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Item 3. Legal Proceedings

2024-04-01 compared with 2023-04-26 · 192 added, 26 removed, 3 unchanged (99% of the section changed)

Legal Proceedings.

Except as indicated below, to the knowledge of our management team, except as disclosed below, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.

We are cooperating with a FINRA inquiry concerning events (specifically, a review of trading) that preceded the public announcement of the Merger Agreement.

According to FINRA’s request, the inquiry should not be construed as an indication that FINRA has determined that any violations of Nasdaq rules or federal securities laws have occurred, nor as a reflection upon the merits of the securities involved or upon any person who effected transactions in such securities.

We are also cooperating with an SEC investigation, including responding to several document requests and subpoenas from the SEC to us and certain of our directors seeking various documents and information regarding, among other things, meetings of our board of directors;

communications with and the evaluation of potential targets, including TMTG;

communications relating to TMTG;

agreements with and payments made to certain advisors;

investors, including investor meetings and agreements;

the appointment of certain of our officers and directors;

policies and procedures relating to trading;

and documents sufficient to identify banking, telephone, and email addresses;

our due diligence regarding TMTG, communications regarding and due diligence of potential targets other than TMTG;

and relationships between and among the Company (and/or certain of the Company’s officers and directors) and other entities (including the sponsor and certain advisors, including the

Company’s underwriter and financial advisor in its initial public offering).

According to the SEC’s request and subpoena, the investigation does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of us or any person, entity, or security.

Any resolution of the inquiry or investigation, as well as proceedings by the SEC, FINRA, or other governmental or regulatory authorities, could result in the imposition of significant fines, penalties, injunctions, prohibitions on the conduct of our business, damage to our reputation and other sanctions against us, including restrictions on our activities.

The SEC also issued an order of examination pursuant to Section 8(e) of the Securities Act, with respect to the S-4 Registration Statement relating to the Transactions with TMTG, and a further subpoena in support thereof.

This subpoena seeks additional documents and information with respect to, among other things, communications regarding and due diligence of potential targets other than TMTG, relationships between and among the Company (and/or certain of the Company’s officers and directors) and other entities (including the sponsor) and certain advisors, including the Company’s underwriter and financial advisor in its initial public offering), the holders of ownership interests in the sponsor, certain elements of the transaction history for equity in the sponsor, and certain forward-looking information about TMTG referenced in the S-4 Registration Statement.

Any resolution of the investigation could result in the imposition of significant penalties, injunctions, prohibitions on the conduct of the Company’s business, damage to its reputation and other sanctions against the Company.

In addition, the Section 8(e) order of examination of the S-4 Registration Statement can be expected to delay effectiveness of the S-4 Registration Statement, which could materially delay, materially impede, or prevent the consummation of the Transactions.

In addition, the Company and each member of its board of directors received grand jury subpoenas seeking certain of the same documents demanded in the above-referenced SEC subpoenas, along with requests relating to the Company’s S-1 filings, communications with or about multiple individuals, and information regarding Rocket One Capital.

The Company has been informed that on June 27, 2022 TMTG received a subpoena from the SEC seeking documents relating to, among other things, the Company and other potential counterparties for a business transaction involving TMTG.

The Company has also been informed that on June 30, 2022, TMTG was served with a subpoena, issued by a federal grand jury sitting in the Southern District of New York, seeking a subset of the same or similar documents demanded in subpoenas to the Company and its directors.

Certain current and former TMTG personnel have also recently received individual grand jury subpoenas.

These subpoenas, and the underlying investigations by the SEC and the U.S.

Department of Justice, can be expected to delay effectiveness of the S-4 Registration Statement, which could materially delay, materially impede, or prevent the consummation of the Transactions.

Except as indicated below, to the knowledge of our management team, there is no litigation currently pending or contemplated against us, or against any of our

We have cooperated with a FINRA inquiry concerning events (specifically, a review of trading) that preceded the public announcement of the Merger Agreement and the consummation of

the Business Combination.

upon the merits of the securities involved or upon any person who effected transactions in such securities.

Settlement in Principle

Digital World was the subject of an investigation by the SEC with respect to certain statements,

agreements and the timing thereof included in Digital World’s registration statements on Form S-1 in connection with its IPO and Form S-4 relating to the Business Combination (the “Investigation”).

On July 3, 2023, Digital

World reached an agreement in principle (the “Settlement in Principle”) in connection with the Investigation.

The Settlement in Principle was subject to approval by the SEC.

On July 20, 2023, the SEC

approved the Settlement in Principle, announcing it settled its dispute with Digital World and entered an order (the “Order”) finding that Digital World violated certain antifraud provisions of the Securities Act and the Exchange Act, in connection with Digital World’s IPO filings on

Form S-1 and the Form S-4 concerning certain statements, agreements and omissions relating to the timing and discussions Digital World had with TMTG regarding the proposed business combination.

In the Order, Digital World agreed

(i) that any amended Form S-4 filed by Digital World would be materially complete and accurate with respect to certain statements, agreements and omissions relating to the timing and discussions that Digital World had with TMTG regarding the proposed business

combination and (ii) to pay a civil money penalty in an amount of $18 million to the SEC promptly after the closing of any merger or a comparable business combination or transaction, whether with TMTG or any other entity.

In connection with the consummation of the Business Combination, on March 25, 2024, Digital World paid the $18 million civil penalty to the SEC pursuant to the Order.

Section 16 Claim

On October 20, 2023, Robert

Lowinger (the “Plaintiff”) filed a complaint against Rocket One Capital, LLC (“Rocket One”), Michael Shvartsman, Bruce Garelick, and Digital World in the U.S.

District Court for the Southern District of New York.

According to the

complaint, Digital World was named as a party in the lawsuit because the Plaintiff is seeking relief for the benefit of Digital World.

In the complaint, the Plaintiff contends that, in 2021, Mr.

Garelick and Rocket One were

directors of Digital World and that they purchased securities of Digital World.

The Plaintiff further alleges that within a six-month period from the date of their purchases, both Mr.

Garelick and Rocket One sold securities in

Digital World and realized profits from those sales.

Additionally, the Plaintiff alleges that Mr.

Shvartsman had a financial interest in the profits resulting from Rocket One’s purchases and sales of Digital World’s securities.

According to the Plaintiff, under Section 16(b) of the Exchange Act (15 U.S.C.

§78p(b)), Rocket One, Mr.

Shvartsman, and Mr.

Garelick are each required to disgorge certain trading profits to Digital World.

On January 11, 2024,

Digital World filed a pre-motion letter with the court, indicating Digital World’s intention to file a motion to dismiss in relation to the matter.

This pre-motion letter was subsequently endorsed by the court on January 17, 2024.

The court provided a

deadline of January 22, 2024 for the Plaintiff to respond to Digital World’s pre-motion letter.

On March 1, 2024, Digital world filed a motion to dismiss the claims against Digital World.

On March 15, 2024, Plaintiff Robert Lowinger filed an opposition to Digital World’s

motion to dismiss.

On March 22, 2024, Digital World filed a reply in support of its motion to dismiss the claims against Digital World.

The case is Lowinger v.

Rocket One Capital, LLC, et al., No.

1:23-cv-9243 (S.D.N.Y.

Litigation with United Atlantic Ventures (“UAV”) in Delaware

On July 30, 2021, an attorney for the Trump Organization, on behalf of President Trump, declared void ab initio a

services agreement that had granted TMTG, among other things, extensive intellectual property and digital media rights related to President Trump for purposes of commercializing the various Private TMTG initiatives (the “Services

Neither Private TMTG nor Digital World was a party to such agreement.

On each of January 18, 2024 and February 9, 2024, Digital World received letters from counsel to UAV, a party to the Services Agreement.

The letters contained certain assertions and enclosed a copy of the

Services Agreement that had been declared void by an attorney of President Donald J.

Trump nearly two and a half years prior.

Specifically, counsel for UAV claims that the Services Agreement grants UAV rights to (1) appoint two

directors to TMTG and its successors ( i.e.

, TMTG after the Business Combination), (2) approve or disapprove of the creation of additional TMTG shares or share classes and anti-dilution

protection for future issuances and (3) a $1.0 million expense reimbursement claim.

In addition, UAV asserts that the Services Agreement is not void ab initio and claims that certain events

following the July 30, 2021 notification support its assertion that such Services Agreement was not void.

On February 6, 2024, a representative of UAV sent a text message to a representative of a noteholder of TMTG suggesting

that UAV might seek to enjoin the Business Combination.

On February 9, 2024, Private TMTG received from counsel to UAV a letter similar to those received by Digital World, which also threatened Private TMTG with legal action

regarding UAV’s alleged rights in Private TMTG, including, if necessary, an action to enjoin consummation of the Business Combination.

On February 28, 2024, UAV filed a verified complaint against Private TMTG in the Court of Chancery of the State of

Delaware seeking declaratory and injunctive relief relating to the authorization, issuance, and ownership of stock in Private TMTG and filed a motion for expedited proceedings.

On March 6, 2024, Private TMTG filed an opposition to UAV’s motion to expedite, and UAV filed its response on March 8,

On March 9, 2024, the Chancery Court held a hearing to decide UAV’s motion to expedite proceedings.

During the oral argument, Private TMTG agreed that any additional shares of Private TMTG issued prior to or upon the

consummation of the Business Combination would be placed in escrow pending a resolution of the dispute between the parties.

The court issued a written order consistent with the foregoing on March 15, 2024, and scheduled a status

conference for April 1, 2024.

Bradford Cohen

On January 22, 2024, Private TMTG received a letter from a counsel to Mr.

Cohen, who purportedly represented President

Trump in connection with the Services Agreement, but was not a party thereto.

The letter sought to inspect Private TMTG’s books and records pursuant to Delaware and Florida law and requested that Private TMTG preserve

records for the last three years.

Private TMTG responded via counsel on January 29, 2024.

Since January 22, 2024, Mr.

Cohen has reached out to TMTG on several occasions.

Cohen asserts that the Services Agreement, declared void

Cohen’s ostensible client on July 30, 2021, confers certain rights upon Mr.

Cohen with respect to the capitalization of Private TMTG.

As the potential claims described above were recently asserted, and the potential disputes

arising therefrom are in their early stages, TMTG is not able to assess the impact of such claims on their respective businesses and stockholders, or those of the TMTG following the Business Combination.

As a general matter, the

defense of such potential claims may be costly and time consuming and could have a material adverse effect on the Company’s reputation and its existing stockholders.

Lawsuit Against ARC and Patrick Orlando

On February 26, 2024, representatives of ARC claimed to

Digital World that after a “more comprehensive” review, the conversion ratio for Digital World Class B common stock into Digital World Class A common stock upon the completion of the Business Combination was approximately 1.8:1.

ARC’s new claim also contradicted the previous assertion by

Patrick Orlando, the managing member of ARC, that the conversion ratio was 1.68:1.

Digital World’s board of directors viewed these claims as an attempt by Mr.

Orlando to secure personal benefits, breaching his fiduciary duty

to Digital World and its shareholders.

Digital World and Private TMTG initiated a lawsuit against ARC (Case No.

192862534) in the Civil Division for

the Twelfth Judicial Circuit Court in Sarasota County, Florida, on February 27, 2024.

The complaint sought a declaratory judgment affirming the appropriate conversion ratio as 1.34:1, as previously disclosed, damages for tortious

interference with the contractual and business relationship between Private TMTG and Digital World, and damages for conspiracy with unnamed co-conspirators to interfere with the same.

It also sought damages for Mr.

Orlando’s breach of fiduciary duty, which exposed Digital World to

regulatory liability and resulted in an $18 million penalty, and for his continuous obstruction of Digital World’s merger with Private TMTG to extort various concessions that benefited only him and harmed Digital World and its shareholders.

Furthermore, it sought damages for the wrongful

assertion of dominion over Digital World’s assets inconsistent with Digital World’s possessory rights over those assets.

On March 8, 2024, Digital World voluntarily dismissed its declaratory judgment claim against ARC.

17, 2024, Digital World and Private TMTG filed an

amended complaint, adding a claim for violation of Florida’s Deceptive and Unfair Trade Practices Act.

Digital World further alleged breach of fiduciary duty of loyalty, breach of fiduciary duty of care, and conversion claims

against Patrick Orlando.

With respect to ARC, Digital World alleged aiding and abetting a breach of fiduciary duty.

On the afternoon of February 28, 2024, ARC’s registered

agent in Wilmington, Delaware, and Mr.

Orlando were served with the complaint filed by Digital World and Private TMTG.

Later that day, ARC’s counsel electronically mailed Digital World’s counsel a lawsuit, filed in the Court of Chancery of the State of Delaware, alleging an impending

violation of the Digital World Charter for failure to commit to issue the number of conversion shares to ARC that ARC claims it is owed upon the consummation of the Business Combination.

The complaint claims a new conversion ratio

of 1.78:1 and seeks specific performance and damages for the alleged breach of the Digital World Charter, a declaratory judgment that the certain derivative securities of Digital World should be included in the calculation of the

conversion ratio, a finding that the directors of Digital World breached their fiduciary duties, and a preliminary injunction to enjoin the Business Combination until Digital World “corrected” the conversion ratio.

We do not believe ARC’s 1.78:1 conversion ratio and related claims are supported by the terms of the Digital World Charter.

As a result, we intend to vigorously defend Digital

World’s calculation of the conversion ratio and related rights.

In addition to its complaint filed on February 28, 2024, ARC also filed a motion with the Chancery Court requesting that the case schedule be expedited to enable the

Chancery Court to conduct an injunction hearing prior to the March 22, 2024 shareholder vote.

On March 3, 2024, Digital World filed an opposition to ARC’s motion to expedite, and ARC filed a reply on March 4, 2024.

On March 5, 2024,

the Chancery Court conducted a hearing to consider ARC’s request to expedite the case schedule.

After hearing arguments from both sides, the Vice Chancellor denied ARC’s motion, stating that the court would not conduct a merits or

injunction hearing before March 22, 2024.

Consequently, ARC’s request to postpone the vote until after a merits hearing was also denied.

The Chancery Court ruled that Digital World’s proposal to deposit disputed shares into an escrow account at the close of the Business Combination was adequate to prevent potential

irreparable harm related to ARC’s share conversion.

The court also found that Digital World’s public disclosures about ARC’s claims and possible conversion scenarios at the close of the Business Combination further mitigated the risk

of irreparable harm due to insufficient disclosure for the March 22, 2024 vote.

In its ruling, the Chancery Court ordered ARC and Digital World to propose a schedule by March 8, 2024, for resolving the action within 150 days

following the Business Combination.

The court also asked the parties to provide a stipulation by March 8, 2024, regarding ARC’s ability to maintain standing over its claim after voting in favor of the Business Combination.

further requested the parties to agree to the creation of an escrow account for the deposit of disputed shares after the Business Combination, to be held until the action concludes.

Lastly, the court asked Digital World’s counsel to

submit a letter by March 8, 2024, outlining how this litigation will proceed alongside the Florida litigation filed by Digital World on February 27, 2024, in the Circuit Court of Sarasota County, Florida.

On March 8, 2024, Digital

World submitted a letter to the Chancery Court, stating that it had voluntarily dismissed its claim for declaratory judgment in the Circuit Court of Sarasota County, Florida.

On March 22, 2024, the Chancery Court entered a Scheduling

Order setting the case for a single-day trial on June 26, 2024.

In relation to the Delaware Lawsuit, Digital World notified its shareholders on March 14, 2024, of its intention to apply a conversion ratio to all Digital World Class B common

stock shares to ensure that the Sponsor and the Non-ARC Class B Shareholders receive an equal number of common stock shares in the Company per share of Digital World Class B common stock.

Accordingly, on March 21, 2024, Digital World

entered into the Disputed Shares Escrow Agreements with the Escrow Agent, pursuant to which TMTG deposited into escrow the number of shares of TMTG Common Stock representing the difference between the actual conversion ratio,

determined by Digital World’s board of directors upon closing of the Business Combination (which was determined to be 1.348:1), and a conversion ratio of 2.00.

Any release of shares is subject to the terms and conditions of the

Disputed Shares Escrow Agreements, which are filed with and incorporated by reference into this Report.

The ultimate resolution as to whether none, a portion or all of the disputed conversion shares will be issued is not determinable at this time.

As a general matter, the pursuit of

the claims may be costly and time consuming and could have a material adverse effect on TMTG’s reputation and its existing stockholders and may result in counterclaims.

Lawsuit Against Patrick Orlando in Delaware

On March 15, 2024, Plaintiff Patrick Orlando brought a lawsuit against Digital World in the Chancery

Court seeking advancement of legal fees associated with Mr.

Orlando’s involvement in civil litigation against Digital World in Florida and certain other matters (the “Advancement Lawsuit”).

Orlando’s allegations relate to

certain provisions in Digital World’s Charter, Digital World’s bylaws, and an indemnity agreement allegedly entered into between Mr.

Orlando and Digital World.

Orlando alleges that those certain provisions require Digital World

to pay the legal fees Mr.

Orlando incurred and will incur in connection with legal proceedings in which he is involved by reason of the fact that he is or was a director or officer of Digital World.

Orlando seeks a court order

that (i) declares that he is entitled to legal fees for certain proceedings described in the complaint, (ii) requires Digital World to pay for legal fees incurred and future legal fees to be incurred for those proceedings, (iii)

requires Digital World to pay the fees incurred to bring the Advancement Lawsuit, and (iv) requires Digital World to pay pre- and post-judgment interest on the amounts owed to Mr.

Lawsuit Against ARC in New York

On March 19, 2024, Plaintiff Digital World filed a lawsuit against ARC in New York state court alleging

breach of contract and seeking injunctive relief.

Digital World’s claims related to an agreement between Digital World and ARC entered into in September 2021 (the “Letter Agreement”), whereby ARC promised to vote in favor of any

merger agreement presented to Digital World shareholders for a vote.

Digital World alleged that it presented a merger agreement to its shareholders, but ARC withheld its vote in favor of the merger in advance of the March 22, 2024

shareholder vote.

Digital World’s suit requested that the court declare ARC’s obligation to vote its shares in favor of the merger, per the Letter Agreement, and an order compelling ARC to specifically perform its obligations under

the Letter Agreement.

Digital World also sought an award of consequential damages for breach of contract.

On March 22, 2024, Digital World voluntarily discontinued its action without prejudice after ARC cast its vote in favor of

the Business Combination at the Special Meeting.

Lawsuit Against UAV, Litinksy, Moss, and Orlando in Florida

On March 24, 2024, Private TMTG filed a lawsuit in the Circuit Court of the Twelfth Judicial Circuit for Sarasota

County, Florida (Case No.

2024 CA 001545 NC) against UAV, Andrew Litinsky, Wesley Moss, and Patrick Orlando.

In view of UAV’s repeated demands concerning its alleged stock ownership and director appointment rights, the complaint

alleges claims for a declaratory judgment against UAV determining that the Services Agreement is unenforceable against Private TMTG.

It also asserts a claim for unjust enrichment against UAV based on its failure to competently

provide services to the company.

Finally, it asserts claims for damages for (a) breach of the fiduciary duty of loyalty against Litinsky and Moss based on their dealings with Orlando, (b) aiding and abetting and conspiracy to breach

fiduciary duty against Orlando based on the same events, and (c) breach of the fiduciary duty of care against Moss and Litinsky for their gross negligence in managing the company.

Mine Safety Disclosures.

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 3. Legal Proceedings