FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO.

653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

SUPREME COURT OF THE STATE OF NEW YORK

COUNTY OF NEW YORK
_______________________________________________________________________

CLEANSPARK, INC., : Index No.

Plaintiff,

- against - VERIFIED COMPLAINT

DISCOVER GROWTH FUND, LLC,

.
Defendant.
.
:

_______________________________________________________________________

("Plaintiff"
Plaintiff CleanSpark, Inc. or "CleanSpark") by its attorneys, Wilk Auslander

("Defendant"
LLP, as and for its verified complaint against defendant Discover Growth Fund, LLC

or "Discover"), alleges as follows:

Nature of Action

1. This action arises out of an improper effort to issue conversion notices based on

Events" Events"
pretextual "Trigger setting into motion a cascade of additional "Trigger and

conversion notices that would threaten to destroy CleanSpark's ability to survive as a company.

2. Based on Discover's improper conduct, CleanSpark is entitled to a declaratory

attorneys'
judgment, injunctive relief, and recovery of its fees and costs.

Jurisdiction and Venue

3. Jurisdiction is proper under CPLR § 301.

4. This Court has jurisdiction over Defendant Discover because Discover

contractually submitted to exclusive jurisdiction in New York in a securities purchase agreement

between CleanSpark and Discover dated July 20, 2020 (referred to below as the "Operative SPA").

5. The Operative SPA expressly provides as follows:

1
01150017.9

1 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

6. "All questions concerning the construction, validity,

enforcement and interpretation of the Transaction Documents shall

be governed by and construed and enforced in accordance with the

internal laws of the State of New York, without regard to the
principles of conflicts of law thereof. Each party agrees that all legal
Proceedings concerning the interpretations, enforcement and
defense of the transactions contemplated by this Agreement and any
other Transaction Documents (whether brought against a party
hereto or its respective affiliates, directors, officers, shareholders,
partners, members, employees or agents) shall be commenced

exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New

York, Borough of Manhattan for the adjudication of any dispute

hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby
irrevocably waives, and agrees not to assert in any Action or

Proceeding, any claim that it is not personally subject to the

jurisdiction of any such court, that such Action or Proceeding is
Proceeding...."
improper or is an inconvenient venue for such

7. In addition, this Court has jurisdiction over Defendant Discover pursuant to New

York General Obligations Law § 5-1402.

8. Venue in New York County is proper because the parties, pursuant to the Operative

SPA, submitted to venue in state and federal courts sitting in the City of New York, Borough of

Manhattan for resolution of any disputes arising out of that agreement.

The Parties

9. Plaintiff CleanSpark is a company incorporated under the laws of Nevada, with its

principal place of business at 1185 South 1800 West, Suite 3, Woods Cross, Utah 84087.

CleanSpark is a software and services company that offers software and intelligent controls for

microgrid and distributed energy resource management systems as well as innovative strategy and

design services.

2
01150017.9

2 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

10. On information and belief, Defendant Discover is a limited liability company

organized and operating under the laws of the United States Virgin Islands with its principal place

of business located in St. Thomas, Virgin Islands.

Factual Background

In the Past: The 2018 Purchase Agreement

11. On December 31, 2018, CleanSpark entered into a securities purchase agreement

with Discover (the "2018 SPA").

12. Under the terms of the 2018 SPA, CleanSpark sold shares of common stock, stock

purchase warrants, and a Senior Secured Redeemable Convertible Debenture (the "Debenture") to

Discover for an aggregate purchase price of $5,000,000.00.

Value"
13. The Debenture is a convertible debenture with a defined "Face of

Date"
$5,250,000.00 and "Maturity of December 31, 2020, but was fully converted by Discover

no later than June 30, 2020

14. The Debenture has thus been fully repaid by CleanSpark as a result of conversions

made by Discover. The balance of the Debenture is zero.

In the Past: The 2019 Purchase Agreement

15. On April 17, 2019, CleanSpark entered into a second purchase agreement with

Discover (the "2019 PA"; the 2018 SPA and the 2019 PA are, together, the "Prior SPAs").

16. Under the terms of the 2019 PA, CleanSpark sold common stock, stock purchase

warrants, and the Senior Secured Redeemable Convertible Promissory Note (the "Note") to

Discover.

17. Discover purchased the Note, common stock, and stock purchase warrants for

$10,000,000.00. The Note had an original defined Face Value of $10,750,000.00 and has a

Maturity Date of April 17, 2021.

3
01150017.9

3 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

18. No later June 30, 2020, the Note has been fully repaid by CleanSpark as a result of

conversions made by Discover. The balance of the Note is zero.

The Right of First Refusal and Publicity Clauses of the Prior SPAs

19. Both of the Prior SPAs include an identical Section IV.D (each, a "Publicity

Clause"
and together the "Publicity Clauses"), which purports to give Discover the right to conduct

prior review of and to approve certain documents prior to publication or filing, including reports

and registration statements required to be filed with the Securities and Exchange Commission

("SEC").

20. Section IV.D provides as follows:

Disclosure and Publicity. Company will provide to Investor, for review

and approval prior to filing or issuing, that portion of any current, periodic

or public report, registration statement, press release, public statement or

communication relating to or referencing Investor, any Transaction

Documents or the transactions contemplated thereby, any such approval not

to be unreasonably withheld.

21. Both of the Prior SPAs also include an identical Section IV.M, which extends a

right of first refusal to Discover in connection with subsequent financings by third parties.

22. Section IV.M provides as follows:

Right of First Refusal. If at any time while any Securities are outstanding,

Company has a bona fide offer of capital or financing from any person, that

Company intends to act upon, then Company must first offer such

opportunity to Investor to provide such capital or financing to Company on

the same terms as each respective person's terms. . . .

(Emphasis added.)

The Present: the Operative Securities Purchase Agreement, Which Does Not Contain Any
Right of Review of Corporate Filings

23. In July 2020 CleanSpark sought to raise additional capital in a registered offering

with a new investor based in New York (the "Displaced Investor").

4
01150017.9

4 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

24. On or about July 13, 2020, CleanSpark and the Displaced Investor reduced their

agreement to writing in a new draft securities purchase agreement (the "Displaced Investor SPA").

25. In accordance with the rights of first refusal set forth in the Prior SPAs, CleanSpark

gave Discover the opportunity to provide the same financing on the same material terms as those

agreed to with the Displaced Investor.

26. On or about July 20, 2020, Discover exercised its right of first refusal, agreeing to

the terms of the Displaced Investor SPA.

27. The terms of the Displaced Investor SPA were necessarily binding on Discover

because Discover necessarily adopted that agreement when it chose to exercise its right of first

refusal under the Prior SPAs.

28. Accordingly, on July 20, 2020, CleanSpark and Discover entered into a third

securities purchase agreement (the "Operative SPA").

29. The Operative SPA includes terms dramatically and markedly different from those

that CleanSpark negotiated with Discover in the Prior SPAs. Those differences are material,

substantive, intentional, unambiguous, and were knowingly and willingly accepted by Discover.

30. Although the Operative SPA addresses the same subject matter as the Publicity

Clauses set forth in the older and subsequently merged agreements, it provides Discover with far

fewer rights. That, too, was intentionally and knowingly accepted by Discover.

31. Indeed, Section 4.3 of the Operative SPA, titled "Securities Laws Disclosure;

Publicity,"
provides Discover with no right whatsoever to review and approve CleanSpark's

reports required to be filed with the Securities and Exchange Commission (the "SEC") prior to

filing. That was no accident: CleanSpark did not offer those rights to Discover, and did not give

5
01150017.9

5 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

Discover those rights. That is the agreement - and

why conspicuously, unambiguously,

- does not provide for them. As Discover knows full well.

intentionally

32. Nor does any other provision of the Operative SPA. Rather, Section 4.3

affirmatively obliges CleanSpark to file a report with the SEC on Form 8-K consistent with its

obligations under the federal securities laws, but not under any contractual right of Discover.

33. Section 4.3 of the Operative SPA provides Discover with the right to review only

press releases the transactions contemplated the Operative SPA - not Form 8-Ks.
concerning by

To be clear, Discover is now alleging the breach of a provision that it knowingly and necessarily

gave up when exercising its right of first refusal. Discover knows full well the difference between

a press release and a form 8K, much as it knows the difference between public information and

material, non-public information.

34. Section 4.3 of the Operative SPA provides as follows:

Securities Laws Disclosure; Publicity. The Company shall file a Current Report
on Form 8-K, including the Transaction Documents as exhibits thereto, with the
Commission within the time required by the Exchange Act. From and after the filing
of the Form 8-K, the Company represents to the Purchasers that it shall have

publicly disclosed all material, nonpublic information delivered to any of the

Purchasers by the Company or any of its Subsidiaries, or any of their respective

officers, directors, employees or agents in connection with the transactions

contemplated by the Transaction Documents. In addition, effective upon the filing
of the Form 8-K, the Company acknowledges and agrees that any and all

confidentiality or similar obligations under any agreement, whether written or oral,

between the Company, any of its Subsidiaries or any of their respective officers,
directors, agents, employees or Affiliates on the one hand, and any of the
Purchasers or any of their Affiliates on the other hand, shall terminate. The

Company and each Purchaser shall consult with each other in issuing any press
releases with respect to the transactions contemplated hereby, and neither the

Company nor any Purchaser shall issue any such press release nor otherwise make

any such public statement without the prior consent of the Company, with respect
to any press release of any Purchaser, or without the prior consent of each

Purchaser, with respect to any press release of the Company, which consent shall
not unreasonably be withheld or delayed, except if such disclosure is required by
law, in which case the disclosing party shall promptly provide the other party with
prior notice of such public statement or communication. Notwithstanding the

6
01150017.9

6 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

foregoing, the Company shall not publicly disclose the name of any Purchaser, or
include the name of any Purchaser in any filing with the Commission or any
regulatory agency or Trading Market, without the prior written consent of such

Purchaser, except (a) as required by federal securities law in connection with the

filing of final Transaction Documents with the Commission and (b) to the extent
such disclosure is required by law or Trading Market regulations, in which case the

Company shall provide the Purchasers with prior notice of such disclosure
permitted under this clause (b).

(Emphasis added.)

35. Critically, the Operative SPA also includes a complete integration and merger

Documents"
clause at Section 5.3 (the "Merger Clause"), expressly providing that the "Transaction

- the Operative SPA itself - supersede all prior understandings and agreements with
including

respect to their subject matter.

36. The clear and unambiguous Merger Clause of the Operative SPA provides as

follows:

Entire Agreement. The Transaction Documents, together with the

exhibits and schedules thereto, the Prospectus and the Prospectus

Supplement, contain the entire understanding of the parties with respect to

the subject matter hereof and thereof and supersede all prior agreements
and understandings, oral or written, with respect to such matters, which

the parties acknowledge have been merged into such documents, exhibits
and schedules.

Documents"
37. Section 1.1 of the Operative SPA further defines "Transaction as

follows:

Documents"
"Transaction means this Agreement, all exhibits and
schedules thereto and hereto and any other documents or agreements

executed in connection with the transactions contemplated hereunder.

38. Section 5.3 thereby expressly, unambiguously and forcefully supersedes all

provisions of the Prior SPAs with respect to the subject matter of the Operative SPA.

7
01150017.9

7 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

39. The subject matter of the Operative SPA consists of the issuance and sale of

securities by CleanSpark to Discover on July 20, 2020, which transaction closed on July 22, 2020

(the "July 2020 Transaction").

40. That subject matter includes Discover's limited right to prepublication review of

press releases and CleanSpark's right to file reports with the SEC without first submitting them to

Discover for its approval.

41. Indeed, Section 4.3 of the Operative SPA explicitly references the SEC Form 8-K

that the law obligated CleanSpark to file in order to properly report the July 2020 Transaction to

the SEC.

42. Consequently, the Operative SPA and Sections 4.3 and 5.3 of it expressly supersede

Discover's purported right under Section IV.D of the Prior SPAs to review and approve SEC

reports filed by CleanSpark prior to filing. That stands to reason, as that is what Discover agreed

to in (i) exercising the ROFR and (ii) executing the Operative Agreement, which is fully-integrated

and unambiguous.

43. Discover agreed that CleanSpark had no obligation - none

Thus, contractually

whatsoever - to submit its Form 8-K to Discover for review prior to filing.

The Present: CleanSpark Files a Report on Form 8-K Referring To An Unnamed Investor
and Discover Files a Schedule 13G Identifying Itself As That Investor

44. Pursuant to its obligation under Section 4.3 of the Operative SPA and the federal

securities laws, CleanSpark filed a current report on Form 8-K dated July 20, 2020 and executed

on July 21, 2020 (the "July 8-K"), attaching as exhibits a legal opinion addressed to CleanSpark

from its outside counsel and a copy of the Operative SPA with the purchaser signature page left

blank.

8
01150017.9

8 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

45. Neither the July 8-K nor its exhibits mention Discover by name. None mentions

any members of Discover by name, nor any managers of Discover, nor employees, nor indeed

anyone related to Discover at all.

46. Rather, the July 8-K refers only to "an existing accredited investor (the

'Purchaser')."

47. That same day, Discover itself filed a mandatory SEC disclosure on Schedule 13G

(the "Schedule 13G").

48. Unlike the July 8-K, Discover's own Schedule 13G identified Discover by name as

the purchaser under the Operative SPA.

The Present: Discover Wrongfully and Without Any Basis Asserts a Contradictory and Non-

Existent Right to Pre-Filing Review of CleanSpark's July 8-K

49. The next day, July 22, 2020, Discover perplexingly and utterly dishonestly

demanded to know why it had not been given the opportunity to review the July 8-K in draft form

before filing.

50. Discover also directed CleanSpark's attention to Section I.H.1.d of the Debenture

and the Note, even though those agreements expressly apply only to the Prior SPAs.

51. Section I.H.1.d of the Debenture and the Note defines the so-called "Trigger

Events"
under those older instruments, providing as follows:

1. Any occurrence of any one or more of the following, at any time and for

any reason whatsoever, will constitute a "Trigger Event":

* * *

d. Any violation of or failure to perform any covenant or provision of this

Debenture, [or] the Securities Purchase Agreement . . . .

52. Discover then argued that CleanSpark's of the 8-K - which the Operative
filing July

SPA mandates that CleanSpark file without imposing any obligation to submit it to Discover for

9
01 150017.9

9 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

approval - violated the Clauses of the old Prior even though the
Publicity SPA's, completely

integrated Operative SPA supersedes both provisions.

Event"
53. Discover also claimed that the filing of the July 8-K constituted a "Trigger

under the Note and Debenture, a spurious allegation that nevertheless threatens ruinous

consequences to CleanSpark.

Discover Wrongfully Asserts a Right to Pre-filing Review of CleanSpark's August 10-Q

54. On August 4, 2020, CleanSpark filed its mandatory quarterly report with the SEC

on Form 10-Q (the "Form 10-Q").

55. On July 31, 2020, before filing the Form 10-Q, CleanSpark informed Discover by

email that it was in the process of filing its quarterly report and attached those portions of the draft

report relating to the prior Debenture, the Note and related prior agreements. In response, Discover

requested that CleanSpark add a disclosure stating (falsely) that CleanSpark breached an

unspecified agreement (presumably one or both of the 2018 SPA or 2019 PA) by filing the July

8-K without first providing it to Discover for prior review. Discover also identified certain other

portions of the draft report related to the prior Debenture, the Note and related prior agreements

that it believed required revisions.

56. On July 31, 2020, before filing the Form 10-Q, CleanSpark informed Discover by

email that it was in the process of filing its quarterly report and attached those portions of the draft

report relating to the prior Debenture, the Note and related prior agreements. In response, Discover

requested that CleanSpark add a disclosure stating (falsely) that CleanSpark breached an

unspecified agreement (presumably one or both of the 2018 SPA or 2019 PA) by filing the July

8-K without first providing it to Discover for prior review. Discover also identified certain other

portions of the draft report related to the prior Debenture, the Note and related prior agreements

that it believed required revisions.

10
01150017.9

10 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

57. Despite having received those portions of the 10-Q, Discover now appears to be

arguing that the10-Q's filing somehow violated Discover's non-existent right to prior review and

Event."
approval, and thus constituted a "Trigger

Discover Wrongfully Issues Conversion Notices

58. Both the Debenture and the Note have been fully converted and repaid handsomely,

garnering Discover approximately $33 million worth of stock sales on a loan with a combined

original Face Value of $16 million.

59. Discover nevertheless claims two Trigger Events have occurred: The seminal one

is CleanSpark's alleged violation of the inapplicable Publicity Clauses of the Prior SPAs, both of

which the Operative SPA supersedes.

20201
60. Based on that supposed Trigger Event, Discover on August 3, issued a

conversion notice under the Debenture and Note, under which Discover purported to require that

CleanSpark issue and deliver 366,667 shares of common stock to Discover out of an estimated

Price"
total of 2,475,000 shares, including 2,108,333 previously issued shares, at a "Conversion

of $1.50 per share (the "First Conversion - a 77% discount to CleanSpark's current share
Notice")

price.

61. The next day, however, Discover withdrew that first notice and submitted a second,

even more onerous one. That second conversion notice, dated August 4, 2020 (the "Second

Conversion Notice"; together with the First Conversion Notice, the "Conversion Notices"),

purports to require that CleanSpark issue and deliver 733,334 shares out of an estimated total of

Price"
2,841,667, including 2,108,333 previously issued shares, at a "Conversion of $1.50 per

share - a 77% discount to CleanSpark's current share price. The Second Conversion Notice
again,

1 Date"
Although issued on August 3, 2020, the notice identifies the "Conversion as May 22, 2020.

11
01150017.9

11 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

purports to be based on two Trigger Events, which Discover clearly intends to be the filing of the

8-K and the filing of the 10-Q.

62. Yet because Discover had already fully converted both instruments, the cost basis

of those shares to Discover is precisely zero: it will provide no additional consideration to

CleanSpark. In effect, Discover has conjured the shares out of thin air. The mechanics of that

sleight of hand are more fully explored below, but the fulcrum point is the alleged Trigger Event:

breach of the Prior SPAs, which have been superseded by the Operative SPA.

63. The Conversion Notice is therefore rotten at its core. It is based on Discover's

blatant disregard of the Operative SPA - which Discover executed just over two weeks ago - in

favor of older contractual provisions that the Operative SPA unambiguously and explicitly

supersedes, invoking a Debenture and Note that CleanSpark has fully repaid.

64. What is more, Discover indicated in its two conversion notices that it has sold

340,000 shares (worth approximately $1.9 million) in the previous 24 hours, while simultaneously

attempting to block the filing of the 10-Q, which contains statements regarding its own breach

allegation that may be damaging to the stock.

65. That is, Discover invented a breach out of thin air and then sold a large amount of

CleanSpark's stock before the public would learn of that alleged breach, which it must have known

upon becoming public would devalue CleanSpark's stock. Thus, Discover aggressively traded on

material information not available to the public.

Absent Court Intervention, the Consequences to CleanSpark Are Dire

66. As set forth above, it is clear that Discover wrongly claims that CleanSpark's filing

of the July 8-K without its pre-approval, as well as the filing of the 10-Q that addresses Discover's

allegation concerning the July 8-K, were Trigger Events entitling it to issue the Conversion

Notices. That shows that Discover will issue an avalanche of related - and likewise invalid -

12
01150017.9

12 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

conversion notices if CleanSpark refuses to honor the current Conversion Notices, given the

Events"
following coercively defined "Trigger set forth in the Debenture and Note:

a. Holder [i.e., Discover] does not timely receive the number of Conversion Shares
stated in any Conversion Notice . . . .

b. Any violation of or failure to timely perform any covenant or provision of this

[Debenture or Note, respectively], the Securities Purchase Agreement, or any Transaction

Document, related to payment of cash, registration, authorization, reservation, issuance or

delivery of Conversion Shares . . . .

c. Any material provision of this [Debenture or Note, respectively] . . . or the

validity or enforceability thereof shall be contested by any party thereto, or a proceeding

shall be commenced by the Corporation or any subsidiary or any governmental authority
having jurisdiction over any of them, seeking to establish the invalidity or

unenforceability thereof, or the Corporation or any subsidiary denies that it has any
liability or obligation purported to be created under this [Debenture or Note,
respectively]."

The Operation of the Trigger Event, Retroactive Interest, and Conversion Provisions of the
Debenture and Note Threaten to Destroy CleanSpark

67. No later than June 30, 2020, Discover had fully converted both the Debenture and

the Note, leaving a balance of zero under both instruments.

68. This full and complete exhaustion of a convertible debenture and promissory note

ordinarily discharges both instruments.

69. According to Discover, however, any occurrence of anything that qualifies as a

Trigger Event under the Debenture or the Note imposes retroactive liability upon CleanSpark to

Discover for interest in the amount of 10% of the original Face Value of that instrument per year

for a period of two years, which is then further applied to the calculation of the "Conversion

Premium"
due under the instruments, for a total effective penalty of 20% additional interest.

70. The occurrence of one Trigger Event would therefore increase CleanSpark's

potential liability under the Debenture from zero to $1,050,000.00 (20% of $5,250,000) and

increase CleanSpark's liability under the Note from zero to $2,150,000.00 (20% of $10,750,000).

13
01150017.9

13 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

71. Each successive Trigger Event would likewise add $1,050,000.00 and

$2,150,000.00 to the respective loan balance of each instrument. And so on, and on, and on.

72. Under Discover's interpretation, Discover would then convert (and now purports

to convert) that new debt into shares of common stock in CleanSpark.

73. The Conversion Price for those issued shares - and thus the total number of
newly

shares CleanSpark would be obligated to issue under a valid conversion notice - would be

calculated in accordance with a formula that reduces the Conversion Price by 10% of the "Market

Price"
for each Trigger Event that has occurred.

74. The Conversion Price is further subject to a floor (the "Floor Price"), which is

currently set at $1.50 under Section 2.A of an amendment to the Debenture and Note dated March

3, 2020 (the "Amendment").

75. Under the Amendment, however, that floor itself collapses upon an Event of

Default under the Prior SPAs, which is defined to include the occurrence of three Trigger Events

or, from September 29, 2020 onward, the occurrence of five consecutive trading days in which

CleanSpark's stock price closes below $1.75. Discover already purports to have identified two

such Trigger Events.

76. According to Discover, then, the occurrence of one or more Trigger Events makes

CleanSpark liable to Discover for additional shares of common stock at an accelerating rate by: (i)

cumulatively increasing the balance of the Debenture and the Note by 20% of the original Face

Value for each Trigger Event in the form of retroactive interest; (ii) cumulatively decreasing the

Conversion Price by 10% of the Market Price for each Trigger Event; and (iii) eliminating the

$1.50 floor under the Conversion Price upon the occurrence of three Trigger Events or five

consecutive trading days in which CleanSpark's stock price stays below $1.75.

14
01150017.9

14 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

77. Worse yet, Market Price is defined as the average ofthe five lowest non-consecutive

daily volume-weighted average prices for CleanSpark's shares from the date of issue through the

Maturity Date, less $0.50 per share.

78. And because Maturity Date is unusually defined to extend two years past the date

of issue, Discover can select the five lowest share prices over up to a two-year period to calculate

the Market Price.

79. The combined effect of these provisions would increase CleanSpark's putative

liability to Discover for additional conversion shares upon each successive Trigger Event (each at

a zero cost basis to Discover).

80. In that manner, the cascading mathematical effect of multiple purported Trigger

Events would dramatically increase CleanSpark's liability to Discover.

81. Discover has now attempted to set that cascade in motion by issuing the utterly

baseless Conversion Notice.

82. Though Discover does not state as much in the Conversion Notice, it is plain that

Event"
the initial "Trigger on which it is based is CleanSpark's purported violation of the Prior

SPA's by filing the July 8-K without Discover's prior approval, even though the Operative SPA

imposes no obligation upon CleanSpark to submit a draft Form 8-K for Discover's approval and

Discover itself disclosed its involvement in the July 2020 Transaction.

83. And the second Trigger Event is obviously the related filing of the 10-Q, although

Discover received two drafts of it, commented on one, and CleanSpark incorporated Discover's

proposed revision.

84. Discover's rapacious scheme threatens to destroy CleanSpark by setting in motion

that cascade of coercive and draconian Trigger Events under the Debenture and the Note outlined

15
01150017.9

15 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

above, followed by additional conversion notices that, if honored or even if simply litigated, could

spell doom for CleanSpark.

Threatened Irreparable Harm to CleanSpark in the Absence of Injunctive Relief

85. As stated in Discover's Schedule 13G, upon completion of the July 2020

Transaction, 17,354,277 total shares remain outstanding in CleanSpark.

86. The current price of CleanStock's shares at the close of market on August 3, 2020

was $6.99.

87. Were CleanSpark to capitulate to the baseless Conversion Notice, it would issue an

additional 733,334 shares to Discover, worth $5,126,004 as of their August 3, 2020 market price,

and increase the total number of outstanding shares in CleanSpark to 18,087,611. Yet, under

Discover's theory, this would be only one of a cascade of subsequent conversion notices,

ultimately amounting to millions upon millions of shares.

88. On the other hand, were CleanSpark to refuse to comply with the baseless

Conversion Notice, it would expose itself to the potential liability flowing from up to four Trigger

Events, according to Discover's view.

89. Assuming the same approximate Conversion Price ($1.50), those four Trigger

Events would create a fresh balance of $3,200,000 for each Trigger Event, creating the potential

liability to issue at least 2,133,333 new shares to Discover per Trigger Event (even before

accounting for the collapse in the Floor Price upon the occurrence of just three Trigger Events).

90. This unfounded and untenable position would lead to a bevy of wildly inequitable

results.

91. First and foremost, with the power to command the issuance of at least 8,533,333

shares, Discover would be able to force the issuance of shares amounting to 49% of CleanSpark's

16
01150017.9

16 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

presently outstanding 17,354,277 shares, limited only by the speed at which it could repeatedly

shares.2
sell 4.99% of the company's

92. That result is calamitous and not remediable through an award of monetary

damages.

93. Moreover, having effectively conjured these shares out of thin air through the

above-described process of declaring a Trigger Event, applying interest retroactively, and then

issuing conversion notices, all ultimately rooted in a purported default of the Operative SPA that

never occurred and that could not have harmed Discover an iota even if it had, Discover would

amass these shares with no underlying cost basis whatsoever.

94. Discover would have paid nothing at all for those shares and could therefore sell

them for a profit at any price.

95. Under those circumstances, CleanSpark would have little to no ability to raise

additional capital in either the debt or equity markets.

96. The ever-present specter of a hostile shareholder flooding the market with at least

8,533,333 shares for a tidy profit at any price and with an additional incentive to drive the price

down to $1.75 to trigger an Event of Default would make CleanSpark radioactive in the capital

markets.

97. Actively and currently contemplated deals between CleanSpark and prospective

purchasers of new equity or corporate debt would collapse.

2
Although the Debenture and Note include
prohibiting a provision
Discover from holding more than 4.99% of
days'
CleanSpark's outstanding shares (or 9.99% notice), noupon
provision 61 of either instrument restricts
Discover's ability to immediately sell those shares and then convert another 4.99% of the outstanding shares. In this
manner, the Trigger Event provision purports to give Discover the power to slice off huge pieces of CleanSpark bit

by bit at no cost to itself, collapsing the stock price within a matter of days.

17
01150017.9

17 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

98. CleanSpark's reputation and goodwill would suffer as well due to the precipitous

shareholders'
dilution of the value of its current position in the company.

99. With the value of their own positions effectively looted by Discover, without any

Events"
legal basis whatsoever, following "Trigger premised on a provision Discover relinquished

in the Operative SPA, actual and prospective shareholders would no doubt turn on CleanSpark

both publicly and privately.

Event"
100. The reputational harm flowing from the repeated cycle of "Trigger and

Conversion Notice would be incalculable and irremediable.

Event"
101. The collapse in share prices following this cycle of "Trigger and Conversion

Notice would also threaten CleanSpark with delisting under NASDAQ Rule 5550(a)(2) in the

event Discover causes CleanSpark's share price to drop below $1.00.

First Cause of Action

Declaratory Judgment

102. CleanSpark hereby repeats and realleges Paragraphs 1 through 101 as if fully set

forth herein.

103. On July 20, 2020, CleanSpark and Discover entered into a third securities purchase

agreement, the Operative SPA.

104. The Operative SPA addresses the same subject matter as set forth in the older and

subsequently merged Prior SPAs; however, the Operative SPA provides Discover with far fewer

rights than the Prior SPAs.

105. Generally, like the Prior SPAs, the Operative SPA addresses Discover's purchase

of securities issued by CleanSpark.

106. Specifically, like the Publicity Clauses in the Prior SPAs, Section 4.3 of the

Operative SPA governs CleanSpark's rights and obligations with respect to issuance of press

18
01150017.9

18 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

releases and filing of SEC disclosures, on the one hand, and Discover's right to review and approve

such press releases and SEC disclosures, on the other.

107. Section 4.3 of the Operative SPA affirmatively obliges CleanSpark to file a report

with the SEC on Form 8-K consistent with its obligations under the federal securities laws, but

without any review or approval of Discover, a right CleanSpark explicitly declined to provide to

Discover in the Operative SPA.

108. By contrast with then Publicity Clauses of the Prior SPAs, Section 4.3 of the

Operative SPA provides Discover with no right whatsoever to review and approve CleanSpark's

reports to the SEC prior to filing.

109. Nor does any other provision of the Operative SPA give Discover the right to prior

review of CleanSpark's SEC filings.

110. Critically, the Operative SPA also includes a complete integration and merger

clause at Section 5.3 (the "Merger Clause"), expressly providing that the Transaction Documents

- the Operative SPA itself - supersede all prior understandings and agreements with
including

respect to their subject matter.

111. Section 5.3 thereby expressly, unambiguously and forcefully supersedes all

provisions of the Prior SPA's with respect to the subject matter of the Operative SPA -
including,

but not limited to, the Publicity Clauses.

112. Nonetheless, Discover claims that in issuing the July 8-K and the 10-Q without its

prior approval, CleanSpark has violated the Publicity Clauses of the superseded Prior SPAs, which

Discover claims constitute a Trigger Event under those agreements. By so doing, Discover has

breached and is breaching the implied covenant of good faith and fair dealing by attempting to add

a provision to an integrated, unambiguous, fully-negotiated agreement that does not exist in the

19
01150017.9

19 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

agreement. Discover is doing so in bad faith in its effort to gain for itself shares at no cost to which

it is not entitled. That bad faith is further evinced by Discover's dumping of CleanSpark's shares

over the past several days based on its knowledge of material, non-public information hidden from

other investors.

113. Thus, to be clear, Discover has issued two Conversion Notices in which Discover

purports to require that CleanSpark issue and deliver 733,334 shares of common stock to Discover

out of an estimated total of 2,841,667 shares, including 2,108,333 previously issued shares, at a

Price"
"Conversion of $1.50 per share. Moreover, Discover would receive these shares on a zero-

cost basis - without additional consideration. Those conversion notices are

i.e., providing any

based on a non-existent right, were improper, are invalid, and constitute extreme bad faith and

commercial immorality.

114. According to Discover, failure by CleanSpark to comply with the Conversion

Notice constitutes an additional Trigger Event, requiring CleanSpark to turn over still more shares.

That is a black alchemy, an effort to create a right out of language that, by its very terms,

specifically excludes it.

115. Yet the fully integrated Operative SPA, which affirmatively required CleanSpark

to file the July 8-K and which provides Discover no right to preapprove such filings, supersedes

parties' 10-
the Prior SPAs and governs the rights and obligations with respect to the July 8-K, the

Q, and other related SEC filings.

interests,"
116. Thus, there is "a real controversy, involving substantial legal between

the parties.

117. Accordingly, CleanSpark requires and is entitled to a declaratory judgment

declaring that (i) the Operative SPA is a fully merged and integrated agreement; (ii) Section 4.3 of

20
01150017.9

20 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

the Operative SPA supersedes the Clauses of the Prior SPAs with respect to the 8-
Publicity July

K, the 10-Q, and other similar SEC filings; (iii) CleanSpark had no obligation to allow Discover

to review or approve the July 8-K, the 10-Q, or other similar SEC filings; and (iv) CleanSpark's

purported failure to allow Discover to review or approve the July 8-K and 10-Q was not a breach

of the Prior SPAs.

118. CleanSpark has no adequate remedy at law.

Second Cause of Action

Injunction

119. CleanSpark hereby repeats and realleges Paragraphs 1 through 118 as if fully set

forth herein.

120. CleanSpark has a substantial likelihood of success on the merits.

121. The Operative SPA is fully and completely integrated.

122. The Operative SPA governs the same subject matter as the Prior SPAs.

123. Section 4.3 of the Operative SPA, which explicitly and unequivocally supersedes

the Publicity Provisions in the Prior SPAs, affirmatively required CleanSpark to file the July 8-K

and provides Discover no right to preapprove the July 8-K, the 10-Q, or other related SEC filings.

124. Nonetheless, Discover has claimed that CleanSpark's filing of the July 8-K and the

10-Q violated the Publicity Clauses of the superseded Prior SPAs.

125. Discover's assertion, which is flatly contradicted by the fully integrated Operative

SPA, wholly lacks merit: It is, instead, a cynical, bad-faith effort to read a clause into an integrated,

unambiguous agreement pursuant to which Discover has no such right.

126. Discover's assertions that CleanSpark's filing of the July 8-K and 10-Q without

Events"
prior approval by Discover constituted "Trigger under the Prior SPAs threaten irreparable

harm to CleanSpark.

21
01150017.9

21 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

127. Based on those supposed "Trigger Events", Discover has now issued two

Conversion Notices, pursuant to which Discover purports to require that CleanSpark immediately

issue and deliver 733,334 shares of common stock to Discover out of an estimated total of

Price"
2,841,667 shares, including 2,108,333 previously issued shares, at a "Conversion of $1.50

per share - a 77% discount to CleanSpark's current share price.

128. If CleanSpark refuses to honor the current wrongfully issued Conversion Notices,

Events"
given the coercively defined "Trigger set forth in the Debenture and Note, Discover will

claim a cascade of further Trigger Events and issue further Conversion Notices.

129. According to Discover, any occurrence of anything that qualifies as a Trigger Event

under the Debenture or the Note imposes retroactive liability upon CleanSpark to Discover for

interest in the amount of 10% of the original Face Value of that instrument per year for a period

Premium"
of two years which is then further applied to the calculation of the "Conversion due

under the instruments, for a total effective penalty of 20% additional interest.

130. The occurrence of one Trigger Event would therefore increase CleanSpark's

potential liability under the Debenture from zero to $1,050,000.00 (20% of $5,250,000) and

increase CleanSpark's liability under the Note from zero to $2,150,000.00 (20% of $10,750,000).

131. Each successive Trigger Event would likewise add $1,050,000.00 and

$2,150,000.00 to the respective loan balance of each instrument. And so on, and on, and on.

132. Under Discover's interpretation, Discover would then choose to convert (and now

purports to convert) that new debt into shares of common stock in CleanSpark.

133. The Conversion Price for those issued shares - and thus the total number of
newly

shares CleanSpark would be obligated to issue under a valid conversion notice - would be

22
01150017.9

22 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

calculated in accordance with a formula that reduces the Conversion Price by 10% of the "Market

Price"
for each Trigger Event that has occurred.

134. The Conversion Price is further subject to the Floor Price, which is currently set at

$1.50 under Section 2.A the Amendment. Under the Amendment, however, that floor itself

collapses upon an Event of Default under the Prior SPAs, which is defined to include the

Events"
occurrence of three "Trigger or, from September 29, 2020 onward, the occurrence of five

consecutive trading days in which CleanSpark's stock price closes below $1.75. Discover already

purports to have identified two such Trigger Events.

135. According to Discover, then, the occurrence of one or more Trigger Events makes

CleanSpark liable to Discover for additional shares of common stock by: (i) cumulatively

increasing the balance of the Debenture and the Note by 10% of the original Face Value for each

Trigger Event; (ii) cumulatively decreasing the Conversion Price by 20% of the Market Price for

each Trigger Event; and (iii) eliminating the $1.50 floor under the Conversion Price upon the

occurrence of three Trigger Events.

136. Worse yet, Market Price is defined as the average ofthe five lowest non-consecutive

daily volume-weighted average prices for CleanSpark's shares from the date of issue through the

Maturity Date, less $0.50 per share.

137. And because Maturity Date is unusually defined to extend two years past the date

of issue, Discover can select the five lowest share prices over up to a two-year period to calculate

the Market Price.

138. The combined effect of these provisions would increase CleanSpark's putative

liability to Discover for additional conversion shares upon each successive Trigger Event (each at

a zero cost basis to Discover).

23
01150017.9

23 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

139. In that manner, the cascading mathematical effect of multiple purported "Trigger

Events"
would dramatically increase CleanSpark's liability to Discover.

140. Unless the Court issues injunctive relief, Discover will continue advancing its

rapacious scheme to bleed CleanSpark dry, which it has already set into motion by issuing two

patently invalid Conversion Notices.

141. Absent injunctive relief, Discover will use those two Conversion Notices to initiate

Events"
a cascade of coercive and draconian "Trigger under the Debenture and the Note outlined

above, followed by additional conversion notices that, if honored or even if simply litigated, could

spell doom for CleanSpark.

142. CleanSpark has incurred and will continue to incur irreparable harm to its business

because of Discover's actions and has no adequate remedy other than an injunction against

Discover's attempts to unlawfully submit Conversion Notices.

143. The balance of equities tilts resoundingly in CleanSpark's favor.

144. Unless the Court issues injunctive relief, the cascade of supposed Trigger Events

and additional conversion notices set into motion by the two patently invalid conversion notices

threatens to destroy CleanSpark's ability to survive as a company.

145. Discover, on the other hand, would suffer virtually no prejudice if the requested

injunctive relief issues: In the unlikely event that the Court ultimately determines that Section 4.3

of the Operative SPA did not supersede the Publicity Clauses of the Prior Agreements, Discover

will be able at that point to pursue the share conversion it seeks now.

146. Moreover, CleanSpark's filing of the July 8-K, which did not disclose the name of

Discover or any of its principals, could not have damaged Discover in any way, given that, the

24
01150017.9

24 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

same day, Discover filed its Schedule 13G, which also discloses the transaction and, unlike the

July 8-K, explicitly identifies Discover by name as the purchaser under the Operative SPA.

147. To allow Discover to destroy CleanSpark based on conduct that caused absolutely

no injury to Discover would be fundamentally unjust and tantamount to a forfeiture.

148. By reason of the foregoing, CleanSpark seeks a permanent injunction enjoining

Discover from submitting the Conversion Notice or any similar conversion notice to CleanSpark

or its stock transfer agent as a result of CleanSpark's failure to submit the July 8-K to Discover for

review and approval prior to its filing, including the subsequent 10-Q.

149. CleanSpark has no adequate remedy at law.

Prayer for Relief

WHEREFORE, CleanSpark respectfully requests judgment as follows:

A. Adjudging and declaring that:

i. Section 4.3 of the Operative SPA supersedes the Publicity Clauses of the Prior

parties'
SPAs and thus governs the rights and obligations with respect to the

July 8-K, the 10-Q, and similar SEC filings; and

ii. Discover's Conversion Notices are accordingly null and void.

B. A permanent injunction enjoining Discover from pursuing any remedies in

connection with (i) the notice of conversion that Discover issued on August 4, 2020,

parties'
following CleanSpark's recent filing of a Form 8-K in connection with the

Securities Purchase Agreement dated July 20, 2020, and (ii) any additional notices

of conversion Discover issues.; and

C. Such other further relief which the Court deems just and equitable.

25
01150017.9

25 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

Dated: New York, New York WILK AUSLANDER LLP

August 4, 2020

By:

Jay S. Auslander
Julie Cilia
Michael Van Riper

43"l
1515 Broadway, Floor
New York, New York 10036

(212) 981-2300

Attorneys for Plaintiff CleanSpark,

Inc.

26
01150017.9

26 of 27
FILED: NEW YORK COUNTY CLERK 08/05/2020 12:58 AM INDEX NO. 653491/2020
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 08/05/2020

ATTORNEY VERIFICATION

JAY S. AUSLANDER, an attorney duly admbd to practice law in the Courts of the

State of New York, hereby affirms the following under the penalties of perjury pursuant to CPLR

Rule 2106, as follows:

I am a member of the firm of Wilk Assisedct LLP, counsel for plaintiff CleanSpark, Inc.

("CleanSpark") in this action. I have read the foregoing complaint and know its contents. I

believe the same to be true based on conversations with represeñtãtives for CleanSpark and a

review of its records.

The reason this verifieâtion is made by me and not by officers of plaintiff is that

CleanSpark is a foreign corporation.

Dated: New York, New York

August 4, 2020

JAY S. AUSLANDER

27
01150017.9

27 of 27