Item
1.01 Entry into a Material Definitive Agreement.
On
August 11, 2021, Mechanical Technology, Incorporated (“MTI”) entered into (i) an Agreement and Plan of Merger (the
“Merger Agreement”) by and among MTI, SCI Merger Sub, Inc., an indirect wholly-owned subsidiary of MTI (“Merger
Sub”), and Soluna Computing, Inc., a Delaware Corporation (“SCI”), and (ii) a Termination Agreement by and among
MTI, EcoChain, Inc., a Delaware corporation and a wholly-owned subsidiary of MTI (“EcoChain”), and Harmattan Energy,
Ltd. (formerly Soluna Technologies, Ltd.), a corporation incorporated under the laws of the Province of British Columbia (“HEL”).
The Merger Agreement has been approved by the Board of Directors of each of MTI, Merger Sub, and SCI and by Soluna Holdings US,
LLC, a Delaware limited liability company and the sole stockholder of SCI (“Soluna Parent”), and the Termination Agreement
has been approved by the Board of Directors of each of MTI, EcoChain, and HEL.
The
purpose of these agreements is to effect MTI’s acquisition of substantially all of the assets (other than those assets physically
located in Morocco) formerly held by HEL; such assets consist solely of SCI’s existing pipeline of certain cryptocurrency
mining projects that HEL previously transferred to SCI (the “Projects”), which was formed on May 18, 2021, expressly
for this purpose. The transactions contemplated by the Merger Agreement and the Termination Agreement also provide MTI, through
EcoChain, with the opportunity to directly employ or retain the services of four individuals whose services it currently retains
through HEL.
Soluna
Parent, the sole stockholder of SCI, has the same ownership structure as HEL.
Material
Relationships and Potential Conflicts of Interest
On
January 13, 2020, EcoChain entered into an Operating and Management Agreement with HEL. Pursuant to such agreement, HEL assisted
MTI, and later EcoChain, in developing, and is now operating, EcoChain’s cryptocurrency mining facility located in Washington
State. In that regard, on May 21, 2020, EcoChain acquired the intellectual property of GigaWatt, Inc. (“GigaWatt”)
and certain other property and rights of GigaWatt associated with GigaWatt’s operation of a crypto-mining operation located
in Washington State. The acquired assets formed the cornerstone of EcoChain’s current cryptocurrency mining operation. On
October 22, 2020, EcoChain loaned HEL $112,000 to acquire additional assets from the bankruptcy trustee for GigaWatt’s assets.
On the same day, HEL transferred title of the assets to EcoChain, which under the terms thereof paid off the note. Pursuant to
this agreement, EcoChain paid HEL $150,000 in 2020 and $118,000 to date during 2021.
On
November 19, 2020, EcoChain and HEL entered into a second Operating and Management Agreement related to a potential location for
a cryptocurrency mine in the Southeast United States. In accordance with the terms of this agreement, EcoChain paid HEL $150,000
in 2020 and $200,000 to date during 2021.
On
December 1, 2020, EcoChain and HEL entered into a third Operating and Management Agreement with respect to a potential location
for a cryptocurrency mine in the Southwestern United States. In accordance with the terms of this agreement, EcoChain paid HEL
$38,000 during 2020 in relation to one-time fees; this target location did not meet the business requirements to continue pursuing
the potential acquisition, and as a result EcoChain will not make any further payments to HEL under this agreement.
On
February 8, 2021, EcoChain and HEL entered into a fourth Operating and Management Agreement related to a potential location for
a cryptocurrency mine in the Southeast United States. In accordance with the terms of this agreement, EcoChain paid HEL $544,000
to date during 2021.
Each
Operating and Management Agreement, among other things, requires that HEL provide project sourcing services to EcoChain, including
acquisition negotiations and establishing an operating model, investments/financing timeline, and project development path, as
well as developmental and operational services, as directed by EcoChain, with respect to the applicable cryptocurrency mining
facility in exchange for EcoChain’s payment to HEL of a one-time management fee ranging from $65,000 to $350,000 and profit-based
success payments in the event that EcoChain achieves explicit profitability thresholds. Once aggregate earnings before interest,
taxes, depreciation, and amortization of the applicable mine exceeds the total amount of funding provided by EcoChain to HEL (whether
pursuant to the applicable agreement or otherwise) for the purposes of creating, developing, assembling, and constructing the
mine, HEL is entitled to ongoing success payments of 20.0% of the earnings before interest, taxes, depreciation, and amortization
of the mine.
In
addition to the relationships described above, pursuant to a purchase agreement it entered into with HEL simultaneously with entering
into the initial Operating and Management Agreement, MTI purchased an aggregate of 238,095 Class A Preferred Shares of HEL for
an aggregate purchase price of $750,000. As of the date of this report, MTI owns 53.0% of the HEL Class A Preferred Shares and
1.78% of the total equity ownership interests of HEL. MTI also has the right, but not the obligation, to purchase additional equity
securities of HEL and its subsidiaries (including additional Class A Preferred Shares of HEL) if HEL secures certain levels or
types of project financing with respect to its own wind-power generation facilities. Each preferred share may be converted at
any time and without payment of additional consideration into shares of HEL common stock. MTI has additionally entered into a
Side Letter Agreement, dated January 13, 2020, with Soluna Technologies Investment I, LLC, a Delaware limited liability company
that owns 59.9% of the equity of HEL (or 57.9% on a fully diluted basis), and is controlled by Michael Toporek, MTI’s Chief
Executive Officer and an MTI director, as more fully discussed below. The Side Letter Agreement provides for the transfer to MTI
of additional Class A Preferred Shares of HEL, without the payment of any consideration by MTI, in the event that HEL issues additional
equity below agreed-upon valuation thresholds.
In
addition, several of HEL’s and Soluna Parent’s equity holders are affiliated with Brookstone Partners, LLC, the investment
firm that holds an equity interest in MTI through Brookstone Partners Acquisition XXIV, LLC (“Brookstone XXIV”); as
of the date of this report, Brookstone XXIV owns 3,750,000 shares of MTI’s common stock, par value $0.001 per share (“Common
Stock”), or 29.5% of the outstanding shares of Common Stock.
Michael
Toporek, MTI’s Chief Executive Officer and a director, has also served as Managing General Partner of Brookstone Partners
since 2003. As part of MTI’s sale of 3,750,000 shares of Common Stock to Brookstone XXIV in October 2016, Brookstone XXIV
has two designated directors that sit on MTI’s Board of Directors; Mr. Toporek is one such director. As of the date of this
report, Mr. Toporek owns (i) 90% of the equity of Soluna Technologies Investment I, LLC, which as noted above owns 59.9% of the
equity of HEL (or 57.9% on a fully diluted basis) and (ii) 100% of the equity of MJT Park Investors, Inc., which owns 3.72% of
the equity of HEL (or 3.04% on a fully-diluted basis). While Mr. Toporek does not own directly, or indirectly, any equity interest
in Tera Joule, LLC, which owns 7.49% of the equity of HEL (or 7.09% on a fully diluted basis), as a result of his 100% ownership
of Brookstone IAC, Inc., which is the manager of Tera Joule, LLC, he has dispositive power over the equity interests that Tera
Joule owns in HEL.
Matthew
E. Lipman is the second Brookstone XXIV-designated director on MTI’s Board of Directors. He has served as Managing Director
of Brookstone Partners since 2004. Mr. Lipman serves as a director and as Secretary of HEL and SCI as well as President of HEL.
Mr. Lipman does not directly own any equity interest in Tera Joule, however, as a result of his position as a director and officer
of Brookstone IAC, Inc. he has dispositive power over the equity interests that Tera Joule owns in HEL.
Finally,
from January 13, 2020 until March 4, 2021, when he resigned from this position, MTI director William P. Phelan served as a director
on HEL’s Board of Directors on behalf of MTI. Following his resignation as a director, Mr. Phelan serves as an observer
on the HEL Board of Directors.
As
a result of the relationships and transactions set forth above, the approximate dollar value of the amount of Mr. Toporek’s
and Mr. Lipman’s interest in MTI’s transactions with HEL during the year ended December 31, 2020, was $631,000 and
$0, respectively. During the six months ended June 30, 2021, the approximate dollar value of the amount of Mr. Toporek’s
and Mr. Lipman’s interest in MTI’s transactions with HEL was $98,000 and $0, respectively.
MTI’s
investment in HEL is carried at the cost of investment and was $750,000 as of June 30, 2021. MTI owns approximately 1.83% of HEL,
calculated on a converted fully-diluted basis, as of June 30, 2021.
The
Merger Agreement
Pursuant
to the Merger Agreement, subject to the terms and conditions thereof, Merger Sub will be merged with and into SCI, with SCI as
the surviving corporation such that SCI becomes a wholly-owned subsidiary of EcoChain and an indirect wholly-owned subsidiary
of MTI (the “Merger”). Under the terms of the Merger Agreement, each share of common stock of SCI, no par value per
share (the “SCI Common Stock”), issued and outstanding immediately prior to the effective time of the Merger, other
than shares of SCI Common Stock owned by SCI, Merger Sub, MTI, or any of their subsidiaries, will be cancelled and converted into
the right the right to receive a proportionate share of the merger consideration described immediately below.
The
consideration (the “Merger Consideration”) payable to the holders of SCI Common Stock as of immediately prior to the
effective time of the Merger (the “Effective Time Holders”), which we expect will be solely Soluna Parent, is an aggregate
of up to 2,970,000 shares of Common Stock (the “Merger Shares”), payable if, within five years after the effective
time of the Merger, EcoChain or SCI achieve one or more milestones related to the cryptocurrency projects currently in SCI’s
pipeline and that may be identified and developed from time to time going forward, with a certain number of Merger Shares payable
for each such milestone achieved, all as set forth in the Merger Agreement and/or the schedules thereto. The Merger Consideration
and the timing of the payment thereof is subject to certain qualifications and limitations, and adjustments, including customary
anti-dilution adjustments.
The
Merger Agreement contains customary representations and warranties from both MTI and SCI and each has agreed to customary covenants,
including, among others, to use all commercially reasonable efforts to obtain any consents, waivers, and approvals required to
be obtained in connection with the Merger and, with respect to SCI, covenants relating to the conduct of its business during the
interim period between the execution of the Merger Agreement and the effective time of the Merger or termination of the Merger
Agreement, as well as non-solicitation obligations relating to alternative acquisition proposals.
The
obligation of MTI and Merger Sub, on the one hand, and SCI, on the other hand, to consummate the Merger is subject to a number
of customary conditions, including (1) the accuracy of the representations and warranties of the other and (2) performance in
all material respects by the other of its obligations under the Merger Agreement. In addition, each party’s obligation to
consummate the Merger is subject to certain additional conditions, including: (1) MTI and the Effective Time Holders having entered
into a mutually-acceptable registration rights agreement with respect to the Merger Shares; (2) MTI and Soluna Parent having entered
into a conversion agreement with respect to the shares of Soluna Parent’s preferred stock held by MTI; and (3) MTI, Brookstone
XXIV, and Soluna Parent having entered into a voting agreement pursuant to which, at the effective time of the Merger, John Belizaire,
Chief Executive Officer of SCI and a director of SCI and HEL, and John Bottomley, a director of HEL and SCI, will be elected to
MTI’s Board of Directors and Brookstone XXIV will agree to vote all of its voting equity securities in MTI for the election
of Messrs. Belizaire and Bottomley as directors of MTI. Further, MTI’s and Merger Sub’s obligation to consummate the
Merger is also subject to, among other things: (1) the receipt of all required approvals of MTI’s stockholders, including
approval of the Merger Agreement and the Merger by holders of at least a majority of the outstanding shares of Common Stock that
are not “interested stockholders,” as defined under Nevada law, of MTI, SCI, or an affiliate thereof; (2) the receipt
of all required regulatory or third-party approvals and consents; (3) each of John Belizaire, Mohammed Larbi Loudiyi (through
ML&K Contractor, a limited liability company organized under the laws of Morocco that is owned by Mr. Loudiyi and his wife),
Vice President, Energy of SCI, Phillip Ng, Vice President, Corporate Development of SCI, and Dipul Patel, Chief Technology Officer
of SCI, who currently provide developmental and operational services for EcoChain’s cryptocurrency mine located in Washington
State and project sourcing services to EcoChain under certain Operating and Management Agreements between HEL and EcoChain, having
entered into an employment or service agreement and a related proprietary rights agreement with EcoChain and an equity grant agreement
with MTI; and (4) Soluna Parent being the sole record and beneficial owner of 100% of SCI’s outstanding equity interests.
In
addition to providing that MTI and SCI can mutually agree to terminate the Merger Agreement, the Merger Agreement contains certain
termination rights for both MTI and SCI, as the case may be, including: (1) if the Merger has not been consummated by October
31, 2021 (unless principally caused by a breach of the Merger Agreement by the party seeking to terminate); (2) if a governmental
authority shall have issued a final, nonappealable order, decree, or ruling, or taken any other action, having the effect of permanently
restraining, enjoining, or otherwise prohibiting the Merger; or (3) upon a breach of any representation, warrant, covenant, or
agreement of the other or if any representation or warranty of the other has become untrue, in either case such that the closing
conditions related thereto would not be satisfied, subject to a 30-day cure period.
A
copy of the Merger Agreement is attached hereto as Exhibit 2.1. The foregoing summary of the material terms of the Merger Agreement
in this Item 1.01 is not complete and is qualified in its entirety by reference to the complete text of the Merger Agreement.
The
Termination Agreement
Upon and subject to the terms and conditions of the Termination Agreement,
including approval by the stockholders of MTI’s issuance of the Termination Shares, as hereinafter defined, five business days after
such stockholder approval (the “Termination Effective Date”): (1) the existing Operating and Management Agreements between
HEL and EcoChain will be terminated in all respects, and (2)(A) EcoChain will pay HEL $725,000, (B) MTI will issue HEL 150,000 shares
of Common Stock (the “Termination Shares”), and (C) HEL and MTI will enter into an Amended and Restated Contingent Rights
Agreement that, among other things, will amend the existing Contingent Rights Agreement by and between HEL and MTI, dated January 13,
2020, to provide MTI the right to invest directly in certain cryptocurrency mining opportunities being pursued by HEL. The Termination
Agreement also provides that MTI will file a registration statement with the Securities and Exchange Commission (the “SEC”)
to register the resale of the Termination Shares within 20 days of the Termination Effective Date.
A
copy of the Termination Agreement is attached hereto as Exhibit 10.1. The foregoing summary of the material terms of the Termination
Agreement in this Item 1.01 is not complete and is qualified in its entirety by reference to the complete text of the Termination
Agreement.
Additional
Information About the Merger and Where to Find It
In
connection with the proposed Merger, MTI will file with the SEC a proxy statement (the “Proxy Statement”) as well
as other relevant documents concerning the proposed transaction. STOCKHOLDERS OF MTI AND OTHER INTERESTED PARTIES ARE URGED
TO READ THE PROXY STATEMENT REGARDING THE MERGER WHEN IT BECOMES AVAILABLE AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE SEC,
AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THOSE DOCUMENTS, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. The Proxy Statement
will be mailed to MTI’s stockholders prior to the MTI stockholder meeting to be held to approve the Merger Agreement, the
Merger, the issuances of the Merger Shares and the Termination Shares, and certain related matters, which meeting has not yet
been scheduled. In addition, when the Proxy Statement and other related documents are filed by MTI with the SEC, they may be obtained
for free at the SEC’s website at http://www.sec.gov and from MTI’s website at http://www. mechtech.com.
Participants
in the Solicitation
MTI
and its respective executive officers and directors may be deemed to be participants in the solicitation of proxies from MTI’s
stockholders in connection with the proposed Merger. Information about MTI’s directors and executive officers is set forth
in the proxy statement for MTI’s 2021 annual meeting of stockholders, as filed with the SEC on May 18, 2021, and information
about MTI’s directors’ and executive officers’ interests in the proposed Merger is set forth above. Information
about any other persons who may, under the rules of the SEC, be considered participants in the solicitation of MTI’s stockholders
in connection with the proposed Merger will be included in the Proxy Statement. You can obtain free copies of these documents
from the SEC or MTI using the website information above.
MTI
STOCKHOLDERS are urged to read the proxy statement carefully when it becomes available before making any voting decisions with
respect to the proposed Merger AND THE RELATED MATTERS.