Related Party Transactions
We entered into a management services agreement with Q Power to provide day-to-day management and administration services to us. The agreement provided for a monthly fee of $50,000 in 2019, $25,000 in 2020 and the first quarter of 2021 and a monthly fee of $100,000 for the remainder of 2021. Effective May 10, 2021, Q Power, one of our principal stockholders, and Bill Spence, the Co-Chairman of our board of directors, entered into a Management and Advisory Agreement (the “MAA”). Pursuant to the MAA, Mr. Spence will provide certain professional services to Q Power and will receive a fee of $50,000 per month. The MAA has a term of two years, unless earlier terminated.
We have entered into a Waste Coal Agreement (the “WCA”) with Coal Valley Sales, LLC (“CVS”) to take minimum annual delivery of 200,000 tons of waste coal as long as there is a sufficient quantity of Waste Coal that meets the Average Quality Characteristics (each as defined in the WCA). Under the terms of the WCA, we are not charged for the waste coal itself but are charged a $6.07 per ton base handling fee as we are obligated to mine, process, load and otherwise handle the waste coal for ourselves and also for other customers of CVS from the Russellton Site. We are also obligated to unload and properly dispose of ash at the Russellton site. CVS is a single- member LLC that is owned by a coal reclamation partnership of which Bill Spence has a direct and indirect interest of 16.26% in the aggregate.
A reduced handling fee is charged at $1.00 per ton for any tons in excess of the minimum take of 200,000 tons. We are the designated operator at the Russellton site and therefore is responsible for complying with all state and federal requirements and regulations.
We reduced payments and halted productions from the Russellton site during 2020 but restarted operations in the first quarter of 2021. Pursuant to the terms of the WCA, we make current payments of $100,000 a month.
We made payments in the amount of $1,706,716 and $563,886 to entities affiliated with Mr. Spence for the years ended December 31, 2020 and 2021.
On April 1, 2021, Gregory A. Beard, our Chief Executive Officer, President and Co-Chairman of our Board, purchased 48,000 shares of our Series A Preferred Stock (on a pre-stock split basis) from the Company in a private placement for an aggregate purchase price of $1.2 million. On May 14, 2021, Mr. Beard also purchased 8,907 shares of our Series B Preferred Stock (on a pre-stock split basis) from the Company for an aggregate purchase price of $282,351.90.
On December 31, 2020, our wholly owned subsidiary Stronghold Digital Mining Holdings LLC (“Stronghold LLC”) entered into three promissory notes with certain of our affiliates and directors. A promissory note dated as of December 31, 2020, by and between Stronghold LLC and Scrubgrass LP (the “Scrubgrass Note”), provided for a loan from Scrubgrass LP in the amount of $150,000, bearing an interest rate of 8.0% per annum and with a maturity date of December 31, 2021. Prior to the our reorganization, Scrubgrass LP was partially indirectly held by Q Power. Messrs. Beard and Spence serve as the Managing Members of Q Power. Following the Reorganization, Scrubgrass LP became one of our indirectly held, wholly owned subsidiaries. The Scrubgrass Note was repaid at maturity. A promissory note dated as of December 31, 2020, by and between Stronghold LLC and William B. Spence (the “Spence Note”), provided for a loan from Mr. Spence in the amount of $524,250 bearing an interest rate of 8.0% per annum and a maturity date of December 31, 2021. Mr. Spence serves as Co-Chairman of our board of directors. A promissory note dated as of December 31, 2020 by and between Stronghold LLC and Gregory A. Beard (the “Beard Note”), provided for a loan from Mr. Beard in the amount of $1,500,000 bearing an interest rate of 8.0% per annum and a maturity date of December 31, 2021. Mr. Beard serves as Chief Executive Officer, President and Co-Chairman of our board of directors. On June 4, 2021, the Spence Note and the Beard Note were paid in full and terminated.
Policies and Procedures for Review of Related Party Transactions
The Board has adopted a written related party transactions policy. Pursuant to the policy, a “Related Party Transaction” is a transaction, arrangement or relationship in which we or any of our subsidiaries was, is or will be a participant, the amount of which involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest. A “related person” means:
any person who is, or at any time during the applicable period was, one of our executive officers or one of our directors;