BUSINESS COMBINATION

12 Months Ended

Dec. 31, 2022

BUSINESS COMBINATION

BUSINESS COMBINATION

NOTE 3 – BUSINESS COMBINATION

On June 25, 2021, TeraCub entered into the Merger Agreement with RM 101 (formerly known as IKONICS Corporation), a public company registered on the National Association of Securities Dealers Automated Quotations (“Nasdaq”), pursuant to which, among other things, TeraCub would effectively acquire RM 101 and become a publicly traded company on the Nasdaq, which was the primary purpose of the business combination. The closing date of the acquisition was December 13, 2021.

Under the terms of the Merger Agreement, each share of RM 101 common stock issued and outstanding immediately prior to the transaction close, as defined (the “Closing”), was automatically converted into and exchanged for (i) one validly issued, fully paid and nonassessable share of Common Stock of the surviving public company, TeraWulf, (ii) one contractual contingent value right (“CVR”) to a Contingent Value Rights Agreement (“CVR Agreement” as discussed below) and (iii) the right to receive $5.00 in cash, without interest.

Pursuant to the CVR Agreement, each shareholder of RM 101 as of immediately prior to the Closing, received one non-transferable CVR for each outstanding share of common stock of RM 101 then held. The holders of the CVRs are entitled to receive 95% of the Net Proceeds (as defined in the CVR Agreement), if any, from the sale, transfer, disposition, spin-off, or license of all or any part of the pre-merger business of RM 101. Payments under the CVR Agreement are calculated quarterly and are subject to a reserve of up to 10% of the Gross Proceeds (as defined in the CVR Agreement) from such transaction or more under certain conditions. The CVRs do not confer to the holders thereof any voting or equity or ownership interest in TeraWulf. The CVRs are not transferable, except in limited circumstances, and will not be listed on any quotation system or traded on any securities exchange. The CVR Agreement will terminate after all payment obligations to the holders thereof have been satisfied. Holders of CVRs will not be eligible to receive payment for dispositions, if any, of any part of the pre-merger business of RM 101 after the eighteen-month anniversary of the Closing.

On April 15, 2022, a Definitive Agreement was signed whereby RM 101 agreed to sell a certain property, including a warehouse, to a third party for $7.0 million. The Definitive Agreement includes certain indemnifications which are subject to an $850,000 limitation and which expire in August 2023. No indemnification claims have been made as of the date these financial statements were available to be issued. In July 2022, the transaction price was adjusted to $6.7 million and the transaction close occurred in August 2022 with net sale proceeds of $6.2 million.

In April 2022, the Company became aware of certain potential environmental remediation that may be required on a property of RM 101. The site was enrolled in the Voluntary Investigation and Cleanup program with the Minnesota Pollution Control Agency (“MPCA”). In June 2022, the MPCA issued a No Action Determination for Soil letter regarding soil findings related to arsenic, lead, mercury and polynuclear aromatic hydrocarbons identified in the soil samples. In December 2022, the MPCA issued a Technical Assistance Letter: Completion of Soil Vapor Assessment advising of successful completion of the soil vapor investigation. The Company was not required to undertake any related remediation activities.

On August 5, 2022, an Asset Purchase Agreement (the “APA”) was signed whereby RM 101 agreed to sell (i) certain property, including a warehouse and a building which houses manufacturing, operations and administration, (ii) substantially all of its working capital and (iii) its historical business to a third party for $6.5 million plus or minus the amount of actual net working capital as compared to a target net working capital. The APA was structured as an asset sale and includes a net working capital true up provision. The APA included certain indemnifications which were subject to a $650,000 limitation and a related escrow of that amount upon consummation of the transaction. Substantially all of the remaining purchase price was placed into escrow upon consummation of the transaction pending the completion of remaining aforementioned environmental testing and remediation resulting therefrom, if any. The environmental escrow would be released upon completion of any remediation work required and a receipt of a No Action Determination from the MPCA. The transaction close occurred in August 2022 with net sale proceeds of approximately $7.0 million, net of the final working capital adjustment, which is included in restricted cash in the consolidated balance sheet as of December 31, 2022. In February 2023, all escrowed funds were released to the Company.

Consideration Transferred

The following table summarizes the fair value of the aggregate consideration paid for RM 101 (in thousands):

Cash consideration	$	13,712
Equity instruments: 1,999,525 shares of TeraWulf Inc.		40,590
Contingent consideration: Contingent Value Rights		12,000
	$	66,302

As of December 31, 2022, the amount recognized for the CVR contingent consideration was remeasured to a fair value of $10.9 million. The $1.1 million gain on remeasurement is included in loss from discontinued operations, net of tax in the consolidated statement of operations for the year ended December 31, 2022.

The Company’s consolidated financial statements include the operating results of RM 101 beginning on December 13, 2021, the date of the acquisition. An operating loss of $6.0 million and $49.1 million related to the RM 101’s business has been reflected in loss from discontinued operations, net of tax in the Company’s consolidated statements of operations for the year ended December 31, 2022 and the period February 8, 2021 (date of inception) to December 31, 2021, respectively.