Subsequent Events

6 Months Ended

Jun. 30, 2022

Subsequent Events [Abstract]

Subsequent Events

17. Subsequent Events

October SPA Addendum

On July 19, 2022, the Company entered into the Addendum to amend certain terms of the October SPA and the October Security Agreement. Pursuant to the Addendum, among other things, the assets of the Company related to the Company’s development site in Texas which secure the Company’s obligations under the October Security Agreement will be released in three tranches in connection with three tranches of conversions or redemptions of the October Notes. In connection with the first tranche, $1,100,000 of October Notes was converted to common stock between July 25, 2022 and August 1, 2022; in connection with the second tranche, $1,100,000 of October Notes will be converted to common stock; and in connection with the third tranche, $1,100,000 of October Notes will be converted to common stock (each, the “Required Conversion Amount”), in each case at the then in effect Conversion Price. Prior to each conversion the Conversion Price of the Note will be reduced (but not increased) to a 20% discount to the 5-day volume-weighted average price (“VWAP”) of the common stock. The Conversion Price for the first tranche is $3.75. In addition, the October Purchasers may require the Company to redeem up to $2,200,000 worth of October Notes in connection with each tranche at a rate of $1.20 for every $1.00 owed, less the amount of October Notes converted during such tranche, not including the Required Conversion Amount if the October Purchasers are unable to convert out of such amount of the Notes in each tranche. Each tranche is equal to $3,300,000 of the October Notes and the Addendum contemplates that at least $9,900,000 of the October Notes may be reduced under the terms of the Addendum. The first tranche begins upon receipt of Nasdaq’s approval of the transaction (which was received) and ends 50 trading days thereafter, the subsequent tranches will begin upon the later of five days after the previous tranche and receipts of any necessary approvals of Nasdaq and the Company’s shareholders of the transaction and ends 45 trading days thereafter. The second and third tranches are subject to delay as set forth in the Addendum. The Company is required to deposit up to $1,950,000 in an escrow account in connection with each tranche to satisfy any redemptions. The Company has undertaken to obtain shareholder approval, if necessary under Nasdaq rules, to be able to complete the second and third tranches. 

Pursuant to the Addendum, the exercise price of the Class A Warrants and Class B Warrants and 85,000 warrants to purchase common stock issued to the October Purchasers on January 13, 2022 was reduced to $9.50 a share. In addition, the Company agreed to exchange the Class C Warrants for 296,013 shares of common stock, which exchanges were completed between July 25, 2022 and August 1, 2022.

Except under certain circumstances, the Company is prohibited from engaging in any capital raising transactions without the consent of the October Purchasers until the Company’s obligations under the October Security Agreement have been paid in full.

Series B Convertible Preferred Stock Private Placement

Securities Purchase Agreement 

On July 19, 2022, the Company entered into a Securities Purchase Agreement (the “Series B SPA”) with an accredited investor (the “Series B Investor”) pursuant to which the Company issued to the Series B Investor 62,500 shares of Series B Preferred Stock, for a purchase price of $5,000,000, on July 20, 2022 (the “Series B Closing”), which are initially convertible into 1,155,268 shares of our common stock (the “Series B Conversion Shares”), at a price per share of $5.41 (“Conversion Price”), a 20% premium to the close of the common stock on July 18, 2022, subject to adjustment as set forth in the Certificate of Designation (as defined below) governing the terms of the Preferred Stock. In addition on July 19, 2022, the Company issued to the Series B Investor common stock purchase warrants (collectively, the “Series B Warrants”) to purchase up to an aggregate of 1,000,000 shares of common stock at an initial exercise price of $10.00 per share of common stock (the “Series B Warrant Shares” and collectively with the Series B Preferred Stock, the Series B Conversion Shares, and the Series B Warrants, the “Series B Securities”). In addition, at the Series B Closing, the Investor delivered to the Company a warrant to acquire 1,000,000 shares of common stock at an exercise price of $11.50 per share for cancellation. 

Until the earlier of (i) three years after the Series B Closing or (ii) if in excess of $500,000 of Series B Preferred Stock or at least 100,000 Series B Warrants remain outstanding, the Company agreed not to (a) issue any common stock, common stock equivalents, preferred stock or other equity securities at a price that is less than the highest price per share of the Series B Securities, (b) file any registration statement, with certain exceptions, or (c) enter into an equity line of credit or at the market offering. In addition, the Company may buy out the rights of the Series B Investor under the preceding sentence for $10,000,000 less any Profit (as defined in the Series B SPA) the Series B Investor has earned from the Series B Securities, including pursuant to any amount paid for waiver under the following sentences. The Series B Investor has a right of first refusal with respect to the offerings described in the first sentence of this paragraph for a period of three years beginning on the later of (i) January 1, 2023 and (ii) the date the October Notes have been fully redeemed or converted. The Company can obtain the Series B Investor’s waiver to the right of first refusal by delivering to the Series B Investor 10% of the amount raised by the Company in any such offering in cash or in the same securities issued by the Company. The Series B Investor also has a right to participate in up to 35% of any such offerings for the same three year period.

At the written request of the Investor, at any time after the October Notes have been fully redeemed or converted and for a period of one year thereafter, the Company agreed to file a registration statement to register the Series B Preferred Stock and the Series B Conversion Shares.

The conversion of the Series B Preferred Stock and the exercise of the Series B Warrants are each subject to beneficial ownership limitations such that the Investor may not convert the Preferred Stock or exercise the Series B Warrants to the extent that such conversion or exercise would result in the Investor being the beneficial owner in excess of 4.99% (or, upon election of such Series B Investor, 9.99%) of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon such conversion or exercise, which beneficial ownership limitation may be increased or decreased up to 9.99% upon notice to the Company, provided that any increase in such limitation will not be effective until 61 days following notice to the Company.

Certificate of Designation

On July 20, 2022, the Company filed a Certificate of Designations of Preferences, Rights and Limitations for the Series B Preferred Stock with the Secretary of State of Nevada (the “Certificate of Designation”) and designated 187,500 shares of its authorized and unissued preferred stock as Series B Convertible Preferred Stock. Each share of Series B Preferred Stock has a par value of $0.0001 per share and a stated value equal to $100.00 (the “Stated Value”). The Series B Preferred Stock will initially be issued in a physical certificate. The subscription price for each share of Preferred Stock is $80.00 per share. The Series B Preferred Stock shares can vote with the shares of common stock, on an as-converted to common stock basis, with respect to all matters on which the holders of common stock are entitled to vote, subject to any applicable Beneficial Ownership Limitations (as defined in the Certificate of Designation).

The Certificate of Designation provides that the Series B Preferred Stock includes a 10% accruing dividend compounded daily for 12 months from the original issue date (the “Dividend Termination Date”) that may be paid in cash or stock at the Company’s option at the earlier of (i) the date the Preferred Stock is converted, or (ii) the Dividend Termination Date.

In the event of the voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company, the holders of shares the Series B Preferred Stock are entitled to be paid out of the Company’s assets legally available for distribution to its stockholders, the greater of (i) the Stated Value, or (ii) the amount holder would have received if the Series B Preferred Stock was fully converted to common stock, plus any amount equal to any accumulated and unpaid dividends to the date of payment.

Each share of Series B Preferred Stock is convertible at any time at the option of the holder after the later of a date that is (i) 180 days after the original issue date or (ii) the date on which October Notes have been fully redeemed or converted (the “Note Release Date”) into a number of shares of common stock determined by dividing the Stated Value by the conversion price then in effect (the “Series B Conversion Price”). The initial Series B Conversion Price is $5.41, subject to adjustment as set forth in the Certificate of Designation. The Series B Conversion Price is also subject to adjustment as follows: (i) upon the United States Securities and Exchange Commission (the “SEC”) declaring effective the resale registration statement referred to in Series B SPA (the “Series B Resale Registration Statement”), the Series B Conversion Price will be equal to 90% of the average VWAP reported on Nasdaq for the five consecutive trading dates after the effective date of the Series B Resale Registration Statement, and (ii) in the event that the Company undertakes a public offering of its common stock or common stock equivalents, upon the completion of the public offering (the “Public Offering”), the Series B Conversion Price will be equal to 90% of the average VWAP reported on Nasdaq for the five consecutive trading dates after the completion date of the Public Offering. The Series B Conversion Price for the Series B Preferred Stock will be rounded down to the nearest $0.01 and will in no event be lower than $1.08.

The Series B Preferred Stock has no stated maturity date and is not subject to any mandatory redemption or sinking fund. Provided no shares of the Series A Preferred Stock is outstanding, either the Company or the holder of the Series B Preferred Stock may at any time after the later of (i) the third anniversary of the original issue date, or (ii) the Note Release Date, redeem the Series B Preferred Stock, in whole or part, for the Stated Value. The Certificate of Designation also provides that the Series B Preferred Stock is subject to a call pursuant to which the Company, upon ten days prior notice to the holder, may demand that the holder convert the Series B Preferred Stock and Series B Warrants issued pursuant to the SPA, in whole or in part, if the closing bid price of the common stock equals or exceeds $12.98 less Profit (as defined in the Series B SPA) divided by the number of shares of common stock into which the Series B Preferred Stock is convertible on the date of such notice, subject to any price adjustments, for twenty (20) consecutive trading days. If the holder fails to convert the remaining stated value of the Series B Preferred Stock in its entirety within thirty (30) trading days after receiving the Company’s notice, the Company may redeem such remaining balance and the Series B Warrants at the remaining Stated Value plus accrued dividends.

The Series B Preferred Stock will, as to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, rank senior to all classes or series of common stock and to all other capital stock issued by the Company expressly designated as ranking junior to the Series B Preferred Stock. Without the consent of the holders of the Series B Preferred Stock, the Company may not issue any capital stock that is (i) senior to the preferred stock in respect of dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up, except that the Series B Preferred Stock will be parri passu with respect to the Series A Preferred Stock, or (ii) parri passu with respect to dividend rights and rights as to the distribution of assets upon the Company’s liquidation, dissolution or winding-up.

Series B Warrants 

The Series B Warrants have an issue date of July 19, 2022. The Series B Warrants have an initial exercise price of $10.00 per share of common stock, subject to adjustment as set forth in the Series B Warrants. The holder is entitled to exercise the Series B Warrants at any time on or after the date that is 180 days following the issue date and on or prior to January 19, 2028. On the closing date of the next public offering of the common stock or other securities, the exercise price of the Series B Warrants adjusts to a price equal to the lower of (a) the exercise price then in effect, or (b) the price of the warrants issued in the Company’s next public offering, or if no warrants are issued in the Company’s next public offering, 110% of the price per share of the common stock issued in the Company’s next public offering.

The Series B Preferred Stock and the Series B Warrants were issued without registration under the Securities Act of 1933, as amended (the “Securities Act”), based on the exemption from registration afforded by Section 4(a)(2) of the Securities Act and/or Rule 506 promulgated thereunder. The Company did not engage in general solicitation or advertising with regard to the issuance and sale of the Securities. The Series B Investor represented that he/she/it is an accredited investor and purchased the Series B Securities for investment and not with a view to distribution.

Leak-Out Agreement

On July 19, 2022, the Company and the Series B Investor entered into a Leak-Out Agreement (the “Leak-Out Agreement”). The Leak-Out Agreement remains in effect so long as any Series B Preferred Stock or shares of Series A Preferred Stock remain outstanding, unless otherwise expressly extended in writing by the Series B Investor (the “Leak Out Period”), at which time the Series B Investor shall no longer be subject to the Leak Out restrictions. Pursuant to the Leak-Out Agreement, the Series B Investor agreed during the Leak-Out Period not to sell, dispose or otherwise transfer on any trading day, in the aggregate, more than 15% of the composite daily trading volume of the common stock as reported by Bloomberg, LP. The Series B Investor also agreed to execute any lock-up agreement reasonably requested by an underwriter in connection with an underwritten offering of the Company’s securities.

Appointment of New Chief Financial Officer

On July 28, 2022, the Board appointed Philip F. Patman, Jr. to assume the role of Chief Financial Officer, Secretary and Treasurer of the Company, effective as of August 16, 2022.

Mr. Patman, 54, most recently has been Vice President and Head of Renewable Fuels M&A and Strategy at Ameresco, Inc., a cleantech technology integrator with a comprehensive portfolio of energy efficiency and renewable energy supply solutions, and has been employed by Ameresco since August 2021. Prior to that, Mr. Patman was with Huron Consulting Group, Inc., a global consultancy firm providing management consulting services to small- and mid-cap businesses primarily in the oil, gas, and diversified energy sectors, from May 2020 through June 2021, most recently serving as Managing Director. From April 2017 through March 2019, Mr. Patman was the Chief Financial Officer of VAALCO Energy, Inc. (NYSE:EGY), an oil operator that owns and operates shallow water offshore platforms in Gabon, West Africa. From 2012 to March 2017, he served PTT Exploration and Production Public Company, Ltd. (“PTTEP”), one of the largest publicly traded companies in the Kingdom of Thailand, as Senior Vice President, Business Development, for The Americas region (2012-16) and later as Senior External Advisor (2016-17); he had primary responsibility for leading PTTEP’s mergers and acquisitions activities in the US, Canada and Brazil. Cumulatively, Mr. Patman has more than 25 years of experience in finance operations, capital formation, and M&A / corporate development for companies engaged in global energy and infrastructure markets, including the above-described companies as well as AES Corporation, Franklin Templeton Investments, Globeleq Limited, Marathon Oil Corporation, and Enron Corp. Mr. Patman received a Bachelor of Arts degree in 1990 from the University of Texas at Austin through its Plan II Honors Program, and a J.D. from the University of Houston Law Center in 1993. He is currently a licensed attorney in the state of Texas.

In connection with Mr. Patman’s appointment as the Company’s Chief Financial Officer, Secretary and Treasurer, the Company and Mr. Patman entered into an employment agreement (the “Agreement”), dated July 29, 2022, providing for his employment, effective as of August 15, 2022, and continuing for a two-year term, which shall continue thereafter on an “at-will” basis (the “Employment Term”). Pursuant to the Agreement, the Company has agreed to pay Mr. Patman an annual salary of $350,000 (the “Base Salary”), payable in accordance with the Company’s customary payroll practices. The Agreement further provides that Mr. Patman is eligible for the following cash bonuses, as determined and based upon annual criteria set by the Board or the compensation committee of the Board (the “Compensation Committee”): (a) commencing August 15, 2022 and through December 31, 2022, Mr. Patman is eligible to receive a cash bonus in an amount up to 50% of his Base Salary paid to Mr. Patman during such period; and (b) commencing upon the 2023 calendar year and during the Employment Term, Mr. Patman is eligible to receive an annual cash bonus equal to an amount up to 50% of the then-current Base Salary, with each bonus payable in accordance with the Company’s standard payment practices.

In addition, pursuant to the Agreement, the Company has agreed to grant to Mr. Patman, within sixty (60) calendar days following August 15, 2022, subject to certain conditions, a one-time award of a number of restricted stock units (“RSUs”) equal to $175,000, divided by the thirty (30)-day trailing volume weighted average price as of August 15, 2022. Further pursuant to the Agreement, the Company has agreed to grant to Mr. Patman, commencing in calendar year 2023 and subject to such approvals specified by the Compensation Committee, an annual equity award consisting of a number of RSUs in an amount equal to $125,000. Mr. Patman is also entitled to other benefits normally available to other similarly situated employees of the Company.

Under the Agreement, the Employment Term is terminable by the Company upon 30 days’ prior written notice or by Mr. Patman upon 60 days’ prior written notice. As described in the Agreement, Mr. Patman is entitled to severance, in certain circumstances up to a total of six (6) months of base salary plus a pro-rata portion of his annual cash bonus.

Spring Lane Initial Funding

On May 3, 2022, SCI entered into a Bilateral Master Contribution Agreement (the “Bilateral Contribution Agreement”) with Spring Lane, pursuant to which Spring Lane agreed, pursuant to the terms and conditions of such agreement, to make one or more capital contributions to, and in exchange for equity in, SCI or one of its subsidiaries up to an aggregate amount of $35 million to fund certain projects to develop green data centers co-located with renewable energy assets (the “Spring Lane Commitment”). We anticipate that these capital contributions, once deployed into the projects, will help develop three behind-the-meter (BTM) projects designed to convert wasted renewable energy into clean computing services such as bitcoin mining and artificial intelligence. The Bilatera Contribution Agreement outlines the framework for the Spring Lane Commitment; however, neither we nor Spring Lane are obligated to complete any projects under such agreement and any actual capital contributions are subject to various conditions precedent, including the receipt of requisite lender and other consents, acceptance by Spring Lane of specific projects and negotiations of agreements regarding those projects, including milestones and structure. In partial consideration of the amendment to the October notes discussed above, the investors agreed to release certain collateral covered by their security agreement to permit the Company to proceed forward with the initial phase of the development site in Texas, which we expect to be partially funded by Spring Lane, which the Company expects to complete in the near future.

On August 5, 2022, the Company entered into a Contribution Agreement (the “Dorothy Contribution Agreement”)with Spring Lane, Soluna DV Devco, LLC (“Devco”), an indirect wholly-owned subsidiary of SCI, and Soluna DVSL ComputeCo, LLC (“DVSL”) an entity formed in order to further the Company’s development project in Texas, (each, a “Party” and, together, the “Parties”) . Pursuant to the Dorothy Contribution Agreement, the Company committed to a capital contribution of up to approximately $26.3 million to DVSL (the “Company Commitment”), and on August 5, 2022, the Company was deemed to have contributed approximately $8.1 million, through payment of capital expenditures and development costs made on behalf of DVSL by the Company prior to August 5, 2022. Further under the Agreement, Spring Lane committed to a capital contribution of up to $12.5 million to DVSL (the “Spring Lane Dorothy Commitment”), and on August 5, 2022, Spring Lane contributed approximately $3.9 million. Under the Dorothy Contribution Agreement, the Company and Spring Lane have committed to make subsequent contributions, up to their respective Company Commitment and Spring Lane Dorothy Commitment amounts, on a pro rata basis, upon receipt of a contribution request from DVSL, as set forth in the Dorothy Contribution Agreement and subject to the satisfaction of certain conditions described therein. The proceeds of any subsequent commitments will be applied to pay project costs in accordance with the project budget.

In exchange for their contributions, the Company and Spring Lane were issued 67.8% and 32.2% of the Class B Membership Interests in DVSL, respectively, and were admitted as Class B members of DVSL. Further pursuant to the Agreement, DVSL issued 100% of its Class A Membership Interests to Devco. The Dorothy Contribution Agreement contains customary indemnification provisions, liquidation provisions and governance provisions with respect to DVSL. The Parties also entered into an Amended and Restated Limited Liability Company Agreement of DVSL providing for the governance of DVSL.