Item 1.01 Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On June 24, 2021, IKONICS Corporation ("Company") entered into an Agreement and
Plan of Merger (the "Merger Agreement") with Telluride Holdco, Inc., a Delaware
corporation and direct wholly owned subsidiary of the Company ("HoldCo"),
Telluride Merger Sub I, Inc., a Minnesota corporation and direct wholly owned
subsidiary of HoldCo ("Merger Sub I"), Telluride Merger Sub II, Inc., a Delaware
corporation and direct wholly owned subsidiary of HoldCo ("Merger Sub II"), and
TeraWulf Inc., a Delaware corporation ("TeraWulf," and together with Company,
Holdco, Merger Sub I and Merger Sub II, the "Parties"), pursuant to which, among
other things, Merger Sub I will merge with and into the Company (the "First
Merger"), with the Company surviving the First Merger as a wholly owned
subsidiary of HoldCo and, immediately following the effective time of the First
Merger ("First Effective Time"), Merger Sub II will merge with and into TeraWulf
(the "Second Merger"), with TeraWulf surviving the Second Merger as a wholly
owned subsidiary of HoldCo. The Merger Agreement was unanimously approved and
adopted by the board of directors of each of the Company and TeraWulf.
Under the terms of the Merger Agreement, in connection with the First Merger,
each share of common stock, par value $0.10 per share ("Company Common Stock"),
of the Company issued and outstanding immediately prior to the First Effective
Time automatically will be converted into and exchanged for (i) one validly
issued, fully paid and nonassessable share of common stock, par value $0.001 per
share ("Holdco Common Stock"), of HoldCo, (ii) one contractual contingent value
right to be issued by HoldCo in accordance with the CVR Agreement (as defined
below) and (iii) the right to receive $5.00 in cash, without interest. Each
share of HoldCo Common Stock held by the Company issued and outstanding
immediately prior to the First Effective Time automatically will be cancelled
and cease to exist as of the First Effective Time, and each share of common
stock, par value $0.001 per share, of Merger Sub I, issued and outstanding as of
immediately prior to the First Effective Time automatically will be converted
into and exchanged for one validly issued, fully paid and nonassessable share of
common stock of the surviving Company entity.
At the effective time of the Second Merger ("Second Effective Time"), (i) each
share of Series A Preferred Stock, par value $0.001 per share ("TeraWulf
Preferred Stock"), of TeraWulf issued and outstanding automatically will be
converted into shares of common stock, par value $0.001 per share ("TeraWulf
Common Stock"), (ii) each share of TeraWulf Common Stock (including shares of
TeraWulf Common Stock resulting from the conversion of TeraWulf Preferred Stock
described above), issued and outstanding immediately prior to the Second
Effective Time (other than any Dissenting Shares (as defined in the Merger
Agreement)) will automatically be converted into the right to receive a number
of validly issued, fully paid and nonassessable shares of HoldCo Common Stock
equal to (x) a number of shares of Holdco Common Stock that is equal to
forty-nine (49) times the number of shares of Holdco Common Stock outstanding as
of immediately following the First Effective Time and immediately prior to the
Second Effective Time, divided by (y) the number of shares of TeraWulf Common
Stock outstanding on a Fully Diluted Basis (as defined below) as of immediately
prior to the Second Effective Time. The Merger Agreement defines Fully Diluted
Basis as of a particular date as all issued and outstanding shares of TeraWulf
Common Stock and all shares of TeraWulf Common Stock issuable pursuant to
subscriptions therefor and upon the conversion or exercise of any outstanding
stock equivalents, or subscriptions therefor, as of such date, whether or not
such stock equivalent is at the time exercisable or convertible, but excludes
any shares of TeraWulf Common Stock reserved for issuance pursuant to the
TeraWulf equity plan, whether or not subject to outstanding awards. Each share
of common stock, par value $0.001 per share, of Merger Sub II issued and
outstanding immediately prior to the Second Effective Time, automatically will
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the surviving TeraWulf entity, and each
share of TeraWulf Preferred Stock and TeraWulf Common Stock held by TeraWulf or
the Company and their respective affiliates in treasury at the Second Effective
Time will be canceled.
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Following the Closing (as defined in the Merger Agreement), the Company must
operate its businesses consistent with past practices and, subject to the terms
and conditions of the CVR Agreement, it must use reasonable best efforts to
pursue and consummate dispositions of its assets and businesses existing prior
to the Closing ("Dispositions") as soon as reasonably practicable (and, in any
event, within 18 months of the Second Effective Time). The Company will continue
to support these existing businesses as it pursues the Dispositions.
The obligations of each of the Company and TeraWulf to consummate the
transactions contemplated by the Merger Agreement are subject to specified
conditions, including, among other matters: (i) the approval by Company
shareholders of the First Merger and Merger Agreement; (ii) the approval by
TeraWulf shareholders of the Second Merger and Merger Agreement; (iii) a
registration statement on Form S-4 becoming effective under the Securities Act
of 1933, as amended, relating to the Holdco Common Stock to be issued in the
First Merger and Second Merger; (iv) the shares of Holdco Common Stock to be
issued in connection with the First Merger and Second Merger being approved for
listing on Nasdaq, subject to only notice of issuance; (v) evidence of
resignation of all directors of Holdco and the appointment to the Holdco board
of directors of up to ten persons chosen by TeraWulf in its sole discretion; and
(vi) the filing of an amended and restated Certificate of Incorporation of
Holdco in the form attached to the Merger Agreement.
The Merger Agreement contains customary representations and warranties from the
Company and TeraWulf. It also contains customary covenants, including providing
(i) for each of the parties to use reasonable best efforts to consummate the
transactions contemplated in the Merger Agreement, and (ii) for the Company and
TeraWulf to carry on their respective businesses in the ordinary course of
business consistent with past practice during the period between the execution
of the Merger Agreement and the Closing. The Company also agreed not to solicit,
initiate or propose the making, submission or announcement of, or knowingly
encourage, facilitate or assist, any proposal or offer that constitutes, or
would reasonably be expected to lead to, any Takeover Proposal (as defined in
the Merger Agreement).
The Merger Agreement contains termination rights for each of the Company and
TeraWulf, including, without limitation, in the event that (i) any governmental
entity issues a non-appealable final order permanently enjoining the
transactions contemplated in the Merger Agreement; (ii) the transactions
contemplated in the Merger Agreement are not consummated by December 31, 2021
(the "Termination Date"); or (iii) the other party breaches its representations,
warranties or covenants under the Merger Agreement, which breach would give rise
to the failure of a closing condition and such breach is not cured within the
earlier of 30-days of receipt of written notice of such breach and three (3)
business days prior to the Termination Date.
The Merger Agreement provides that the Company will be obligated to pay TeraWulf
a termination fee of $1.2 million, and TeraWulf will be obligated to pay the
Company a termination fee of $10.0 million, if the Merger Agreement is
terminated under certain circumstances. The Merger Agreement does not contain
any post-Closing indemnification obligations with respect to the Parties.
The foregoing description of the Merger Agreement does not purport to be
complete and is subject to, and qualified by, the full text of the Merger
Agreement, a copy of which is attached hereto as Exhibit 2.1 and is incorporated
herein by reference.
The Merger Agreement contains representations, warranties, covenants and other
terms, provisions and conditions that the Parties made to each other as of
specific dates. The assertions embodied therein were made solely for purposes of
the Merger Agreement and may be subject to important qualifications and
limitations agreed to by the Parties in connection with negotiating their
respective terms. Moreover, they may be subject to a contractual standard of
materiality that may be different from what may be viewed as material to
shareholders, or may have been used for the purpose of allocating risk between
the Parties rather than establishing matters as facts. For the foregoing
reasons, no person should rely on such representations, warranties, covenants or
other terms, provisions or conditions as statements of factual information at
the time they were made or otherwise. Unless required by applicable law, the
Company undertakes no obligation to update such information.
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Voting Agreement
Simultaneously with the execution of the Merger Agreement, TeraWulf entered into
a Voting and Support Agreement, dated June 24, 2021 (the "Voting Agreement"),
with executive officers and directors of the Company (the "Company Holders"). As
of June 24, 2021, the Company Holders held, in the aggregate, approximately
14.1% of the Company's outstanding shares of common stock. Pursuant to the
Voting Agreement, each Company Holder has agreed, with respect to all of the
voting securities of the Company that such Company Holder beneficially owns as
of the date thereof or thereafter, to vote in favor of the First Merger and the
Merger Agreement. The Voting Agreement will terminate on the Effective Date (as
defined therein).
The foregoing description of the Voting Agreement does not purport to be
complete and is subject to, and qualified by, the full text of the Voting
Agreement, a copy of which is attached hereto as Exhibit 10.1 and is
incorporated herein by reference
Contingent Value Rights Agreement
Pursuant to the Merger Agreement, at the Closing, HoldCo and Parent will enter
into a Contingent Value Rights Agreement (the "CVR Agreement") with a person
designated by HoldCo and Parent as the Holders' Representative (as defined
therein), and the Rights Agent (as defined therein). Pursuant to the CVR
Agreement, each shareholder of the Company as of immediately prior to the First
Effective Time will receive one non-transferable contingent value right ("CVR")
for each outstanding share of common stock of the Company then held.
The holders of the CVRs will be entitled to receive 95% of the Net Proceeds (as
defined in the CVR Agreement), if any, from the sale, transfer, disposition,
spin-off, or license of all or any part of the pre-merger business of the
Company, subject to a reserve of up to 10% of the Gross Proceeds (as defined in
the CVR Agreement) from such transaction. The CVRs will not confer to the
holders thereof any voting or equity or ownership interest in the Company or
HoldCo. The CVRs will not be transferable, except in limited circumstances such
as by will or intestacy, and will not be listed on any quotation system or
traded on any securities exchange.
The CVR Agreement will terminate after all payment obligations to the holders
thereof have been satisfied. But holders of CVRs will not be eligible to receive
payment for dispositions, if any, of any part of the pre-merger business of the
Company after the eighteen-month anniversary of the Closing.
The foregoing description of the CVR Agreement does not purport to be complete
and is subject to, and qualified by, the full text of the CVR Agreement, a copy
of which is attached hereto as Exhibit 10.2, and is incorporated herein by
reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibit.
Exhibit Description
Number
2.1 Agreement and Plan of Merger, dated June 24, 2021, by and
among IKONICS Corporation, Telluride Holdco, Inc.,
Telluride Merger Sub I, Inc., Telluride Merger Sub II,
Inc., and TeraWulf Inc.*†
3.1 Amended and Restated Bylaws of IKONICS Corporation†
10.1 Voting and Support Agreement, dated June 24, 2021, by and
among TeraWulf Inc. and the holders of shares of common
stock of IKONICS Corporation named therein†
10.2 Form of Contingent Value Rights Agreement, by and among
IKONICS Corporation, Telluride Holdings, Inc., the Rights
Agent named therein, and the initial CVR
Holders' Representative named therein†
10.3 Amended and Restated Employment Agreement with Glenn
Sandgren, dated June 24, 2021†
99.1 Joint Press Release dated June 25, 2021†
* Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A
copy of any omitted schedule will be furnished to the SEC upon request;
provided, however, that the parties may request confidential treatment pursuant
to Rule 24b-2 of the Securities Exchange Act of 1934, as amended, for any
document so furnished.
† Previously filed.
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Additional Information and Where to Find It; Participants in the Solicitation
In connection with the proposed transaction, the Company intends to file
relevant materials with the United States Securities and Exchange Commission
(the "SEC"), including a combined proxy statement and registration statement on
Form S-4. Following the filing of the definitive proxy statement with the SEC,
the Company will mail the definitive proxy statement and a proxy card to each
shareholder entitled to vote at the special meeting relating to the proposed
transaction. The proxy statement, any other relevant documents, and all other
materials filed with the SEC concerning the Company 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 the Company 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. The
Company 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 its
annual report on Form 10-K for the fiscal year ended December 31, 2020, its
definitive proxy statement for the annual meeting held on April 29, 2021, and
the revised definitive proxy statement for the same meeting, which were filed
with the SEC on March 3, 2021, March 23, 2021, and April 6, 2021, respectively.
To the extent the Company's directors and executive officers or their holdings
of the Company's securities have changed from the amounts disclosed in those
filings, to the Company's 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 the Company's common stock may decline
significantly if the mergers are not completed, (b) the merger agreement may be
terminated in circumstances requiring the Company 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 the Company and its
business, including the risks that as a result (a) the business, operating
results or stock price of the Company's common stock may suffer, (b) its current
plans and operations may be disrupted, (c) the ability of the Company 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 the Company's 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 the
Company 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 the Company's historical business will be sold prior to the expiration of the
CVRs; and (10) other factors described under the heading "Risk Factors" in Part
I, Item 1A of the Company's annual report on Form 10-K for the fiscal year ended
December 31, 2020, as updated or supplemented by subsequent reports that the
Company 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. Neither
TeraWulf nor the Company 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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