FORM

 

 

 

(646)

 

(646)

 

 

 

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.  ☐

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

non-accelerated

Rule 12b-2

 

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 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Rule 13e-4(i)

Rule 14d-1(d)

 

 

 

 

 

Dear Stockholders of Adit EdTech Acquisition Corp.:

COVID-19

The board of directors of ADEX has unanimously approved the agreement and plan of merger, dated as of November 29, 2021 (as amended or modified from time to time, the “merger agreement”), by and among ADEX, ADEX Merger Sub, LLC, a Delaware limited liability company and a wholly owned direct subsidiary of ADEX (“Merger Sub”) and Griid Holdco LLC, a Delaware limited liability company (“GRIID”), pursuant to which, among other things: (a) ADEX will amend and restate its certificate of incorporation (as so amended and restated, the “proposed charter”) and bylaws (as so amended and restated, the “proposed bylaws”); (b) Merger Sub will merge with and into GRIID (the “merger”), and the separate limited liability company existence of Merger Sub will cease and GRIID, as the surviving company of the merger (“post-merger GRIID”) will continue its existence under the Limited Liability Company Act of the State of Delaware (the “DLLCA”) as a wholly owned subsidiary of ADEX; (c) the limited liability company agreement of post-merger GRIID will be amended and restated to, among other things, admit ADEX as the sole member thereof (as so amended and restated, the “A&R LLCA”); (d) at the effective time of the merger (the “effective time”), pursuant to the merger agreement, the limited liability company membership interests of Merger Sub will be converted into an equivalent limited liability company membership interest in post-merger GRIID; (e) at the effective time, pursuant to the merger agreement, each limited liability company membership unit of GRIID issued and outstanding immediately prior to the effective time will be converted into the right to receive such unit’s share, as determined in accordance with the merger agreement, of 308,100,000 shares of ADEX’s common stock, par value $0.0001 per share (the “merger consideration”). Post-merger ADEX is referred to herein as “New GRIID.” You are being asked to vote on the merger and related matters as described below.

Upon completion of the merger, we currently expect to issue (i)                shares of ADEX’s common stock, par value $0.0001 per share (the “common stock”) for each Class A limited liability company membership unit of GRIID issued and outstanding immediately prior to the effective time, (ii)                shares of common stock for each Class B limited liability company membership unit of GRIID issued and outstanding immediately prior to the effective time and (iii)                shares of common stock for each Class C limited liability company membership unit of GRIID issued and outstanding immediately prior to the effective time, based upon certain assumptions stated in the accompanying proxy statement/prospectus and the additional assumptions that (1)                Class A,              Class B and                Class C limited liability company membership units of post-merger GRIID are issued and outstanding immediately prior to the effective time (which amounts include the incentive units issued and outstanding immediately prior to the effective time) and (2) each outstanding limited liability company membership unit is entitled to the same proportionate share of the merger consideration as the other units in its class. The market value of the merger consideration will fluctuate between the date of the accompanying proxy statement/prospectus and the completion of the merger based on the price of our common stock. As described in further detail below, shares of our common stock are listed on the New York Stock Exchange (the “NYSE”) under the symbol “ADEX.” The following table sets forth the market value of our common stock and the implied value of the merger consideration per outstanding Class A, Class B and Class C limited liability company membership unit of GRIID outstanding based on such value as of November 29, 2021, the date preceding the public announcement of the merger, and as of                , the last practicable trading day prior to printing the accompanying proxy statement/prospectus, determined by multiplying the closing price of our common stock on such dates by the number of shares to be issued as merger

consideration. There is no market value for GRIID limited liability company membership units, as there is no public market for such interests.

 

Our units, common stock originally sold as part of the units, and warrants, including those originally sold as part of the units, are currently listed on the NYSE under the symbols “ADEX.U,” “ADEX” and “ADEX.WS,” respectively, and began separately trading on March 3, 2021. Upon the closing of the merger (the “closing”), we intend to apply to continue the listing of our common stock and warrants on the NYSE under the symbols “GRDI” and “GRDI.WS,” respectively. Our units will not be listed following the closing.

A-1,

In addition, you will be asked to consider and vote on proposals to:

 

 

 

 

 

 

 

 

 

 

 

Each of these proposals is more fully described in the accompanying proxy statement/prospectus, which you are encouraged to read carefully. We refer to these proposals collectively as the “transaction proposals.”

Only holders of record of shares of our common stock at the close of business on                will be entitled to notice of and to vote and have their votes counted at the special meeting and any adjournments or postponements of the special meeting. A complete list of our stockholders of record entitled to vote at the special meeting will be available before the special meeting at our principal executive offices for inspection by stockholders during ordinary business hours for any purpose germane to the special meeting. We are providing the accompanying proxy statement/prospectus and proxy card to our stockholders in connection with the solicitation of proxies to be voted at the special meeting and at any adjournments or postponements of the special meeting.

Pursuant to the current charter, a stockholder may request that ADEX redeem all or a portion of such stockholder’s shares for cash if the merger is consummated. A stockholder will be entitled to receive cash for any shares to be redeemed only if it (i) holds shares; and (ii) prior to                , Eastern Time, on                (two business days prior to the vote at the special meeting), (a) submits a written request to Continental Stock Transfer & Trust Company, ADEX’s transfer agent (the “transfer agent”), that ADEX redeem its shares for cash and (b) delivers its shares to the transfer agent, physically or electronically through The Depository Trust Company (“DTC”).

Stockholders may elect to redeem all or a portion of their shares even if they vote for the merger proposal. If the merger is not consummated, the shares will not be redeemed for cash. If a stockholder properly exercises its right to redeem its shares and timely delivers its shares to the transfer agent, we will redeem each share for a per share price, payable in cash, equal to the quotient obtained by dividing (a) the aggregate amount on deposit in the trust account as of two business days prior to the consummation of the merger, including interest not previously released to ADEX to pay its franchise and income taxes, by (b) the total number of shares issued in ADEX’s initial public offering (the “IPO”). For illustrative purposes, as of                , the record date for the special meeting, this would have amounted to approximately $             per share. If a stockholder properly exercises its redemption rights, then it will be exchanging its redeemed shares for cash and will no longer own such shares. Any request to redeem shares, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the closing. Furthermore, if a stockholder delivers any certificate representing shares in connection with an election of its redemption and subsequently decides prior to the applicable date not to elect to exercise such rights, it may simply request that ADEX instruct the transfer agent to return the shares (physically or electronically). The holder can make such request by contacting the transfer agent, at the address or email address listed in the accompanying proxy statement/prospectus. We will be required to honor such request only if made prior to the deadline for exercising redemption requests. See “Proposal No. 1—The Merger Proposal—Redemption Rights” in the accompanying proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your shares for cash.

Notwithstanding the foregoing, a holder of shares, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined for purposes of Section 13 of the Exchange Act (as defined below)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares, without our prior consent. Accordingly, if a stockholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.

Under the merger agreement, the approval of each of the condition precedent proposals is a condition to the consummation of the merger. The adoption of each condition precedent proposal is conditioned on the approval of all of the condition precedent proposals. The director election proposal and the incentive plan proposal are conditioned on the approval of all of the condition precedent proposals, and the adjournment proposal is not conditioned on the approval of any other proposal. If our stockholders do not approve each of the condition precedent proposals, the merger may not be consummated.

Approval of the charter amendment proposal requires the affirmative vote of a majority of the then-outstanding shares of common stock entitled to vote at the special meeting. Approval of each of the merger proposal, NYSE proposal, the incentive plan proposal and the adjournment proposal requires the affirmative vote of a majority of the then-outstanding shares of common stock present, in person (online) or by proxy, and entitled to vote at the special meeting. Approval, on an advisory basis, of the advisory charter proposals, requires the affirmative vote of a majority of the then-outstanding shares of common stock present, in person (online) or by proxy, and entitled to vote at the meeting. The election of the director nominees pursuant to the director election proposal requires the affirmative vote of the holders of a plurality of the votes cast at the meeting.

COVID-19

pre-addressed

12-digit

record holding shares of common stock, you may also cast your vote in person (online) during the special meeting. If your shares are held in an account at a brokerage firm or bank, you must instruct your broker or bank on how to vote your shares or, if you wish to attend the special meeting and vote in person (online), obtain a proxy from your broker or bank. The special meeting webcast will begin promptly at                , Eastern Time. ADEX stockholders are encouraged to access the special meeting prior to the start time. If you encounter any difficulties accessing the virtual meeting or during the meeting time, please call the technical support number that will be posted on the virtual meeting login page. Abstentions, while considered present for the purposes of establishing a quorum, will not count as votes cast and will have the same effect as a vote “AGAINST” each of the proposals, other than the director election proposal, presented at the special meeting. Abstentions will have no effect on the outcome of the director election proposal. Broker non-votes will not be considered present for purposes of establishing a quorum, will have the same effect as a vote “AGAINST” the charter amendment proposal, and will have no effect on the outcome of the merger proposal, the NYSE proposal, the advisory charter proposals, the incentive plan proposal, the director election proposal, or the adjournment proposal. A stockholder’s failure to vote by proxy or to vote in person (online) at the special meeting will not be counted towards the number of shares of common stock required to validly establish a quorum, and if a valid quorum is otherwise established, will have the effect as a vote “AGAINST” the charter amendment proposal and no effect on the outcome of the merger proposal, the NYSE proposal, the advisory charter proposals, the incentive plan proposal, the director election proposal, and the adjournment proposal.

If your shares are held in “street name” or are in a margin or similar account, you should contact your broker to ensure that your shares are represented and voted at the special meeting.

On behalf of our board of directors, I would like to thank you for your support of Adit EdTech Acquisition Corp. and look forward to a successful completion of the merger.

 

TO EXERCISE ITS REDEMPTION RIGHTS, A STOCKHOLDER MUST (1) SUBMIT A WRITTEN REQUEST TO THE TRANSFER AGENT AT LEAST TWO BUSINESS DAYS PRIOR TO THE VOTE AT THE SPECIAL MEETING, THAT ITS SHARES BE REDEEMED FOR CASH, AND (2) DELIVER ITS SHARES TO THE TRANSFER AGENT, PHYSICALLY OR ELECTRONICALLY USING THE DEPOSITORY TRUST COMPANY’S DWAC SYSTEM, IN EACH CASE IN ACCORDANCE WITH THE PROCEDURES AND DEADLINES DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS. IF THE MERGER IS NOT CONSUMMATED, THEN THE SHARES WILL NOT BE REDEEMED FOR CASH. IF A STOCKHOLDER HOLDS ITS SHARES IN STREET NAME, SUCH STOCKHOLDER WILL NEED TO INSTRUCT THE ACCOUNT EXECUTIVE AT ITS BANK OR BROKER TO WITHDRAW THE SHARES FROM ITS ACCOUNT IN ORDER TO EXERCISE ITS REDEMPTION RIGHTS. SEE “PROPOSAL NO. 1—THE MERGER PROPOSAL—REDEMPTION RIGHTS” IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS FOR MORE SPECIFIC INSTRUCTIONS.

This proxy statement/prospectus is dated                 , 2022 and is first being mailed to ADEX stockholders on or about                 , 2022.

To the Stockholders of Adit EdTech Acquisition Corp:

NOTICE IS HEREBY GIVEN that a special meeting in lieu of the 2021 annual meeting (the “special meeting”) of stockholders of Adit EdTech Acquisition Corp., a Delaware corporation (“ADEX,” “we,” “our” or “us”), will be held on                , at                , Eastern Time, at the following website:                . The special meeting is being called for the following purposes:

 

 

 

 

 

 

 

 

 

 

 

 

 

Each of these proposals is more fully described in the accompanying proxy statement/prospectus, which you are encouraged to review carefully.

COVID-19

Pursuant to the current charter, a stockholder may request that ADEX redeem all or a portion of such stockholder’s shares for cash if the merger is consummated. A stockholder will be entitled to receive cash for any shares to be redeemed only if it (i) holds shares; and (ii) prior to                , Eastern Time, on                (two business days prior to the vote at the special meeting), (a) submits a written request to Continental Stock Transfer & Trust Company, ADEX’s transfer agent (the “transfer agent”), that ADEX redeem its shares for cash and (b) delivers its shares to the transfer agent, physically or electronically through The Depository Trust Company (“DTC”).

Stockholders may elect to redeem all or a portion of their shares even if they vote for the merger proposal. If the merger is not consummated, the shares will not be redeemed for cash. If a stockholder properly exercises its right to redeem its shares and timely delivers its shares to the transfer agent, we will redeem each share for a per share price, payable in cash, equal to the quotient obtained by dividing (a) the aggregate amount on deposit in the trust account as of two business days prior to the consummation of the merger, including interest not previously released to ADEX to pay its franchise and income taxes, by (b) the total number of shares issued in the IPO. For illustrative purposes, as of                , the record date for the special meeting, this would have amounted to approximately $        per share. If a stockholder properly exercises its redemption rights, then it will be exchanging its redeemed shares for cash and will no longer own such shares. Any request to redeem shares, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the closing. Furthermore, if a holder delivers its certificate representing shares in connection with an election of its redemption and subsequently decides prior to the applicable date not to elect to exercise such rights, it may simply request that ADEX instruct the transfer agent to return the shares (physically or electronically). The holder can make such request by contacting the transfer agent, at the address or email address listed in the accompanying proxy statement/prospectus. We will be required to honor such request only if made prior to the deadline for exercising redemption requests. See “Proposal No. 1—The Merger Proposal—Redemption Rights” in the accompanying proxy statement/prospectus for a detailed description of the procedures to be followed if you wish to redeem your shares for cash.

Notwithstanding the foregoing, a holder of shares, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined for purposes of Section 13 of the Exchange Act (as defined below)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% of the shares, without our prior consent. Accordingly, if a stockholder, alone or acting in concert or as a group, seeks to redeem more than 15% of the shares, then any such shares in excess of that 15% limit would not be redeemed for cash, without our prior consent.

We will pay the redemption price to stockholders who properly exercise their redemption rights promptly following the closing. The closing is subject to the satisfaction of a number of conditions. As a result, there may be a significant delay between the deadline for exercising redemption requests prior to the special meeting and payment of the redemption price.

The closing is conditioned on, among other things, the approval of the condition precedent proposals, the director election proposal, and the incentive plan proposal at the special meeting.

We urge you to read the proxy statement/prospectus accompanying this notice (including the annexes thereto) carefully for a more complete description of the merger and related transactions and each of the proposals. If you have any questions or need assistance voting your shares, please call our proxy solicitor,                 , at                 (banks and brokers call collect at                ) or email at                .

Thank you for your participation. We look forward to your continued support.

 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			1
QUESTIONS AND ANSWERS ABOUT THE TRANSACTION PROPOSALS FOR ADEX STOCKHOLDERS			5
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS			20
RISK FACTORS			39
SPECIAL MEETING OF ADEX STOCKHOLDERS			96
PROPOSAL NO. 1—THE MERGER PROPOSAL			101
PROPOSAL NO. 2—THE CHARTER AMENDMENT PROPOSAL			140
PROPOSAL NO. 3—THE ADVISORY CHARTER PROPOSALS			142
PROPOSAL NO. 4—THE NYSE PROPOSAL			145
PROPOSAL NO. 5—THE INCENTIVE PLAN PROPOSAL			146
PROPOSAL NO. 6—DIRECTOR ELECTION PROPOSAL			156
PROPOSAL NO. 7—THE ADJOURNMENT PROPOSAL			157
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION			158
INFORMATION ABOUT ADEX			169
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ADEX			179
INFORMATION ABOUT GRIID			183
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GRIID			197
MARKET, INDUSTRY, OTHER DATA AND CERTAIN KEY METRICS			216
MANAGEMENT AFTER THE MERGER			217
EXECUTIVE COMPENSATION			226
BENEFICIAL OWNERSHIP OF SECURITIES			232
CERTAIN ADEX RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			235
CERTAIN GRIID RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			237
MARKET PRICE AND DIVIDEND INFORMATION			238
DESCRIPTION OF SECURITIES			239
APPRAISAL RIGHTS			269
STOCKHOLDER NOMINATIONS AND PROPOSALS			270
HOUSEHOLDING INFORMATION			270
WHERE YOU CAN FIND ADDITIONAL INFORMATION			271
INDEX TO FINANCIAL STATEMENTS			F-1

 

 

i

This proxy statement/prospectus, including, without limitation, statements under the headings “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ADEX” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GRIID,” includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as amended. Forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. The information included in this proxy statement/prospectus in relation to GRIID has been provided by GRIID and its management team, and forward-looking statements include statements relating to GRIID’s management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this proxy statement/prospectus may include, for example, statements about:

 

 

 

 

 

 

 

 

 

The forward-looking statements contained in this proxy statement/prospectus are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to:

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We and GRIID undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. You should not take any statement regarding past trends or activities as a representation that the trends or activities will continue in the future. Accordingly, you should not put undue reliance on these statements in deciding how to grant your proxy or instruct how your vote should be cast on the proposals set forth in this proxy statement/prospectus.

 

2

S-4

ADEX is subject to the information and periodic reporting requirements of Section 13(a) and Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and files annual, quarterly and current reports with the SEC. Upon the effectiveness of the registration statement and following completion of the transaction, New GRIID will continue to be subject to these requirements. You will be able to obtain ADEX’s SEC filings, including the registration statement and this proxy statement/prospectus, free of charge at the SEC’s website at http://www.sec.gov. These documents are also available at ADEX’s website at http://www.aditedtech.com under the heading “SEC Filings.” The references to these websites are inactive textual references only, and the information provided on the SEC’s and ADEX’s website is not a part of this proxy statement/prospectus and therefore is not incorporated by reference into this proxy statement/prospectus.

GRIID does not have a class of securities registered under Section 12 of the Exchange Act or listed on a public exchange, is not subject to the reporting requirements of Section 13(a) or 15(d) of the Exchange Act and, accordingly, does not file documents or reports with the SEC.

You can obtain documents referenced in this proxy statement/prospectus at no cost by requesting them in writing or by telephone from ADEX:

John D’Agostino

Adit EdTech Acquisition Corp.

1345 Avenue of the Americas, 33 Floor

New York, NY 10105

291-6930

Email: dagostino@aditedtech.com

You may also obtain these documents by requesting them in writing or by telephone from our proxy solicitation agent at the following address and telephone number:

[Agent]    

[Street Address]

[City, State, Zip]

Telephone:                

(banks and brokers call collect at                )

Email:                

No one has been authorized to provide you with any information that is different from that contained in this proxy statement/prospectus. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This proxy statement/prospectus may be used only for the purpose for which it has been prepared. This proxy statement/prospectus is dated                , 2022, and you should assume that the information in this proxy statement/prospectus is accurate only as of such date or such other date as is specified. Neither the mailing of this proxy statement/prospectus to the GRIID members nor the issuance by ADEX of shares of ADEX common stock in connection with the merger will create any implication to the contrary.

 

3

 

4

The following questions and answers briefly address some commonly asked questions about the proposals to be presented at the special meeting, including proposals relating to the merger. The following questions and answers do not include all the information that is important to ADEX stockholders. We urge ADEX stockholders to read carefully the remainder of this proxy statement/prospectus, including the annexes included herein.

A-1.

In connection with the merger, the existing organizational documents will be replaced by the proposed organizational documents. The provisions of the proposed organizational documents will differ materially from those of the existing organizational documents. Please see “Questions and Answers About the Transaction Proposals For ADEX Stockholders—What amendments will be made to the existing organizational documents of ADEX?” below.

For more information, see the section entitled “Proposal No. 1—The Merger Proposal—ADEX’s Board of Directors’ Reasons for Approval of the Merger.”

 

5

A-1,

In addition, you will be asked to consider and vote on proposals to:

 

 

 

 

 

 

 

 

 

 

 

 

 

6

A:     Pursuant to the merger agreement, and subject to the terms and conditions contained therein, at the closing of the merger, Merger Sub will merge with and into GRIID, with GRIID surviving the merger. After giving effect to the merger, GRIID will become a wholly owned subsidiary of New GRIID. Please see the section entitled“Proposal No. 1—The Merger Proposal”for more information.

If the merger proposal is approved, we intend to use a portion of the funds held in the trust account to pay (a) our aggregate costs, fees and expenses in connection with the consummation of the merger, (b) the deferred underwriting commission of approximately $9.7 million from our initial public offering and (c) the holders of our common stock who exercise redemption rights. The remaining balance in the trust account will be used for working capital and general corporate purposes of New GRIID. Please see the section entitled “Proposal No. 1—The Merger Proposal”for more information.

 

7

liability company membership unit of GRIID will be converted into the right to receive such unit’s share, as determined in accordance with the merger agreement, of 308,100,000 shares of ADEX’s common stock, par value $0.0001 per share (the “common stock”).

A:    It is intended that, for U.S. federal income tax purposes, the merger should be treated as a exchange (subject to the subsequent sentence) by GRIID members of their limited liability company membership units of GRIID for ADEX common stock pursuant to Section 351(a) of the Internal Revenue Code of 1986, as amended (the “Code”), which is referred to as the “intended tax treatment”. Notwithstanding the application of Section 351(a) of the Code to the exchange, certain GRIID members may recognize gain to the extent a member’s allocable share of the liabilities of post-merger GRIID exceeds such member’s adjusted tax basis in the GRIID limited liability company membership units surrendered. The completion of the merger is not conditioned on the merger qualifying for the intended tax treatment or upon the receipt of an opinion from counsel to that effect, and whether or not the merger will qualify for the intended tax treatment depends on facts that will not be known until the merger is completed. Accordingly, no assurance can be given that the merger will qualify for the intended tax treatment. Finally, neither ADEX nor GRIID intends to request a ruling from the Internal Revenue Service regarding the U.S. federal income tax consequences of the merger. Therefore, even if ADEX and GRIID conclude that the merger qualifies for the intended tax treatment, no assurance can be given that the Internal Revenue Service will not challenge that conclusion or that a court would not sustain such a challenge.

If the merger fails to qualify for the intended tax treatment, a GRIID member generally would recognize gain or loss in an amount equal to the difference between (1) the fair market value of the shares of ADEX common stock received in the merger by the member, plus the amount of the liabilities of post-merger GRIID that are allocated to such member and (2) the member’s basis in the GRIID units surrendered.

 

8

    It is anticipated that, upon completion of the merger and related transactions, the ownership of New GRIID by our sponsor and independent directors and industry advisors who received shares of common stock issued prior to our initial public offering (collectively, the “initial stockholders”), our public stockholders and the GRIID equity holders will be as follows:

 

 

 

The preceding description of the ownership of ADEX’s securities is accurate as of the date of filing of this proxy statement/prospectus. The preceding description does not take into account any transactions that may be entered into after the date hereof, including any stockholder redemptions.

pre-merger

 

 

 

The preceding description of the ownership of ADEX’s securities is accurate as of the date of filing of this proxy statement/prospectus. The preceding description does not take into account any transactions that may be entered into after the date hereof, including any stockholder redemptions. You should read “Unaudited Pro Forma Condensed Combined Financial Information” for further information.

 

9

 

 

    Yes. In connection with its determination to approve the merger, the board of directors of ADEX obtained an opinion from Lincoln International LLC as to the fairness to ADEX, from a financial point of view, of the merger consideration to be issued by ADEX in the merger. Such opinion addressed the fairness to all stockholders of ADEX as a group, as opposed to only those stockholders unaffiliated with the sponsor or the

 

10

A:    ADEX is proposing the NYSE Proposal in order to comply with (i) NYSE Listing Rule 312.03(c), which requires, among other things, stockholder approval of certain transactions that result in the issuance of 20% or more of a company’s outstanding voting power or shares of common stock outstanding before the issuance of stock or securities or the issuance of stock or securities to any director, officer or “Substantial Stockholder” and (ii) NYSE Listing Rule 312.03(d), which requires stockholder approval of certain transactions that result in the change of control of the issuer. In connection with the merger, ADEX is seeking stockholder approval for the issuance of: 308,100,000 shares of common stock to the GRIID equity holders. Because the number of securities that ADEX will issue to the GRIID equity holders in connection with the merger is equal to 20% or more of ADEX’s outstanding voting power and outstanding common stock in connection with the merger and the merger will result in a change in control of ADEX, ADEX is required to obtain stockholder approval of such issuance pursuant to NYSE listing rules. Stockholder approval of the NYSE Proposal is also a condition to closing in the merger agreement. See the section entitled “Proposal No. 4—The NYSE Proposal” for additional information.

 

11

non-public

per-share

    In connection with the IPO, we entered into the sponsor IPO letter agreement with our sponsor and each of our directors and officers, pursuant to which each agreed to vote any shares of common stock owned by them in favor of the merger. Currently, stockholders that have agreed to vote their shares of common stock owned by them in favor of the merger own approximately 20% of our issued and outstanding shares common stock, in the aggregate, including the 6,900,000 shares of common stock held by the initial stockholders (the “founder shares”). As a result, the affirmative vote of approximately 37.5% of the shares of common stock held by the public stockholders would be sufficient for approval of the merger proposal. See the section entitled “Proposal No. 1—The Merger Proposal—Related Agreements—Sponsor Letter Agreement.”

 

 

 

12

 

 

 

 

 

 

 

13

    Pursuant to our existing organizational documents, we are providing the public stockholders with the opportunity to have their shares redeemed at the closing of the merger at a price, payable in cash, equal to the aggregate amount then on deposit in the trust account as of two business days prior to the consummation of the merger, including interest (which interest shall be net of taxes payable), divided by the number of then outstanding shares included as part of the units sold in the IPO, subject to the limitations described in this proxy statement/prospectus. The amount we will distribute to investors who properly redeem their shares will not be reduced by the deferred underwriting commissions we will pay to the underwriters. We will not redeem our shares unless our net tangible assets, after payment of deferred underwriting commissions, are at least $5,000,001 either immediately prior to or upon consummation of the merger (such that we are not subject to the SEC’s “penny stock” rules). For illustrative purposes, based on the fair value of marketable securities held in the trust account as of                , the record date for the special meeting of $        , the estimated per share redemption price would have been approximately $        . Our existing organizational documents provide that a public stockholder, acting together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a partnership, limited partnership, syndicate, or other group for purposes of acquiring, holding, or disposing of any shares of ADEX, will be restricted from exercising this redemption right with respect to more than 15% of the shares in the aggregate without the prior consent of ADEX. There will be no redemption rights with respect to our warrants. The initial stockholders have agreed to waive their redemption rights for no additional consideration with respect to their shares, including any shares they may have acquired after our IPO, in connection with the completion of the merger. Permitted transferees of our sponsor and the initial stockholders will be subject to the same obligations.

Additionally, shares properly tendered for redemption will only be redeemed if the merger is consummated; otherwise holders of such shares will only be entitled to a pro rata portion of the trust account (including interest but net of income taxes payable) in connection with the liquidation of the trust account or if we subsequently complete a different initial business combination on or prior to January 14, 2023, and such shares are tendered for redemption in connection with such different initial business combination.

We will pay the redemption price to any public stockholders who properly exercise their redemption rights promptly following the closing. The closing is subject to the satisfaction of a number of conditions. As a result, there may be a significant delay between the deadline for exercising redemption requests prior to the special meeting and payment of the redemption price. Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the vote is taken with respect to the merger.

 

14

Continental Stock Transfer & Trust Company

1 State Street, 30th Floor

New York, New York 10004

Attention: Mark Zimkind

Email: mzimkind@continentalstock.com

Your written request should include a certification that you are not acting in concert or as a partnership, syndicate, or other “group” (as defined in Section 13 of the Exchange Act) with any other stockholder with respect to shares. Our existing organizational documents provide that a public stockholder, acting together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a partnership, limited partnership, syndicate, or other group for purposes of acquiring, holding, or disposing of any shares of ADEX, will be restricted from exercising this redemption right with respect to more than 15% of the shares in the aggregate without the prior consent of ADEX. There will be no redemption rights with respect to our warrants.

Stockholders who hold their shares in street name will have to coordinate with their bank, broker or other nominee to have the shares delivered electronically in order to exercise their redemption rights. Holders of outstanding units of ADEX must separate the underlying shares and IPO warrants prior to exercising redemption rights with respect to the shares. If a broker, dealer, commercial bank, trust company or other nominee holds your units, you must instruct such nominee to separate your units. Your nominee must send written instructions by facsimile to Continental Stock Transfer & Trust Company. Such written instructions must include the number of units to be split and the nominee holding such units. Your nominee must also initiate electronically, using the Depository Trust & Clearing Corporation (“DTCC”) DWAC (deposit withdrawal at custodian) system, a withdrawal of the relevant units and a deposit of an equivalent number of shares and IPO warrants. This must be completed far enough in advance to permit your nominee to exercise your redemption rights upon the separation of the shares from the units. While this is typically done electronically on the same business day, you should allow at least one full business day to accomplish the separation. If you fail to cause your shares to be separated in a timely manner, you will likely not be able to exercise your redemption rights. Any demand for redemption, once made, may be withdrawn at any time until the deadline for exercising redemption requests and thereafter, with our consent, until the vote is taken with respect to the merger. If you delivered your shares for redemption to the transfer agent and decide within the required timeframe not to exercise your redemption rights, you may request that the transfer agent return the shares. You may make such request by contacting our transfer agent at the phone number or address listed above.

    No. Prior to the consummation of the merger, the holders of our warrants have no redemption rights with respect to our warrants.

 

15

 

16

COVID-19

pre-addressed

 

17

Q:    What is a broker

non-vote

“non-routine”

non-vote.”

non-votes

 

18

on                ) or attend the special meeting and vote in person (online). Stockholders also may revoke their proxy by sending a notice of revocation to                , which must be received by                prior to the vote at the special meeting. However, if your shares are held in “street name” by your broker, bank or another nominee, you must contact your broker, bank or other nominee to change your vote.

[Agent]

[Street Address]

[City, State, Zip]

Tel:                

Banks and brokers call collect:                

E-mail:                

You also may obtain additional information about ADEX from documents filed with the SEC by following the instructions in the section entitled “Where You Can Find Additional Information.” If you are a holder of shares and you intend to seek redemption of your shares, you will need to deliver your shares (either physically or electronically) to the transfer agent at the address below prior to                , Eastern Time, on                (two business days prior to the vote at the special meeting). If you have questions regarding the certification of your position or delivery of your stock, please contact:

Mark Zimkind

Continental Stock Transfer & Trust Company

One State Street Plaza, 30th Floor

New York, New York 10004

E-mail:

 

19

 

20

•

all applicable waiting periods (and any extensions thereof) under the HSR Act must have expired or been terminated;

•

there must not be in force any applicable law or governmental order enjoining, prohibiting, making illegal or preventing the consummation of the merger;

•

the approval of the transaction proposals (other than the adjournment proposal) by ADEX’s stockholders as described in this proxy statement/prospectus must have been obtained;

•

the approval of the merger agreement and related agreements and transactions and actions contemplated thereby shall have been approved by the members of GRIID;

•

the shares of common stock contemplated to be listed pursuant to the merger agreement must have been listed on NYSE and be eligible for continued listing on NYSE immediately following the closing (as if it were a new initial listing by an issuer that had never been listed prior to closing);

•

ADEX must have at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act) remaining after ADEX’s stockholders have exercised their right to redeem their shares in connection with the closing; and

•

the registration statement on Form S-4 will have become effective and no stop order will have been issued by the SEC with respect to the registration statement on Form S-4 and no proceeding seeking such a stop order will have been threatened or initiated by the SEC.

•

the representations and warranties of GRIID set forth in the merger agreement related to the corporate organization of GRIID and its subsidiaries, due authorization to enter into the merger

 

21

agreement and related documentation, consents, brokers’ fees and title to GRIID’s and its subsidiaries’ respective assets, must be true and correct (without giving effect to any materiality, “company material adverse effect,” “company impairment effect” or similar qualification therein) in all material respects as of the closing date, as if made on and as of the closing date, except to the extent any such representation and warranty is made as of an earlier date, in which case such representation and warranty must be true and correct in all material respects as of such earlier date;

•

the representations and warranties of GRIID set forth in the merger agreement related to the capitalization of GRIID and its subsidiaries, must be true and correct in all respects (except for de minimis inaccuracies) as of the closing date, as if made on and as of the closing date, except to the extent any such representation and warranty is made as of an earlier date, in which case such representation and warranty must be true and correct in all respects (except for de minimis inaccuracies) as of such earlier date;

•

the other representations and warranties of GRIID set forth in the merger agreement must be true and correct (without giving effect to any materiality, “material adverse effect,” “company impairment effect” or similar qualifications therein) in all respects as of the closing date, as if made on and as of the closing date (except to the extent any such representation and warranty is made as of an earlier date, in which case such representation and warranty must be true and correct in all respects as of such earlier date), except where the failure of such representations and warranties to be true and correct, taken as a whole, does not cause a company material adverse effect or any effect that would, individually or in the aggregate, reasonably be expected to prevent or materially impair the ability of GRIID to consummate the transactions contemplated by the merger agreement (such effect, a “company impairment effect”);

•

each of the covenants of GRIID to be performed or complied with at or prior to the closing must have been performed or complied with by GRIID in all material respects;

•

from the date of the merger agreement there must have not occurred a company impairment effect that is continuing as of the closing date or any company material adverse effect;

•

GRIID must have delivered, or cause to be delivered, to ADEX: (i) the investor rights agreement executed by the GRIID equity holders, (ii) a certificate signed by an authorized officer of GRIID, dated as of the closing date, certifying that the conditions described in the preceding bullets above have been satisfied, (iii) certification conforming to the requirements of Treasury Regulations section 1.1445-11T(d)(2)(i), and (iv) certificates of good standing with respect to GRIID and each of its subsidiaries; and

•

each of the representations and warranties of the ADEX parties set forth in the merger agreement related to the corporate organization of the ADEX parties, due authorization to enter into the merger agreement and related documentation, consents and brokers’ fees, must be true and correct (without giving effect to any materiality, “ADEX material adverse effect,” “ADEX impairment

 

22

effect” or similar qualifications therein) in all material respects as of the closing date, as if made on and as of the closing date, except to the extent any such representation and warranty is made as of an earlier date, in which case such representation and warranty must be true and correct in all material respects as of such earlier date;

•

the representations and warranties of the ADEX parties set forth in the merger agreement related to the capitalization of the ADEX parties, must have been true and correct in all respects (except for de minimis inaccuracies) as of the closing date, as if made as of the closing date, except to the extent any such representation and warranty is made as of an earlier date, in which case such representation and warranty must be true and correct in all respects (except for de minimis inaccuracies) as of such earlier date;

•

the other representations and warranties of the ADEX parties, must be true and correct (without giving effect to any materiality, “ADEX material adverse effect,” “ADEX impairment effect” or similar qualifications therein) in all respects as of the closing date, as if made on and as of the closing date (except to the extent any such representation and warranty is made as of an earlier date, in which case such representation and warranty must be true and correct in all respects as of such earlier date), except where the failure of such representations and warranties to be true and correct, taken as a whole, does not cause an ADEX material adverse effect or any effect that would, individually or in the aggregate, reasonably be expected to prevent or materially impair the ability of the ADEX parties to consummate the transactions contemplated by the merger agreement (such effect, an “ADEX impairment effect”);

•

each of the covenants of ADEX or Merger Sub to be performed or complied with at or prior to closing must have been performed or complied with by the ADEX parties, as applicable, in all material respects;

•

from the date of the merger agreement there must have not occurred an ADEX impairment effect that is continuing as of the closing date or any ADEX material adverse effect; and

•

ADEX must have delivered, or cause to be delivered, to GRIID (i) the investor rights agreement and the amended operating agreement, in each case executed by ADEX or its stockholders, as applicable and (ii) a certificate signed by an officer of ADEX, dated the closing date, certifying that the conditions described in the preceding five bullets above have been fulfilled.

 

23

•

the fact that certain of our directors and officers are principals of our sponsor;

 

24

•

the fact that our sponsor holds 7,270,000 private placement warrants to purchase 7,270,000 shares of our common stock purchased at a price of $1.00 per warrant in a private placement that closed simultaneously with the consummation of the IPO that would expire worthless if a business combination is not consummated by January 14, 2023;

•

the fact that our sponsor has agreed to waive its rights to liquidating distributions from the trust account with respect to its founder shares if ADEX fails to complete an initial business combination, including the merger, by January 14, 2023;

•

the fact that if the trust account is liquidated, including in the event ADEX is unable to complete an initial business combination by January 14, 2023, our sponsor has agreed that it will be liable to ADEX if and to the extent any claims by a third party (other than ADEX’s independent auditors) for services rendered or products sold to ADEX, or a prospective target business with which ADEX has discussed entering into a transaction agreement, reduce the amounts in the trust account to below (i) $10.00 per share or (ii) such lesser amount per share held in the trust account as of the date of the liquidation of the trust account, due to reductions in the value of the trust assets, in each case net of the amount of interest which may be withdrawn to pay taxes, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the trust account and except as to any claims under our indemnity of the underwriters of our IPO against certain liabilities, including liabilities under the Securities Act;

•

the fact that one or more directors of ADEX will be a director of New GRIID;

•

the continued indemnification of ADEX’s current directors and officers and the continuation of ADEX’s directors’ and officers’ liability insurance after the merger;

•

the fact that our sponsor, officers, directors and their respective affiliates will not be reimbursed for any out-of-pocket expenses from any amounts held in the trust account if an initial business combination is not consummated by January 14, 2023; and

•

the fact that upon the consummation of the merger, an entity affiliated with ADEX’s Chief Financial Officer, John D’Agostino, would be entitled to acceleration of receipt of a $400,000 cash payment from GRIID and acceleration of vesting of GRIID units it holds.

 

25

•

extensive meetings with GRIID’s management team regarding operations and forecasts;

•

research on the cryptocurrency industry, including historical growth trends and market share information as well as end-market size and growth projections;

•

consultation with ADEX’s management and legal and financial advisors;

•

review of current and forecasted industry and market conditions;

•

a financial and valuation analysis of GRIID and the merger and financial projections prepared by GRIID’s management team;

•

the opinion of Lincoln International LLC as to the fairness of the merger consideration to ADEX and the related analysis prepared by Lincoln International LLC;

•

GRIID’s audited and unaudited financial statements; and

•

consideration of legal, cybersecurity, and operational due diligence reports prepared by external advisors.

•

are fundamentally sound and that we believe are underperforming their potential;

•

are in a position to utilize our management team’s global network of contacts, which can provide access to differentiated deal flow and significant deal-sourcing capabilities following a business combination;

•

are at an inflection point, such as requiring additional management expertise or new operational techniques to drive improved financial performance;

•

exhibit unrecognized value or other characteristics, desirable returns on capital and a need for capital to achieve the company’s growth strategy, that we believe have been misevaluated by the marketplace based on our analysis and due diligence review;

•

will offer an attractive risk-adjusted return for our stockholders; the potential upside from growth in the target business and an improved capital structure will be weighed against any identified downside risks; and

 

26

•

have been materially impacted by possible market dislocations or that have new market opportunities and would benefit from capital markets access.

•

Capitalization . GRIID maintains a $525 million credit facility, strengthening its balance sheet and reducing the need for additional public equity financing.

•

Proven Existing Management Team . GRIID has an experienced management team with a proven track record of operational excellence. We are confident in the management team’s deep industry knowledge and strategic vision and believe that the ADEX and GRIID teams will form a collaborative and effective long-term partnership that is positioned to create and enhance stockholder value going forward.

•

Compelling Financial Metrics and Valuation. The proposed pro forma enterprise value of approximately $3.3 billion implies an enterprise value to projected 2022 EBITDA multiple of 7.3x and an enterprise value to projected 2022 total revenue multiple of 6.4x (based on GRIID’s projections), which compares favorably with the corresponding trading multiple for certain companies that may be deemed comparable to GRIID in certain respects.

•

Terms of the Merger Agreement . Our board of directors reviewed the financial and other terms and conditions of the merger agreement and determined that they were reasonable and were the product of arm’s-length negotiations among the parties.

•

Stockholder Approval . Our board of directors considered the fact that in connection with the merger our stockholders have the option to (i) remain stockholders of ADEX, (ii) sell their shares on the open market or (iii) redeem their shares for the per share amount held in the trust account.

•

Independent Director Role . Our board of directors is comprised of a majority of independent directors who are not affiliated with our sponsor and its affiliates. In connection with the merger, our independent directors took an active role in evaluating the proposed terms of the merger, including the merger agreement and the related agreements. Our independent directors evaluated and unanimously approved, as members of our board of directors, the merger agreement and the related agreements and the transactions contemplated thereby.

•

Other Alternatives. Our board of directors’ belief is that the merger represents the best potential business combination for ADEX based upon the process utilized to evaluate and assess other potential acquisition targets, and our board of directors’ and management’s belief that such processes had not presented a better alternative.

•

The risk relating to the uncertainty of the projected financial information with respect to GRIID.

•

The risk that the terms of GRIID’s credit agreement with Blockchain restrict GRIID’s current and future operations, particularly its ability to take certain actions.

•

The risk that GRIID’s business is highly dependent on a small number of bitcoin mining equipment suppliers.

•

The risks relating to GRIID’s reliance on third parties, including utility providers, for the reliable and sufficient supply of electrical power to its infrastructure.

 

27

•

The risks relating to GRIID’s ability to obtain and maintain access to its targets of carbon-free power supply.

•

The risks relating to GRIID’s ability to execute its business model, including market acceptance of bitcoin.

•

The risks relating to GRIID’s status as an early-stage company with a history of operating losses.

•

The risk that because GRIID’s miners are designed specifically to mine bitcoin, GRIID’s future success will depend in large part upon the value of bitcoin.

•

The risk that the market price of bitcoin may be extremely volatile, including due to potential under-regulation.

•

The risks posed by the fact that there is no PIPE as part of the merger, since public investors often rely on PIPE investors for third-party validation of the valuation of a transaction.

•

The risks associated with the cryptocurrency industry in general, including the development, effects and enforcement of laws and regulations with respect to the cryptocurrency industry.

•

The risks associated with macroeconomic uncertainty and the effects it could have on GRIID’s revenues.

•

The risk that ADEX does not retain sufficient cash in the trust account or find replacement cash to meet the requirements of the merger agreement.

•

The risk that GRIID might not able to protect its trade secrets or maintain its trademarks, patents and other intellectual property consistent with historical practice.

•

The risk that key employees of GRIID might not remain with GRIID following the closing.

•

The possibility of litigation challenging the merger.

•

The challenge of attracting and retaining senior management personnel.

•

The significant fees and expenses associated with completing the merger and related transactions and the substantial time and effort of management required to complete the merger.

•

The other risks described in the section entitled “Risk Factors.”

 

28

 

29

•

The public stockholders would own 27,600,000 shares of common stock, representing 8.1% of New GRIID’s total outstanding shares of common stock;

•

The pre-merger GRIID equity holders would own 308,100,000 shares of common stock, representing 89.9% of New GRIID’s total outstanding shares of common stock.

•

The public stockholders would own 41,400,000 shares of common stock, representing 11.4% of New GRIID’s total outstanding shares of common stock;

•

The pre-merger GRIID equity holders would own 308,100,000 shares of common stock, representing 84.7% of New GRIID’s total outstanding shares of common stock.

 

30

•

following the merger, New GRIID will be governed by a board of directors consisting of four members that are initially appointed by GRIID and three initially that are appointed by ADEX;

•

the existing GRIID equity holders are expected to represent a majority of the voting power of New GRIID;

•

GRIID’s operations prior to the merger will constitute the only ongoing operations of New GRIID;

•

GRIID’s senior management will represent a majority of the senior management of New GRIID; and

•

GRIID is significantly larger than ADEX in terms of revenue, total assets (excluding cash) and employees

 

31

•

approve and adopt, assuming the other condition precedent proposals (as defined below) are approved and adopted, the proposed charter, a copy of which is attached to this proxy statement/prospectus as Annex D, which, if approved, would take effect upon the closing;

•

to approve and adopt, on a non-binding advisory basis, certain differences between the current charter and the proposed charter, which are being presented in accordance with the requirements of the SEC as six separate sub-proposals to:

o

upon completion of the merger, increase the authorized capital stock of ADEX from 101,000,000 shares, consisting of 100,000,000 shares of common stock and 1,000,000 shares of preferred stock, to 501,000,000 shares, consisting of 500,000,000 shares of common stock and 1,000,000 shares of preferred stock;

o

provide that the board of directors of ADEX be divided into three classes with only one class of directors being elected each year and each class serving three-year terms;

o

provide that directors may be removed only for cause by the affirmative vote of the holders of at least 66 2/3% of the outstanding common stock entitled to vote thereon;

o

provide that any action required or permitted to be taken by the stockholders may be effected only at a duly called annual or special meeting of stockholders and may not be effected by any consent in writing and that stockholders may not call a special meeting;

o

change the stockholder vote required from the affirmative vote of the holders of at least a majority of the outstanding common stock entitled to vote thereon to the affirmative vote of the holders of at least 66 2/3% of the voting power of the outstanding shares of capital stock entitled to vote thereon, voting together as a single class, to amend section 5.5 or Articles VI, VII, IX, or XII of the proposed charter; and

o

provide for certain additional changes, including, among other things, (a) changing New GRIID’s corporate name from “Adit EdTech Acquisition Corp.” to “GRIID Infrastructure Inc.” and (b) removing certain provisions related to ADEX’s status as a blank check company that will no longer apply upon consummation of the merger, all of which ADEX’s board of directors believes are necessary to adequately address the needs of New GRIID;

•

assuming the condition precedent proposals are approved and adopted, approve and adopt the incentive plan, substantially in the form attached to this proxy statement/prospectus as Annex E;

•

approve, assuming the other condition precedent proposals are approved and adopted, for purposes of complying with the applicable provisions of the NYSE Listing Rule 312.03(c), the issuance of more than 20% of ADEX’s outstanding common stock in connection with the merger and, for purposes of complying with the applicable provisions of the NYSE Listing Rule 312.03(d), the change of control of ADEX;

•

assuming the condition precedent proposals are approved and adopted, elect seven directors to serve terms as Class I, Class II, and Class III directors on our board of directors until the 2023, 2024 and 2025 annual meetings of stockholders, respectively, or until such directors’ successors

 

32

have been duly elected and qualified, or until such directors’ earlier death, resignation, retirement or removal; and

•

approve the adjournment of the special meeting to a later date or dates, if necessary or appropriate, to permit further solicitation and vote of proxies in the event that there are insufficient votes for, or otherwise in connection with, the approval of any of the condition precedent proposals.

 

33

•

GRIID has a limited operating history, with operating losses as the business has grown. If GRIID is unable to sustain greater revenues than its operating costs, GRIID will incur operating losses, which could negatively impact its business, financial condition and results of operations.

 

34

•

Any electricity outage, limitation of electricity supply or increase in electricity costs could materially impact GRIID’s operations and financial performance.

•

GRIID may face risks of internet disruptions, which could have an adverse effect on both the price of bitcoin and its ability to operate its business.

•

The terms of its credit agreement restrict GRIID’s current and future operations, particularly its ability to take certain actions.

•

GRIID’s business is highly dependent on a small number of bitcoin mining equipment suppliers. Failure of GRIID’s suppliers to perform under the relevant supply contracts for equipment that has already been procured may delay its expansion plans. Failure of suppliers to make new machines available on an ongoing basis could delay GRIID’s expansion plans.

•

GRIID’s evolving business model increases the complexity of its business, which makes it difficult to evaluate its future business prospects and could have a material adverse effect on its business, financial condition and results of operations.

•

GRIID may not be able to compete effectively against its current and future competitors, which could have a material adverse effect on its business, financial condition and results of operations.

•

GRIID’s success will depend significantly on the price of bitcoin, which is subject to risk and has historically been subject to wide swings and significant volatility.

•

If demand for transactions in bitcoin declines and is replaced by new demand for other cryptocurrencies, GRIID’s business, financial condition and results of operations could be adversely affected.

•

It may take significant time and expenditure for GRIID to grow its bitcoin mining operations through continued development at its existing and planned sites, and its efforts may not be successful.

•

COVID-19 or any pandemic, epidemic or outbreak of an infectious disease in any country in which GRIID operates, and any governmental or industry measures taken in response to COVID-19 or any other such infectious disease, may adversely impact its operations.

•

GRIID’s management team has limited experience managing a public company.

•

GRIID may be vulnerable to climate change, severe weather conditions and natural and man-made disasters, including earthquakes, fires, floods, hurricanes, tornadoes, severe storms (including impacts from rain, snow, lightning and wind), as well as power outages and other industrial incidents, which could severely disrupt the normal operation of its business and adversely affect its results of operations.

•

Bitcoin held by GRIID is not subject to Federal Deposit Insurance Corporation or the Securities Investor Protection Corporation protections.

•

GRIID may be affected by price fluctuations in the wholesale and retail power markets.

•

GRIID may be exposed to cybersecurity threats and hacks, which could have a material adverse effect on its business, financial condition and results of operations.

•

Bitcoin is a form of technology which may become redundant or obsolete in the future.

•

There is a lack of liquid markets in bitcoin, and these markets are subject to possible manipulation.

•

If a malicious actor or botnet obtains control of more than 50% of the processing power on the bitcoin blockchain, such actor or botnet could manipulate the bitcoin blockchain, which would adversely affect an investment in GRIID or its ability to operate.

 

35

•

To the extent that the profit margins of digital asset mining operations are not high, mining participants are more likely to sell their earned bitcoin, which could constrain bitcoin prices.

•

Digital asset trading platforms for bitcoin may be subject to varying levels of regulation, which exposes GRIID’s digital asset holdings to risks.

•

Bitcoin transactions are irrevocable and, if stolen or incorrectly transferred, bitcoin may be irretrievable. As a result, any incorrectly executed bitcoin could have a material adverse effect on GRIID’s business, financial condition and results of operations.

•

Banks and financial institutions may not provide bank accounts, or may cut off certain banking or other financial services, to bitcoin investors or businesses that engage in bitcoin-related activities or that accept bitcoin as payment.

•

The IRS and certain states have taken the position that digital assets are property for income tax purposes.

•

Regulatory changes or actions may restrict the use of bitcoin in a manner that adversely affects GRIID’s business, prospects or operations.

•

GRIID’s business and financial condition may be materially adversely affected by increased regulation of energy sources.

•

If GRIID were deemed an “investment company” under the Investment Company Act of 1940, as amended (the “1940 Act”), applicable restrictions could make it impractical for GRIID to continue its business as contemplated and could have a material adverse effect on its business.

•

Any change in the interpretive positions of the SEC or its staff with respect to cryptocurrencies or digital asset mining firms could have a material adverse effect on GRIID.

•

Increasing scrutiny and changing expectations from investors, lenders, customers, government regulators and other market participants with respect to GRIID’s Environmental, Social and Governance policies may impose additional costs on GRIID or expose GRIID to additional risks.

•

If GRIID is unable to protect the confidentiality of its trade secrets or other intellectual property rights, its business and competitive position could be harmed.

•

Our sponsor, certain members of our Board and our officers have interests in the merger that are different from or are in addition to other stockholders in recommending that stockholders vote in favor of approval of the merger proposal and approval of the other proposals described in this proxy statement/prospectus.

•

After completion of the merger, we will be controlled by GRIID, whose interests may conflict with our interests and the interests of other stockholders.

•

The opinion of ADEX’s financial advisor does not reflect changes in circumstances that may have occurred or that may occur between the signing of the merger agreement and the completion of the merger.

 

36

•

There can be no assurance that we will be able to comply with the continued listing standards of the NYSE.

•

The exercise of discretion by our directors and officers in agreeing to changes to the terms of or waivers of closing conditions in the merger agreement may result in a conflict of interest when determining whether such changes to the terms of the merger agreement or waivers of conditions are appropriate and in the best interests of our stockholders.

•

Subsequent to our completion of the merger, we may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative effect on our financial condition, results of operations and our stock price, which could cause you to lose some or all of your investment.

•

We do not have a specified maximum redemption threshold. The absence of such a redemption threshold may make it possible for us to complete a business combination even though a substantial majority of our stockholders elect to have their shares redeemed.

•

If you or a “group” of stockholders are deemed to hold in excess of 15% of our common stock, you will lose the ability to redeem all such shares in excess of 15% of our common stock.

 

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The risks described below should be carefully considered before making an investment decision. This proxy statement/prospectus also contains forward-looking statements that involve risks and uncertainties. See the sections entitled “Cautionary Note Regarding Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of ADEX,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of GRIID” in this proxy statement/prospectus. The value of your investment following the completion of the merger will be subject to significant risks affecting, among other things, New GRIID’s business, consolidated financial condition or results of operations. The trading price of our, or, following the merger, New GRIID’s, securities could decline due to any of these risks, and investors in our securities may lose all or part of their investment.

Our future business plan requires substantial expenses in the establishment and operation of our business and there can be no assurance that subsequent operational objectives will be achieved. Our success will ultimately depend on our ability to generate cash from our business. If we do not achieve our operational objectives, and to the extent that we do not generate cash flow and income, our financial performance and long-term viability may be materially and adversely affected. An investment in New GRIID’s common stock must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development.

All of our sources of revenue will be dependent on cryptocurrencies and, specifically, bitcoin and the broader blockchain and bitcoin mining ecosystem. Due to the highly volatile nature of the cryptocurrency markets and the prices of cryptocurrency assets, our operating results may fluctuate significantly from quarter to quarter in accordance with market sentiments and movements in the broader cryptocurrency ecosystem. Our operating results may fluctuate as a result of a variety of factors, many of which are unpredictable and in certain instances are outside of our control, including:

 

 

 

 

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The Third Amended and Restated Credit Agreement with Blockchain (the “credit agreement”) contains a number of restrictive covenants that impose significant operating and financial restrictions on GRIID and may limit GRIID’s ability to engage in acts that may be in GRIID’s long-term best interest, including restrictions on GRIID’s ability to:

 

 

 

 

 

 

 

 

In addition, the restrictive covenants in the credit agreement require GRIID to maintain specified financial ratios and satisfy other financial condition tests. GRIID’s ability to meet those financial ratios and tests can be affected by events beyond its control, and GRIID may be unable to meet them.

A breach of the covenants under the credit agreement could allow the lenders to accelerate the debt or exercise other remedies. In addition, if GRIID were unable to repay the amounts due and payable under the credit agreement, the lenders could proceed against the collateral securing the debt.

Our mining operations have historically required significant amounts of electrical power. The costs of electric power account for a significant portion of our cost of revenue. We require a significant electric power

 

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supply to conduct our mining activity, operating critical mining facilities and equipment infrastructure. We rely on third parties, including utility providers, for the reliable and sufficient supply of electrical power to our infrastructure. We cannot guarantee that these third parties will be able to consistently provide sufficient levels of electrical power or will have the necessary infrastructure to deliver any additional power that we may require, or that we will be able to procure power from or recontract with them on commercially acceptable terms. Restrictions on the supply of, or our failure to procure, sufficient electricity could adversely affect our business, financial condition and results of operations.

Our access to electricity, or to sufficient electricity, may be affected by climate change, acts of God, utility equipment failure or scheduled and unscheduled maintenance that result in electricity outages to the utility’s or the broader electrical network’s facilities. These electricity outages may occur with limited or no warning and be of an unpredictable duration. Further, our counterparties may be unable to deliver the required amount of power for a variety of technical or economic reasons. As bitcoin mining is power intensive and backup power generation may be expensive to procure, any backup electricity supplies may not be sufficient to power any or all of our bitcoin mining equipment in an affected location for the duration of the outage. The effects of any such events, including any significant nonperformance by counterparties, could have a material adverse effect on our business, financial condition, and operating results.

The price that we pay for electricity is dependent on numerous factors including sources of generation, commodity prices, regulatory environment, electricity market structure, instantaneous supply/demand balances, counterparty and procurement method. These factors may be subject to change over time and result in increasing power costs, which could have a material adverse effect on our operating results and financial condition.

Additionally, our mining operations could be materially adversely affected by prolonged power outages. Although our miners may be powered by backup generators on a temporary basis, it would not be feasible or cost-effective to run miners on power generators for extended periods of time. We would likely need to reduce or cease our operations in the event of an extended power outage or as a result of the unavailability or increased cost of electrical power, which would materially and adversely affect our business and results of operations.

The bitcoin network, and our business of mining bitcoin, are dependent upon the internet. A disruption in internet connectivity could disrupt the bitcoin network’s operations, which could have an adverse effect on the price of bitcoin and our ability to mine bitcoin. A broadly accepted and widely adopted decentralized network is necessary for the bitcoin network to function as intended. Features of the bitcoin network, such as decentralization, open-source protocol and reliance on connectivity, are essential to preserve the stability of the bitcoin network and decrease the risk of fraud or cyber-attacks. A disruption of the internet or the bitcoin network could affect the ability to transfer bitcoin, and consequently the value of bitcoin, as well as our ability to mine bitcoin. A significant disruption of internet connectivity could prevent the bitcoin network’s functionality and operations until the internet disruption is resolved. Additionally, our mining sites’ activities are dependent upon internet access. Any disruption to internet connectivity at any of our mining sites could have a negative impact on business performance.

 

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The equipment used in our business is generally manufactured by third parties using a large amount of commodity inputs. Our third-party manufacturers, suppliers, and customers have been disrupted by worker absenteeism, quarantines, restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures or other travel or health-related restrictions, as a result of the pandemic. Supply chain disruptions may also occur from time to time due to a range of factors beyond our control, including, but not limited to, climate change, increased costs of labor, freight costs and raw material prices along with a shortage of qualified workers. Such issues may cause delays in the delivery of, or increases in the cost of, the equipment used in our operations, which could materially impact our business, financial condition and results of operations and may delay our expansion plans.

In each jurisdiction in which we operate, it is typical that we must obtain certain permits, approvals and/or licenses in order to construct and operate our facilities. If such permits, approvals and/or licenses are not granted, or if they are suspended, terminated or revoked, it may result in delays in construction of our facilities or require us to halt all or part of our operations. Such circumstances could have a material adverse effect on our business, financial condition and operating results.

Our business model has significantly evolved since our formation in 2018 and we expect it to continue to do so in the future. As cryptocurrency assets and blockchain technologies become more widely available, we expect the services and products associated with them to evolve. As a result, our business model may require us to evolve as well. We may need to modify aspects of our business model relating to our strategy from time to time and we cannot offer any assurance that these or any other modifications will be successful. Further, any new services that we offer that are not favorably received by the market could damage our reputation or our brand. There can be no assurance that we will ever generate sufficient revenues or achieve profitably in the future or that we will have adequate working capital to meet our obligations as they become due. In the event that we do not effectively evaluate future business prospects, successfully implement new strategies or adapt to our evolving industry, it will have a material adverse effect on our business, financial condition and results of operations

 

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As our operations grow, the demands upon us will grow, and our success will depend upon our ability to meet those demands. We require certain financial, managerial and other resources, which could create challenges to our ability to successfully manage operations and impact our ability to assure compliance with its policies, practices and procedures. These demands include, among others, increased executive, accounting, management, legal services, staff support and general office services. We may need to hire additional qualified personnel to meet these demands, the cost and quality of which depends in part upon market factors outside of our control. Further, we will need to effectively manage the training and growth of our staff to maintain an efficient and effective workforce, and our failure to do so could adversely affect our business, financial condition and results of operations. Currently, we have limited personnel in our organization to meet our organizational and administrative demands. If we fail to manage our growth effectively or to develop and expand our managerial, operational and financial resources and systems, we may not be able to execute on our business plan, respond to competitive pressures or take advantage of market opportunities and our business, financial condition and results of operations would be adversely affected.

The bitcoin mining ecosystem is highly innovative, rapidly evolving and characterized by intense competition, experimentation and frequent introductions of new products and services, and is subject to uncertain and evolving industry and regulatory requirements. We expect competition to increase in the future as existing competitors expand their operations, new competitors enter the industry, and new products are introduced or existing products enhanced. We compete against a number of companies operating globally that focus on mining digital assets.

Our existing and potential competitors may have various competitive advantages over us, such as:

 

 

 

 

 

 

 

 

 

 

 

If we are unable to compete successfully, or if competing successfully requires us to take costly actions in response to the actions of our competitors, our business, financial condition and results of operations could be adversely affected.

 

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Many of the competitors in our industry have also been purchasing mining equipment at scale, which has caused a world-wide shortage of mining equipment and extended the corresponding delivery schedules for new miner purchases. There are no assurances that manufacturers, including the manufacturers we currently utilize, will be able to keep pace with the surge in demand for mining equipment. It is uncertain how manufacturers will respond to this increased global demand and whether they can deliver on the schedules promised to all of their customers.

In the event manufacturers are not able to keep pace with demand, we may not be able to purchase miners in sufficient quantities or on the delivery schedules that meet our business needs. Additionally, should manufacturers default on their purchase agreements with us, we would have to pursue recourse, which would be costly and time consuming to resolve, and there is no guarantee we would succeed in recovering any of our deposits paid for such miner purchases, which could materially and adversely affect our business, financial condition and results of operations.

We generate substantially all of our revenue from the generation and sale of bitcoin. The price of bitcoin is highly speculative and is not based on the performance of an underlying business. Furthermore, the price of bitcoin could be subjected to additional influence from fraudulent or illegitimate actors, real or perceived scarcity, and political, economic, regulatory, tax or other conditions. Changes in the legislative or regulatory environment, or actions by governments or regulators that impact the cryptocurrency industry generally, could also affect the price of bitcoin. These factors may inhibit consumer trust in and market acceptance of bitcoin as a means of exchange, which could have a material adverse effect on our business, prospects, or operations and potentially the value of any bitcoin we mine. The speculative nature of the price of bitcoin and past dramatic volatility in pricing may create risks for the volatile trading price of bitcoin

There is no assurance that bitcoin will maintain its value or that there will be meaningful levels of trading activities to support markets in bitcoin. A decline in the market value of bitcoin or in the demand for trading bitcoin could lead to a corresponding decline in the value of our bitcoin assets and the number of transactions on the bitcoin blockchain network.

Our business is highly dependent on strong bitcoin demand relative to other cryptocurrencies in the market. As such, in addition to the factors impacting the broader cryptoeconomy, our business may be adversely affected, and growth in our revenues may slow or decline, if market demand for bitcoin deteriorates and is supplanted by other cryptocurrencies such as Ethereum and Solana. In addition, negative perceptions surrounding bitcoin relative to other cryptocurrencies may cause bitcoin to fall out of favor. If other cryptocurrencies, such as Ethereum and Solana, surpass bitcoin in market demand over a sustained period of time, such a trend could harm our business. Also, competition from public and central bank backed digital currencies could undercut the need for other cryptocurrencies such as bitcoin. Additionally, stablecoins (commodity-backed or fiat-backed) could undercut demand for other cryptocurrencies, including bitcoin. All of these factors could negatively impact bitcoin’s price and therefore our business.

 

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The continued development of our existing and planned facilities is subject to various factors beyond our control. There may be difficulties in integrating new equipment into existing infrastructure, constraints on our ability to connect to or procure the expected electricity supply capacity at our facilities, defects in design or construction, diversion of management resources, insufficient funding, or other resource constraints. Actual costs for development may exceed our planned budget. There may be difficulty acquiring land either through lease, purchase, or some other means, zoning intended locations for our commercial activities, or permitting the land to develop the facilities. All these challenges could delay or halt expansion and therefore negatively impact business performance.

We intend to expand by acquiring and developing additional sites, taking into account a number of important characteristics such as availability of renewable energy, electrical infrastructure and related costs, geographic location and the local regulatory environment. We may have difficulty finding sites that satisfy our requirements at a commercially viable price, or that satisfy our timing requirements associated with our expansion plans. Furthermore, there may be significant competition for suitable cryptocurrency mining sites, and government regulators, including local permitting officials, may potentially restrict our ability to set up cryptocurrency mining operations in certain locations.

Transfer of sites that we have contractually secured may ultimately fail to complete due to factors beyond our control (e.g. due to default or by counterparties). In addition, estimated power availability at sites secured could be materially less than initially expected or not available at all, and processes to secure permits, approvals and/or licenses to construct and operate our facilities could be delayed in regulatory processes or may not be successful.

Development and construction delays, cost overruns, changes in market circumstances, an inability to find suitable data center locations as part of our expansion, and other factors may adversely affect our operations, financial position and financial performance.

The pandemic has had unpredictable and unprecedented impacts in the United States and nearly every other country in the world. was first reported in December 2019 in the City of Wuhan, Hubei, China and was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the pandemic, governmental authorities around the world, including the United States and elsewhere, introduced various measures to limit the spread of the pandemic, including travel restrictions, border closures, business closures, quarantines, self- and forced isolations, orders and social distancing. reduced the number of new generation machines available for purchase by prospective customers, reduced demand for our services and delayed and continues to frustrate and delay global supply chains that has impacted and will continue to impact the pace at which new mining machines are added to our facilities. The continued impact or a resurgence of including the emergence of additional variant strains of could have a material impact on our business financial condition and results of operations and any such impact will be determined by the severity and duration of the continuing pandemic.

The nature and extent of the effect of on our financial performance, particularly in the longer term, is unknown. The continued uncertainty, as well as a likelihood of an economic downturn of unknown duration or severity in certain jurisdictions key to our business, means that we may be unable to accurately forecast our operating costs or financial performance.

 

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As the pandemic continues to develop, governments (at national, provincial and local levels), corporations and other authorities may continue to implement restrictions or policies that could adversely affect global capital markets, the global economy, bitcoin and other cryptocurrency prices, and New GRIID’s stock price.

Members of our management team have not previously served as management of a publicly traded company and therefore do not have experience complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our immediate transition to being a public company. Upon the closing of the merger, we will be subject to significant regulatory oversight and reporting obligations under the federal securities laws, as well as the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our management and could divert their attention away from the management of our business, which could adversely affect our business, financial condition and results of operations.

Our success and future growth will to a significant degree depend on the skills and services of our management, including our Chief Executive Officer, James D. Kelly III, Chief Technology Officer, Dwaine Alleyne, Chief Operating Officer, Gerard F. King II, Chief Research Officer, Michael W. Hamilton, and Chief Financial Officer, Allan J. Wallander. We will need to continue to grow our management to alleviate pressure on our existing team and to set up and develop our business. If our management, including any new hires that we may make, fails to work together effectively and to execute our plans and strategies on a timely basis, our business could be significantly harmed. Furthermore, if we fail to execute an effective contingency or succession plan with the loss of any member of management, the loss of such management personnel could have a material adverse effect on our business, financial condition, and results of operations.

We do not maintain any key person life insurance policies. The loss of any member of our management team, investment professionals or other key personnel could make it more difficult to execute its business strategy and, therefore, have a material adverse effect on our business, financial condition, and results of operations.

We believe our success depends on the efforts and talent of our employees, including facility design, construction management, operations, data processing, engineering, IT, risk management and communications personnel. Our future success depends on our continued ability to attract, develop, motivate and retain qualified and skilled employees. Competition for highly skilled personnel is extremely intense. We may not be able to hire and retain these personnel at compensation levels consistent with our existing compensation and salary structure. Some of the companies with which we compete for experienced employees have greater resources than we have and may be able to offer more attractive terms of employment.

In addition, we invest significant time and expenses in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to retain our employees, we could incur significant expenses in hiring and training their replacements, and the quality of our services and our ability to serve our customers could diminish, resulting in a material adverse effect on our business, financial condition and results of operations.

 

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As part of our business strategy, we intend to make acquisitions of other companies, products and technologies. We have limited experience in acquisitions. We may not be able to find suitable acquisition candidates and we may not be able to complete acquisitions on favorable terms in the future, if at all. Further, the pursuit of potential acquisitions may divert the attention of management and cause us to incur expenses in identifying, investigating and pursuing suitable acquisitions, regardless of whether or not they are ultimately completed.

If we acquire additional businesses, we may not be able to integrate the acquired personnel, operations and technologies successfully, or effectively manage the combined business following the acquisition. We also may not achieve the anticipated synergies, strategic advantages or earnings from the acquired business due to a number of factors, including:

 

 

 

 

 

We may have to pay cash, incur debt or issue equity securities to pay for any such acquisition, each of which could affect our financial condition or the value of New GRIID’s common stock. The sale of equity to finance any such acquisitions could result in dilution to our stockholders. If we incur more debt, it would result in increased fixed obligations and could also subject us to covenants or other restrictions that would impede our ability to flexibly operate our business. In addition, if an acquired business fails to meet expectations, our business, financial condition and results of operations may be adversely affected.

 

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We do not currently, and may not in the future, carry business interruption insurance sufficient to compensate for the losses that may result from interruptions in our operations as a result of inability to operate or failures of equipment and infrastructure at our facilities. A system outage could have a material adverse effect on our business, financial condition and results of operations.

We maintain insurance policies for our business that provide us with some protection in the event our miners are lost or damaged, however, these insurance policies and protections may not be adequate to protect us from liabilities that we may incur in connection with the operation of our business. Certain extraordinary hazards, for example, may not be covered, and insurance may not be available (or may be available only at prohibitively expensive rates) with respect to many other risks. Moreover, any loss incurred could exceed policy limits, and policy payments made to us may not be made on a timely basis.

Additionally, the premiums we pay to obtain insurance coverage may, and are likely to, increase over time. These increases in insurance premiums can occur unexpectedly and without regard to our efforts to limit them, and, because of these rising costs, we may not be able to obtain similar levels of insurance coverage on reasonable terms, or at all. If this occurs, we may choose or be forced to self-insure our assets, which could expose us to significant financial risk. If insurance costs become unacceptably high and we elect to self-insure, and we experience a significant casualty event resulting in the loss of some or all of our miners, we could be forced to expend significant capital resources to acquire new replacement miners. If such casualty loss of our miners is not adequately covered by insurance and we do not have access to sufficient capital resources to acquire replacement miners, we may not be able to compete in our rapidly evolving and highly competitive industry, which could materially and adversely affect our financial condition and results of operations, and our business could suffer.

Furthermore, the bitcoin held by us is not insured by any government-sponsored investor protection program or otherwise. Therefore, any loss of bitcoin held by us, either through an information security failure, a mistaken transaction or otherwise, would not be reimbursed. This could adversely affect our business, financial condition and results of operations.

If the bitcoin held by us is lost, stolen or destroyed under circumstances rendering a party liable to us, the responsible party may not have the financial resources sufficient to satisfy its claim. For example, as to a particular event of loss, the only source of recovery for us might be limited, to the extent identifiable, other responsible third parties (e.g., a thief or terrorist), any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim by us.

We do not hold bitcoin with a banking institution or a member of the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”) and, therefore, our digital assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.

Our power arrangements may vary depending on the markets in which we operate, and comprise fixed and variable power prices, including arrangements that may contain certain price adjustment mechanisms in case of certain events. Furthermore, some portion of our power arrangements may be priced by reference to published index prices and, thus, reflect market movements outside of our control.

 

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A substantial increase in electricity costs or a fall in bitcoin exchange values could render bitcoin mining ineffective or not viable for us. Market prices for power, generation capacity and ancillary services, are unpredictable. An increase in market prices for power, generation capacity, and ancillary services may adversely affect our business, prospects, financial condition, and operating results. Long- and short-term power prices may fluctuate substantially due to a variety of factors outside of our control, including, but not limited to:

 

 

 

 

 

 

 

 

 

 

If we are unable to secure power supply at prices or on terms acceptable to us, it would potentially have a material adverse effect on our business, financial condition and operating results.

The threats to network and data security are increasingly diverse and sophisticated. Despite our efforts and processes to prevent breaches, our computer servers and computer systems may be vulnerable to cybersecurity risks, including attacks, physical or electronic employee theft or misuse and similar disruptions from unauthorized tampering with our computer servers and computer systems. The preventive actions we take to reduce the risk of cyber incidents and protect our information technology and networks may be insufficient to repel a major cyber-attack in the future. To the extent that any disruption or security breach results in a loss or damage to our network, in unauthorized disclosure of confidential information or in a loss of our digital assets, it could cause significant damage to our reputation, lead to claims against us and ultimately have a material adverse effect on our business, financial condition and results of operations. Additionally, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.

Our mining operation comprises blockchain mining technologies that depend on a network of computers to run certain software programs to solve complex transactions in competition with other mining operations and to process transactions. Because of this less centralized model and the complexity of our mining operation, we have limited control over the success of our mining operations. While we participate in mining pools to combine our mining operations with other mining participants to increase processing power to solve blocks, there can be no assurance that such pools will adequately address this risk.

 

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We may from time to time become subject to claims, arbitrations, individual and class action lawsuits, government and regulatory investigations, inquiries, actions or requests, including with respect to employment matters, and other proceedings alleging violations of laws, rules and regulations, both foreign and domestic. The scope, determination and impact of such litigation, government and regulatory investigations, enforcement actions, disputes and proceedings to which we are subject cannot be predicted with certainty, and may result in:

 

 

 

 

 

 

 

 

 

 

 

Any such matters can have an adverse impact, which may be material, on our business, operating results or financial condition because of legal costs, diversion of management resources, reputational damage and other factors.

is an alternative method of validating distributed ledger transactions. methodology does not rely on resource intensive calculations to validate transactions and create new blocks in a blockchain, but rather the validator of the next block is determined, sometimes randomly, based on a methodology in the blockchain software. Rewards, and sometimes penalties, are issued based on the amount of digital assets a user has “staked” in order to become a validator.

Our business strategy currently focuses entirely on mining bitcoin (as opposed to other digital assets). Additionally, all of our hardware is limited to mining using a protocol based on the hashing algorithm. Should bitcoin shift from a validation method to a method, the transaction verification process (i.e. “mining” or “validating”) would require less power and may render any company that maintains advantages in the current climate with respect to mining (for example, from lower-priced electricity, processing, computing power, or real estate) less competitive or less profitable, including ours. For example, the Ethereum blockchain, another popular blockchain with a widely traded digital asset, is currently undergoing a transition from to in part to achieve more efficiency in relation to the energy consumption of its network and production and verification of its blockchain. If this transition is successful, current Ethereum mining equipment and other investments in Ethereum mining operations could become obsolete or be repurposed for mining other digital assets, which may be less profitable.

 

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SHA-256

proof-of

up-front

COVID-19.

 

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Cryptocurrencies that are represented and trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have rules and regulations regarding marketplace conduct, and monitor investors transacting on such platforms for fraud and other improprieties. These conditions may not necessarily be replicated on a digital assets trading platform, depending on the platform’s controls and other policies, and there are no controls regarding transactions that take place outside of organized exchanges. Although some digital assets trading platforms are subject to regulation and monitor for illegal activity, because the bitcoin market itself is unregulated, there are few means to prevent manipulation of prices for the overall market. These factors may decrease liquidity or volume or may otherwise increase volatility of bitcoin, which may have a material adverse effect on our ability to monetize the bitcoin we mine.

If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining a digital asset, it may be able to alter the digital asset network or blockchain on which transactions of the digital asset are recorded by constructing fraudulent blocks or preventing certain transactions from completing in a timely manner, or at all. The malicious actor or botnet could control, exclude, or modify the ordering of transactions, though it could not generate new bitcoin or digital assets or transactions using such control. The malicious actor could “double-spend” its own bitcoin or digital assets (i.e., spend the same bitcoin or digital assets in more than one transaction) and prevent the confirmation of other users’ transactions for so long as it maintained control. To the extent that such malicious actors or botnets did not yield their control of the processing power on the bitcoin or other network, or the bitcoin or other community did not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible.

Although there are no known reports of malicious activity or control of the bitcoin blockchain achieved through controlling over 50% of the processing power on the network, it is believed that certain mining pools may have exceeded the 50% threshold. The approach towards and possible crossing of the 50% threshold indicate a greater risk that a single mining pool could exert authority over the validation of digital asset transactions. To the extent that the digital assets ecosystems do not act to ensure greater decentralization of digital asset mining processing power, the feasibility of a malicious actor obtaining in excess of 50% of the processing power on any digital asset network (e.g., through control of a large mining pool or through hacking such a mining pool) will increase, which may adversely affect our business, financial condition and results of operations.

Over the past few years, digital asset mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation application-specific integrated circuit (“ASIC”) servers. Currently, new processing power is predominantly added by incorporated and unincorporated “professionalized” mining operations. Professionalized mining operations may use proprietary hardware or sophisticated ASIC machines acquired from ASIC manufacturers. They require the investment of significant capital to acquire this hardware, to lease or develop operating space (often in data centers or warehousing facilities), and to pay the costs of electricity and labor to operate the mining farms. As a result, professionalized mining operations are of a greater scale than prior mining operations and have more defined and regular expenses and liabilities. These regular expenses and liabilities require professionalized mining operations to maintain profit margins on the sale of digital assets. To the extent the price of digital assets declines and such profit margin is constrained, professionalized mining participants are incentivized to more immediately sell digital

 

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assets earned from mining operations, whereas it is believed that individual mining participants in past years were more likely to hold newly mined digital assets for more extended periods. The immediate selling of newly mined digital assets greatly increases the trading volume of the digital assets, creating downward pressure on the market price of digital asset rewards. The extent to which the value of digital assets mined by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation. A professionalized mining operation may be more likely to sell a higher percentage of its newly mined digital assets rapidly if it is operating at a low profit margin and it may partially or completely cease operations if its profit margin is negative. In a low profit margin environment, a higher percentage could be sold more rapidly, thereby potentially depressing digital asset prices. Lower digital asset prices could result in further tightening of profit margins for professionalized mining operations creating a network effect that may further reduce the price of digital assets until mining operations with higher operating costs become unprofitable forcing them to reduce mining power or cease mining operations temporarily. Such circumstances could have a material adverse effect on our business, prospects or operations and potentially the value of bitcoin and any other digital assets we mine or otherwise acquire or hold for our own account.

In addition, the reduction of rewards may reduce our profit margins, which could result in us selling a substantial portion of our digital assets, which are subject to high volatility. If we are forced to sell digital assets at low prices, it could have a material adverse effect on our business, financial condition, prospects and results of operations.

The future development and growth of bitcoin is subject to a variety of factors that are difficult to predict and evaluate. As bitcoin is built on an open-source protocol without a centralized governing authority, there is a possibility bitcoin develops in ways which are not foreseeable. An example is modification of the bitcoin protocol by a sufficient number of users (known as a “fork”).

The bitcoin protocol has been subject to “forks” that resulted in the creation of new networks, including Bitcoin Cash, Bitcoin Cash SV, Bitcoin Diamond, Bitcoin Gold and others. Some of these forks have caused fragmentation among trading platforms as to the correct naming convention for the forked digital assets. Due to the lack of a central registry or rulemaking body, no single entity has the ability to dictate the nomenclature of

 

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forked digital assets, causing disagreements and a lack of uniformity among platforms on the nomenclature of forked digital assets, which results in further confusion to individuals as to the nature of assets they hold on digital asset trading platforms. In addition, several of these forks were contentious and, as a result, participants in certain digital asset user and developer communities may harbor ill will toward other communities. As a result, certain community members may take actions that adversely impact the use, adoption and price of bitcoin or any of its forked alternatives.

Historically, speculation over a new “fork” in the bitcoin protocol has resulted in bitcoin price volatility and future forks may occur at any time. A fork can lead to a disruption of networks and our IT systems could be affected by cybersecurity attacks, replay attacks, or security weaknesses, any of which can further lead to temporary or even permanent loss of our assets. Such disruption and loss could cause us to be exposed to liability, even in circumstances where we have no intention of supporting an asset compromised by a fork. Additionally, a fork may result in a scenario where users running the previous protocol will not recognize blocks created by those running the new protocol, and vice versa. This may render our bitcoin mining hardware incompatible with the new bitcoin protocol. Such changes may have a material effect on our operations, financial position and financial performance.

Our operating results will depend in large part upon the value of bitcoin because it is the only cryptocurrency we currently mine. Specifically, our revenues from our bitcoin mining operations are based upon two factors: (1) the number of bitcoin rewards we successfully mine and (2) the value of bitcoin. In addition, our operating results are directly impacted by changes in the value of bitcoin because under the value measurement model, both realized and unrealized changes will be reflected in our statement of operations (i.e., we mark bitcoin to fair value each quarter). This means that our operating results will be subject to swings based upon increases or decreases in the value of bitcoin. The introduction of alternative cryptocurrencies, such as those backed by central banks known as Central Bank Digital Currencies, could significantly reduce the demand for bitcoin. This would reduce both our ability to earn mining rewards and transaction fees, and would also impair our ability to monetize the bitcoin we earn in accordance with our financial projections.

Platforms on which digital assets may trade, such as the one we use to monetize our bitcoin, pose special risks, as these platforms are generally new and the rules governing their activities are less settled and their activities may be largely unregulated or under-regulated, and may therefore be more exposed to theft, fraud and failure than established, regulated exchanges for other products. Digital asset platforms may be startup businesses with limited institutional backing, limited operating history, and no publicly available financial information. This can lead to increased price volatility. In addition, a failure of an important digital asset trading platform could result in a loss of confidence in digital assets generally, resulting in our inability to monetize the bitcoin we mine in accordance with our financial projections.

 

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Bitcoin traded on the bitcoin blockchain do not rely on a trusted intermediary or depository institution. The participation in trading platforms requires users to take on credit risk by transferring bitcoin from a personal account to a third party’s account. Accordingly, we are exposed to the digital asset trading platform’s credit risk with respect to each bitcoin transaction we make. Digital asset exchanges may also impose daily, weekly, monthly, or customer-specific transaction or distribution limits or suspend withdrawals entirely, rendering the exchange of digital assets for fiat currency difficult or impossible. Additionally, digital asset prices and valuations on exchanges may be volatile and subject to influence by many factors, including the levels of liquidity on particular platforms and operational interruptions and disruptions. The prices and valuation of digital assets (e.g., bitcoin) remain subject to any volatility experienced by trading platforms, and any such volatility can adversely affect the value of the bitcoin that we mine. It is possible that while engaging in transactions with various digital asset platforms located throughout the world, any such platform may cease operations voluntarily or involuntarily due to theft, fraud, security breach, liquidity issues, or government investigation without any recourse available to us.

Digital asset platforms for bitcoin may be appealing targets for cybercrime, hackers and malware and have been shut down or experienced losses of assets placed on the exchange as a result of cybercrime, and any such event is likely to result in the complete loss of assets placed on such a platform. Any governmental or regulatory action against such a digital asset trading platform may cause assets on such exchange to become frozen for a substantial period of time or forfeited, and could result in material opportunity costs or even in the total loss of such assets. In addition, banks may refuse to process or support wire transfers to or from digital asset trading platforms.

There are a limited number of digital asset trading platforms for bitcoin in operation, and many operate in jurisdictions outside of the United States. Trading on digital asset platforms outside of the United States may involve certain risks not applicable to trading on digital asset exchanges that operate in the United States. Foreign markets may be subject to instability, lack of regulation, temporary closures due to fraud, business failure, local capital requirements or government-mandated regulations. Digital asset platforms located outside the United States may not be subject to regulatory, investigative, or prosecutorial authority through which an action or complaint regarding missing or stolen digital assets may be brought. Additionally, due to lack of globally consistent treatment and regulation of digital assets, certain platforms located outside the United States may not be currently available to, or may in the future become unavailable to, certain persons or entities based on their country of domicile, including the United States.

While we perform diligence on our counterparties and any digital asset trading platforms that we may use, it may be difficult, or even impossible, to sufficiently verify the ultimate ownership and control of a digital asset trading platform and other information for evaluating the risks associated with such counterparty or platform. Any of our digital assets that reside on a trading platform that shuts down may be permanently unrecoverable, misapplied or otherwise lost. Additionally, to the extent that the digital asset platforms representing a substantial portion of the trading volume in a particular digital asset are involved in fraud or experience security failures or other operational issues, such failures may result in loss or less favorable prices of the digital assets, which may adversely affect our business and results of operations, and consequently, an investment in New GRIID’s common stock.

Bitcoin transactions are irrevocable, and stolen or incorrectly transferred bitcoin may be irretrievable. As a result, any incorrectly executed or fraudulent bitcoin transactions could adversely affect our investments and assets. bitcoin transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the bitcoin from the transaction. Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of bitcoin or a theft thereof generally will

 

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not be reversible and if an incorrect transfer or theft occurs, we may not have sufficient recourse to recover our losses from any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our bitcoin rewards could be transferred in incorrect amounts or to unauthorized third parties, or to uncontrolled accounts. Further, at this time, we are not aware of any specifically enumerated U.S. or foreign governmental, regulatory, investigative or prosecutorial authority or mechanism through which to bring an action or complaint regarding missing or stolen bitcoin. As a result, if there is human error, theft, or criminal action, we will need to rely on existing private investigative entities to investigate any potential loss of our bitcoin assets. These third-party service providers rely on data analysis and compliance of internet service providers with traditional court orders to reveal information such as the IP addresses of any attackers who may target us. Our inability to recover any losses from such action, error or theft, could have a material adverse effect on our business, financial condition and results of operations.

Geopolitical crises may motivate large-scale purchases of bitcoin, which could increase the price of bitcoin rapidly. This may increase the likelihood of a subsequent price decrease as crisis-driven purchasing behavior dissipates, adversely affecting the value of our inventory following such downward adjustment. Such risks are similar to the risks of purchasing commodities in general in uncertain times, such as the risk of purchasing, holding or selling gold. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in bitcoin as investors focus their investment on less volatile asset classes as a means of hedging their investment risk.

As an alternative to fiat currencies that are backed by central governments, bitcoins are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of bitcoins either globally or locally. Large-scale sales of bitcoins would result in a reduction in some or all bitcoins’ values and may adversely affect our business, financial condition and results of operations.

We compete with other users and/or companies that are mining bitcoin and other potential financial vehicles that seek to provide exposure to bitcoin, including securities backed by, or linked to, bitcoins. Market and financial conditions, and other conditions beyond our control, may make it more attractive to invest in certain financial vehicles, or to invest in bitcoin directly, which could limit the market for New GRIID’s common stock and reduce its liquidity. In addition, the emergence of other financial vehicles and exchange-traded funds that provide exposure to bitcoin prices have been scrutinized by regulators and such scrutiny and the negative impressions or conclusions resulting from such scrutiny could be applied to our business and impact our ability to successfully pursue our strategy or operate at all, or to establish or maintain a public market for New GRIID’s common stock.

The global market for bitcoin is generally characterized by supply constraints that may differ from those present in the markets for commodities or other assets such as gold and silver. The mathematical protocols under which bitcoin is mined permit the creation of a limited, predetermined amount of currency, while others have no limit established on total supply. To the extent that other vehicles investing in bitcoin or tracking bitcoin markets form and come to represent a significant proportion of the demand for digital assets, large redemptions of the securities of those vehicles and the subsequent sale of bitcoin by such vehicles could negatively affect bitcoin prices and therefore affect the value of any bitcoin inventory we hold.

 

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We believe bitcoin has not yet gained widespread acceptance as a means of payment for goods and services by any major retail or commercial outlets. We believe a significant portion of the demand for bitcoin is generated by speculators and investors, some of whom may have no knowledge of the inner workings of bitcoin. Certain of these investors may seek to profit from the short-term or long-term holding of bitcoin, and thus, may contribute to bitcoin price volatility. A lack of expansion in the use of bitcoin in retail and commercial markets, or a contraction of such use, may result in increased price volatility of bitcoin or a reduction in the market price of bitcoin or in the demand for bitcoin which would reduce the performance of the business and the value of bitcoin held by us, any of which could have a material adverse effect on our business, financial condition and results of operations.

Processing power on networks has been increasing rapidly over time while the rewards and transaction fees available on those networks tends to decline over time. In order to grow or maintain the revenue we generate from processing transactions on such networks, we are required to invest significant capital to acquire new computer servers, expand our power capacity and otherwise increase our effective processing power on such networks. In the event we are unable to invest sufficient capital to grow or maintain the level of our processing power on a network relative to the total processing power of such network, our revenue from the applicable network will decline over time and as a result, it could have a material adverse effect on our business, financial condition and results of operations.

In addition, a decrease in the price of computer servers may result in an increase in transaction processors, which may lead to more competition for fees in a particular network. In the event we are unable to realize adequate fees on a network due to increased competition, our revenue from the applicable network will decline over time and in turn, it could have a material adverse effect on our business, financial condition and results of operations.

The Office of Foreign Assets Control of the U.S. Department of the Treasury (“OFAC”) and the U.S. Department of State administer and enforce economic sanctions programs based on foreign policy and national security goals against targeted countries, territories, regimes, entities, organizations and individuals. These laws and regulations may be implicated by a number of digital assets activities, including investing or trading. Because of the anonymous nature of blockchain transactions, we may not be able to determine the ultimate identity of the individuals with whom we transact when buying or selling digital assets or receive bitcoin through mining (e.g. transaction fees, or rewards from mining pool), and thus may inadvertently engage in transactions with persons, or entities or territories that are the target of sanctions or other restrictions. Moreover, U.S. federal law prohibits any U.S. person from knowingly or unknowingly possessing any visual depiction of child pornography. We are aware of recent media reports that have suggested that persons have imbedded such depictions on one or more blockchains. To the extent government enforcement authorities enforce these and other laws and regulations that are impacted by blockchain technology, we may be subject to investigation, administrative or court proceedings, and civil or criminal monetary fines and penalties, all of which could harm our reputation and affect the value of New GRIID’s common stock.

 

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Bitcoin is represented and trade on a ledger-based platform may not necessarily benefit from viable trading markets. Stock exchanges have rules and regulations regarding marketplace conduct, and monitor investors transacting on such platform for fraud and other improprieties. These conditions may not necessarily be replicated on a bitcoin trading platform, depending on the platform’s controls and other policies, and there are no controls regarding transactions that take place outside of organized exchanges. These factors may decrease liquidity or volume or may otherwise increase volatility of bitcoin, which will have a material adverse effect on our ability to monetize the bitcoin we mine and therefore have an adverse effect on our business, financial condition and results of operations.

One or more countries, such as India or Russia, may take regulatory actions in the future that could severely restrict the right to acquire, own, hold, sell or use bitcoin or to exchange them for fiat currency. In some nations, including China, it is illegal to accept payment in bitcoin for consumer transactions and banking institutions are barred from accepting deposits of cryptocurrencies. Such restrictions may adversely affect us as the large-scale use of bitcoin as a means of exchange is presently confined to certain regions.

Furthermore, in the future, foreign governments may decide to subsidize or in some other way support certain large-scale bitcoin mining projects, thus adding hashrate to the overall network. Such circumstances could have a material adverse effect on the amount of bitcoin we may be able to mine, the value of bitcoin and any other cryptocurrencies we may potentially acquire or hold in the future and, consequently, our business, financial condition and results of operations.

Bitcoin transactions are entirely digital and, as with any virtual system, are at risk from hackers, malware and operational glitches. Hackers can target bitcoin exchanges and custody providers, to gain access to thousands of accounts and digital wallets where bitcoin is stored. Bitcoin transactions and accounts are not insured by any type of government program and all bitcoin transactions are permanent because, there is no third party or payment processor. Bitcoin has previously suffered from hacking and cyber-theft which have affected its demand and price. Also, the price and exchange of bitcoin may be subject to fraud risk. While bitcoin uses private key encryption to verify owners and register transactions, fraudsters and scammers may attempt to sell false bitcoin. All of the above may adversely affect the operation of the bitcoin network, which would erode user confidence in bitcoin and could negatively impact our business and ability to monetize the bitcoin that we mine.

Technological advancement in computing may make our operations and ASICs obsolete. The mining hardware market for ASICs does not undergo rapid performance improvements anymore. Earlier in the ASIC development cycle when bitcoin mining hardware had yet to catch up to current foundry node sizes, technological leaps in hash power and efficiency were more common and made all previous units obsolete. Since the release of the Antminer S9, these improvements have been incremental and older generation hardware is commonly run in the market. It is possible that there will be a significant breakthrough in hash power and/or efficiency that would make existing ASIC miners obsolete, severely impact the company’s balance sheet and forward looking performance and, should we not have access to this technology, could render all operations

 

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Mining bitcoin requires significant amounts of electrical power, and electricity costs are expected to account for a material portion of our operating costs. There has been a substantial increase in the demand for electricity for bitcoin mining, and this has had varying level of impact on local electricity supply. The availability and cost of electricity will impact the geographic locations in which we conduct mining activities.

day-ahead,

Should our operations require more electricity than can be supplied in the areas where our mining facilities are located or should the electrical transmission grid and distribution systems be unable to provide the regular supply of electricity required, we may have to limit or suspend activities or reduce the speed of our proposed expansion, either voluntarily or as a result of either quotas imposed by energy companies or governments, or increased prices for certain users (such as us). If we are unable to procure electricity at a suitable price, we may have to shut down our operations in that particular jurisdiction either temporarily or permanently.

There may be significant competition for suitable bitcoin mining sites, and government regulators, including local permitting officials, may potentially restrict our ability to set up mining sites in certain locations. The significant consumption of electricity may have a negative environmental impact, including contribution to climate change, which may give rise to public opinion against allowing the use of electricity for bitcoin mining activities.

If bitcoin mining becomes more widespread, government scrutiny related to bitcoin mining facilities and their energy consumption may significantly increase. This could lead to new governmental measures restricting or prohibiting the use of electricity for bitcoin mining activities, or bitcoin mining activities generally.

If we are forced to reduce our operations due to the availability or cost of electrical power, or restrictions on bitcoin mining activities, this will have an adverse effect on our business, prospects, financial condition and operating results.

The bitcoin network operates based on an open-source protocol, not represented by an official organization or authority. Instead it is maintained by a group of core contributors, largely on the Bitcoin Core project on GitHub.com. This group of contributors is currently headed by Wladimir J. van der Laan, the current lead maintainer. As the bitcoin network protocol is not sold and its use does not generate revenues for contributors, contributors are generally not compensated for maintaining and updating the bitcoin network protocol. Although the MIT Media Lab’s Digital Currency Initiative funds the current maintainer Wladimir J. van der Laan, among others, this type of financial incentive is not typical. The lack of guaranteed financial incentive for contributors to maintain or develop the bitcoin network and the lack of guaranteed resources to adequately address emerging issues with the bitcoin network may reduce incentives to address the issues adequately or in a timely manner.

 

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There can be no guarantee that developer support will continue or be sufficient in the future. Additionally, some development and developers are funded by companies whose interests may be at odds with other participants in the network or with investors’ interests. To the extent that material issues arise with the bitcoin network protocol and the core developers and open-source contributors are unable or unwilling to address the issues adequately or in a timely manner, the bitcoin network and consequently our business, prospects, financial condition and operating results could be adversely affected.

The bitcoin network is maintained by a group of contributors, largely on the Bitcoin Core project on GitHub.com, currently headed by Wladimir J. van der Laan. These individuals can propose refinements or improvements to the bitcoin network’s source code through one or more software upgrades that alter the protocols and software that govern the bitcoin network and the properties of bitcoin, including the irreversibility of transactions and limitations on the mining of new bitcoin. Proposals for upgrades and discussions relating thereto take place on online forums.

pre-modification

community-led

Because there has been limited precedent set for the financial accounting for bitcoin and other cryptocurrency assets and related revenue recognition and no official guidance has yet been provided by the Financial Accounting Standards Board or the SEC, it is unclear how companies may in the future be required to account for cryptocurrency transactions and assets and related revenue recognition. A change in regulatory or financial accounting standards could result in the necessity to change the accounting methods we currently intend to employ in respect of our anticipated revenues and assets and restate any financial statements produced based on those methods. Such a restatement could adversely affect our business, prospects, financial condition and results of operation.

Digital assets, such as bitcoin, that may be used, among other things, to buy and sell goods and services are a new and rapidly evolving industry of which the digital asset networks are prominent, but not unique, parts. The growth of the digital asset industry, in general, and the digital asset networks, in particular, are subject to a high degree of uncertainty. The factors affecting the further development of the digital asset industry, as well as the digital asset networks, include:

 

 

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The outcome of these factors could have negative effects on our ability to pursue our business strategy, which could have a material adverse effect on our business, prospects, financial condition, and operating results as well as potentially negative effect on the value of bitcoin or any other cryptocurrencies we may potentially acquire or hold in the future.

Although a number of significant U.S. banks and investment institutions have indicated they plan to begin allowing customers to carry and invest in bitcoin, bitcoin’s acceptance and use by banks is relatively uncommon and may never become mainstream. Indeed, a number of companies and individuals engaged in bitcoin has been unable to find banks or financial institutions that are willing to provide them with banking services. Similarly, a number of companies and individuals or businesses associated with bitcoin may have had and may continue to have their existing banking services discontinued with financial institutions in response to government action. We also may be unable to obtain or maintain these services for our business. The difficulty that many businesses that provide bitcoin have and may continue to have in finding banks and financial institutions willing to provide them services may be decreasing the usefulness of bitcoin as a payment system and harming public perception of cryptocurrencies, and could decrease bitcoin’s usefulness and harm its public perception in the future.

Although we sell our mined bitcoin from time to time, we may temporarily store all or a portion of our bitcoin on various digital asset trading platforms which requires us to rely on the security protocols of these trading platforms to safeguard our bitcoin. No security system is perfect and trading platforms have been subject to hacks resulting in the loss of businesses’ and customers’ digital assets in the past. Such trading platforms may not be well capitalized and may not have adequate insurance necessary to cover any loss or may not compensate

 

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for loss where permitted under the laws of the relevant jurisdiction. In addition, malicious actors may be able to intercept our bitcoin when we transact in or otherwise transfer our bitcoin or while we are in the process of selling our bitcoin via such trading platforms. Digital asset trading platforms have been a target for malicious actors in the past, and given the growth in their size and their relatively unregulated nature, we believe these trading platforms may continue to be targets for malicious actors. An actual or perceived security breach or data security incident at the digital asset trading platforms with which we have accounts could harm our ability to operate, result in loss of our assets, damage our reputation and negatively affect the market perception of our effectiveness, all of which could adversely affect the value of New GRIID’s common stock.

In early 2014, the IRS issued basic guidance on the tax treatment of digital assets. The IRS has taken the position that a digital asset is “property” rather than “currency” for tax purposes. Thus, general tax principles applicable to property transactions apply to the acquisition, ownership, use or disposition of digital assets. This overall treatment creates a potential tax liability for, and potential tax reporting requirements applicable to us in any circumstance where we mine or otherwise acquire, own or dispose of a digital asset. In 2019, the IRS issued additional guidance specifically relating to the taxation consequences that could arise from a digital asset hard fork event in which a new unit of digital asset may or may not be received, and released frequently asked questions to address certain digital asset topics such as basis, gain or loss on the sale or exchange of certain kinds of digital assets and how to determine the fair market value of such digital assets.

There is no guarantee that the IRS will not alter its position with respect to the taxation of digital assets, or that legislation or judicial determinations in the future will not result in a tax treatment of digital assets and transactions in digital assets for U.S. federal and state tax purposes that differs from the treatment described above. You are urged to consult your own tax advisor as to the tax implications of our acquisition, ownership, use and disposition of digital assets. The taxation of digital assets for state, local or foreign tax purposes may not be the same as the taxation of digital assets for U.S. federal income tax purposes.

In addition, under the Tax Cuts and Jobs Act of 2017 (the “Tax Cuts and Jobs Act”), as of January 1, 2018, “like-kind exchange” treatment does not apply to digital assets. This means that gain from the sale or exchange of digital assets cannot be deferred by undertaking an exchange of one type of virtual currency for another.

Certain states, including New York and Tennessee, generally follow IRS guidance with respect to the treatment of digital assets for state income tax purposes, but it is unclear if other states will do so. Transactions involving digital assets for other goods and services also may be subject to sales and use or similar taxes under barter transaction treatment or otherwise. The treatment of digital assets for state income tax and sales tax purposes may have negative consequences, including the imposition of a greater tax burden on investors in digital assets or a higher cost with respect to the acquisition, ownership and disposition of digital assets generally. In either case, this could have a negative effect on prices in the relevant digital asset exchange market and could have a material adverse effect on our business, financial condition and results of operations.

Foreign jurisdictions also may elect to treat digital assets in a manner that results in adverse tax consequences. To the extent that a foreign jurisdiction with a significant share of the market of digital asset owners or users imposes onerous tax burdens on such owners or users, or imposes sales, use or value added tax on purchases and sales of digital assets for fiat currency, such actions could result in decreased demand for digital assets in such jurisdiction, which could impact the price of digital assets and could have a material adverse effect on our business, financial condition and results of operations.

All statements contained herein concerning U.S. federal income tax (or other tax) consequences are based on existing law and interpretations thereof. The tax regimes to which we are subject or under which we operate,

 

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non-income

after-tax

State, local or other jurisdictions could impose, levy or otherwise enforce tax laws against us. Tax laws and regulations at the state and local levels frequently change, especially in relation to the interpretation of existing tax laws for new and emerging industries, and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, current or future taxes, which could have a material adverse effect on our business, financial condition and results of operations.

Bitcoin has been the source of much regulatory consternation, resulting in differing definitional outcomes without a single unifying statement. Bitcoin is viewed differently by different regulatory and standards setting organizations globally as well as in the United States on the federal and state levels. For example, the Financial Action Task Force (“FATF”) and the IRS consider bitcoin as currency or an asset or property. Further, the IRS applies general tax principles that apply to property transactions to transactions involving virtual currency. The U.S. Commodity Futures Trading Commission (“CFTC”) classifies bitcoin as a commodity. The SEC has also publicly stated that it considers bitcoin to be a commodity, but that some digital assets should be categorized as securities. How a digital asset such as bitcoin is characterized by a regulator impacts the rules that apply to activities related to that digital asset.

As bitcoin has grown in both popularity and market size, governments around the world have reacted differently. Certain governments have deemed bitcoin illegal or have severely curtailed the use of digital assets by prohibiting the acceptance of payment in bitcoin and other digital assets for consumer transactions and barring banking institutions from accepting deposits of bitcoin. Other nations, however, allow bitcoin to be used and traded without restriction. In some jurisdictions, such as in the U.S., bitcoin is subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. There is a risk that relevant authorities in any jurisdiction may impose more onerous regulation on bitcoin, for example banning its use, regulating its operation, or otherwise changing its regulatory treatment. Such changes may introduce a cost of compliance, or have a material impact on our business model, and therefore our financial performance and shareholder returns. If the use of bitcoin is made illegal in jurisdictions where bitcoin is currently traded in heavy volumes, the available market for bitcoin may contract.

Digital asset trading platforms may also be subject to increased regulation and there is a risk that increased compliance costs are passed through to users, including us, as we exchange bitcoin earned through our mining activities. There is a risk that a lack of stability in the bitcoin exchange market and the closure or temporary shutdown of bitcoin exchanges due to fraud, business failure, hackers or malware, or government-mandated restrictions may reduce confidence in the bitcoin network and result in greater volatility in or suppression of bitcoin’s value and consequently have an adverse impact on our operations and financial performance.

In the U.S., the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g. the CFTC, the SEC, the Financial Crimes Enforcement Network of the U.S. Treasury Department (“FinCEN”) and the Federal Bureau of Investigation) have begun to examine the operations of the bitcoin network, bitcoin users and the bitcoin exchange market. Increasing regulation and regulatory scrutiny may result in new costs for us and our management may have to devote increased time and attention to regulatory matters or change aspects of our business. Increased regulation may also result in limitations on the use cases of bitcoin. In addition, regulatory

 

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developments may require us to comply with certain regulatory regimes. For example, to the extent that our activities cause us to be deemed a “money service business” under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act (“BSA”), we may be required to comply with FinCEN regulations, including those that would mandate us to implement certain anti-money laundering programs, make certain reports to FinCEN and maintain certain records.

Furthermore, in the future, foreign governments may decide to subsidize or in some other way support certain large-scale bitcoin mining projects, thus adding hashrate to the overall network. Such circumstances could have a material adverse effect on the amount of bitcoin that we may be able to mine as well as the value of bitcoin and, consequently, our business, prospects, financial condition and operating results.

We cannot be certain as to how future regulatory developments will impact the treatment of bitcoin under the law, and ongoing and future regulation and regulatory actions could significantly restrict or eliminate the market for or uses of bitcoin and materially and adversely impact our business. If we fail to comply with such additional regulatory and registration requirements, we may seek to cease certain of our operations or be subjected to fines, penalties and other governmental action. Such circumstances could have a material adverse effect on our ability to continue as a going concern or to pursue our business model at all, which could have a material adverse effect on our business, prospects or operations and potentially the value of any digital assets we plan to hold or expect to acquire for our own account.

We operate an international business and may have direct or indirect interactions with officials and employees of government agencies or state-owned or affiliated entities. We are subject to the FCPA and other applicable anti-corruption and anti-money laundering laws in countries in which we conduct activities. The FCPA prohibits providing, offering, promising, or authorizing, directly or indirectly, anything of value to government officials, political parties, or political candidates for the purpose of obtaining or retaining business or securing any improper business advantage.

In many foreign countries, including countries in which we may conduct business, it may be a local custom that businesses engage in practices that are prohibited by the FCPA and other applicable laws and regulations. We face significant risks if we or any of our directors, officers, employees, contractors, agents or other partners or representatives fail to comply with these laws, and governmental authorities in the United States and elsewhere could seek to impose substantial civil and/or criminal fines and penalties, which could have a material adverse effect on our business, reputation, operating results, prospects and financial condition.

Any violation of the FCPA and other applicable anti-corruption laws, or anti-money laundering laws could result in whistleblower complaints, adverse media coverage, investigations, loss of export privileges, severe criminal or civil sanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracts, any of which could have a materially adverse effect on our reputation, business, operating results, prospects and financial condition. In addition, responding to any enforcement action or internal investigation related to alleged misconduct may result in a significant diversion of management’s attention and resources and significant defense costs and other professional fees.

 

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transactions with persons named on OFAC’s specially designated nationals list, which may expose us to regulatory sanctions and adversely affect our business, financial condition and results of operations.

non-renewable

non-renewable

An issuer will generally be deemed to be an “investment company” for purposes of the 1940 Act if:

 

 

We believe that we are not and will not be primarily engaged in the business of investing, reinvesting or trading in securities, and we do not hold ourselves out as being engaged in those activities. We intend to hold ourselves out as a bitcoin mining business. Accordingly, we do not believe that we are an “orthodox” investment company as described in the first bullet point above.

Furthermore, while certain cryptocurrencies may be deemed to be securities, we do not believe that certain other cryptocurrencies, in particular bitcoin, are securities. Our mining activities currently focus on bitcoin, which we believe should not be treated as an investment security for purposes of the 1940 Act. Therefore, we believe that less than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis will comprise certain other cryptocurrencies or assets that could be considered investment securities. Accordingly, we do not believe that we are an inadvertent investment company by virtue of the 40% inadvertent investment company test as described in the second bullet point above. However, although the SEC and courts are providing increasing guidance on the treatment of digital assets for purposes of federal securities law, this continues to be an evolving area of law. Previous statements by the SEC that bitcoin should not be considered a security are not official policy statements by the SEC and reflect only the speakers’ views, which are not binding on the SEC or any other agency or court. Therefore, it is possible that the SEC or a court could take a position that bitcoin constitutes an investment security for purposes of the 1940 Act, which might require us to register as an investment company.

3a-2

 

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no-action

3a-2

non-investment

The 1940 Act and the rules thereunder contain detailed parameters for the organization and operations of investment companies. Among other things, the 1940 Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, prohibit the issuance of stock options, and impose certain governance requirements. We intend to continue to conduct our operations so that we will not be deemed to be an investment company under the 1940 Act. However, if anything were to happen that would cause us to be deemed to be an investment company under the 1940 Act, requirements imposed by the 1940 Act, including limitations on our capital structure, ability to transact business with affiliates and ability to compensate key employees, could make it impractical for us to continue our business as currently conducted, impair the agreements and arrangements between and among us and our senior management team. Compliance with the requirements of the 1940 Act applicable to registered investment companies may make it difficult for us to continue our current operations or our operations as a company that is engaged in the business of developing data center infrastructure and in activities related to bitcoin mining, and this would materially and adversely affect our business, financial condition and results of operations.

If we were required to register as an investment company but failed to do so, the consequences could be severe. Among the various remedies it may pursue, the SEC may seek an order of a court to enjoin us from continuing to operate as an unregistered investment company. In addition, all contracts that we have entered into in the course of our business, including securities that we have offered and sold to investors, will be rendered unenforceable except to the extent of any equitable remedies that might apply. An affected investor in such case may pursue the remedy of rescission.

 

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Cryptocurrencies are treated as “money” by FinCEN, and businesses engaged in the transfer of money or other payments services are subject to registration and licensure requirements at the U.S. federal level and also under U.S. state laws. While FinCEN has issued guidance that cryptocurrency mining, without engagement in other activities, generally does not require registration and licensure with FinCEN, this could be subject to change as FinCEN and other regulatory agencies continue their scrutiny of the bitcoin network and digital assets generally. To the extent that our business activities cause us to be deemed a “money services business” under the regulations promulgated by FinCEN under the authority of the BSA, we may be required to comply with FinCEN regulations, including those that would mandate us to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records.

To the extent that our activities would cause us to be deemed a “money transmitter” (“MT”) or equivalent designation, under state law in any state in which we may operate, we may be required to seek a license or otherwise register with a state regulator and comply with state regulations that may include the implementation of anti-money laundering programs, maintenance of certain permissible investments in relation to the customer funds that we hold, recordkeeping and other operational requirements. For example, in August 2015, the New York State Department of Financial Services enacted the first U.S. regulatory framework for licensing participants in “virtual currency business activity.” The regulations, known as the “BitLicense,” are intended to focus on consumer protection and regulate the conduct of businesses that are involved in “virtual currencies” in New York or with New York customers and prohibit any person or entity involved in such activity to conduct activities without a license.

Such additional federal or state regulatory obligations may cause us to incur extraordinary expenses. Furthermore, we may not be capable of complying with certain federal or state regulatory obligations applicable to money services businesses and MTs. If we are deemed to be subject to and determine we are not able to comply with such additional regulatory and registration requirements, we may act to dissolve and liquidate.

The CFTC has stated and judicial decisions involving CFTC enforcement actions have confirmed that bitcoin and other digital assets fall within the definition of a “commodity” under the CEA, and the regulations promulgated by the CFTC thereunder (“CFTC Rules”). As a result, the CFTC has general enforcement authority to police against manipulation and fraud in the spot markets for bitcoin and other digital assets. From time to time, manipulation, fraud and other forms of improper trading by other participants involved in the markets for bitcoin and other digital assets have resulted in, and may in the future result in, CFTC investigations, inquiries, enforcement action, and similar actions by other regulators, government agencies and civil litigation. Such investigations, inquiries, enforcement actions and litigation may cause negative publicity for bitcoin and other digital assets, which could adversely impact mining profitability.

In addition to the CFTC’s general enforcement authority to police against manipulation and fraud in spot markets for bitcoin and other digital assets, the CFTC has regulatory and supervisory authority with respect to commodity futures, options, and/or swaps (“Commodity Interests”) and certain transactions in commodities offered to retail purchasers on a leveraged, margined, or financed basis. Although we do not currently engage in

 

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such transactions, changes in our activities, the CEA, CFTC Rules, or the interpretations and guidance of the CFTC may subject us to additional regulatory requirements, licenses and approvals which could result in significant increased compliance and operational costs.

non-recurring

Laws regulating financial services, the internet, mobile technologies, digital assets and related technologies in the United States and other jurisdictions often impose different, more specific, or potentially conflicting obligations, as well as broader liability, on us. At the same time, we may also be required to comply with sanctions and export controls and counterterrorism financing laws and regulations in the United States and other jurisdictions around the world.

Regulators worldwide frequently study each other’s approaches to the regulation of digital assets such as bitcoin. Consequently, developments in any jurisdiction may influence other jurisdictions. New developments with respect to one type of cryptocurrency operations in one jurisdiction may be extended to additional operations in other jurisdictions. As a result, the risks created by any new law or regulation in one jurisdiction may be magnified by the potential that they may be replicated in other jurisdictions, affecting our business in another place or involving another aspect of our operations. Conversely, if regulations diverge worldwide, we may face difficulty adjusting our business in order to comply with such divergent regulations. These risks are heightened as we face increased competitive pressure from other similarly situated businesses that engage in regulatory arbitrage to avoid the compliance costs associated with regulatory changes.

The complexity and ongoing development of U.S. federal and state and other international regulatory and enforcement regimes, coupled with the global scope of our operations and the evolving global regulatory environment, could result in a single event prompting a large number of overlapping investigations and legal and regulatory proceedings by multiple government authorities in different jurisdictions. Any of the foregoing could, individually or in the aggregate, harm our reputation and adversely affect our operating results and financial condition. Due to the uncertain application of existing laws and regulations, it may be that, despite our analysis concluding that certain activities are currently unregulated, such activities may indeed be subject to financial regulation, licensing, or authorization obligations that we have not obtained or with which we have not complied. As a result, we are at a heightened risk of enforcement action, litigation, regulatory and legal scrutiny which could lead to sanctions, cease and desist orders, or other penalties and censures that could significantly and adversely affect our continued operations and financial condition.

 

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The SEC and its staff have taken the position that certain digital assets fall within the definition of a “security” under the U.S. federal securities laws. The legal test for determining whether any given digital asset is a security is a highly complex, fact-driven analysis that may evolve over time, and the outcome is difficult to predict. The SEC generally does not provide advance guidance or confirmation on the status of any particular digital asset as a security. Furthermore, the SEC’s views in this area have evolved over time and it is difficult to predict the direction or timing of any continuing evolution. It is also possible that a change in the governing administration or the appointment of new SEC commissioners could substantially impact the views of the SEC and its staff.

“no-action”

non-security

 

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We collect and process data, including personal, financial and confidential information about individuals, including our employees and business partners. The collection, use, processing and storage of such data about individuals are governed by data privacy laws, regulations, guidelines and rules. We do not currently have any formal data privacy policies and procedures in place and have not completed an assessment of whether we are in compliance with all applicable data privacy laws and regulations. Data privacy laws and regulations are complex, continue to evolve, and on occasion may be inconsistent between jurisdictions leading to uncertainty in interpreting such laws and it is possible that these laws, regulations and requirements may be interpreted and applied in a manner that is inconsistent with our existing information processing practices, and many of these laws are significantly litigated and/or subject to regulatory enforcement. The implication of this includes that various federal, state and foreign legislative or regulatory bodies may enact or adopt new or additional laws and regulations concerning data privacy, data retention, data transfer and data protection. Such laws may continue to add to our compliance costs, restrict or dictate how we collect, maintain, combine and disseminate information and could have a material adverse effect on our business, results of operations, financial condition and prospects.

In the United States, according to the Federal Trade Commission (“FTC”), failure to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. State privacy and security laws vary from state to state and, in some cases, can impose more restrictive requirements than U.S. federal law. For example, California enacted the California Consumer Privacy

 

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Act (“CCPA”) on June 28, 2018, which went into effect on January 1, 2020. The CCPA creates individual privacy rights for California consumers and increases the privacy and security obligations of entities handling certain personal data. The CCPA provides for civil penalties for violations, as well as a private right of action for data breaches that is expected to increase data breach litigation. The CCPA may increase our compliance costs and potential liability, and many similar laws have been proposed and/or enacted in other states and at the federal level.

Any actual or perceived failure by us or the third parties with whom we work to comply with data privacy laws, regulations, guidelines, rules or industry standards, or any security incident that results in the unauthorized release or transfer of personally identifiable information, may result in governmental enforcement actions and investigations including by U.S. federal and state regulatory authorities, fines and penalties, litigation and/or adverse publicity, including by consumer advocacy groups, and could cause our customers to lose trust in us, which could harm our reputation and have a material adverse effect on our business, reputation, results of operations, financial condition and prospects.

Bitcoin trading venues are relatively new and, in some cases, unregulated. Furthermore, there are many bitcoin trading venues which do not provide the public with significant information regarding their ownership structure, management teams, corporate practices and regulatory compliance. As a result, the marketplace may lose confidence in bitcoin trading venues, including prominent exchanges that handle a significant volume of bitcoin trading.

Negative perception, a lack of stability in the broader bitcoin markets and the closure or temporary shutdown of bitcoin trading venues due to fraud, business failure, hackers or malware or government-mandated regulation may reduce confidence in bitcoin and result in greater volatility in the prices of bitcoin. To the extent investors view New GRIID’s common stock as linked to the value of our bitcoin holdings, these potential consequences of a bitcoin trading venue’s failure could have a material adverse effect on the market value of New GRIID’s common stock.

clean-up

 

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to our sites, could have a material adverse effect on our business or cause us to incur material expenses. Moreover, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by noise or the release of hazardous substances into the environment.

The trend in environmental regulation has been to place more restrictions and limitations on activities that may be perceived to impact the environment, and thus there can be no assurance as to the amount or timing of future expenditures for environmental regulation compliance or remediation. New or revised laws and regulations that result in increased compliance costs or additional operating restrictions, or the incurrence of environmental liabilities, could have a material adverse effect on our financial position, results of operations and cash flows.

A number of governments or governmental bodies have introduced or are contemplating legislative and regulatory changes in response to the increasing focus on climate change and its potential impact, including from governmental bodies, interest groups and stakeholders. Despite our sustainability objectives in sourcing electricity from renewable energy sources, given the very significant amount of electrical power required to operate bitcoin mining machines, as well as the environmental impact of mining for the rare earth metals used in the production of mining servers, the bitcoin mining industry may become a target for future environmental and energy regulation. Legislation and increased regulation regarding climate change could impose significant costs on us and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, costs to purchase renewable energy credits or allowances and other costs to comply with such regulations. Specifically, imposition of a tax or other regulatory fee in a jurisdiction where we operate or on electricity that we purchase could result in substantially higher energy costs, and due to the significant amount of electrical power required to operate bitcoin mining machines, could in turn put our facilities at a competitive disadvantage. Any future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations.

Given the political significance and uncertainty around the impact of climate change and how it should be addressed, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. Any of the foregoing could have a material adverse effect on our business, financial position and results of operations.

The effects of human activity on global climate change have attracted considerable public and scientific attention, as well as the attention of the United States and other foreign governments. Efforts are being made to reduce greenhouse gas emissions, particularly those from coal combustion power plants, some of which plants we may rely upon for power. The added cost of any environmental taxes, charges, assessments or penalties levied on such power plants could be passed on to us, increasing the cost to run our facilities. Any enactment of laws or promulgations of regulations regarding greenhouse gas emissions by the United States, or any domestic or foreign jurisdiction in which we conduct business, could have a material adverse effect on our business, financial condition or results of operations.

 

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Certain institutional investors, investor advocacy groups, investment funds, creditors and other influential financial markets participants have become increasingly focused on companies’ ESG practices in evaluating their investments and business relationships, including the impact of bitcoin mining operations on the environment. Certain organizations also provide ESG ratings, scores and benchmarking studies that assess companies’ ESG practices. Although there are no universally adopted standards for such ratings, scores or benchmarking studies, they are used by some investors to inform their investment and voting decisions. It is possible that our future shareholders or organizations that report on, rate or score ESG practices will not be satisfied with our ESG strategy or performance. Unfavorable press about or ratings or assessments of our ESG strategies or practices, regardless of whether or not we comply with applicable legal requirements, may lead to negative investor sentiment toward us, which could have a negative impact on our stock price and our access to and cost of capital.

Additionally, in February 2021, the Acting Chair of the SEC issued a statement directing the Division of Corporation Finance to enhance its focus on climate-related disclosure in public company filings and in March 2021 the SEC announced the creation of a Climate and ESG Task Force in the Division of Enforcement. The increased focus and activism related to ESG may hinder our access to capital, as investors and lenders may reconsider their capital investment allocation as a result of their assessment of our ESG practices. If we do not adapt to or comply with investor, lender or other industry shareholder expectations and standards and potential government regulations, which are evolving but may relate to the suitable deployment of electric power, or which are perceived to have not responded appropriately to the growing concern for ESG issues, our reputation could suffer which would have a material adverse effect on our business, financial condition and results of operations.

Our ability to comply with applicable complex and evolving laws, regulations and rules is largely dependent on the establishment and maintenance of our compliance, audit and reporting systems, as well as our ability to attract and retain qualified compliance and other risk management personnel. We cannot assure you that our policies and procedures will be effective or that we will be successful in monitoring or evaluating the risks to which we are or may be exposed in all market environments or against all types of risks, including unidentified or unanticipated risks. Our risk management policies and procedures rely on a combination of technical and human controls and supervision that are subject to error and failure. Some of our methods for managing risk are discretionary by nature and are based on internally developed controls and observed historical market behavior, and also involve reliance on standard industry practices. These methods may not adequately prevent losses, particularly as they relate to extreme market movements, which may be significantly greater than historical fluctuations in the market. Our risk management policies and procedures also may not adequately prevent losses due to technical errors if our testing and quality control practices are not effective in preventing failures. In addition, we may elect to adjust our risk management policies and procedures to allow for an increase in risk tolerance, which could expose us to the risk of greater losses.

non-disclosure

 

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and the value of our trade secrets could be lost through misappropriation or breach of our confidentiality agreements. For example, an employee with authorized access may misappropriate our trade secrets and provide them to a competitor, and the recourse we take against such misconduct may not provide an adequate remedy to protect our interests fully, because enforcing a claim that a party illegally disclosed or misappropriated a trade secret can be difficult, expensive and time consuming, and the outcome is unpredictable. Thus, if any of our trade secrets were to be disclosed or misappropriated, our competitive position could be harmed. In addition to the risk of misappropriation and unauthorized disclosure, our competitors may develop similar or better methods independently in a manner that could prevent legal recourse by us, which could result in costly product redesign efforts, discontinuance of certain product offerings or other competitive harm. Furthermore, any of our intellectual property rights could be challenged, invalidated, circumvented, infringed, diluted, disclosed or misappropriated and adequate legal recourse may be unavailable. Thus, there can be no assurance that our trade secrets or other intellectual property rights will be sufficient to protect against competitors operating their business in a manner that is substantially similar to us.

Our commercial success depends on our ability to operate without infringing third-party intellectual property rights or other proprietary rights. For example, there may be issued patents of which we are not aware that our services or products infringe on. Also, there may be patents we believe we do not infringe on, but that we may ultimately be found to by a court of law or government regulatory agency. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our services or products allegedly infringe on.

Third parties could accuse us of misappropriating their trade secrets. Any claims of patent infringement or trade secret misappropriation, even claims without merit, could be costly and time-consuming to defend and could require us to divert resources away from operations. In addition, if any third party has a meritorious or successful claim that we are infringing their intellectual property, we may be forced to redesign our operations or secure a license from such third parties, which may be costly or impractical. We also may be subject to significant damages or injunctions that may cause a material adverse effect to our business and operations, if we cannot license or develop an alternative for any infringing aspect of its business, and may result in a material loss in revenue, which could adversely affect the trading price of our shares and harm our investors.

 

 

 

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Unlike many other blank check companies in which the sponsor, officers and directors agree to vote their shares in accordance with the majority of the votes cast by their public stockholders in connection with a merger transaction, our sponsor, officers and directors have agreed to vote any shares of common stock owned by them in favor of the merger. As of the date hereof, our initial stockholders own shares equal to approximately 20% of our issued and outstanding shares of common stock in the aggregate. Accordingly, it is more likely that the necessary stockholder approval will be received for the merger than would be the case if the sponsor, officers and directors agreed to vote any shares of common stock owned by them in accordance with the majority of the votes cast by our public stockholders.

Our initial stockholders, directors, officers, advisors or any of their affiliates may purchase shares in privately negotiated transactions or in the open market either prior to or following the completion of the merger, although they are under no obligation to do so. Such a purchase may include a contractual acknowledgement that such stockholder, although still the record holder of our shares is no longer the beneficial owner thereof and therefore agrees not to exercise its redemption rights. In the event that our initial stockholders, sponsor, directors, officers, advisors or any of their affiliates purchase shares in privately negotiated transactions from stockholders who have already elected to exercise their redemption rights, such selling stockholders would be required to revoke their prior elections to redeem their shares. The purpose of such purchases would be to vote such shares in favor of the merger and thereby increase the likelihood of obtaining stockholder approval of the merger or to satisfy the closing condition in the merger agreement that requires us to have a minimum amount of cash at the closing of the merger, where it appears that such requirements would otherwise not be met. This may result in the completion of the merger when it may not otherwise have been possible. Any such purchases will be reported pursuant to Section 13 and Section 16 of the Exchange Act to the extent such purchasers are subject to such reporting requirements.

In addition, if such purchases are made, the public “float” of our common stock and the number of beneficial holders of our securities may be reduced, possibly making it difficult to maintain or obtain the quotation, listing or trading of our securities on a national securities exchange.

 

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It is anticipated that, upon completion of the merger, and assuming that no shares are elected to be redeemed: (i) our existing stockholders other than the initial stockholders will retain an interest of approximately 8.1% of the capital stock of New GRIID; (ii) our initial stockholders (including our sponsor) will retain an interest of approximately 2.0% of the capital stock of New GRIID; and (iii) holders of GRIID’s existing limited liability company membership units will retain an interest of approximately 89.9% of the capital stock of New GRIID.

The ownership percentage with respect to New GRIID following the merger (i) does not take into account (a) warrants to purchase common stock that will be outstanding immediately following the merger or (b) the issuance of any shares upon completion of the merger under the incentive plan. If the actual facts are different than these assumptions (which they are likely to be), the percentage ownership retained by ADEX’s existing stockholders in New GRIID will be different. For more information, please see the sections entitled “Summary of the Proxy Statement/Prospectus—Impact of the Merger on ADEX’s Public Float,” “Unaudited Pro Forma Condensed Combined Financial Information” and “Proposal No. 5—The Incentive Plan Proposal.”

Sales of a substantial number of shares of common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After the merger, the initial stockholders, including our sponsor, will hold approximately 2.0% of our common stock. In addition, at the closing of the merger, New GRIID will enter into the investor rights agreement, substantially in the form attached as Annex C to this proxy statement/prospectus. Pursuant to the terms of the investor rights agreement, (i) any outstanding share of common stock or any other equity security (including those issuable upon conversion of outstanding warrants and including shares of common stock issued or issuable upon the exercise of any other equity security) of New GRIID held by a party to the investor rights agreement as of the date of such agreement or thereafter acquired by a party to such agreement upon exercise of any warrants and (ii) any other equity security of New GRIID issued or issuable with respect to any such share of common stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise, will be entitled to registration rights. In addition, the initial stockholders entered into a letter agreement pursuant to which they agreed, with certain limited exceptions, not to transfer any shares of common stock until one year after the closing of the merger. However, if the closing price of the common stock equals or exceeds $12.00 per share (as adjusted for any stock splits, stock dividends, reorganizations, recapitalizations, and similar transactions) for any 20 trading days within any 30 trading day period commencing at least 150 days after the merger, such shares would be released from this restriction. Moreover, such transfer restrictions may be waived by the underwriters that are party to the letter agreement.

ADEX’s board of directors has not obtained an updated opinion from its financial advisor as of the date of this proxy statement/prospectus, nor does it expect to receive an updated, revised or reaffirmed opinion prior to the completion of the merger. Changes in the operations and prospects of ADEX or GRIID, general market and economic conditions and other factors that may be beyond the control of ADEX or GRIID, and on which ADEX’s financial advisor’s opinion was based, may significantly alter the value of GRIID or the share price of ADEX’s common stock by the time the merger is completed. The opinion does not speak as of the time the merger will be completed or as of any date other than the date of such opinion. Because ADEX’s financial

 

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advisor will not be updating its opinion, the opinion will not address the fairness of the merger consideration, from a financial point of view, at the time the merger is completed. The recommendation of ADEX’s board of directors that ADEX stockholders approve the Transaction, however, is made as of the date of this proxy statement/prospectus. For a description of the opinion that ADEX’s board of directors received from its financial advisor, see “Proposal No. 1—The Merger Proposal—Opinion of Financial Advisor to the ADEX Board.”

Our common stock, units and warrants are currently listed on the NYSE. Our eligibility for continued listing may depend on, among other things, the number of our shares that are redeemed and the number of round lot holders of our shares immediately after the merger, which may drop below the required amount due to redemptions. If, after the merger, NYSE delists our common stock from trading on its exchange for failure to meet the listing standards, we and our stockholders could face significant material adverse consequences including:

 

 

 

 

 

The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” To the extent our common stock, units, or warrants are listed on the NYSE, they are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on the NYSE, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.

We are a blank check company, and as we have no operating history and are subject to a mandatory liquidation and subsequent dissolution requirement, substantial doubt exists as to our ability to continue as a going concern if we do not consummate an initial business combination by January 14, 2023. Unless we amend our current certificate of incorporation (which requires the affirmative vote of the holders of a majority of all shares of common stock present and entitled to vote) and certain other agreements into which we have entered to extend the life of ADEX, if we do not complete an initial business combination by January 14, 2023, we will: (i) cease all operations except for the purpose of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the shares of common stock, at a price, payable in cash, equal to the aggregate amount then on deposit in the trust account including interest not previously released to ADEX to fund its working capital requirements and/or its franchise and income taxes (less up to $100,000 of interest to

 

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pay dissolution expenses) divided by the number of then outstanding shares, which redemption will completely extinguish stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law; and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and ADEX’s board of directors, dissolve and liquidate, subject in each case to our obligations under the DGCL to provide for claims of creditors and the requirements of other applicable law. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including trust account assets) will be less than the initial public offering price per unit in the IPO. In addition, if we fail to complete an initial business combination by January 14, 2023, there will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless. We expect to consummate the merger, and do not intend to take any action to extend the life of ADEX beyond January 14, 2023 if we are unable to effect an initial business combination by that date.