Jacobs v. Ikonics Corporation — Entry #1: COMPLAINT against Marianne Bohren, Lockwood Carlson, Jeffrey D

Case 1:21-cv-08148 Document 1 Filed 10/01/21 Page 1 of 13


                           UNITED STATES DISTRICT COURT
                          SOUTHERN DISTRICT OF NEW YORK

    STANLEY JACOBS,

                       Plaintiff,
                                                       Civil Action No. ___________
          v.

    IKONICS CORPORATION, GLENN                         COMPLAINT FOR VIOLATIONS
    SANDGREN, WILLIAM C. ULLAND,                       OF SECTIONS 14(a) AND 20(a) OF
    MARIANNE BOHREN, LOCKWOOD                          THE SECURITIES EXCHANGE
    CARLSON, JEFFREY D. ENGBRECHT,                     ACT OF 1934
    ERNEST M. HARPER JR., DARRELL B.
    LEE, and GREGORY W. JACKSON,

                       Defendants,                     JURY TRIAL DEMAND


        Plaintiff Stanley Jacobs (“Plaintiff”) alleges the following upon information and belief,

including investigation of counsel and review of publicly available information, except as to those

allegations pertaining to Plaintiff, which are alleged upon personal knowledge:

                                    NATURE OF THE ACTION

        1.      Plaintiff brings this action against IKONICS Corporation (“IKONICS” or the

“Company”) and IKONICS’ Board of Directors (the “Board” or the “Individual Defendants”) for

their violations of Sections 14(a) and 20(a) of the Securities Exchange Act of 1934, 15.U.S.C. §§

78n(a), 78t(a), and SEC Rule 14a-9, 17 C.F.R. 240.14a-9, arising out of the Board’s attempt to sell

the Company to TeraWulf Inc. (“TeraWulf”).

        2.      Defendants have violated the above-referenced Sections of the Exchange Act by

causing a materially incomplete and misleading amended registration statement (the “S-4”) to be

filed with the Securities and Exchange Commission (“SEC”) on September 20, 2021. 1 The S-4


1
  The original registration statement was filed with the SEC on July 30, 2021. Amendments to the
registration statement were filed on August 2, 2021 and August 11, 2021.
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recommends that IKONICS stockholders vote in favor of a proposed transaction (the “Proposed

Transaction”) whereby IKONICS is acquired by TeraWulf. The Proposed Transaction was first

disclosed on June 25, 2021, when IKONICS and TeraWulf announced that they had entered into

a definitive merger agreement (the “Merger Agreement”) pursuant to which TeraWulf will acquire

all of the outstanding shares of common stock of IKONICS for $5.00 per share, one contingent

value right, and 1.00 share of the combined company’s common stock (the “Merger

Consideration”). IKONICS stockholders will own 2% of the combined company. The deal is

expected to close in the second half of 2021.

       3.      The S-4 is materially incomplete and contains misleading representations and

information in violation of Sections 14(a) and 20(a) of the Exchange Act. Specifically, the S-4

contains materially incomplete and misleading information concerning the financial projections

prepared by IKONICS management, as well as the financial analyses conducted by Northland

Securities, Inc. (“Northland”), IKONICS’s financial advisor.

       4.      For these reasons, and as set forth in detail herein, Plaintiff seeks to enjoin

Defendants from taking any steps to consummate the Proposed Transaction, including filing any

further amendment to the S-4 with the SEC or otherwise causing any further amendment to the S-

4 to be disseminated to IKONICS’s stockholders, unless and until the material information

discussed below is included in any such amendment or otherwise disseminated to IKONICS’s

stockholders. In the event the Proposed Transaction is consummated without the material

omissions referenced below being remedied, Plaintiff seeks to recover damages resulting from the

Defendants’ violations.

                                            PARTIES

       5.      Plaintiff is, and has been at all relevant times, the owner of shares of common stock


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of IKONICS.

        6.     Defendant IKONICS is a corporation organized and existing under the laws of the

State of Minnesota. The Company’s principal executive offices are located at 4832 Grand Avenue,

Duluth, Minnesota 55807. IKONICS common stock trades on NASDAQ under the ticker symbol

“IKNX.”

        7.     Defendant Glenn Sandgren has been CEO and a director of the Company since

2020.

        8.     Defendant William C. Ulland has been a director of the Company since 1972.

Defendant Ulland has served as Chairman of the Board since 1976, and served as President and

CEO of the Company from 2000 until 2020.

        9.     Defendant Marianne Bohren has been a director of the Company since 2016.

        10.    Defendant Lockwood Carlson has been a director of the Company since 2009.

        11.    Defendant Jeffrey D. Engbrecht has been a director of the Company since 2016.

        12.    Defendant Ernest M. Harper Jr. has been a director of the Company since 2012.

        13.    Defendant Darrell B. Lee has been a director of the Company since 2012.

        14.    Defendant Gregory W. Jackson has been a director of the Company since 2017.

        15.    Defendants Sandgren, Ulland, Bohren, Carlson, Engbrecht, Harper, Lee, and

Jackson are collectively referred to herein as the “Board” or “Individual Defendants.”

        16.    Nonparty TeraWulf is a Delaware corporation. TeraWulf is a bitcoin mining

company that provides U.S.-produced bitcoin using hydro, nuclear and solar powered cryptomines.

                                JURISDICTION AND VENUE

        17.    This Court has subject matter jurisdiction pursuant to Section 27 of the Exchange

Act (15 U.S.C. § 78aa) and 28 U.S.C. § 1331 (federal question jurisdiction) as Plaintiff alleges


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violations of Section 14(a) and 20(a) of the Exchange Act and SEC Rule 14a-9.

       18.     Personal jurisdiction exists over each Defendant either because the Defendant

conducts business in or maintains operations in this District or is an individual who is either present

in this District for jurisdictional purposes or has sufficient minimum contacts with this District as

to render the exercise of jurisdiction over Defendant by this Court permissible under traditional

notions of fair play and substantial justice.

       19.     Venue is proper in this District under Section 27 of the Exchange Act, 15 U.S.C. §

78aa, as well as under 28 U.S.C. § 1391, because a significant amount of the conduct at issue took

place and had an effect in this District.

                         FURTHER SUBSTANTIVE ALLEGATIONS

   A. Background of the Company and the Proposed Transaction

       20.     IKONICS offers products to industrial and consumer customers based on four

technology platforms: ultraviolet chemistry, film coating and construction, technical abrasive

etching, and industrial inkjet printing. IKONICS products include screen printing emulsions, inkjet

films, and products to put patterns and textures onto molds.

       21.     On June 25, 2021, the Company entered into the Merger Agreement with TeraWulf.

According to the press release issued on June 25, 2021 announcing the Proposed Transaction:

         TeraWulf and IKONICS Announce Merger Agreement, Paving Way For a
         U.S. Publicly Traded ESG-Focused Cryptocurrency Mining Company with
                          Plans to Use 90%+ Zero-Carbon Energy

             TeraWulf Positioned to Produce Low-Cost, Domestic, Environmentally
                          Sustainable Bitcoin at an Industrial Scale

         50 Megawatts (“MW”) Expected to be Online This Year and 800 MW Deployed
            by 2025, Enabling a Hashrate Over 23 exahash per second (“EH/s”) of
                                   Computational Power

         Upon Completion of Business Combination, Combined Company Intends to Be
                    Listed on Nasdaq Under Trading Symbol “WULF”
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 IKONICS Shareholders to Receive $5.00 per share and Contingent Value Right
 (“CVR”), and Collectively Retain 2% of Combined Company’s Common Stock

IKONICS Business to Become Subsidiary of Combined Company and Positioned
                                for Sale

EASTON, Maryland & DULUTH, Minnesota – June 25, 2021 – TeraWulf Inc.
(“TeraWulf”), poised to become a best-in-class bitcoin mining company,
announced today it expects to become a Nasdaq-listed company through a business
combination with IKONICS Corporation (Nasdaq: IKNX), a Duluth, MN imaging
technology company. The companies have entered into a definitive merger
agreement to combine under a new holding company, which will change its
IKONICS to TeraWulf Inc. and is expected to be listed on The Nasdaq Stock
Market LLC under the trading symbol “WULF”.

Environmental, Social, and Governance (ESG) Focused Cryptocurrency
Mining Company

TeraWulf is positioned to generate environmentally sustainable bitcoin at an
industrial scale in the U.S. using over 90% zero-carbon energy. With 60,000 state-
of-the-art miners on order, TeraWulf expects to have 50 MW of mining capacity
online this year, and consistent with its buildout plan, expects to have 800 MW
mining capacity deployed by 2025, enabling over 23 EH/s of expected hashrate.

TeraWulf is leveraging its management team’s decades of experience in energy
supply optimization, operations and engineering to create a premier platform for
sustainable cryptocurrency mining. In addition, TeraWulf plans to implement its
proven model for large cryptocurrency mine development and operations, which
will help ensure TeraWulf can scale efficiently. With an institutional commitment
to ESG principles and a target of 100% zero-carbon energy utilization, TeraWulf is
positioned to be a leading miner of sustainable bitcoin globally.

Paul Prager, Chairman & Chief Executive Officer of TeraWulf, said, “TeraWulf
represents an exciting new paradigm for cryptocurrency mining, which is built on
a significant strategic advantage to utilize reliable, secure and low-cost sustainable
energy sources to support our bitcoin mining activities. We have a talented
management team with a proven track record and we are ready to rapidly scale due
to an established supply chain and strong partner relationships. Site work is
underway at the Company’s mining facilities in New York and Pennsylvania with
competitive power supply agreements already in place. As we prepare TeraWulf to
trade on the public market, we are confident that we have the in-house technology,
infrastructure and operations expertise to deliver unparalleled value for
shareholders.”

Nazar Khan, Chief Operating Officer, added, “Our team’s unique access to energy

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assets and deep sector expertise in the wholesale electricity markets allows us to
quickly develop a large-scale cryptocurrency mining platform that can help
facilitate and can expedite the electric grid’s transition to a zero-carbon future. Sited
and managed appropriately, mining operations provide resiliency to the electric
grid while leading the rapid development of the global fintech infrastructure.”
Glenn Sandgren, Chief Executive Officer of IKONICS, said, “We are pleased to
have reached this agreement with TeraWulf and look forward to partnering with
them. This transaction provides ideal outcomes for our shareholders, customers and
employees. It delivers our shareholders the opportunity to realize a substantial
upfront cash payment while continuing to benefit from the value of our legacy
imaging business, and provides them with the opportunity to participate in the
potential upside of TeraWulf at an exciting time for the cryptocurrency mining
space. The agreement will be instrumental in securing the long-term viability of
IKONICS’s legacy business, allowing it to continue to meet the needs of our
customers with a secure supply of our high quality products in addition to continued
employment opportunities for our workforce.”

TeraWulf’s Leading ESG Focus

TeraWulf’s aim is to be the most environmentally sustainable bitcoin mining
company focused on ESG through its purpose-driven business practices,
determined clean energy goals, and support for its communities. TeraWulf is
committed to diversity, equity and inclusion at all levels of the organization and is
proud of its highly qualified, diverse management team. As an industry leading
producer of bitcoin with a targeted path of zero-carbon energy utilization, TeraWulf
intends to maintain a high level of transparency, reliability, and environmental
stewardship across its operations and throughout its supply chain.

Kerri Langlais, TeraWulf’s Chief Strategy Officer, said, “Our core focus on ESG
sets us apart from our competitors and ties directly to our business success. We are
confident that by integrating flexible baseload energy demand into the electric grid,
we will accelerate the transition to a more resilient, stable and sustainable energy
future while generating attractive investor returns and tangible benefits, including
job creation, for our communities.”

Transaction Overview

Under the terms of the agreement, which has been unanimously approved by the
Boards of Directors of both companies, each outstanding share of IKONICS
common stock will receive $5.00 in cash, one CVR, and one share of the combined
company’s common stock. Through the CVRs, which will not be publicly traded,
the IKONICS shareholders will be entitled to received 95% of the net proceeds
from any sale of IKONICS’s legacy business completed during the 18 months
following the closing of the business combination, and will expire at the end of
such 18 month period with respect to any portion of IKONICS’s legacy business
which has not been sold. The shares of the combined company’s common stock to

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       be received by the IKONICS shareholders will collectively represent 2% of the
       combined company’s pro forma common equity ownership. As of March 31, 2021,
       IKONICS had a net book value of $11.6 million, cash of $4.4 million and working
       capital of $4.1 million.

       Following consummation of the transaction, the legacy business of IKONICS will
       be operated consistent with past practices but will be positioned for sale on terms
       that are acceptable to the Board of Directors of the combined company.

       The transaction is expected to close in the second half of 2021, subject to the receipt
       of regulatory approvals, the approval of IKONICS and TeraWulf shareholders, and
       other customary closing conditions.

   B. The Materially Incomplete and Misleading S-4

       22.       On September 20, 2021, Defendants filed the S-4 with the SEC. The purpose of the

S-4 is, inter alia, to provide the Company’s stockholders with all material information necessary

for them to make an informed decision on whether to vote in favor of the Proposed Transaction.

However, significant and material facts were not provided to Plaintiff. Without such information,

Plaintiff cannot make a fully informed decision concerning whether to vote in favor of the

Proposed Transaction.

                 Materially Incomplete and Misleading             Disclosures     Concerning     the
                 Management-Prepared Financial Forecasts

       23.       The S-4 discloses management-prepared financial projections for the Company

which are materially misleading. The S-4 indicates that in connection with the rendering of

Northland’s fairness opinion, Northland reviewed “certain internal financial projections and

estimates relating to IKONICS and TeraWulf furnished to Northland by the respective

managements of IKONICS and TeraWulf.” Accordingly, the S-4 should have, but failed to,

provide certain information in the projections that IKONICS’s management provided to the Board

and Northland.

       24.       With regards to IKONICS, the S-4 fails to disclose any long-term financial

projections for the Company or any adequate explanation for the non-disclosure of such

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projections.

       25.      Notably, with regards to “TeraWulf’s Forecasts,” the S-4 fails to disclose all line

items underlying EBITDA. This omitted information is necessary for Plaintiff to make an informed

decision on whether to vote in favor of the Proposed Transaction.

                Materially Incomplete and Misleading Disclosures Concerning Northland’s
                Financial Analyses

       26.      With respect to the IKONICS Selected Public Companies Analysis, the S-4 fails to

disclose the individual multiples and metrics for the companies identified by Northland in the

analysis.

       27.      With respect to the IKONICS Selected Precedent Transactions Analysis, the S-4

fails to disclose: (i) the value of each transaction used; and (ii) the per share amount paid to the

shareholders of the target companies.

       28.      With respect to the TeraWulf Selected Public Companies Analysis, the S-4 fails to

disclose the individual multiples and metrics for each company used by Northland in the analysis.

       29.      With respect to the TeraWulf Discounted Cash Flow Analysis, the S-4 fails to

disclose: (i) the terminal values of TeraWulf; (ii) line items used to calculate free cash flows; and

(iii) the inputs and assumptions underlying the discount rates and the perpetuity growth rates.

       30.      Without this material information, Plaintiff is unable to make a fully informed

decision in connection with the Proposed Transaction and faces irreparable harm, warranting the

injunctive relief sought herein.

       31.      In addition, the Individual Defendants knew or recklessly disregarded that the S-4

omits the material information concerning the Proposed Transaction and contains the materially

incomplete and misleading information discussed above.

       32.      Specifically, the Individual Defendants undoubtedly reviewed the contents of the

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S-4 before it was filed with the SEC. Indeed, as directors of the Company, they were required to

do so. The Individual Defendants thus knew or recklessly disregarded that the S-4 omits the

material information referenced above and contains the incomplete and misleading information

referenced above.

          33.    Further, the S-4 indicates that on June 24, 2021, Northland reviewed with the Board

its financial analysis of the Merger Consideration and delivered to the Board an oral opinion, which

was confirmed by delivery of a written opinion of the same date, to the effect that the Merger

Consideration was fair, from a financial point of view to IKONICS stockholders. Accordingly, the

Individual Defendants undoubtedly reviewed or were presented with the material information

concerning Northland’s financial analyses which has been omitted from the S-4, and thus knew or

should have known that such information has been omitted.

          34.    Plaintiff is immediately threatened by the wrongs complained of herein and lacks

an adequate remedy at law. Accordingly, Plaintiff seeks injunctive and other equitable relief to

prevent the irreparable injury that he will continue to suffer absent judicial intervention.

                                      CLAIMS FOR RELIEF

                                              COUNT I

Against All Defendants for Violations of Section 14(a) of the Exchange Act and Rule 14a-9

          35.    Plaintiff incorporates each and every allegation set forth above as if fully set forth

herein.

          36.    Defendants have filed the S-4 with the SEC with the intention of soliciting

IKONICS stockholder support for the Proposed Transaction. Each of the Individual Defendants

reviewed and authorized the dissemination of the S-4, which fails to provide the material

information referenced above.

          37.    In so doing, Defendants made materially incomplete and misleading statements
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and/or omitted material information necessary to make the statements made not misleading. Each

of the Individual Defendants, by virtue of their roles as officers and/or directors of IKONICS, were

aware of the omitted information but failed to disclose such information, in violation of Section

14(a).

         38.     Rule 14a-9, promulgated by the SEC pursuant to Section 14(a) of the Exchange

Act, provides that such communications with stockholders shall not contain “any statement which,

at the time and in the light of the circumstances under which it is made, is false or misleading with

respect to any material fact, or which omits to state any material fact necessary in order to make

the statements therein not false or misleading.” 17 C.F.R. § 240.14a-9.

         39.     Specifically, and as detailed above, the S-4 violates Section 14(a) and Rule 14a-9

because it omits material facts concerning: (i) management’s financial projections; and (ii) the

value of IKONICS shares and the financial analyses performed by Northland in support of its

fairness opinion.

         40.     Moreover, in the exercise of reasonable care, the Individual Defendants knew or

should have known that the S-4 is materially misleading and omits material information that is

necessary to render it not misleading. The Individual Defendants undoubtedly reviewed and relied

upon the omitted information identified above in connection with their decision to approve and

recommend the Proposed Transaction; indeed, the S-4 states that Northland reviewed and

discussed its financial analyses with the Board on June 24, 2021, and further states that the Board

considered Northland’s financial analyses and fairness opinion in connection with approving the

Proposed Transaction. The Individual Defendants knew or should have known that the material

information identified above has been omitted from the S-4, rendering the sections of the S-4

identified above to be materially incomplete and misleading.


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          41.     The misrepresentations and omissions in the S-4 are material to Plaintiff, who will

be deprived of his right to cast an informed vote if such misrepresentations and omissions are not

corrected prior to the vote on the Proposed Transaction. Plaintiff has no adequate remedy at law.

Only through the exercise of this Court’s equitable powers can Plaintiff be fully protected from

the immediate and irreparable injury that Defendants’ actions threaten to inflict.

                                               COUNT II

   Against the Individual Defendants for Violations of Section 20(a) of the Exchange Act

          42.     Plaintiff incorporates each and every allegation set forth above as if fully set forth

herein.

          43.     The Individual Defendants acted as controlling persons of IKONICS within the

meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their positions as

officers and/or directors of IKONICS and participation in and/or awareness of the Company’s

operations and/or intimate knowledge of the incomplete and misleading statements contained in

the S-4 filed with the SEC, they had the power to influence and control and did influence and

control, directly or indirectly, the decision making of the Company, including the content and

dissemination of the various statements that Plaintiff contends are materially incomplete and

misleading.

          44.     Each of the Individual Defendants was provided with or had unlimited access to

copies of the S-4 and other statements alleged by Plaintiff to be misleading prior to the time the S-

4 was filed with the SEC and had the ability to prevent the issuance of the statements or cause the

statements to be corrected.

          45.     In particular, each of the Individual Defendants had direct and supervisory

involvement in the day-to-day operations of the Company, and, therefore, is presumed to have had


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the power to control or influence the particular transactions giving rise to the Exchange Act

violations alleged herein and exercised the same. The omitted information identified above was

reviewed by the Board prior to voting on the Proposed Transaction. The S-4 at issue contains the

unanimous recommendation of each of the Individual Defendants to approve the Proposed

Transaction. They were, thus, directly involved in the making of the S-4.

       46.     In addition, as the S-4 sets forth at length, and as described herein, the Individual

Defendants were involved in negotiating, reviewing, and approving the Merger Agreement. The

S-4 purports to describe the various issues and information that the Individual Defendants

reviewed and considered. The Individual Defendants participated in drafting and/or gave their

input on the content of those descriptions.

       47.     By virtue of the foregoing, the Individual Defendants have violated Section 20(a)

of the Exchange Act.

       48.     As set forth above, the Individual Defendants had the ability to exercise control

over and did control a person or persons who have each violated Section 14(a) and Rule 14a-9, by

their acts and omissions as alleged herein. By virtue of their positions as controlling persons, these

defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate

result of Individual Defendants’ conduct, Plaintiff will be irreparably harmed.

                                     RELIEF REQUESTED

       WHEREFORE, Plaintiff demands injunctive relief in his favor and against the Defendants

jointly and severally, as follows:

       A.      Preliminarily and permanently enjoining Defendants and their counsel, agents,

employees and all persons acting under, in concert with, or for them, from filing any further

amendment to the S-4 with the SEC or otherwise disseminating any further amendment to the S-4


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to IKONICS stockholders unless and until Defendants agree to include the material information

identified above in any such amendment;

          B.     Preliminarily and permanently enjoining Defendants and their counsel, agents,

employees and all persons acting under, in concert with, or for them, from proceeding with,

consummating, or closing the Proposed Transaction, unless and until Defendants disclose the

material information identified above which has been omitted from the S-4;

          C.     In the event that the transaction is consummated prior to the entry of this Court’s

final judgment, rescinding it or awarding Plaintiff rescissory damages;

          D.     Directing the Defendants to account to Plaintiff for all damages suffered as a result

of their wrongdoing;

          E.     Awarding Plaintiff the costs and disbursements of this action, including reasonable

attorneys’ and expert fees and expenses; and

          F.     Granting such other and further equitable relief as this Court may deem just and

proper.

                                           JURY DEMAND

          Plaintiff demands a trial by jury.

 Dated: October 1, 2021                             ROWLEY LAW PLLC


                                                    S/ Shane T. Rowley
                                                    Shane T. Rowley (SR-0740)
                                                    Danielle Rowland Lindahl
                                                    50 Main Street, Suite 1000
                                                    White Plains, NY 10606
                                                    Tel: (914) 400-1920
                                                    Fax: (914) 301-3514
                                                    Email: srowley@rowleylawpllc.com
                                                    Email: drl@rowleylawpllc.com

                                                    Attorneys for Plaintiff


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