Item 1.01. Entry into Material Definitive Agreement.
Note and Warrant Purchase Agreement
On May 15, 2022, Stronghold Digital Mining, Inc. (the “Company,” “we,” “us” or “our”) entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”), by and among the Company and the purchasers thereto, including Adage Capital Partners, LP and Continental General Insurance Company (collectively, the “Purchasers”), whereby the Company agreed to issue and sell to the Purchasers, and the Purchasers agreed to purchase from the Company, (i) $33,750,000 aggregate principal amount of 10.00% unsecured convertible promissory notes (the “Notes”) and (ii) warrants (the “Warrants”) representing the right to purchase up to 6,318,000 shares of Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”), of the Company with an exercise price per share equal to $2.50, on the terms and subject to the conditions set forth in the Purchase Agreement, for an aggregate purchase price of $27,000,000 (collectively, the “Private Placement”). The Private Placement closed on May 15, 2022 (the “Closing Date”). The offer and sale of the Notes and the Warrants were made in reliance on the exemption afforded by Section 4(a)(2) of the Securities Act of 1933 (the “Act”) and Rule 506(b) of Regulation D promulgated thereunder.
The Purchase Agreement contains representations and warranties by the Company and the Purchasers and covenants of the Company and the Purchasers and other rights, obligations and restrictions, which the Company believes are customary for transactions of this type.
Notes
On May 15, 2022, the Company issued $33,750,000 aggregate principal amount of Notes to the Purchasers. The Notes bear interest at a rate of 10.00% per annum (in arrears) and have a maturity date of May 15, 2024. The maturity date for the Notes may be accelerated upon certain instances, and the Notes may be prepaid at any time in whole or in part at our election. The holders of the Notes (the “Holders”) have certain conversion rights. In the event that we (i) have achieved a total equity market capitalization of at least $400 million, based on the 20-day VWAP of our Class A Common Stock and (ii) have at least 60,000,000 shares of Class A Common Stock outstanding (provided that the conditions in clauses (i) and (ii) are satisfied on or before September 30, 2022), the full principal amount outstanding and accrued but unpaid interest on the Notes shall automatically convert into a number of shares of a new series of 8.00% redeemable convertible preferred stock to be established prior to the conversion (the “Preferred Stock”). The Preferred Stock will have the terms and conditions set forth in Annex A to the Notes. The Company and the Holders have agreed to finalize the certificate of designation to be filed with the Secretary of State of the State of Delaware prior to such conversion. Beginning October 1, 2022, if the Notes have not converted into shares of Preferred Stock, we will begin paying off the Notes in quarterly installments in amounts equal to the greater of (a) 8% of our consolidated revenue from each trailing quarter or (b) $5,400,000, payable at our option in either cash or up to 50% of the shares of Class A Common Stock at a 20% discount to the 20-day VWAP. Each of our subsidiaries, subject to the exclusions therein, executed a guaranty agreement (the “Guaranty Agreement”) with the Holders to guaranty our obligations under the Notes.
Warrants
In connection with the Private Placement, the Company entered into a warrant agreement with each of the Purchasers (the “Warrant Agreement”), pursuant to which the Company issued to the Purchasers Warrants entitling the holders thereof to purchase an aggregate of 6,318,000 shares of Class A Common Stock at an exercise price equal to $2.50 per share, subject to mandatory cashless exercise provisions. The number of shares of Class A Common Stock purchasable pursuant to the Warrants may be adjusted from time to time as set forth in the Warrants. The Warrants have certain anti-dilution provisions and will be exercisable for a five-year period from the Closing Date.
The foregoing descriptions of the terms of the Purchase Agreement, the Guaranty Agreement, the Notes and the Warrant Agreements are qualified in their entirety by reference to the full text of the Purchase Agreement, the Guaranty Agreement, the Notes and the Warrant Agreements, which are filed as Exhibit 10.1, Exhibit 10.2, Exhibit 4.1 and Exhibit 4.2, respectively hereto and incorporated by reference herein.