ACKNOWLEDGEMENT AND ACCEPTANCE AGREEMENT

 

acknowledgement AND ACCEPTANCE AGREEMENT (this “Agreement”) made as of this 12th
day of October, 2017 between MGT Capital Investments, Inc., a Delaware
corporation (“MGT”), and the undersigned (the “Individual”).

 

WHEREAS, on or around the date hereof, the Individual contributed cash to
_______ LLC, a Delaware limited liability company (the “LLC”), in exchange for
membership interests in the LLC (the “Investment”);

 

WHEREAS, the Individual understands that the LLC was formed in order to operate
as a cryptocurrency mining business (the “Business”) under the sole management
of MGT;

 

WHEREAS, on or around the date hereof, the LLC entered or is expected to enter
into a management agreement by and between the LLC and MGT attached hereto as
Exhibit A (the “Management Agreement”) pursuant to which MGT agrees to manage
the Business;

 

WHEREAS, in connection with the Management Agreement, the LLC was issued or will
be issued shares of MGT’s Common Stock (“Common Stock”) and warrants to purchase
Common Stock (the “Warrants” and collectively with the Common Stock and the
Common Stock issuable upon exercise of the Warrants, the “Company Securities”);

 

WHEREAS, the Individual wishes to acknowledge the receipt and review of the
information set forth on Schedule I hereto (the “Disclosure Statement”), the
receipt and review of MGT’s disclosures filed by MGT (the “SEC Reports”) with
the U.S. Securities Exchange Commission (the “Commission”) and the Individual’s
understanding of (i) the relationship between MGT and the LLC and the financial
terms and obligations of all parties set forth in the Management Agreement; (ii)
the nature and risks related to the Investment; (iii) the nature and risks
related to the Business; and (iv) the nature and risks related to the LLC’s
investment, and the indirect investment of the Individual, in the Company
Securities, each of which are set forth in the Disclosure Statement and/or the
SEC Reports.

 

NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, the parties hereto do hereby agree as follows:

 

I. acknowledgement

 

1.1 The Individual understands and hereby acknowledges that MGT’s ability and
willingness to enter into the Management Agreement is conditioned upon the
execution of this Agreement by the Individual and all other individuals making
the Investment in the LLC.

 

1.2 So long as the Individual and all other individuals making the Investment in
the LLC execute this Agreement, MGT hereby agrees to enter into the Management
Agreement.

 

 

 

 

1.3 The Individual hereby acknowledges the receipt and understanding of the
Disclosure Statement, which Disclosure Statement is deemed to be an integral
part of this Agreement and is incorporated herein by reference.

 

1.4 The Individual hereby acknowledges the receipt and understanding of the SEC
Reports.

 

1.5 The Individual hereby acknowledges the Individual’s understanding of the
nature and risks related to the Business, including but not limited to those set
forth in the Disclosure Statement.

 

1.6 The Individual hereby acknowledges the Individual’s understanding of (i) the
relationship between MGT and the LLC; (ii) the financial terms and obligations
of all parties set forth in the Management Agreement; (iii) the risk related to
the operation of the Business pursuant to the Management Agreement; and (iv) the
risks related to the LLC’s entry into the Management Agreement.

 

1.7 The Individual hereby acknowledges the Individual’s understanding of the
nature and risks related to the LLC’s investment in MGT, including but not
limited to those set forth in the Disclosure Statement.

 

1.8 The Individual hereby acknowledges the Individual’s understanding of the
nature and risks related to the LLC’s investment in Company Securities, and the
indirect investment of the Individual in Company Securities, including but not
limited to those set forth in the Disclosure Statement and the SEC Reports.

 

II. REPRESENTATIONS by THE INDIVIDUAL

 

2.1 The Individual is an “accredited investor,” as such term in defined in Rule
501 of Regulation D promulgated under the Act, and the Individual is able to
bear the economic risk of the Investment, including the indirect investment in
the Company Securities.

 

2.2 The Individual has prior investment experience (including investment in
non-listed and non-registered securities), and has read and evaluated, or has
employed the services of an investment advisor, attorney or accountant to read
and evaluate, all of the documents furnished or made available by MGT and the
LLC to the Individual, including but not limited to the SEC Reports and the
Disclosure Statement on Schedule I hereto, as well as the risks of the
Investment by the Individual in the LLC and the indirect investment by the
Individual in the Company Securities. The Individual’s overall commitment to
investments which are not readily marketable is not disproportionate to the
Individual’s net worth, and the Individual’s investment in the LLC, and
indirectly in the Company Securities, will not cause such overall commitment to
become excessive. The Individual has adequate means of providing for his or her
current needs and personal and family contingencies and has no need for
liquidity in his or her investment in the LLC and the LLC’s investment in the
Company Securities. The Individual is financially able to bear the economic risk
of this investment, including the ability to afford holding the Individual’s
interest in the LLC, the indirect interest in the Company Securities and any
direct interest in the Company Securities (if such were distributed in part or
in whole by the LLC) for an indefinite period or for a complete loss.

 

 

 

 

2.3 The Individual acknowledges receipt and careful review of the Disclosure
Statement, the Management Agreement, the SEC Reports and all other documents
furnished in connection with the Investment, including the indirect interest in
the Company Securities (collectively, the “Investment Documents”), and has been
furnished with all information regarding the LLC, the Management Agreement and
MGT which the Individual has requested or desires to know; and the Individual
has been afforded the opportunity to ask questions of and receive answers from
duly authorized officers or other representatives of the LLC and of MGT
concerning the terms and conditions of the Investment, the Management Agreement,
the indirect investment in the Company Securities and any additional information
which the Individual has requested.

 

2.4 The Individual acknowledges that the Investment and the indirect investment
in the Company Securities may involve tax consequences to the Individual and
that the contents of the Investment Documents do not contain tax advice. The
Individual acknowledges that the Individual must retain his, her or its own
professional advisors to evaluate the tax and other consequences to the
Individual of an investment in the LLC and in the Company Securities, whether
indirect or direct upon any distributions.

 

III. RELEASE BY INDIVIDUAL

 

3.1 In exchange for the consideration provided for in this Agreement, the
Individual irrevocably and unconditionally releases MGT and its predecessors,
subsidiaries, affiliates, and all successors and assigns of any of the foregoing
(collectively, the “Releasees”), of and from covenants, obligations and
agreements that the Individual or her heirs or assigns, ever had, now has, or
hereafter can, shall, or may have, against the Releasees arising out of this
Agreement, the Management Agreement, the Investment or the direct or indirect
investment and ownership in and of the Company Securities (collectively, the
“Claims”), except that, the Individual is not obligated to indemnify the
Releasees against any Claims if such Claims arise out of or result from the
Releasees’ gross negligence or more culpable act or omission (including
recklessness or willful misconduct) or bad faith failure to materially comply
with any of its material obligations set forth in this Agreement or the
Management Agreement.

 

3.2 The Individual understands that this Agreement releases rights that the
Individual may not know about. This is the Individual’s knowing and voluntary
intent, even though the Individual recognizes that someday the Individual might
learn that some or all of the facts that the Individual currently believes to be
true are untrue and even though the Individual might then regret having signed
this Agreement.

 

IV. MISCELLANEOUS

 

4.1 Any notice or other communication given hereunder shall be deemed sufficient
if in writing and sent by reputable overnight courier, facsimile (with receipt
of confirmation) or registered or certified mail, return receipt requested,
addressed to the LLC, MGT and to the Individual at the addresses or facsimile
numbers indicated on the signature page hereof. Notices shall be deemed to have
been given on the date when sent by facsimile transmission or overnight courier,
or two days after mailed, except notices of change of address, which shall be
deemed to have been given when received.

 

 

 

 

4.2 This Agreement shall not be changed, modified or amended except by a writing
signed by all parties hereto.

 

4.3 This Agreement shall be binding upon and inure to the benefit of the parties
hereto and to their respective heirs, legal representatives, successors and
assigns. This Agreement sets forth the entire agreement and understanding
between the parties as to the subject matter hereof and merges and supersedes
all prior discussions, agreements and understandings of any and every nature
among them.

 

4.4 Notwithstanding the place where this Agreement may be executed by any of the
parties hereto, the parties expressly agree that all the terms and provisions
hereof shall be construed in accordance with and governed by the laws of the
State of New York. The parties agree that in the event of any dispute, action,
suit or other proceeding arising out of or in connection with this Agreement,
the prevailing party shall recover all of such party’s reasonable attorneys’
fees and costs incurred in each and every action, suit or other proceeding,
including any and all appeals or petitions therefrom.

 

4.5 This Agreement may be executed in counterparts, all of which will constitute
one in the same instrument.

 

4.6 The holding of any provision of this Agreement to be invalid or
unenforceable by a court of competent jurisdiction shall not affect any other
provision of this Agreement, which shall remain in full force and effect.

 

4.7 It is agreed that a waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any subsequent
breach by that same party.

 

4.8 The parties agree to execute and deliver all such further documents,
agreements and instruments and take such other and further actions as may be
necessary or appropriate to carry out the purposes and intent of this Agreement.

 

4.9 Each of the parties shall be responsible for paying its own legal fees in
connection with this Agreement.

 

[Signature Page Follows]

 

 

 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 

MGT Capital Investments, Inc.         By:   Name: Robert Ladd   Title: President
and CEO   Address: 512 S. Mangum Street, Suite 408, Durham, NC 27701   Email:
rladd@mgtci.com  

 

INDIVIDUAL:       ____________________________________(print name)  

 

By:     Name:     Title:     Address:     Email:    

 

 

 

 

SCHEDULE I

 

Disclosure Statement

 

The following description of the key terms of the Management Agreement does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Management Agreement, which is attached hereto as Exhibit
A, which is incorporated herein by reference. Defined terms not otherwise
defined herein shall have the meaning ascribed to them in the Management
Agreement.

 

Pursuant to the Management Agreement, the LLC will purchase certain Bitcoin
Hardware as specified by MGT and engage MGT as the exclusive manager to operate
the LLC’s bitcoin mining business. In accordance with the Management Agreement,
MGT agrees to select, acquire, install, host, maintain and repair the Bitcoin
Hardware and provide associated facilities and services necessary to mine
bitcoins. MGT and the LLC share equally the net profits generated from the
bitcoin mining operation, after deducting Electricity Costs and Operating Fee.
As an inducement for the LLC to enter into the Management Agreement, MGT agreed
to issue to the LLC (i) 193,000 restricted shares of MGT’s common stock; and
(ii) a warrant to purchase 193,000 shares of MGT common stock.

 

Risk Factors

 

The following list of risk factors does not purport to be a complete enumeration
or explanation of the risks involved in investing in the LLC, investing in the
Company Securities or holding a direct or indirect interest in the Business,
whether operated pursuant to the Management Agreement or otherwise. Individuals
should review the Investment Documents, the SEC Reports, this Disclosure
Statement and all schedules, exhibits and other information incorporated herein
by reference in their entirety and consult with their own advisers before making
any decision to invest in the LLC, the Company Securities or acknowledge their
understanding of the Management Agreement or the Business.

 

RISKS RELATED TO THE BUSINESS AND CRYPTOCURRENCIES

 

There are substantial risks to be aware of when mining and holding
cryptocurrencies, including BitCoins, which generally apply to the LLC, the
Business and the subject matter of the Management Agreement:

 

  1. Losing a digital wallet of coins: a wallet could be lost by either locking
yourself out by forgetting your password or by physically losing the wallet via
a broken hard drive or if your online wallet provider goes out of business.    
    2. Hacking and Malware: It is possible that a talented hacker can break into
a mining pool and empty any of the users’ wallets, including the LLC’s wallet.
In addition, it is possible for cryptocurrency-mining malware to infect mining
machines. Such malware steals the resources of infected machines, significantly
affecting their performance and increasing their wear and tear and could involve
other costs, like increased power consumption.

 

 

 

 

  3. Cryptocurrency are subject to significant price fluctuation and may drop in
value and any anticipated profits from mining such cryptocurrencies or the
recovery of your initial investment could be lost. The price (cryptocurrency
exchange rates such as USD/BTC) of Bitcoin and/or any other cryptocurrency may
fall sharply and may even fall to zero;         4. Certain risk effecting value
of Cryptocurrencies. Due to the fact that cryptocurrencies are unregulated and
decentralized, their value is not insured by any legal entities. The value of
any amount of any cryptocurrency is subject to change due to a number of factors
out of the LLC’s, MGT’s and your control. These factors include but are not
limited to changes of mining difficulty and/or other mining
parameters/properties, fluctuating cryptocurrency exchange rates (such as
USD/BTC), obsolescence of hardware and amortization of hardware. You understand
and agree that the value of any amount of mined cryptocurrency may lose all
worth at any moment of time due to the nature of cryptocurrencies.         5.
Bitcoins vs. other cryptocurrencies. It is possible that a competing
cryptocurrency becomes more successful than Bitcoin or that somebody somehow
finds a major flaw in the system.         6. Cryptocurrencies are sometimes used
or exploited in any way that is prohibited by the laws or regulations, with
which, in the event you are distributed any cryptocurrencies, you agree to
comply.         7. Transactions with Cryptocurrencies may be unconfirmed for a
period of time. Although very unlikely, some Cryptocurrency transactions may
never be confirmed. Cryptocurrency transactions which are unconfirmed are not
completed.         8. Transactions with cryptocurrencies are irreversible - if
you send any amount of any Cryptocurrency to the wrong person, for example, you
may be unable to recover those funds.         9. Unknown technical defects
inherent in cryptocurrencies may exist.         10. New regulation which impacts
cryptocurrencies could be enacted.

 

The following is a more in-depth, but by no means complete, analysis of certain
key risks to which the LLC and MGT are subject and under which the benefits of
the Management Agreement may be affected (references to “us”, “we”, “our” and
similar terms refer to collectively the LLC, MGT and the Business operated
pursuant to the Management Agreement, unless context dictates otherwise):

 

 

 

 

The loss or destruction of a private key required to access a cryptocurrency may
be irreversible. Our loss of access to our private keys or our experience of a
data loss relating to our cryptocurrencies could have a material adverse effect
on our business.

 

Cryptocurrencies are controllable only by the possessor of both the unique
public key and private key relating to the local or online digital wallet in
which the cryptocurrencies are held. We are required by the operation of the
cryptocurrency network to publish the public key relating to a digital wallet in
use by us when it first verifies a spending transaction from that digital wallet
and disseminates such information into the cryptocurrency network. To the extent
a private key is lost, destroyed or otherwise compromised and no backup of the
private key is accessible, we will be unable to access the cryptocurrencies held
in the related digital wallet and the private key will not be capable of being
restored by the cryptocurrency network. Any loss of private keys relating to
digital wallets used to store our cryptocurrencies could have a material adverse
effect on our business.

 

The further development and acceptance of the cryptocurrency network, which
represent a new and rapidly changing industry, are subject to a variety of
factors that are difficult to evaluate. The slowing or stopping of the
development or acceptance of the cryptocurrency network would have an adverse
material effect on our business.

 

Cryptocurrencies, such as cryptocurrencies, may be used, among other things, to
buy and sell goods and services are a new and rapidly evolving industry of which
the bitcoin network is a prominent, but not unique, part. The growth of the
cryptocurrency industry in general, and the bitcoin network in particular, is
subject to a high degree of uncertainty. The factors affecting the further
development of the cryptocurrency industry, as well as the bitcoin network,
include, without limitation:

 

  ● continued worldwide growth in the adoption and use of bitcoin and other
cryptocurrencies;         ● government and quasi-government regulation of
bitcoin and other cryptocurrencies and their use, or restrictions on or
regulation of access to and operation of the bitcoin network or similar
cryptocurrencies systems;         ● the maintenance and development of the
open-source software protocol of the bitcoin network or similar cryptocurrencies
systems;         ● changes in consumer demographics and public tastes and
preferences;         ● the availability and popularity of other forms or methods
of buying and selling goods and services, including new means of using digital
or fiat currencies; and         ● general economic conditions and the regulatory
environment relating to cryptocurrencies.

 

A decline in the popularity or acceptance of the bitcoin network or similar
cryptocurrencies systems would adversely affect our business.

 

The price of cryptocurrency is extremely volatile. Fluctuations in the price of
cryptocurrencies could materially and adversely affect our business.

 

 

 

 

The price of cryptocurrency is a significant uncertainty for our business. The
price of cryptocurrencies is subject to dramatic fluctuations. Using an
exponential moving average and volume weighting of transaction data, the price
of cryptocurrency is quoted by several publicly-available indexes, including the
Coindesk price index, which derives from the transaction prices on electronic
market places where exchange participants may use fiat currency to trade, buy
and sell cryptocurrencies based on bid-ask trading (“Cryptocurrency Exchange”).
Though the methodology may change in the future, these indexes use US
Dollar-denominated trading data from qualified Cryptocurrency Exchanges with
high trading volume in cryptocurrencies. The price of cryptocurrencies (the
“Spot Price”) has fluctuated widely over the past three years. For example, the
price of a bitcoin reached a high of approximately $1,216 in November 2013,
while the price of a bitcoin was approximately $228 on August 22, 2015. Several
factors may affect index spot price, including, but not limited to:

 

  ● Global cryptocurrency supply;         ● Global cryptocurrency demand, which
is influenced by the growth of retail merchants’ and commercial businesses’
acceptance of cryptocurrencies as payment for goods and services, the security
of online Cryptocurrency Exchanges and digital wallets that hold
cryptocurrencies, the perception that the use and holding of cryptocurrencies is
safe and secure, and the lack of regulatory restrictions on their use;         ●
Investors’ expectations with respect to the rate of inflation;         ●
Interest rates;         ● Currency exchange rates, including the rates at which
cryptocurrencies may be exchanged for fiat currencies;         ● Fiat currency
withdrawal and deposit policies of Cryptocurrency Exchanges and liquidity on
such Cryptocurrency Exchanges;         ● Interruptions in service from or
failures of major Cryptocurrency Exchanges;         ● Investment and trading
activities of large investors, including private and registered funds, that may
directly or indirectly invest in cryptocurrencies;         ● Monetary policies
of governments, trade restrictions, currency devaluations and revaluations;    
    ● Regulatory measures, if any, that affect the use of cryptocurrencies as a
form of payment or the purchase of cryptocurrencies on the Cryptocurrency
Market;         ● The maintenance and development of the open-source software
protocol of the cryptocurrency network;         ● Global or regional political,
economic or financial events and situations; and         ● Expectations among
cryptocurrency economy participants that the value of cryptocurrencies will soon
change.

 

A decrease in the price of cryptocurrencies may have a material adverse effect
on our business.

 

Currently, it is believed there is a relatively limited use of cryptocurrencies
in the retail and commercial marketplace in comparison to relatively extensive
use by speculators, which contribute to price volatility that could adversely
affect our business.

 

 

 

 

Cryptocurrencies and the bitcoin network have only recently became widely
accepted as a means of payment for goods and services by many major retail and
commercial outlets, and use of cryptocurrencies by consumers to pay such retail
and commercial outlets remains limited. Conversely, a significant portion of
cryptocurrency demand is generated by speculators and investors seeking to
profit from the short-term or long-term holding of cryptocurrencies. A lack of
expansion by cryptocurrencies into retail and commercial markets, or a
contraction of such use, may result in increased volatility or a reduction in
the Spot Price, either of which could adversely impact our business.

 

The Core Developers or other programmers could propose amendments to the
cryptocurrency network’s protocols and software that, if accepted and authorized
by the cryptocurrency network’s community, could adversely affect our business.

 

The cryptocurrency network is based on a math-based protocol that governs the
peer-to-peer interactions between computers connected to the cryptocurrency
network. The code that sets forth the protocol is informally managed by a
development team known as the Core Developers. The members of the Core
Developers evolve over time, largely based on self-determined participation in
the resource section dedicated to cryptocurrency on Github.com. The Core
Developers can propose amendments to the cryptocurrency network’s source code
through one or more software upgrades that alter the protocols and software that
govern the cryptocurrency network and the properties of cryptocurrencies,
including the irreversibility of transactions and limitations on the mining of
new cryptocurrencies. To the extent that a significant majority of the users and
miners on the cryptocurrency network install such software upgrade(s), the
cryptocurrency network would be subject to new protocols and software that may
adversely affect our business.

 

The open-source structure of the cryptocurrency network protocol means that the
Core Developers and other contributors to the protocol are generally not
directly compensated for their contributions in maintaining and developing the
protocol. A failure to properly monitor and upgrade the protocol could damage
the cryptocurrency network, which may harm our business.

 

The cryptocurrency network operates based on an open-source protocol maintained
by the Core Developers and other contributors. As the cryptocurrency network
protocol is not sold and its use does not generate revenues for its development
team, the Core Developers are generally not compensated for maintaining and
updating the cryptocurrency network protocol. To the extent that material issues
arise with the bitcoin network protocol, and the Core Developers and open-source
contributor community are unable to address the issues adequately or in a timely
manner, the bitcoin network and our business may be adversely affected.

 

If a malicious actor or botnet obtains control in excess of 50 percent of the
processing power active on the bitcoin network, it is possible that such actor
or botnet could manipulate the Blockchain in a manner that adversely affects our
business and our ability to operate our business as planned.

 

 

 

 

If a malicious actor, a volunteer or hacked collection of computers controlled
by networked software coordinating the actions of the computers referred to as a
botnet obtains a majority of the processing power dedicated to mining on the
bitcoin network, it may be able to alter the Blockchain on which the bitcoin
network and all bitcoin transactions rely by constructing alternate blocks. In
such alternate blocks, the malicious actor or botnet could control, exclude or
modify transaction information. Using alternate blocks, the malicious actor
could “double-spend” its own cryptocurrencies (i.e., spend the same
cryptocurrencies in more than one transaction) and prevent the confirmation of
other users’ transactions for so long as it maintains control. To the extent
that such malicious actor or botnet does not yield its majority control of the
processing power on the bitcoin network or the bitcoin community does not reject
the fraudulent blocks as malicious, reversing any changes made to the Blockchain
may not be possible. Such changes could adversely affect our business or the
ability of our business to operate.

 

The award of cryptocurrencies for solving blocks and transaction fees for
recording transactions may diminish, thereby diminishing our profits. Further,
if these amounts are not sufficiently high to incentivize other miners, miners
may cease expending processing power to solve blocks and confirmations of
transactions on the Blockchain could be slowed. A reduction in the processing
power expended by miners on the bitcoin network could increase the likelihood of
a malicious actor or botnet obtaining control in excess of 50 percent of the
processing power active on the bitcoin network or the Blockchain, potentially
permitting such actor or botnet to manipulate the Blockchain in a manner that
adversely affects our business or our ability to operate.

 

If the award of new cryptocurrencies for solving blocks declines and transaction
fees are not sufficiently high, the direct effect on our business may be
material and adverse. Moreover, other miners may not have an adequate incentive
to continue mining and may cease their mining operations. Miners ceasing
operations would reduce the collective processing power on the bitcoin network,
which would adversely affect the confirmation process for transactions (i.e.,
temporarily decreasing the speed at which blocks are added to the Blockchain
until the next scheduled adjustment in difficulty for block solutions) and make
the bitcoin network more vulnerable to a malicious actor or botnet obtaining
control in excess of 50 percent of the processing power on the bitcoin network.
Significant reductions in processing power on the bitcoin network could result
in material delays in block solution confirmation time. Any reduction in
confidence in the confirmation process or processing power of the bitcoin
network may adversely impact our business.

 

As the number of cryptocurrencies awarded for solving a block in the Blockchain
decreases, the incentive for miners to continue to contribute processing power
to the bitcoin network will transition from a set reward to transaction fees.
Either the requirement from miners of higher transaction fees in exchange for
recording transactions in the Blockchain or a software upgrade that
automatically charges fees for all transactions may decrease demand for
cryptocurrencies and prevent the expansion of the bitcoin network to retail
merchants and commercial businesses, resulting in a reduction in the price of
cryptocurrencies that could adversely impact our business.

 

 

 

 

In order to incentivize miners to continue to contribute processing power to the
bitcoin network, the bitcoin network may either formally or informally
transition from a set reward to transaction fees earned upon solving for a
block. This transition could itself have a material and adverse effect on our
business by lowering the total revenue derivable from our mining activities. If
this process is accomplished either by miners independently electing to record
in the blocks they solve only those transactions that include payment of a
transaction fee or by the bitcoin network adopting software upgrades that
require the payment of a minimum transaction fee for all transactions. If
transaction fees paid for Bitcoin transactions become too high, the marketplace
may be reluctant to accept cryptocurrencies as a means of payment and existing
users may be motivated to switch from cryptocurrencies to another cryptocurrency
or back to fiat currency. Decreased use and demand for cryptocurrencies may
adversely affect their value and result in a reduction in the price of bitcoin
and materially and adversely affect our business.

 

To the extent that any miners cease to record transactions in solved blocks,
transactions that do not include the payment of a transaction fee will not be
recorded on the Blockchain until a block is solved by a miner who does not
require the payment of transaction fees. Any widespread delays in the recording
of transactions could result in a loss of confidence in the bitcoin network,
which could adversely impact our business

 

To the extent that any miners cease to record transaction in solved blocks, such
transactions will not be recorded on the Blockchain. Currently, there are no
known incentives for miners to elect to exclude the recording of transactions in
solved blocks; however, to the extent that any such incentives arise (e.g., a
collective movement among miners or one or more mining pools forcing bitcoin
users to pay transaction fees as a substitute for or in addition to the award of
new cryptocurrencies upon the solving of a block), actions of miners solving a
significant number of blocks could delay the recording and confirmation of
transactions on the Blockchain. Any systemic delays in the recording and
confirmation of transactions on the Blockchain could result in greater exposure
to double-spending transactions and a loss of confidence in the bitcoin network,
which could adversely impact our business.

 

Intellectual property related claims may adversely affect the operation of the
bitcoin network.

 

Third parties may assert intellectual property claims relating to the holding
and transfer of cryptocurrencies and their source code. Regardless of the merit
of any intellectual property or other legal action, any threatened action that
reduces confidence in the bitcoin network’s long-term viability or the ability
of end-users to hold and transfer cryptocurrencies may adversely affect our
business. Additionally, a meritorious intellectual property claim could prevent
us and other end-users from accessing the bitcoin network or holding or
transferring their cryptocurrencies, which could force us to cease operations.
As a result, an intellectual property claim against us or any large bitcoin
network participants could adversely affect our business.

 

The Bitcoin Exchanges on which cryptocurrencies trade are relatively new and, in
most cases, largely unregulated and may therefore be more exposed to fraud and
failure than established, regulated exchanges for other products. To the extent
that the Bitcoin Exchanges representing a substantial portion of the volume in
bitcoin trading are involved in fraud or experience security failures or other
operational issues, such Bitcoin Exchanges’ failures may result in a reduction
in the Spot Price and can adversely affect our business.

 

 

 

 

The Bitcoin Exchanges on which the cryptocurrencies trade are new and, in most
cases, largely unregulated. Furthermore, many Bitcoin Exchanges (including
several of the most prominent US Dollar denominated Bitcoin Exchanges) do not
provide the public with significant information regarding their ownership
structure, management teams, corporate practices or regulatory compliance. As a
result, the marketplace may lose confidence in, or may experience problems
relating to, Bitcoin Exchanges, including prominent exchanges handling a
significant portion of the volume of bitcoin trading.

 

Over the past four years, many Bitcoin Exchanges have been closed due to fraud,
failure or security breaches. In many of these instances, the customers of such
Bitcoin Exchanges were not compensated or made whole for the partial or complete
losses of their account balances in such Bitcoin Exchanges. While smaller
Bitcoin Exchanges are less likely to have the infrastructure and capitalization
that make larger Bitcoin Exchanges more stable, larger Bitcoin Exchanges are
more likely to be appealing targets for hackers and “malware” (i.e., software
used or programmed by attackers to disrupt computer operation, gather sensitive
information or gain access to private computer systems). 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 regulation may reduce confidence in the bitcoin network and
result in greater volatility in the Spot Price. These potential consequences of
a Bitcoin Exchange’s failure could adversely affect our business.

 

Regulatory changes or actions may alter the nature of our business or restrict
the use of cryptocurrencies or the operation of the Bitcoin Network in a manner
that adversely affects our business.

 

Until recently, little or no regulatory attention has been directed toward
cryptocurrencies and the Bitcoin Network by the U.S. federal and state
governments, foreign governments and self-regulatory agencies. As
cryptocurrencies have grown in popularity and in market size, the Federal
Reserve Board, U.S. Congress and certain U.S. agencies have begun to examine the
operations of the Bitcoin Network, Bitcoin users and the Bitcoin Exchange
Market. Local state regulators such as the California Department of Financial
Institutions and the New York State Department of Financial Services have also
initiated examinations of cryptocurrencies, the Bitcoin Network and the
regulation thereof. Additionally, a U.S. federal magistrate judge in the U.S.
District Court for the Eastern District of Texas has ruled that “Bitcoin is a
currency or form of money,” two CFTC commissioners publicly expressed a belief
that derivatives based on cryptocurrencies are subject to the same regulation as
those based on commodities, and the IRS released guidance treating
cryptocurrencies as property that is not currency for US federal income tax
purposes, although there is no indication yet whether other courts or federal or
state regulators will follow these asset classifications.

 

Bitcoin currently faces an uncertain regulatory landscape in not only the United
States but also in many foreign jurisdictions such as the European Union, China
and Russia. Various foreign jurisdictions may, in the near future, adopt laws,
regulations or directives that affect the Bitcoin Network and its users,
particularly Bitcoin Exchanges and service providers that fall within such
jurisdictions’ regulatory scope. Such laws, regulations or directives may
conflict with those of the United States and may negatively impact the
acceptance of cryptocurrencies by users, merchants and service providers outside
of the United States and may therefore impede the growth of the Bitcoin economy.

 

 

 

 

The effect of any future regulatory change or cryptocurrencies is impossible to
predict, but such change could be substantial and adverse to our business.

 

RISKS RELATED TO THE COMPANY SECURITIES

 

An investment, whether direct or indirect, in the Company Securities involves a
high degree of risk and is subject to many uncertainties. In addition to the
risk factors specific to this offering set forth below, the risk factors set
forth in Item 1A, “Risk Factors,” in MGT’s Annual Report on Form 10-K filed with
the Commission on April 20, 2017, are incorporated herein by reference. These
risks and uncertainties may adversely affect MGT’s business, operating results
and financial condition. In such an event, the trading price for Common Stock
could decline substantially, and you could, directly or indirectly, lose all or
part of your investment. In order to attain an appreciation for these risks and
uncertainties, you should read all risk factors in their entirety and consider
all of the information and advisements contained in the Investment Documents,
including the following risk factors and uncertainties.

 

There will be restrictions on resale of the Company Securities and there is no
assurance of the registration of the Company Securities.

 

None of the Company Securities may be sold unless, at the time of such intended
sale, there is a current registration statement covering the resale of the
Company Securities or an exemption from registration under the Securities Act,
and such Securities have been registered, qualified, or deemed to be exempt
under applicable securities or “blue sky” laws in the state of residence of the
seller or in the state where sales are being effected. MGT has no current
intention of filing a registration statement covering the resale of the Company
Securities. If no registration statement is filed and declared effective
covering the resale of any of the Company Securities sold pursuant to the
Investment Documents, investors will be precluded from disposing of such Company
Securities unless such Company Securities may become eligible to be disposed of
under the exemptions provided by Rule 144 under the Securities Act without
restriction. If the Company Securities are not registered for resale under the
Securities Act, or exempt therefrom, and registered or qualified under
applicable securities or “blue sky” laws, or deemed exempt therefrom, the value
of such securities will be greatly reduced.

 

MGT may have at one time been deemed a “shell company” as defined in Rule 12b-2
under the Exchange Act. Pursuant to Rule 144(i), securities issued by a current
or former shell company (that is, the Shares) that otherwise meet the holding
period and other requirements of Rule 144 nevertheless cannot be sold in
reliance on Rule 144 unless at the time of a proposed sale pursuant to Rule 144,
MGT is subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act and has filed all reports and other materials required to be filed
by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding
12 months (or for such shorter period that the issuer was required to file such
reports and materials), other than Form 8-K reports. As a result, the
restrictive legends on certificates for the Company Securities cannot be removed
except in connection with an actual sale meeting the foregoing requirements or
pursuant to an effective registration statement.

 

 

 

 

The number of Company Securities issued to the LLC in connection with the
Management Agreement has been arbitrarily determined by MGT.

 

The number of Company Securities issued to the LLC in connection with the
Management Agreement and therefore the underlying value of the Company
Securities was arbitrarily determined by MGT. The value of the Company
Securities does not necessarily bear any relationship to established valuation
criteria such as earnings, book value or assets. Rather, the value of the
Company Securities may be derived as a result of our negotiations with the LLC
based upon various factors including prevailing market conditions, our future
prospects and our capital structure. These values do not necessarily accurately
reflect the actual value of the Company Securities or the prices that may be
realized upon disposition of the Company Securities.

 

An investment in the Company Securities is speculative and there can be no
assurance of any return on any such investment.

 

An investment in the Company Securities is speculative and there is no assurance
that investors will obtain any return on their investment. Investors will be
subject to substantial risks involved in an investment in MGT, including the
risk of losing their entire investment.

 

Your ownership interest is subject to dilution.

 

The holder or holders of the Company Securities issued pursuant to the
Investment Documents will experience immediate dilution in the value of their
Common Stock received upon exercise. In addition, each holder’s proportionate
ownership interest may be diluted when MGT issues additional shares of Common
Stock. MGT may raise capital in the future through the sale of shares of Common
Stock, and each holder’s percentage interest in Common Stock would be diluted.