S-4/A 1 tm2123603-11_s4a.htm S-4/A tm2123603-11_s4a - block - 65.659467s
As filed with the Securities and Exchange Commission on October 12, 2021
Registration No. 333-258335
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 4
to
Form S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TELLURIDE HOLDCO, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
(State or other jurisdiction of
Incorporation or Organization)
7374
(Primary Standard Industrial
Classification Code Number)
87-1909475
(I.R.S. Employer
Identification Number)
IKONICS Corporation
4832 Grand Avenue
Duluth, Minnesota 55807
(218) 628-2217
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Glenn Sandgren
Chief Executive Officer
Telluride Holdco, Inc.
4832 Grand Avenue
Duluth, Minnesota 55807
(218) 628-2217
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
W. Morgan Burns
Joshua L. Colburn
W. Jason Deppen
Faegre Drinker Biddle & Reath LLP
90 South Seventh Street
2200 Wells Fargo Center
Minneapolis, Minnesota 55402
(612) 766-7000
Paul Prager
Chief Executive Officer
TeraWulf Inc.
9 Federal Street
Easton, Maryland 21601
(410) 770-9500
Ariel J. Deckelbaum
David S. Huntington
Sarah Stasny
Paul, Weiss, Rifkind, Wharton &
Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3000
Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after this registration statement becomes effective and upon consummation of the mergers described in the enclosed prospectus.
If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
If applicable, place an ☒ in the box to designate the appropriate rule provision relied upon in conducting this transaction:
Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)
Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)
CALCULATION OF REGISTRATION FEE
Title of each class of securities to be registered
Amount to be
registered
Proposed maximum
offering price
per share
Proposed maximum
aggregate
offering price
Amount of
registration fee
Common Stock, par value $0.001 per share
104,550,200(a) N/A $ 109,553,842(b) $ 11,952.33(c)
(a)
Represents the estimated maximum number of shares of common stock, par value $0.001 per share, of registrant (“Holdco common stock”), issuable in connection with the merger of Telluride Merger Sub I, Inc. with and into IKONICS Corporation (“IKONICS” and such merger, the “First Merger”), with IKONICS surviving the First Merger as a wholly owned subsidiary of registrant and the merger of Telluride Merger Sub II, Inc. with and into TeraWulf Inc. (“TeraWulf,” and such merger, the “Second Merger”), with TeraWulf surviving the Second Merger as a wholly owned subsidiary of registrant.
(b)
Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933 (the “Securities Act”), and calculated pursuant to Rules 457(f)(1) – (3) and 457(c) under the Securities Act and calculated as follows (x) (a) 2,091,004, the estimated number of shares of IKONICS common stock to be exchanged and cancelled for shares of Holdco common stock, multiplied by (b) $22.525, the average of the high and low prices of IKONICS common stock on July 28, 2021, minus $5.00, the estimated maximum amount of cash to be paid by the registrant in connection with such exchange, plus (y) $75 million, the aggregate book value of the shares of TeraWulf capital stock to be exchanged for shares of Holdco common stock.
(c)
Previously paid.
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary proxy statement/prospectus is not complete and may be changed. These securities may not be sold until the registration statement, as filed with the Securities and Exchange Commission (of which this preliminary proxy statement/prospectus is a part) is effective. This preliminary proxy statement/prospectus is not an offer to sell nor should it be considered a solicitation of an offer to buy the securities described herein in any state where the offer or sale is not permitted.
PRELIMINARY — SUBJECT TO COMPLETION, DATED OCTOBER 12, 2021
[MISSING IMAGE: lg_ikonics-bwlr.jpg]
4832 Grand Avenue
Duluth, Minnesota 55807
(218) 628-2217
MERGERS PROPOSED — YOUR VOTE IS VERY IMPORTANT
Dear IKONICS Shareholders:
The boards of directors of IKONICS Corporation (“IKONICS”) and TeraWulf Inc. (“TeraWulf”) have each unanimously approved, and IKONICS and 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.
In connection with or as a result of the First Merger and the Second Merger (collectively, the “mergers”):

IKONICS and TeraWulf will each be a wholly owned subsidiary of Holdco and, as a result, Holdco will hold what today are IKONICS’ and TeraWulf’s independent businesses;

Holdco will be renamed “TeraWulf Inc.” and TeraWulf will be renamed “TeraCub Inc.” or such other name as TeraWulf may select;

Holdco’s common stock is expected to be listed on The Nasdaq Stock Market LLC under the symbol “WULF”;

each share of IKONICS common stock outstanding immediately prior to the effective time of the First Merger (other than any dissenting shares) will automatically be converted into the right to receive merger consideration equal to:

one share of Holdco common stock;

one contractual contingent value right to be issued by Holdco in accordance with the Contingent Value Rights Agreement (the “CVR agreement”) to be entered into by and among IKONICS, Holdco, Glenn Sandgren, as the Holders’ Representative, and Equiniti Trust Company, as Rights Agent; and

$5.00 in cash, without interest;

shares of TeraWulf’s Series A Preferred Stock (“TeraWulf Preferred Stock”) issued and outstanding immediately prior to the effective time of the Second Merger automatically will be converted into shares of TeraWulf common stock in accordance with the terms of TeraWulf’s certificate of incorporation; and

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 effective time of the Second Merger (other than any dissenting shares) will automatically be converted into the right to receive a number of 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 effective time of the First Merger and immediately prior to the effective time of the Second Merger, divided by (y) the number

of shares of TeraWulf common stock outstanding on a Fully Diluted Basis (as defined in the merger agreement) as of immediately prior to the effective time of the Second Merger.
Following the consummation of the mergers, it is expected that former holders of TeraWulf common stock (including holders of shares of TeraWulf Preferred Stock converted into shares of TeraWulf common stock described above) will own approximately 98% of Holdco’s common stock, and former holders of IKONICS common stock will own approximately 2% of Holdco’s common stock. It is expected that Paul Prager, TeraWulf’s Chief Executive Officer, and Stammtisch Investments LLC, a company controlled by Paul Prager, will together have the right to vote a majority of Holdco’s outstanding common stock upon consummation of the mergers and, therefore, will have the power to elect a majority of Holdco directors, in each case, through their respective ownership of shares of Holdco common stock as well as through the exercise by them of voting control over shares of Holdco common stock with respect to which they have been granted irrevocable voting proxies and, at least initially, will have significant influence and control over Holdco. Assuming a stock price of $26.74, the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch Investments LLC would be expected to hold, immediately following the consummation of the mergers, approximately 62.4% of the voting power of Holdco. Assuming the stock price of $32.09, a 20% increase from the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch Investments LLC would be expected to hold, immediately following the consummation of the mergers, approximately 62.7% of the voting power of Holdco. Assuming the stock price of $21.39, a 20% decrease from the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch Investments LLC would be expected to own, immediately following the consummation of the mergers, approximately 62.1% of the voting power of Holdco. For further details, see “Security Ownership of Certain Beneficial Owners and Management/Directors of TeraWulf.”
IKONICS is holding a special meeting of its shareholders (the “special meeting”) for the following purposes: (i) to adopt the merger agreement, which proposal we refer to as the “Merger Proposal”; (ii) to approve, on a non-binding advisory basis, the specified compensation that may be paid or become payable to the named executive officers of IKONICS that is based on or otherwise relates to the mergers, which proposal we refer to as the “Advisory Compensation Proposal”; (iii) to approve an amendment to the IKONICS articles of incorporation to increase the number of authorized shares of common stock to 5,750,000 , which proposal we refer to as the “Increase in Authorized Shares Proposal”; and (iv) to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting, which proposal we refer to as the “Adjournment Proposal”. Information about this meeting and the mergers is contained in this proxy statement/prospectus. We encourage you to read this entire proxy statement/prospectus, as well as the appendices and information incorporated by reference, carefully.
The special meeting will be held at     local time, on     , 2021, at     .
In connection with the execution of the merger agreement, TeraWulf entered into a voting and support agreement with the directors and executive officers of IKONICS (the “voting agreement”). Pursuant to the voting agreement, subject to certain exceptions, the directors and executive officers, who collectively beneficially owned approximately 14.7% of the outstanding common stock of IKONICS as of the date of this proxy statement/prospectus, have committed to vote the shares they beneficially own, in favor of the adoption of the merger agreement and any other matters necessary for the consummation of the transactions contemplated by the merger agreement, including the mergers.
On June 24, 2021, the special committee of the IKONICS board of directors (the “special committee”) unanimously recommended to the IKONICS board of directors that the board of directors approve the merger agreement and the transactions contemplated thereby. Also on June 24, 2021, following receipt of the recommendation of the special committee, the IKONICS board of directors unanimously approved and declared advisable the merger agreement and the transactions contemplated thereby, and directed that the merger agreement and the transactions contemplated thereby be submitted to the IKONICS shareholders for their approval. A copy of the merger agreement is attached as Appendix A to this proxy statement/prospectus.
The IKONICS board of directors unanimously recommends that its shareholders vote FOR the Merger Proposal, FOR the Advisory Compensation Proposal, FOR the Increase in Authorized Shares Proposal, and FOR the Adjournment Proposal.

In considering the recommendation of the IKONICS board of directors, you should be aware that certain directors and officers of IKONICS, and their affiliates, have interests in the mergers that are different from, or are in addition to, the interests of IKONICS shareholders generally. These interests are described in this proxy statement/prospectus.
This proxy statement/prospectus describes the special meeting, the proposals to be considered and voted upon at the special meeting and related matters. Every vote is important. Whether or not you plan to attend IKONICS’ special meeting, please take the time to vote by following the instructions on your proxy card.
We join with our board in recommending that you vote FOR the Merger Proposal, FOR the Advisory Compensation Proposal, FOR the Increase in Authorized Shares Proposal and FOR the Adjournment Proposal.
This proxy statement/prospectus provides you with detailed information about the mergers. It also contains or references information about IKONICS and TeraWulf and certain related matters. You are encouraged to read this proxy statement/prospectus carefully. In particular, you should read the “Risk Factors” section beginning on page 37 for a discussion of the risks you should consider in evaluating the mergers and how they will affect you.
If you have any questions regarding the proxy statement/prospectus, you may contact The Proxy Advisory Group LLC, IKONICS’ proxy solicitor, at           .
Sincerely,
Glenn Sandgren
Chief Executive Officer
IKONICS Corporation
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (the “SEC”) NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED THE MERGERS AND OTHER TRANSACTIONS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS NOR HAVE THEY APPROVED OR DISAPPROVED THE ISSUANCE OF HOLDCO’S COMMON STOCK IN CONNECTION WITH THE MERGERS, OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus is dated           , 2021, and, together with the accompanying proxy card, is first being mailed to shareholders of IKONICS on or about           , 2021.

 
IKONICS CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD           , 2021
To the Shareholders of IKONICS Corporation:
We cordially invite you to our special meeting of shareholders. The meeting will be held on        , 2021, at           , local time, at                 . The special meeting will be completely virtual. You may attend the meeting, vote your shares and submit questions electronically during the meeting via live webcast by logging in at:    .
At this meeting, you will be asked to vote on the following proposals:
1.
Mergers Proposal.   To adopt the Agreement and Plan of Merger, dated as of June 24, 2021, by and among IKONICS Corporation, Telluride Holdco, Inc., Telluride Merger Sub I, Inc., Telluride Merger Sub II, Inc., and TeraWulf Inc., a copy of which is attached as Appendix A to this proxy statement/prospectus.
2.
Advisory Compensation Proposal.   To approve, on an advisory (non-binding) basis, specified compensation that may be received by IKONICS’ named executive officers in connection with the mergers.
3.
Increase in Authorized Shares Proposal.   To approve an amendment to the IKONICS articles of incorporation to increase the number of authorized shares of common stock to 5,750,000.
4.
Adjournment Proposal.   To approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to adopt the merger agreement at the time of the special meeting.
For more information about the proposals and the special meeting, please carefully review the accompanying proxy statement/prospectus, as well as the appendices.
IKONICS will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof.
Only holders of record of shares of IKONICS common stock at the close of business on           , 2021, the record date for the special meeting, are entitled to notice of, and a vote at, the special meeting and any adjournments or postponements of the special meeting.
Your vote is important regardless of the number of shares you own. We encourage you to sign and return your proxy card, or use the telephone or Internet voting procedures, before the special meeting, so that your shares will be represented and voted at the special meeting even if you cannot attend the virtual special meeting.
Please do not send any share certificates at this time. If the mergers are consummated, we will notify you of any necessary procedures for exchanging IKONICS share certificates for shares of Holdco.
By Order of the Board of Directors,
Jon Gerlach
Secretary
IKONICS Corporation
Duluth, Minnesota
           , 2021
 

 
VOTING BY INTERNET, TELEPHONE OR MAIL
If you hold your shares through a bank, broker, custodian or other recordholder, please refer to your proxy card or voting instruction form or the information forwarded by your bank, broker, custodian or other recordholder to see which options are available to you.
IKONICS shareholders of record may submit their proxies by:
Internet.   You can vote over the Internet by accessing the website listed on your proxy card and following the instructions on the website prior to 11:59 p.m. Eastern time on           , 2021. Internet voting is available 24 hours a day. If you vote over the Internet, do not return your proxy card(s).
Telephone.   You can vote by telephone by calling the toll-free number listed on your proxy card in the United States, Canada or Puerto Rico on a touch-tone phone prior to 11:59 p.m. Eastern time on           , 2021. You will then be prompted to enter the control number printed on your proxy card and to follow subsequent instructions. Telephone voting is available 24 hours a day. If you vote by telephone, do not return your proxy card(s).
Mail.   You can vote by mail by completing, signing, dating, and mailing your proxy card(s) in the postage-paid envelope included with this proxy statement/prospectus.
 

 
ABOUT THIS DOCUMENT
This document forms a part of a registration statement on Form S-4 (Registration No. 333-258335) filed by Holdco with the SEC to register under the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), the issuance of shares of Holdco common stock issuable upon the consummation of each merger. It constitutes:

a proxy statement under Section 14(a) of the U.S. Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the “Exchange Act”), and a notice of meeting and action to be provided to the IKONICS shareholders in connection with the special meeting at which IKONICS shareholders will consider and vote on each of the proposals to give effect to the transactions contemplated by the merger agreement; and

a prospectus of Holdco under the Securities Act with respect to the shares of Holdco common stock to be issued to the IKONICS shareholders and TeraWulf stockholders as described in this proxy statement/prospectus.
IKONICS has supplied all information contained in this document relating to IKONICS. TeraWulf has supplied all information contained in this document relating to TeraWulf. IKONICS and TeraWulf have both contributed information relating to the mergers and Holdco.
As permitted by SEC rules, this document does not contain all of the information that you can find in the registration statement or its exhibits. Statements made in this proxy statement/prospectus as to the content of any contract, agreement or other document filed or incorporated by reference as an exhibit to the registration statement are not necessarily complete. With respect to those statements, you should refer to the corresponding exhibit for a more complete description of the matter involved and read all statements in this proxy statement/prospectus in light of that exhibit. For further information pertaining to Holdco and the shares of Holdco common stock to be issued in connection with the mergers, reference is made to that registration statement and its exhibits. Each statement contained in this document is qualified by reference to the underlying documents. You are encouraged to read the entire registration statement. You may obtain copies of the registration statement by following the instructions under “Where You Can Find More Information.”
IKONICS files reports (including annual, quarterly and current reports that may contain audited financial statements), proxy statements and other information with the SEC.
Copies of IKONICS’ filings with the SEC are available to investors without charge by request made to IKONICS in writing or by telephone with the following contact information:
IKONICS Corporation
4832 Grand Avenue
Duluth, Minnesota 55807
Attention: Investor Relations
www.ikonics.com
(218) 628-2217
TO RECEIVE TIMELY DELIVERY OF THESE MATERIALS, YOU MUST MAKE YOUR REQUESTS NO LATER THAN FIVE BUSINESS DAYS BEFORE THE DATE OF THE SPECIAL MEETING, WHICH IS           , 2021.
You may also obtain printer-friendly versions of IKONICS’ SEC reports at www.ikonics.com/investor-relations/. However, IKONICS is not incorporating the information on IKONICS’ website into this document or the registration statement. IKONICS’ filings with the SEC are available to the public over the Internet at the SEC’s website at www.sec.gov, or at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call 1-800-SEC-0330 for further information on the public reference facilities.
Following consummation of the mergers, Holdco will be required to file reports and other information with the SEC on an ongoing basis. Holdco intends to furnish holders of its common stock with annual reports containing audited financial statements with a report thereon by its independent certified public accountants.
 
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TABLE OF CONTENTS
Page
4
10
12
24
25
36
37
61
62
98
103
115
116
131
135
140
148
154
162
165
166
167
170
171
172
174
176
179
185
189
190
190
190
 
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APPENDICES
A-1
B-1
C-1
D-1
E-1
F-1
G-1
H-1
 
iii

 
QUESTIONS AND ANSWERS ABOUT THE MEETING
Below are brief answers to questions you may have concerning the transactions described in this proxy statement/prospectus and the virtual special meeting. These questions and answers do not, and are not intended to, address all of the information that may be important to you. You should read carefully this entire proxy statement/prospectus and the other documents to which we refer you.
GENERAL
Q:
Why am I receiving this document?
A:
This is a proxy statement being used by the IKONICS board of directors to solicit proxies of IKONICS shareholders in connection with the First Merger and the special meeting. In addition, this document is a prospectus being delivered to IKONICS’ shareholders and TeraWulf’s stockholders because Holdco is offering shares of its common stock to be issued in exchange for shares of IKONICS common stock and TeraWulf common stock, respectively, as described herein if the mergers are completed.
Q:
When and where is the meeting of the shareholders?
A:
The special meeting will be held at           , local time, on           , 2021, virtually via the Internet at      .
Q:
Why is the special meeting being conducted virtually?
A:
The special meeting is being conducted entirely online due to the public health impact of the COVID-19 pandemic and to support the health and well-being of our employees and shareholders. In addition, we believe the online meeting format will provide shareholders who would not otherwise be able to attend the special meeting the opportunity to do so. In addition to on-line attendance, shareholders will have an opportunity to hear all portions of the official meeting, submit written questions during the meeting, vote on-line during the open poll portion of the meeting, and listen to live responses to shareholder questions immediately following the formal meeting.
Q:
Who can answer any questions I may have about the special meeting or the mergers?
A:
IKONICS has retained The Proxy Advisory Group LLC to serve as the information agent and proxy solicitor in connection with its special meeting and the mergers and to provide related advice and informational support for a services fee and the reimbursement of customary disbursements, which are expected not to exceed $25,000 in the aggregate. IKONICS shareholders may call The Proxy Advisory Group LLC toll-free at           with any questions they may have. Banks and brokers may call           .
Q:
What constitutes a quorum for the transaction of business at the special meeting?
A:
A majority of the voting power of the issued and outstanding common stock of IKONICS entitled to vote at the special meeting must be present, in person (including virtually) or represented by proxy, at the special meeting to constitute a quorum. Abstentions and broker non-votes will be counted as present for the purpose of determining a quorum.
Q:
What are broker non-votes?
A:
A broker non-vote occurs when a nominee, such as a broker, holding shares for a beneficial owner does not vote on a particular proposal because the nominee does not have discretionary authority to vote on that particular proposal and has not received instructions from the beneficial owner as to how to vote its shares. The Mergers Proposal and the Advisory Compensation Proposal each fall into this category. If you do not provide your broker with voting instructions, none of your shares held by the broker will be voted on either of those proposals.
 
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CONCERNING THE MERGERS
Q:
What will happen in the proposed mergers?
A:
Prior to entering into the merger agreement, Telluride Holdco, Inc., which we refer to in this proxy statement/prospectus as “Holdco,” was formed as a new Delaware corporation, wholly owned by IKONICS, to own the IKONICS and TeraWulf businesses following consummation of the mergers. When the transactions contemplated by the merger agreement, including the mergers, are consummated, Holdco’s two newly created, wholly owned subsidiaries, Telluride Merger Sub I, Inc. and Telluride Merger Sub II, Inc., will merge with and into IKONICS and TeraWulf, respectively. As a result of these mergers, which we call the “First Merger” and the “Second Merger,” respectively, each of IKONICS and TeraWulf will become a wholly owned subsidiary of Holdco. We refer to the First Merger and the Second Merger collectively in this proxy statement/prospectus as the “mergers.”
Following the closing of the transactions contemplated by the merger agreement (the “closing”), IKONICS 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. IKONICS will continue to support these existing businesses as it pursues the Dispositions.
Additional information on the mergers and CVR agreement is set forth beginning on page 62.
Q:
Why is IKONICS proposing the First Merger?
A:
IKONICS management and the IKONICS board of directors regularly review the performance, strategy, competitive position, opportunities and prospects of IKONICS in light of the then-current business and economic environments, as well as developments in the industries in which we operate and the opportunities and challenges facing participants in those industries. These reviews have included consideration of and discussions with other companies from time to time regarding potential strategic alternatives, including business combinations and other strategic combinations, as well as the possibility of IKONICS remaining an independent company. Following a review by the special committee and the IKONICS board of directors, the IKONICS board of directors determined, upon recommendation by the special committee, that the First Merger is fair to and in the best interests of IKONICS and its shareholders.
Q:
What will I receive for my shares?
A:
Each holder of IKONICS common stock outstanding immediately prior to the effective time of the First Merger will be entitled to receive, for each share of IKONICS common stock held, the following consideration (the “merger consideration”):

one share of Holdco common stock;

one contractual contingent value right to be issued by Holdco in accordance with the CVR agreement; and

$5.00 in cash, without interest.
Additional information on the consideration to be received in the First Merger is set forth beginning on page 62.
Q:
What will be the business of Holdco after the consummation of the mergers?
A:
Upon consummation of the mergers, IKONICS and TeraWulf will be wholly owned subsidiaries of Holdco and, as a result, Holdco will hold what today are IKONICS’ and TeraWulf’s independent businesses. TeraWulf is a digital asset technology company with a core business of sustainable bitcoin mining.
Following the closing, IKONICS 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
 
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consummate the Dispositions as soon as reasonably practicable. IKONICS will continue to support these existing businesses as it pursues the Dispositions.
Q:
What are the material U.S. federal income tax consequences of the First Merger to U.S. holders of IKONICS common stock?
A:
IKONICS and TeraWulf intend that the mergers taken together will qualify as an exchange under Section 351 of the Internal Revenue Code (the “Code”). As a result, subject to the limitations and qualifications described in “Material U.S. Federal Income Tax Consequences,” no gain or loss is expected to be recognized by the U.S. Holders of IKONICS common stock as a result of the First Merger, except (i) with respect to the CVRs; (ii) with respect to the $5.00 in cash; and (iii) with respect to any cash received in lieu of any fractional shares of IKONICS common stock.
Please carefully review the information set forth in the section titled “Material U.S. Federal Income Tax Consequences” beginning on page 98 of this proxy statement/prospectus for a general discussion of the material U.S. federal income tax consequences of the First Merger. You are strongly urged to consult your own tax advisors as to the specific tax consequences to you of the First Merger.
Q:
What vote is required to approve the proposals subject to a shareholder vote at the special meeting?
A:
The affirmative vote of a majority of the shares of IKONICS common stock outstanding and entitled to vote as of the close of business on            , 2021, the record date for the IKONICS special meeting, is required to approve the proposal to adopt the merger agreement (and thereby approve the First Merger) and the proposal to approve the amendment to the IKONICS articles of incorporation to increase the number of authorized shares of common stock. The proposal to approve, on an advisory (non-binding) basis, specified compensation that may be received by IKONICS’ named executive officers in connection with the mergers requires more shares voted “FOR” the proposal than “AGAINST.” The proposal to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting requires the affirmative vote of holders of the greater of (a)         shares (which represents a majority of the minimum number of shares entitled to vote that would constitute a quorum) or (b) a majority of all shares of IKONICS common stock represented at the special meeting, in person (including virtually) or by proxy, and entitled to vote thereon.
At the record date, directors and executive officers of IKONICS and their respective affiliates had the right to vote 14.8% of the then outstanding shares of IKONICS common stock. Each of IKONICS’ directors and executive officers has indicated his or her present intention to vote, or cause to be voted, the shares of IKONICS common stock owned by him or her for the four proposals subject to a shareholder vote at the special meeting.
In connection with the execution of the merger agreement, TeraWulf entered into a voting and support agreement with the directors and executive officers of IKONICS (the “voting agreement”). Pursuant to the voting agreement, subject to certain exceptions, the directors and executive officers, who collectively beneficially owned approximately 14.7% of the outstanding common stock of IKONICS as of the date of this proxy statement/prospectus, have committed to vote the shares they beneficially own, in favor of the adoption of the merger agreement and any other matters necessary for the consummation of the transactions contemplated by the merger agreement, including the mergers.
Additional information on the vote required to approve the First Merger is located on page 170.
Q:
How does the IKONICS board of directors recommend that I vote with respect to the proposals subject to a shareholder vote at the special meeting?
A:
The special committee was formed in connection with the IKONICS board of directors’ consideration of the transaction. On June 24, 2021, the special committee unanimously resolved to recommend that the IKONICS board of directors approve and declare advisable the merger agreement and the transactions contemplated thereby. Also on June 24, 2021, the IKONICS board of directors unanimously determined that the merger agreement and the transactions contemplated thereby were fair to, and in the best interests of, IKONICS and its shareholders, approved and declared advisable the merger
 
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agreement and the transactions contemplated thereby, and directed that the merger agreement and the transactions contemplated thereby be submitted to the IKONICS shareholders for their approval. The IKONICS board of directors unanimously recommends that the shareholders of IKONICS vote “FOR” the proposal to adopt the merger agreement and consummate the First Merger and “FOR” the advisory compensation proposal.
On July 29, 2021, the IKONICS board of directors unanimously determined that the proposal to increase the number of shares of IKONICS common stock authorized for issuance and the adjournment proposal were in the best interests of IKONICS and its shareholders and recommended that shareholder vote “FOR” each of those proposals.
Additional information on the recommendation of the IKONICS board of directors is set forth in “The Mergers — IKONICS’ Reasons for the Mergers and Recommendations of the IKONICS Special Committee and Board of Directors” beginning on page 69.
You should note that some IKONICS directors and executive officers, and their affiliates, have interests in the mergers that are different from, or in addition to, the interests of other IKONICS shareholders. Information relating to the interests of IKONICS’ directors and executive officers, and their affiliates, in the mergers is set forth in “The Mergers — Interests of Certain IKONICS Directors and Executive Officers in the Mergers” beginning on page 93.
Q:
Will Holdco’s shares be traded on an exchange following the mergers?
A:
It is a condition to closing under the merger agreement for the shares of Holdco common stock to be listed on The Nasdaq Stock Market LLC. Shares of Holdco are expected to be listed on The Nasdaq Stock Market LLC under the symbol “WULF.”
Q:
Will I be able to trade the contingent value rights, or “CVRs,” that I receive in connection with the mergers?
A:
No, the CVRs will not be listed on any exchange or otherwise be freely tradeable, and Holdco will be required to recognize transfers of CVRs only in very limited circumstances. For additional information, see “The Mergers — CVR Agreement” beginning on page 114.
Q:
When do you expect to complete the mergers?
A:
We are working to complete the mergers in the fourth quarter of 2021, although we cannot assure completion by any particular date. If IKONICS’ shareholders adopt the merger agreement at the IKONICS special meeting, we expect that the other conditions to completion of the mergers will be satisfied and the mergers will be consummated within ten business days following the special meeting.
Q:
Who will serve as the directors and executive officers of Holdco after the consummation of the mergers?
A:
Upon consummation of the mergers, it is expected that (1) Paul B. Prager, TeraWulf’s current Chief Executive Officer, will become the Chief Executive Officer and chair of the board of directors of Holdco, (2) Kenneth Deane, TeraWulf’s current Chief Financial Officer, will become the Chief Financial Officer of Holdco, (3) Nazar M. Khan, TeraWulf’s current Chief Operating Officer and Chief Technology Officer, will become the Chief Operating Officer and the Chief Technology Officer of Holdco, and (4) Kerri Langlais, TeraWulf’s current Chief Strategy Officer, will become the Chief Strategy Officer of Holdco. Mr. Prager is expected to serve as the chair of the board of directors of Holdco following the consummation of the mergers, with the members of the board of directors to be designated by TeraWulf prior to consummation of the mergers. Additional information about the directors and executive officers of Holdco following the consummation of the mergers is set forth in “Governance and Management of Holdco” beginning on page 88.
Q:
Are there risks associated with the mergers?
A:
Yes, there are important risks associated with the mergers. We encourage you to read carefully and in their entirety the sections of this proxy statement/prospectus titled “Risk Factors” and “Cautionary Information Regarding Forward-Looking Statements” beginning on pages 37 and 61, respectively. These
 
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risks include, among others, risks relating to the uncertainty that the mergers will close, the uncertainty that Dispositions of IKONICS’ businesses and assets will occur within the 18-month period necessary for IKONICS shareholders to realize any value with respect to the contingent value rights issued pursuant to the CVR agreement, and uncertainties relating to the performance of Holdco after the mergers.
PROCEDURES
Q:
What do I need to do now?
A:
After carefully reading and considering the information contained in this proxy statement/prospectus, please complete and sign your proxy card and return it in the enclosed postage-paid envelope as soon as possible so that your shares may be represented at the special meeting. Alternatively, you may cast your vote by telephone or Internet by following the instructions on your proxy card. In order to ensure that your vote is recorded, please vote your proxy as instructed on your proxy card, or on the voting instruction form provided by the record holder if your shares are held in the name of your broker or other nominee, even if you currently plan to attend the virtual special meeting.
Additional information on voting procedures is located beginning on page 168.
Q:
What do I need to do to attend the special meeting and how do I vote my shares electronically?
A:
You may attend the special meeting, vote your shares and submit questions electronically during the meeting via live webcast by logging in at:      . You will need the 16-digit control number included on your proxy card or in the instructions that accompanied your proxy materials to join the virtual special meeting. We recommend that you log in at least fifteen minutes before the meeting to ensure you are logged in when the meeting starts.
Q:
What should I do if I receive more than one set of voting materials?
A:
You may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple proxy cards or voting instruction cards. For example, if you hold your shares in more than one brokerage account, you will receive a separate voting instruction card for each brokerage account in which you hold shares. If you are a holder of record and your shares are registered in more than one name, you will receive more than one proxy card. Please follow the instructions and vote in accordance with each proxy card and voting instruction card you receive.
Q:
Should I send in my share certificates now?
A:
No. If the mergers are completed, we will send the former holders of IKONICS common stock written instructions for delivery of their share certificates representing shares of IKONICS common stock. Holdco shares will be in uncertificated, book-entry form unless a physical certificate is requested by the holder. Additional information on the procedures for exchanging certificates representing shares of IKONICS common stock is set forth in “The Merger Agreement — Procedures for Exchange of Share Certificates” beginning on page 105.
Q:
If my shares are held in “street name” by a broker or other nominee, will my broker or nominee vote my shares for me?
A:
If you do not provide your broker with instructions on how to vote your “street name” shares, your broker will not be permitted to vote them on the proposals related to the adoption of the merger agreement or the approval, on an advisory (non-binding) basis, of specified compensation that may be received by IKONICS’ named executive officers in connection with the mergers at the special meeting. You should therefore be sure to provide your broker with instructions on how to vote your shares. You should check the voting form used by your broker to see if your broker offers telephone or Internet voting. If you do not give voting instructions to your broker, your shares will be counted towards a quorum at the special meeting, but effectively will be treated as voting against the adoption of the merger agreement unless you attend the special meeting and vote your shares electronically. If your broker holds your shares and you plan to attend and vote at the IKONICS special meeting, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote.
 
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Additional information on how to vote if your shares are held in street name is located beginning on page 168.
Q:
What if I do not vote on the matters relating to the mergers?
A:
Because adoption of the merger agreement requires the affirmative vote of a majority of the shares of IKONICS common stock outstanding and entitled to vote as of the record date, if you abstain or fail to vote your shares in favor of this matter, this will have the same effect as voting your shares against adoption of the merger agreement. If you fail to respond with a vote or fail to instruct your broker or other nominee how to vote on the First Merger, it will have the same effect as a vote against the First Merger. If you respond but do not indicate how you want to vote on the First Merger, your proxy will be counted as a vote in favor of adoption of the merger agreement.
Pursuant to the voting agreement, subject to certain exceptions, the directors and executive officers, who collectively beneficially owned approximately 14.7% of the outstanding common stock of IKONICS as of the date of this proxy statement/prospectus, have committed to vote the shares they beneficially own, in favor of the adoption of the merger agreement and any other matters necessary for the consummation of the transactions contemplated by the merger agreement, including the mergers.
Q:
What will happen if I return my proxy card without indicating how to vote?
A:
If you sign and return your proxy card without indicating how to vote on any particular proposal, the common stock represented by your proxy will be voted as recommended by the IKONICS board with respect to that proposal.
Q:
What if I want to change my vote?
A:
If you are a shareholder of record of IKONICS, you may send a later-dated, signed proxy card so that it is received prior to the special meeting, or you may attend the special meeting and vote your shares electronically. You may also revoke your proxy card by sending a notice of revocation that is received prior to the special meeting to IKONICS’ Corporate Secretary at the address set forth under “The Companies” beginning on page 115. You may also change your vote by telephone or Internet. You may change your vote by using any one of these methods regardless of the procedure used to cast your previous vote.
If your shares are held in “street name” by a broker or other nominee, you should follow the instructions provided by your broker or other nominee to change your vote.
Q:
Do I have appraisal rights?
A:
Holders of IKONICS common stock as of the record date for the special meeting that do not vote in favor of the First Merger are entitled to appraisal rights under the Minnesota Business Corporation Act in connection with the First Merger. Additional information about the IKONICS shareholders’ appraisal rights is set forth in “Appraisal Rights and Dissenters’ Rights” beginning on page 90.
 
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SUMMARY
This summary highlights selected information contained in this proxy statement/prospectus and may not contain all the information that is important to you. You should carefully read this proxy statement/prospectus in its entirety, as well as the appendices. See “Where You Can Find More Information” beginning on page 190. Page references are included parenthetically to direct you to a more complete description of the topics presented in this summary.
In this proxy statement/prospectus, “merger agreement” refers to the Agreement and Plan of Merger, dated June 24, 2021, as amended, by and among IKONICS Corporation, Telluride Holdco, Inc., Telluride Merger Sub I, Inc., Telluride Merger Sub II, Inc., and TeraWulf Inc. The text of the merger agreement and all amendments thereto is attached as Appendix A to this proxy statement/prospectus.
The Companies (see page 115)
Telluride Holdco, Inc. (“Holdco”)
Holdco is a Delaware corporation formed for the purpose of holding IKONICS and TeraWulf as wholly owned subsidiaries following completion of the mergers. Following the mergers, Holdco will have no significant assets other than the stock or other voting securities of IKONICS and TeraWulf, its wholly owned subsidiaries. In connection with the mergers, Holdco is expected to be renamed “TeraWulf Inc.”
IKONICS Corporation (“IKONICS”)
IKONICS has served as an international leader in the development of imaging technologies for over 65 years. IKONICS proudly introduces products and process solutions for a diverse array of imaging markets. For the year ended December 31, 2020, IKONICS had net sales of approximately $13.4 million and a net loss of approximately $0.4 million. IKONICS had net sales of approximately $7.3 million and a net loss of approximately $1.0 million for the six months ended June 30, 2021. Following the mergers, IKONICS will become a wholly owned subsidiary of Holdco.
TeraWulf Inc. (“TeraWulf”)
TeraWulf was formed to own and operate fully integrated environmentally clean bitcoin mining facilities in the United States. TeraWulf will provide domestically produced bitcoin powered by more than 90% zero-carbon energy with a goal of utilizing 100% zero-carbon energy. Following the mergers, TeraWulf will become a wholly owned subsidiary of Holdco. In connection with the mergers, TeraWulf is expected to be renamed “TeraCub Inc.” or another name selected by TeraWulf.
Telluride Merger Sub I, Inc. (“Merger Sub I”)
Merger Sub I is a wholly owned subsidiary of Holdco, formed solely for the purpose of engaging in the First Merger and the other transactions contemplated by the merger agreement. In the First Merger, Merger Sub I will merge with and into IKONICS, with IKONICS surviving the First Merger as a wholly owned subsidiary of Holdco, and thereafter Merger Sub I will cease to exist.
Telluride Merger Sub II, Inc. (“Merger Sub II”)
Merger Sub II is a wholly owned subsidiary of Holdco, formed solely for the purpose of engaging in the Second Merger and the other transactions contemplated by the merger agreement. In the Second Merger, Merger Sub II will merge with and into TeraWulf, with TeraWulf surviving the Second Merger as a wholly owned subsidiary of Holdco, and thereafter Merger Sub II will cease to exist.
 
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Corporate Structure
The following chart illustrates the expected corporate structure of Holdco, on a pro forma basis, after giving effect to the mergers and any ancillary transactions, transfers, agreements or undertakings necessary, whether by contract or operation of law, to effect these transactions:
[MISSING IMAGE: tm2123603d1-fc_expectedbw.jpg]
 
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THE MERGERS
The consummation of the mergers will result in a change of control of Holdco, and as a result IKONICS (both through changes in beneficial ownership and management). After the consummation of the mergers, Holdco intends to operate in an entirely different business sector from the historical IKONICS business and a substantial majority of Holdco's business will be conducted through TeraWulf. Accordingly, the following is a summary of the material terms of the mergers and the resulting changes expected to occur.
IKONICS’ Reasons for the Mergers and Recommendations of the IKONICS Special Committee and Board of Directors (Page 69)
On June 24, 2021, the special committee unanimously determined that the merger agreement and the transactions contemplated by the merger agreement were fair to, and in the best interests of, the IKONICS shareholders, and the special committee unanimously resolved to recommend that the IKONICS board of directors approve and declare advisable the merger agreement and the transactions contemplated thereby.
On June 24, 2021, after receiving the recommendation of the special committee, the IKONICS board of directors unanimously:

determined that the merger agreement and the transactions contemplated by the merger agreement are advisable, fair to and in the best interests of IKONICS and its shareholders;

approved the merger agreement; and

recommended that the IKONICS shareholders vote for the adoption of the merger agreement at the special meeting of shareholders of IKONICS.
To review the risks related to the mergers and the combined company following consummation of the mergers, please see “Risk Factors” beginning on page 37. To review the background and reasons for the mergers, please see the sections beginning on pages 63 and 69 respectively.
Opinion of Financial Advisor to IKONICS (Page 79)
IKONICS has engaged Northland Securities, Inc., referred to as “Northland,” as financial advisor to IKONICS in connection with the proposed mergers. In connection with this engagement, Northland delivered a written opinion, dated June 24, 2021, to the IKONICS board of directors as to the fairness, from a financial point of view and as of the date of the opinion, of the merger consideration to be received in the First Merger by holders of IKONICS Common Stock (other than, as applicable, TeraWulf, Holdco, Merger Sub I, Merger Sub II and their respective affiliates). The full text of Northland’s written opinion, dated June 24, 2021, which describes the assumptions made, procedures followed, matters considered, limitations on the review undertaken and qualifications, is attached as Appendix B to this proxy statement/prospectus and is incorporated herein by reference. The description of Northland’s opinion set forth herein is qualified in its entirety by reference to the full text of Northland’s opinion. Northland’s opinion was directed to the IKONICS board of directors (in its capacity as such) in connection with its evaluation of the merger consideration from a financial point of view and did not address any other terms, aspects or implications of the mergers. Northland was not requested to opine as to, and its opinion did not address, the basic business decision to proceed with or effect the mergers and the related transactions. Northland expressed no opinion or view as to the relative merits of the mergers or the related transactions as compared to any alternative business strategies or transactions that might exist for IKONICS or the effect of any other transaction in which IKONICS might engage. Northland’s opinion is not intended to be and did not constitute a recommendation to the IKONICS board of directors and does not constitute a recommendation to any shareholder as to how to act or vote with respect to the mergers or any other matter.
Governance and Management of Holdco (Page 88)
Upon consummation of the mergers, it is expected that (1) Paul B. Prager, TeraWulf’s current Chief Executive Officer, will become the Chief Executive Officer and chair of the board of directors of Holdco, (2) Kenneth Deane, TeraWulf’s current Chief Financial Officer, will become the Chief Financial Officer of Holdco, (3) Nazar M. Khan, TeraWulf’s current Chief Operating Officer and Chief Technology Officer, will
 
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become the Chief Operating Officer and the Chief Technology Officer of Holdco, and (4) Kerri M. Langlais, TeraWulf’s current Chief Strategy Officer, will become the Chief Strategy Officer of Holdco. Mr. Prager is expected to serve as the chair of the board of directors of Holdco following the consummation of the mergers, with other members of the board of directors to be designated by TeraWulf prior to consummation of the mergers. Additional information about the directors and executive officers of Holdco following the consummation of the mergers is set forth in “Governance and Management of Holdco” beginning on page 88.
Workforce and Employee Benefits Matters (Page 89)
IKONICS Restricted Stock Units
Two business days prior to the effective time of the First Merger, each then outstanding award of an IKONICS restricted stock unit (collectively, “IKONICS RSUs”) granted under IKONICS’ 2019 Equity Incentive Plan (the “2019 Plan”) will become fully vested and will settle for shares of IKONICS common stock. As a result of the First Merger, such shares of IKONICS common stock will be converted into the right to receive shares of Holdco common stock on the same basis as all other shares of IKONICS common stock.
IKONICS Stock Options
As of a business day no earlier than 30 days prior to the effective time of the First Merger, each outstanding IKONICS stock option (collectively, “IKONICS Options”) granted under the 2019 Plan will become vested in full. Immediately prior to the effective time of the First Merger, each IKONICS Option that is then outstanding, (i) if the exercise price of such IKONICS Option is equal to or greater than the Per Share Value (as defined below), will terminate and be cancelled as of immediately prior to the effective time of the First Merger, without any consideration being payable in respect thereof, and have no further force or effect; and (ii) if the exercise price of such IKONICS Option is less than the Per Share Value, such IKONICS Option will be fully vested and terminate and be cancelled as of immediately prior to the effective time of the First Merger in exchange for the right to receive, in accordance with this merger agreement, the merger consideration based on a number of shares determined by dividing (x) the product of the number of shares of IKONICS common stock underlying such IKONICS Option multiplied by the excess of the Per Share Value over the exercise price of the IKONICS Option, divided by (y) the Per Share Value, as applicable. As used herein, the “Per Share Value” means the volume-weighted average price, rounded to the nearest one-tenth of a cent, of a share of IKONICS common stock on Nasdaq (as reported by Bloomberg L.P. or, if not reported therein, in another authoritative source mutually selected by the parties) in respect of the five (5) consecutive trading day period beginning at 9:30 am (New York City time) on the first day of such trading day period and ending at 4:00 pm (New York City time) on the third full trading day prior to the effective time of the First Merger.
Employment Agreement
IKONICS is party to an employment agreement with its Chief Executive Officer, Glenn Sandgren that provides for, among other things minimum annual base salary, participation in any cash incentive plans with a target incentive opportunity of 50% of his base salary, and potential payments upon termination of his employment under certain circumstances. The employment agreement was amended and restated on June 24, 2021, to provide for enhanced payments upon a termination of his employment within 18 months after a change in control. The mergers are expected to qualify as a change in control under the employment agreement.
Retention Awards
On June 24, 2021, IKONICS entered into retention awards for most employees, excluding its Chief Executive Officer. Each of the participating executive officers of IKONICS, Claude P. Piguet, Ken Hegman, and Jon Gerlach, will be entitled to receive payments under the retention awards upon the earlier of (i) a closing of Dispositions amounting to Net Proceeds (as defined in the CVR agreement), before taking into account any payments under the retention awards (“Adjusted Net Proceeds”), in excess of $5,000,000 in the
 
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aggregate or (ii) the date that is 18 months after the mergers. Each participant must remain continuously employed through the closing of any Disposition or the end of the 18-month period giving rise to a payment under his retention award.
Accounting Treatment (Page 90)
The mergers will be accounted for as a business combination in accordance with accounting principles generally accepted in the United States (“GAAP”). Under this method of accounting, TeraWulf will be treated as the accounting acquirer for financial reporting purposes. Accordingly, for accounting purposes, the mergers will be treated as the equivalent of TeraWulf acquiring IKONICS. The net assets of IKONICS will be subject to fair value adjustments under ASC 805 at the closing date of the mergers.
Interests of Certain IKONICS Directors and Executive Officers in the Mergers (Page 93)
In considering the recommendations of the IKONICS board of directors to vote for the Mergers Proposal, you should be aware that certain of IKONICS directors and executive officers, and their affiliates, have interests in the mergers that may be different from, or in addition to, the interests of other IKONICS shareholders generally and may create potential conflicts of interest. The special committee and the IKONICS board of directors were aware of each of these interests and considered them, among other things, in reviewing, considering and negotiating the terms of the proposed mergers and in recommending that IKONICS shareholders approve the adoption of the merger agreement.
These interests include the following:

Prior to the consummation of the First Merger, all IKONICS RSUs and option awards covering the issuance of shares of IKONICS common stock held by IKONICS directors and employees (including, IKONICS executive officers) that are outstanding will be fully vested and cancelled in exchange for the right to receive the merger consideration for each such award as described under “The Merger Agreement — Treatment of Outstanding Equity Awards” beginning on page 104 of this proxy statement/prospectus.

The employment agreement with Mr. Sandgren provides for enhanced cash severance payments in the event of certain terminations of employment within 18 months after a change in control. The mergers are expected to qualify as a change in control under the CEO Employment Agreement.

As a measure to encourage employee focus on IKONICS’ goals and retention during the pendency of the mergers and thereafter, IKONICS awarded retention awards to most employees, excluding Mr. Sandgren. Each of Messrs. Piguet, Hegman and Gerlach are entitled to receive a cash payment under the retention awards upon the earlier of (i) a closing of Dispositions amounting to Net Proceeds (as defined in the CVR agreement), before taking into account any payments under the retention awards (“Adjusted Net Proceeds”), in excess of $5,000,000 in the aggregate or (ii) the date that is 18 months after the mergers.

IKONICS’ directors and executive officers are entitled to continued indemnification and insurance coverage under the merger agreement.
TeraWulf Financing (Page 113)
On June 15, 2021, TeraWulf completed a private placement of 2,000,000 shares of its Series A Convertible Preferred Stock, pursuant to which TeraWulf received gross proceeds of $50,000,000. The Series A Convertible Preferred Stock will convert in accordance with its terms into shares of TeraWulf common stock that will entitle their holders to receive shares of Holdco common stock as a result of the Second Merger.
Appraisal Rights and Dissenters’ Rights (Page 90)
If the merger agreement is approved by the IKONICS shareholders at the special meeting and the First Merger is consummated, any of the IKONICS shareholders who do not vote in favor of the merger agreement and who otherwise strictly comply with Sections 302A.471 and 302A.473 of the Minnesota Business Corporation Act (“MBCA”) will be entitled to demand payment for their shares and an appraisal of the
 
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value of those shares. Any exercise of dissenters’ rights must be in accordance with the procedures set forth in Sections 302A.471 and 302A.473 of the MBCA, which sections are attached as Appendix C to this proxy statement/prospectus.
TeraWulf Stockholder Approval (Page 113)
The authorization, approval and adoption of the merger agreement is subject to the approval of the TeraWulf stockholders. The written consent or affirmative vote of the holders of a majority of the outstanding shares of TeraWulf common stock is required to approve the merger agreement and the Second Merger. In connection with the merger agreement, TeraWulf stockholders owning approximately 74.17% of the issued and outstanding shares of common stock of TeraWulf entered into a voting and support agreement with IKONICS pursuant to which, among other matters, such shareholders have agreed to vote their respective shares of common stock of TeraWulf for the approval and adoption of the merger agreement and the Second Merger.
Voting Agreement (Page 113)
In connection with the execution of the merger agreement, TeraWulf entered into a voting and support agreement with the directors and executive officers of IKONICS (the “voting agreement”). Pursuant to the voting agreement, subject to certain exceptions, the directors and executive officers, who collectively beneficially owned approximately 14.7% of the outstanding common stock of IKONICS as of the date of this proxy statement/prospectus, have committed to vote the shares they beneficially own, in favor of the adoption of the merger agreement and any other matters necessary for the consummation of the transactions contemplated by the merger agreement, including the mergers.
CVR Agreement (Page 114)
Pursuant to the merger agreement, at the closing, Holdco and IKONICS will enter into a Contingent Value Rights Agreement (the “CVR agreement”) with a person designated by Holdco and IKONICS as the Holders’ Representative (as defined therein), and the Rights Agent (as defined therein). Pursuant to the CVR agreement, each shareholder of IKONICS as of immediately prior to the effective time of the First Merger will receive one non-transferable contingent value right (each, a “CVR”) for each outstanding share of common stock of IKONICS 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 (each, a “Disposition”) of IKONICS completed within 18 months following the date of the Second Merger, 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 IKONICS 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.
Although there can be no assurance of the terms or timing of any Disposition after the closing of the mergers, it is the intent of the continuing management of IKONICS to seek one or more purchasers for a sale of the pre-merger business or assets of IKONICS, resulting in prompt distribution of applicable Net Proceeds, as soon as possible after the closing of the mergers.
The CVR agreement will terminate after all payment obligations to the CVR holders have been satisfied. CVR holders will not be eligible to receive payment for Dispositions, if any, of any part of the pre-merger business of IKONICS after the eighteen-month anniversary of the effective time of the Second Merger.
Summary of Merger Agreement (Appendix A)
The merger agreement is attached as Appendix A to this proxy statement/prospectus and governs the terms of the mergers.
 
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Conditions to the Mergers
The merger agreement contains a number of closing conditions, including the following conditions that apply to the obligations of each of IKONICS, TeraWulf, Holdco, Merger Sub I and Merger Sub II:

IKONICS shall have obtained the approval of its shareholders to adopt the merger agreement;

TeraWulf shall have obtained the approval of its shareholders to adopt the merger agreement;

the SEC shall have declared the registration statement, of which this proxy statement/prospectus forms a part, to be effective, and no stop order concerning the registration statement shall be in effect;

the shares of Holdco common stock to be issued to shareholders of IKONICS and TeraWulf pursuant to merger agreement shall have been approved for listing on Nasdaq, subject only to official notice of issuance;

any waiting period applicable to the consummation of the mergers under the HSR Act shall have expired or shall have been earlier terminated;

none of the parties to the merger agreement shall be subject to any decree, order or injunction of a U.S. court of competent jurisdiction that prohibits the consummation of the mergers; and

the Rights Agent shall have duly executed and delivered the CVR agreement.
In addition to the conditions described above, neither IKONICS nor TeraWulf is obligated to effect the mergers unless the following conditions, as applicable, are satisfied or waived by that party on or before the closing date:

The representations and warranties of the other party shall be true and correct as of the closing date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date), subject to certain exceptions depending on the specific representation and warranty.

The other parties shall have performed in all material respects their covenants and agreements under the merger agreement.

No event, circumstance, development, change or effect shall have occurred since the date the merger agreement that, individually or in the aggregate, has had, or would reasonably be expected to have, a material adverse effect on the other party.
IKONICS’ obligation to effect the mergers is subject to TeraWulf having consummated a private placement of TeraWulf common stock or other equity securities of TeraWulf, pursuant to which TeraWulf has received gross proceeds of $50,000,000 (the “TeraWulf Financing”). The TeraWulf Financing has been completed and, accordingly, this condition has been satisfied.
No Solicitation
The merger agreement contains customary “no solicitation” provisions that prohibit IKONICS from taking any action to solicit a takeover proposal. The merger agreement does not, however, prohibit IKONICS, during the twenty (20) business day period following the date of the merger agreement, from furnishing information to or participating in negotiations with a person making an unsolicited bona fide takeover proposal that IKONICS’ board of directors determines is or is reasonably likely to lead to a TeraWulf proposal if the failure to do so would be inconsistent with IKONICS’ board of directors’ fiduciary duties to its shareholders.
Termination of the Merger Agreement
The board of directors of TeraWulf or IKONICS may terminate the merger agreement at any time prior to the effective time of the First Merger (including after the special meeting of the shareholders of IKONICS, even if the shareholders have adopted the merger agreement) by mutual written consent, or if:

the parties have not consummated the mergers by December 31, 2021, and the party desiring to terminate the merger agreement for this reason has not failed to perform or observe in any material
 
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respect any of its obligations under the merger agreement in any manner that caused or resulted in the failure of the mergers to occur on or before that date;

the shareholders of IKONICS hold a meeting to consider the merger agreement and the merger agreement is submitted to shareholders of IKONICS for approval, but the shareholders of IKONICS do not vote to adopt the merger agreement upon a vote take thereon;

a U.S. federal, state or non-U.S. court of competent jurisdiction or federal, state or non-U.S. governmental, regulatory or administrative agency or commission will have issued an order, decree or ruling or taken any other action permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by the merger agreement and such order, decree, ruling or other action will have become final and nonappealable; or

one of the other parties has breached any representation or warranty or failed to perform any covenant or agreement in the merger agreement, or any representation or warranty of the other parties has become untrue, in any case such that the condition to the closing of the merger agreement related to the performance of the covenants and agreements in the merger agreement by the other party and the accuracy of the representations and warranties of the other party would not be satisfied as of the date of the termination, and the breach is not curable by December 31, 2021 or, if curable, is not cured within the earlier of (i) 30 days after the party desiring to terminate the merger agreement gives written notice of the breach to the other party and (ii) three (3) business days of December 31, 2021, and the party desiring to terminate the merger agreement is not, at the time of the termination, in breach of any representation, warranty, covenant or agreement in the merger agreement that would give rise to the right of the other party to terminate the merger agreement.
The board of directors of TeraWulf may terminate the merger agreement if:

An IKONICS adverse recommendation change has occurred;

(i) The IKONICS board of directors approves, endorses or recommends to shareholders a Superior Proposal (as defined in the merger agreement) or (ii) a tender offer or exchange offer for any outstanding shares of capital stock of IKONICS is commenced before obtaining the requisite vote from IKONICS shareholders and the IKONICS board of directors fails to recommend against acceptance of such tender offer or exchange offer by its shareholders within ten (10) business days after commencement; or

IKONICS materially breaches its non-solicitation obligations.
Expenses and Termination Fees (Page 111)
Transaction Expenses
Except as otherwise provided in the merger agreement, whether or not the mergers are consummated, all expenses (including those payable to representatives of the parties) incurred by any party or on its behalf in connection with the merger agreement and the transactions contemplated by it (“Expenses”) shall be paid by the party incurring those Expenses; provided, however, that at the closing before the effective time of the First Merger, TeraWulf will reimburse IKONICS for all actual Expenses incurred by IKONICS in connection with the negotiation, approval and consummation of the transactions contemplated by the merger agreement, including the fees and disbursements of legal counsel, filing fees and mailing costs for the registration statement and proxy materials, up to a maximum of $640,000.
IKONICS Termination Fee
IKONICS is obligated to pay TeraWulf a termination fee of $1.2 million if the merger agreement is terminated by TeraWulf as a result of IKONICS’ breach of its representations and warranties under the merger agreement or failure to perform any covenant or agreement in the merger agreement and, if at the time of such termination, all of the mutual closing conditions and the conditions to IKONICS’ obligation to effect the mergers have been satisfied or waived, subject to certain exceptions.
IKONICS is also obligated to pay TeraWulf a termination fee of up to $1.2 million if the merger agreement is terminated:
 
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by IKONICS, if prior to the receipt of the requisite vote of the shareholders of IKONICS, if and only if prior to or substantially concurrent with such termination, IKONICS substantially concurrently with such termination enters into a definitive agreement with respect to a superior proposal that did not result from a material breach of IKONICS’ non-solicitation obligations and that remained a superior proposal following IKONICS’ compliance its non-solicitation obligations;

by TeraWulf, in the event:

the IKONICS board of directors effects an adverse recommendation change;

(i) the IKONICS board of directors approves, endorses or recommends to shareholders a Superior Proposal (as defined in the merger agreement) or (ii) a tender offer or exchange offer for any outstanding shares of capital stock of IKONICS is commenced before obtaining the requisite vote from IKONICS shareholders and the IKONICS board of directors fails to recommend against acceptance of such tender offer or exchange offer by its shareholders within ten (10) business days after commencement;

there has been a material breach of the “no solicitation” provisions of the merger agreement;

if IKONICS, Holdco, Merger Sub I or Merger Sub I breaches any of its respective representations, warranties, covenants or agreements in the merger agreement, which breach would result in the applicable conditions to closing not being satisfied and cannot be cured by December 31, 2021, or, if curable, has not been cured by such entity with the earlier of 30 days after receipt of written notice of such breach from TeraWulf and three business days prior to December 31, 2021, unless TeraWulf is itself in breach of any of its representations, warranties, covenants or agreements in the merger agreement that would result in the applicable conditions to closing not being satisfied; and

if IKONICS fails to fulfill its obligation and agreement to consummate the closing, subject to the satisfaction of applicable closing conditions, after receiving any required notice from TeraWulf and TeraWulf is ready, willing and able to consummate the transactions.
TeraWulf Termination Fee
TeraWulf is obligated to pay IKONICS a termination fee of $10.0 million if the merger agreement is terminated by IKONICS as a result of TeraWulf’s uncured breach of its representations and warranties under the merger agreement or failure to perform any covenant or agreement in the merger agreement, provided, in each case, that at the time of such termination all of the conditions to IKONICS’ obligations to effect the mergers have been satisfied or waived.
Comparison of Shareholder Rights (Page 179)
IKONICS is incorporated under the laws of the State of Minnesota, and Holdco is incorporated under the laws of the State of Delaware. In accordance with the merger agreement, upon the consummation of the mergers, the former holders of IKONICS common stock will have the right to receive shares of Holdco common stock. Your rights as a shareholder of Holdco will be governed by Delaware law, Holdco’s amended and restated certificate of incorporation and Holdco’s bylaws. For a comparison of the material rights of IKONICS shareholders and Holdco shareholders under each company’s organizational documents and the Delaware statutory framework, please see “Comparison of Shareholder Rights” beginning on page 179.
Material U.S. Federal Income Tax Consequences (Page 98)
IKONICS and TeraWulf intend that the mergers taken together will qualify as an exchange under Section 351 of the Code. As a result, subject to the limitations and qualifications described in “Material U.S. Federal Income Tax Consequences,” no gain or loss is expected to be recognized by the U.S. Holders of IKONICS common stock as a result of the First Merger, except (i) with respect to the CVRs; (ii) with respect to the $5.00 in cash; and (iii) with respect to any cash received in lieu of any fractional shares of IKONICS common stock.
Please carefully review the information set forth in the section titled “Material U.S. Federal Income Tax Consequences” beginning on page 98 of this proxy statement/prospectus for a general discussion of the
 
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material U.S. federal income tax consequences of the First Merger. You are strongly urged to consult your own tax advisors as to the specific tax consequences to you of the First Merger.
Matters to be Considered at the IKONICS Special Meeting
IKONICS shareholders will be asked to vote to adopt the merger agreement, to approve on an advisory (non-binding) basis, specified compensation that may be received by IKONICS’ named executive officers in connection with the mergers, to approve an amendment to the IKONICS articles of incorporation to increase the number of authorized shares of common stock to 5,750,000, to approve one or more adjournments of the special meeting to a later date or dates if necessary or appropriate to solicit additional proxies if there are insufficient votes to approve the merger agreement at the time of the special meeting and to transact such other business as may properly come before the meeting or any adjournment or postponement thereof. At the record date, directors and executive officers of IKONICS and their respective affiliates had the right to vote 14.8% of the then outstanding shares of IKONICS common stock. Each of IKONICS’ directors and executive officers has indicated his or her present intention to vote, or cause to be voted, the shares of IKONICS common stock owned by him or her for the adoption of the merger agreement.
Summary Risk Factors
Risks Relating to the Mergers

The value of the shares of Holdco common stock may be less than the value of the shares of IKONICS common stock as of the date of the merger agreement, the date of this proxy statement/prospectus or the date of the special meeting.

IKONICS shareholders will have a reduced ownership and voting interest after the mergers and will exercise less influence over management of the combined company.

The mergers are subject to a number of conditions, some of which are beyond the control of the parties to the merger agreement.

The IKONICS shareholders and the TeraWulf stockholders may not realize a benefit from the mergers commensurate with the ownership dilution they will experience in connection with the mergers.

IKONICS shareholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.

IKONICS has incurred and will incur significant transaction costs in connection with the mergers.

While the mergers are pending, IKONICS will be subject to business uncertainties and contractual restrictions that could adversely affect its businesses.

The outcomes of lawsuits filed by shareholders of IKONICS against the IKONICS and its board of directors are uncertain and could result in significant costs, management distraction, and/or a delay of or injunction against the mergers.

Failure to complete the mergers could negatively impact the stock price and the future business and financial results of IKONICS because of, among other things, the disruption that would occur as a result of uncertainties relating to a failure to complete the mergers.

The merger agreement limits IKONICS’ ability to pursue an alternative acquisition proposal and requires IKONICS to pay a termination fee of up to $1.2 million if it does.

Some of the directors and executive officers of IKONICS have interests in the mergers that are different from the interests of IKONICS’ shareholders.
Risks Related to Ownership of Holdco Common Stock

The absence of a historical trading market for Holdco common stock creates uncertainty about future trading prices of its common stock.
 
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The combined company’s stock price may be volatile, and the market price of Holdco common stock may decline in value following the transaction.

Holdco does not expect to pay dividends on its common stock in the short term.

The existence of a majority stockholder may adversely affect the market price of Holdco’s common stock and could delay, hinder or prevent a change in corporate control or result in the entrenchment of management and the board of directors.

Offers or availability for sale of a substantial number of shares of Holdco’s common stock may cause the price of Holdco’s common stock to decline.

Holdco is expected to be a “controlled company” within the meaning of the Nasdaq rules and, as a result, may qualify for, and rely on, exemptions from various corporate governance standards, which may limit the presence of independent directors on the board of directors or board committees of Holdco.

Holdco may seek to raise additional funds, finance additional acquisitions or develop strategic relationships by issuing additional securities, including capital stock.

Provisions of Holdco’s organizational documents and Delaware law may delay or deter a change of control of Holdco.
Risks Relating to the Businesses of the Combined Company

Holdco has a limited operating history, which could negatively impact its operations, strategy and financial performance.

If Holdco is unable to successfully maintain its Equipment Supply Agreements on acceptable terms or at all, Holdco’s business, financial condition and results of operations may suffer.

The properties utilized by Holdco in its bitcoin mining operations may experience damage or losses, including damage or losses not covered by insurance.

Limitations on the availability of sites to establish mining operations may adversely affect Holdco’s business prospects.

Holdco depends on nuclear energy to power a significant portion of its bitcoin mining capacity and may be held liable for damages, regardless of fault, if incidents or evacuations were to occur at the mining facility site that utilizes nuclear energy.

Since the development, construction and operation of the Nautilus Cryptomine Facility is subject to the terms of a joint venture agreement, Holdco may have less control over strategic decisions.

Holdco’s management team has limited experience managing a public company.

Holdco depends on its management team, investment professionals and other key personnel, and the loss of their services would have a material adverse effect on Holdco.

Holdco’s future success depends on its ability to expand its organization to match the growth of its activities, and any failure to manage its growth effectively could place strains on its managerial, operational and financial resources and could adversely affect its business, financial condition and results of operations.

COVID-19 or any pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect Holdco’s business.

Holdco faces risks and disruptions related to supply chain issues, including in semiconductors and other necessary application specific integrated circuit components, which could significantly impact its business, financial condition and results of operations.

Holdco will need to raise additional capital to meet its business requirements in the future, including the unconsummated TeraWulf Equity Financings (as defined below), which capital raising may be costly or difficult to obtain or may not be obtained (in whole or in part) and, if obtained, will dilute the ownership interests of the Holdco’s shareholders.
 
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Security threats to Holdco could result in a loss of Holdco’s digital assets or damage to the reputation of Holdco, each of which could adversely affect Holdco’s business, financial condition and results of operations.

Necessary capital financing may not be available at economic rates or at all.

From time to time, Holdco will be subject to various claims, litigation and other proceedings that could ultimately be resolved against Holdco, requiring material future cash payments or charges, which could impair Holdco’s financial condition and results of operations.

The mergers will result in an ownership change of IKONICS pursuant to Section 382 of the Code, which will impose a limitation on Holdco’s ability to use IKONICS’ NOL carryforwards and other credits to offset future taxable income of Holdco or its subsidiaries (including IKONICS) for U.S. federal income tax purposes.
Risks Relating to Digital Asset Networks and Digital Assets

Digital assets, such as bitcoin, may become regulated as securities or investment securities.

The further development and acceptance of digital asset networks and other digital assets are subject to a variety of factors that are difficult to evaluate.

If demand for transactions in bitcoin declines and is replaced by new demand for other cryptocurrencies, Holdco’s business, financial condition and results of operations could be adversely affected.

Significant contributors to all or any digital asset network could propose amendments to the respective network’s protocols and software that, if accepted and authorized by such network, could adversely affect Holdco’s business, financial condition and results of operations.

The open-source structure of the bitcoin network protocol means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the bitcoin network protocol, and a failure to properly monitor and upgrade the protocol could damage the bitcoin network and adversely affect Holdco’s business, financial condition and results of operations.

If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that may adversely affect Holdco’s business, financial condition and results of operations.

If the award of digital assets for solving blocks and transaction fees for recording transactions are not sufficiently high to cover expenses related to running data center operations, it may adversely affect Holdco’s business, financial condition and results of operations.

To the extent that the profit margins of digital asset mining operations are not high, operators of digital asset mining operations are more likely to immediately sell their digital assets earned by mining in the digital asset exchange market, resulting in a reduction in the price of digital assets that may adversely affect Holdco’s business, financial condition and results of operations.

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, and any widespread delays in the recording of transactions could result in a loss of confidence in that digital asset network, which may adversely affect Holdco’s business, financial condition and results of operations.

Intellectual property rights claims may adversely affect the operation of some or all digital asset networks.

To the extent that the digital asset exchanges representing a substantial portion of the volume in digital asset trading are involved in fraud or experience security failures or other operational issues, such digital asset exchanges’ failures may result in a reduction in the price of some or all digital assets and may adversely affect Holdco’s business, financial condition and results of operations.
 
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Political or economic crises may motivate large-scale sales of digital assets, which could result in a reduction in some or all digital assets’ values and adversely affect Holdco’s business, financial condition and results of operations.

Holdco’s ability to adopt technology in response to changing security needs or trends poses a challenge to the safekeeping of Holdco’s digital assets.

Digital asset transactions are irrevocable, and stolen or incorrectly transferred digital assets may be irretrievable and, as a result, any incorrectly executed digital asset transactions may adversely affect Holdco’s business, financial condition and results of operations.

The limited rights of legal recourse against Holdco, and Holdco’s lack of insurance protection, exposes Holdco and its stockholders to the risk of loss of its digital assets for which no person is liable.

Holdco may not have adequate sources of recovery if its digital assets are lost, stolen or destroyed.

The loss or destruction of a private key required to access a digital asset may be irreversible and, as a result, Holdco’s loss of access to its private keys or its experience of a data loss relating to its digital assets may adversely affect Holdco’s business, financial condition and results of operations.

Because many of Holdco’s digital assets are held by digital asset exchanges, it faces heightened risks from cybersecurity attacks and financial stability of digital asset exchanges.

As the number of digital assets awarded for solving a block in the blockchain decreases, the incentive for miners to continue to contribute processing power to the respective digital asset network will transition from a set reward to transaction fees.

The price of bitcoin may be influenced by regulatory, commercial and technical factors that are highly uncertain resulting in the price of bitcoin being extremely volatile, which may significantly influence the market price of Holdco’s common stock.

The sale of Holdco’s digital assets to pay expenses at a time of low digital asset prices may adversely affect Holdco’s business, financial condition and results of operations.
Risks Relating to Regulatory and Political Matters

Regulatory changes or actions may restrict the use of bitcoins or the operation of the bitcoin network in a manner that may adversely affect Holdco’s business, financial condition and results of operations.

Holdco may be required to register and comply with bitcoin regulations and, to the extent that Holdco decides to continue operations, the required registrations and regulatory compliance steps may result in extraordinary expenses to Holdco.

If recently proposed legislation were to be enacted, it is possible that additional tax reporting requirements may be imposed on Holdco, which would result in potentially substantial tax and regulatory compliance burdens on Holdco and its operations.
Controlled Company Exemption
It is expected that Paul Prager, TeraWulf’s Chief Executive Officer, and Stammtisch Investments LLC (“Stammtisch”), a company controlled by Paul Prager, will together have the right to vote a majority of Holdco’s outstanding common stock upon consummation of the mergers and, therefore, will have the power to elect a majority of Holdco directors, in each case, through their respective ownership of shares of Holdco common stock as well as through the exercise by them of voting control over shares of Holdco common stock with respect to which they have been granted irrevocable voting proxies. Assuming a stock price of $26.74, the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch would be expected to hold, immediately following the consummation of the mergers, approximately 62.4% of the voting power of Holdco. Assuming the stock price of $32.09, a 20% increase from the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch would be expected to hold, immediately following the consummation of the mergers,
 
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approximately 62.7% of the voting power of Holdco. Assuming the stock price of $21.39, a 20% decrease from the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch would be expected to own, immediately following the consummation of the mergers, approximately 62.1% of the voting power of Holdco. For further details, see “Security Ownership of Certain Beneficial Owners and Management/Directors of TeraWulf.”
Pursuant to the Nasdaq listing standards, a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company qualifies as a “controlled company.” As a controlled company, Holdco will be exempt from certain Nasdaq corporate governance requirements, including the requirements that (i) a majority of such “controlled company’s” board of directors consist of independent directors, (ii) compensation of executive officer be determined or recommended to such “controlled company’s” board of directors by a majority of independent directors or by a compensation committee composed entirely of independent directors, and (iii) director nominees be selected or recommended for selection by a majority of independent directors or by a committee composed entirely of independent directors. For at least some period following the consummation of the mergers, Holdco will be permitted to utilize these exemptions.
As a controlled company, Holdco expects to elect not to comply with certain Nasdaq corporate governance requirements, including the requirements that (i) a majority of Holdco’s board of directors consist of independent directors, (ii) compensation of executive officers be determined or recommended to Holdco’s board of directors by a majority of independent directors or by a compensation committee composed entirely of independent directors and (iii) director nominees be selected or recommended for selection by a majority of independent directors. Holders of Holdco common stock will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of Nasdaq. See “Governance and Management of Holdco — Controlled Company.” If Holdco ceases to be a “controlled company” and its shares continue to be listed on Nasdaq, Holdco will be required to comply with these standards.
 
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CORPORATE STRUCTURES
The following charts summarize IKONICS’ and TeraWulf’s respective corporate structures as of October 11, 2021:
[MISSING IMAGE: tm2123603d7-fc_ikonicsbw.jpg]
The following chart summarizes the corporate structure of Holdco, IKONICS and TeraWulf as of on a pro forma basis, after giving effect to the mergers and any ancillary transactions, transfers, agreements or undertakings necessary, whether by contract or operation of law, to effect these transactions (the “Transactions”):
[MISSING IMAGE: tm2123603d1-fc_expectedbw.jpg]
 
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UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information presents the combination of the financial information of TeraWulf and IKONICS, adjusted to give effect to the consummation of the mergers and related transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.”
The following unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting under U.S. GAAP and gives effect to the consummation of the mergers, which will be accounted for as a reverse acquisition, with TeraWulf being deemed the acquiring company for accounting purposes. TeraWulf was determined to be the acquiring company for accounting purposes based upon the terms of the merger agreement and other factors, including (i) TeraWulf’s stockholders are expected to own a majority of the voting interests of Holdco immediately following the consummation of the mergers and (ii) directors appointed by TeraWulf will comprise a majority of the member of the board of directors of Holdco following consummation of the mergers.
The unaudited pro forma condensed combined financial statements have been prepared from and should be read in conjunction with:

the accompanying notes to the unaudited pro forma condensed combined financial statements;

the historical unaudited condensed consolidated financial statements of TeraWulf as of and for the three months ended June 30, 2021 and the related notes, contained elsewhere in this proxy statement/prospectus;

the historical audited financial statements of TeraWulf as of March 31, 2021 and for the period from February 8, 2021 (date of inception) to March 31, 2021 and the related notes, contained elsewhere in this proxy statement/prospectus;

the historical unaudited condensed financial statements of IKONICS as of and for the three and six months ended June 30, 2021 and the related notes, contained elsewhere in this proxy statement/prospectus;

the historical audited financial statements of IKONICS as of and for the year ended December 31, 2020 and the related notes, contained elsewhere in this proxy statement/prospectus; and

other information relating to TeraWulf and IKONICS contained elsewhere in this proxy statement/prospectus, including the merger agreement and the description of certain terms thereof set forth in the section titled “The Mergers.”
The unaudited pro forma condensed combined balance sheet as of June 30, 2021 combines the historical balance sheet of TeraWulf and the historical balance sheet of IKONICS on a pro forma basis and gives effect to the mergers as if they had occurred on June 30, 2021.The unaudited pro forma condensed combined statements of operations for the six months ended June 30, 2021 and the year ended December 31, 2020 combine the historical results of operations of TeraWulf and historical statements of operations of IKONICS for such periods on a pro forma basis and give effect to the mergers as if they had occurred on January 1, 2020, the beginning of the earliest period presented.
Because TeraWulf will be treated as the acquiring company for accounting purposes, TeraWulf’s assets and liabilities will be recorded at their carrying amounts prior to the consummation of the mergers and the historical operations that are reflected in the unaudited pro forma condensed combined financial information will be those of TeraWulf. IKONICS’ assets and liabilities will be measured and recognized at their fair values as of the closing date of the mergers and combined with the assets, liabilities and results of operations of TeraWulf following consummation of the mergers.
The unaudited pro forma condensed combined financial information is based on the assumptions and adjustments that are described in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information. The application of the acquisition method of accounting depends upon certain valuations and other studies that have yet to be completed. Accordingly, the pro forma adjustments are preliminary, subject to further revision as additional information becomes
 
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available and additional analyses are performed and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final acquisition accounting, expected to be completed following the consummation of the mergers, will occur and these differences could have a material impact on the accompanying unaudited pro forma condensed combined financial information and Holdco’s future financial position and results of operations. In addition, differences between the preliminary and final amounts will likely occur as a result of the amount of cash used for IKONICS’ operations, changes in the fair value of IKONICS common stock, changes in the fair value of the CVRs and other changes in IKONICS’ assets and liabilities.
In addition, the unaudited pro forma condensed combined financial information does not give effect to the potential impact of current financial conditions, regulatory matters, operating efficiencies or other savings or expenses that may be associated with the integration of TeraWulf and IKONICS. The unaudited pro forma condensed combined financial information is preliminary and has been prepared for illustrative purposes only and is not necessarily indicative of the financial position or results of operations in future periods or the results that actually would have been realized had TeraWulf and IKONICS been a combined company during the specified periods.
 
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UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JUNE 30, 2021
(1)TeraWulf
(2)Ikonics
Pro Forma
Adjustments
Note 3
Pro Forma
Combined
ASSETS
CURRENT ASSETS:
Cash
$ 31,721,000 $ 2,260,855 $ (10,419,010) (c) $ 23,562,845
Trade receivables, net
1,651,035 1,651,035
Inventories
1,607,828 (1,607,828) (f) 3,277,270
3,277,270 (g)
Prepaid expenses and other assets
2,216,000 193,198 2,409,198
Total current assets
33,937,000 5,712,916 (8,749,568) 30,900,348
Equity in nest assets of investee
42,100,000 42,100,000
PROPERTY, PLANT, AND EQUIPMENT:
Property, plant and equipment
916,000 16,494,121 (16,494,121) (f) 10,894,166
9,978,166 (g)
Less accumulated depreciation
(9,410,087) 9,410,087 (f)
Total property, plant and equipment at cost, net
916,000 7,084,034 2,894,132 10,894,166
Deposits
407,000 407,000
Intangible Assets, net
245,832 (245,832) (f) 3,699,484
3,699,484 (g)
Goodwill
55,340,026 (b) 55,340,026
Other assets
1,464,000 1,464,000
Total assets
$ 78,824,000 $ 13,042,782 $ 52,938,242 $ 144,805,024
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable and other accrued liabilities
$ 4,065,000 $ 2,088,057 $ 15,184,494 (e) $ 21,337,551
Current portion of operating lease liability
48,000 48,000
Contingent Value Rights
10,142,967 (c) 10,142,967
Total current liabilities
4,113,000 2,088,057 25,327,462 31,528,519
Operating lease liability, net of current portion
1,037,000 1,037,000
Total liabilities
5,150,000 2,088,057 25,327,462 32,565,519
COMMITMENTS AND CONTINGENCIES
Series A preferred stock, par value $0.001 per share
49,815,000 (49,815,000) (j)
STOCKHOLDERS’ EQUITY
Common stock, par value $0.001 per share
50,000 2,084 (c) 104,675
52,106 (d)
485 (h)
Common stock, par value $0.10 per share
198,069 (198,069) (a)
Additional paid-in-capital
29,892,000 2,902,790 (2,902,790) (a) 145,902,325
53,747,916 (c)
(52,106) (d)
12,499,515 (h)
49,815,000 (j)
Retained earnings / (accumulated deficit)
(6,083,000) 7,853,866 (7,853,866) (a) (33,767,494)
(15,184,494) (e)
(12,500,000) (h)
Total stockholders’ equity
23,859,000 10,954,725 77,425,781 112,239,506
Total liabilities and stockholders’ equity
$ 78,824,000 $ 13,042,782 $ 52,938,242 $ 144,805,024
(1)
Derived from the unaudited balance sheet of TeraWulf as of June 30, 2021.
(2)
Derived from the unaudited balance sheet of IKONICS as of June 30, 2021.
 
27

 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2021
(1)TeraWulf
(2)Ikonics
Pro Forma
Adjustments
Note 3
Pro Forma
Combined
Net sales
$ $ 7,324,756 $ $ 7,324,756
Cost of goods sold
4,899,120 4,899,120
Gross profit
2,425,636 2,425,636
Cost of opertions:
Operating expenses
968,000 968,000
Selling, general and administrative expenses
4,975,000 3,128,093 (1,815,506) (e) 6,412,797
(413,933) (f)
539,143 (g)
Research and development expenses
263,817 263,817
Total cost of operations
5,943,000 3,391,910 (1,690,296) 7,644,614
Loss from operations
(5,943,000) (966,274) 1,690,296 (5,218,978)
Interest expense
(102,340) (102,340)
Other income
5,175 5,175
Loss before income taxes
(5,943,000) (1,063,439) 1,690,296 (5,316,143)
Income tax benefit
(19,524) (19,524)
Equity in net loss of investee, net of tax
140,000 140,000
Net loss
$ (6,083,000) $ (1,043,915) $ 1,690,296 $ (5,436,619)
Loss per common share:
Basic and diluted
$ (0.53) $ (0.05)
Weighted average common shares outstanding:
Basic and diluted
1,977,368 102,697,337 (i) 104,674,705
(1)
Derived from the audited statement of operations of TeraWulf for the period from February 8, 2021 (date of inception) to March 31, 2021 and the unaudited consolidated statement of operations of TeraWulf for the three months ended June 30, 2021.
(2)
Derived from the unaudited statement of operations of IKONICS for the six months ended June 30 , 2021.
 
28

 
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2020
(1)TeraWulf
(2)IKONICS
Pro Forma
Adjustments
Note 3
Pro Forma
Combined
Net sales
$      — $ 13,432,220 $ $ 13,432,220
Cost of goods sold
9,527,143 9,527,143
Gross profit
3,905,077 3,905,077
Cost of operations:
Selling, general and administrative expenses
5,019,604 (698,054) (f) 5,399,836
1,078,286 (g)
Selling, general and administrative expenses attributable to related party share issuance
12,500,000 (h) 12,500,000
Research and development expenses
671,493 671,493
Total cost of operations
5,691,097 12,880,232 18,571,329
Loss from operations
(1,786,020) (12,880,232) (14,666,252)
Interest expense
(86,561) (86,561)
Other income
1,223,261 1,223,261
Loss before income taxes
(649,320) (12,880,232) (13,529,552)
Income tax benefit
(210,000) (210,000)
Net loss
$ $ (439,320) $ (12,880,232) $ (13,319,552)
Loss per common share:
Basic and diluted
$ (0.22) $ (0.13)
Weighted average common shares outstanding:
Basic and diluted
1,976,354 102,697,337 (i) 104,673,691
(1)
TeraWulf was not formed as of December 31, 2020 and, therefore, had no business activity during the year ended December 31, 2020.
(2)
Derived from the audited statement of operations of IKONICS for the year ended December 31, 2020.
 
29

 
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Note 1 — Description of the Mergers and Basis of Presentation
The unaudited pro forma condensed combined financial information was prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of Regulation S-X and presents the pro forma financial position and results of operations of the combined companies based upon the historical data of TeraWulf and IKONICS.
Description of the Mergers
IKONICS entered into the merger agreement, dated as of June 24, 2021, with Holdco, a Delaware corporation and direct wholly-owned subsidiary of IKONICS, Merger Sub I, a Minnesota corporation and direct wholly-owned subsidiary of Holdco, Merger Sub II, a Delaware corporation and direct wholly-owned subsidiary of Holdco, and TeraWulf, a Delaware corporation, pursuant to which, among other things, Merger Sub I will merge with and into IKONICS, with IKONICS surviving the First Merger as a wholly-owned subsidiary of Holdco, and, immediately following the effective time of the First Merger, Merger Sub II will merge with and into TeraWulf, with TeraWulf surviving the Second Merger as a wholly-owned subsidiary of Holdco.
Under the terms of the merger agreement, in connection with the First Merger, each share of IKONICS common stock issued and outstanding immediately prior to the effective time of the First Merger automatically will be converted into and exchanged for (i) one validly issued, fully paid and non-assessable share of Holdco Common Stock, (ii) one contractual contingent value right to be issued by Holdco in accordance with the CVR agreement and (iii) the right to receive $5.00 in cash, without interest. Each share of Holdco Common Stock held by IKONICS issued and outstanding immediately prior to the effective time of the First Merger automatically will be cancelled and cease to exist as of the effective time of the First Merger, and each share of Merger Sub I common stock issued and outstanding as of immediately prior to the effective time of the First Merger automatically will be converted into and exchanged for one validly issued, fully paid and non-assessable share of common stock of the surviving IKONICS entity.
At the effective time of the Second Merger, (i) each share of TeraWulf Preferred Stock issued and outstanding automatically will be converted into shares of 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 effective time of the Second Merger (other than any TeraWulf Dissenting Shares) will automatically be converted into the right to receive a number of validly issued, fully paid and non-assessable shares of Holdco Common Stock equal to (x) a number of shares of Holdco Common Stock that is equal to forty-nine times the number of shares of Holdco Common Stock outstanding as of immediately following the effective time of the First Merger and immediately prior to the effective time of the Second Merger, divided by (y) the number of shares of TeraWulf Common Stock outstanding on a fully diluted basis as of immediately prior to the effective time of the Second Merger. Each share of Merger Sub II common stock issued and outstanding immediately prior to the effective time of the Second Merger automatically will be converted into and exchanged for one validly issued, fully paid and non-assessable share of common stock of the surviving TeraWulf entity, and each share of TeraWulf Preferred Stock and TeraWulf Common Stock held by TeraWulf or IKONICS and their respective affiliates in treasury as of the effective time of the Second Merger will be canceled.
Following the consummation of the mergers, IKONICS must operate its businesses consistent with past practices and, subject to the terms and conditions of the CVR agreement, must use reasonable best efforts to pursue and consummate dispositions of its assets and businesses existing prior to the consummation of the mergers as soon as reasonably practicable. IKONICS will continue to support these existing businesses as it pursues the disposition of its assets and businesses existing prior to consummation of the mergers.
The closing of the mergers is subject to certain closing conditions, including approval of the merger agreement by the stockholders of IKONICS.
 
30

 
Basis of Presentation
TeraWulf has preliminarily concluded that the mergers represent a business combination pursuant to Financial Accounting Standards Board Accounting Standards Codification Topic 805, Business Combinations. TeraWulf has not yet completed an external valuation analysis of the fair value of IKONICS’ assets to be acquired and liabilities to be assumed. Using the estimated total consideration for the mergers, TeraWulf has estimated the allocations to such assets and liabilities. This preliminary purchase price allocation has been used to prepare pro forma adjustments in the unaudited pro forma condensed combined balance sheet. The final purchase price allocation will be determined when TeraWulf has determined the final consideration and completed the detailed valuations and other studies and necessary calculations. The final purchase price allocation could differ materially from the preliminary purchase price allocation used to prepare the pro forma adjustments. The final purchase price allocation may include (i) changes in fair values of property, plant and equipment, (ii) changes in allocations to intangible assets and goodwill, (iii) other changes to assets and liabilities and (iv) changes to the purchase consideration, including changes based on the valuation of contingent consideration and the price of IKONICS Common Stock.
Acquisition accounting rules require evaluation of certain assumptions and estimates or determination of financial statement classifications, which are completed during the measurement period as defined under accounting standards in effect as of the date of this proxy statement/prospectus. The accounting policies of IKONICS may materially vary from those of TeraWulf. During preparation of the unaudited pro forma condensed combined financial information, a preliminary analysis was performed and TeraWulf is not aware of any material differences. Accordingly, this unaudited pro forma condensed combined financial information assumes no material differences in accounting policies between TeraWulf and IKONICS other than the pro forma reclassifications detailed in Note 3. Following the consummation of the mergers and during the measurement period, a final review of accounting policies will be performed. As a result of this review, management may identify differences that, when conformed, could have a material impact on the unaudited pro forma condensed combined financial information.
The unaudited pro forma condensed combined financial information was prepared without the application of held for sale accounting to any long-lived asset or disposal group of IKONICS because it is expected that the applicable held for sale criteria will not be met on the date of consummation of the mergers.
The merger agreement generally restricts IKONICS’ ability to sell its assets and operations and there is no expectation that IKONICS will commit to a plan to sell its assets and operations until after the consummation of the mergers. Accordingly, it is not expected that the IKONICS pre-manager business will be actively marketed for sale until after the consummation of the mergers.
Subsequent to the consummation of the mergers, upon satisfaction of all applicable U.S. GAAP criteria for the classification of the IKONICS’ pre-merger business as held for sale, and because this represents a strategic shift in the business also as a discontinued operation, the presentation of the IKONICS’ pre-merger business will be as follows:
(1)   the results of the discontinued operations, less applicable taxes (benefits), or a loss recognized on classification as held for sale, shall be reported as a separate component of income in the consolidated statements of operations, and
(2)   assets and liabilities shall be presented separately in the asset and liability sections, respectively, in the consolidated balance sheets.
The potential sale (to broadly include a sale, transfer, disposition of, spin-off, or license of all or any part) of the IKONICS’ pre-merger business is subject to certain risks and uncertainties, including the ability to consummate such a sale, the potential timing of a sale and the ability to receive a sale price in excess of the then carrying amount of IKONICS’ pre-merger business. The sale of the IKONICS’ pre-merger business may not be consummated in the near future, if ever, and the potential terms of the sale may result in a loss on sale. Upon consummation of a sale of IKONICS’ pre-merger business, if ever, a gain or loss on the sale shall be calculated and presented separately in the consolidated statements of operations.
 
31

 
Note 2 — Estimated Consideration and Preliminary Purchase Price Allocation
Estimated consideration of approximately $74.3 million is based, in part, on the estimated enterprise value of TeraWulf of $2.7 billion, which is based on a discounted cash flow analysis and implies a share price of Holdco Common Stock of $25.79 on the date of consummation of the mergers. The value of purchase price consideration will change based on fluctuations in the price per share of Holdco Common Stock and the number of shares of IKONICS Common Stock and TeraWulf Common Stock outstanding on the date of consummation of the mergers. The estimated consideration has not recognized any potential reimbursement by TeraWulf to IKONICS for actual incurred transaction expenses as contemplated by the merger agreement as the final amount is not known. The following table summarizes the components of the estimated consideration:
Estimated IKONICS shares outstanding(1)
1,981,527
Estimated RSUs and stock options subject to accelerated vesting(2)
102,275
Subtotal
2,083,802
Cash consideration (per IKONICS share)
$ 5.00
Estimated share-based cash portion of purchase price
$ 10,419,010
Contingent Value Rights
$ 10,142,967
Estimated TeraWulf enterprise value
$ 2,700,000,000
Estimated shares at consummation of the mergers(3)
104,674,705
Implied Holdco share price
$ 25.79
Estimated IKONICS shares outstanding(1)
1,981,527
Estimated RSUs and stock options subject to accelerated vesting(2)
102,275
Subtotal
2,083,802
Equity portion of purchase price
$ 53,750,000
Total estimated consideration to be paid
$ 74,311,977
(1)
Represents the number of shares of IKONICS Common Stock outstanding as of September 14, 2021.
(2)
Represents the share issuance impact of IKONICS’ restricted stock units and stock options subject to accelerated vesting as of September 14, 2021.
(3)
Represents the estimated total outstanding shares of Holdco Common Stock upon consummation of the mergers as follows:
Shares issued to TeraWulf stockholders
102,106,298
Shares issued to IKONICS stockholders
2,083,802
Shares issued under awards to employees of Beowulf E&D
484,605
104,674,705
The equity portion of the purchase price will depend on the market price of Holdco Common Stock on the date of consummation of the mergers. The following table illustrates the effect of change in price per share of Holdco Common Stock and the resulting impact on the purchase price.
Implied Holdco
share price
Purchase Price
(equity portion)
As presented
$ 25.79 $ 53,750,000
10% increase
$ 28.37 $ 59,117,463
10% decrease
$ 23.21 $ 48,365,044
20% increase
$ 30.95 $ 64,493,672
20% decrease
$ 20.63 $ 43,009,673
 
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Implied Holdco
share price
Purchase Price
(equity portion)
50% increase
$ 38.69 $ 80,622,299
50% decrease
$ 12.90 $ 26,881,046
The CVR portion of the purchase price will depend on the net proceeds received for IKONICS’ pre-merger business when such sale is consummated. The preliminary estimated CVR portion of the purchase price is computed based (1) on a historical time weighted average of average market capitalization of IKONICS less all working capital items, except inventory, on the balance sheet of IKONICS over the prior eight quarters (where the most recent quarter is weighted the highest and each preceding quarter is weighted successively less), (2) on an assumption of estimated transaction costs of 2%, (3) on CVR holders receiving 95% of net proceeds from a sale of IKONICS’ pre-merger business and (4) on an estimated probability of consummation of the sale of IKONICS’ pre-merger business of 95% within the 18 month CVR period.
TeraWulf has performed a preliminary valuation analysis of the fair value of IKONICS’ assets and liabilities. The following table summarizes the allocation of the preliminary purchase price as of the date of the acquisition of the mergers:
Cash
$ 2,260,855
Trade receivables, net
1,651,035
Inventories
3,277,270
Prepaid expenses and other assets
193,198
Property, plant and equipment
9,978,166
Intangible assets
3,699,484
Goodwill 55,340,026
Accounts payable and accrued liabilities
(2,088,057)
Total estimated consideration
$ 74,311,977
Under the acquisition method of accounting, the total purchase price is allocated to the acquired tangible and intangible assets and assumed liabilities of IKONICS based on their estimated fair values as of the date of consummation of the mergers. The excess of the acquisition consideration paid over the estimated fair values of net assets acquired is recorded as goodwill in the unaudited pro forma condensed combined balance sheet.
Note 3 — Pro Forma Adjustments
The pro forma adjustments are based on preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma condensed combined financial information:
(a)
Represents the elimination of the historical equity of IKONICS.
(b)
Represents the estimated initial allocation of excess purchase price to goodwill (see Note 2 to the Unaudited Pro Forma Condensed Combined Financial Information).
(c)
Represents the components of the estimated purchase price for IKONICS, including the allocation of the equity component between Holdco Common Stock, based on a par value of $0.001 per share, and additional paid-in capital (see Note 2 to the Unaudited Pro Forma Condensed Combined Financial Information).
(d)
Represents the estimated issuance of incremental shares of Holdco Common Stock to TeraWulf’s stockholders in accordance with the merger agreement as follows:
Shares attributed to IKONICS common stock conversion
2,083,802
Aggregate TeraWulf share amount – multiple of IKONICS attributed shares
49
 
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Aggregate TeraWulf share amount
102,106,298
Less: number of outstanding TeraWulf shares
50,000,000
Incremental TeraWulf shares
52,106,298
Par value
$ 0.001
Par value of incremental TeraWulf shares
$ 52,106
(e)
Reflects adjustments regarding the impact of estimated direct, incremental merger transaction costs of both TeraWulf and IKONICS, such as legal, financial advisory, and accounting expenses, estimated as follows:
Merger costs reflected in the historical financial statements(1)
$ 1,815,506
Merger costs not yet reflected in the historical financial statements(2)
15,184,494
Total estimated direct, incremental Merger transaction costs
$ 17,000,000
(1)
Direct, incremental merger transaction costs reflected in the unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2021, are removed because these costs are non-recurring and directly related to the mergers.
(2)
Direct, incremental merger transaction costs not yet reflected in the historical financial statements are reflected as an adjustment in the unaudited pro forma condensed combined balance sheet (but not in the unaudited pro forma condensed combined statements of operations because these costs are non-recurring and directly related to the mergers).
(f)
Represents the elimination of IKONICS’ historical inventory, property, plant and equipment, accumulated depreciation and intangible assets, net in the unaudited pro forma condensed combined balance sheet and the elimination of historical depreciation and amortization in the unaudited pro forma condensed combined statements of operations.
(g)
Represents the estimated and preliminary allocation of the purchase price to acquired tangible and intangible assets and the estimated depreciation and amortization expense included in the unaudited pro forma condensed combined statements of operations, as follows:
Preliminary
Purchase
Price
Allocation
Weighted
Average
Useful
Life
Depreciation
or
Amortization
for the Year
Ended
December 31,
2020
Depreciation
or
Amortization
for the Six
Months
Ended
June 30,
2021
Inventory
$ 3,277,270
Property, plant and
equipment
$ 9,978,166 23.3 $ 515,772 $ 257,886
Intangible Assets:
Intellectual property
$ 1,535,045 7.1 $ 216,535 $ 108,268
Trademarks and trade
names
869,085 10.0 86,908 43,454
Customer relationships
1,295,355 5.0 259,071 129,535
Total intangible assets
$ 3,699,484 $ 562,514 $ 281,257
The final purchase price allocation, including identifying and establishing the fair value of acquired intangible assets, will be determined when TeraWulf has determined the final consideration and completed the detailed valuations and other studies and necessary calculations. The final purchase price allocation could differ materially from the preliminary purchase price allocation used to prepare the pro forma adjustments.
 
34

 
(h)
Represents awards with respect to shares of common stock issued to certain employees of Beowulf Electricity & Data Inc. (“Beowulf E&D”), a company controlled by TeraWulf’s Chief Executive Officer, upon consummation of the mergers in accordance with the administrative and infrastructure services agreement, dated as of April 27, 2021.
Value of share awards due to Beowulf E&D employees
$ 12,500,000
Implied Holdco share price
$ 25.79
Shares issued under awards to Beowulf E&D employees
484,605
Par value
$ 0.001
Par value of shares issued under awards to Beowulf E&D employees
$ 485
(i)
Represents the increase in the estimated weighted average shares due to the issuance of the shares of Holdco Common Stock in connection with consummation of the mergers as follows:
Shares issued to TeraWulf stockholders
102,106,298
Shares issued to IKONICS holders of RSUs or stock options
106,434
Shares issued under awards to employees of Beowulf E&D
484,605
102,697,337
(j)
Represents the conversion of TeraWulf Preferred Stock into Holdco Common Stock.
 
35

 
COMPARATIVE PER SHARE MARKET PRICE, TICKER SYMBOL AND DIVIDEND INFORMATION
Stock Prices
Shares of IKONICS common stock are listed for trading on The Nasdaq Stock Market LLC under the symbol “IKNX.” The following table sets forth the closing sales prices per share of IKONICS common stock on the following dates:

June 24, 2021, the last full trading day prior to the public announcement of the mergers, and

October 8, 2021, the last practicable trading day for which this information could be calculated prior to the filing of this proxy statement/prospectus.
IKONICS
Common Stock
June 24, 2021
$    11.30
October 8, 2021
$ 28.71
Dividends
IKONICS declared and paid its only dividend as a one-time dividend of $1.00 per share in December 2012. IKONICS is prohibited by the merger agreement from paying any dividends.
The board of directors of Holdco will determine the dividend policy of Holdco after consummation of the mergers. As of the date of this proxy statement/prospectus, there is no established trading market for Holdco common stock, and shares of Holdco common stock do not currently trade separately from shares of IKONICS common stock. There can be no assurance that Holdco will pay or continue to pay a dividend, and the timing, declaration, amount and payment by Holdco of any dividend or distribution will be within the discretion of the board of directors of Holdco.
 
36

 
RISK FACTORS
In addition to the other information included and incorporated by reference in this proxy statement/prospectus, IKONICS shareholders should carefully consider the matters described below to determine whether to adopt the merger agreement and thereby approve the and the advisory vote on specified compensation. Additional risks and uncertainties are described in detail under the caption “Risk Factors” in IKONICS’ Annual Report on Form 10-K for the year ended December 31, 2020.
Risks Relating to the Mergers
The value of the shares of Holdco common stock received upon the consummation of the mergers may be less than the value of your shares of the IKONICS common stock as of the date of the merger agreement, the date of this proxy statement/prospectus or the date of the IKONICS special meeting.
The exchange ratios in the mergers will not be adjusted in the event of any change in the stock price of IKONICS prior to the mergers. There may be a significant amount of time between the dates when the shareholders of IKONICS vote on the merger agreement at the special meeting and the date when the mergers are completed. The absolute and relative prices of shares of IKONICS common stock may vary significantly between the date of this proxy statement/prospectus, the date of the special meeting and the date of the completion of the mergers. These variations may be caused by, among other things, changes in the businesses, operations, results or prospects of IKONICS, market expectations of the likelihood that the mergers will be completed and the timing of completion, the prospects of Holdco’s post-closing operations, general market and economic conditions and other factors. In addition, it is impossible to predict accurately the market price of the Holdco common stock to be received by IKONICS shareholders after the completion of the mergers. Accordingly, the prices of IKONICS common stock on the date of this proxy statement/prospectus and on the date of the IKONICS special meeting may not be indicative of their prices immediately prior to completion of the mergers or the price of Holdco common stock after the mergers are completed.
IKONICS shareholders will have a reduced ownership and voting interest after the mergers and will exercise less influence over management of the combined company.
After the completion of the mergers, IKONICS shareholders will own a smaller percentage of the combined company than they currently own of IKONICS. Upon completion of the mergers, assuming no exercise of appraisal rights, the former shareholders of TeraWulf will own approximately 98%, and former IKONICS shareholders (excluding the effect of stock options) will own approximately 2%, of Holdco common stock issued and outstanding at the time of completion of the mergers. Consequently, IKONICS shareholders, as a group, will have significantly reduced ownership and voting power in the combined company compared to their ownership and voting power in IKONICS prior to the completion of the mergers. In particular, IKONICS shareholders, as a group, will have less than a majority of the ownership and voting power of Holdco and, therefore will be able to exercise significantly less influence over the management and policies of the combined company than they currently exercise over the management and policies of IKONICS.
The mergers are subject to a number of conditions, some of which are beyond the control of the parties to the merger agreement.
The merger agreement contains a number of closing conditions, including the following conditions that apply to the obligations of each of IKONICS, TeraWulf, Holdco, Merger Sub I and Merger Sub II:

IKONICS shall have obtained the approval of its shareholders to adopt the merger agreement;

TeraWulf shall have obtained the approval of its shareholders to adopt the merger agreement;

the SEC shall have declared the registration statement, of which this proxy statement/prospectus forms a part, to be effective, and no stop order concerning the registration statement shall be in effect;

the shares of Holdco common stock to be issued to shareholders of IKONICS and TeraWulf pursuant to merger agreement shall have been approved for listing on Nasdaq, subject only to official notice of issuance;
 
37

 

any waiting period applicable to the completion of the mergers under the HSR Act shall have expired or shall have been earlier terminated;

none of the parties to the merger agreement shall be subject to any decree, order or injunction of a U.S. court of competent jurisdiction that prohibits the consummation of the mergers; and

the Rights Agent shall have duly executed and delivered the CVR agreement.
In addition to the conditions described above, neither IKONICS nor TeraWulf is obligated to effect the mergers unless the following conditions, as applicable, are satisfied or waived by that party on or before the closing date:

The representations and warranties of the other party shall be true and correct (subject to the materiality standards provided in the merger agreement) as of the closing date (except to the extent such representations and warranties expressly relate to an earlier date, in which case as of such earlier date), except where the failure of any such representations and warranties to be true and correct, individually or in the aggregate, has not had and is not reasonably likely to have a material adverse effect on the party making the representation or warranty (and the receipt by each party of an officer’s certificate from the other party to such effect).

The other parties shall have performed in all material respects their covenants and agreements under the merger agreement.

No event, circumstance, development, change or effect shall have occurred since the date the merger agreement that, individually or in the aggregate, has had, or would reasonably be expected to have, a material adverse effect on the other party.
There can be no assurance regarding when these conditions will be satisfied, if at all.
The IKONICS shareholders and the TeraWulf stockholders may not realize a benefit from the mergers commensurate with the ownership dilution they will experience in connection with the mergers.
IKONICS and TeraWulf anticipate that the market value of the percentage of common stock of Holdco owned by the companies’ respective existing shareholders following completion of the mergers will be roughly equivalent to the market value of the aggregate common stock of each respective company prior to completion of the mergers, after giving effect to the payment of cash and the distribution of CVRs as part of the merger consideration payable to IKONICS shareholders. However, if Holdco is unable to realize the strategic financial benefits currently anticipated from the mergers, the shareholders of IKONICS and TeraWulf will have experienced substantial dilution of their respective ownership interests without receiving the commensurate benefit.
IKONICS shareholders may not receive any payment on the CVRs and the CVRs may otherwise expire valueless.
The right of IKONICS shareholders to receive any future payment on or derive any value from the CVRs will be contingent solely upon the ability of IKONICS to sell, transfer, dispose of, spin-off, or license of all or any part of its pre-merger business, upon the terms and subject to the conditions specified in the CVR agreement, within the 18-month time period specified in the CVR agreement, and the consideration received being greater than the amounts permitted to be retained or deducted by Holdco under the CVR agreement. If these events are not achieved for any reason within the 18-month time period specified in the CVR agreement or the consideration received is not greater than the amounts permitted to be retained or deducted by Holdco, no payments will be made under the CVRs, and the CVRs will expire valueless. Following the effective time of the Second Merger. Accordingly, the value, if any, of the CVRs is speculative, and the CVRs may ultimately have no value. See “The Merger Agreement — CVR Agreement” beginning on page 114 of this proxy statement/prospectus.
Furthermore, the CVRs will be unsecured obligations of the combined company and all payments under the CVRs, all other obligations under the CVR agreement and the CVRs and any rights or claims relating thereto will be subordinated in right of payment to the prior payment in full of all current or future senior obligations of the combined company. Finally, the U.S. federal income tax treatment of the CVRs
 
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is unclear. There is no legal authority directly addressing the U.S. federal income tax treatment of the receipt of, and payments on, the CVRs, and there can be no assurance that the Internal Revenue Service (“IRS”) would not assert, or that a court would not sustain, a position that could result in adverse U.S. federal income tax consequences to holders of the CVRs.
IKONICS has incurred and will incur significant transaction costs in connection with the mergers.
Except as otherwise provided in the merger agreement, whether or not the mergers are consummated, all expenses (including those payable to representatives of the parties) incurred by any party or on its behalf in connection with the merger agreement and the transactions contemplated by it (“Expenses”) shall be paid by the party incurring those Expenses; provided, however, that at the closing before the effective time of the First Merger, TeraWulf will reimburse IKONICS for all actual Expenses incurred by IKONICS in connection with the negotiation, approval and consummation of the transactions contemplated by the merger agreement, including the fees and disbursements of legal counsel, filing fees and mailing costs for the registration statement and proxy materials, up to a maximum of $640,000.
While the mergers are pending, IKONICS will be subject to business uncertainties and contractual restrictions that could adversely affect its businesses.
Uncertainty about the effect of the mergers on employees, customers and suppliers may have an adverse effect on IKONICS and, consequently, on the combined company. These uncertainties may impair IKONICS’ ability to attract, retain and motivate key personnel until the mergers are consummated and for a period of time thereafter, and could cause customers, suppliers and others who deal with IKONICS to seek to change existing business relationships with IKONICS. Employee retention may be particularly challenging during the pendency of the mergers because employees may experience uncertainty about their future roles with the combined company. If, despite IKONICS’ retention efforts, key employees depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company, the combined company’s business could be seriously harmed. In addition, the merger agreement restricts IKONICS, without TeraWulf’s consent and subject to certain exceptions, from making certain acquisitions and taking other specified actions until the mergers occur or the merger agreement terminates. These restrictions may prevent IKONICS from pursuing otherwise attractive business opportunities and making other changes to its business that may arise prior to completion of the mergers or termination of the merger agreement.
The outcomes of lawsuits filed by shareholders of IKONICS against IKONICS and its board of directors are uncertain and could result in significant costs, management distraction, and/or a delay of or injunction against the mergers.
The outcome of pending litigation based on claims arising from or relating to this proxy statement/prospectus, as well as any similar litigation that may be brought against IKONICS and its directors by purported shareholders of IKONICS, is uncertain and could result in significant costs to IKONICS, including costs associated with the indemnification of IKONICS’ directors and officers. Other plaintiffs may also file lawsuits against IKONICS and/or their directors and officers in connection with the mergers. The defense or settlement of any lawsuits or claims relating to the mergers may have an adverse effect on the business, financial condition and results of operations of IKONICS.
If the actions remain unresolved, they could prevent or delay the completion of the mergers. One of the conditions to the consummation of the mergers is that none of the parties to the merger agreement shall be subject to any decree, order or injunction of a U.S. court of competent jurisdiction that prohibits the consummation of the mergers. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed or any regulatory proceeding and a claimant secures injunctive or other relief or a regulatory authority issues an order or other directive prohibiting the consummation of the transactions contemplated by the merger agreement (including the mergers), then such injunctive or other relief may prevent the mergers from becoming effective in a timely manner or at all.
Failure to complete the mergers could negatively impact the stock price and the future business and financial results of IKONICS because of, among other things, the disruption that would occur as a result of uncertainties relating to a failure to complete the mergers.
If the mergers are not completed for any reason, IKONICS could be subject to several risks, including the following:
 
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being required to pay TeraWulf a termination fee of up to $1.2 million in certain circumstances, as described under “The Merger Agreement — Expenses and Termination Fees” beginning on page 111;

having had the focus of management of IKONICS directed toward the mergers post-merger planning instead of on the IKONICS’ core business and other opportunities that could have been beneficial to IKONICS; and

incurring substantial transaction costs related to the mergers.
In addition, IKONICS would not realize any of the expected benefits of having completed the mergers.
If the mergers are not completed, the price of IKONICS common stock may decline to the extent that the current market price of that stock reflects a market assumption that the mergers will be completed and that the related benefits and synergies will be realized, or as a result of the market’s perceptions that the mergers were not consummated due to an adverse change in IKONICS’ business. In addition, IKONICS’ business may be harmed, and the prices of its stock may decline as a result, to the extent that customers, suppliers and others believe that IKONICS cannot compete in the marketplace as effectively without the mergers or otherwise remain uncertain about IKONICS’ future prospects in the absence of the mergers.
Similarly, current and prospective employees of IKONICS may experience uncertainty about their future roles with the combined company and choose to pursue other opportunities, which could adversely affect IKONICS, as applicable, if the mergers are not completed. The realization of any of these risks may materially adversely affect the business, financial results, financial condition and stock price of IKONICS.
The merger agreement limits IKONICS’ ability to pursue an alternative acquisition proposal and requires IKONICS to pay a termination fee of up to $1.2 million if it does.
The merger agreement prohibits IKONICS from soliciting, initiating or encouraging alternative merger or acquisition proposals with any third party, subject to certain exceptions. The merger agreement also provides for the payment by IKONICS of a termination fee of up to $1.2 million if the merger agreement is terminated in certain circumstances in connection with a competing acquisition proposal or the withdrawal by the IKONICS board of directors of its recommendation that the shareholders of IKONICS vote for the adoption of the merger agreement, as the case may be. See “The Merger Agreement — Covenants and Agreements — No Solicitation” beginning on page 108.
These provisions limit IKONICS’ ability to pursue offers from third parties that could result in greater value to IKONICS’ shareholders. The obligation to make the termination fee payment also may discourage a third party from pursuing an alternative acquisition proposal.
Some of the directors and executive officers of IKONICS have interests in the mergers that are different from the interests of IKONICS’ shareholders.
When considering the recommendation of the special committee and the IKONICS board of directors with respect to the mergers, IKONICS shareholders should be aware that some directors and executive officers of IKONICS and their affiliates have interests in the mergers that are different from, or in addition to, the interests of the shareholders of IKONICS. Each of our Chief Executive Officer, Chief Financial Officer, Executive Vice President, and Chief Operating Officer holds shares of IKONICS common stock and/or IKONICS restricted stock units and options to purchase shares of IKONICS common stock that will automatically be cancelled and converted into shares of IKONICS common stock prior to the effective time of the First Merger as described under “The Merger Agreement — Treatment of Outstanding Equity Awards” beginning on page 104 of this proxy statement/prospectus. Additionally, IKONICS is party to an employment agreement with its Chief Executive Officer that provides for, among other things, potential payments upon termination of his employment under certain circumstances, including enhanced payments upon a termination of his employment within 18 months after a change-in control. The Second Merger is expected to qualify as a change in control under the employment agreement. IKONICS has also entered into retention awards with most employees, excluding our Chief Executive Officer, that will entitle them to payment upon the earlier of the receipt of a threshold amount of net proceeds for a sale of the pre-transaction business or assets of IKONICS and 18 months after the mergers. Shareholders should consider these interests in conjunction with the recommendation of the directors of IKONICS to approve the mergers.
 
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These interests are described more fully in “The Mergers — Interests of Certain IKONICS Directors and Executive Officers in the Mergers” beginning on page 93.
The mergers will result in an ownership change of IKONICS pursuant to Section 382 of the Code, which will impose a limitation on Holdco’s ability to use IKONICS’ NOL carryforwards and other credits to offset future taxable income of Holdco for U.S. federal income tax purposes.
In general, under Section 382 and Section 383 of the Code, a corporation that undergoes an ownership change may be subject to limitation on its ability to utilize its pre-change net operating loss carryforwards (“NOL carryforwards”) and certain tax credits to offset future taxable income for U.S. federal income tax purposes. In general, an ownership change occurs if the aggregate stock ownership of certain shareholders increases by more than 50 percentage points over such shareholders’ lowest percentage ownership during the testing period (generally three years).
As of December 31, 2020, IKONICS has federal net operating loss carryforwards and research and development credit carryovers of $1,847,000 and $104,000, respectively. IKONICS’ state net operating loss carryforwards and research and development credit carryovers at December 31, 2020 total $468,000 and $214,000, respectively.
The mergers will result in an ownership change of IKONICS pursuant to Section 382 of the Code, which will impose a limitation on Holdco’s ability to use IKONICS’ NOL carryforwards to offset the future taxable income of Holdco and its subsidiaries (including IKONICS) for U.S. federal income tax purposes and may impair Holdco and its subsidiaries’ ability to use tax credits to do the same.
This Section 382 limitation may impact the timing of when cash is used to pay the taxes of Holdco. Similar rules and limitations may apply for state income tax purposes.
Risks Related to Ownership of Holdco Common Stock
Listing of Holdco common stock on The Nasdaq Stock Market, LLC is a condition to completion of the mergers; however, the absence of a historical trading market for Holdco common stock creates uncertainty about future trading prices of its common stock.
Under the terms of the merger agreement, the listing of Holdco common stock on Nasdaq is a condition to completion of the mergers. If, upon completion of the mergers, the Holdco common stock is listed on Nasdaq, Holdco common stock will begin trading publicly for the first time. Although this proxy statement/prospectus contains information regarding the historical market prices of IKONICS’ common stock, those prices are not necessarily relevant to the market prices at which Holdco common stock may trade, since Holdco will combine the operations of both TeraWulf and IKONICS. Holdco cannot predict the extent to which a trading market will develop in its common stock after completion of the mergers, whether that market will be active or how liquid that market might become, as it has no independent trading history.
The combined company’s stock price may be volatile, and the market price of Holdco common stock may decline in value following the transaction.
There may be significant fluctuations in the market price of Holdco common stock, both initially before an orderly trading market develops and after that time. Historically, the market price of IKONICS’ common stock has fluctuated, and the common stock of TeraWulf never has been publicly traded, listed on a stock exchange or quoted on a quotation system. Any price fluctuations of Holdco common stock may be unrelated or disproportionate to the actual operating performance of the combined company, and may be due to factors beyond Holdco’s control. Moreover, if the market price of the combined company’s common stock becomes subject to significant fluctuations following the mergers, the value of the shares of Holdco’s common stock at any given point in time could be less than the value of Holdco common stock immediately after completion of the mergers.
Broad market and industry factors, as well as factors specifically relating to Holdco and its business, may adversely affect the market price of Holdco common stock. Some of the factors that may cause the market price of the combined company’s common stock to fluctuate include:
 
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actual or anticipated variations in Holdco’s financial results;

changes in estimates or recommendations by securities analysts, if any, covering Holdco’s common stock;

the failure of the combined company to meet its analysts’ expectations;

conditions or trends in the industry in which TeraWulf operates, including governmental or regulatory changes affecting cryptocurrency mining;

announcements by Holdco or its competitors of significant acquisitions, strategic partnerships or divestitures;

additions or departures of key personnel;

the entry into, or termination of, key agreements or arrangements affecting Holdco’s business or operations; and

future sales of Holdco’s securities, including sales of common stock by its directors and officers or its strategic investors.
The factors that affect the price of Holdco common stock may be different from the factors that have affected the price of IKONICS common stock, particularly since the business of TeraWulf differs significantly from IKONICS’ business.
Holdco does not expect to pay dividends on its common stock in the short term.
Holdco has not yet determined its dividend policy, but it is unlikely that Holdco will pay any dividends to holders of its common stock in the short term, and it may never pay any dividends. The combined company anticipates that it will retain its earnings, if any, for future growth. Any determination to pay dividends in the future will be at the discretion of Holdco’s board of directors and will depend upon Holdco’s results of operations, financial condition, contractual limitations, restrictions imposed by applicable law, business and investment strategy and any other factors that Holdco’s board of directors deems relevant. As a result, the appreciation, if any, of the price of Holdco’s common stock may be the only source of a return to shareholders. Holdco plans to hold excess cash as bitcoin on the balance sheet to the extent possible to participate in any bitcoin price appreciation.
Offers or availability for sale of a substantial number of shares of Holdco’s common stock may cause the price of Holdco’s common stock to decline.
If Holdco’s shareholders sell substantial amounts of Holdco’s common stock in the public market upon the expiration of any statutory holding period or lockup agreements under Rule 144 or issued upon the exercise of outstanding convertible securities and shares related to equity compensation, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of Holdco’s common stock could fall. The existence of an “overhang,” whether or not sales have occurred or are occurring, also could make it more difficult for Holdco to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that Holdco deems reasonable or appropriate. The restricted shares of Holdco’s common stock will be freely tradable upon the earlier of (i) effectiveness of a registration statement covering such shares and (ii) the date on which such shares may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Securities Act.
The existence of a majority stockholder may adversely affect the market price of Holdco’s common stock and could delay, hinder or prevent a change in corporate control or result in the entrenchment of management and the board of directors.
It is expected that Paul Prager, TeraWulf’s Chief Executive Officer, and Stammtisch, a company controlled by Paul Prager, will together have the right to vote a majority of Holdco’s outstanding common stock upon consummation of the mergers and, therefore, will have the power to elect a majority of Holdco directors, in each case, through their respective ownership of shares of Holdco common stock as well as through the exercise by them of voting control over shares of Holdco common stock with respect to which
 
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they have been granted irrevocable voting proxies. Assuming a stock price of $26.74, the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch would be expected to hold, immediately following the consummation of the mergers, approximately 62.4% of the voting power of Holdco. Assuming the stock price of $32.09, a 20% increase from the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch would be expected to hold, immediately following the consummation of the mergers, approximately 62.7% of the voting power of Holdco. Assuming the stock price of $21.39, a 20% decrease from the closing sales price per share of IKONICS common stock on September 14, 2021, Paul Prager and Stammtisch would be expected to own, immediately following the consummation of the mergers, approximately 62.1% of the voting power of Holdco. For further details, see “Security Ownership of Certain Beneficial Owners and Management/Directors of TeraWulf.
As a result, Stammtisch and Mr. Prager will likely have the ability to determine the outcome of matters submitted to Holdco’s stockholders for approval, including the election and removal of directors and any merger, consolidation or sale of all or substantially all of the combined company’s assets. In addition, Stammtisch and Mr. Prager will likely have the ability to control the management, affairs and operations of Holdco. Accordingly, this concentration of ownership may harm the market price of Holdco common stock by delaying, deferring or preventing a change in control or impeding a merger, consolidation, takeover or other business combination involving the combined company.
The ownership of a large block of stock by a single stockholder or group of stockholders may also reduce liquidity in the market for Holdco common stock. Should these stockholders determine to sell any of their respective positions in the future, sales of substantial amounts of Holdco common stock on the market, or even the possibility of these sales, may adversely affect the market price of its common stock. These sales, or even the possibility of these sales, also may make it more difficult for Holdco to raise capital through the issuance of equity securities at a time and at a price it deems appropriate.
Holdco is expected to be a “controlled company” within the meaning of the Nasdaq rules and, as a result, may qualify for, and rely on, exemptions from various corporate governance standards, which may limit the presence of independent directors on the board of directors or board committees of Holdco.
As described above, it is expected that Paul Prager, TeraWulf’s Chief Executive Officer, and Stammtisch, a company controlled by Paul Prager, will together have the right to vote a majority of Holdco’s outstanding common stock upon consummation of the mergers and, therefore, will have the power to elect a majority of Holdco directors, in each case, through their respective ownership of shares of Holdco common stock as well as through the exercise by them of voting control over shares of Holdco common stock with respect to which they have been granted irrevocable voting proxies. As a result, Holdco may be deemed to be a “controlled company” for purposes of Nasdaq Rule 5615(c)(2). Under this rule, a company of which more than 50% of the voting power for the election of directors is held by an individual, a group or another company is a “controlled company” and is exempt from certain Nasdaq corporate governance requirements, including, among others, requirements that (i) a majority of the board of directors consist of independent directors, (ii) compensation of executive officers be determined or recommended to the board of directors by a majority of independent directors or by a compensation committee that is composed entirely of independent directors, and (iii) director nominees be selected or recommended for selection by a majority of independent directors or by a committee composed entirely of independent directors. For at least some period following the mergers, Holdco intends to rely upon these exemptions. Accordingly, Holdco’s stockholders may not have the same protections afforded to stockholders of other companies that are required to comply fully with the Nasdaq rules.
Holdco may seek to raise additional funds, finance additional acquisitions or develop strategic relationships by issuing additional securities, including capital stock.
In the future, Holdco may seek to raise additional funds, finance additional acquisitions or develop or engage in strategic relationships by issuing equity or debt securities, including in connection with the consummation of the mergers. The issuance of equity securities, including debt securities that are convertible into equity, would reduce the percentage ownership of Holdco’s existing shareholders. Furthermore, any newly issued equity securities could have rights, preferences and privileges senior to those of the holders of
 
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Holdco common stock. The issuance of new debt securities could subject Holdco and its subsidiaries to covenants which constrain Holdco’s ability to grow or otherwise take steps that may be favored by holders of Holdco common stock.
Provisions of Holdco’s organizational documents and Delaware law may delay or deter a change of control of Holdco.
Following the mergers, Holdco’s organizational documents will contain provisions that may have the effect of discouraging, delaying or preventing a change of control of, or unsolicited acquisition proposals for, the combined company. These include provisions that:

vest Holdco’s board of directors with the sole power to set the number of directors of the combined company between three (3) and ten (10);

limit the persons that may call special meetings of shareholders;

establish advance notice requirements for shareholder proposals and director nominations; and

limit shareholder action by written consent.
For a more detailed description of these provisions, see “Comparison of Shareholder Rights” beginning on page 179, as well as the amended and restated certificate of incorporation and bylaws of Holdco attached as Appendices F and G, respectively, to this proxy statement/prospectus.
Also, Holdco’s board of directors has the authority to issue shares of preferred stock in one or more series and to fix the rights and preferences of these shares, all without shareholder approval. Any series of preferred stock of Holdco is likely to be senior to its common stock with respect to dividends, liquidation rights and, possibly, voting rights. The ability of Holdco’s board of directors to issue preferred stock also could have the effect of discouraging unsolicited acquisition proposals, thus adversely affecting the market price of Holdco common stock.
In addition, Delaware corporate law makes it difficult for shareholders that recently have acquired a large interest in a corporation to cause the merger or acquisition of the corporation against the directors’ wishes. Under Section 203 of the DGCL, a Delaware corporation such as Holdco may not engage in any merger or other business combination with an interested shareholder or such shareholder’s affiliates or associates for a period of three years following the date that such shareholder became an interested shareholder, except in limited circumstances, including by approval of the corporation’s board of directors. See “Comparison of Shareholder Rights” beginning on page 179.
Holdco’s amended and restated certificate of incorporation will provide, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for certain stockholder litigation matters, which could limit its stockholders’ ability to obtain a favorable judicial forum for disputes with Holdco or its directors, officers or other employees.
Holdco’s amended and restated certificate of incorporation will provide that, unless Holdco consents in writing to the selection of an alternative forum, and subject to applicable jurisdictional requirements, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of Holdco, (ii) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer, employee, agent or stockholder of Holdco to Holdco or Holdco’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL, Holdco’s amended and restated certificate of incorporation or Holdco’s bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine (or, if the Court of Chancery of the State of Delaware lacks jurisdiction over such action or proceeding, then another court of the State of Delaware or, if no court of the State of Delaware has jurisdiction, then the United States District Court for the District of Delaware). Holdco’s amended and restated certificate of incorporation will also provide that, unless Holdco consents in writing to the selection of an alternative forum, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. The exclusive forum provision will be applicable to the fullest extent permitted by applicable law, subject to certain exceptions. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created by the Exchange Act or the rules and regulations thereunder.
 
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As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the Exchange Act or any other claim for which the federal courts have exclusive jurisdiction. There is, however, uncertainty as to whether a court would enforce the exclusive forum provision, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. Furthermore, Section 22 of the Securities Act creates concurrent jurisdiction for state and federal courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations thereunder
Any person or entity purchasing or otherwise acquiring any interest in any of our securities will be deemed to have notice of and consented to the exclusive forum provision. The exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum of its choosing for disputes with Holdco or its directors, officers or other employees, which may discourage lawsuits against Holdco and its directors, officers and other employees. If a court were to find the exclusive forum provision be inapplicable or unenforceable in an action, Holdco may incur additional costs associated with resolving the dispute in other jurisdictions, which could significantly impact its financial condition and results of operations.
Risks Relating to the Businesses of the Combined Company
Holdco has a limited operating history, which could negatively impact its operations, strategy and financial performance.
Holdco was incorporated in 2021, and its bitcoin mining business is in its early stages. Furthermore, bitcoin and energy pricing and bitcoin mining economics are volatile and subject to uncertainty. TeraWulf’s current strategy will continue to expose it to the numerous risks and volatility associated with the bitcoin mining and power generation sectors, including fluctuating bitcoin to U.S. dollar prices, the costs of bitcoin miners, the number of market participants mining bitcoin, the global network hashrate, the availability of other power generation facilities or power grid interconnections to expand operations and regulatory changes.
If, among other things, the price of bitcoin declines or mining economics become prohibitive, TeraWulf could incur future losses. Such losses could be significant as it incurs costs and expenses associated with the development and operation of its mining facilities, as well as legal and administrative related expenses. While TeraWulf closely monitors its cash balances, cash needs and expense levels, significant expense increases may not be offset by a corresponding increase in revenue or a significant decline in bitcoin prices could significantly impact its financial condition and results of operations.
If Holdco is unable to successfully maintain its Equipment Supply Agreements on acceptable terms or at all, Holdco’s business, financial condition and results of operations may suffer.
Mining bitcoin requires access to massive amounts of electrical power and relationships with leading mining equipment manufacturers. Furthermore, consistent with Holdco’s carbon mandate, Holdco’s activities must be supported by sustainable energy sources. A limited number of suppliers produce mining equipment to power sustainable industrial-scale mining. Any shortage of mining equipment may negatively impact the viability and expected economic return for Holdco’s bitcoin mining activities.
TeraWulf has structured and secured competitive equipment supply agreements to purchase state-of-the-art mining equipment from Bitmain Technologies Limited (“Bitmain”) and Minerva Semiconductor Corp. (“Minerva”). Since its inception, TeraWulf has executed an equipment purchase agreement with Minerva and two non-fixed price sales and purchase agreements with Bitmain. For further details, see “Information About TeraWulf — Agreements Relating to TeraWulf’s Business and Operations — Equipment Supply Agreements”. Holdco will be highly dependent on the Minerva agreement and each of the Bitmain agreements (collectively, the “Equipment Supply Agreements”) for the development of its business models.
Holdco cannot guarantee that it will ultimately be able to successfully execute the Equipment Supply Agreements on terms acceptable to both Holdco’s management team and the power providers. Despite securing Equipment Supply Agreements that provide for delivery of an aggregate total of 60,000 miners between November 2021 and June 2022, such Equipment Supply Agreements are subject to uncertain contractual provisions that could, under certain conditions, leave Holdco without adequate or sufficient equipment for its mining operations. Under the Equipment Supply Agreements, the total purchase price is
 
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merely an estimated price, with the actual price to be determined at a specified timeframe before shipment of the respective batch of miners. In addition, each batch of miners constitutes independent legal obligations, and Holdco will have limited legal recourse in the event of delays to the delivery date.
Furthermore, the Bitmain agreements are solely governed by and construed in accordance with the laws of Hong Kong. In the event that geopolitical turmoil, political instability, civil disturbances and restrictive government actions cause changes to the laws of Hong Kong, Holdco could face difficulties enforcing rights and obligations between the parties in the Bitmain agreements. The Minerva agreement is governed by the laws of the Province of Alberta, Canada without regard to any conflict of law provisions that might otherwise apply. Such contractual provisions leave Holdco with limited avenues for legal recourse in the event of disputes between the parties.
If Holdco is unable to successfully maintain such agreements or Holdco’s counterparties fail to perform their obligations under the final agreements, Holdco may be forced to look for alternative power providers. There is no assurance that Holdco will be able to find alternative suppliers on acceptable terms in a timely manner or at all. Any significant nonperformance by suppliers could have a material adverse effect on Holdco’s business prospects, financial condition and operating results.
The properties utilized by Holdco in its bitcoin mining operations may experience damage or losses, including damage or losses not covered by insurance.
Holdco’s current bitcoin mining operations in Barker, New York, and Salem, Pennsylvania, are, and any future bitcoin mining operations that it establishes will be, subject to a variety of risks relating to physical condition and operation, including, among others:

the presence of construction or repair defects or other structural or building damage;

any noncompliance with, or liabilities under, applicable environmental, health or safety regulations or requirements or building permit requirements;

any damage resulting from natural disasters, such as hurricanes, earthquakes, fires, floods and windstorms;

damage caused by criminal actors, such as cyberattacks, vandalism, sabotage or terrorist attacks; and

claims by employees and others for injuries sustained at its properties.
Any of these could render Holdco’s bitcoin mining operations inoperable, temporarily or permanently, and the potential impact on Holdco’s business is currently magnified due to the limited number of sites for which bitcoin mining is currently planned. The security and other measures Holdco will take to protect against these risks may be insufficient or unavailable. In addition, Holdco’s insurance may not be adequate to cover the losses it suffers as a result of these risks.
Limitations on the availability of sites to establish mining operations may adversely affect Holdco’s business prospects.
Holdco is setting up its first two bitcoin mining facility sites in New York and Pennsylvania. Holdco plans to begin installation of ASICs at the facility in New York by December 2021 and at the facility in Pennsylvania in the second quarter of 2022. Funding for the remainder of Holdco’s mining capacity buildout is expected to come from the cash flow generated from mining operations and additional capital raises. For further details on the buildout of Holdco’s bitcoin mining facility sites see “Information About TeraWulf — Planned Mining Operations.” Holdco may not secure the sites for its mining operations in a reasonable timeframe and may also be subject to various governmental approvals. Furthermore, Holdco may not be successful in identifying adequate sites to house its mining operations. In addition, the amended and restated certificate of incorporation of Holdco provides that Holdco renounces any interest or expectancy with respect to, among others, business opportunities relating to the bitcoin mining business in Hardin, Montana, in connection with building and operation by affiliates of Beowulf Energy LLC (“Beowulf Energy”) of a data center for Marathon Digital Holdings Inc. (f/k/a Marathon Patent Group, Inc.) (“Marathon”). See “Description of Holdco Capital Stock — Corporate Opportunities Doctrine.” As a result, TeraWulf will be prevented from establishing a bitcoin mining facility in Hardin, Montana and/or from using
 
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the power from the Hardin Power Station for the operation of its own bitcoin mining facilities. Furthermore, even if Holdco is successful in identifying such sites, Holdco may not be successful in leasing the necessary facilities at rates that are economically viable to support its mining activities.
Holdco depends on nuclear energy to power a significant portion of its bitcoin mining capacity and may be held liable for damages, regardless of fault, if incidents or evacuations were to occur at the mining facility site that utilizes nuclear energy.
The Nautilus Cryptomine Facility is expected to be powered by 100% zero-carbon nuclear energy and have access to up to 300 megawatts (“MW”) of gross power capacity. This amount of power represents a significant portion of Holdco’s total mining capacity. If a nuclear-related incident or evacuation were to occur, Holdco could be held liable for damages, regardless of fault. Addressing such an occurrence may require the allocation of significant time and divert management’s focus from revenue-generating activities. In addition, a nuclear-related incident could result in the payment of significant monetary damages. Any downtime during which Holdco is unable to mine at this facility site or any forced shut down may have an adverse effect on Holdco’s results of operations and financial condition.
Since the development, construction and operation of the Nautilus Cryptomine Facility is subject to the terms of a joint venture agreement, Holdco may have less control over strategic decisions.
On May 13, 2021, TeraWulf entered into a joint venture agreement with an affiliate of Talen Energy Corporation (“Talen”). The joint venture agreement provides that, except for certain specified matters, decisions are to be made by a majority vote of the board of managers. The board of managers is comprised of two managers appointed by TeraWulf and three managers appointed by Talen. Any significant disagreements between joint venture partners on strategic decisions or the inability of the Talen affiliate to meet obligations to the joint venture or third parties may impede Holdco’s ability to control aspects of the development, construction, and operation of the Nautilus Cryptomine Facility.
Holdco’s management team has limited experience managing a public company.
The members of the management team have not previously served as management of a publicly traded company and may not have experience complying with the increasingly complex laws pertaining to public companies. Holdco’s management team may not successfully or efficiently manage its immediate transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws as well as the continuous scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from Holdco’s management and could divert their attention away from the day-to-day management of Holdco’s business, which could adversely affect its business, financial condition and results of operations.
Holdco depends on its management team, investment professionals and other key personnel, and the loss of their services would have a material adverse effect on Holdco.
Holdco’s success depends on the efforts, judgment and personal reputations of its management team, investment professionals and other key personnel. Their reputations, expertise and relationships with members of the business communities whom Holdco depends on for business opportunities and financing are each critical elements in operating and expanding Holdco’s business. The loss of the services of its management team, investment professionals or other key personnel could have a material adverse effect on Holdco and its performance, including its ability to retain and attract investors and raise capital.
Holdco does not maintain any key person life insurance policies. The loss of any member of its management team, investment professionals or other key personnel could make it more difficult to execute its business strategy and, therefore, harm its business.
Holdco’s future success depends on its ability to expand its organization to match the growth of its activities, and any failure to manage its growth effectively could place strains on its managerial, operational and financial resources and could adversely affect its business, financial condition and results of operations.
As Holdco’s operations grow, the administrative demands upon Holdco will grow, and its success will depend upon its ability to meet those demands. Holdco is organized as a holding company, with numerous
 
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subsidiaries. Both the parent company and each of its subsidiaries require certain financial, managerial and other resources, which could create challenges to its ability to successfully manage its subsidiaries and operations and impact its ability to assure compliance with its policies, practices and procedures. These demands include, among others, increased executive, accounting, management, legal services, staff support and general office services. Holdco may need to hire additional qualified personnel to meet these demands, the cost and quality of which depends in part upon market factors outside of its control. Further, Holdco will need to effectively manage the training and growth of its staff to maintain an efficient and effective workforce, and Holdco’s failure to do so could adversely affect its business, financial condition and results of operations. Currently, Holdco has limited personnel in its organization to meet its organizational and administrative demands. Although Holdco may not grow as it expects, if Holdco fails to manage its growth effectively or to develop and expand its managerial, operational and financial resources and systems, Holdco’s business, financial condition and results of operations would be materially harmed.
COVID-19 or any pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere may adversely affect Holdco’s business.
The COVID-19 pandemic has had unpredictable and unprecedented impacts in the United States and around the world. The outbreak of COVID-19, which the World Health Organization declared a pandemic in March 2020, has spread across the globe and has led to disruption in the global economy and the digital asset industry. International, federal, state and local public health and governmental authorities have taken extraordinary and wide-ranging actions to contain and combat the outbreak and spread of COVID-19 in regions across the United States and the world, including mandates for many individuals to substantially restrict daily activities and for many businesses to curtail or cease normal operations. To the extent the COVID-19 pandemic continues or worsens, governments may impose additional similar restrictions. The extent and duration of the impact of the COVID-19 pandemic is highly uncertain and subject to change. Holdco cannot offer any assurance that the COVID-19 pandemic or any other pandemic, epidemic or outbreak of an infectious disease in the United States or elsewhere will not materially and adversely affect Holdco’s business, financial condition and results of operations.
Holdco’s business was adversely impacted by the effects of the COVID-19 pandemic, in particular as a result of increased competition spurred by a decline in energy prices, and may continue to be adversely impacted in the future. The COVID-19 pandemic has and may continue to adversely affect the economies of many countries, resulting in an economic downturn that may have an adverse effect on financial markets, energy and bitcoin prices, the demand for bitcoin and other factors that could impact Holdco’s business, financial condition and results of operations.
Holdco faces risks and disruptions related to supply chain issues, including in semiconductors and other necessary application specific integrated circuit components, which could significantly impact its business, financial condition and results of operations.
China has limited the shipment of certain products in and out of its borders, which could negatively impact Holdco’s ability to receive bitcoin mining equipment from its China-based suppliers. Holdco’s third-party manufacturers, suppliers, sub-contractors and customers have been disrupted by worker absenteeism, quarantines, restrictions on employees’ ability to work, office and factory closures, disruptions to ports and other shipping infrastructure, border closures or other travel or health-related restrictions, as a result of the COVID-19 pandemic. Depending on the magnitude of such effects on Holdco’s supply chain, shipments of parts for its existing miners, as well as any new miners Holdco purchases, may be delayed. As its miners require repair or become obsolete and require replacement, Holdco’s ability to obtain adequate replacements or repair parts from their manufacturer may be hampered. Supply chain disruptions could therefore negatively impact Holdco’s business, financial condition and results of operations.
Holdco will need to raise additional capital to meet its business requirements in the future, including the unconsummated TeraWulf Equity Financings (as defined below), which capital raising may be costly or difficult to obtain or may not be obtained (in whole or in part) and, if obtained, will dilute the ownership interests of the Holdco’s shareholders.
TeraWulf had working capital of $29.8 million as of June 30, 2021. Holdco and TeraWulf may require additional financing in the future to support its operations and/or may seek to raise additional financing in
 
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the future. Holdco may not be able to borrow or raise additional capital in the future to meet its needs or to otherwise provide the capital necessary to expand its operations and business, which might result in the value of the Holdco’s common stock decreasing or becoming worthless. Additional financing may not be available to it on terms that are acceptable. Consequently, Holdco may not be able to proceed with its intended business plans. Obtaining additional financing contains risks, including, among others:

additional equity financing may not be available to Holdco on satisfactory terms and any equity Holdco is able to issue, including the unconsummated TeraWulf Equity Financings, will lead to dilution of the ownership interests of Holdco’s shareholders;

loans or other debt instruments may have terms and/or conditions, such as interest rate, restrictive covenants and control or revocation provisions, which are not acceptable to Holdco’s board or its management; and

heightened restrictions and scrutiny of companies specifically involved with cryptocurrencies in the current capital market environment combined with Holdco’s capital constraints may prevent Holdco from being able to obtain adequate debt financing.
Security threats to Holdco could result in a loss of Holdco’s digital assets or damage to the reputation of Holdco, each of which could adversely affect Holdco’s business, financial condition and results of operations.
Security breaches, computer malware, software supply chain attacks and computer hacking attacks have been a prevalent concern in the digital asset exchange markets. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss, encryption or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses or ransomware could harm Holdco’s business operations or result in loss of Holdco’s digital assets. Furthermore, Holdco believes that, as its business grows, it may become a more appealing target for cybersecurity threats.
Holdco will rely on enterprise cold storage custody solutions from third parties to safeguard its digital assets from theft, loss, destruction or other issues relating to hackers and technological attack. Nevertheless, cold storage security systems may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by Holdco. Holdco’s digital assets may also be stored with third-party exchanges prior to selling them. Third-party exchange systems may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect, supply chain attack or act of God may be borne by TeraWulf.
The security system and operational infrastructure may be breached due to the actions of outside parties, software defects, action of an employee of Holdco, or otherwise and, as a result, an unauthorized party may obtain access to Holdco’s private keys, sensitive data control of miners or bitcoins. In addition, outside parties may attempt to fraudulently induce employees of Holdco to disclose sensitive information in order to gain access to its infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, Holdco may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of Holdco’s security system occurs, the market perception of the effectiveness of Holdco’s security system could be harmed, which could adversely affect Holdco’s business, financial condition and results of operations.
In the event of a security breach, Holdco may be forced to cease operations or suffer a reduction in digital assets, which could adversely affect Holdco’s business, financial condition and results of operations.
Necessary capital financing may not be available at economic rates or at all.
Turmoil in the credit and financial markets could adversely affect financial institutions, inhibit lending and limit Holdco’s access to bank financing or other financing in the public or private capital markets on terms Holdco believes to be reasonable. Prevailing market conditions could be adversely affected by the ongoing disruptions in domestic or overseas sovereign or corporate debt markets, low commodity prices or
 
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other factors impacting Holdco’s business, contractions or limited growth in the economy or other similar adverse economic developments in the U.S. or abroad. Instability in the global financial markets has from time to time resulted in periodic volatility in the capital markets. This volatility could limit Holdco’s access to the credit markets, leading to higher borrowing costs or, in some cases, the inability to obtain financing on terms that are acceptable to Holdco, or at all. Any such failure to obtain additional financing could jeopardize Holdco’s ability to repay, refinance or reduce its debt obligations, or to meet its other financial commitments. Exposure to and regulation of bitcoin and/or cryptocurrency mining may preclude access to certain sources of institutional capital.
From time to time, Holdco will be subject to various claims, litigation and other proceedings that could ultimately be resolved against Holdco, requiring material future cash payments or charges, which could impair Holdco’s financial condition and results of operations.
The size, nature and complexity of Holdco’s business will make it susceptible to various claims, both in litigation and binding arbitration proceedings. Holdco may in the future become subject to various claims, which, if not resolved within amounts Holdco has accrued, could have a material adverse effect on Holdco’s financial position, results of operations and cash flows. Similarly, any claims, even if fully indemnified or insured, could negatively impact Holdco’s reputation among its customers and the public, and make it more difficult for it to compete effectively or obtain adequate insurance in the future.
Risks Relating to Digital Asset Networks and Digital Assets
Digital assets, such as bitcoin, may become regulated as securities or investment securities.
Bitcoin is the oldest and most well-known form of digital asset. Bitcoin and other forms of digital assets / cryptocurrencies have been the source of much regulatory scrutiny, which has resulted in differing definitional outcomes without a single unifying statement. In the context of the offer and sale of the Initial Coin Offering (“ICO”) tokens, the SEC has determined certain digital tokens are securities under the Howey test as stated by the U.S. Supreme Court. ICO offerings of securities would require registration under the Securities Act or an available exemption therefrom for offers or sales in the United States to be lawful. Section 5(a) of the Securities Act provides that, unless a registration statement is in effect as to a security, it is unlawful for any person, directly or indirectly, to engage in the offer or sale of securities in interstate commerce. Furthermore, Section 5(c) of the Securities Act provides a similar prohibition against offers to sell, or offers to buy, unless a registration statement has been filed. Although Holdco does not believe its mining activities require registration for it to conduct such activities and accumulate digital assets, the SEC, the Commodity Futures Trading Commission (the “CFTC”), Nasdaq or other governmental or quasi-governmental agency or organization may conclude that Holdco’s activities involve the offer or sale of “securities,” or ownership of “investment securities,” and Holdco may face regulation under the Securities Act or the Investment Company Act of 1940, as amended (the “Investment Company Act”). Such regulation or the inability to meet the requirements to continue operations would have a material adverse effect on Holdco’s business, financial condition and results of operations.
The further development and acceptance of digital asset networks and other digital assets, which represent a new and rapidly changing industry, are subject to a variety of factors that are difficult to evaluate, and the slowing or stopping of the development or acceptance of digital asset systems may adversely affect Holdco’s business, financial condition and results of operations.
Digital assets, such as bitcoins, that may be used, among other things, to buy and sell goods and services are a new and rapidly evolving industry of which the digital asset networks are prominent, but not unique, parts. The growth of the digital asset industry in general, and the digital asset networks of bitcoin in particular, are subject to a high degree of uncertainty. The factors affecting the further development of the digital asset industry, as well as the digital asset networks, include, among others:

continued worldwide growth in the adoption and use of bitcoins and other digital assets;

government and quasi-government regulation of bitcoins and other digital assets and their use, or restrictions on or regulation of access to and operation of the digital asset network or similar digital assets systems;
 
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the maintenance and development of the open-source software protocol of the bitcoin network;

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 fiat currencies;

general economic conditions and the regulatory environment relating to digital assets; and

the impact of regulators focusing on digital assets and digital securities and the costs associated with such regulatory oversight.
A decline in the popularity or acceptance of the digital asset networks of bitcoin, or similar digital asset systems, could adversely affect Holdco’s business, financial condition and results of operations.
If demand for transactions in bitcoin declines and is replaced by new demand for other cryptocurrencies, Holdco’s business, financial condition and results of operations could be adversely affected.
TeraWulf’s business is highly dependent on strong bitcoin demand relative to other cryptocurrencies in the market. As such, in addition to the factors impacting the broader cryptoeconomy described elsewhere in this section, Holdco’s business may be adversely affected, and growth in TeraWulf’s, and therefore Holdco’s, revenues may slow or decline, if market demand for bitcoin deteriorates and is supplanted by other cryptocurrencies such as ethereum and dogecoin. In addition, negative perceptions surrounding bitcoin relative to other cryptocurrencies may cause bitcoin to fall out of favor. If other cryptocurrencies, such as ethereum and dogecoin, surpass bitcoin in market demand over a sustained period of time, such a trend could harm Holdco’s business. Competition from public and central bank backed digital currencies could undercut the need for other cryptocurrencies such as bitcoin. Competition from stablecoins (commodity-backed or fiat-backed) could undercut demand for other cryptocurrencies such as bitcoin.
Significant contributors to all or any digital asset network could propose amendments to the respective network’s protocols and software that, if accepted and authorized by such network, could adversely affect Holdco’s business, financial condition and results of operations.
Digital asset networks are open source projects and, although there is an influential group of leaders in, for example, the bitcoin network community known as the “Core Developers”, there is no official developer or group of developers that formally controls the bitcoin network. Any individual can download the bitcoin network software and make any desired modifications, which are proposed to users and miners on the bitcoin network through software downloads and upgrades, typically posted to the bitcoin development forum on GitHub.com. Proposals for upgrades and discussions relating thereto take place on online forums. For example, there is an ongoing debate regarding altering the blockchain by increasing the size of blocks to accommodate a larger volume of transactions. Although some proponents support an increase, other market participants oppose an increase to the block size as it may deter miners from confirming transactions and concentrate power into a smaller group of miners. To the extent that a significant majority of the users and miners on the bitcoin network install such software upgrade, the bitcoin network would be subject to new protocols and software that may adversely affect Holdco’s business, financial condition and results of operations. In the event a developer or group of developers proposes a modification to the bitcoin network that is not accepted by a majority of miners and users, but that is nonetheless accepted by a substantial plurality of miners and users, two or more competing and incompatible blockchain implementations could result. This is known as a “hard fork.” In such case, the “hard fork” in the blockchain could materially and adversely affect the perceived value of digital assets as reflected on one or both incompatible blockchains, which may adversely affect Holdco’s business, financial condition and results of operations and, in the worst-case scenario, harm the sustainability of the bitcoin network’s economy.
The open-source structure of the bitcoin network protocol means that the contributors to the protocol are generally not directly compensated for their contributions in maintaining and developing the bitcoin network protocol, and a failure to properly monitor and upgrade the protocol could damage the bitcoin network and adversely affect Holdco’s business, financial condition and results of operations.
The bitcoin network operates based on an open-source protocol, not represented by an official organization or authority. Instead, it is maintained by a group of core contributors, largely on the Bitcoin
 
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Core project on GitHub. As an open source project, bitcoin is not represented by an official organization or authority. As the bitcoin network protocol is not sold and its use does not generate revenues for contributors, contributors are generally not directly compensated for maintaining and developing the bitcoin network protocol. Although the Media Lab’s Digital Currency Initiative of the Massachusetts Institute of Technology funds the current maintainer Wladimir J. van der Laan, among others, this type of financial incentive is not typical. The lack of guaranteed financial incentive for contributors to maintain or develop the bitcoin network and the lack of guaranteed resources to adequately address emerging issues with the bitcoin network may reduce incentives to address the issues adequately or in a timely manner. Changes to a digital asset network which Holdco is mining on may adversely affect Holdco’s business, financial condition and results of operations.
If a malicious actor or botnet obtains control in excess of 50% of the processing power active on any digital asset network, including the bitcoin network, it is possible that such actor or botnet could manipulate the blockchain in a manner that may adversely affect Holdco’s business, financial condition and results of operations.
If a malicious actor or botnet (a volunteer or hacked collection of computers controlled by networked software coordinating the actions of the computers) obtains a majority of the processing power dedicated to mining on any digital asset network, including the bitcoin network, it may be able to alter the blockchain by constructing alternate blocks if it is able to solve for such blocks faster than the remainder of the miners on the blockchain can add valid blocks. In such alternate blocks, the malicious actor or botnet could control, exclude or modify the ordering of transactions, though it could not generate new digital assets or transactions using such control. Using alternate blocks, the malicious actor could “double-spend” its own digital assets (i.e., spend the same digital assets 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 or the digital asset community does not reject the fraudulent blocks as malicious, reversing any changes made to the blockchain may not be possible, which may adversely affect Holdco’s business, financial condition and results of operations.
The approach towards and possible crossing of the 50% threshold indicate a greater risk that a single mining pool could exert authority over the validation of digital asset transactions. To the extent that the digital assets ecosystems do not act to ensure greater decentralization of digital asset mining processing power, the feasibility of a malicious actor obtaining in excess of 50% of the processing power on any digital asset network (e.g., through control of a large mining pool or through hacking such a mining pool) will increase, which may adversely affect Holdco’s business, financial condition and results of operations. For additional information on the operation of third-party mining pools, see “Information About TeraWulf — Bitcoin Overview — Mining Pools.”
If the award of digital assets for solving blocks and transaction fees for recording transactions are not sufficiently high to cover expenses related to running data center operations, it may adversely affect Holdco’s business, financial condition and results of operations.
Bitcoin miners record transactions when they solve for and add blocks of information to the blockchain. When a miner solves for a block, it creates such block, which includes data relating to (i) the solution to the block, (ii) a reference to the prior block in the blockchain to which the new block is being added and (iii) all transactions that have occurred but have not yet been added to the blockchain. The miner becomes aware of outstanding, unrecorded transactions through data packet transmission and propagation. Typically, bitcoin transactions will be recorded in the next chronological block if the spending party has an internet connection and at least one minute has passed between the transaction’s data packet transmission and the solution of the next block. If a transaction is not recorded in the next chronological block, it is usually recorded in the next block thereafter.
As the award of new digital assets for solving blocks declines, and if transaction fees are not sufficiently high, miners may not have an adequate incentive to continue mining and may cease their mining operations. For example, the current fixed reward on the bitcoin network for solving a new block is six and a quarter (6.25) bitcoins per block. The reward decreased from twelve and a half (12.5) bitcoins in May 2020. It is estimated that it will halve again in approximately June 2024. This reduction may result in a reduction in the aggregate hashrate of the bitcoin network as the incentive for miners will decrease. Moreover, miners
 
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ceasing operations would reduce the aggregate hashrate 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 obtaining control in excess of 50% of the aggregate hashrate on the bitcoin network. Periodically, the bitcoin network has adjusted the difficulty for block solutions so that solution speeds remain in the vicinity of the expected ten minute confirmation time targeted by the bitcoin network protocol.
Holdco believes that from time to time there will be further considerations and adjustments to the bitcoin network and others regarding the difficulty for block solutions. More significant reductions in aggregate hashrate on digital asset networks could result in material, though temporary, delays in block solution confirmation time. Any reduction in confidence in the confirmation process or aggregate hashrate of any digital asset network may negatively impact the value of digital assets, which may adversely affect Holdco’s business, financial condition and results of operations.
To the extent that the profit margins of digital asset mining operations are not high, operators of digital asset mining operations are more likely to immediately sell their digital assets earned by mining in the digital asset exchange market, resulting in a reduction in the price of digital assets that may adversely affect Holdco’s business, financial condition and results of operations.
Over the past eight years, digital asset mining operations have evolved from individual users mining with computer processors, graphics processing units and first-generation servers. Currently, new processing power brought onto the digital asset networks is predominantly added by incorporated and unincorporated “professionalized” mining operations. Professionalized mining operations may use proprietary hardware or sophisticated machines. They require the investment of significant capital for the acquisition of this hardware, the leasing of operating space (often in data centers or warehousing facilities), incurrence of electricity costs and the employment of technicians to operate the mining farms. As a result, professionalized mining operations are of a greater scale than prior miners and have more defined, regular expenses and liabilities. These regular expenses and liabilities require professionalized mining operations to more immediately sell digital assets earned from mining operations on the digital asset exchange market, whereas it is believed that individual miners in past years were more likely to hold newly mined digital assets for more extended periods. The immediate selling of newly mined digital assets greatly increases the supply of digital assets on the digital asset exchange market, creating downward pressure on the price of each digital asset.
The extent to which the value of digital assets mined by a professionalized mining operation exceeds the allocable capital and operating costs determines the profit margin of such operation. A professionalized mining operation may be more likely to sell a higher percentage of its newly mined digital assets rapidly if it is operating at a low profit margin and it may partially or completely cease operations if its profit margin is negative. This could create a network effect that may further reduce the price of digital assets until mining operations with higher operating costs become unprofitable and remove mining power from the respective digital asset network. The network effect of reduced profit margins resulting in greater sales of newly mined digital assets could result in a reduction in the price of digital assets that may adversely affect Holdco’s business, financial condition and results of operations.
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, and any widespread delays in the recording of transactions could result in a loss of confidence in that digital asset network, which may adversely affect Holdco’s business, financial condition and results of operations.
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 bitcoins upon the solving of a block), actions of miners solving a significant number of blocks could delay the recording and confirmation of
 
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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, or transactions that consist of bad actors simultaneously sending two or more bitcoin to different addresses, and a loss of confidence in certain or all digital asset networks, which may adversely affect Holdco’s business, financial condition and results of operations.
Intellectual property rights claims may adversely affect the operation of some or all digital asset networks.
Third parties may assert intellectual property claims relating to the holding and transfer of digital assets and their source code. Regardless of the merit of any intellectual property or other legal action, any threatened action that reduces confidence in some or all digital asset networks’ long-term viability or the ability of end-users to hold and transfer digital assets may adversely affect Holdco’s business, financial condition and results of operations. In addition, a meritorious intellectual property claim could prevent Holdco and other end-users from accessing some or all digital asset networks or holding or transferring their digital assets. As a result, an intellectual property claim against Holdco or other large digital asset network participants may adversely affect Holdco’s business, financial condition and results of operations.
To the extent that the digital asset exchanges representing a substantial portion of the volume in digital asset trading are involved in fraud or experience security failures or other operational issues, such digital asset exchanges’ failures may result in a reduction in the price of some or all digital assets and may adversely affect Holdco’s business, financial condition and results of operations.
The digital asset exchanges on which the digital assets trade are new and, in most cases, largely unregulated. Furthermore, many digital asset exchanges (including several of the most prominent U.S. dollar denominated digital asset 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, digital asset exchanges, including prominent exchanges handling a significant portion of the volume of digital asset trading. A lack of stability in the digital asset exchange market and the closure or temporary shutdown of digital asset exchanges due to fraud, business failure, hackers or malware or government-mandated regulation may reduce confidence in the digital asset networks and result in greater volatility in digital asset values. These potential consequences of a digital asset exchange’s failure may adversely affect Holdco’s business, financial condition and results of operations.
Political or economic crises may motivate large-scale sales of digital assets, which could result in a reduction in some or all digital assets’ values and adversely affect Holdco’s business, financial condition and results of operations.
As an alternative to fiat currencies that are backed by central governments, digital assets such as bitcoins, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of digital assets either globally or locally. Large-scale sales of digital assets would result in a reduction in some or all digital assets’ values and may adversely affect Holdco’s business, financial condition and results of operations.
Holdco’s ability to adopt technology in response to changing security needs or trends poses a challenge to the safekeeping of Holdco’s digital assets.
The history of digital asset exchanges has shown that exchanges and large holders of digital assets must adapt to technological change in order to secure and safeguard their digital assets. Holdco will rely on enterprise cold storage solutions from third parties to safeguard Holdco’s digital assets from theft, loss, destruction or other issues relating to hackers and technological attack. Holdco’s digital assets may also be moved to various exchanges in order to exchange them for fiat currency during which time Holdco will be relying on the security of such exchanges to safeguard Holdco’s digital assets. Holdco believes that it may become a more appealing target of security threats as the size of Holdco’s bitcoin holdings grow. To the extent that either custody providers or Holdco are unable to identify and mitigate or stop new security threats,
 
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Holdco’s digital assets may be subject to theft, loss, destruction or other attack, which may adversely affect Holdco’s business, financial condition and results of operations.
Digital asset transactions are irrevocable, and stolen or incorrectly transferred digital assets may be irretrievable and, as a result, any incorrectly executed digital asset transactions may adversely affect Holdco’s business, financial condition and results of operations.
Digital asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction or, in theory, control or consent of a majority of the processing power on the respective digital asset network. Once a transaction has been verified and recorded in a block that is added to the blockchain, an incorrect transfer of digital assets or a theft of digital assets generally will not be reversible, and Holdco may not be capable of seeking compensation for any such transfer or theft. Although Holdco’s transfers of digital assets will regularly be made to or from various parties, it is possible that, through computer or human error, or through theft or criminal action, Holdco’s digital assets could be transferred in incorrect amounts or to unauthorized third parties. To the extent that Holdco is unable to seek a corrective transaction with such third party or is incapable of identifying the third party which has received Holdco’s digital assets through error or theft, Holdco will be unable to revert or otherwise recover incorrectly transferred digital assets. To the extent that Holdco is unable to seek redress for such error or theft, such loss may adversely affect Holdco’s business, financial condition and results of operations.
The limited rights of legal recourse against Holdco, and Holdco’s lack of insurance protection, exposes Holdco and its stockholders to the risk of loss of its digital assets for which no person is liable.
The digital assets held by Holdco may not be insured. Therefore, a loss may be suffered with respect to Holdco’s digital assets which is not covered by insurance and for which no person is liable in damages, which may adversely affect Holdco’s business, financial condition and results of operations.
Holdco may not have adequate sources of recovery if its digital assets are lost, stolen or destroyed.
If Holdco’s digital assets are lost, stolen or destroyed under circumstances rendering a party liable to Holdco, the responsible party may not have the financial resources sufficient to satisfy its claim. For example, as to a particular event of loss, the only source of recovery for Holdco might be limited, to the extent identifiable, other responsible third parties (e.g., a thief or terrorist), any of which may not have the financial resources (including liability insurance coverage) to satisfy a valid claim by Holdco.
Digital assets held by Holdco are not subject to FDIC or SIPC protections.
Holdco does not hold its digital assets with a banking institution or a member of the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”) and, therefore, its digital assets are not subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.
The loss or destruction of a private key required to access a digital asset may be irreversible and, as a result, Holdco’s loss of access to its private keys or its experience of a data loss relating to its digital assets may adversely affect Holdco’s business, financial condition and results of operations.
Digital assets 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 digital assets are held. Holdco is required by the operation of digital asset networks to publish the public key relating to a digital wallet in use when it first verifies a spending transaction from that digital wallet and disseminates such information into the respective network. Holdco safeguards and keeps private the private keys relating to its digital assets by using enterprise cold storage custody solutions from third parties. To the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, Holdco will be unable to access the digital assets held by it and the private key will not be capable of being restored by the respective digital asset network. Any loss of private keys relating to digital wallets used to store Holdco’s digital assets may adversely affect Holdco’s business, financial condition and results of operations.
 
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Because many of Holdco’s digital assets are held by digital asset exchanges, it faces heightened risks from cybersecurity attacks and financial stability of digital asset exchanges.
Holdco may transfer digital asset from its wallet to digital asset exchanges prior to selling them. Digital assets not held in Holdco’s wallet are subject to the risks encountered by digital asset exchanges including a denial-of-service attack or other malicious hacking, a sale of the digital asset exchange, loss of the digital assets by the digital asset exchange and other risks similar to those described herein. Holdco may not maintain a custodian agreement with any of the digital asset exchanges that hold the Holdco’s digital assets. These digital asset exchanges may or may not provide insurance and may lack the resources to protect against hacking and theft. If this were to occur, Holdco’s business, financial condition and results of operations may be adversely affected.
As the number of digital assets awarded for solving a block in the blockchain decreases, the incentive for miners to continue to contribute processing power to the respective digital asset network will transition from a set reward to transaction fees.
In order to incentivize miners to continue to contribute processing power to any digital asset network, such network may either formally or informally transition from a set reward to transaction fees earned upon solving for a block. This transition could be 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 digital asset network adopting software upgrades that require the payment of a minimum transaction fee for all transactions. If transaction fees paid for digital asset transactions become too high, the marketplace may be reluctant to accept digital assets as a means of payment and existing users may be motivated to switch from one digital asset to another digital asset or back to fiat currency. Decreased use and demand for bitcoins may adversely affect the value of Holdco’s bitcoins and may adversely affect Holdco’s business, financial condition and results of operations.
The price of bitcoin may be influenced by regulatory, commercial and technical factors that are highly uncertain resulting in the price of bitcoin being extremely volatile, which may significantly influence the market price of Holdco’s common stock.
To the extent investors view the value of Holdco’s common stock as linked to the value or change in the value of bitcoin, fluctuations in the price of bitcoin may significantly influence the market price of Holdco’s common stock. In addition, Holdco’s business operations are no longer economical below the bitcoin breakeven point, or the point at which the total cost of mining operations exceeds the total revenues generated.
The price of bitcoin has historically been subject to dramatic fluctuations and is highly volatile. Bitcoin has only recently become accepted as a means of payment for goods and services and has recently trended toward becoming a more actively traded instrument, however the acceptance and use of bitcoin remains limited and far from mainstream. Conversely, a significant portion of demand for bitcoin may be generated by speculators and investors seeking to profit from the short- or long-term holding of bitcoin.
In addition, some blockchain industry participants have reported that a significant percentage of bitcoin trading activity is artificial or non-economic in nature and may represent attempts to manipulate the price of bitcoin. As a result, trading platforms may seek to inflate demand for bitcoin, which could increase the volatility of the price of bitcoin and may significantly influence the market price of Holdco’s common stock.
The sale of Holdco’s digital assets to pay expenses at a time of low digital asset prices may adversely affect Holdco’s business, financial condition and results of operations.
Holdco may sell its digital assets to pay expenses on an as-needed basis, irrespective of then-current prices. Consequently, Holdco’s digital assets may be sold at a time when the prices on the respective digital asset exchange market are low, which may adversely affect Holdco’s business, financial condition and results of operations.
 
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Risks Relating to Regulatory and Political Matters
Holdco may be classified as an inadvertent investment company.
Holdco is not engaged in the business of investing, reinvesting or trading in securities and does not hold itself out as being engaged in those activities. Under the Investment Company Act, however, a company may be deemed an investment company under Section 3(a)(1)(C) if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on a consolidated basis.
Holdco will be engaging in digital asset mining, the outputs of which are cryptocurrencies, which may be deemed a security. In the event that the digital assets held by Holdco exceed 40% of its total assets, exclusive of cash, Holdco may inadvertently become an investment company. An inadvertent investment company can avoid being classified as an investment company if it can rely on one of the exclusions under the Investment Company Act. One such exclusion, namely Rule 3a-2 under the Investment Company Act, allows an inadvertent investment company a grace period of one year from the earlier of (i) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (ii) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. Holdco is putting in place policies that it expects will work to keep the digital assets held by Holdco at less than 40% of its total assets, liquidating its digital assets or seeking a no-action letter from the SEC if Holdco is unable to maintain sufficient total assets or liquidate sufficient digital assets in a timely manner.
As Rule 3a-2 is available to a company no more than once every three years, and assuming no other exclusions are available to Holdco, Holdco would have to keep within the 40% limit for at least three years after it ceases being an inadvertent investment company. This may limit Holdco’s ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on Holdco’s earnings. In any event, Holdco does not intend to become an investment company engaged in the business of investing and trading securities.
Classification as an investment company under the Investment Company Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming and restrictive and would require a restructuring of Holdco’s operations, and Holdco would be very constrained in the kind of business it could do as a registered investment company. Furthermore, Holdco would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the Investment Company Act regime. The cost of such compliance would result in Holdco incurring substantial additional expenses, and the failure to register if required may adversely affect Holdco’s business, financial condition and results of operations.
Regulatory changes or actions may restrict the use of bitcoins or the operation of the bitcoin network in a manner that may adversely affect Holdco’s business, financial condition and results of operations.
Until recently, little or no regulatory attention has been directed toward bitcoin and the bitcoin network by U.S. federal and state governments, foreign governments and self-regulatory agencies. As bitcoin has grown in popularity and in market size, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the CFTC, the SEC, The Financial Crimes Enforcement Network (“FinCEN”) and the Federal Bureau of Investigation) have begun to examine the operations of the bitcoin network, bitcoin users and the bitcoin exchange market.
Digital assets currently face an uncertain regulatory landscape in not only the United States but also in many foreign jurisdictions, such as the European Union, China and Russia. As bitcoin and cryptocurrencies generally have grown in both popularity and market size, governments around the world have reacted differently to them with certain governments having deemed them illegal and others having allowed their use and trade without restriction. Based on stated efforts to curtail energy usage on mining, to protect investors or to prevent criminal activity, and in part to redirect interest into competing government-created cryptocurrencies, recent regulations have proliferated. In March 2021, a new law was proposed in India to criminalize the mining, transferring or holding of bitcoin and other cryptocurrencies, and current rules
 
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require extensive disclosure to the government of cryptocurrency holdings. At the same time, India is rumored to be developing its own centralized national digital currency. Similarly, China has also limited some mining and trading, although not possession, of cryptocurrency, ostensibly to reduce energy usage in a country formerly representing an estimated 65% of bitcoin mining, but reports suggest such regulation is also designed, in part, to drive appetite for China’s own digital yuan. In the summer of 2021, China introduced a cryptocurrency mining ban. Due to China’s cryptocurrency mining ban, the Chinese hashrate is expected to approach zero, with mining capacity relocating out of China. On April 16, 2021, Turkey imposed bans on the use of cryptocurrency as payment and now requires transactions of a certain size to be reported to a government agency in the wake of alleged fraud at one of Turkey’s largest exchanges. In addition, in May 2021, Iran announced a temporary ban on cryptocurrency mining as a way to reduce energy consumption amid power blackouts. In Germany, the Ministry of Finance has declared bitcoin to be “Rechnungseinheiten” ​(a form of private money that is recognized as a unit of account, but not recognized in the same manner as fiat currency). Many jurisdictions, such as the United States, subject bitcoin and other cryptocurrencies to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. Further, in January 2021, Russia adopted legislation to identify cryptocurrency as a digital asset and legitimize its trading, but also prohibit its use as a payment method, with mining operations having also grown significantly in Russia since this time. Such varying government regulations and pronouncements are likely to continue for the near future.
In the United States, the Federal Reserve Board, U.S. Congress and certain U.S. agencies (e.g., the CFTC, the SEC, FinCEN and the Federal Bureau of Investigation) have begun to examine the operations of the bitcoin network, bitcoin users and the bitcoin exchange market. Increasing regulation and regulatory scrutiny may result in new costs for Holdco and Holdco management having to devote increased time and attention to regulatory matters, change aspects of its business or result in limits on the utility of bitcoin. In addition, regulatory developments and/or Holdco’s business activities may require Holdco to comply with certain regulatory regimes.
Ongoing and future regulation and regulatory actions could significantly restrict or eliminate the market for or uses of bitcoin and/or may adversely affect Holdco’s business, financial condition and results of operations.
It may be illegal now, or in the future, to acquire, own, hold, sell or use digital assets in one or more countries, and ownership of, holding or trading in Holdco’s securities may also be considered illegal and subject to sanction.
Although digital assets are not currently regulated or are lightly regulated in most countries, including the United States, one or more countries, such as China and Russia, may take regulatory actions in the future that severely restricts the right to acquire, own, hold, sell or use digital assets or to exchange digital assets for fiat currency. Such an action may also result in the restriction of ownership, holding or trading in Holdco’s securities and may adversely affect Holdco’s business, financial condition and results of operations.
If regulatory changes or interpretations of Holdco’s activities require its registration as a money services business under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act of 1970, as amended, Holdco may be required to register and comply with such regulations.
To the extent that the activities of Holdco cause it to be deemed a money service business under the regulations promulgated by FinCEN under the authority of the U.S. Bank Secrecy Act of 1970, as amended, Holdco may be required to comply with FinCEN regulations, including those that would mandate Holdco to implement anti-money laundering programs, make certain reports to FinCEN and maintain certain records.
To the extent that the activities of Holdco cause it to be deemed a “money transmitter” or equivalent designation under state law of any state in which Holdco operates, Holdco may be required to seek a license or otherwise register with a state regulator and comply with state regulations that may include the implementation of anti-money laundering programs, maintenance of certain records and other operational requirements. Currently, the New York State Department of Financial Services has finalized its “BitLicense” framework for businesses that conduct “virtual currency business activity,” the Conference of State Bank Supervisors has proposed a model form of state level “virtual currency” regulation and additional state regulators, including those from the States of California, Idaho, Virginia, Kansas, Texas, South Dakota and Washington, have made public statements indicating that virtual currency businesses may be required to
 
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seek licenses as money transmitters. In July 2016, the State of North Carolina updated the law to define “virtual currency” and the activities that trigger licensure in a business-friendly approach that encourages companies to use virtual currency and blockchain technology. Specifically, the North Carolina law does not require miners or software providers to obtain a license for multi-signature software, smart contract platforms, smart property, colored coins and non-hosted, non-custodial wallets. Starting on January 1, 2016, the State of New Hampshire requires anyone who exchanges a digital currency for another currency must become a licensed and bonded money transmitter. In numerous other states, including the States of Connecticut and New Jersey, legislation is being proposed or has been introduced regarding the treatment of bitcoin and other digital assets. Holdco will continue to monitor for developments in such legislation, guidance or regulations.
Such additional federal or state regulatory obligations may cause Holdco to incur extraordinary expenses, possibly affecting an investment in the shares of Holdco’s common stock in a material and adverse manner. Furthermore, Holdco and its service providers may not be capable of complying with certain federal or state regulatory obligations applicable to money services business and money transmitters. If Holdco is deemed to be subject to and is determined not to comply with such additional regulatory and registration requirements, Holdco may act to dissolve and liquidate Holdco.
Blockchain technology may expose Holdco to specially designated nationals or blocked persons or cause it to violate provisions of law.
Holdco is subject to the rules enforced by The Office of Financial Assets Control of the U.S. Department of Treasury (“OFAC”), including regarding sanctions and requirements not to conduct business with persons named on its specially designated nationals list. However, because of the pseudonymous nature of blockchain transactions, Holdco may inadvertently and without its knowledge engage in transactions with persons named on OFAC’s specially designated nationals list, which may expose Holdco to regulatory sanctions and adversely affect Holdco’s business, financial condition and results of operations.
Holdco may be required to register and comply with bitcoin regulations and, to the extent that Holdco decides to continue operations, the required registrations and regulatory compliance steps may result in extraordinary expenses to Holdco.
Current and future legislation, and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which bitcoins are treated for classification and clearing purposes. In particular, bitcoin derivatives are not excluded from the definition of “commodity future” by the CFTC. Holdco cannot be certain as to how future regulatory developments will impact the treatment of bitcoins under the law.
Bitcoins have been deemed to fall within the definition of a commodity, and Holdco may be required to register and comply with additional regulation under the Commodity Exchange Act of 1936, as amended, including additional periodic report and disclosure standards and requirements. Moreover, Holdco may be required to register as a commodity pool operator and to register us as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary expenses, thereby materially and adversely affecting Holdco’s business, financial condition and results of operations. If Holdco determines it will not comply with such additional regulatory and registration requirements, it may seek to cease certain of its operations. Any such action may adversely affect Holdco’s business, financial condition and results of operations. As of the date of this proxy statement/prospectus, Holdco is not aware of any rules that have been proposed to regulate bitcoins as securities. However, Holdco cannot be certain as to how future regulatory developments will impact the treatment of bitcoins under the law.
If federal or state legislatures or agencies initiate or release tax determinations that change the classification of bitcoins as property for tax purposes (in the context of when such bitcoins are held as an investment), such determination could have a negative tax consequence on Holdco or its shareholders.
Current guidance from the Internal Revenue Service indicates that digital assets such as bitcoin should be treated and taxed as property and that transactions involving the payment of bitcoin for goods and services should be treated as barter transactions. While this treatment creates a potential tax reporting requirement
 
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for any circumstance where the ownership of a bitcoin passes from one person to another, usually by means of bitcoin transactions (including off-blockchain transactions), it would also apply capital gains treatment to those transactions which may adversely affect Holdco’s business, financial condition and results of operations.
Under certain recently proposed legislation, substantial tax compliance burdens may be imposed on Holdco relating to the tax reporting of bitcoin and bitcoin-related transactions.
Legislation recently passed in the Senate would impose substantial tax compliance obligations on Holdco relating to the reporting of bitcoin and bitcoin-related transactions. Under this legislation, it is possible that Holdco would be treated as a digital assets broker and required to deliver certain tax forms in connection with the validation of blockchain transactions. Were this legislation to be passed in the House and enacted unchanged, Holdco could face tax reporting and compliance mandates that it may not have the information or resources to fully comply with. Although the current legislation may not be enacted in its current form, future legislation may impose similar tax compliance responsibilities on Holdco, which may be expensive and burdensome to comply with, and which could, as a result, adversely impact Holdco’s operations.
Holdco’s bitcoin holdings could subject it to regulatory scrutiny.
Several bitcoin investment vehicles have attempted to list their shares on a U.S. national securities exchange to permit them to function in the manner of an exchange-traded fund with continuous share creation and redemption at net asset value. To date the SEC has declined to approve any such listing, citing concerns over the surveillance of trading in markets for the underlying bitcoin as well as concerns about fraud and manipulation in bitcoin trading markets. Even though Holdco does not function in the manner of an exchange-traded fund and does not offer continuous share creation and redemption at net asset value, it is possible that Holdco nevertheless could face regulatory scrutiny from the SEC, as a company with securities traded on Nasdaq.
In addition, as digital assets, including bitcoin, have grown in popularity and market size, there has been increasing focus on the extent to which digital assets can be used to launder the proceeds of illegal activities or fund criminal or terrorist activities or entities subject to sanctions regimes. While Holdco has implemented and maintains policies and procedures reasonably designed to promote compliance with applicable anti-money laundering and sanctions laws and regulations and takes care to only acquire bitcoin through entities subject to anti money laundering regulation and related compliance rules in the United States, if it is found to have purchased any bitcoin from bad actors that have used bitcoin to launder money or persons subject to sanctions, Holdco may be subject to regulatory proceedings and further transactions or dealings in bitcoin may be restricted or prohibited.
Due to the unregulated nature and lack of transparency surrounding the operations of many bitcoin trading venues, they may experience fraud, security failures or operational problems, which may adversely affect the value of Holdco’s bitcoin holdings.
Bitcoin trading venues are relatively new and, in some cases, unregulated. Furthermore, there are many bitcoin trading venues which do not provide the public with significant information regarding their ownership structure, management teams, corporate practices and regulatory compliance. As a result, the marketplace may lose confidence in bitcoin trading venues, including prominent exchanges that handle a significant volume of bitc