MKTY Mechanical Technology Inc

On December 20, 2022, Soluna MC Borrowing 2021-1 LLC (“Borrower”), an indirect wholly owned subsidiary of Soluna Holdings, Inc. (the “Company”), received a Notice of Acceleration and Repossession (the “NYDIG Notice”) from NYDIG ABL LLC (“NYDIG”) with respect to the Master Equipment Finance Agreement, dated as of December 30, 2021 (the “MEFA”), by and between Borrower and NYDIG. The obligations of Borrower under the MEFA and reflected in the NYDIG Notice are ring-fenced to Borrower and its direct parent company, Soluna MC LLC. The Company is not a party to any guaranty, collateral agreement or other support agreement with or for the benefit of NYDIG. Borrower has entered into a dialogue with NYDIG to resolve the matters set forth in the NYDIG Notice.

The NYDIG Notice states that (a) Borrower failed to observe or perform certain covenants, conditions or agreements contained in the MEFA and such failure continued unremedied for a period of ten days after Borrower’s knowledge of such breach, which resulted in an event of default under the MEFA, and (b) Borrower defaulted under the guaranty, collateral agreement, or other support agreement, which resulted in an event of default under the MEFA. In addition, the NYDIG Notice states that Borrower failed to pay certain payments of principal and interest under the MEFA when due, which failure also constituted an event of default under the MEFA. As a result of the foregoing events of default, and pursuant to the MEFA, NYDIG (x) declared the principal amount of all loans due and owing under the MEFA and all accompanying Loan Documents (as defined in the MEFA) to be due and immediately payable, (y) imposed a default rate of interest on any outstanding principal amount of each loan (together with all then unpaid interest accruing thereon) and all other obligations under the MEFA and the Loan Documents, and (z) demanded the return of all equipment subject to the MEFA and the Loan Documents. The approximate aggregate principal and interest outstanding under the MEFA and the Loan Documents as of December 20, 2022, are $11,651,333. Based on a recent analysis, Borrower believes that the market value of the collateral is substantially less than that amount.

The events of default stated in the Notice also constitute a cross-default under the terms of secured convertible notes (the “Notes”) issued to certain investors (the “Noteholders”) by the Company pursuant to a Securities Purchase Agreement dated as of October 20, 2021. The Noteholders have not exercised any remedies with respect to this event of default or the defaults and events of default described immediately below. The Company is engaged in active discussions with the Noteholders to finance the energization of phases 1(a) and 1(b) of the development site in Texas commonly referred to as Project Dorothy.

In addition to such cross-default, the failure of the Company pursuant to the Addendum dated as of July 19, 2022, to escrow an aggregate amount of $950,000 for the benefit of the Noteholders by December 21, 2022, constitutes an event of default under the Notes. Further, the Company’s receipt of the Nasdaq Notice (as defined below) has commenced a 20-day period for the Company to cure its noncompliance with the conditions for continued quotation of the Common Stock (as defined below) on the Nasdaq (as defined below) that, if not so cured during such period, will result in an event of default under the Notes. The approximate amount of principal outstanding under the Notes as of December 20, 2022 is $13,005,022. If an event of default is still continuing five days after the occurrence thereof, then the Notes will begin accruing interest at the rate of 18% per annum on the outstanding principal amount.