Item 1.01. Entry into a Material Definitive Agreement.
As previously announced, IKONICS Corporation ("IKONICS") and TeraWulf Inc.
("TeraWulf") have entered into an Agreement and Plan of Merger, dated as of June
24, 2021, as amended (the "merger agreement"), with respect to a strategic
business combination involving IKONICS and TeraWulf. Pursuant to the terms of
the merger agreement, (i) Telluride Merger Sub I, Inc. ("Merger Sub I"), a
wholly owned subsidiary of Telluride Holdco, Inc. ("Holdco"), which is a wholly
owned subsidiary of IKONICS, will merge with and into IKONICS, (the "First
Merger"), with IKONICS surviving the First Merger, and (ii) Telluride Merger Sub
II, Inc. ("Merger Sub II"), a wholly owned subsidiary of Holdco, will merge with
and into TeraWulf (the "Second Merger"), with TeraWulf surviving the Second
Merger.
On December 2, 2021, IKONICS entered into a third amendment (the "Amendment") to
the merger agreement that, among other things, (1) restores the timing of
settlement of outstanding restricted stock units under IKONICS' 2019 Omnibus
Incentive Plan ("IKONICS RSUs") to immediately preceding the First Merger, (2)
supplements the fee and expense reimbursement of IKONICS' expenses to also
include all cash payments made in exchange for the cancellation of outstanding
IKONICS RSUs (as described further in Item 5.02 below), and (3) more
specifically addresses the timing of appointment for the post-transaction board
of directors of Holdco. The expected composition of Holdco's board of directors
remains as disclosed in the proxy statement/prospectus dated November 12, 2021,
which forms a part of the registration statement on Form S-4 filed with the U.S.
Securities and Exchange Commission ("SEC") and declared effective on
November 12, 2021 (file no. 333-258335), as the same may be supplemented from
time to time.
The foregoing description of the Amendment does not purport to be complete and
is subject to, and qualified by, the full text of the Amendment, a copy of which
is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
Item 5.02. Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain
Officers.
On December 1, 2021, the Compensation Committee of the Board of Directors of
IKONICS approved the cancellation of all outstanding IKONICS RSUs in exchange
for cash payment equal to $33.82, net of applicable withholding taxes, for each
share underlying the unvested portion of such IKONICS RSUs. All employees,
including the executive officers of IKONICS, and directors are eligible to
participate in the cancellation arrangement. Pursuant to the Amendment described
in Item 1.01, TeraWulf has agreed to fund the payments in exchange for
cancellation of IKONICS RSUs. Holders of IKONICS RSUs who do not participate in
the cancellation arrangement are expected to receive the same consideration as
other holders of shares of IKONICS common stock as a result of the First Merger.
The foregoing description of the Restricted Stock Unit Cancellation and Release
Agreements does not purport to be complete and is subject to, and qualified by,
the full text of the form of Restricted Stock Unit Cancellation and Release
Agreement, copy of which is attached hereto as Exhibit 10.1 and is incorporated
herein by reference.
Item 8.01. Other Events.
TeraWulf Debt Financing
On December 1, 2021, TeraWulf, as borrower, entered into a Loan, Guaranty and
Security Agreement (the "Loan Agreement") with certain subsidiaries of TeraWulf,
as guarantors, the lenders party thereto and Wilmington Trust, National
Association, as administrative agent and collateral agent. The Loan Agreement
provides TeraWulf with a $123.5 million senior secured term loan (the "Term
Loan"), all of which was borrowed on the closing date of the Loan Agreement (the
"Loan Agreement Closing Date"). The Term Loan has a scheduled maturity date of
December 1, 2024. NovaWulf Digital Management, LP ("NovaWulf"), an investment
fund in which Mr. Paul Prager, TeraWulf's Chief Executive Officer, and Mr. Nazar
Khan, TeraWulf's Chief Operating Officer and Chief Technology Officer are
minority investors, is one of the lenders under the Loan Agreement.
The Term Loan bears interest at a rate of 11.5% per annum and amortizes in
quarterly installments equal to 12.5% of the original principal amount,
commencing after the first anniversary of the Loan Agreement Closing Date. Any
prepayment of the Term Loan made prior to the first anniversary of the Loan
Agreement Closing Date will be subject to a make-whole premium equal to the
present value of interest that would have been payable through the first
anniversary of the Loan Agreement Closing Date plus 3.0% of the principal amount
prepaid, and will be subject to a prepayment fee of 3.0% if prepaid on or after
such first anniversary and prior to the second anniversary of the Loan Agreement
Closing Date, and a prepayment fee of 2.0% if prepaid on or after such second
anniversary and prior to the maturity date. Amounts prepaid or repaid under the
Term Loan may not be reborrowed.
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The obligations under the Loan Agreement and the Term Loan are guaranteed by
each of TeraWulf's subsidiaries as of the Loan Agreement Closing Date and any
future subsidiaries of such subsidiary guarantors. Upon the consummation of the
Second Merger, Holdco will assume the obligations of TeraWulf as the borrower
under the Loan Agreement and the Term Loan, and TeraWulf will become a
subsidiary guarantor. The obligations under the Loan Agreement are expected to
be secured by substantially all of the assets of Holdco, TeraWulfand the
subsidiary guarantors, but excluding the equity interests of Nautilus Cryptomine
LLC, IKONICS and any future subsidiary of Holdco or TeraWulf, in each case, that
is not a subsidiary guarantor.
The Loan Agreement does not include any financial covenants. The Loan Agreement
includes covenants that limit changes in business, liquidations and
dissolutions, mergers and consolidations, incurrence of debt and liens, asset
sales, affiliate transactions, investments, restricted payments of TeraWulf,
violations of sanctions, anti-corruption and anti-money laundering laws and
certain other legal and regulatory compliance matters, modifications of certain
agreements and reduction in ownership of, and certain other changes regarding,
Nautilus Cryptomine LLC.
The Loan Agreement contains events of default customary for financings of this
type, including, but not limited to, payment defaults, material inaccuracy of
representations and warranties, covenant defaults, cross-defaults to certain
indebtedness, certain events of bankruptcy or insolvency, certain events under
the Employee Retirement Income Security Act of 1974, as amended, material
judgments, actual or asserted failure of any loan document to be in full force
and effect and changes of control. If such an event of default occurs, the
lenders under the Loan Agreement would be entitled to take various actions,
including, but not limited to, accelerating amounts outstanding under the Term
Loan and exercising rights and remedies with respect to the guaranties and
collateral.
In addition, on the Loan Agreement Closing Date, TeraWulf issued to the lenders
party to the Loan Agreement an aggregate of 839,398 shares of common stock, par
value $0.001 per share, of TeraWulf (the "Loan Shares"). The issuance of the
Loan Shares was made pursuant to the exemption from registration contained in
Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities
Act").
TeraWulf Equity Financing
On December 1, 2021, TeraWulf, entered into subscription agreements with certain
accredited investors, pursuant to which such accredited investors agreed to
purchase in private placement transactions an aggregate of 2,261,932 newly
issued shares of common stock, par value $0.001 per share, of TeraWulf (the
"Subscription Shares") for an aggregate purchase price of approximately $76.5
million. Substantially all of the proceeds from the purchase and sale of the
Subscription Shares have been funded, with the remainder is expected to be
received prior to the closing of the Transaction. TeraWulf intends to use the
net proceeds from the issuance of the Subscription Shares to repay certain
stockholder loans in accordance with their terms and for general corporate
purposes.
The issuance of the Subscription Shares will be made pursuant to the exemption
from registration contained in Section 4(a)(2) of the Securities Act.
It is expected that the Loan Shares and the Subscription Shares will
automatically be converted into the right to receive the shares of common stock
of Holdco in connection with the Second Merger.
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Item 9.01. Financial Statements and Exhibits.
(d) Exhibit.
Exhibit Number Description
2.1 Amendment No. 3 to Agreement and Plan of Merger, dated
December 2, 2021, by and among IKONICS Corporation,
Telluride Holdco, Inc., Telluride Merger Sub I, Inc.,
Telluride Merger Sub II, Inc., and TeraWulf Inc.
10.1 Form of Restricted Stock Unit Cancellation and Release
Agreement
104 Cover Page Interactive Data File (embedded within the
Inline XBRL document)
Additional Information and Where to Find It; Participants in the Solicitation
In connection with the proposed business combination between IKONICS and
TeraWulf, Holdco has filed an effective registration statement on Form S-4 with
the SEC that includes a proxy statement/prospectus. The proxy
statement/prospectus and a proxy card has also been sent or given to IKONICS
shareholders entitled to vote at the special meeting relating to the proposed
transaction. The proxy statement/prospectus, any other relevant documents, and
all other materials filed with the SEC concerning IKONICS are (or, when filed,
will be) available free of charge at http://www.sec.gov and
http:/www.ikonics.com/investor-relations. Shareholders should read carefully the
proxy statement and any other relevant documents that IKONICS files with the SEC
when they become available before making any voting decision because they will
contain important information.
This current report on Form 8-K does not constitute a solicitation of proxy, an
offer to purchase, or a solicitation of an offer to sell any securities. IKONICS
and its directors and executive officers are deemed to be participants in the
solicitation of proxies from shareholders in connection with the proposed
transaction. Information regarding the names of such persons and their
respective interests in the transaction, by securities holdings or otherwise,
will be set forth in the definitive proxy statement when it is filed with the
SEC. Additional information regarding these individuals is set forth in the
proxy statement/prospectus. To the extent IKONICS' directors and executive
officers or their holdings of IKONICS' securities have changed from the amounts
disclosed in the Proxy Statement, to IKONICS' knowledge, such changes have been
reflected on initial statements of beneficial ownership on Form 3 or statements
of change in ownership on Form 4 on file with the SEC. These materials are (or,
when filed, will be) available free of charge at
http://www.Ikonics.com/investor-relations.
Forward Looking Statements
This current report on Form 8-K contains "forward-looking statements" within the
meaning of the U.S. federal securities laws. Such statements include statements
concerning anticipated future events and expectations that are not historical
facts. All statements other than statements of historical fact are statements
that could be deemed forward-looking statements. Actual results may vary
materially from those expressed or implied by forward-looking statements based
on a number of factors, including, without limitation: (1) risks related to the
consummation of the mergers, including the risks that (a) the mergers may not be
consummated within the anticipated time period, or at all, (b) the parties may
fail to obtain shareholder approval of the merger agreement, (c) other
conditions to the consummation of the mergers under the merger agreement may not
be satisfied, (d) all or part of TeraWulf's contemplated financing may not
become available, and (e) the significant limitations on remedies contained in
the merger agreement may limit or entirely prevent a party from specifically
enforcing another party's obligations under the merger agreement or recovering
damages for any breach; (2) approval of the combined company's application to
list its shares on The Nasdaq Stock Market LLC, (3) the effects that any
termination of the merger agreement may have on a party or its business,
including the risks that (a) the price of IKONICS' common stock may decline
significantly if the mergers are not completed, (b) the merger agreement may be
terminated in circumstances requiring IKONICS to pay TeraWulf a termination fee
of $1.2 million, or (c) the circumstances of the termination, may have a
chilling effect on alternatives to the mergers; (4) the effects that the
announcement or pendency of the mergers may have on IKONICS and its business,
including the risks that as a result (a) the business, operating results or
stock price of IKONICS' common stock may suffer, (b) its current plans and
operations may be disrupted, (c) the ability of IKONICS to retain or recruit key
employees may be adversely affected, (d) its business relationships (including,
customers, franchisees and suppliers) may be adversely affected, or (e)
management and employee attention may be diverted from other important matters;
(5) the effect of limitations that the merger agreement places on IKONICS'
ability to operate its business, return capital to shareholders or engage in
alternative transactions; (6) the nature, cost and outcome of pending and future
litigation and other legal proceedings, including any such proceedings related
to the transactions and instituted against IKONICS and others; (7) the risk that
the transaction may involve unexpected costs, liabilities or delays; (8) other
economic, business, competitive, legal, regulatory, and/or tax factors; (9) the
possibility that less than all or none of IKONICS' historical business will be
sold prior to the expiration of the CVRs; and (10) other factors described under
the heading "Risk Factors" in the proxy statement/prospectus contained in the
Registration Statement, as updated or supplemented by subsequent reports that
IKONICS has filed or files with the SEC. Potential investors, shareholders and
other readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date on which they are made. None of
Holdco, IKONICS or TeraWulf assumes any obligation to publicly update any
forward-looking statement after it is made, whether as a result of new
information, future events or otherwise, except as required by law.
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