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Item 3. Legal Proceedings

2024-02-28 compared with 2023-03-16 · 60 added, 110 removed, 8 unchanged (96% of the section changed)

LEGAL PROCEEDINGS

North Bankruptcy

September 22, 2022, Compute North Holdings, Inc.

(currently d/b/a Mining Project Wind Down Holdings, Inc.) and certain of its affiliates

(collectively, “Compute North”) filed for chapter 11 bankruptcy protection.

Compute North provided operating services to

the Company and hosted our mining rigs at multiple facilities.

We delivered miners to Compute North, which then installed the mining

rigs at those facilities, operated and maintained the mining rigs, and provided energy to keep the miners operating.

During the course

of the chapter 11 cases, Compute North sold substantially all of their assets in a series of 363 sale transactions, including Compute

North’s ownership interests in non-debtor entities that own or partially-own facilities that house our miners.

November 23, 2022, the Company and certain of its affiliates timely filed proofs of claim asserting various claims against Compute North,

(i) claims arising under hosting agreements between the Company and Compute North LLC;

(ii) claims arising under that certain

Senior Promissory Note, dated as of July 1, 2022, by and between the Company, as Lender, and Compute North LLC, as Borrower;

arising from the breach of a letter of intent between us and Compute North LLC;

and (iv) claims for daily lost revenue, profits and other

damages against Compute North.

December 20, 2022, the Bankruptcy Court approved a stipulation among and between the Company, Compute North, Generate Lending, LLC and

certain affiliates (“Generate”), and MVP Logistics, LLC (“MVP”), whereby Compute North, Generate, and MVP agreed

to allow the Company to retrieve our uninstalled miners located at relevant facilities and reject all Compute North’s agreements

Compute North also agreed to release all its claims against the Company regarding certain disputed invoices for warehousing

and logistics.

February 9, 2023, the Bankruptcy Court approved a settlement stipulation between the Company and Compute North, pursuant to which the

proofs of claim filed by the Company and certain of its affiliates were resolved, and the Company received a single allowed unsecured

claim against Compute North LLC in the amount of $40,000,000 and its Preferred Equity Interests in Compute North Holdings, Inc.

amount of 39,597 shares of Series C Preferred Stock was confirmed.

In exchange, the Company agreed to vote in favor of Compute North’s

chapter 11 plan.

February 16, 2023, the Bankruptcy Court confirmed Compute North’s chapter 11 plan (the “Plan”), pursuant to which Compute

North will liquidate its remaining assets and distribute proceeds arising therefrom in accordance with the waterfall set forth in the

In its disclosure statement filed on December 19, 2022, the Compute North Debtors projected that holders of allowed general unsecured

claims could recover anywhere between 8% to 65% on their claims, while holders of preferred equity interests are expected to recover

nothing on their interests.

At this time, the Company cannot predict the quantum of its potential recovery on account of its allowed

general unsecured claim and preferred equity interests or the timing of when it would receive any distributions under the Plan on account

of its claims and interests.

February 18, 2022, a shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against

current and former members of the Company’s board of directors and senior management.

The complaint is based on allegations substantially

similar to the allegations in the December 2021 putative class action complaint, related to the Company’s disclosure of an SEC

investigation previously made by the Company on November 15, 2021.

On March 4, 2022, the complaint was served on the Company.

4, 2022, the defendants moved to dismiss the complaint.

May 5, 2022, a second shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against

current and former members of the Company’s board of directors and senior management.

The second shareholder derivative complaint

is based on allegations substantially similar to the allegations in the February 18, 2022 derivative complaint.

On May 11, 2022, the

defendants moved to dismiss the second shareholder derivative complaint.

June 1, 2022, the Court entered an order consolidating the two derivative actions.

A June 13, 2022 scheduling order provided for plaintiffs

to file a consolidated complaint and for renewed motions to dismiss the consolidated shareholder derivative complaint.

On November 22,

2022, before a consolidated complaint was due, plaintiffs voluntarily dismissed both actions without prejudice.

On November 23, 2022,

both actions were closed.

Class Action Complaint

December 17, 2021, a putative class action complaint was filed in the United States District Court for the District of Nevada, against

the Company and present and former senior management.

The complaint alleges securities fraud related to the disclosure of an SEC investigation

previously made by the Company on November 15, 2021.

Plaintiff Tad Schlatre served the complaint on the Company on March 1, 2022.

September 12, 2022, the court appointed Carlos Marina as lead plaintiff.

On October 21, 2022, lead plaintiff voluntarily dismissed the

complaint without prejudice.

October 6, 2020, the Company entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts

in Hardin, MT.

In conjunction therewith, the Company filed a Current Report on Form 8-K on October 13, 2020.

The 8-K discloses that,

pursuant to a Data Facility Services Agreement, the Company issued 6,000,000 shares of restricted Common Stock, in transactions exempt

from registration under Section 4(a)(2) of the Securities Act of 1933, as amended.

During the quarter ended September 30, 2021, the Company

and certain of its executives received a subpoena to produce documents and communications concerning the Hardin, Montana data center

facility described in our Form 8-K dated October 13, 2020.

We understand that the SEC may be investigating whether or not there may have

been any violations of the federal securities law.

Compute North Bankruptcy

On September 22, 2022, Compute North Holdings, Inc.

(currently doing business as Mining Project Wind Down Holdings, Inc.) and certain of its affiliates (collectively, “Compute North”) filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”).

Compute North provided operating services to us and hosted our mining rigs at multiple facilities.

We delivered miners to Compute North, which then installed the mining rigs at those facilities, operated and maintained the mining rigs, and provided energy to keep the miners operating.

During the course of the Chapter 11 cases, Compute North sold substantially all of its assets in a series of 363 sale transactions, including Compute North’s ownership interests in non-debtor entities that own or partially-own facilities that house our miners.

On November 23, 2022, we and certain of our affiliates timely filed proofs of claim asserting various claims against Compute North, including:

(i) claims arising under hosting agreements between us and Compute North LLC;

(ii) claims arising under that certain Senior Promissory Note, dated as of July 1, 2022, by and between us, as Lender, and Compute North LLC, as Borrower;

(iii) claims arising from the breach of a letter of intent between us and Compute North LLC;

(iv) claims for daily lost revenue, profits and other damages against Compute North.

On February 9, 2023, the Bankruptcy Court approved a settlement stipulation between us and Compute North, pursuant to which the proofs of claim filed by us and certain of its affiliates were resolved, and we received a single allowed unsecured claim against Compute North LLC in the amount of $40.0 million and its preferred equity interests in Compute North in the amount of 39,597 shares of Series C Preferred Stock was confirmed.

In exchange, we agreed to vote in favor of Compute North’s Chapter 11 plan.

On February 16, 2023, the Bankruptcy Court confirmed Compute North’s Chapter 11 plan (the “Plan”), pursuant to which Compute North will liquidate its remaining assets and distribute proceeds arising therefrom in accordance with the waterfall provision set forth in the Plan.

In a disclosure statement filed on December 19, 2022, Compute North projected that holders of allowed general unsecured claims could recover anywhere between 8% to 65% on their claims, while holders of preferred equity interests are expected to recover nothing on their interests.

The Plan became effective March 31, 2023.

At this time, we cannot predict the quantum of its potential recovery on account of its allowed general unsecured claim and preferred equity interests or the timing of when it would receive any distributions under the Plan on account of its claims and interests.

Derivative Complaints

On February 18, 2022, a shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of our board of directors (the “Board”) and senior management.

The complaint is based on allegations substantially similar to the allegations in the December 2021 putative class action complaint, related to our disclosure of an SEC investigation we previously made on November 15, 2021.

On March 4, 2022, we were served the complaint.

On April 4, 2022, the defendants moved to dismiss the complaint.

On May 5, 2022, a second shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of our Board and senior management.

The second shareholder derivative complaint is based on allegations substantially similar to the allegations in the February 18, 2022 derivative complaint.

On May 11, 2022, the defendants moved to dismiss the second shareholder derivative complaint.

On June 1, 2022, the Court entered an order consolidating the two derivative actions.

A June 13, 2022, scheduling order provided for plaintiffs to file a consolidated complaint and for renewed motions to dismiss the consolidated shareholder derivative complaint.

On November 22, 2022, before a consolidated complaint was due, plaintiffs voluntarily dismissed both actions without prejudice.

On November 23, 2022, both actions were closed.

On June 22, 2023, a shareholder derivative complaint was filed in the Circuit Court of the 17th Judicial Circuit for Broward County, Florida, against current members of our Board and senior management, alleging claims for breach of fiduciary duty and unjust enrichment based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint.

On July 8, 2023, a second shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of our Board and senior management, alleging claims under Sections 14(a), 10(b), and 21D of the Exchange Act, and for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint.

On July 12, 2023, a third shareholder derivative complaint was filed in the United States District Court for the District of Nevada, against current and former members of our Board and senior management, alleging claims under Section 14(a) of the Exchange Act and for breach of fiduciary duty, based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint.

On July 13, 2023, a fourth shareholder derivative complaint was filed in the Circuit Court of the 17th Judicial Circuit for Broward County, Florida, against current members of our Board and senior management, alleging claims for breach of fiduciary duty, unjust enrichment, and waste of corporate assets, based on allegations substantially similar to the allegations in the March 30, 2023 putative class action complaint.

On August 14, 2023, the two derivative actions pending in the United States District Court for the District of Nevada were consolidated (the “Nevada Derivative Action”).

On October 16, 2023, the parties to the derivative actions pending in the Circuit Court of the 17th Judicial Circuit for Broward County, Florida filed an agreed order to stay both actions pending completion of the Nevada Derivative Action.

Putative Class Action Complaint

On March 30, 2023, a putative class action complaint was filed in the United States District Court for the District of Nevada, against us and present and former senior management, alleging claims under Section 10(b) and 20(a) of the Exchange Act arising out of our announcement of accounting restatements on February 28, 2023.

The defendants’ time to respond has been extended until after the appointment of a lead plaintiff.

Information Subpoena

On October 6, 2020, we entered into a series of agreements with multiple parties to design and build a data center for up to 100-megawatts in Hardin, Montana.

In conjunction therewith, we filed a Current Report on Form 8-K on October 13, 2020, which discloses that, pursuant to a Data Facility Services Agreement, we issued 6,000,000 shares of restricted common stock, in transactions exempt from registration under Section 4(a)(2) of the Securities Act.

During the quarter ended September 30, 2021, we, and certain of our executives, received a subpoena to produce documents and communications concerning the Hardin, Montana data center facility described in our Current Report on Form 8-K dated October 13, 2020.

We understand that the SEC may be investigating whether or not there may have been any violations of the federal securities law.

We are cooperating with the SEC.

January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution

(“Complaint”) against the Company and 10 Doe Defendants.

The Complaint alleges six causes of action against the Company,

On January 14, 2021, Plaintiff Michael Ho (“Plaintiff” or “Ho”) filed a Civil Complaint for Damages and Restitution (the “Complaint”) against us and ten Doe Defendants.

The Complaint alleges six causes of action against us:

1) Breach of Written Contract;

2 unchanged sentences

4) Services Rendered;

(5) Intentional Interference

with Prospective Economic Relations;

and (6) Negligent Interference with Prospective Economic Relations, which is the one plead against

“all Defendants” and is most likely to involve later named defendants.

The claims arise from the same set of facts, Ho alleges

that the Company profited from commercially sensitive information he shared with the Company and then it refused to compensate him for

his role in securing the acquisition of a supplier of energy for the Company.

On February 22, 2021, the Company responded to Mr.

Complaint with a general denial and the assertion of applicable affirmative defenses.

Then, on February 25, 2021, the Company removed

the action to the United States District Court in the Central District of California, where the action remains pending.

The Company filed

a motion for summary judgment/adjudication of all causes of action.

On February 11, 2022, the Court granted the motion and dismissed

Ho’s 2nd, 5th and 6th causes of action.

5) Intentional Interference with Prospective Economic Relations;

6) Negligent Interference with Prospective Economic Relations, which is the one plead against “all Defendants” and is most likely to involve later named defendants.

The claims arise from the same set of facts where Ho alleges that we profited from commercially sensitive information he shared with us and then we refused to compensate him for his role in securing the acquisition of a supplier of energy for us.

On February 22, 2021, we responded to the Complaint with a general denial and the assertion of applicable affirmative defenses.

Then, on February 25, 2021, we removed the action to the United States District Court in the Central District of California, where the action remains pending.

We filed a motion for summary judgment/adjudication of all causes of action.

On February 11, 2022, the Court granted the motion and dismissed Ho’s 2nd, 5th and 6th causes of action.

Discovery is substantially closed.

The Court held a pre-trial conference on February 24,

2022, where it vacated the March 3, 2022 trial date and ordered the parties to meet and confer on a new trial date.

The Court discussed

the various theories of damages maintained by the parties.

In its ruling on the summary judgment motion and at the pre-trial conference

on February 24, 2022, the Court noted that a jury is more likely to accept $150,000 as an appropriate damages amount if liability is

found, as opposed to the various theories espoused by Ho that result in multi-million-dollar recoveries.

Due to outstanding issues of

fact and law, it is impossible to predict the outcome at this time;

however, after consulting legal counsel, the Company is confident

that it will prevail in this litigation, since it did not have a contract with Mr.

Ho and he did not disclose any commercially sensitive

information under any mutual nondisclosure agreement that was used to structure any joint venture with energy providers.

The trial has

been rescheduled for the week of May 8, 2023.

The Court held a pre-trial conference on February 24, 2022, where it vacated the March 3, 2022 trial date and ordered the parties to meet and confer on a new trial date.

The Court discussed the various theories of damages maintained by the parties.

In its ruling on the summary judgment motion and at the pre-trial conference on February 24, 2022, the Court noted that a jury is more likely to accept $0.2 million as an appropriate damages amount if liability is found, as opposed to the various theories espoused by Ho that result in multi-million-dollar recoveries.

Due to outstanding issues of fact and law, it is impossible to predict the outcome at this time;

however, after consulting legal counsel, we are confident that we will prevail in this litigation, since we did not have a contract with Mr.

Ho, and he did not disclose any commercially sensitive information under any mutual nondisclosure agreement that was used to structure any joint venture with energy providers.

The trial is likely to commence on or around April 8, 2024.

MINE SAFETY DISCLOSURES

Not applicable.

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