expenses determined to qualify as reimbursable expenses in accordance with the respective employment agreements and amounts for reimbursement of ongoing business expenses. Additionally, during April 2022 Whinstone acquired a 2022 used SUV at a cost of $0.1 million to be used for transport in the local area as well as being available to the Whinstone management team under their employment agreements.
Operating Activities
Net cash used in operating activities was $0.7 million during the nine months ended September 30, 2022. Cash was used in operations by net loss of $353.8 million, less non-cash items of $285.2 million in non-cash items consisting primarily of the change in fair value of our derivative asset of $86.9 million, the increase in Bitcoin held of $124.7 million, a realized gain on the sale/exchange of Bitcoin of $25.4 million, the gain on exchange of equipment of $16.3 million, and an income tax benefit of $8.8 million, offset by the impairment of goodwill of $335.6 million, impairment of Bitcoin of $132.1 million, depreciation and amortization of $61.4 million, an unrealized loss on marketable equity securities of $6.3 million, stock-based compensation expense of $7.3 million, the realized loss on sale of marketable equity securities of $1.6 million, and the amortization of our right of use asset of $2.9 million. The change in assets and liabilities of $67.9 million consisted primarily of proceeds from sale of Bitcoin of $52.5 million, change in fair value of future power credits of $43.9 million, and an increase in billings in excess of costs and estimated earnings of $6.0 million, partially offset by decreased accounts payable and accrued expenses of $10.0 million, increased prepaid expenses and other current assets of $15.0 million, increased costs and estimated earnings in excess of billings of $5.3 million, decreased deferred revenue of $1.6 million, increased accounts receivable of $2.0 million, and decreased lease liability of $2.7 million, and increased customer deposits of $2.1 million.
Net cash used in operating activities was $60.9 million during the nine months ended September 30, 2021. Cash was generated from operations by income of $11.5 million, less non-cash items of $66.0 million, consisting primarily of a realized gain on the sale of marketable equity securities of $26.3 million, the change in fair value of our derivative asset of $23.8 million and the increase in Bitcoin held of $108.1 million, offset by stock-based compensation expense of $37.9 million, the impairment of Bitcoin of $17.5 million, depreciation and amortization of $20.8 million, an unrealized loss on marketable securities of $10.8 million, deferred income tax expense of $3.7 million, the issuance of common stock warrants of $1.2 million and the change in fair value of contingent consideration of $0.4 million, net of other immaterial items. The change in assets and liabilities of $6.4 million consisted primarily of increased customer deposits of $6.1 million, increased accounts receivable of $2.6 million, decreased prepaid expenses and other current assets of $1.2 million, increased accounts payable and accrued expenses of $4.5 million, change in fair value of future power credits of $0.4 million, and decreased deferred revenue of $12.8 million.
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Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2022 was $329.4 million, primarily consisting of deposits on equipment of $194.9 million, purchases of property and equipment of $129.7 million and cash paid for other deposits of $5.5 million, partially offset by proceeds received of $0.7 million from the sale of our shares of Mogo.
Net cash used in investing activities during the nine months ended September 30, 2021 was $221.1 million, primarily consisting of deposits on equipment of $103.2 million, our acquisition of Whinstone of $40.9 million, net and purchases of property and equipment of $78.9 million, offset by proceeds of $1.8 million received in connection with the exchange of our shares of Coinsquare Ltd. for shares of Mogo.
Financing Activities
Net cash provided by financing activities was $272.8 million during the nine months ended September 30, 2022, which consisted of net proceeds from the issuance of our common stock in connection with our 2022 ATM Offering of $298.4 million, partially offset by the shares of common stock withheld to satisfy employee taxes of $9.9 million in connection with the settlement of vested equity awards granted under our 2019 Equity Plan and the payment of contingent consideration liability of $15.7 million.
Net cash provided by financing activities was $116.5 million during the nine months ended September 30, 2021, which consisted of net proceeds from the issuance of our common stock in connection with our ATM Offerings of $117.5 million and proceeds received from the exercise of common stock warrants of $0.8 million, offset by the repurchase of common stock to pay employee withholding taxes of $1.8 million.
Critical Accounting Policies
Our critical accounting policies and significant estimates are detailed in our 2021 Annual Report. Our critical accounting policies and significant estimates have not changed from those previously disclosed in our 2021 Annual Report, except for those accounting subjects described under the heading “Recently Issued and Adopted Accounting Pronouncements” in Note 3. “Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements” in the unaudited Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report.
Recently Issued and Adopted Accounting Pronouncements
The Company has evaluated all recently issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements. See Note 3. “Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements” in the unaudited Notes to Condensed Consolidated Financial Statements included under Part I, Item 1 of this Quarterly Report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The following discussion about our market risk exposures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. For more information regarding the forward-looking statements used in this section and elsewhere in this Quarterly Report, see the Cautionary Note Regarding Forward-Looking Statements at the forepart of this Quarterly Report.
Risk Regarding the Price of Bitcoin:
Our business and development strategy is focused on maintaining and expanding our Mining operations to maximize the amount of new Bitcoin rewards we earn. As of September 30, 2022, we held 6,766 Bitcoin, with a carrying value of $125.2 million, all of which were produced from our Mining operations. The carrying value of our Bitcoin assets as of September 30, 2022 reflects the $132.1 million of impairment charges we recorded against the carrying value of our Bitcoin assets during the nine months ended September 30, 2022 due to decreases in the fair value of our Bitcoin assets after receipt.
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As discussed under the heading “Bitcoin” under Note 3. “Basis of Presentation, Summary of Significant Accounting Policies and Recent Accounting Pronouncements” in the Company’s 2021 Annual Report, the Company’s Bitcoin assets are accounted for as indefinite-lived intangible assets, which are recorded at fair value upon receipt, and assessed for impairment when events or circumstances occur indicating that it is more likely than not that the asset is impaired. Impairment exists when the carrying amount exceeds its fair value, which is measured using the quoted price of Bitcoin at the time its fair value is being measured. 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.
We cannot accurately predict the future market price of Bitcoin and, as such, we cannot accurately predict whether we will record impairment of the value of our Bitcoin assets. The future value of Bitcoin will affect the revenue from our operations, and any future impairment of the value of the Bitcoin we mine and hold for our account would be reported in our financial statements and results of operations as charges against net income, which could have a material adverse effect on the market price for our securities.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures:
Our management, with the participation of our Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2022 to ensure that the information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosures. Based on this evaluation, our management concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of September 30, 2022, due to the following material weaknesses:
| 1) | The Company did not design and/or implement user access controls to ensure appropriate segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to the appropriate Company personnel. | |
| 2) | The Company did not design and implement program change management controls for certain financially relevant systems to ensure that IT program and data changes affecting the Company’s (i) financial IT applications, (ii) digital currency cold storage wallets and mining equipment, and (iii) underlying accounting records, are identified, tested, authorized and implemented appropriately to validate that data produced by its relevant IT system(s) were complete and accurate. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency. | |
| 3) | The Company did not properly design or implement controls to ensure that data received from third parties is complete and accurate. Such data is relied on by the Company in determining amounts pertaining to revenue - mining and cryptocurrency assets held is complete and accurate. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency. | |
| 4) | The Company did not properly design and implement controls to ensure that certain inputs and assumptions utilized in the valuation of intangible assets identified in its accounting for business combinations were reasonable in the circumstances. Such deficiency also resulted in material adjustments required to the Company’s provision for income taxes. | |
| 5) | During testing of procedures during 2021, the Company’s subsidiary, Whinstone, did identify that there were material weaknesses over internal controls at Whinstone. The weaknesses noted that Whinstone did not properly document the design of its internal controls; did not design and implement procedures to ensure proper segregation of duties and all transactions are entered and disclosed timely and accurately in accordance with GAAP, which includes transactions with related parties. |
These material weaknesses create a reasonable possibility that a material misstatement to our consolidated financial statements or disclosures would not be prevented or detected on a timely basis.
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Remediation
Our Board of Directors and management take internal control over financial reporting and the integrity of our financial statements seriously. Management continues to work to improve its controls related to our material weaknesses, specifically relating to user access and change management surrounding the Company’s IT systems and applications. Management will continue to implement measures to remediate material weaknesses, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) enhancing design and documentation related to both user access and change management processes and control activities (ii) developing and communicating additional policies and procedures to govern the area of IT change management, and (iii) developing robust processes to validate all data that is received from third-parties and relied upon to generate financial statements. To achieve the timely implementation of the above, management has commenced the following actions and will continue to assess additional opportunities for remediation on an ongoing basis:
| ● | Engaging a third-party specialist to assist management with improving the Company’s overall control environment, focusing on change management, access, and financial reporting controls . |
| ● | Implementing new applications and systems that are aligned with management’s focus on creating strong internal controls, as well as complete and accurate financial statements. |
| ● | Implementing more robust policies and procedures, relating to third-party data as well as the inputs and assumptions utilized in estimates, including in business combination valuations and assessments, to ensure the reliability of controls and financial reporting . |
| ● | Continuing to increase headcount across the Company, with a particular focus on hiring individuals with strong SOX and internal control backgrounds. |
However, the material weaknesses in our internal control over financial reporting will not be considered remediated until other ITGCs and process-level controls operate for a sufficient period of time and can be tested and concluded by management to be designed and operating effectively. We cannot provide any assurance that these remediation efforts will be successful or that our internal control over financial reporting will be effective as a result of these efforts. In addition, we continue to evaluate and work to improve our internal control over financial reporting related to the identified material weaknesses, management may determine to take additional measures to address control deficiencies or determine to modify the remediation plan described above.
Changes in Internal Control over Financial Reporting:
We are taking the remedial actions described above and expect to implement them prior to December 31, 2022.
During the fiscal year ended December 31, 2021, we completed acquisitions of two significant subsidiaries, Whinstone and ESS Metron, and began the process of integrating these acquired businesses into our own, including incorporating our system of internal controls and procedures with those of our acquired businesses. As part of our integration of these acquired businesses, we are in the process of incorporating our controls and procedures with respect to Whinstone’s and ESS Metron’s operations, which we expect to complete as of December 31, 2022. Other than the system and related process changes associated with these two acquisitions, there have been no changes in our internal control over financial reporting that occurred during the nine months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
During 2022 the internal controls of the acquired subsidiaries are being updated and remediated and will be subject to testing and evaluation by management and our auditors.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Disclosure under this Item is incorporated by reference to the disclosure provided in this Quarterly Report under Part I, Item 1., Financial Statements in Note 16. “Commitments and Contingencies” to these unaudited Notes to Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
Certain factors may have a materially adverse effect on our business, financial condition, and results of operations, including the risk, factors, and uncertainties described under this Part II, Item 1A, and elsewhere in this Quarterly Report, as well as the various risks, factors and uncertainties discussed under the heading “Risk Factors” under Part I, Item 1A of the 2021 Annual Report, as well as elsewhere in the 2021 Annual Report and in the other filings we make with the SEC, including our quarterly reports on Form 10-Q for the three months ended March 31, 2022 and June 30, 2022, as filed with the SEC on May 10, 2022 and August 15, 2022, respectively. This is not an exhaustive list, and there are other factors that may be applicable to our business that are not currently known to us or that we currently do not believe are material. Any of these risks could have an adverse effect on our business, financial condition, operating results, or prospects, which could cause the trading price of our common stock to decline, and you could lose part or all of your investment. You should carefully consider the risks, factors, and uncertainties described below, together with the other information contained in this Quarterly Report, as well as the risk, factors, uncertainties, and other information we disclosed in our 2021 Annual report and in the other filings we make with the SEC before making an investment decision regarding our securities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
N/A - none.
Item 3. Defaults Upon Senior Securities
N/A - none.
Item 4. Mine Safety Disclosures
N/A - none.
Item 5. Other Information
N/A - none.
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Item 6. Exhibits
| Exhibit Number | Description of Document | ||
| 3.1 | Articles of Incorporation filed September 20, 2017 (Incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed September 25, 2017). | ||
| 3.2 | Bylaws effective September 20, 2017 (Incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K filed September 25, 2017). | ||
| 3.3 | Amendment to Bylaws effective March 9, 2018 (Incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed March 12, 2018). | ||
| 3.4 | Articles of Merger between Bioptix, Inc. and Riot Blockchain, Inc. (Incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed October 4, 2017). | ||
| 4.1+* | Third Amendment to the Riot Blockchain, Inc. 2019 Equity Incentive Plan. | ||
| 10.1+* | Form of Service-Based Restricted Stock Award Agreement. | ||
| 10.2+* | Form of Performance-Based Restricted Stock Award Agreement. | ||
| 10.3+* | Form of Executive Employment Agreement. | ||
| 31. | Rule 13a-14(a)/15d-14(a) Certifications. | ||
| 31.1* | Rule 13a-14(a)/15d-14(a) - Certification of Chief Executive Officer (principal executive officer). * | ||
| 31.2* | Rule 13a-14(a)/15d-14(a) - Certification of Chief Financial Officer (principal financial officer). * | ||
| 32. | Section 1350 Certification | ||
| 32.1* | Section 1350 Certification of Chief Executive Officer (principal executive officer). |
||
| 32.2* | Section 1350 Certification of Chief Financial Officer (principal financial officer). |
||
| 101* | The following unaudited condensed consolidated financial statements from this Quarterly Report, formatted in iXBRL (inline eXtensible Business Reporting Language) includes: (i) the Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 (Unaudited); (ii) the Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited); (iii) the Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2022 and 2021 (Unaudited); (iv) the Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021 (Unaudited); and (v) the Notes to Unaudited Condensed Consolidated Financial Statements.* | ||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
| * | Filed herewith. | |
+ |
Indicates a management contract or compensatory plan or arrangement. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned thereunto duly authorized on November 7, 2022.
|
Riot Blockchain, Inc. (Registrant) | |
| Dated: November 7, 2022 | /s/ Jason Les |
| Jason Les | |
|
Chief Executive Officer (Principal Executive Officer) | |
| /s/ Colin Yee | |
| Colin Yee | |
|
Chief Financial Officer (Principal Financial Officer) |
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Exhibit 4.1
THIRD AMENDMENT
TO THE RIOT BLOCKCHAIN, INC. 2019 EQUITY INCENTIVE PLAN
This Third Amendment (the “Third Amendment”) to the Riot Blockchain, Inc. 2019 Equity Plan, as amended (the “Plan”), as adopted by the unanimous approval of the members of the Board of Directors (the “Board”) of Riot Blockchain, Inc. (the “Company”) upon the recommendation of the Compensation and Human Resources Committee of the Board (the “Committee”), amends the Plan as set forth herein, effective as of the date ratified and approved by the stockholders of the Company set forth at the end of this document (the “Effective Date”). Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Plan.
WHEREAS, the Plan, as adopted by the Committee and the Board, and as ratified and approved by the stockholders effective October 23, 2019, was adopted as the equity compensation plan of the Company to promote the success of the Company and to increase stockholder value by providing an additional means through the grant of Awards to attract, motivate, retain and reward selected employees and other eligible persons; and
WHEREAS, the First Amendment to the Plan (the “First Amendment”) was adopted by the Company and became effective as ratified and approved by the stockholders on November 12, 2020, to increase the number of shares of Common Stock available for issuance under the Plan (the “Share Reserve”) by 3,500,000 additional shares of Common Stock; and
WHEREAS, the Second Amendment to the Plan (the “Second Amendment”) was adopted by the Company and became effective as ratified and approved by the stockholders on October 19, 2021, to increase the number of shares of Common Stock available for issuance under the Plan (the “Share Reserve”) by 4,400,000 additional shares of Common Stock; and
WHEREAS, the Committee, both in its capacity as Plan Administrator and in furtherance of its responsibility to oversee the compensation and equity incentive practices, plans, and procedures of the Company, has been tasked with the oversight and administration of the Plan; and
WHEREAS, the Committee having considered the Company’s issuance of the Awards since the stockholders adopted the Plan, as amended, the Company’s expected needs for equity compensation and the shares of Common Stock available for issuance in the Share Reserve, has determined to adopt this Second Amendment to the Plan to increase the number of shares of Common Stock available for issuance under the Plan by 10,000,000 additional shares of Common Stock; and
NOW, THEREFORE, as approved by the Board upon the recommendation of the Committee as of May 31, 2022 and as approved by the stockholders of the Company as of the date listed below, this Third Amendment to the Plan is hereby adopted and approved in all respects. Accordingly, pursuant to this Third Amendment, the Plan is hereby amended as follows:
1. As of the Effective Date, Section 4.2 of the Plan is hereby amended by deleting it in its entirety and is replaced with the following:
| | “4.2 Share Limit. The maximum number of shares of Common Stock that may be delivered pursuant to Awards granted to Eligible Persons under this Plan may not exceed 21,500,000 (the “Share Limit”). Such shares of Common Stock may be authorized and unissued shares or, to the extent permitted by applicable law, issued shares of Common Stock that have been reacquired by the Company. Such shares of Common Stock may be used for any type of Award under the Plan, and any or all of the shares of Common Stock up to the Share Limit may be allocated to Incentive Stock Options. Solely for the purpose of determining the number of shares of Common Stock available for Awards under this Section 4.2, the number of shares of Common Stock available for issuance under the Plan shall be reduced by one (1.00) share of Common Stock for every one (1.00) share of Common Stock granted in respect of an Award; provided, however, that in the case of an Award that provides for a range of potential payouts of shares of Common Stock, the number of shares of Common Stock available for issuance under the Plan shall be reduced by the maximum number of shares of Common Stock that may be paid under such an Award. The foregoing Share Limit is subject to adjustment as contemplated by Section 4.3, Section 7.1, and Section 8.10.” | |
2. Except as specifically set forth in this Second Amendment, no provision of the Plan is changed, and the Plan is hereby ratified in its entirety and shall remain in full force and effect.
As adopted by the Board of Directors of Riot Blockchain, Inc. on May 31, 2022.
As adopted by the Stockholders of Riot Blockchain, Inc. on July 27, 2022
Exhibit 10.1
Riot Blockchain, Inc.
2019 Equity Incentive Plan
Restricted Stock Award
Notice of Grant
This Notice of Grant is to notify you, the “Participant” identified in the “Summary of Award” below, that, subject and pursuant to the terms of the attached Restricted Stock Award Agreement (the “Award Agreement”) by and between you and Riot Blockchain, Inc., a Nevada corporation, for itself and for its consolidated subsidiaries, (collectively, the “Company”) you have been granted an unvested award of restricted shares of the common stock, no par value per share, of the Company (the “Shares”) in the amount and subject to vesting as set forth in the Summary of Award below (the “Award”); provided that the Award is conditioned on your acknowledgment of receipt and acceptance of the Award Agreement in accordance with Section 9 of the Award Agreement. The Award is granted to you by the Company under its Riot Blockchain, Inc. 2019 Equity Incentive Plan, as amended, (the “Plan”) a copy of which is included with this Notice of Grant. Except as otherwise defined herein, capitalized terms used in this Notice of Grant and the Award Agreement have the meanings set forth in the Plan.
Summary of Award
Name of Participant: _____________________________________________________
Grant Date: ______________________________________________________________
Number of Shares: _______________________________________________________
Grant Date Share Price: $_________________________________________________
Vesting Schedule: _______________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
The Award is granted to you as additional incentive compensation for your service to the Company, and it is contingent upon your continued service with the Company through the applicable vesting dates specified in the foregoing vesting schedule. Until the Shares are vested, they are restricted shares of Common Stock subject to forfeiture and restrictions, as set forth in the Award Agreement and the Plan. Except as set forth in the Award Agreement or as otherwise agreed by the Company in writing, partial service, even if substantial, during the vesting period will not entitle you to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following your separation from service with the Company.
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Riot Blockchain, Inc.
2019 Equity Incentive Plan
RESTRICTED STOCK AWARD AGREEMENT
This Restricted Stock Award Agreement (this “Award Agreement”) is entered into, effective as of the “Grant Date” specified in the accompanying Notice of Grant attached hereto as Appendix A, which forms a part of, and is incorporated by reference into, this Award Agreement (the “Notice of Grant”), by and between Riot Blockchain, Inc. a Nevada corporation, and its consolidated subsidiaries (collectively, the “Company”), and the individual award recipient identified in accompanying Notice of Grant (the “Participant”), regarding the terms and conditions of the equity incentive Award granted by the Company to the Participant under the Riot Blockchain, Inc. 2019 Equity Incentive Plan, as amended, (the “Plan”) as compensation for services by the Participant to the Company (the “Award”). Unless otherwise defined in this Award Agreement, capitalized terms used herein have the meanings defined in the Plan, the terms of which are incorporated by reference herein.
Now, therefore, in consideration of the premises hereof and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Participant, intending to be bound, hereby agree as follows:
1. Grant of Restricted Stock. Subject and pursuant to this Award Agreement and the Plan, including but not limited to the restrictions set forth under Section 4 hereof and the satisfaction of any tax obligation due with respect to any Section 83(b) Election made by the Participant with respect to the Shares (as described in Section 6.c hereof), the Company hereby grants to the Participant, as additional incentive compensation contingent on Participant’s continued service with the Company through the applicable vesting date, an unvested award of service-based restricted shares (the “Shares”) of the Company’s common stock, no par value per share, (“Common Stock”) in the amount and subject to vesting as summarized in the Summary of Award set forth in the Notice of Grant.
2. Vesting. Except as otherwise provided in this Award Agreement, the Plan, or other written agreement between the Company and the Participant, the terms of which expressly supersede the provisions of this Award Agreement and/or the Plan, the Shares are restricted and subject to forfeiture until vested. The Award and the Shares shall vest and become non-forfeitable in accordance with the vesting schedule set forth in the Summary of Award contained in the Notice of Grant, subject to any compensation claw-back rules under applicable law and/or Company policy. For the avoidance of doubt, the vesting schedule requires the Participant’s continued appointment or service with the Company through the applicable vesting date as a condition precedent to the vesting of the rights and benefits under this Award Agreement. Partial service, even if substantial, during the vesting period will not entitle the Participant to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of service as provided in the Award Agreement or under the Plan, except as otherwise expressly agreed by the Company in writing. Vested Shares will be issued to the Participant in accordance with the Participant’s issuance instructions, subject to the Participant’s satisfaction of the applicable tax withholding obligations due on the issuance of such vested Shares.
3. Forfeiture; Acceleration of Vesting.
a. Forfeiture of Unvested Shares. Except as otherwise agreed by the Company in writing, the Shares granted hereby are subject to forfeiture as set forth in this Section 3 until vesting. Accordingly, all Shares granted hereunder which have not vested shall be automatically forfeited and returned to the Company without payment or consideration therefor, and Participant shall have no further right, title or interest in or to such forfeited Shares, or any compensation in lieu thereof, as of the earlier of:
(i) except as provided in Section 3.b below, the date the Participant’s employment, appointment or service with the Company ceases for any reason (the “Termination Date”);
(ii) upon the Participant’s breach, as determined by the Company, of any non-disclosure, non-competition, or non-solicitation restrictive covenant obligation owed to the Company; or
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(iii) upon the Plan Administrator’s determination that any conduct of the Participant constitutes grounds for forfeiture under the Plan.
Upon the occurrence of a forfeiture event, the Company shall exercise its power under Section 5.c hereof to effect the return of the forfeited Shares to the Company automatically and without any additional action by the Participant (or the Participant’s beneficiary or personal representative, as applicable); provided, however, the Participant (or the Participant’s beneficiary or personal representative, as applicable) shall deliver any additional documents of transfer that the Company may request to confirm the transfer of such unvested, forfeited Shares and related restricted property to the Company. Further, notwithstanding anything in the Plan or this Award Agreement to the contrary, the Company will be entitled, to the extent permitted or required by applicable law, Company policy, or the requirements of an exchange on which the Company’s securities may be listed for trading, in each case, as in effect from time to time, to effectuate a forfeiture of the Award and/or recoup compensation of whatever kind paid by the Company pursuant to the Award.
b. Acceleration Events. Notwithstanding the foregoing, upon effectiveness of a separation agreement and general release of claims, in form reasonably satisfactory to the Company, to be entered into between the Company and the Participant (or Participant’s beneficiary or personal representative, as applicable) in connection with any qualifying separation from service between the Participant and the Company (a “Separation Agreement”), the vesting schedule for all unvested Shares subject to this Award Agreement shall be adjusted as authorized by the Company’s Chief Executive Officer, as set forth in the applicable Separation Agreement. For the avoidance of doubt, with respect to each of the foregoing acceleration events, the Participant hereby acknowledges and agrees that: (X) the acceleration is contingent upon the Participant (or the Participant’s beneficiary or personal representative, as applicable) entering into a separation agreement and release reasonably satisfactory to the Company; (Y) the Participant has no right to receive any of the Shares without such agreement; and (Z) the Shares accelerated pursuant to such agreement are subject to forfeiture until vested and, to the extent applicable, the satisfaction of all applicable Withholding Taxes due thereon is a condition precedent to the vesting of such Shares.
4. Restrictions. Until vesting, the Shares are subject to the following restrictions:
a. Restrictions on Transfer; Permitted Transferees. Consistent with Section 5.7 of the Plan, the Award and all unvested Shares granted hereunder, including any interest therein, amount payable in respect thereof, or property receivable in respect thereof, may not be sold, pledged, assigned, hypothecated, transferred, gifted or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily, in any manner other than by will or by the laws of descent or distribution, with the exception, at the Committee’s sole and absolute discretion, of transfers (for no consideration) to the following persons: (i) the Participant’s spouse, children, or grandchildren; (ii) one or more trusts for the benefit of the Participant’s spouse, children, or grandchildren; or (iii) a partnership, limited liability company, or other passthrough entity of which the Participant and the Participant’s spouse, children, or grandchildren are the only beneficial owners and controlling persons (collectively, the “Permitted Transferees”). No transfer of the Shares shall be effective to bind the Company unless approved in writing in advance by the Committee and the Committee shall have been furnished with (i) written notice thereof along with such evidence as the Committee may deem necessary to establish the validity of the transfer and (ii) an agreement by the transferee of such transferred Shares to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Award and Shares.
b. Restrictive Legend. Any certificate evidencing the Participant’s ownership of the Shares shall be issued to the Participant (or the permitted transferee of the Participant) bearing the following restrictive legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE RIOT BLOCKCHAIN, INC. 2019 EQUITY INCENTIVE PLAN, AS AMENDED, AND THE RESTRICTED STOCK AWARD AGREEMENT RELATING TO THE SHARES ENTERED INTO BETWEEN THE REGISTERED OWNER AND THE ISSUER, RIOT BLOCKCHAIN, INC., COPIES OF WHICH ARE ON FILE IN THE OFFICES OF THE ISSUER.
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c. Issuance and Escrow of Restricted Shares. Restricted Shares shall be issued to the Participant as of the Grant Date and held in electronic book-entry form with the Company (including with a third-party servicer account organized by the Company for the benefit of Plan participants) until such time as the Shares are vested and no longer subject to forfeiture and restriction, or until they are forfeited to the Company in accordance with the terms hereof; provided, however, upon request of the Participant, the Company may, in its sole discretion, issue to the Participant a certificate representing unvested Shares, which shall bear, in addition to any legend required by applicable law, a legend substantially in the form set forth in the foregoing Section 4.b. The Participant hereby acknowledges and agrees that the Company shall hold any certificate issued for such restricted Shares in escrow in its possession until such a time as all restrictions applicable to the Shares evidenced by such certificate are satisfied in full. If the Shares are issued in certificated format, the administrative costs and risk of loss of such certificated Shares are the sole responsibility of the Participant.
d. Delivery of Shares Upon Vesting. Promptly after the vesting and the satisfaction of the Withholding Tax obligations due in connection with the vesting of the Shares (as described in Section 6.b hereof), the Company shall, as applicable, either: (i) remove the notations on any Shares issued in book entry form that have vested; or (ii) if a certificate has been issued for the Shares, cause the restrictive legend to be removed from the certificate covering such vested Shares. The Participant (or the beneficiary or personal representative of the Participant in the event of the Participant’s death or disability, as the case may be) shall deliver to the Company any representations or other documents or assurances as the Company may deem necessary or reasonably desirable to ensure compliance with all applicable legal and regulatory requirements. The Shares so delivered shall no longer be subject to forfeiture or the restrictions set forth hereunder.
Notwithstanding the foregoing, the issuance of the Shares and the removal of any restrictions thereon are subject to, and shall be carried out in compliance with, all applicable laws with respect to such securities, including, without limitation, the registration of the Shares with the SEC. No Shares may be issued hereunder if the issuance of such Shares would constitute a violation of any applicable securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Company’s securities may then be listed. The inability of the Company to obtain the authority from any regulatory body having jurisdiction, if any, deemed by the Company’s legal counsel to be necessary to effect the lawful issuance of the Shares shall relieve the Company of any liability in respect of the Shares, including with respect to the failure to issue such Shares. As a condition to the issuance of the Shares and the removal of any restrictions thereon, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation, and to make any representation or warranty with respect thereto as may be requested by the Company.
5. Shareholder Matters.
a. Stock Power; Power of Attorney. Concurrent with the execution and delivery of this Award Agreement, the Participant shall deliver to the Company an executed stock power in the form attached hereto as Appendix C, in blank, with respect to the restricted Shares covered by the Award. The Participant, by acceptance of the Award, shall be deemed to appoint, and does so appoint by execution of this Award Agreement, the Company and each of its authorized representatives as the Participant’s attorney(s) in fact to effect any transfer of unvested forfeited Shares (or Shares otherwise reacquired by the Company hereunder) to the Company as may be required pursuant to the Plan or this Award Agreement, including the transfer and sale of any Shares sold in connection with any net settlement for taxes permitted under the Plan, and to execute such documents as the Company or such representatives deem necessary or advisable in connection with any such transfer.
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b. Rights as a Shareholder. The Shares shall be held in electronic book entry form (including with a third-party servicer account organized by the Company for the benefit of Plan participants) or issued under a certificate bearing a restrictive legend, as set forth in Section 1 hereof, and shall be subject to forfeiture and the restrictions set forth herein until they have vested in accordance with Section 2 above. Subject to the restrictions set forth in Section 4 hereof and the Plan, during the time the Shares are unvested, the Participant shall have all of the rights of a shareholder with respect to the Shares, including the right to vote the Shares and to receive dividends paid on the Shares; provided that any additional shares of Common Stock or other securities that the Participant may become entitled to receive pursuant to a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, separation or reorganization or any other change in the capital structure of the Company will be subject to the same restrictions as the Shares. For the avoidance of doubt, the Shares shall be subject to the restrictions set forth in Section 4 hereof and the Plan until they become vested, and, notwithstanding the Participant’s rights as a shareholder of the Company during such time as the Shares remain unvested, the Participant hereby acknowledges and agrees that the Participant may not sell, transfer, assign, gift, encumber or permit encumbrance upon, or otherwise transact in the Shares until they are vested and issued to the Participant in unrestricted form in accordance with the terms of this Award Agreement.
c. Attendance at Meetings; Voting. Until the Shares become vested and all restrictions thereon are removed in accordance with the terms of this Award Agreement and the Plan, the Participant shall:
(i) cause all Shares granted to Participant pursuant to this Award Agreement to be present, in person or by proxy, at any meeting of the Company’s stockholders, so that all such Shares shall be counted for the purpose of determining the presence of a quorum at such meeting; and
(ii) vote, or cause to be voted, all such Shares in accordance with the recommendations of the Company with respect to any business or proposal on which the stockholders of the Company are entitled to vote, whether at a meeting of the Company’s stockholders or by written instrument thereof. This Section 5.c shall apply to any holder of the Shares to whom the Shares are transfer by or on behalf of the Participant in the same manner it applies to the Participant.
6. Tax Matters.
a. No Tax Advice; No Duty to Minimize Taxes. The Participant is hereby advised to consult with the Participant’s own personal tax, financial, and/or legal advisors regarding the tax consequences of this Award. The Company has no duty or obligation to minimize the tax consequences to the Participant of this Award and shall not be liable to the Participant for any adverse tax consequences to Participant arising in connection with this Award, including with respect to any election pursuant to Section 83(b) of the Code, as discussed in Section 6.b hereof (the “Section 83(b) Election”). The Participant is hereby advised to consult with the Participant’s own personal tax, financial and/or legal advisors regarding the tax consequences of this award and by signing this Award Agreement, the Participant has agreed that he or she has done so or knowingly and voluntarily declined to do so.
b. Tax Withholding Obligations. As set forth in Section 4.d hereof, the removal of the restrictions on the Shares, or at any time thereafter as requested by the Company, the Participant shall pay or provide for payment of at least the minimum amount of income taxes and other withholdings which the Company may be required to withhold with respect to such distribution of shares (the “Withholding Taxes”). The Administrator may, in its sole discretion, permit the Participant to elect to satisfy the Withholding Taxes by electing to surrender to the Company for cancellation that number of Shares having a fair market value of no less than the amount of such Withholding Taxes (measured based on the closing price per share of the Company’s securities as of the applicable vesting date of the vested Shares, as reported on the stock exchange on which the Company’s securities are then traded), up to a maximum of Fifty percent (50%) of the fair market value of such vested Shares (“Net Settlement”); provided, however, that Net Settlement shall not be available to satisfy the Withholding Taxes and other tax obligations due on the issuance of the Shares by operation of the Participant’s Section 83(b) Election with respect to the Shares (as described in Section 6.c below). Unless the Withholding Tax obligations of the Company are satisfied, the Company shall have no obligation to deliver to the Participant any Shares. In the event the Company’s obligation to withhold arises prior to the delivery to the Participant of Shares or it is determined after the delivery of Shares to the Participant that the amount of the Withholding Taxes was greater than the amount withheld by the Company, the Participant Agrees to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.
c. Section 83(b) Election. Subject to the Participant’s satisfaction of any tax withholding obligation due thereon, the Participant may elect, within Thirty (30) days after the Grant Date, to file the Section 83(b) Election with the Internal Revenue Service (“IRS”) and the Company to report receipt of the Shares as of the Grant Date and pay the tax due on, regardless of their vesting status. Instructions on how to file the Section 83(b) Election with respect to the Award and a sample Section 83(b) Election form is provided as Appendix B hereto. Accordingly, with respect to the Section 83(b) Election, the Participant hereby acknowledges and agrees that:
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(i) the Company does not make any recommendation with respect to the decision to make the Section 83(b) Election;
(ii) it is solely the responsibility of the Participant, and not the Company, to decide whether to make the Section 83(b) Election in connection with the Award and, if so, to do so in a timely manner;
(iii) notwithstanding the Section 83(b) Election, the Shares shall remain subject to forfeiture and the restrictions described herein and in the Plan until they become vested, and, in the event the Shares are forfeited following the Section 83(b) Election, the Company shall not be liable for any losses or other liability incurred by the Participant in connection with such forfeiture, and the Participant shall not be entitled to receive any compensation for such forfeited Shares, except as provided herein or required by applicable law;
(iv) the Participant is liable for, and hereby agrees to timely pay, all applicable tax obligations due in connection with the Section 83(b) Election; and
(v) the satisfaction of the Withholding Taxes and any other tax obligations due with respect to the Section 83(b) Election may not be satisfied by withholding that number of Shares having a fair market value of no less than the amount of the Withholding Taxes and other tax obligations due, and, for the avoidance of doubt, may only be satisfied by the payment, in cash, of the amount of the Withholding Tax and other tax obligations due thereon.
d. Section 409A. It is intended that the Award, the Plan, and this Award Agreement are exempt from Section 409A of the Code and the interpretive guidance thereunder (“Section 409A”), and this Award Agreement shall be administered accordingly, and interpreted and construed on a basis consistent with such intent. To the extent that any provision of this Award Agreement would fail to comply with applicable requirements of Section 409A, the Company may, in its sole and absolute discretion and without requiring the Participant’s consent, make such modifications to this Award Agreement and/or payments to be made thereunder to the extent it determines necessary or advisable to comply with the requirements of Section 409A. Nothing in this Award Agreement shall be construed as a guarantee of any particular tax effect for the Award, and the Company does not guarantee that any compensation or benefits provided under this Award Agreement will satisfy the provisions of Section 409A.
7. Representations and Warranties. By accepting the Award, the Participant hereby represents, warrants, acknowledges and agrees as follows:
a. The Participant has received a copy of the Plan, has reviewed the Plan and this Award Agreement in their entirety, and has had an opportunity to obtain the advice of independent counsel prior to accepting the Award;
b. The Participant has had the opportunity to consult with a tax advisor concerning the tax consequences of accepting the Award, and understands that the Company makes no representation regarding the tax treatment as to any aspect of the Award, including the grant, vesting, settlement, or conversion of the Award;
c. The Participant’s participation in the Plan and acceptance of the Award is voluntary and without expectation of employment or service, or continued employment or service, with the Company, and the Participant understands that neither the grant of this discretionary Award nor the Participant’s participation in the Plan confers any right to continue in the service of the Company or to receive any other award or amount of compensation, whether under the Plan or otherwise, and no payment of any award under the Plan will be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance, or other benefit plan of the Company except as otherwise specifically provided in such other plan;
d. The Participant consents to the collection, use, and transfer, in electronic or other form, of the Participant’s personal data by the Company, the Committee, and any third party retained to administer the Plan for the exclusive purpose of administering the Award and Participant’s participation in the Plan; provided, that the Participant agrees to promptly notify the Committee of any changes in the Participant’s name, address, or contact information during the entire period of Plan participation; and
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e. Notices and other documents related to the Award or the Plan may be delivered by electronic means, and the Participant hereby consents to receive such documents by electronic delivery and to participate in the Plan through an online or electronic system authorized by the Committee.
8. General Provisions.
a. Conformity with Plan. This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan; provided, however, inconsistencies between this Award Agreement and the Plan shall be resolved in accordance with the terms of this Award Agreement in all respects; provided further, with respect to any ambiguities in this Award Agreement or any matters as to which this Award Agreement is silent, the Plan shall govern.
b. Governing Law; Disputes. The Plan and this Award Agreement are to be governed, construed, and administered in accordance with the laws of the State of Nevada, without regard to otherwise governing conflict of laws principles. Any dispute or controversy arising under, out of, or in connection with this Award Agreement shall be finally determined and settled by binding arbitration in [•], in accordance with the rules and procedures of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. In such arbitration, each party shall bear its own costs and fees, including attorneys’ fees.
c. Administration; Interpretation. In accordance with the Plan and this Award Agreement, the Committee shall have full discretionary authority to administer the Award, including discretionary authority to interpret and construe any and all provisions relating to the Award. Decisions of the Committee shall be final, binding, and conclusive on all parties. In the event of a conflict between this Award Agreement and the Plan, the terms of the Plan shall prevail.
d. Entire Agreement. This Agreement, together with the Plan, sets forth the entire agreement and understanding of the parties relating to the subject matter herein and therein and merges all prior discussions between the parties.
e. Severability. The provisions of this Award Agreement hereto are severable, and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
f. Successors and Assigns. The rights and benefits of this Award Agreement shall inure to the benefit of, and be enforceable by, the Company’s successors (including any successor by reason of amalgamation of the Company) and assigns. The rights and obligations of Participant under this Award Agreement may not be assigned, except to Permitted Transferees in accordance with Section 4.a hereof.
g. Injunctive Relief. In addition to any other right of the Company to enforce the terms of this Award Agreement, the Participant hereby consents and agrees that the Company may bring an action or special proceeding in any state or federal court of competent jurisdiction to seek injunctive or other relief to enforce the Participant’s compliance with any restrictive covenant obligations undertaken by the Participant in connection with the grant of the Award.
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9. Acknowledgement of Receipt and Acceptance. By signing below (including via electronic signature, as approved by the Plan Administrator), the undersigned Participant: (a) acknowledges receipt and acceptance of the Award, subject and pursuant to the terms and conditions of this Award Agreement and of the Plan, which are incorporated by reference herein; (b) agrees to the representations made in Section 7 of this Award Agreement above; (c) agrees to be bound by this Award Agreement and the Plan; and (d) acknowledges that the Award granted by this Award Agreement is subject to forfeiture until vested.
[Remainder of Page Intentionally Blank - Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned parties, intending to be bound, have executed this Restricted Stock Award Agreement, as of the Grant Date specified in the Notice of Grant accompanying this Award Agreement.
THE COMPANY
Riot Blockchain, Inc., a Nevada corporation
By: __________________________
Name:__________________________
Title: __________________________
THE PARTICIPANT
By my signature below, I, the undersigned individual, hereby acknowledge and agree that my receipt and understanding of this Award Agreement and the documents incorporated by reference herein, including, for the avoidance of doubt, the Riot Blockchain, Inc. 2019 Equity Incentive Plan, as amended, and the documents incorporated by reference therein, and I hereby agree to be bound and abide by the terms and conditions of this Award Agreement.
| __________________________ Date Accepted |
__________________________ Participant's Signature |
| __________________________ Participant's Name (Please Print) |
Attachments:Appendix A – Notice of Grant
Appendix B – Section 83(b) Election Form
Appendix C – Irrevocable Stock Power
[Signature Page to Riot – [_________] Service-Based Restricted Stock Award Agreement]
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Appendix B
Section 83(b) Election Form Filing Instructions and Sample Section 83(b) Election Form
[ATTACHED]
| 10 |
Appendix C
Irrevocable Stock Power
[ATTACHED]
Exhibit 10.2
Riot Blockchain, Inc.
2019 Equity Incentive Plan
Restricted Stock Award
Notice of Grant
This Notice of Grant is to notify you, the “Participant” identified in the “Summary of Award” below, that, subject and pursuant to the terms of the attached Restricted Stock Award Agreement (the “Award Agreement”) by and between you and Riot Blockchain, Inc., a Nevada corporation, for itself and for its consolidated subsidiaries, (collectively, the “Company”) you have been granted an unvested award of restricted shares of the common stock, no par value per share, of the Company (the “Shares”) in the amount and subject to vesting as set forth in the Summary of Award below (the “Award”); provided that the Award is conditioned on your acknowledgment of receipt and acceptance of the Award Agreement in accordance with Section 9 of the Award Agreement. The Award is granted to you by the Company under its Riot Blockchain, Inc. 2019 Equity Incentive Plan, as amended, (the “Plan”) a copy of which is included with this Notice of Grant. Except as otherwise defined herein, capitalized terms used in this Notice of Grant and the Award Agreement have the meanings set forth in the Plan.
Summary of Award
Name of Participant: ________________________________________________________
Grant Date: _____________________________ (the “Grant Date”)
Target Award: ___________________________Shares (the “Target Award”)
Grant Date Share Price: $ _________________
Performance Period:January 1, 2021 – December 31, 2023
Performance Objectives:
The Shares comprising the Target Award are eligible to vest based on the Company’s achievement during the Performance Period of the Infrastructure Development Target and the Financial Performance Target, as specified on the following page, (the “Performance Objectives”) subject to the Participant’s continued employment or service with the Company through the date of vesting.
Restrictions and Vesting:
The Award is granted to you as additional incentive compensation for your service to the Company, and it is contingent upon your continued service with the Company through the applicable vesting dates specified in the foregoing vesting conditions. Until the Shares are vested, they are restricted shares of Common Stock subject to forfeiture and restrictions, as set forth in the Award Agreement and the Plan. Except as set forth in the Award Agreement or as otherwise agreed by the Company in writing, partial service, even if substantial, during the vesting period will not entitle you to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following your separation from service with the Company.
See the Award Agreement for additional terms governing the Award, including provisions regarding vesting, forfeiture, and transfer restrictions, among others.
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Performance Objective Achievement Parameters
Infrastructure Development Target:
_________ Shares of the Target Award are eligible to vest in connection with the Company’s successful development and monetization of 1,500 megawatts (MW) of Bitcoin mining infrastructure during the Performance Period (the “Infrastructure Development Target”). The Infrastructure Development Target is divided into 100 MW project units (each, a “Project Unit”). Each Project Unit consists of three Project Unit Milestones, (1) Electrification, (2) Installation, and (3) Monetization (each, a “Project Unit Milestone”), the achievement of which is evaluated quarterly. As of the Grant Date, there were ___ Project Unit Milestones remaining.
_________ Shares are eligible to vest based on the achievement of each Project Unit Milestone, which is measured quarterly, based on the following achievement parameters:
| (1) | Electrification. Electrification of a Project Unit means that the requisite infrastructure is installed to the extent it is interconnected to grid and capable of delivering power to site. Success can be achieved by either acquiring existing capacity or building capacity on existing sites. Capacity is defined as high-voltage energy infrastructure, wholly owned by the Company, interconnected to power grid and ready for medium voltage step-down equipment. |
| (2) | Installation. Installation of a Project Unit means that Miner-Ready infrastructure has been installed at the Project Unit (whether such infrastructure forms part of a ready-built data center acquired by the Company or is constructed by the Company directly). “Miner-Ready” means a building, racking, and all of the medium voltage, low voltage, and any other equipment necessary has been installed to be ready for miner plug-in. |
| (3) | Monetization. Monetization of a Project Unit means that the mining capacity available from the Electrification and Installation of the Project Unit is Filled. “Filled” means that, to the extent the infrastructure can safely be utilized, it is put to productive use for the benefit of the Company, either through operation of miners owned by the Company or through operation of third-party hosted miners pursuant to a hosting/colocation agreement with a third party. For Monetization to be achieved, the Bitcoin mining hardware must be powered on and mining to the benefit of the Corporation (either directly or through a hosted/colocation agreement). |
Financial Performance Target:
_________ Shares of the Target Award are eligible to vest in connection with the Company’s successful achievement of $500,000,000 in Adjusted EBITDA (as defined below) (the “Financial Performance Target”). The Financial Performance Target is divided into $50,000,000 Adjusted EBITDA milestones (each, an “Adjusted EBITDA Milestone”). As of the Grant Date, there were ___ Adjusted EBITDA Milestones remaining.
_________ Shares are eligible to vest based on the achievement of each additional Adjusted EBITDA Milestone, which is evaluated annually based on the Company’s annual audited financial statements.
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“Adjusted EBITDA” is a non-GAAP financial measure defined as the Company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted to eliminate the effects of certain non-cash and/or non-recurring items, that do not reflect our ongoing strategic business operations. EBITDA is computed as net income before interest, taxes, depreciation, and amortization. Adjusted EBITDA is EBITDA, as further adjusted for certain income and expenses, which the Company’s management believes results in a performance measurement that represents a key indicator of the Company’s core business operations of Bitcoin mining. The adjustments include fair value adjustments such as derivative power contract adjustments, equity securities value changes, and non-cash stock-based compensation expense, in addition to financing and legacy business income and expense items; however, the Company’s calculation of Adjusted EBITDA excludes impairments and gains or losses on sales or exchanges of cryptocurrencies (i.e., such amounts are unchanged between Adjusted EBITDA and the net income presented in the Company’s annual financial statements).
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Riot Blockchain, Inc.
2019 Equity Incentive Plan
RESTRICTED STOCK AWARD AGREEMENT
This Restricted Stock Award Agreement (this “Award Agreement”) is entered into, effective as of the “Grant Date” specified in the accompanying Notice of Grant attached hereto as Appendix A, which forms a part of, and is incorporated by reference into, this Award Agreement (the “Notice of Grant”), by and between Riot Blockchain, Inc. a Nevada corporation, and its consolidated subsidiaries (collectively, the “Company”), and the individual award recipient identified in accompanying Notice of Grant (the “Participant”), regarding the terms and conditions of the equity incentive Award granted by the Company to the Participant under the Riot Blockchain, Inc. 2019 Equity Incentive Plan, as amended, (the “Plan”) as compensation for services by the Participant to the Company (the “Award”). Unless otherwise defined in this Award Agreement, capitalized terms used herein have the meanings defined in the Plan, the terms of which are incorporated by reference herein.
Now, therefore, in consideration of the premises hereof and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Participant, intending to be bound, hereby agree as follows:
1. Grant of Restricted Stock. Subject and pursuant to this Award Agreement and the Plan, including but not limited to the restrictions set forth under Section 4 hereof and the satisfaction of any tax obligation due with respect to any Section 83(b) Election made by the Participant with respect to the Shares (as described in Section 6.c hereof), the Company hereby grants to the Participant, as additional incentive compensation contingent on Participant’s continued service with the Company through the applicable vesting date, the Target Award specified in the Notice of Grant of performance-based restricted shares (the “Shares”) of the Company’s common stock, no par value per share, (“Common Stock”) which are eligible to vest based on the Company’s achievement of the Performance Objectives set forth in the Notice of Grant.
2. Vesting; Achievement of Performance Objectives. Except as otherwise provided in this Award Agreement, the Plan, or other written agreement between the Company and the Participant, the terms of which expressly supersede the provisions of this Award Agreement and/or the Plan, the Shares are restricted and subject to forfeiture until vested.
a. Vesting. The Award and the Shares shall vest and become non-forfeitable as of the date the Committee certifies, in accordance with Section 2.b below, that the Performance Objectives corresponding to the number of Shares specified in the Notice of Grant have been achieved (the “Determination Date”), subject to Participant’s continuing appointment or service with the Corporation from the Grant Date through the Determination Date, as well as any compensation claw-back rules under applicable law and/or Company policy. For the avoidance of doubt, the Participant’s continued appointment or service with the Company through the applicable Determination Date is a condition precedent to the vesting of the rights and benefits under this Award Agreement. Partial service, even if substantial, during the vesting period will not entitle the Participant to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of service as provided in the Award Agreement or under the Plan, except as otherwise expressly agreed by the Company in writing. Vested Shares will be issued to the Participant in accordance with the Participant’s issuance instructions, subject to the Participant’s satisfaction of the applicable tax withholding obligations due on the issuance of such vested Shares.
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b. Achievement of Performance Objectives. The Target Award is based upon the achievement of One Hundred Percent (100%) of the Performance Objectives within the Performance Period, each as set forth in the Notice of Grant. Accordingly, subject to the terms and conditions of this Award Agreement and the Plan, the Shares comprising the Target Award may be earned by the Participant upon the Committee’s certification that the Performance Objectives have been achieved. Achievement of Performance Objectives shall be determined by the Committee (or the executive officers of the Corporation, as delegated by the Committee, in the Committee’s sole discretion) periodically, as follows:
(i) Infrastructure Development Target. The Company’s achievement of Project Units towards the Infrastructure Development Target shall be evaluated, according to the achievement parameters set forth in the Notice of Grant, on a quarterly basis in connection with the final preparation of the Company’s quarterly report on Form 10-Q for the applicable fiscal quarter,.
(ii) Financial Performance Target. The Company’s achievement of Adjusted EBITDA Milestones towards the Financial Performance Target shall be evaluated, according to the achievement parameters set forth in the Notice of Grant, on an annual basis in connection with the finalization of the Company’s audited annual financial statements to be included in the Company’s annual report on Form 10-K for the applicable fiscal year.
The Committee shall review and certify in writing whether, and to what extent, the Performance Objectives have been achieved, including the number of Project Units and/or Adjusted EBITDA Milestones that have been achieved, and, based on such certification, the Participant shall earn, if any, the number of Shares corresponding to the achievement of such Performance Objectives, as set forth in the Notice of Grant, subject to the satisfaction of the Withholding Tax obligations due on the issuance of such Shares. For the avoidance of doubt, the satisfaction of such Withholding Tax obligations is, and shall be, a condition precedent to the vesting of the Shares and, therefore, no Shares shall be earned by the Participant and no longer subject to forfeiture until such Withholding Tax obligations have been satisfied in full. All determinations of whether Performance Goals have been achieved, the number of Shares earned by the Participant, and all other matters related to this Section 2.b shall be made by the Committee in its sole discretion and shall be final, conclusive and binding on the Participant, and on all other persons, to the maximum extent permitted by law.
3. Forfeiture; Acceleration of Vesting.
a. Forfeiture of Unvested Shares. Except as otherwise agreed by the Company in writing, the Shares granted hereby are subject to forfeiture as set forth in this Section 3 until vesting. Accordingly, all Shares granted hereunder which have not vested shall be automatically forfeited and returned to the Company without payment or consideration therefor, and Participant shall have no further right, title or interest in or to such forfeited Shares, or any compensation in lieu thereof, as of the earlier of:
(i) the end of the Performance Period set forth in the Notice of Grant;
(ii) except as provided in Section 3.b below, the date the Participant’s employment, appointment or service with the Company ceases for any reason (the “Termination Date”);
(iii) upon the Participant’s breach, as determined by the Company, of any non-disclosure, non-competition, or non-solicitation restrictive covenant obligation owed to the Company; or
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(iv) upon the Plan Administrator’s determination that any conduct of the Participant constitutes grounds for forfeiture under the Plan.
Upon the occurrence of a forfeiture event, the Company shall exercise its power under Section 5.c hereof to effect the return of the forfeited Shares to the Company automatically and without any additional action by the Participant (or the Participant’s beneficiary or personal representative, as applicable); provided, however, the Participant (or the Participant’s beneficiary or personal representative, as applicable) shall deliver any additional documents of transfer that the Company may request to confirm the transfer of such unvested, forfeited Shares and related restricted property to the Company. Further, notwithstanding anything in the Plan or this Award Agreement to the contrary, the Company will be entitled, to the extent permitted or required by applicable law, Company policy, or the requirements of an exchange on which the Company’s securities may be listed for trading, in each case, as in effect from time to time, to effectuate a forfeiture of the Award and/or recoup compensation of whatever kind paid by the Company pursuant to the Award.
b. Acceleration Events. Notwithstanding the foregoing, upon effectiveness of a separation agreement and general release of claims, in form reasonably satisfactory to the Company, to be entered into between the Company and the Participant (or Participant’s beneficiary or personal representative, as applicable) in connection with any qualifying separation from service between the Participant and the Company (a “Separation Agreement”), the vesting schedule for all unvested Shares subject to this Award Agreement shall be adjusted as authorized by the Company’s Chief Executive Officer, as set forth in the applicable Separation Agreement. For the avoidance of doubt, with respect to each of the foregoing acceleration events, the Participant hereby acknowledges and agrees that: (X) the acceleration is contingent upon the Participant (or the Participant’s beneficiary or personal representative, as applicable) entering into a separation agreement and release reasonably satisfactory to the Company; (Y) the Participant has no right to receive any of the Shares without such agreement; and (Z) the Shares accelerated pursuant to such agreement are subject to forfeiture until vested and, to the extent applicable, the satisfaction of all applicable Withholding Taxes due thereon is a condition precedent to the vesting of such Shares.
4. Restrictions. Until vesting, the Shares are subject to the following restrictions:
a. Restrictions on Transfer; Permitted Transferees. Consistent with Section 5.7 of the Plan, the Award and all unvested Shares granted hereunder, including any interest therein, amount payable in respect thereof, or property receivable in respect thereof, may not be sold, pledged, assigned, hypothecated, transferred, gifted or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily, in any manner other than by will or by the laws of descent or distribution, with the exception, at the Committee’s sole and absolute discretion, of transfers (for no consideration) to the following persons: (i) the Participant’s spouse, children, or grandchildren; (ii) one or more trusts for the benefit of the Participant’s spouse, children, or grandchildren; or (iii) a partnership, limited liability company, or other passthrough entity of which the Participant and the Participant’s spouse, children, or grandchildren are the only beneficial owners and controlling persons (collectively, the “Permitted Transferees”). No transfer of the Shares shall be effective to bind the Company unless approved in writing in advance by the Committee and the Committee shall have been furnished with (i) written notice thereof along with such evidence as the Committee may deem necessary to establish the validity of the transfer and (ii) an agreement by the transferee of such transferred Shares to comply with all the terms and conditions of the Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Award and Shares.
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b. Restrictive Legend. Any certificate evidencing the Participant’s ownership of the Shares shall be issued to the Participant (or the permitted transferee of the Participant) bearing the following restrictive legend:
THE TRANSFERABILITY OF THIS CERTIFICATE AND THE SHARES OF STOCK REPRESENTED HEREBY ARE SUBJECT TO THE TERMS AND CONDITIONS (INCLUDING FORFEITURE) OF THE RIOT BLOCKCHAIN, INC. 2019 EQUITY INCENTIVE PLAN, AS AMENDED, AND THE RESTRICTED STOCK AWARD AGREEMENT RELATING TO THE SHARES ENTERED INTO BETWEEN THE REGISTERED OWNER AND THE ISSUER, RIOT BLOCKCHAIN, INC., COPIES OF WHICH ARE ON FILE IN THE OFFICES OF THE ISSUER.
c. Issuance and Escrow of Restricted Shares. Restricted Shares shall be issued to the Participant as of the Grant Date and held in electronic book-entry form with the Company (including with a third-party servicer account organized by the Company for the benefit of Plan participants) until such time as the Shares are vested and no longer subject to forfeiture and restriction, or until they are forfeited to the Company in accordance with the terms hereof; provided, however, upon request of the Participant, the Company may, in its sole discretion, issue to the Participant a certificate representing unvested Shares, which shall bear, in addition to any legend required by applicable law, a legend substantially in the form set forth in the foregoing Section 4.b. The Participant hereby acknowledges and agrees that the Company shall hold any certificate issued for such restricted Shares in escrow in its possession until such a time as all restrictions applicable to the Shares evidenced by such certificate are satisfied in full. If the Shares are issued in certificated format, the administrative costs and risk of loss of such certificated Shares are the sole responsibility of the Participant.
d. Delivery of Shares Upon Vesting. Promptly after the vesting and the satisfaction of the Withholding Tax obligations due in connection with the vesting of the Shares (as described in Section 6.b hereof), the Company shall, as applicable, either: (i) remove the notations on any Shares issued in book entry form that have vested; or (ii) if a certificate has been issued for the Shares, cause the restrictive legend to be removed from the certificate covering such vested Shares. The Participant (or the beneficiary or personal representative of the Participant in the event of the Participant’s death or disability, as the case may be) shall deliver to the Company any representations or other documents or assurances as the Company may deem necessary or reasonably desirable to ensure compliance with all applicable legal and regulatory requirements. The Shares so delivered shall no longer be subject to forfeiture or the restrictions set forth hereunder.
Notwithstanding the foregoing, the issuance of the Shares and the removal of any restrictions thereon are subject to, and shall be carried out in compliance with, all applicable laws with respect to such securities, including, without limitation, the registration of the Shares with the SEC. No Shares may be issued hereunder if the issuance of such Shares would constitute a violation of any applicable securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Company’s securities may then be listed. The inability of the Company to obtain the authority from any regulatory body having jurisdiction, if any, deemed by the Company’s legal counsel to be necessary to effect the lawful issuance of the Shares shall relieve the Company of any liability in respect of the Shares, including with respect to the failure to issue such Shares. As a condition to the issuance of the Shares and the removal of any restrictions thereon, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate to evidence compliance with any applicable law or regulation, and to make any representation or warranty with respect thereto as may be requested by the Company.
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5. Shareholder Matters.
a. Stock Power; Power of Attorney. Concurrent with the execution and delivery of this Award Agreement, the Participant shall deliver to the Company an executed stock power in the form attached hereto as Appendix C, in blank, with respect to the restricted Shares covered by the Award. The Participant, by acceptance of the Award, shall be deemed to appoint, and does so appoint by execution of this Award Agreement, the Company and each of its authorized representatives as the Participant’s attorney(s) in fact to effect any transfer of unvested forfeited Shares (or Shares otherwise reacquired by the Company hereunder) to the Company as may be required pursuant to the Plan or this Award Agreement, including the transfer and sale of any Shares sold in connection with any net settlement for taxes permitted under the Plan, and to execute such documents as the Company or such representatives deem necessary or advisable in connection with any such transfer.
b. Rights as a Shareholder. The Shares shall be held in electronic book entry form (including with a third-party servicer account organized by the Company for the benefit of Plan participants) or issued under a certificate bearing a restrictive legend, as set forth in Section 1 hereof, and shall be subject to forfeiture and the restrictions set forth herein until they have vested in accordance with Section 2 above. Subject to the restrictions set forth in Section 4 hereof and the Plan, during the time the Shares are unvested, the Participant shall have all of the rights of a shareholder with respect to the Shares, including the right to vote the Shares and to receive dividends paid on the Shares; provided that any additional shares of Common Stock or other securities that the Participant may become entitled to receive pursuant to a stock dividend, stock split, combination of shares, recapitalization, merger, consolidation, separation or reorganization or any other change in the capital structure of the Company will be subject to the same restrictions as the Shares. For the avoidance of doubt, the Shares shall be subject to the restrictions set forth in Section 4 hereof and the Plan until they become vested, and, notwithstanding the Participant’s rights as a shareholder of the Company during such time as the Shares remain unvested, the Participant hereby acknowledges and agrees that the Participant may not sell, transfer, assign, gift, encumber or permit encumbrance upon, or otherwise transact in the Shares until they are vested and issued to the Participant in unrestricted form in accordance with the terms of this Award Agreement.
c. Attendance at Meetings; Voting. Until the Shares become vested and all restrictions thereon are removed in accordance with the terms of this Award Agreement and the Plan, the Participant shall:
(i) cause all Shares granted to Participant pursuant to this Award Agreement to be present, in person or by proxy, at any meeting of the Company’s stockholders, so that all such Shares shall be counted for the purpose of determining the presence of a quorum at such meeting; and
(ii) vote, or cause to be voted, all such Shares in accordance with the recommendations of the Company with respect to any business or proposal on which the stockholders of the Company are entitled to vote, whether at a meeting of the Company’s stockholders or by written instrument thereof. This Section 5.c shall apply to any holder of the Shares to whom the Shares are transfer by or on behalf of the Participant in the same manner it applies to the Participant.
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6. Tax Matters.
a. No Tax Advice; No Duty to Minimize Taxes. The Participant is hereby advised to consult with the Participant’s own personal tax, financial, and/or legal advisors regarding the tax consequences of this Award. The Company has no duty or obligation to minimize the tax consequences to the Participant of this Award and shall not be liable to the Participant for any adverse tax consequences to Participant arising in connection with this Award, including with respect to any election pursuant to Section 83(b) of the Code, as discussed in Section 6.b hereof (the “Section 83(b) Election”). The Participant is hereby advised to consult with the Participant’s own personal tax, financial and/or legal advisors regarding the tax consequences of this award and by signing this Award Agreement, the Participant has agreed that he or she has done so or knowingly and voluntarily declined to do so.
b. Tax Withholding Obligations. As set forth in Section 4.d hereof, the removal of the restrictions on the Shares, or at any time thereafter as requested by the Company, the Participant shall pay or provide for payment of at least the minimum amount of income taxes and other withholdings which the Company may be required to withhold with respect to such distribution of shares (the “Withholding Taxes”). The Administrator may, in its sole discretion, permit the Participant to elect to satisfy the Withholding Taxes by electing to surrender to the Company for cancellation that number of Shares having a fair market value of no less than the amount of such Withholding Taxes (measured based on the closing price per share of the Company’s securities as of the applicable vesting date of the vested Shares, as reported on the stock exchange on which the Company’s securities are then traded), up to a maximum of Fifty percent (50%) of the fair market value of such vested Shares (“Net Settlement”); provided, however, that Net Settlement shall not be available to satisfy the Withholding Taxes and other tax obligations due on the issuance of the Shares by operation of the Participant’s Section 83(b) Election with respect to the Shares (as described in Section 6.c below). Unless the Withholding Tax obligations of the Company are satisfied, the Company shall have no obligation to deliver to the Participant any Shares. In the event the Company’s obligation to withhold arises prior to the delivery to the Participant of Shares or it is determined after the delivery of Shares to the Participant that the amount of the Withholding Taxes was greater than the amount withheld by the Company, the Participant Agrees to indemnify and hold the Company harmless from any failure by the Company to withhold the proper amount.
c. Section 83(b) Election. Subject to the Participant’s satisfaction of any tax withholding obligation due thereon, the Participant may elect, within Thirty (30) days after the Grant Date, to file the Section 83(b) Election with the Internal Revenue Service (“IRS”) and the Company to report receipt of the Shares as of the Grant Date and pay the tax due on, regardless of their vesting status. Instructions on how to file the Section 83(b) Election with respect to the Award and a sample Section 83(b) Election form is provided as Appendix B hereto. Accordingly, with respect to the Section 83(b) Election, the Participant hereby acknowledges and agrees that:
(i) the Company does not make any recommendation with respect to the decision to make the Section 83(b) Election;
(ii) it is solely the responsibility of the Participant, and not the Company, to decide whether to make the Section 83(b) Election in connection with the Award and, if so, to do so in a timely manner;
(iii) notwithstanding the Section 83(b) Election, the Shares shall remain subject to forfeiture and the restrictions described herein and in the Plan until they become vested, and, in the event the Shares are forfeited following the Section 83(b) Election, the Company shall not be liable for any losses or other liability incurred by the Participant in connection with such forfeiture, and the Participant shall not be entitled to receive any compensation for such forfeited Shares, except as provided herein or required by applicable law;
(iv) the Participant is liable for, and hereby agrees to timely pay, all applicable tax obligations due in connection with the Section 83(b) Election; and
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(v) the satisfaction of the Withholding Taxes and any other tax obligations due with respect to the Section 83(b) Election may not be satisfied by withholding that number of Shares having a fair market value of no less than the amount of the Withholding Taxes and other tax obligations due, and, for the avoidance of doubt, may only be satisfied by the payment, in cash, of the amount of the Withholding Tax and other tax obligations due thereon.
d. Section 409A. It is intended that the Award, the Plan, and this Award Agreement are exempt from Section 409A of the Code and the interpretive guidance thereunder (“Section 409A”), and this Award Agreement shall be administered accordingly, and interpreted and construed on a basis consistent with such intent. To the extent that any provision of this Award Agreement would fail to comply with applicable requirements of Section 409A, the Company may, in its sole and absolute discretion and without requiring the Participant’s consent, make such modifications to this Award Agreement and/or payments to be made thereunder to the extent it determines necessary or advisable to comply with the requirements of Section 409A. Nothing in this Award Agreement shall be construed as a guarantee of any particular tax effect for the Award, and the Company does not guarantee that any compensation or benefits provided under this Award Agreement will satisfy the provisions of Section 409A.
7. Representations and Warranties. By accepting the Award, the Participant hereby represents, warrants, acknowledges and agrees as follows:
a. The Participant has received a copy of the Plan, has reviewed the Plan and this Award Agreement in their entirety, and has had an opportunity to obtain the advice of independent counsel prior to accepting the Award;
b. The Participant has had the opportunity to consult with a tax advisor concerning the tax consequences of accepting the Award, and understands that the Company makes no representation regarding the tax treatment as to any aspect of the Award, including the grant, vesting, settlement, or conversion of the Award;
c. The Participant’s participation in the Plan and acceptance of the Award is voluntary and without expectation of employment or service, or continued employment or service, with the Company, and the Participant understands that neither the grant of this discretionary Award nor the Participant’s participation in the Plan confers any right to continue in the service of the Company or to receive any other award or amount of compensation, whether under the Plan or otherwise, and no payment of any award under the Plan will be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance, or other benefit plan of the Company except as otherwise specifically provided in such other plan;
d. The Participant consents to the collection, use, and transfer, in electronic or other form, of the Participant’s personal data by the Company, the Committee, and any third party retained to administer the Plan for the exclusive purpose of administering the Award and Participant’s participation in the Plan; provided, that the Participant agrees to promptly notify the Committee of any changes in the Participant’s name, address, or contact information during the entire period of Plan participation; and
e. Notices and other documents related to the Award or the Plan may be delivered by electronic means, and the Participant hereby consents to receive such documents by electronic delivery and to participate in the Plan through an online or electronic system authorized by the Committee.
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8. General Provisions.
a. Conformity with Plan. This Agreement is intended to conform in all respects with, and is subject to all applicable provisions of, the Plan; provided, however, inconsistencies between this Award Agreement and the Plan shall be resolved in accordance with the terms of this Award Agreement in all respects; provided further, with respect to any ambiguities in this Award Agreement or any matters as to which this Award Agreement is silent, the Plan shall govern.
b. Governing Law; Disputes. The Plan and this Award Agreement are to be governed, construed, and administered in accordance with the laws of the State of Nevada, without regard to otherwise governing conflict of laws principles. Any dispute or controversy arising under, out of, or in connection with this Award Agreement shall be finally determined and settled by binding arbitration in [•], in accordance with the rules and procedures of the American Arbitration Association, and judgment upon the award may be entered in any court having jurisdiction thereof. In such arbitration, each party shall bear its own costs and fees, including attorneys’ fees.
c. Administration; Interpretation. In accordance with the Plan and this Award Agreement, the Committee shall have full discretionary authority to administer the Award, including discretionary authority to interpret and construe any and all provisions relating to the Award. Decisions of the Committee shall be final, binding, and conclusive on all parties. In the event of a conflict between this Award Agreement and the Plan, the terms of the Plan shall prevail.
d. Entire Agreement. This Agreement, together with the Plan, sets forth the entire agreement and understanding of the parties relating to the subject matter herein and therein and merges all prior discussions between the parties.
e. Severability. The provisions of this Award Agreement hereto are severable, and if any one or more provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.
f. Successors and Assigns. The rights and benefits of this Award Agreement shall inure to the benefit of, and be enforceable by, the Company’s successors (including any successor by reason of amalgamation of the Company) and assigns. The rights and obligations of Participant under this Award Agreement may not be assigned, except to Permitted Transferees in accordance with Section 4.a hereof.
g. Injunctive Relief. In addition to any other right of the Company to enforce the terms of this Award Agreement, the Participant hereby consents and agrees that the Company may bring an action or special proceeding in any state or federal court of competent jurisdiction to seek injunctive or other relief to enforce the Participant’s compliance with any restrictive covenant obligations undertaken by the Participant in connection with the grant of the Award.
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9. Acknowledgement of Receipt and Acceptance. By signing below (including via electronic signature, as approved by the Plan Administrator), the undersigned Participant: (a) acknowledges receipt and acceptance of the Award, subject and pursuant to the terms and conditions of this Award Agreement and of the Plan, which are incorporated by reference herein; (b) agrees to the representations made in Section 7 of this Award Agreement above; (c) agrees to be bound by this Award Agreement and the Plan; and (d) acknowledges that the Award granted by this Award Agreement is subject to forfeiture until vested.
[Remainder of Page Intentionally Blank - Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned parties, intending to be bound, have executed this Restricted Stock Award Agreement, as of the Grant Date specified in the Notice of Grant accompanying this Award Agreement.
THE COMPANY
Riot Blockchain, Inc., a Nevada corporation
By: ________________________________
Name: _____________________________
Title: ______________________________
THE PARTICIPANT
By my signature below, I, the undersigned individual, hereby acknowledge and agree that my receipt and understanding of this Award Agreement and the documents incorporated by reference herein, including, for the avoidance of doubt, the Riot Blockchain, Inc. 2019 Equity Incentive Plan, as amended, and the documents incorporated by reference therein, and I hereby agree to be bound and abide by the terms and conditions of this Award Agreement.
_______________________ Date Accepted |
______________________
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| _____________________ Participant's Name (Please Print) |
Attachments:Appendix A – Notice of Grant
Appendix B – Section 83(b) Election Form
Appendix C – Irrevocable Stock Power
[Signature Page to Riot – [_________] Performance-Based Restricted Stock Award Agreement]
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Appendix A
Notice of Grant
[ATTACHED]
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Appendix B
Section 83(b) Election Form Filing Instructions and Sample Section 83(b) Election Form
[ATTACHED]
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Appendix C
Irrevocable Stock Power
[ATTACHED]
Exhibit 10.3
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this “Agreement”) is made and entered into, effective as of [•], 20[•] (the “Effective Date”), by and between [•] (“Employee”), an individual resident of [•], and Riot Blockchain, Inc., a Nevada corporation (“Riot” and, together with its consolidated subsidiaries, the “Company”). Employee and the Company are sometimes referred to herein collectively as the “Parties” and each, individually, as a “Party” to this Agreement.
WHEREAS, the Company wishes to employ Employee as its [•], and Employee wishes to accept such employment with the Company, in each case subject and pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, promises, and obligations contained herein, and for other good and valuable consideration, the receipt and sufficiency of such consideration is hereby acknowledged, the Parties agree as follows:
| 1. | Position, Duties and Scope of Employment. |
a. Position; Job Duties. Employee hereby accepts and agrees to serve full-time as the Company’s [•] subject and pursuant to the terms of this Agreement. In such position, Employee shall have such powers, authorities, and responsibilities as may reasonably be assigned to Employee from time to time, as well as such other powers, responsibilities, and authorities customary for employees of similar rank and title of corporations of the size, type, and nature of the Company; provided, however, Employee shall have no authority to bind the Company or any of its subsidiaries by a promise or representation or to enter into any contract, either written or oral, affecting the Company or any of its subsidiaries, except specifically granted by the Company.
b. Performance under this Agreement. During the Employment Term (as defined herein), Employee shall perform and fulfill Employee’s duties and responsibilities under this Agreement to the best of Employee’s abilities and in a trustworthy, professional, competent, and efficient manner. Employee shall at all times comply with and be subject to all applicable policies, procedures, codes of conduct, requirements, and organizational regulations established by and/or amended by or on behalf of the Company from time to time.
c. Preparation, Ownership, and Storage of Data and Documents. Employee shall prepare, in connection with services performed under this Agreement, all reports, documents and correspondence necessary and/or appropriate under the circumstances, all of which shall belong to the Company. Employee shall store electronically all reports, documents, correspondence, and data on and in Company-designated storage and will not archive or otherwise retain any tangible or intangible copies, summaries, or descriptions of said reports, documents, correspondence, or data or otherwise store any such materials outside of such Company-designated storage.
d. Fiduciary Duty; Conflict of Interests. By accepting employment with the Company, Employee acknowledges and agrees that Employee owes a fiduciary duty of loyalty, fidelity, and allegiance to act at all times in the best interests of the Company and to not intentionally engage in any act which would directly or indirectly injure the Company’s business, interests, or reputation. In keeping with the Employee’s fiduciary duties and obligations to the Company, Employee shall not become involved in a conflict of interest with the Company, or upon discovery thereof, allow such a conflict to continue. Moreover, Employee shall not engage in any activity that might involve a possible conflict of interest without first obtaining written approval from the Chief Executive Officer of the Company. Employee may, however, with prior written consent from the Chief Executive Officer (which consent shall not unreasonably be withheld), serve on one corporate board as a board member and serve on one civic or non-profit board as a board member at any given time during Employee’s employment with the Company; provided, however, that Employee engages in such outside activities only during Employee’s personal time.
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2. Term of Employment. Employee’s employment under this Agreement shall commence on the Effective Date and continue for a period of [•] months thereafter, unless such employment is terminated earlier pursuant to Section 6 of this Agreement (the “Initial Term”). If, upon the expiration of the Initial Term, the Parties wish to continue the employment relationship created hereby, the Parties may, by mutual written agreement, extend the term of this Agreement for such a period as they may mutually agree (a “Renewed Term”) or, otherwise, enter into a new employment agreement. The period during which the Employee is employed by the Company under this Agreement, including the Initial Term and any Renewed Term, is referred to as the “Employment Term” in this Agreement. For the avoidance of doubt, the Parties hereby acknowledge and agree that, notwithstanding the Employment Term, Employee’s employment is “at-will” and voluntary, and, therefore, that teach Party is free to terminate this Agreement (and the employer-employee relationship that exists between them) at any time, subject and pursuant to Section 6 hereof and applicable law.
3. Exclusive Employment; Place of Services.
a. Exclusive Employment. During Employee’s employment with the Company, Employee shall devote all of Employee’s working time, attention, knowledge, and skill(s) to the performance and fulfillment of Employee’s duties, responsibilities, and services for the Company, and Employee shall not at any time during the Employment Term engage in any other business, employment, or consulting or contractor work, unless Employee has first obtained prior written consent from the Company’s Chief Executive Officer.
b. Place of Services. Employee’s services during the Employment Term shall ordinarily be performed remotely in one or more locations of Employee’s choosing. Regardless of the Employee’s place of service, Employee shall be available, including by telecommuting via video conferencing or other electronic means, during all reasonable times throughout the Employment Term, and shall be available for reasonable business travel requirements on a limited, and temporary basis, in performance of the Employee’s duties. Notwithstanding anything in this Agreement to the contrary, Employee’s duties shall include travel relating to the Company’s business reasonably commensurate with Employee’s position with the Company.
4. Compensation and Benefits.
a. Base Salary. During the Employment Term, the Company shall pay Employee an annualized salary in accordance with its regular payroll practices for an executive employee. Employee’s initial gross annual base salary shall be [•] and 00/100 United States Dollars ($[•]), subject to all offsets, prorations, deductions, foreign and domestic tax withholdings, and claw-backs as set forth in this Agreement and/or required under applicable law. Employee’s annual base salary, as adjusted from time to time as set forth herein, is referred to as the “Base Salary” in this Agreement. The Company’s Chief Executive Officer and/or the Compensation and Human Resources Committee of its Board of Directors (the “Compensation Committee”) shall annually review and may, in his or its sole discretion, adjust Employee’s Base Salary from time to time. Effective as of the date of any adjustment to Employee’s Base Salary, this Agreement shall be amended automatically without further action or writing by the Parties such that the Base Salary stated herein reflects the new Base Salary established by the Company for all purposes of this Agreement.
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b. Annual Incentive Bonus. During the Employment Term, Employee shall be eligible to receive an annual discretionary cash performance-incentive bonus based on Employee’s Base Salary, with a target amount of [•] percent ([•]%) of Employee’s Base Salary, and a minimum target amount of [•] percent ([•]%) of Employee’s Base Salary (the “Incentive Bonus”). The Incentive Bonus shall be awarded based on the determination of the Compensation Committee or its delegee, in its or their sole discretion, of Employee’s achievement during the applicable year of the performance objectives established for Employee. For the avoidance of doubt, Employee shall not be entitled to any Incentive Bonus amount for any applicable year, except as awarded by the Compensation Committee or its delegee(s) in its or their sole discretion. For each fiscal year during the Employment Term, the Compensation Committee (or its delegee, as appropriate) shall communicate the terms of Employee’s Incentive Bonus for such year, including, without limitation, Employee’s performance objectives for the applicable year and the applicable target amount of such Incentive Bonus (which shall be no less than [•] percent ([•]%) of Employee’s Base Salary). Following each completed fiscal year during the Employment Term, the Compensation Committee (or its delegee, as appropriate) shall evaluate Employee’s achievement of the performance objectives established with respect to the Incentive Bonus for Employee for the applicable year. Based on this evaluation, the Compensation Committee shall determine the final amount of the Incentive Bonus, if any, to be awarded to Employee. Incentive Bonus awards may, in the discretion of the Board or the Compensation Committee, be granted as an Equity Award according to Section 4.c of this Agreement, or as a cash award. Nothing in this Section 4.b, nor anything in this Agreement, entitles or shall be interpreted to entitle Employee to any guaranteed minimum Incentive Bonus at any time during the Employment Term and Employee’s receipt of an Incentive Bonus is expressly contingent upon Employee being actively employed by the Company through the date that such Incentive Bonus is actually paid to Employee. All determinations with respect to any Incentive Bonus shall be made by the Board or Compensation Committee, as applicable, in its sole and reasonable discretion, and shall be final, conclusive, and binding on all Parties.
c. Equity Compensation. Subject to the terms and conditions of this Agreement, the Employee shall be eligible to receive, as additional compensation, awards of equity compensation (each an “Equity Award”), under the Riot Blockchain Inc. 2019 Equity Incentive Plan, as amended, or any successor equity incentive plan adopted by the Company from time to time after the Effective Date (the “Equity Plan”). All Equity Awards shall be granted subject to the terms and conditions of the Equity Plan and an equity award agreement (each, an “Award Agreement”) to be entered into between the Company and Employee as of the grant date of such Equity Award. The Company grants its employees Equity Awards as additional long-term incentive compensation to better align employees’ interests with those of the Company’s stockholders. Accordingly, any Equity Award granted to Employee by the Company shall be subject to forfeiture until vesting. As set forth in the Equity Plan and the applicable Award Agreement, vesting of these Equity Awards may occur as a result of Employee’s continued service with the Company through designated vesting dates (a “Service-Based Award”), or as a result of the Employee’s or the Company’s achievement of certain performance objectives established by the Board from time to time, subject to Employee’s continued employment with the Company through the date the Board determines the performance objective(s) has been achieved (a “Performance-Based Award”). For the avoidance of doubt, except as otherwise agreed by the Company in writing, Employee shall not be guaranteed any minimum Equity Award at any time during the Employment Term.
d. Benefits. During the Employment Term, Employee shall be entitled to participate in each of the Company’s employee benefit plans and programs, as in effect from time to time, including without limitation those group medical, dental, health and/or disability insurance plans, Code Section 401(k) plans, and Medicare/Social Security reimbursement plans, all in accordance with and subject to all terms and conditions of those benefit plans and/or programs and any amendments thereto, including any and all provisions concerning eligibility for participation.
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e. Paid Time Off. During the Employment Term, Employee shall be eligible to receive paid time off (“PTO”) up to a maximum amount of [•] ([•]) PTO days per fiscal year to be accrued, carried over, and used subject to and in accordance with the terms of the Company’s paid-time-off policy in effect from time to time. During the Employment Term, accrued but unused PTO will carry over from one fiscal year to the next; provided, however, once Employee has reached the maximum number of accrued days of PTO for a fiscal year, Employee will not be eligible to accrue any additional PTO for that year until Employee’s PTO balance falls below the maximum accrual amount of [•] ([•]) days per fiscal year.
f. Expense Reimbursement. During the Employment Term, and subject to Section 7.p of this Agreement, the Company will reimburse Employee for reasonable, necessary, and documented out-of-pocket business expenses incurred by Employee on behalf of the Company in connection with the performance of Employee’s duties and in furtherance of the Company’s business in accordance with the Company’s business expense policy, as the same may be amended from time to time.
g. Company Compensation Practices and Regulatory Compliance. Any payment or benefit conferred under this Section 4 or otherwise pursuant to this Agreement shall, subject to all applicable regulatory, tax, and legal requirements described under Section 7.p of this Agreement, be paid in accordance with the Company’s customary compensation practices and, as applicable, prorated for the actual number of days Employee was actively employed with the Company during the applicable fiscal year.
5. Restrictive Covenants. The Employee hereby acknowledges and agrees that Employee has read and understood, and continues to be bound by the terms of, that certain Confidentiality and Non-Competition Agreement by and between the Company and Employee (the “CNCA”), which is incorporated herein by this reference. The Employee further understands and agrees that the Company may, in its sole discretion, update and amend the Employee’s CNCA from time to time, and the Employee will be required to sign any such amended agreement as a material term of this Agreement and a condition of continued employment. Notwithstanding anything contained in this Agreement to the contrary, and for the avoidance of any doubt, nothing herein shall modify or limit the applicability of the confidentiality and/or restrictive covenants contained in the CNCA and/or any other agreement between the Parties, which shall be enforced according to their terms and read together to provide the greatest level of protection(s) to the Company and its confidential information (as that term is defined in the CNCA).
6. Termination of Employment.
a. By the Company for Cause. Employee’s employment under this Agreement may be terminated by the Company at any time upon the occurrence of one or more of the following events (each of which shall be a termination event for “Cause”):
i. Employee willfully, recklessly, or with gross negligence fails to comply with any material term or aspect of the policies, standards, and regulations that the Company, in its sole discretion, establishes and/or implements in writing before and during the Employment Term;
ii. Employee commits any act of gross negligence, illegal conduct, embezzlement, theft, misappropriation, fraud, dishonesty, or other acts of misfeasance, malfeasance, and/or misconduct in the rendering of services to or on behalf of the Company;
iii. Employee willfully, recklessly, or with gross negligence fails to comply with any reasonable request of the person(s) to whom Employee reports;
iv. Employee fails to adequately, substantially, and/or continually perform to Company’s reasonable satisfaction the usual and customary duties of Employee’s employment, those duties reasonably requested of Employee and typically associated with Employee’s position, and/or those duties or expectations assigned by Company;
v. Employee breaches any material term or provision of this Agreement or any material term or provision of any other agreement between the Parties; or
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vi. Employee is convicted of, or pleads guilty or nolo contendere to, any crime constituting a felony or any crime constituting a misdemeanor involving deceit, dishonesty, or moral turpitude, or otherwise commits any act which impairs Employee’s fitness to perform the Employee’s duties under this Agreement and/or damages the reputation of the Company, as determined in the sole and reasonable discretion of the Board.
Notwithstanding the foregoing, the Company may not terminate Employee’s employment under this Agreement for Cause under this Section 6.a. without first providing Employee written notice of the event or condition(s) constituting Cause, which notice must be given no later than Thirty (30) days after the date on which the event or condition(s) constituting Cause is first reasonably discovered by the Board. Upon the giving of such notice, and only if the event or condition is reasonably capable of being remedied by Employee, Employee shall have a period of Thirty (30) days during which Employee may remedy the event or condition(s) and, if so remedied, the Company may not terminate Employee’s employment under this Agreement for Cause for the event or condition that was remedied.
b. By the Company without Cause. Employee’s employment under this Agreement may be terminated by the Company without Cause upon providing written notice of termination to Employee Thirty (30) days in advance of such termination. For purposes of this Agreement “without Cause” shall mean any termination by the Company that is not (i) a termination for Cause as described and in accordance with Section 6.a. above, or (ii) a termination because of death or Disability, as described Section 6.e below. Notwithstanding anything in this Agreement to the contrary, the Company may, in its sole and absolute discretion, advance the Employee’s termination date to an alternate termination date of the Company’s own choosing provided, however, that Employee shall be paid Employee’s Base Salary from the date that the Company provides written notice of termination through the end of the 30-day notice period provided for in this Section 6.b.
c. By Employee for Good Reason. Employee’s employment under this Agreement may be terminated by Employee at any time following written notice to the Company upon the occurrence of any of the following events or conditions (each of which shall be a termination event for “Good Reason”):
i. A material diminution in Employee’s Base Salary or employment benefits other than a general reduction in Base Salary and/or benefits that affects all similarly situated employees;
ii. A material breach of this Agreement by the Company;
iii. A material diminution in Employee’s title, authorities, responsibilities, or duties without Employee’s consent (other than a temporary change while Employee is physically or mentally in capacitated or as required by applicable law;
iv. A relocation of Employee’s primary work location that would require the reasonable person to move Employee’s residence from its then current location if Employee does not consent to such relocation;
v. The Company permanently ceases its business operations; and/or
vi. A Change in Control (as defined in Section 6.f below) of the Company and the Employee experiences any of the events set forth in the foregoing Sections 6.c.i through 6.c.v within either (A) the first 6 months following such Change in Control or (B) the Initial Term or any then-effective Renewed Term of this Agreement, whichever is later.
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Notwithstanding the foregoing, Employee may not terminate Employee’s employment under this Agreement for Good Reason without first providing the Company advanced written notice of the event(s) and/or condition(s) constituting Good Reason, which notice must be given no later than Thirty (30) days after the date on which the event(s) and/or condition(s) constituting Good Reason first occurs. Upon the Company’s receipt of such notice, the Company shall then have Thirty (30) days during which it may remedy the event(s) and/or condition(s) (the “Company Notice Period”) and, if so remedied, Employee may not terminate his employment under this Agreement for Good Reason. If Employee fails to comply with the immediately preceding two sentences of this Section 6.c, such termination shall not be considered a termination for Good Reason. If the Company fails to cure the event(s) and/or conditions during the Company Notice Period, then the termination shall occur Thirty (30) days after the expiration of the Company Notice Period unless the Company, in its sole discretion, chooses to advance Employee’s termination date to an alternate termination date of the Company’s own choosing.
d. By Employee without Good Reason. Employee may terminate Employee’s employment under this Agreement without Good Reason by providing written notice of termination to the Company no less than One Hundred Eighty (180) days before the termination date. For purposes of this Agreement “without Good Reason” shall mean any termination by Employee that is not a termination due to death or Disability under Section 6.e., below, or for Good Reason as set forth and in accordance with Section 6.c, above. Notwithstanding anything in this Agreement to the contrary, the Company may, in its sole and absolute discretion, waive all or any part of the One Hundred Eighty (180)-day notice period for no consideration and advance the Employee’s termination date to an alternate termination date of the Company’s own choosing.
e. Termination due to Death or Disability. Employee’s employment with the Company shall terminate immediately in the event of death or Disability of Employee. The term “Disability” means Employee’s inability to substantially perform his duties as Chief Executive Officer by reason of any medically determinable physical or mental impairment that, as determined by a physician chosen by the Company and reasonably acceptable to Employee, can be expected to: (i) result in death; (ii) last for a continuous period of at least Thirty (30) days; or (iii) endanger the Employee and/or others if Employee were to continue to perform Employee’s duties with the Company.
f. Change in Control. For purposes of this Agreement, a “Change in Control” shall be deemed to have occurred if:
i. an acquisition of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) or any future replacement thereof) by any individual, group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act, or any future replacement thereof), or entity (each, a “Person”) of fifty percent (50%) or more of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); excluding, however, the following: (A) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege unless the security being so converted was itself acquired directly from the Company; (B) any acquisition by the Company; (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company; or (4) any acquisition pursuant to a transaction which complies with clauses (A), (B) and (C) of this Section 6.f.i; or
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ii. a change in the composition of the Board such that the individuals who constitute the Incumbent Board (such as defined herein) cease for any reason to constitute at least a majority of the Board. As used in this Section 6.f, the “Incumbent Board” means those individuals serving as members of the Board as of the Effective Date; provided, however, any subsequent individual serving on the Board who was (A) elected to serve as a member of the Board by the Company’s stockholders or (B) appointed to fill a vacancy on the Board shall be considered as though such individual were a member of the Incumbent Board only if such individual was nominated for election or appointed to serve on the Board by at least a majority of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act or any future replacement thereof) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or
iii. consummation of a reorganization, merger or consolidation of the Company, or sale or other disposition of all or substantially all of the assets of the Company (a “Corporate Transaction”); excluding, however, such a Corporate Transaction pursuant to which: (A) all or substantially all of the individuals and entities who are the beneficial owners, respectively, of the Outstanding Company Voting Securities immediately prior to such Corporate Transaction will beneficially own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation which, as a result of such transaction, owns the Company or all or substantially all of the Company’s assets either directly or through one or more Subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Corporate Transaction, of Outstanding Company Voting Securities; (B) no Person (other than the Company, any employee benefit plan (or related trust) of the Company or such corporation (described in clause (A) of this Section 6.f.iii) resulting from such Corporate Transaction) will beneficially own, directly or indirectly, forty percent (40%) or more of the combined voting power of the outstanding voting securities of such corporation entitled to vote generally in the election of directors except to the extent that such ownership existed prior to the Corporate Transaction; and (C) individuals who were members of the Incumbent Board will constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction; or
iv. A complete liquidation or dissolution of the Company.
Notwithstanding any of the foregoing, however, in any circumstance or transaction in which compensation resulting from or in respect a Change in Control would result in the imposition of an additional tax under Section 409A of the Internal Revenue Code of 1986, as amended, (the “Code”) were to apply, but would not result in the imposition of any additional tax if the term “Change in Control” were defined herein to mean a “change in control event” within the meaning of Section 1.409A-3(i)(5) of the Treasury Regulations promulgated under the Code, as amended, (the “Treasury Regulations”) then “Change in Control” shall mean a “change in control event” within the meaning of Treasury Regulation Section 1.409A-3(i)(5), but only to the extent necessary to prevent such compensation from becoming subject to an additional tax under Code Section 409A.
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g. Payment of Accrued Obligations; Continuation of Benefits. Regardless of the reason for the termination of Employee’s employment with, or other qualifying “Separation from Service” (within the meaning of Treasury Regulations Section 1.409A-1(h), or future replacement thereof) from, the Company, Employee shall be entitled to receive payment in satisfaction of the following obligations accrued to Employee as of the effective date of such termination or Separation from Service (the “Termination Date”) which are outstanding as of the Termination Date (collectively, the “Accrued Obligations”): (A) all of the Employee’s Base Salary earned and unpaid through the Termination Date; (B) all of Employee’s PTO accrued and unused as of the Termination Date; and (C) reimbursement of Employee’s properly reimbursable business expenses incurred and unreimbursed as of the Termination Date; provided, that, Employee must submit a final request for reimbursement of any such outstanding unreimbursed business expenses, together with such substantiation as may be requested or required pursuant to the Company’s employee expense reimbursement policy, by no later than [•] business days following the Termination Date to receive reimbursement of such employee business expenses. Except with respect to reimbursement of Employee’s outstanding reimbursable employee business expenses, all Accrued Obligations shall be due and payable to Employee (or Employee’s estate or beneficiaries, as the case may be) on the first regular payday following the Termination Date (or sooner if required by law). In addition to satisfaction of the Accrued Obligations, Employee shall continue to receive coverage under the Company’s then-effective group medical insurance policies and employee benefit programs through the end of the month of the Termination Date, except as required by applicable law and the terms of applicable Company group medical insurance policy and employee benefit program agreements. For the avoidance of doubt, except for as provided in Section 6.h below, Employee shall be entitled to receive only payment of the Accrued Obligations and continuation of the Company employee benefits set forth in this Section 6.g in connection with the cessation of Employee’s employment with the Company, and, upon payment of such Accrued Obligations, Employee shall not be entitled to any further compensation or benefits from the Company (including its subsidiaries and affiliates), except as specifically provided herein, or as otherwise agreed by the Company in writing.
h. Severance. By no later than [•] business days following the Termination Date, Company and Employee (or Employee’s estate or beneficiaries, as the case may be) shall enter into a separation agreement and general release, substantially in form attached as Exhibit “A” hereto (the “Severance Agreement”) pursuant to which Company shall pay to Employee (or Employee’s estate or beneficiaries, as the case may be), in exchange for the execution, non-revocation, and compliance with the terms of the Severance Agreement by the Employee (or Employee’s estate or beneficiaries, as the case may be), the applicable amounts specified in Sections 6.h.i through 6.h.v below (the “Severance Payments”) in accordance with the Severance Agreement; provided, however, neither Party shall be obligated to enter into the Severance Agreement if Employee’s employment with the Company is terminated: (i) by the Company for Cause; or (ii) by Employee without Good Reason and Employee fails to provide the advance written notice required by Section 6.d of this Agreement. For the avoidance of doubt, the Severance Payments shall not become due and payable unless and until the Severance Agreement between the Company and Employee has become effective, binding, and irrevocable on the parties thereto; provided, however, that if the Company (or applicable successor-in-interest to the Company) fails to execute and deliver the Severance Agreement in accordance with this Section 6.h, the Company shall be deemed in material default of its obligations under this Agreement, and the applicable Severance Payments that would have been due to Employee had the Severance Agreement been entered into in accordance with this Section 6.h. shall immediately become due and payable to Employee as of the Termination Date, without further action by, or agreement of, the Employee. Accordingly, Employee shall be entitled to receive the following Severance Payments pursuant to the Severance Agreement:
i. Termination by Company for Cause; Termination by Employee without Good Reason (without Notice). If the Company terminates Employee’s employment for Cause, or if Employee terminates Employee’s employment hereunder without Good Reason and Employee fails to provide advance notice required by Section 6.d. of this Agreement, then the Employee (or Employee’s estate or beneficiaries, as the case may be) shall not receive any Severance Payments and shall only be entitled to receive payment of the Accrued Obligations; therefore, upon payment of such amounts, Employee shall not be entitled to receive any additional remuneration from the Company under this Agreement with respect to Employee’s employment with the Company.
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ii. Termination by Employee without Good Reason (with Notice). If Employee terminates Employee’s employment hereunder without Good Reason and provides the Company with advance written notice of such termination as required by Section 6.d. of this Agreement, Employee (or Employee’s estate or beneficiaries, as the case may be) shall receive payment of the Accrued Obligations and the following Severance Payments: (A) the Incentive Bonus to which Employee would have been entitled under Section 4.b. of this Agreement had Employee remained employed with the Company through the end of the fiscal year in which the Termination Date occurs, calculated based on the minimum target amount for the applicable fiscal year, prorated through the Termination Date; and (B) [•] ([•]) months of the Employee’s then-effective Base Salary.
iii. Termination by Company without Cause; Termination by Employee for Good Reason (other than incident to a Change in Control). If Employee’s employment with the Company is terminated by the Company without Cause or by the Employee for Good Reason in accordance with Section 6.c hereof (other than incident to a Change in Control), then Employee (or Employee’s estate or beneficiaries, as the case may be) shall receive payment of the Accrued Obligations and the following Severance Payments: (A) the Incentive Bonus to which Employee would have been entitled under Section 4.b of this Agreement had Employee remained employed with the Company through the end of the fiscal year of the Termination Date, calculated based on [•] percent ([•]%) of the target amount for the applicable fiscal year, prorated through the Termination Date; (B) payment of an amount equal to the greater of: (X) [•] percent ([•]%) of the sum of Employee’s then-effective Base Salary that would have be paid to Employee through the end of the Initial Term (or then-applicable Renewed Term) had Employee’s appointment or service with the Company not ceased; and (Y) [•] ([•]) months of the Employee’s then-effective Base Salary; (C) acceleration of the vesting of that portion of all outstanding service-based Equity Awards granted to Employee under the Equity Plan that would have vested within the [•] ([•]) months following the Termination Date but for the cessation of Employee’s appointment or service with the Company, such that such Equity Awards shall be deemed vested immediately as of the Termination Date; and (D) continuation of the vesting, at [•] percent ([•]%) of the target award specified for Employee under the applicable award agreement, of all outstanding performance-based Equity Awards granted to Employee under the Equity Plan, as if Employee’s appointment or service with the Company had not ceased, until the earlier of: (1) [•] ([•]) months following the Termination Date; (2) the end of the performance period applicable to such Equity Award; or (3) the termination of the Severance Agreement or the CNCA in connection with Employee’s breach of the terms thereof.
iv. Termination due to Change in Control. If, within six (6) months of a Change in Control of the Company, Employee’s employment with the Company is terminated by the Company for any reason other than For Cause as defined in Section 6.a hereof, or if Employee terminates Employee’s employment with the Company for Good Reason consistent with Section 6.c.vi. of this Agreement, then Employee (or Employee’s estate or beneficiaries, as the case may be) shall receive payment of the Accrued Obligations and the following Severance Payments: (A) the Incentive Bonus to which Employee would have been entitled under Section 4.b of this Agreement, if any, had Employee remained employed with the Company through the end of the fiscal year in which the termination of employment occurred; (B) payment of One Hundred percent (100%) of the Employee’s Base Salary as in effect immediately prior to the Change in Control that would have been paid to Employee through the end of the Initial Term (or then-applicable Renewed Term) had Employee’s appointment or service with the Company not ceased, or Twelve (12) months the Employee’s Base Salary as in effect immediately prior to the Change in Control, whichever is greater; (C) acceleration of the vesting of all outstanding service-based Equity Awards granted to Employee under the Equity Plan, such that vesting shall be deemed to have occurred as of immediately prior to the Change in Control; and (D) acceleration of the vesting of all outstanding performance-based Equity Awards granted to Employee under the Equity Plan, at One Hundred percent (100%) of Target Award levels, such that vesting shall be deemed to have occurred as of immediately prior to the Change in Control.
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v. Termination due to death or Disability. If Employee’s employment hereunder is terminated because of Employee’s death or Disability, then Employee (or Employee’s estate or beneficiaries, as the case may be) shall receive payment of the Accrued Obligations and the following Severance Payments: (A) the Incentive Bonus to which Employee would have been entitled under Section 4.b of this Agreement had Employee remained employed with the Company through the end of the fiscal year of the Termination Date, calculated based on [•] percent ([•]%) of the target amount for the applicable fiscal year, prorated through the Termination Date; (B) payment of an amount equal to the greater of: (X) [•] ([•]%) of Employee’s then-effective Base Salary that would have be paid to Employee through the end of the Initial Term (or then-applicable Renewed Term) had Employee’s appointment or service with the Company not ceased; and (Y) [•] ([•]) months of the Employee’s then-effective Base Salary; (C) acceleration of the vesting of that portion of all outstanding service-based Equity Awards granted to Employee under the Equity Plan that would have vested within the [•] ([•]) months following the Termination Date but for the cessation of Employee’s appointment or service with the Company, such that such Equity Awards shall be deemed vested immediately as of the Termination Date; and (D) acceleration of the vesting of the outstanding performance-based Equity Awards granted to Employee under the Equity Plan, at [•] percent ([•]%) of Target Award levels, such that vesting shall be deemed to have occurred as of immediately prior to the Termination Date.
i. Treatment of Equity. Other than pursuant to the Severance Agreement as set forth in the foregoing Sections 6.h.i. through 6.h.v., and except with respect to applicable regulatory, tax, and legal requirements described under Section 7.p. of this Agreement, any Equity Awards granted to Employee shall remain governed by the Equity Plan and the applicable Equity Award Agreement between Employee and the Company.
j. Regulatory Adjustments. All amounts which may become payable to Employee under this Section 6 in connection with the cessation of Employee’s employment with the Company, including any Severance Payments, shall be subject to all applicable regulatory, tax, and legal requirements described under Section 7.p. of this Agreement.
k. Effect of Termination; Resignation and Removal from all Company Positions. Notwithstanding anything in this Agreement to the contrary, upon termination of Employee’s employment hereunder for any reason, Employee agrees: (i) to immediately deliver to the Company all Property (as that term is defined in the CNCA) and records (including all copies thereof) of the Company; (ii) that the Company shall have the right, without limitation, to withhold and retain any amounts that might otherwise be owed to the Employee to offset any amounts or debts owed by Employee to the Company; and (iii) that the Company shall, subject to applicable laws, further have the right to withhold the payment of any amounts that might otherwise be owed to Employee until such time as the Company determines, to its reasonable satisfaction, that any and all proprietary and confidential information, regardless of the medium on which it is embodied (e.g., laptop computer), has been returned to the Company and that Employee has not retained copies thereof. Furthermore, except as specifically agreed by the Company in writing, upon the cessation of Employee’s employment with the Company, Employee shall be deemed to have resigned and/or been removed from all positions that the Executive holds (or previously held) with the Company or any of the Company’s affiliated and/or related entities, effective immediately as of the Termination Date.
7. Miscellaneous.
a. Section Headers; Gender and Number. The section headings in this Agreement are for the Parties’ convenience only and are not intended to govern, limit, or affect the meanings of the sections. Singular and plural nouns and pronouns shall mean the singular or plural and the masculine, feminine, or neuter genders as permitted by the context in which the words are used.
b. Representations by Employee. The Employee represents and warrants to the Company that:
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i. The Employee’s acceptance of employment under this Agreement with the Company and the performance of the Employee’s duties hereunder will not conflict with or result in a violation of, a breach of, or a default under any contract, agreement, or understanding to which the Employee is a party or is otherwise bound;
ii. The Employee’s acceptance of employment under this Agreement with the Company and the performance of the Employee’s duties hereunder will not violate any non-solicitation, non-competition, non-disclosure, or other similar covenant or agreement between the Employee and a prior employer of the Employee;
iii. The Employee’s representations to the Company regarding the Employee’s prior employment have been truthful and accurate; and
iv. Employee shall immediately notify the Company of any issues that arise that could conflict with the representations, warranties, and obligations set forth herein, including without limitation, any demands, claims, notices, or requests made by third parties that could adversely impact Employee’s ability to perform services as the [•].
c. Cooperation. The Parties agree that certain matters in which Employee will be involved during the Employment Term may necessitate Employee’s cooperation in the future. Accordingly, following the termination of Employee’s employment for any reason, to the extent requested by the Company, Employee shall provide to the Company reasonable levels of assistance in answering questions about the Company’s business, transition of responsibility, legal matters, and/or litigation. The Company shall make reasonable efforts to minimize the disruption of Employee’s other activities.
d. Entire Agreement; Modification. Unless specifically provided herein, this Agreement, along with all exhibits and/or attachments hereto (including without limitation the Equity Award Agreements entered into between the Parties and the CNCA) constitutes the entire understanding between Employee and the Company with respect to the subject matter hereof and supersedes all prior understandings, agreements, representations, and warranties, both written and oral, with respect to the subject matter hereof. The Parties are not relying upon any representations or promises not set forth in this Agreement. Except as provided here, this Agreement may not be amended or modified except in a writing signed by both Parties.
e. Waiver. Failure to insist upon strict compliance with any of the terms, covenants, or conditions set forth in this Agreement (including the CNCA) shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of any right or power hereunder at any one or more times be deemed a waiver or relinquishment of such right or power at any other times. No waiver by the Company of a breach by Employee of any provision of this Agreement (including the CNCA) shall be binding upon the Company unless the same is in writing, signed by a duly authorized representative of the Company, and any such waiver shall not operate or be construed as a waiver of any subsequent breach.
f. Severability. If it is determined by a court of competent jurisdiction that any of the provisions of this Agreement is invalid or unenforceable, such determination shall not affect the validity of the remaining provisions in this Agreement, each of which shall survive and be given full force and effect. A court of competent jurisdiction may modify and bring about a modification of any invalid or unenforceable provision to make it enforceable under applicable law.
g. Assignment. The Company may assign this Agreement (including the CNCA) and, if assigned, the assignee has the right to seek enforcement of the Agreement (including the CNCA). Since this Agreement and the Employee’s rights and obligations hereunder are personal to Employee, Employee cannot assign this Agreement (including the CNCA) to any other person or entity.
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h. Indemnification of Company. Employee agrees to indemnify, defend, and hold the Company, its Affiliates, and their officers, directors and employees harmless from and against any claims (including without limitation losses, damages, attorneys’ fees and costs) by third parties alleging that Employee’s employment with the Company hereunder constitutes unlawful activity, breaches an obligation of Employee, or otherwise subjects the Company and its Affiliates to potential liability as a result of Employee’s employment with the Company.
i. Indemnification of Employee. The Company agrees to indemnify, defend, and hold the Employee harmless from and against claims as provided for under the Company’s Articles of Incorporation and the Company’s Bylaws in effect from time to time.
j. Notices. All notices and other communications required to be given under this Agreement (including the CNCA) shall be in writing and shall be delivered to the Party in person, via e-mail or as an attachment to an e-mail transmission to the Party’s e-mail address, or by overnight carrier service by a recognized business courier (such as FedEx or UPS). A notice and/or other communication to be given hereunder shall be considered effective: (a) on the date of delivery if personally delivered against a written receipt; (b) on the date of delivery if sent by e-mail transmission or as an attachment to an e-mail transmission, with a delivery receipt; or (c) on the first business day following the date of dispatch if delivered to a recognized business courier service (such as DHL Courier, FedEx, or UPS) for overnight delivery.
k. Survival. Notwithstanding anything in this Agreement to the contrary, and for the avoidance of any doubt, the termination of Employee’s employment under this Agreement for any reason shall not affect the CNCA or any of the covenants, warranties, and agreements in Sections 4.g, 5, 6, and 7 (including all applicable subparts) of this Agreement, each of which shall survive such termination of the Employment Term, the Parties’ employment relationship, and this Agreement.
l. Governing Law; Jurisdiction and Venue; Attorney’s Fees and Costs. The validity, construction, and performance of this Agreement (including the CNCA) shall be governed by the laws of the State of Texas without giving effect to conflict of law principles. Except as otherwise may be required by the Company to obtain equitable injunctive relief under this Agreement, the CNCA, and/or any other agreement between the Parties, jurisdiction for all actions or proceedings arising under this Agreement (including the CNCA) shall be exclusive to a state or federal court of competent jurisdiction located in or with jurisdiction for the City of Austin in the County of Travis, Texas, USA. The Parties hereby irrevocably subject and consent to the jurisdiction of such courts and waive the defense of inconvenient forum related to any action or proceeding in such venue. Should an action be commenced for a breach of and/or to enforce the terms of this Agreement (including the CNCA), the prevailing party in such an action shall be entitled to recover from the non-prevailing party, in addition to all other legal and/or equitable remedies, all costs of litigation, including reasonable attorneys’ fees.
m. Pre-Suit Mediation. Except with respect to any injunctive relief sought by the Company under this Agreement, the CNCA, and/or any other agreement between the Parties, each of the Parties knowingly, voluntarily, and intentionally agrees to and shall participate in a mediation conference before filing any complaint, charge, or accusatory pleading or document, or otherwise commencing any legal or administrative action or proceeding against the other Party with a federal, state, or local agency and/or in a court of competent jurisdiction. The Parties agree that the mediation conference shall be convened in City of Austin in the County of Travis, Texas, USA, and to cooperate in the selection of a mutually agreeable mediator. The Parties shall split equally the cost of the mediator. The Parties also agree to bear their own respective attorney’s fees and costs for mediation under this Section 7.m. For the avoidance of any doubt, except as provided herein, the mediation requirement of this Section 7.m is a condition precedent to any action, proceeding, and/or litigation between the Parties.
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n. WAIVER OF JURY TRIAL. To the extent permitted by law, the parties KNOwingly, voluntarily, and intentionally agree to, and do hereby, waive the right to trial by jury in any litigation, cause of action, claim, proceeding, or counterclaim brought by either of the parties against the other: (I) based on any matter whatsoever arising out of or in any way connected with Employee’s employment with the Company; (II) Based on this Agreement (INCLUDING THE CNCA) or arising out of, under, or relating to this agreement (INCULDING THE CNCA); and/or (III) based on any alleged action, inaction, or omission of either party to this Agreement.
o. Construction. The essential terms and conditions contained in this Agreement have been mutually negotiated between the Parties. The Parties agree that the language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any of the Parties. No ambiguity or uncertainty in this Agreement shall be construed or interpreted in favor of or against any Party.
p. Compliance with Applicable Regulatory, Tax, and Legal Requirements. Any payments or benefits which may be conferred under this Agreement shall be subject to and administered in compliance with all regulatory, tax, and legal requirements applicable to Employee or the Company, including, without limitation, the following:
i. Tax Withholding. The Company may, but shall not be required by the Employee to, withhold from any compensation or benefits payable to Employee all applicable taxes and make any other deductions and withholdings as the Company, in its sole and absolute discretion, determines are required or permitted by law.
ii. Code Section 409A. To the extent applicable to Employee, this Agreement and all payments, distributions or other benefits hereunder shall comply and be administered in accordance with the requirements of, or an exemption or exclusion to, Code Section 409A and the Treasury Regulations promulgated thereunder (“Section 409A”), as well as any applicable equivalent State law. To the extent any provision or term of this Agreement is ambiguous as to its compliance in this respect, such provision or term and all payments hereunder shall be interpreted to comply with the requirements of, or an exemption or exclusion to, Section 409A, as well as any applicable equivalent State law. For the avoidance of doubt, notwithstanding any provision of this Agreement to the contrary, if Employee is a “specified employee” (as defined in Treasury Regulations Section 1.409A-1(i)), then, to the extent required under Treasure Regulation section 1.409A-3(i)(2), any payments that constitute “nonqualified deferral of compensation” that become due upon the Participant’s “separation from service” (other than due to the Participant’s death) and that would have been made under the terms of the Plan within the six-month period commencing on the Participant’s “separation from service” shall be delayed and instead be made as soon as practicable after the end of such six-month period. For purposes of this Section 7.p, the terms “specified employee”, “nonqualified deferral of compensation”, and “separation from service” have the meanings given to them under Section 409A. Any provision that would cause this Agreement or a payment, distribution, or other benefit hereunder to fail to comply with the requirements of, or an exemption or exclusion to, Section 409A, as well as any applicable equivalent State law, shall have no force or effect and the Parties agree that, to the extent an amendment would be effective, this Agreement shall be amended to comply with the requirements of, or an exemption or exclusion to, Section 409A, as well as any applicable equivalent State law. Such amendment shall be retroactive to the extent permitted by law. For purposes of this Agreement, Employee shall not be deemed to have terminated employment unless and until a “Separation from Service” within the meaning of Treasury Regulations Section 1.409A-1(h) has occurred. Each payment under Section 6.g and 6.h of this Agreement shall be treated as a separate payment for purposes of Section 409A.
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iii. Code Section 280G. To the extent applicable to Employee, any of the payments or benefits received or to be received by the Employee constitute “Parachute Payments” within the meaning of Code Section 280G (each, a “Section 280G Payment”) and would, but for this Section 7.o.iii., be subject to the excise tax imposed under Code Section 4999 (the “Golden Parachute Tax”), then, prior to making such Section 280G Payment, a calculation shall be made comparing (A) the Net Benefit (as defined below) to the Employee of the Section 280G Payment to (B) the Net Benefit to the Employee if the Section 280G Payment is limited to the extent necessary to avoid being subject to the Golden Parachute Tax. Only if the amount calculated under (A) above is less than the amount under (B) above will the Section 280G Payment be reduced, and then, only to the minimum extent necessary to ensure that no portion of the Section 280G Payment is subject to the Golden Parachute Tax. For purposes of this Section 7.p.iii. only, “Net Benefit” shall mean the present value of the payment, net of all federal, state, local, foreign income, employment, and excise taxes, including the Golden Parachute Tax. Any reduction made pursuant to this Section 7.p.iii. shall be made in accordance with the requirements of Code Section 409A as follows: (X) first, reduction of cash payments and benefits, in reverse order of the date of payment; (Y) second, cancellation of vesting acceleration of equity awards, in reverse order of the date of grant; and (Z) third, reduction of other non-cash payments and benefits, in reverse order of the date the payment or benefit is to be provided. If the same payment or award date applies to more than one payment or benefit within any of the foregoing categories, the reduction will apply to each such payment or benefit on a pro-rata basis. All calculations and determinations under this Section 7.p.iii. shall be made by an independent accounting firm or independent tax counsel appointed by the Company (the “Tax Counsel”), whose determinations shall be conclusive and binding on the Company and the Employee for all purposes. The Company and the Employee shall furnish the Tax Counsel with such information and documents as requested by the Tax Counsel to make its determinations under this Section 7.p.iii., and the Company shall bear all costs incurred by the Tax Counsel under this Section 7.p.iii.
iv. Regulatory Claw-back. Notwithstanding any other provisions in this Agreement to the contrary, any compensation (whether cash-, equity-, or incentive-based, or otherwise) paid to the Employee under this Agreement or any other agreement or arrangement between the Company and the Employee which is subject to recovery under any law, government regulation, or stock exchange listing requirement shall be subject to such deductions and claw-back as may be required to be made pursuant to such law, government regulation, or stock exchange listing requirement (or any policy adopted by the Company pursuant to any such law, government regulation or stock exchange listing requirement), without regard for any termination, severance, or other agreement with respect to the Employee’s separation from service with the Company.
q. Full Understanding; Acknowledgment. Employee acknowledges and agrees that Employee has thoroughly read the terms of this Agreement before signing. Employee further acknowledges and agrees that, by signing this Agreement, Employee knowingly and voluntarily consents to the terms contained herein.
r. Counterparts. This Agreement (including the CNCA) may be executed in one or more counterparts, each of which when executed shall be deemed to be an original, and such counterparts together shall constitute one and the same Agreement. Signing of this Agreement (including the CNCA) and transmission of the signed Agreement (including the CNCA) by electronic document transfer will be acceptable and binding upon the parties as of the Effective Date.
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[Signature Page to Riot Blockchain, Inc. Executive Employment Agreement]
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Executive Employment Agreement, effective as of the Effective Date set forth herein.
EMPLOYEE
__________________________________ [•]
Date: [•], 20[•] |
RIOT BLOCKCHAIN, INC.
By: ______________________________________ Name: [•] Title: [•]
Date: [•], 20[•]
|
| Attachments/Exhibits: | CNCA
Form of Severance Agreement Equity Plan |
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EXHIBIT 31.1
CERTIFICATION
I, Jason Les, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riot Blockchain, Inc. for the quarter ended September 30, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: November 7, 2022 | /s/ Jason Les | ||
| Jason Les | |||
|
Chief Executive Officer (Principal Executive Officer) |
|||
EXHIBIT 31.2
CERTIFICATION
I, Colin Yee, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Riot Blockchain, Inc. for the quarter ended September 30, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: November 7, 2022 | /s/ Colin Yee | ||
| Colin Yee, Chief Financial Officer | |||
| (Principal Financial Officer) | |||
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q, (the “Report”) of Riot Blockchain, Inc. (the “Company”) for the quarter ended September 30, 2022, the undersigned, Jason Les, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned’s knowledge and belief:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. | |
| November 7, 2022 | |
| /s/ Jason Les | |
|
Jason Les, Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Quarterly Report on Form 10-Q, (the “Report”) of Riot Blockchain, Inc. (the “Company”) for the quarter ended September 30, 2022, the undersigned, Colin Yee, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of the undersigned’s knowledge and belief:
| (1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| (2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| November 7, 2022 | |
| /s/ Colin Yee | |
|
Colin Yee, Chief Financial Officer (Principal Financial Officer) |