Stronghold Digital Mining Inc. Class A Common Stock

Item 1A. Risk Factors

Except as set forth below, there are no material changes to the Risk Factors contained in Item 1A to Part I of the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed on March 8, 2024, as supplemented in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed on May 8, 2024.

We are evaluat, and our Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed on August 14, 2024.

The following certainrisk factors relate to the merger. For additional information recent PJM programs, including demand response and other ancgarding the Merger Agreement, see Merger Agreement and First Amendment to Merger Agreement herein and our other information relating to the Merger Agreement that we have filed with the SEC.

Because the market value of Bitfarms common shares that Company stockholders willary programs, but there can be no assurances as to the ti receive in the merger may fluctuate, Company stockholders cannot be sure of the market value of the merger consideration that they will receive in the merger.

As merger consideration, Company stockholders will receive a fixed number of Bitfarms common shares, not a number of shares that will be determing of such qualification, if at all.

On April 14, 2024, PJM updated its Guidanceed based on a fixed market value. The market value of Bitfarms common shares and the market value of Class A common stock at the effective time may vary from their respective values on the date that the Merger Agreement was executed or at other dates, such as the date of the registration statement on Co-LocatForm F-4 (File No. 333-282657) that Bitfarms filed Load. Pursuant towith the SEC on October 15, 2024 or the date of the special meeting. Stock price changes may result from a variety of factors, including changes in Bitfarms or the Guidance on Co-Located Load, certain In Network load designations haveCompanys respective businesses, operations or prospects, regulatory considerations and general business, market, industry or economic conditions. The exchange ratio will not be adjusted to reflect any changes in the market value of Bitfarms common shares, the potential to enablecomparative value of the Canadian dollar ancid U.S. dollary reven or market value streams such as demand response. Strongof the Class A common stock. Therefore, the aggregate market value of the Bitfarms common shares that a Company stockholder is currently in the process of registering its data center at itled to receive at the time that the merger is completed could vary from the value of such shares on the date of the Scrubgrass Plant in proxy statement/prospectus, the date of the special meeting or the demand response program. However, ate on which a Company stockholder actually receives its Bitfarms common shares.

There is no assurance can when or if the merger will be made as to whethecompleted, including, but not limited to, regulatory approvals which may not be received, may take longer the data center at tan expected or may impose conditions that are not presently anticipated or cannot be satisfied.

The Scrubgrass Plant will qualify as In Network load, and thus be eligible for demand respcompletion of the merger is subject to satisfaction or waiver of certain customary mutual closing conditions, including (i) the approval of the merger proposal by the holders of Company common stock, (ii) the absence of any governmental order or law that makes conse ummation of the merger illegal or other ancillary programwise prohibited, (iii) receipt of certain approvals and consents from specified governmental entities, including, if applicable, the tiexpiration or termingation of such qualification, or our ability to monetize such participthe applicable waiting period under the Hart-Scott-Rodino Antitrust Improvement Act, (iv) the effectiveness of the registration in demand response or other ancillary programs. Addistatement on Form F-4, pursuant to which the Bitfarms common shares to be issued in connection with the merger are registered with the SEC and (v) the authorizationally, any classifica for listing of the Bitfarms common shares to be issued in connection as In Network load may require such faciliwith the merger on the Toronto Stock Exchange and Nasdaq, subject to customary conditions and official notice of issuance. The obligation of each party to exit future capacity commitments,consummate the merger is also conditioned upon, among other things, (1) the other partys representations and such exit may havewarranties being true and correct (subject to applicable materiality an impact on d de minimis standards), (2) the Companys financother party having performed in all material andrespects its obligations regulatory condition.

We are evaluating certain opportunities to expand tquired to be performed by it under the Merger Agreement at or prior to the effective time, (3) the absence of a material adverse effect on the Scrubgrassother party and Panther Creek Plant data centers, includ(4) with respect to Bitfarms obligation to consummate the merger, the mining with addfacility conditional MW, but ts described in the Merger Agreement. There can be no assurances as to when the timing of any such expansion, se conditions will be satisfied or waived, if at all, or abilitythat other events will not intervene to expand at all.

delay or result in the failure to complete the merger.

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The Company has engaged third partiesand Bitfarms have each agreed to assist with evaluating additional potential uses for the data centers at , promptly following the execution of the Merger Agreement, prepare and file certain filings, submissions and notices and obtain consents, orders and approvals necessary to complete the merger and the othe Scrubgrass Plant and Panther Creek Plant. In May and June 2024, Stronghold submittr transactions contemplated by the Merger Agreement. No assurance can be given that the required consents, orders and approvals will be obtained or that the required conditions to the completion of the merger will be satisfied preliminary loadand an adverse development in either partys regulatory studies to local utianding or other factors could result in an inabilitiesy to import up to an additional 400 MW at the Panther Creek Plant. Nobtain one or more of the required regulatory approvals or delay receipt of required approvals. Even if all such consents, orders and approvals are obtained and such conditions are satisfied, no assurance can be made as to whether tgiven as to the terms, conditions and timing of such consents, orders and approvals. For example, these consents, orders and approvals may impose conditions on or require divestitures relating to the divisions, operations or assets of the Company will pursue such exor may impose requirements, limitations or costs or place restrictions on the conduct of the Compansion opportunities, whether additional MW will be ablys business, and if such consents, orders or approvals require an extended period of time to be obtained, such extended period of time could increase the chance to be deliveredhat a material adverse event occurs with respect to the data center at Company or Bitfarms. Such extended period of time also may increase the Panthchance that other Creek Plant or adverse effects with respect to the Company or Bitfarms could occur, such as the data center aloss of key personnel. Each partys obligation to complete the merger is also subject to the Scrubgrass Plant, oraccuracy of the representations and warranties of the timeline forother party (subject to certain qualifications any potentd exceptions) and the performance in all material expansion.

Powrespects of the other expansion inpartys covenants under the Merger Agreement. As a result of these conditiatives are capital intensive and mons, the Company cannot provide assurance that the merger will be completed on the terms or timeline currently contemplated, or at all.

The special meeting may take a significant amount of time.

Expplace before all of the required regulatory approvals have been obtained anding our exist before all conditions to such approvals, if any, are known. Notwithstanding data centers, if we choose to pursue such expansion, requires significant capital expenditure on new infrastructure, equipment, labor, andthe foregoing, if the merger proposal is approved by Company stockholders, then the Company would not be required to seek further approval of Company stockholders, even if the conditions imposed in obtaining required regulatory approvals could have an adverse effect on the Company either before or after completing the merger.

Certain rights of Company stockholders will change as a result of the merger.

Upon completion of the merger, Company studies necessary to increase MW availability. If we are unable to fund our capital expenditureockholders will no longer be stockholders of the Company, a Delaware corporation, but will be shareholders of Bitfarms, a corporation organized under the OBCA. There will be certain differences between the current rights as a Company stockholder, on the one hand, and the rights to which the stockholders will be entitled as Bitfarms shareholders, eion ther through our revenue streams or other hand, as more fully described in the proxy statement/prospectus.

The announcement and pendency of through other sourcese merger could adversely affect the Companys business, results of capital, we may be unable to remain coperations and financial condition.

The announcement and pendency of the merger could cause disruptions in and create uncertainty surrounding the Companys business, including affecting the Competitiveanys relationships with its existing and experiencfuture partners, suppliers and employees, which could have a deterioration in our rn adverse effect on Strongholds business, results of operations and financial condition. Additionally, regardless of whether the merger is completed. In particular, the timeline for power expansion is uncertain. It may be several years before we are able to Company could potentially lose important personnel as a result of the departure of employees who decide to pursue other opportunities in light of the merger, such as the resignation of Stronghold's Chief Financial Officer, Matthew Smith. The Company could also potentially lose business partners or suppliers, and business partner or supplier contracts could be delayed or decrealize tsed. In addition, the benefits of tCompany has expended, and continues to expend, management resources in an effort to complete the power exmerger, which are being diverted from the Compansys day-to-day operation initiatives, if at all.

Our contemplated power expanss.

If the merger is not completed, the trading prices of Class A common stock may fall to the extent that the current prices reflect a market assumption initiative is anticipated to be cash flow that the merger will be completed. In addition, the failure to complete the merger may result in negative publicity or a negative for impression of the foreseeable future as we builCompany in the investment community and may affect the Companys relationship with employees, suppliers and out tther partners in the necessary infrastructurebusiness community.

The Company will incur substantial transaction fees and continue to condusts in connection with the merger.

The Company has incurred and expect to incur additional studies. Such a project couldmaterial non-recurring expenses in connection with the merger and completion of the transactions comprise a meantemplated by the Merger Agreement, including costs relating to obtainingful share of our cash flow.

We are not expec required approvals. The Company has incurred significant legal, advisory and financial services fees in connection with the process of negotiating and evaluating to generathe terms of the meaningful revenues from rger. Additional significant unanticipated costs may be incurred in the cour contemplated power expansion initiative until, at tse of coordinating the business of the Company after completion of the merger. Even if the merger is not completed, The Company will be required to pay certain costs relating to the earliest, 2025. Inmerger incurred prior to the interim, we will be incurdate the merger was abandoned, such as legal, accounting, financial advisory, filing and pring cting fees. Such costs for tcould have an adverse effect on the requisite load studies aparties future results of operations, cash flows and expansion financial condition. In addition, the Merger Agreement projectsvides

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that, infrastructure develop certain circumstances, one party to the Merger Agreement, e may be requipment supplred to pay and potential l termination fee (and purchacertain related expenses. Although we believe that) to the other.

While the Merger Agreement is in effect, the power exCompansion initiative can lead to various profitable ey and its subsidiaries businesses are subject to restrictions on their business activities.

Undeavors for tr the Merger Agreement, the Company over time, thereand its respective subsidiaries are numerous riskssubject to certain restrictions on the conduct of their respective businesses and uncertainties that make its timigenerally must operate their respective businesses in the ordinary course prior to completing and quantification difficulthe merger (unless the Company obtains Bitfarms written consent, which is not to accurately predict. Tbe unreasonably withheld, delayed or conditioned), which may restrict the financial impact ofCompanys ability to expending capital on ercise certain of its business strategies. These restrictions may prevent the Company from pursuing otherwise attractivities before realize business opportunities, making certain investments or acquisitions, selling assets, engaging cash flows could negatively impact our results of operations and in capital expenditures in excess of certain agreed limits, repurchasing or issuing securities, or incurring indebtedness prior to the completion of the merger or termination of the Merger Agreement, as applicable. These restrictions could have an adverse effect on the Companys businesses, financial results, financial condition.

We are depende or stock price.

In addition, subject to certain exceptions set forth in the Merger Agreement, the Merger Agreement onprohibits third-parties, include Company from, among other things: (i) initiating, soliciting or knowingly encouraging consultants, the making of any inquiry, proposal or offer that would contractors and suppliers, to develop our powstitute, or would reasonably be expected to lead to, an acquisition proposal; (ii) engaging in any discussions relating to any acquisition proposal, or any inquiry, proposal or offer expansithat would reasonably be expected to lead to an acquisition initiatives, and failure proposal; (iii) furnishing any non-public information regarding the Company or its subsidiaries, or access to the properly manage these relaties, assets or employees of the Company or its subsidiaries, to any person in connectionships, or the failure of  with an acquisition proposal; (iv) entering into any letter of intent or agreement in principal, or othese r agreement that would consultants, contractors and suppliers to titute, or would reasonably be expected to lead to, an acquisition proposal; or (v) releasing or permitting the release of any perform as expected, could have a material adverse effecson from, or amending, waiving or permitting the amendment or waiver of any provision of, any standstill or similar agreement on our business, prosr provision to allow such person to make or amend an agreement that would constitute, or would reasonably be expects or operations.

We currently rely on ed to lead to, an acquisition proposal.

These provisions may limit the Companys ability to pursue offers from third- party conies that could resultants,  in greater value to Company stockholders than the merger contractors and suppliers to assist sideration. The termination fee may also discourage third parties from pursuing an alternative acquisition proposal with trespect to the explorCompany.

The termination of our power expansion programthe Merger Agreement could negatively impact the Company and, initiativ certain circumstances, including navigating various regulatocould require the Company to pay certain termination fees.

The Merger Agreement is subject to a number of customary aspects. No assurance can be made that business

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closing conditions that must be fulfilled in order to complete the merger and contains certain termination rights for both the Company and Bitfarms, which, if exercised, would result interruptions will  the merger not being completed. If the merger is not occurcompleted for any reason, including as a result of theCompany stockholders failure by ing to approve these consultants, contractors or suppliers to perform as expe merger proposal or if the Merger Agreement is terminated in accordance with its terms, the ongoing businesses of the Company may be adversely affected. We cannot ensure and, without realizing any of the anticipated benefits of having completed the merger, that our consultants, contre Company would be subject to a number of risks, including the following:

The Company may experience negative reactors or suppliers will continue to perform services to our sions from the financial markets, including a decline of its stock price (which may reflect a market assumption that the merger will be completed);

The Company may experience negatisfve reaction or on commerciallys from or irreparable reasputationable terms. Our consultants,l harm as perceived by the Companys investment contractors or mmunity, customers, suppliers may also decl, peers regulators, employees, partners in the busine our orders to fulfill those of our competitors, putting us at competitive harm. Further, resource constraints or future regulatory actions could also iss community and any other third party whether presently known or unknown;

The Company may be required to pay substantial costs relating to the merger, whether or not the merger is completed;

matters relating to the merger will have required substantial commitments of time and resources by the Compact our abilitynys management team, which would otherwise have been devoted to obtainday-to-day operations and receiother opportunities that may have components needed to advabeen beneficial to the Company had the merger not been contemplated; and

the Company may experience our power expansion programa material adverse effect on its business, operations, earnings and initiatives. financial results.

If our consultants, contractors or supplithe Merger Agreement is terminated and the Board seeks another merger, business combination or other transaction, Company stockholders are ncannot able to providebe certain that the Company will find a party willing to offer equivalent or more attractive consideration the agreed-upon services at the level of quality an the merger consideration Company stockholders would receive from Bitfarms in the merger. If the

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Merger Agreement is terminand quantity wted under circumstances specified in the Merger Agreement, the Company may be require, we may not be able to replaced to pay Bitfarms a termination fee of $5,000,000, in the form of cash and/or Bitcoin (at the election of the Company), depending on the circumstances such consultants, rrounding the termination. There is no guarantee that the Company will have sufficient funds to make this contractors or suually required payment to Bitfarms, as appliers cable.

Except in a timely manner. Any delayspecified circumstances, if the merger is not completed by May 21, 2025, subject to extension in specified circumstances, interruptionseither the Company or increased costs could have a maBitfarms may choose not to proceed with the merger.

Either the Company or Bitfarms may terial adverse effect on our business, prospects or ominate the Merger Agreement if the merger has not been completed by 5:00 p.m. New York, New York time, on May 21, 2025. However, this right to terminate the Merger Agreement will not be available to the Company or Bitfarms if the failure of such party to peratiform any of its obligations.

Our manage under the Merger Agreement team has limihas been the principal cause of or resulted experience with GPU in the failure of the merger to be computing initilete on or before such time. Terminatives.

Members of our manageon of the Merger Agreement will also result in termination of certain other agreement team have limited experience with GPU computs, including the Voting Agreement and the TRA Waiver.

The Company may be a target of securities class action and derivative lawsuits which could result in substantial costs and may delay or prevent the merger from being programs, initicompleted.

Securities class action lawsuits and derivatives, and the related infrastructure requi lawsuits are often brought by putative stockholders against companies (or their directors and officers) that have entered into develop smerger agreements. Such programs or initiatives. Tolawsuits may seek, among other things, to enjoin the consummation of the extent we pursue such programerger. Even if the lawsuits are without merit, defending against these claims orcan result initiat substantial costs and dives, ourrt management team may not successfully or effime and resources. The Company has received a number of letters from putative stockholders that allege the disclosures in the proxy statement/prospectus are deficiently manage the Company's GPU computing programs and that demand corrective disclosures be made. No lawsuits have thus far been filed in connection with these letters, and initiatives. These newthe Company believes the allegations in the letters are without merit. If a stockholder is successful in obligataining an injunctions to potentiall prohibiting consummation of the merger, then that injunction may develop and manage lay or prevent the merger from being completed or othe rwise cause the Company's GPU computing programs and initiatives will require significant attenti to incur substantial costs.

The Company and Bitfarms received comments from the SEC staff in connection with the staffs routine review of filings and registration statements, including the Registration Statement on from our management team and oForm F-4 filed by Bitfarms with respect to the merger. 

Bitfarms and the Company have unresolved SEC staff (the Staff) comments, including to ther employees and could diver Registration Statement on Form F-4 filed by Bitfarms with respect to the merger. Some of these comments remain unresolved and are subject their attention away o further review and comment by the Staff. There is no assurance that unresolved comments, or additional comments from the day-to-day management of oStaff, will not result in the need for either party to revise or restate applicable filings, including but not limited to, ther a respectsive financial statements of our business, which could adversely Bitfarms and the Company incorporated by reference in the proxy statement/prospectus. Any delay in resolving the Staffect our busines's comments could result in substantial costs and financial permay delay or prevent the registration statement, of which the proxy statement/prospectus formances a part, being declared effective.